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CHAPTER 1

INTRODUCTION TO THE PROJECT

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1.1 Concept and Significance of the Study

The purpose of the project was to prepare loan proposals, both new and review, in order
to assess a firms or individuals capability to be able to repay those loans within the said
duration and adhere to the terms of the agreement.

The project consisted of two parts.

1. Preparation of loan proposal statements for SME clients.

2. Preparation of loan review proposal statements for the Bank’s Retail
customers(availing housing loan facilities only)

1.1.1 SME Clients.

SME clients require 2 types of loans: Fund Based and Non Fund Based.

Fund based loans include: Term loan (working capital) as well as Cash Credit
facilities.

Non Fund based loans include : Issuing Bank Guarantees and Letters of Credit.

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Loan processing for SME customers is undertaken in a detailed manner
wherein detailed annual reports, balance sheet statements, MSOD statements,
utilization of funds, the securities as well as their CRISIL rating if any, asset codes etc
are carefully scrutinized before accepting the firms proposal to sanction limits.

1.1.2 Retail Customers (Housing Loan)

The accounts of customers who have availed housing loans from Bank of India are
reviewed on an annual basis. During this review their current outstanding amount, no. of
EMIs due and their present drawing limit is calculated in order to check whether the account
is overdue or not. Also when any LIC policy has been provided as a collateral security, the
account is checked for proper payment of annual premiums to keep the policy from lapsing
and accordingly recorded in the review statement.

Proper documentation of security statements as well as original sanction limits as well
as progress of the housing project is tracked and recorded in the review proposal. Also an
annual review of the mortgaged property kept as security with the bank is undertaken by one
of the authorized officials of the bank and the inspection date along with relevant findings is
also recorded.

1.2 Scope & Limitations of the Study.

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1.2.1 Scope

This study was undertaken at a branch in Pune. The scope of the project is as follows.

1. The study was undertaken in the credit department of the branch.

2. Preparation of new and review proposals for SME customers was the main focus
of the project.

3. A small part of the retail segment was also covered by way of preparation of
housing loan review proposals.

1.2.2 Limitations

1. As the study was undertaken in a branch, some operations in credit rating
procedures which are only undertaken at Zonal level were not handled by me.

2. In the retail segment, only housing loan proposals were handled without delving
into other types of loans within that segment.

3. Only the financial credit rating was carried out under this project as management
and business risk rating is carried out by higher authorities.

1.3 Objectives of the study

The study was undertaken in order to fulfil the following objectives.

1. To prepare loan proposals in order to determine the repayment capacity of a SME or retail
client.

2. To carry out financial credit rating of SME firms to analyse past and future trends.

3. To prepare review proposals for customers availing housing loans.

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Nearly 5 proposals of various industries ranging from Auto parts retailers and distributors to pharmaceutical distributers to food products manufacturers were studied. 5 . These industries differed in their working capital and non fund based needs depending on the growth of the business and the export orientation of the company respectively. various loan proposals that had been sanctioned under the existing credit appraisal procedure were studied in order to determine the basis for approval and sanctioning of these loans. At the outset of the project.

They are as mentioned below: • Early phase from 1786 to 1969 of Indian Banks. From 1786 till today. the journey of Indian Banking System can be segregated into three distinct phases.1 Banking revisited The first bank in India. Phase I The General Bank of India was set up in the year 1786. was established in 1786. • Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms. • New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. Next came Bank of Hindustan and Bengal Bank. CHAPTER 2 IINTRODUCTION TO THE INDUSTRY 2. The East India Company established Bank of Bengal (1809). Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. though conservative. These three banks were amalgamated in 1920 and Imperial Bank of India was 6 .

mostly small. funds were largely given to traders. To streamline the functioning and activities of commercial banks. was set up in 1894 with headquarters at Lahore. Seven banks forming subsidiary of State Bank of India were nationalised in 1960 on 19th July. 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. During those days public has lesser confidence in the banks. Moreover. As an aftermath deposit mobilisation was slow. Bank of Baroda. Reserve Bank of India came in 1935. Bank of India. It was the effort of the then Prime Minister of India. major process of nationalisation was carried out. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. Canara Bank. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Indian Bank. Central Bank of India. This step brought 80% of the banking segment in India under 7 . Punjab National Bank Ltd.established which started as private shareholders banks. it nationalised Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. Indira Gandhi. Between 1906 and 1913. 14 major commercial banks in the country were nationalised. 1969. Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. mostly Europeans shareholders. Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with seven more banks. and Bank of Mysore were set up. In 1865 Allahabad Bank was established and first time exclusively by Indians. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. the Government of India came up with The Banking Companies Act. Phase II Government took major steps in this Indian Banking Sector Reform after independence. Mrs. In 1955. 23 of 1965). There were approximately 1100 banks.

Government ownership. After the nationalisation of banks. • 1975 : Creation of regional rural banks. a committee was set up by his name which worked for the liberalisation of banking practices. Phone banking and net banking is introduced.000%. • 1969 : Nationalisation of 14 major banks. under the chairmanship of M Narasimham. The financial system of India has shown a great deal of resilience. The entire system became more convenient and swift. The country is flooded with foreign banks and their ATM stations. Time is given more importance than money. • 1971 : Creation of credit guarantee corporation. • 1959 : Nationalisation of SBI subsidiaries. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: • 1949 : Enactment of Banking Regulation Act. the foreign reserves are high. Efforts are being put to give a satisfactory service to customers. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. This is all due to a flexible exchange rate regime. the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11. In 1991. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. 8 . • 1961 : Insurance cover extended to deposits. the capital account is not yet fully convertible. Phase III This phase has introduced many more products and facilities in the banking sector in its reforms measure. • 1955 : Nationalisation of State Bank of India. • 1980 : Nationalisation of seven banks with deposits over 200 crore. and banks and their customers have limited foreign exchange exposure.

It nationalised 14 banks then. Seven more banks were nationalised with deposits over 200 crores. It took place in July 1955 under the SBI Act of 1955. 1960.000 branches and it offers -. These banks were mostly owned by businessmen and even managed by them. approximately 80% of the banking segment in India were under Government ownership. Indira Gandhi the then prime minister. The State Bank of India is India's largest commercial bank and is ranked one of the top five banks worldwide. a wide range of banking services. only State Bank of India (SBI) was nationalised.000%. Till this year. • Central Bank of India • Bank of Maharashtra • Dena Bank • Punjab National Bank • Syndicate Bank • Canara Bank • Indian Bank • Indian Overseas Bank • Bank of Baroda • Union Bank • Allahabad Bank • United Bank of India • UCO Bank • Bank of India Before the steps of nationalisation of Indian banks. The second phase of nationalisation of Indian banks took place in the year 1980. Nationalisation of Seven State Banks of India (formed subsidiary) took place on 19th July. 9 . The nationalisation of banks in India took place in 1969 by Mrs.either directly or through subsidiaries -. After the nationalisation of banks in India. It serves 90 million customers through a network of 9. the branches of the public sector banks rose to approximately 800% in deposits and advances took a huge jump by 11.

The bank has over 3000 branches spread all over the country consisting of 136 specialized branches. 1906. Over the years. 1980 : Nationalisation of seven banks with deposits over 200 crores 2. 10 . 50 lakh and 50 employees.2 About Bank of India A group of eminent businessmen from Mumbai started the Bank of India (also known as BoI) on 7th September. the bank has made rapid progress and has become a one of the leading financial institutions in the country with presence both in and outside the country. 1969 : Nationalisation of 14 major banks. the business volume of the Bank of India occupies a premier position. Among the nationalized banks in the country. 1959 : Nationalisation of SBI subsidiaries. Bank of India began its operations with just Rs. 1955 : Nationalisation of State Bank of India. Initially the bank was owned privately till it was nationalized in July 1969.

at London. It pioneered the introduction of the Health Code System in 1982. Tokyo. the Bank has been in the forefront of introducing various innovative services and systems.82% of Bank's total business. in 1946. Total number of shareholders as on 30/09/2009 is 2. It is an association that has blossomed into a joint venture with BSE. to extend depository services to the stock broking community. The Bank has been the first among the nationalised banks to establish a fully computerised branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. for evaluating/ rating its credit portfolio. The international business accounts for around 17. Bank of India was the first Indian Bank to open a branch outside the country. with a network of 29 branches (including five representative office) at key banking and financial centres viz. These branches are controlled through 48 Zonal Offices . Newyork.2. with a paid-up capital of Rs. and also the first to open a branch in Europe. In business volume. . The Bank has 3101 branches in India spread over all states/ union territories including 141 specialised branches. The Bank's association with the capital market goes back to 1921 when it entered into an agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. Beginning with one office in Mumbai. the Bank occupies a premier position among the nationalised banks. The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions Placement in February 2008. Paris. Hong-Kong and Singapore.790. While firmly adhering to a policy of prudence and caution. London.50 lakh and 50 employees. Business has been conducted with the successful blend of traditional values and ethics and the most modern infrastructure. There are 29 branches/ offices (including three representative offices) abroad. The Bank is also a Founder Member of SWIFT in India. The Bank has sizable presence abroad.15. Paris in 1974. 2. the Bank has made a rapid growth over the years and blossomed into a mighty institution with a strong national presence and sizable international operations.1 Mission and Vision 11 . called the BOI Shareholding Ltd.

responsive services to others in our role as a development bank.1 Impact of Liberalization 12 . 34% of exports and provides direct employment to 20 million persons in around 3. medium businesses and upmarket retail customers and to provide cost effective developmental banking for small business. The SME sector in India contributes to about 7% of India's gross domestic product (GDP).Shri Misra held the post of the Executive Director of Canara Bank from 24th March 2006 to 3rd June 2007 and the Chairman & Managing Director of Oriental Bank of Commerce from 4th June 2007. Shri Mishra was the Chairman & Managing Director of Oriental Bank of Commerce prior to the present assignment.6 million registered SME units. The SME sector in India accounts for around 95% of the industrial units. Mission “to provide superior proactive banking services to niche markets globally. 2009.3. 2. while providing cost effective. The small and medium enterprises (SME) sector in India plays a vital role in the growth of the country.” Shri Alok Kumar Mishra has taken over as Chairman and Managing Director of Bank of India with effect from 5gh August. meet the requirements of our stakeholders. mass market and rural market. 2. and in so doing.3 SME Sector in India.” Vision “to become the bank of choice for corporate. almost 40% of the gross industrial value-added in the Indian economy.

Besides direct exports.3. 2. South Korea. It would surprise many to know that non-traditional products account for more than 95% of the SSI exports. Owing to liberalization and opening up of the economy.2 Exports performance of SMEs SME Sector plays a major role in India's present export performance. 13 . They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods. the Indian SME sector is in a better position to take on competition from the globalised world than ever before. the SMEs are facing stiff competition from imports and need technological upgrading to produce cheaper and better quality products. This can be attributed to not only policy changes. etc. As a result of policy reforms. Direct exports from the SSI Sector account for nearly 35% of total exports. but also a new found confidence amongst entrepreneurs who are taking a more global view of their businesses just like SMEs from many other countries including Italy. This takes place through merchant exporters. components. SMEs engaged in the manufacturing of engineering and automobile products have shown excellent growth in the past years due to their expertise in supplying original equipment manufacturer (OEM) assemblies and subassemblies. it is estimated that small-scale industrial units contribute around 15% to exports indirectly. Taiwan and China to name a few. 45%-50% of the Indian Exports is contributed by SSI Sector. trading houses and export houses. Globalization can also act as a tool for development of the SME sector.

25 lakh. processed food and leather products. • Small Enterprises . Manufacturing Enterprises: Defined in terms of investment in plant and machinery (excluding land & buildings) and further classified into: • Micro Enterprises .5 crore.25 lakh & up to Rs.3 Micro. Enterprises classified broadly into: i) Enterprises engaged in the manufacture/production of goods pertaining to any industry & ii) Enterprises engaged in providing/rendering of services. It has been mostly fuelled by the performance of garments.10 crore. readymade garments. The exports from SSI sector have been clocking excellent growth rates in this decade. are sports goods. plastic products. woollen garments and knitwear. The product groups where the SSI sector dominates in exports. 2.investment up to Rs.5 crore & up to Rs. However only the capital structure segregation has been mentioned here. • Medium Enterprises . Small & Medium Enterprises Development Act (MSMED act 2006) The MSMED act 2009 is superior to the provisions for SSI under the IRDA in many ways.investment above Rs.investment above Rs.3. leather and gems and jewellery units from this sector. Service Enterprises: Defined in terms of their investment in equipment and further classified into: 14 .

15 .2 crore. • Medium Enterprises . • Small Enterprises .investment above Rs.2 crore & up to Rs.• Micro Enterprises .10 lakh & up to Rs.5 crore.10 lakh.investment above Rs.investment up to Rs.

16 . Fund based 2.1 Fund based facilities/limits.1 Types of Loan facilities for SMEs SME customers require 2 types of loan facilities.1. Non Fund based 3. In fund based facilities there is an actual outlay of cash by a bank to the company/firm requesting for these limits. CHAPTER 3 LITERATURE REVIEW 3. 1.

Once a security for repayment has been given. Term Loan 17 .Fund based limits can be broadly categorized as: 1. Overdraft. Bill Discounting Bill discounting is a major activity with some of the smaller Banks. If the bill is delayed. The Bank then presents the Bill to the borrower's customer on the due date of the Bill and collects the total amount. Bank takes the bill drawn by borrower on his (borrower's) customer and pays him immediately deducting some amount as discount/commission. In other words. Under this type of lending. on the other hand. A bank provides this type of funding. Some overdrafts are even granted against the perceived worth of an individual. This type of financing is similar to a line of credit. is allowed against a host of other securities including financial instruments like shares. the account holder withdraws more money from a Bank Account than has been deposited in it. surrender value of LIC policy and debentures etc. 4. Overdraft The word overdraft means the act of overdrawing from a Bank account. Cash credit is a short-term cash loan to a company. Such overdrafts are called clean overdrafts. the business that receives the loan can continuously draw from the bank up to a certain specified amount. the borrower or his customer pays the Bank a pre-determined interest depending upon the terms of transaction. In the case of Cash Credit. 2. 3. a proper limit is sanctioned which normally is a certain percentage of the value of the commodities/debts pledged by the account holder with the Bank. units of mutual funds. but only after the required security is given to secure the loan.

This type of loan is normally given to the borrowers for acquiring long term assets i. in agreed instalments with stipulated interest in the respective due dates. the bank will 18 . Banks lend money in this mode when the repayment is sought to be made in fixed.1. assets which will benefit the borrower over a long period (exceeding at least one year).Term Loans are the counter parts of Fixed Deposits in the Bank. A deferred payment guarantee is a contract under which a bank promises to pay the supplier the price of machinery supplied by him on deferred terms. The Primary security is 1st charge on fixed assets financed. it serves the same purpose as term loan. pre-determined instalments. 3. Financing for purchase of automobiles. real estate and creation of infra structure also falls in this category. in case of default in payment thereof by the buyer. Letter of Credit A letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met. They are again broadly classified as 1. consumer durables. Purchases of plant and machinery.e. 2.2 Non Fund Based limits The credit facilities given by the banks where actual bank funds are not involved are termed as 'non-fund based facilities'. Once these terms are completed and confirmed. Collateral security and Third party guarantee as per Bank policy. They are mainly credit security instruments. constructing building for factory. As far as the buyer of the plant and machinery is concerned. setting up new projects fall in this category. Deferred payment guarantees These are required for acquisition of Capital goods (Plant & Machinery including Generators) where there is provision for Suppliers Credit by the Manufacturer/Supplier.

With a bank guarantee. ensuring correct and timely payment. A letter of credit could be used in the delivery of goods or the completion of a service. The seller may request that the buyer obtain a letter of credit before the transaction occurs. The buyer would purchase this letter of credit from a bank and forward it to the seller's bank. transfer the funds. A bank guarantee might be used when a buyer obtains goods from a seller then runs into cash flow difficulties and can't pay the seller. A bank guarantee. With a letter of credit. But this is not the case with a letter of credit (LC). 3. Similarly. is more risky for the merchant and less risky for the bank. 3. The sum is only paid if the opposing party does not fulfil the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non performance by the other party in a contract. therefore.2 Credit Risk 19 . Essentially. This letter would substitute the bank's credit for that of its client. When a letter of credit is in use. if the supplier was unable to provide the goods. the bank guarantee acts as a safety measure for the opposing party in the transaction. liability rests solely with the issuing bank (this being the key difference and the key advantage in an LC) which then must collect the money from its client. if a client defaults the bank assumes liability. and for the seller to invoke the undertaking. Bank Guarantee A bank guarantee guarantees a sum of money to a beneficiary. the issuing bank does not wait for the buyer to default. A letter of credit is a bank’s DIRECT undertaking to the supplier (called the beneficiary) to pay. the bank would then pay the purchaser the agreed-upon sum. The bank guarantee would pay an agreed-upon sum to the seller. This ensures the payment will be made as long as the services are performed.

2. or non-payment. by the issuer of its financial obligations. Investors are compensated for assuming credit risk by way of interest payments from the borrower or issuer of a debt obligation. 20 . Another term for credit risk is default risk. or issuer of financial obligations. Credit analysis is the financial analysis used to determine the creditworthiness of an issuer.1 Why is Credit Risk Rating important? A credit rating is an assessment of the creditworthiness of an issuer of financial securities. to repay the amounts owing on schedule or at all. It tells investors the likelihood of default. the most notable being that the yields on bonds correlate strongly to their perceived credit risk. ONECRA. the higher the rate of interest that investors will demand for lending their capital. In other words. the risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation. This calculation includes the borrowers' collateral assets. Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Credit risks are a vital component of fixed-income investing. SMERA. 3. Credit risk is closely tied to the potential return of an investment. which is why ratings agencies such as CRISIL. FITCH etc evaluate the credit risks of thousands of corporate issuers and municipalities on an ongoing basis. The higher the perceived credit risk. It examines the capability of a borrower. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. revenue-generating ability and taxing authority (such as for government and municipal bonds). Credit risks are calculated based on the borrowers' overall ability to repay.

3. highly questionable and improbable. for which no formal regulatory definition exists. The process also allows bank management to manage risk to optimize returns. 4. Special mention (SM) — "A special mention asset has potential weaknesses that deserve management’s close attention. such as from capital markets. or weaknesses. doubtful. Rating systems measure credit risk and differentiate individual credits and groups of credits by the risk they pose. Substandard C “A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. retail. Doubtful C “An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full. substandard. on the basis of currently existing facts. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected. If left uncorrected. The regulatory ratings special mention. but rather 21 . if any. and values. The regulatory definitions are used for all credit relationships — commercial. and loss identify different degrees of credit weakness. and those that arise outside lending areas. Credits that are not covered by these definitions are pass credits. Loss C “Assets classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. The regulatory agencies use a common risk rating scale to identify problem credits. conditions. Assets so classified must have a well-defined weakness. that jeopardize the liquidation of the debt. This allows bank management and examiners to monitor changes and trends in risk levels. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification 2. This classification does not mean that the asset has absolutely no recovery or salvage value. 1.

” 22 .that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

CHAPTER 4 FLOW OF THE PROJECT 4. The proposal put up for appraisal goes through a number of channels before it is finally sanctioned. Date of application received at branch Date of branch proposal 23 .1 Flowchart of Loan sanctioning for an SME customer.

2 List of documents required 1. Date of proposal received at Pune Corporate Banking Branch (PCCB) Date of proposal received at H.O Date clarifications received at Pune CBB Date of Pune CBB proposal Remarks 4. 24 . Company Annual Report along with Audited & estimated balanced sheet and P&L statements with annexure to the same for 3 years.

3. 6. L444C – Statement of acknowledgement of debt and securities from the borrower to the bank. Bank of India (hereinafter referred to as the Bank) carries out its credit rating procedure based on its unique credit rating model. 25 . ONECRA.3 Credit rating done for XYZ Distributers. MSOD statements – Monthly select operational data. Credit Rating of the SME by any credit rating agency like CRISIL. Hypothecation cum loan agreement 4. After obtaining the required documents. FITCH etc. SMERA. Stock audit statements. 4. Details of float available. 5. 8. CBD-23 statement – A statement of assets and liabilities for the main promoters of the company or firm. 7.2.

A - 26 . If account is new. name of earlier banker: N. Name of the Account : XYZ Distributers 2. Limits Existing Proposed Inc(+)/dec(-) Term Loan N. Established in 1989 Advance since: 1999 4.A N. 10. C) Facilities and Security Cover 14. Multiple Banking Arrangements: No. Present Request: New WC limits of 7. A) Borrowers Profile: 1.Last sanction/ review: BG limits of 15 lacs./description): 11/standard 7. Directors: Mr. 3. B) Issues for Consideration: 9.00.The following is the proposal format for exposures up to 100 lacs. Asset code(No. S.000 and BG limits of 40 lacs. Business/Activity: Retailer in automobile spare parts. External Credit rating: AA 6. Details of promoters.A. 5. K Chawla 8.

07 16. D) Conduct/ value of account: a) Cheques returned during the year under review for financial reasons: NIL b) LC devolved and BG invoked: NIL 27 . Security Security Particulars Date of valuation Present value(Bank’s Share) Principal Hypothecation of stocks and book debts 31/05/2010 20.00 25.00 7. Gives guarantor’s net worth as recorded in the CBD-23 statement. WC(FB) 0.00 BG(NFB) 15. Guarantor’s profile.00 40.00 15.91 TDRs 25% of margin money Collateral EQM of shop 31/05/2010 30.00 7.

71 e) Capital employed 9.s/ subsidiaries d) Adjusted TNW 9.02 -equity -preference share b) TNW 9.09 31. 17.03.11 31.03.03. BG limits: 100% E) Financial position 18.69 k) Net Profit/Loss 1.12 a) Paid up Capital 8.69 28 .s which are - associated co.03.50 -Domestic -Exports Total h) Other Income i) Depreciation - j) Gross profit/Loss 1.71 f) Net Block 0.10 31. Audited Audited Estimated Estimated 31.71 c) Investment in co. Utilization of funds.41 g) Net Sales: 45.

Ratios p) Current Ratio: 1.10 ) 21.06 r) PAT/Net Sales(%) : 3. u) Inventory + receivables / Sales : 0.46 q) Debt Equity ratio : 2.A.A. We certify as under: 29 .50 b 25% of Gross Sales 11.40 employed(%) n) Current Assets 29.l) Cash 1.28 d Actual Projected net working capital N.71 s) DSCR : NA as no term loan t) ICR : NA as no interest payment towards long term debt.69 Accruals(i+k) m) Net profit/ Capital 17.64 H. Working Capital Assessment a) Gross Sales 45.00 19.10 f) (b-d) N. ) e) (b-c) 9.38 ) c) 5% of Gross Sales 2.30 o) Current Liabilities 20. g MBPF 9.

O Recommendations: Not made available till end of tenure of project.i) Method of assessment: Turnover method ii) MSOD Submission: Regular iii) Current assets/ liab. Z. As per RBI norms: YES iv) Conduct of Account: satisfactory v) Position of accounts : In order FLOW CHART Date of application received at Branch: 17/06/2010 Date of Branch Proposal: 22/06/2010 Date Proposal received at Zonal Office: 23/06/2010 Remarks 22. 30 .

D/E ratio for an SME account should be 4:1 In case of a trading account it can be 3:1.4 Learning from the process 1. then it should be adjusted in the Financial rating of the parent co. 25% margin on closing stocks & 30% on sundry debtors is hypothecated under the bank’s lien. ISCR 31 . DSCR There is no depreciation in trading accounts. Hence DSCR cannot be calculated. 5. first pari passu charge has to be stated on all assets. If investment in subsidiary co. 4. Also there is no DSCR for accounts which have not availed term loan as there is no repayment of long term debt to be covered. 6. 2. is more than 10% of the TNW. Hypothecation on Stocks and Book Debts. In case of liquidation of the firm. 3. the liabilities will be in accordance with amount of limits sanctioned by each bank. by parent co. Consortium Banking : In case of multiple banking arrangement. 4.

No ISCR calculated in accounts without term loan as there is no interest paymeny towards long term debt. NFBs for 180 days are secured by stocks. then the demand loan account may be converted into a cash credit account. Drawing limits Drawing power is calculated after deducting unpaid creditors and outstanding balance. Valuation of stocks is done at cost/ invoice/ market value whichever is lower. when there are increase in orders for the company exceeding current demand loan limit. NFBs Non Fund Based limits are to be secured by 25% margin money in the form of Bank’s TDRs. All assets to be charged to the bank are to be kept fully insured. A stock audit is carried out on yearly basis. Conversion of Demand Loan into Cash Credit facility At the will and discretion of the bank. 11. 7. Commission and interests 32 . 9. No drawings are allowed on sister concerns unless specifically agreed. 12. 10. Bank’s Lien It is a bank norm to display bank’s hypothecation plate/ board at the firm’s unit or business premises. Valuation of stocks. LCs. 8.

Additional commission is charged for guarantees issued for government departments.77% and interest on CC and Demand loan accounts depending upon credit rating and relationship with the Bank.1 L444Cs – Acknowledgment of debt and security statements L444Cs are statements acknowledged by the Promoter/ Guarantor to the Bank in terms of the following: a) Demand promissory note (Gives the balance in the account secured by it) b) Letter of continuing security c) Letter of guarantee d) Agreement of pledge e) Agreement of hypothecation f) Equitable/ legal mortgage of immovable property. Watch and Substandard accounts a.4. b. Watch accounts: accounts overdue over 30 days to 90 days. 4. . 33 . Commission is charged on guarantees @ 0. Substandard accounts: accounts overdue 91 days onwards. Concession for guarantees with cash margins . 13. Commission is charged for the claim period .

j) For performance in terms of any agreed contract. n) For guaranteeing loan repayments.4. e) To obtain mobilization advance (generally domestic). i) For bidding/ tendering for project contracts. 4. k) For securing retention amount. l) In favour of customs/ excise/ tax authorities towards tax/ duties payment etc. m) Favouring courts for release of amounts. 4. 34 .2 Types of Guarantees issues by the Bank. h) For payment for suppliers/ services made/ rendered. f) Towards direct and indirect taxes to the government in respect of specific transactions. a) In lieu of earnest money deposits. g) For direct/ indirect tax disputes with tax authorities. d) To obtain advance payments (generally exports).5 Housing Loan review proposals. c) In lieu of security deposit. b) In lieu of tender deposits.

.... ABC reddy Review Limit : 1. A small part of the project involved making of review proposals for housing loan accounts i. calculation of drawing limit and EMI repayments dues etc. ABC Reddy 3.. ABC Reddy 0..... assessing whether the account is in order. The format for the review proposals is given as under: Review Proposal No..e.... STAR HOME LOAN: REVIEW OF ACCOUNT A/c: Mr.. Date:.............. :....76 Purpose of loan Purchase of flat Limit Amount sanctioned (Rs Lacs) Authority Date of sanction Original 6...64 Z.. A total of 52 review proposals were made during the course of the internship.......43 lacs Account Name Worth (in lacs) Borrower Mr..M Pune 29/12/1997 35 ....16 Co Borrower Mrs.76 Guarantor Guarantor XYZ 10.

36 .5% Margin 15% Insurance Rs 8. Drawing Outstanding Prop Review Limit Limit 6.M Cr.000 Policy valid upto: 17/06/2011 4.f Mar 1998 131 130 Security Original security documents dated L444Cs Dated 8/1/1998 ROI 7.43 1.000 6.5.w.64. The account is overdue by roughly Rs 8000 as the borrower had not repaid the last EMI before the review.43 Repayment No. 1.76 Position of Account Sanction limit Amt Disb. Nigdi 30.1 Learning from this project. Branch 04/08/2009 Security Details Value in Rs lacs Mortgage EQM of Flat at 101 Mayur Villa.e.00 Collateral Guarantee XYZ 10.64.65 S.51 1. of EMIs paid EMI Rs 6780/.Last review 1. of EMIs due No.00.000 1.

NPA – The Net NPA to a branch is calculated as Net NPA = Total NPA net of provisions / Total Advances * 100 Rephasing or restructuring of NPA accounts is done by adjusting the EMI or the tenure of the loan period. i. Special schemes are available for members or ex members of the bank and relatives to that person for housing loan schemes.00. If sanctioned limit is 20. the entire amount may not be disbursed at the same time in case some of the required documents have not been furnished to the bank. Home loan sanctioning is done in accordance with the stages of completion of the project. 4. Accordingly either the tenure of the Loan repayment is increased with a restructured EMI or the EMI is changed keeping the same repayment period. 5. A Cushion or Moratorium period is provided to the borrower’s in case of semi completion of the project wherein the borrower is subjected to pay only the amount towards the interest of the disbursed amount.000 has been paid to the developer in accordance with the stage of completion of the project then the borrower has an option to either pay only the interest towards that disbursed amount or the entire EMI of that month to the bank.00.2. Eg. 37 . In case of finished projects (flat ready for possession). 6. The sanctioned amount is transferred to the borrower’s account or to the builder’s account as the stages of the project complete according the agreement between the bank and the borrower. ii. 3.000 and only 2.

CHAPTER 5 RESULTS AND CONCLUSIONS 38 .

Utilization of funds (only BGs) for the previous year was 100%. of EMIs due was one less than no. 39 . 5. 3.10 lacs. The LIC policy premium has been renewed for the next year.46 ii. The account was outstanding by about Rs 8000/-. Current Ratio: 1.06 iii. No. 4. The Maximum permissible bank finance was found out to be 9.71 2.1.1 Results 5.5. The increase from existing facility to proposed facility was 33 lacs. 4.1 SME Proposal 1. The ratios for M/s XYZ distributors were as follows: i.2 Housing loan review proposal 1. Debt Equity ratio : 2. 3.43 lacs. of EMIs paid.1. PAT/Net Sales(%) : 3. 2. The new review proposal was for a drawing limit of 1.

2. 1. The promoters are not under the RBI defaulter’s list. The current ratio is 1.5. Also no cheques have been returned which are under review due to financial reasons. The earlier limit of 15 lacs was utilized upto the extent of 100%. Thus the account has satisfactory functioning. The Debt Equity ratio however was 2. The enterprise has requested for additional BG limits of 25 lacs on account of increased business.2.10 lacs whereas the required amount is only 7 lacs. The conduct of the account had been satisfactory for the tenure during which BG facility was availed. This ratio can fall up to 1:1 for the next 3 years so as to allow some relaxations and give a boost to this industry according to RBI guidelines. The Maximum Permissible Bank Finance that can be provided to the enterprise for working capital is 9.06 which is considerably lower than the RBI norms of 3:1. Thus this limit can be sanctioned. 5. There has been no devolvement of LC and invocation of BGs.33. This account may be sanctioned at the discretion of the branch AGM. 4. This account can be sanctioned the proposed limits by an authority higher to the sanctioning authority which is the Senior Manager (Credit) in this case. 6. 7. 3.1 SME proposal.2 Conclusions 5. There were no adverse comments during stock audit inspection meaning that hypothecated goods have been kept in the facility according to norms. 40 .46 which is within the RBI norms of 1.

The account was overdrawn to the extent of Rs 8000/. 41 .2.43 lacs with an outstanding of 1. As a result. greater is the risk of the account becoming an NPA. The LIC policy given to the bank as collateral security has been renewed by the new year’s premium. The longer the unpaid amount.which was promised to be paid within the next 15 working days. If the account remains unpaid for a period of 30 days it will fall into the watch category.2 Housing loan review proposal.5.51 lacs. 2. 3. 1. 4. one EMI was due from the borrowers hence the account drawing limit was reduced to 1.

2 Constitution : Proprietary / Partnership Firm / Private Limited / (Please strike out which are not applicable) Public Limited Company / Co– operative Society 1.000 Forms/08-2002 BANK OF INDIA SMALL SCALE INDUSTRIES APPLICATION FORM FOR CREDIT FACILITIES OF OVER RS. SSID -28 P. 50 LAKHS & UPTO RS.3 Name of the Business house/ group (if any) 2.A 10. No.1 Name of the Unit (In block letters) 1. (as given by the District Industries 42 .Annexure Std.2 CRORE 1.1 Registration No.

3 Factory 4.1 Registered Office 3. Centre / Directorate of Industries) 2.2 Administrative Office 3. 3. Business Address with Telephone / Telex No.I) Hindi version of this form is available separately 43 .2 Date on Incorporation / Commencement of Business 3. Background of the Proprietor / Partners / Promoters/ Directors (please furnish information for each person as per the Annexure .

2 Proposed 6.2 CRORE 5.1 Existing 5. (*) (Indicate sources of funds with name & address.g. banks/ financial institutions/others (specify)) 44 . How the Activity was financed so far (to be filled up in case of existing unit only) Repayment Present O/s Amount of Default Source of Funds (*) Securit Rate of per month (in 000s of Rs..) (if any) y Int. SMALL SCALE INDUSTRIES APPLICATION FORM FOR CREDIT FACILITIES OF OVER RS. Brief Description of the Industrial Activity 5. e. 50 LAKHS & UPTO RS.

Means of Financing (Please furnish details of sources of finance for meeting the cost under the following heads) (in 000s of Rs.) Sr. Particulars Amount Amount Total Already Proposed to be Raised Raised A Capital (specify resources contributing capital) B Reserves 45 . no. Past Performance (To be filed up in case of existing unit only) (indicate in 000s of Rs.) Particulars Last Year Last but one Years Last but Two years Turnover Net Profit Retained Profit Monthly Turnover of last twelve months 8. 7.

) E Deferred Payment Arrangements Including Supplier’s Credit F Subsidy Central Govt. rate of interest. State Govt. repayment period etc.C Term Loans (give full particulars) D Unsecured Loans. and deposits (indicate sources. G Seed capital (indicate sources) H Internal cash Accurals I Other Sources (specify) J Total 46 .

indianbank.in/ http://www.investopedia.com/ http://www.Bibliography Bank of India Manual on loans and advances http://bankofindia.com/ 47 .