“ Study On Vehicle Loan Disbursement Process at Union

Bank of India”

*Mr. Nilesh L.Khotre. nilesh_khotre@rediffmail.com

**Mr. Dipak V.Wayal. dipak.wayal@gmail.com
***Prof. Pallavi K. Ingale pallavi_ingale7207@rediffmail.com

Abstract
In these days, banks are witnessing a surge in sales in the Vehicle Loan Sector. Indian banks
have travelled a long distance in the past economic reforms era. Now they are profitable,
strong and stable with impressive performance indices. The Loans are important functions
that are providing as fund based Loans and non-fund based Loans. In providing loans, the
„Loan Disbursement System‟ plays very decisive role. For this purpose, Union Bank of India
is taken into consideration for the study. This bank is one of the fast growing Nationalize
Banks in India. It has got very important presence in the consumer as well as corporate
sectors.
Objectives of this paper are to study the actual process of loan disbursement, study the
eligibility criteria for granting loan and it‟s calculation, how the applications are accepted or
rejected, and to study the various scheme provided by the bank. For the research primary and
secondary data is collected, and twenty loan cases at one branch are taken into consideration
for the research.
Through this research it was found that the process of loan disbursement is easy as compare
to other, the eligibility criteria is very clean and clear, there is no excuse, the process of
acceptance and rejection is precise, scheme like, less interest rate at the time of festive
season, under tie-up scheme, special offer for existing home loan customer. In conclusion, the
process adopted by the bank is decisive in terms of their benefits and security. Bank is very
conscious about its loan process.
Key words: Disbursement process, Vehicle loan, Sanction & Non sanction, Turn round
time less
_____________________________________________________________________________________
*Mr. Nilesh L. Khotre, MBA Student, Trinity College of Engg. &Research Pune (University of Pune)
**Mr. Dipak V. Wayal, MBA Student, Trinity College of Engg. &Research Pune (University of Pune)
***Prof. Pallavi K. Ingale, Asst. Prof., Trinity Institute of Management & Research, Pune
Introduction
India is witnessing a surge in sales in the Vehicle Loan Sector. The sales figure of all the
leading two wheeler, four wheeler as well as commercial vehicle manufacturers are booking a
phenomenal rise. This increase in the demand of vehicle loan and it can be attributed to the
ease of offering these loans to its customers at attractive rates to increase the customer base;
banks are funding to the purchase of new vehicles and refinancing the old ones too. Car loans
are the fasted increasing segment in the Vehicle loans category. Vehicle loan reacquired for
commercial and personal purpose.

Public sector banks, privet sector banks and NBFC (Non- Banking Financial Company) are
providing better services in this sector. There has been a growing trend of getting purchase of
vehicle loan finance.

Indian Banking has witnessed tremendous changes in the wake of the new economic reforms
in the year 1992. The reforms have positively impacted on the banking system, which have
become more resilient competitive and efficient, with the better productivity. It‟s a role of
primacy in financial intermediation and has not been challenged by other financial entities.
On the contrary, it has become more entrenched and diversified having mode forays into
insurance, and investment banking in terms of loan, shares, etc. Some of the banks have
acquired the status of universal banks.

From the mass banking of yester years, Indian banks have travelled a long distance in the past
economic reforms era. Now they are profitable, strong and stable with impressive
performance indices. They have become tech–savvy and competitive as well. The winning
strategies for them could be clear customer segmentation and product offering focus on cost
efficiencies and entrepreneurial ability to face stiff competition. Perhaps banks should not
charge high interest rates but manage cost and builds up quality credit. In its recent policy
statement it explains that it is committed to maintain adequate liquidity in the market with the
preference for soft interest rates.

The Loans are important functions that are providing as fund based Loans and non-fund
based Loans. Before the globalization the only traditional institutions were providing finance.
In providing loans, the Loan Disbursement System plays very decisive role. Recently, RBI is
interrelated with interest rates on loans and deposits. Even today all banks Increase rate on
deposits when they increase the interest rate on loans. There is perfect correlation between
interest‟s rates on loans and interest rates on Deposits.

Purchase of vehicle needs large amount of investment, it is always difficult on the part of
person to invest surcharge amount out of his small saving. Hence, need of vehicle arises
people to take loan, purchase their own vehicle & can repay the loan within the period up
to 30 to 36 months &can have their own vehicle in this way there is always demand for all
the people whether rich or poor person hence, everyone can able to have his/her own vehicle.

Review of literature
“Retail banking refers to banking in which banking institutions execute transactions directly
with consumers, rather than corporations or other banks. Services offered include: savings
and transactional accounts, mortgages, personal loans, debit cards, credit cards, and so
forth.”1
“Retail banking is a banking service that is geared primarily toward individual consumers”2
As per above definitions are concentred it shows that loan is a part of Retail Banking. In these
days loan concept become integral part of retail banking.
Wikipedia define loan as “A sum of money given from one party to another for use over a
period of time. The money is paid back according to terms agreed upon by both parties,
including the specified interest rates and the timeframe over which the loan will be repaid.”3
“Decisions abound when you're purchasing a new car, and one of the biggest is whether you
should lease or buy. The answer will be dictated by your personal financial situation. If you
establish your priorities first, you should have no problem making the right decision”.4

According to Ashley Lewis: Vehicle loan is an easy option for the car buyers who have got
problems in financing their car buy. Vehicle loan financing offer them money in the form of
vehicle loan and this loan is also not high priced. Vehicle loan financing comes with really
cheap rates when it is secured in nature. Secured vehicle loan financing require the borrower
to pledge collateral for the loan which means an assurance of the return of the lender‟s
money. So, lender in vehicle loan financing advances the loan with cheap rates and easy
terms. However, unsecured vehicle loan financing has also got its unique benefit which lies
with its availability without collateral.”5
Objectives of the Study

a) To study the actual process of loan disbursement.

b) To study the process of acceptance of proposal, and general causes of rejection of
proposal.
c) To study the eligibility criteria for granting the loan and its calculation.
d) To study various vehicle loan schemes provided by the bank.
e) To find out the growth of disbursement process.

Research Method
Data Collection:
For this study primary data is collected with the help of proposals credit policy of the Bank,
and secondary data is collected with the help of various Journals, Magazines, Annual Reports
published by the Bank.
Sample Size:
20 cases of Vehicle Loan Proposal are taken into consideration for understanding the detailed
process.
Data Analysis Technique:
Data is scrutinised, tabulated, and analysed with the help of excel.

Process of Loan Disbursement

The process of loan sanction begins with customer visiting the branch office with
having a formal discussion on the procedure of loan sanction with the concerned officer.
Once the formal discussion is over interested customer are further analyzed on the basis of
various norms. These norms are as follows:
 Total amount of loan required compared with the current income status of
customer.
 Details of loans in past ( if taken) or Ongoing loan process (Credit information)
 Regarding repayment of the loan.
 Limit sanction period security offered.
 Terms of repayment installment.
 Margin to be mention rate of interest.
 Constitution clause.
 Guarantee clauses.
  Documentation.
The above conditions are further analyzed and ends with Sanction of loan or Non –sanction
of loan.
Process of Acceptance (Sanction and Disbursement) of proposal:
Union Bank has two stages for loan both are important and play a vital role in fulfilling the
requirements of Vehicle Loan. Fig 1 Shows process of acceptance of loan in Union Bank of
India.
The two stages are as under-
1. Acceptance stage:
A. Sanction stage:
It is a stage where the customer gets sanction or approval that he is eligible to take a loan of
specific amount calculated on the basis of his income from the customer.
 Contact & collection of documents from customer.
 Completion of documents.
 Verification of relationship officer.
 Personal discussion.
 Final approval or rejection by the branch credit manager.
 Sanction letter delivered to the customer.
B. Disbursement stage:
It is a stage where the cheque of sanctioned amount is handover to the customer or concerned
person.
 Collection of legal documents.
 Completion of documents.
 Legal appraised.
 Payment.
General Causes of Rejection (Non-sanction) of proposal:
Not every case that comes into Union Bank can be approved for a loan. Certain cases get
rejected. There are various causes which lead to the rejection of a case. Some important
causes of rejection are follows;
1) Documentation / Property:
 Technical Norms not met
 Legal Documentation not as per Policy.
 Fraud Document Submitted.
 Credit documentation not as per policy.
2) Financial Reasons:
 AF Cheque Bounce.
 Unsatisfactory RTR / Credit history.
 Income Norms not met.
 Employment norms not met.
 Poor Financial (SE Case).
 High Outstanding of Debtors.
 Too many existing Obligations.
3) Personal Profile:
 Negative Profile.
 Negative FI.
 Income Ownership norms not met.
 Poor Banking /Saving Hobbits.
 Age norms not met.
 Customer withdrawing.
 Negative references.

Proposal

No
Yes
Sanction
Process

Document Verification
Technical Norms not met
&Completion of Document
OR Financial Reasons
OR Personal Reasons

Disbursement Process of Loan

Collection of Legal Documents

Payment of Loan to Customer

Fig 1:- Process of Acceptance of Loan

 Eligibility criteria for granting the loan and its calculation:
Eligibility :
 Individuals of the age 18 years and above
 Permanent employee of Central/State/Defiance/Police Force/Public or Joint Sector
Undertaking/reputed firms/ established Educational Inst.
 Professional / Businessmen having regular income.
 Borrower has at least minimum services to liquidate the loan 1 year prior to
retirement.
 Person engaged in agriculture & Allied Activities.
 Firms / Companies having valid registration.
 Min. 40% marks as per investment grade scoring chart.
Form of Eligibility Criteria calculation:
INVESTMENT GRADE SCORING CHART FOR VEHICLE LOAN

APPLICANT’S NAME:_____________________________________

A. Basic Customer Information Points Secured

Age Of borrower/s

Less than 30 years-9 points, 31 to 45 years – 7 points, 45 to 55 years – 6 points, above 55 years – 3 points

Educational Qualification

Professional – 7 points , Post graduate – 6 points, Graduate – 4 points, Under graduate – 3 points, SSC – 1 Points,

Occupation

Salaried – 9 points, Business/Professional – 9 points, Farmers – 6 points, Retired – 3 points,

If in service, employed with current employer for or If In Business established since

More than 10 years – 7 points, 5 to 10 years -6 points, 3 to 5 years – 4 points, 1 to 3 years – 3 points,

Other Assets owned by borrower at home

(Based on information available in loan application from & supporting declaration ) (car, Scooter, Fridge, Telephone
Computer, Cell Phone, Washing machine, TV) each carrying 0.5 marks.( If Yes – 0.5, No. 0.0)
Maximum – 3 points

Total (A) [Max. 45 points]

B. Loan details
Margin

50% to 75% - 18 points, 25% to 50% - 14 points, Less than 25% - 7 points

EMI of Loan sought / gross Monthly Income

Less than 25% - 18 points, 25% to 50% - 14 points, 50 to 75 % - 10 points, 75% to 100% - 3 points,

Age Of Asset financed

Brand new – 9 Points, up to 1 years – 6 points, 1 to less than 2 years – 4 points, above 2 to 3 years – 3 points,

Total (B) [ Max. 45 points]

C. Allocation on resources
Any existing loan? If yes, total monthly installments due / monthly Income*

Less than 25% - 7 points, 25% to 50% - 6 points, 50% to 75% - 4 points, 75% to 100% - 0 points,

Other Monthly outgo from income i.e. rent / insurance premium

Less than 25% - 7 points , 255to 75% - 4 points, 755 to 1005 – 3 points,

Total Loan O/S/Total annual Income

Above 50% - 6 points, 50% to 75% - 4 points, 755 to 100% - 3 points above 100% - 0 points,

Total (C) [ Max. 20 points]

*Income of the Applicant & spouse is to be taken into account, if the loan is in joint Names

Total (A+B+C)[Max.100 points]

As above mentioned in the table, these are criteria and calculation method is given
accordingly.
 If Investment score chart shows
Grand total Prediction
100 to 70 Get margin more from Bank
70 to 40 Get less margin than above case
Below 40 Proposal will cancelled
Various vehicle loan schemes:
 Less interest rate at the time of festive season.
Benefits to Customers: - No Processing charge, Turn round time less, Minimum
document requirement, Less interest rate.
 Under tie-up scheme.
Benefits to Customers: - Immediate loan sanction at concerned showroom without
visiting Bank.
 Special offer for existing home loan customer.
Benefits to Customers:- Less interest rate, No Processing charge, Minimum
Documentation.
Growth of Disbursement of Vehicle Loan of Union Bank
Sr. No. YEAR DISBURSEMENT (Rs. in cr.)
1 2005-06 18.10
2 2006-07 19.25
3 2007-08 20.78
4 2008-09 22.59
5 2009-10 25.10

Source: Disbursement reports.

 Interpretation: The above graph shows the performance of Disbursement process
during last five year. It shows the growth in Disbursement process every year is
tremendously increasing. Indirect way it indicate increase in loan sanctioned.
Findings:
After overall study is concerned, it was found that;
 The process of loan disbursement is easy as compare to other.
 The eligibility criteria are very clean and clear, there is no excuse.
 The process of acceptance and rejection is precise.
 Turnaround time is 3 to 5 days after a completion of documentation. ch
 Schemes like, less interest rate at the time of festive season, under tie-up
scheme, special offer for existing home loan customer are being provided.
 There were less Corporate-ups and promotional activities.
 There is less market share as compared to other.
 Growth of disbursement is increasing.
Suggestions:
 At present insurance is optional but to secure the loan the insurance of the borrower
and Property should be mandatory.
 The cases should be rejected if the customer bounces the cheques intentionally it
shows the carelessness of the customer; and the case should be done which have
technical reason of cheque bounces and minimum balance charges.
 Duration of repayments (EMI) should increase so that it will help to the bank to
reduce NPA.
 Employee should provide refreshment training and updated system as per RBI norms
so that time required for the loan process will get reduced.
 Corporate tie- ups and promotion activity in automobile sector will help to increase
the business.
Conclusion:
As per this research is concerned, 80% people purchase a vehicle by bank loans or non
financial company (Vehicle loans). Two wheelers, cars, commercial vehicles are increasingly
being purchased on loans. Banks and non-banking financial companies are cashing on this
trend by offering attractive Vehicle loans. Major Vehicle manufacturers are TIE- UP with
bank for providing Vehicle loans. Easy finance schemes have pushed the Vehicle sale further.
At the time of loan process Union Banks verify contains of all necessary information about
the applicant that helps the bank in granting loan to the applicants .After studying this form
researcher observed that the information contained in it is beneficial for the bank as it helps in
proper scrutiny of applicant‟s capacity to repay the amount of loan. Bank checks the
information to its satisfaction before granting loan to the applicant. This form contains all
necessary information about the applicant‟s financial position and also the detail information
about the property.

References
1. http://en.wikipedia.org/wiki/Retail_banking
2. http://www.oppapers.com/essays/Loans/500900
3. en.wikipedia.org/wiki/Loan
4. Mischio, Greg “Car Talk: Buy or Lease Your Next Car?” Article source www.
MortgageLoan.com