PROJECT REPORT

ON
CREDIT APPRAISAL METHODS IN
STATE BANK OF INDIA (SBI)

FOR THE PARTIAL FULFILLMENT OF

MASTER OF BUSINESS ADMINISTRATION PROGRAM

(Financial Management)
BY
NAME - KAJAL
ENROLLMENT NO - 2108389940

School Of Management Studies,

Indira Gandhi National Open University
Maidan Garhi, New Delhi- 110068
 ACKNOWLEDGEMENT

The successful accomplishment of any task is incomplete without acknowledge the personalities

who assisted, inspired and lead us to visualize the things that turn them into successful stories

for our success.

I owe my sincere thanks and gratitude to my guide DR. AMARJEET KAUR who inspired me by

His able guidance and was a constant guiding light during the course of project study.

I am deeply indebted to all my friends and my family who have inspired, guided and helped me

in the successful completion of the project. I owe debt of gratitude to them who were so

generous with their valuable time and expertise.

KAJAL
Enrollment No. 2018389940
 CERTIFICATE OF ORIGINALITY

This is to certify that the project entitled “CREDIT APPRAISAL METHODS IN STATE

BANK OF INDIA (SBI)” is an original work of the study of the student and is being

submitted in partial fulfillment for the award of the master’s degree in business

administration of Indira Gandhi national Open University. This report has not been

submitted earlier to this university or to any university/ institution for the fulfillment of the

requirement of any course of study.

SIGNATURE OF SUPERVISIOR SIGNATURE OF STUDENT

Place: Place:

Date: Date:
 TABLE OF CONTENT

Chapter
no
Titles Page
no
1 INTRODUCTION 1

1.1 Introduction
1.2 Industry Profile And Company Profile
1.3 Infrastructure Facilities
1.4 Financial Statement
2 CONCEPTUAL BACKGROUND AND LITERATURE
REVIEW
2.1 Theoretical Background Of The Study
2.2 Review Of Literature
3 RESEARCH DESIGN
3.1 Statement Of The Problem
3.2 Need For The Study
3.3 Objectives
3.4 Scope Of The Study
3.5 Research Methodology
3.5.1Research Design
3.5.2 Data And Sources Of Data
3.6 Limitations
4 DATA ANALYSIS AND INTERPRETATION
Analysis And Interpretation Of Data
5 FINDINGS, CONCLUSION AND SUGGESTIONS
 CHAPTER 1:
INTRODUCTION
1.1 Introduction About Project

The project provides how theoretical knowledge should apply on the practical work field. So,

it helps to earn the work experience on chosen topic. Project is a good platform to

understand the practical experience in our life and it is one of the boosts in our CV on work

experience and also benefits to understanding the organizational culture. It provides the

good scope for understanding the practical work experience. It offers the practical

knowledge to gain the work experience.

The project helps to get knowledge about the company thoroughly and various process

involved in the company. Project helps to know the in-depth information about the different

verticals of the company and also to inculcate working related skills. This project work was

undertaken for a period of 6 weeks.

1.2 INDUSTRY PROFILE AND COMPANY PROFILE:

INDUSTRY PROFILE

The emergence of banking in India came in the 18th century with the existence of General Bank

of India. Then the Bank of Hindustan was formed, but these two banks are now obsolete.

Thereafter, the Indian government set up three presidency banks in India, they are Bank of

Bengal, Bank of Bombay, and Bank of Madras in the year 1809, 1840 and 1843 respectively.

Subsequently, these three banks were merged together and named as Imperial Bank of India

(IBI). Now it is known as State Bank of India (SBI).

The first wholly owned Indian bank was Allahabad Bank, it started its operation in the year 1865.

The market expanded with the formation of banks like Punjab National Bank and Bank of India

in the year 1906.

In India all Banking rules and regulations are encircled by RBI. It is so called as Banker’s Bank.

In the year 1935, the Reserve Bank of India (RBI) lawfully took the responsibility of regulating

the Indian Banking Sector. In 1947, the Reserve Bank was nationalized and given the varied

powers. Hasty improvement of technology has underwritten to substantial decrease in

transaction cost, it enabled greater divergence of the portfolio and upgrades in credit distribution

of banks. In spite of exemplary progress, serious problem have emerged reflecting decline in

productivity, efficiency and disintegration of the productivity of the banking sector. To overcome

this problem, the Government setup Narasimham Committee under the chairmanship of M

Narasimham to investigate the issues and recommend solutions to boost the strength of

financial system in India.

COMPANY PROFILE:

History of State bank of India

The State Bank of India, the country’s oldest Bank and a premier in terms of balance sheet size,

number of branches, market capitalization and profits is today going through a momentous

phase of Change and Transformation – the two hundred year old Public sector behemoth is

today stirring out of its Public Sector legacy and moving with an agility to give the Private and

Foreign Banks a run for their money.

The bank is entering into many new businesses with strategic tie ups – Pension Funds, General

Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant

Acquisition, Advisory Services, structured products etc. – each one of these initiatives having a

huge potential for growth.

The Bank is forging ahead with cutting edge technology and innovative new banking models, to

expand its Rural Banking base, looking at the vast untapped potential in the hinterland and

proposes to cover 100,000 villages in the next two years.

It is also focusing at the top end of the market, on whole sale banking capabilities to provide

India’s growing mid / large Corporate with a complete array of products and services. It is

consolidating its global treasury operations and entering into structured products and derivative

instruments. Today, the Bank is the largest provider of infrastructure debt and the largest

arranger of external commercial borrowings in the country. It is the only Indian bank to feature in

the Fortune 500 list.

The Bank is changing outdated front and back end processes to modern customer friendly

processes to help improve the total customer experience. With about 8500 of its own 10000
branches and another 5100 branches of its Associate Banks already networked, today it offers

the largest banking network to the Indian customer. The Bank is also in the process of providing

complete payment solution to its clientele with its over 8500 ATMs, and other electronic

channels such as Internet banking, debit cards, mobile banking, etc.

With four national level Apex Training Colleges and 54 learning Centers spread all over the

country the Bank is continuously engaged in skill enhancement of its employees. Some of the

training programs are attended by bankers from banks in other countries.

EVOLUTION OF SBI:

The origin of the State Bank of India goes back to the first decade of the nineteenth century

with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the

bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A

unique institution, it was the first joint-stock bank of British India sponsored by the Government

of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed

the Bank of Bengal. These three banks remained at the apex of modern banking in India till their

amalgamation as the Imperial Bank of India on 27 January 1921.

Imperial Bank

The Imperial Bank during the three and a half decades of its existence recorded an impressive

growth in terms of offices, reserves, deposits, investments and advances, the increases in some

cases amounting to more than six-fold. The financial status and security inherited from its

forerunners no doubt provided a firm and durable platform. But the lofty traditions of banking

which the Imperial Bank consistently maintained and the high standard of integrity it observed in

its operations inspired confidence in its depositors that no other bank in India could perhaps

then equal. All these enabled the Imperial Bank to acquire a pre-eminent position in the Indian

banking industry and also secure a vital place in the country's economic life.

When India attained freedom, the Imperial Bank had a capital base (including reserves) of

Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively

and a network of 172 branches and more than 200 sub offices extending all over the country.
1.3 INFRASTRUCTURE FACILITIES

 Fully Computerized The State Bank of India is one of the new generation of Regional

Banks. The core banking solution is used in the bank. Technological advances,

especially the development of information technology has directed the new traditions of

banking. The technologies will reduce the bank’s manual work and improve efficiency.

The convergence of information technology to meet the core needs of banks is called as

a core banking solution. The development of computer software to implement the bank’s

core business like record transactions, passbook maintenance, loan and deposit interest

calculation, balance of payment, customer records, etc.,.

 Mobile Banking service is provided by the SBI which allows its customers to use mobile

devices, such as mobile phones or tablets to conduct financial transactions remotely

Mobile Banking is usually based on twenty four hours. (YONO)

 Internet Facility www.onlinesbi.com, the Internet banking portal of our bank, enables its

retail banking customers to operate their accounts from anywhere anytime, removing the

restrictions imposed by geography and time. It's a platform that enables the customers to

carry out their banking activities from their desktop, aided by the power and convenience

of the Internet.
  E-PAY Bill Payments module in Online SBI website www.onlinesbi.com will let you pay

your Telephone, Mobile, Electricity, and Insurance and Credit Card bills electronically.

Say good-bye to queues: Check & Pay your bills online, 24 hours a day, over Online

SBI.You even get a Receipt for your payments done online or scheduled over If your

biller Presents bills online, you can also give us Auto Pay instructions and We will

pay the bill as and when it falls due.

 State Bank Networked ATM Services State Bank offers you the convenience of over

50,000+ ATMs in India, the largest network in the country and continuing to expand fast!

This means that you can transact free of cost at the ATMs of State Bank and wholly

owned subsidiary viz. SBI Commercial and International Bank Ltd., using the State Bank

ATM-cum-Debit (Cash Plus) card.

Kinds of Cards Accepted At State Bank ATMs

Besides all cards of State Bank of India, State Bank ATM-Cum-Debit Card and State Bank

International ATM-Cum-Debit Cards following cards are also accepted at State Bank ATMs:

 State Bank Credit Card

 Cards issued by other banks displaying Maestro, Master Card, Cirrus, VISA and VISA

Electron logos

 All Debit/ Credit Cards issued by any bank outside India displaying Maestro, Master

Card, Cirrus, VISA and VISA Electron logos

 JCB and UPI cards are also accepted on our ATMs

1.4 FINANCIAL STATEMENTS

Balance Sheet as at 31st March, 2021

Profit and Loss Account for the year ended 31st March, 2021
Balance Sheet as at 31st March, 2022
Profit and Loss Account for the year ended 31st March, 2021
 CHAPTER: 2
CONCEPTUAL BACKGROUND AND
LITERATURE REVIEW
 THEORETICAL BACKGROUND OF THE STUDY

2.1 Credit Appraisal

Credit Appraisal is the process of assessing the credit worthiness of a borrower. The credibility

of a person in the form of age, salary, nature of work, reimbursement of credit, past loans, credit

cards, and similar components are measured while evaluating the credit worthiness of an

individual. Each bank and financial institutions has its own panel of authorities for this purpose.

Credit appraisal helps in detecting the risks involved by the expansion of the credit facility. This

is usually done by the financial institutions and banks which are engaged in giving budgetary

financing to their clients. Credit risk is a risk identified with non-reimbursement of the loans

received by the bank customers. Accordingly it is important to appraise the reliability of the client

so as to moderate the risk associated in lending. Appropriate assessment of the client is

performed in order to measure the monetary condition and the capacity of the client to

reimburse the loan amount in the future. Typically most of the credit amenities are expanded in

contrast to the safekeeping known as collateral.

Moreover, the 3 C’s of credit are pivotal and significant to all borrowers that are essential to be

set aside as a main priority consistently. They are:

Character

Collateral

Capacity
There will be no assurance to guarantee the loan does not keep running into issues, however if

appropriate credit assessment technique and inspection are employed, then normally the loan

misfortune will be minimized, that will be the major motto of each loaning officials.

Credit enables you to purchase the goods or merchandise now, and pay for them in the future. It

is a legal convention where one party promises to another to repay the loan on a future date

alongside interest, with the issuance of credit an obligation is framed between the parties.

The credit can be classified into different types. These are majorly classified into four basic

types of credit which are availed in the banks.

 Service Credit They are the regular payments for utilities like electricity, gas, water,

phone, etc.

 Loans may be small amount or large amount which varies from few days to some

years. It can be a secured or unsecured loans. Money can be repaid on a regular

instalment or one lump sum payment can be made.

 Instalment Credit Instalment is a convention to make a initial payment and agrees to

reimburse the balance in a definite number of equivalent payments called instalments.

The service charges will be involved in the payment.

 Credit Cards Credit cards are issued to individuals by banks, businesses or retail

stores. It is used as equivalent of an interest free loan.

Elaborative Information on Topic

Assessment or Appraisal of Term Loan: For assessment purpose the structure endorsed are

Debt equity Ratio, Average Debt Service Coverage Ratio (Average DSCR), Break Even Point

(BEP), Pay Back Period (PPB), and so forth are taken into contemplation. The subsequent least

financial related parameters are essential to be fulfilled for a term loan propositions to justify:

Debt Equity Ratio(D/E) Not more than 2.33:1

Average DSCR Not less than 1.5 to 2

Following Ratios are considered in appraising the Term Loan

 Debt Equity Ratio(D/E)= Long term debt / Equity Capital

 Average DSCR= Profit after tax + Depreciation + Interest on Term Loan / Term Loan

instalment + Interest on term loan

 BEP= Fixed Cost / Contribution per unit

Credit Appraisal techniques:

Credit Appraisal technique act as a device for credit collection administrators to take the correct

decisions. It is the initial and foremost capacity performed by the credit assessment cell before

giving any kind of loans and advances. The assessment techniques for each kind of loans and

advances is distinct from one another. Each kind of loans and advances whether secured or

unsecured must be analyzed in a varied way. The diverse system of credit evaluation or credit

examination are examined as follows:

Debt Equity Ratio:

The proportion of an organization’s monetary leverage is computed by dividing its aggregate

liabilities by shareholder’s capital. It demonstrates the extent of equity and obligation the

organization is utilizing in financing its assets. The high Debt Equity (D/E) Ratio largely implies

that an organization has been compelling in financing its development with obligation. This can

result in unstable incomes in light of the extra intrigue cost.

Debt Service Coverage Ratio (DSCR):

The definitive reason for undertaking project/venture assessment is to find out the capability of a

project/venture which has an immediate bearing on the reimbursement of the of the portions in

the projected term loan instalment ensure. Although the reimbursement database will rely on the

gainfulness of a project, the quantum of yearly portions must be identified with the measure of

the yearly source of income.

The DSCR is the main assessment ratio in project/venture financing. The DSCR ratio shows the

level of feasibility of the project/venture which impacts in settling the reimbursement time frame.

The DSCR displays the capacity of the company to produce money collections for

reimbursement of proportion and the interest amount.

The ratio between 1.5 to 2 is viewed as sensible. Proportion lesser than this ought to be

additionally investigated. An exceptionally high ratio may demonstrate the requirement for lesser

period or reimbursement of loan in less time. This ratio gives the proportion of the capacity of an

endeavor to benefit its obligations.

Break Even Point or Break Even Analysis:

The break-even point is a point which helps us to recuperate the creation cost. This cost of

creation can be settled and variable cost. Once in a while division of cost might be troublesome.

A specific measure of settled cost must be caused by unit the semi settled cost may not change

tangibly with the level of yield. This settled and semi settled cost incorporate pay rates and

wages, repairs and upkeep, authoritative cost settled part of offering costs, settled sovereignty

and know-how instalments, enthusiasm on credit, deterioration on straight line technique.

Variable cost differs with the levels of generation. This incorporates crude materials, outside

buys, control, fuel, enthusiasm on working capital and other variable costs.

Break-even point = fixed cost / contribution

Break-even point can be called as bread gaining point as a unit ears benefits from deals over

the break-even point. While assessing a venture, the break-even point ought to be

communicated as far as rate of introduced ability to know the edge of wellbeing in the limit.
Feasibility Study for financing term loan:

1) Technical Feasibility:

Technical Feasibility examination is useful for one to decide how well the technical

necessities of the undertaking can be encountered. The administrations of the

specialized officers are used with the end goal of appraisal in required cases. In respect

of the complex projects, bank connect the outside specialist where ability isn’t accessible

inside the bank.

2) Economic Feasibility:

Under economic feasibility, the borrower’s prediction of net worth are assessed keeping

the perspective of following components:

 Prediction of demand and supply position of the product or service and its alternates

(both nearby products and imported).

 Proposed moving value like costs of contending products or services.

 Quality of the item in contradiction of the contending products or services.

3) Financial Feasibility:

The Monetary Feasibility examination tries to decide

 Whether cost of project/venture and methods for fund as imagined in the

undertaking projects are sensible (realistic).

 Whether the project/venture is equipped for profitable and productive tasks.

 Whether the assessment of expenses of generation completely covers all things of

consumption.
 4) Managerial Competencies:

In a dynamic domain, the capacity of an organization to move forward of its competitors

depends to a large extent, on the general quality of its administration. Subsequently, an

appraisal of management is the benchmark of term loan analysis. If there is a change in

the administration and management set up, the accomplishment of the project might be

put to test.

Working Capital Financing

Working Capital is characterized as the aggregate sum essential for carrying the daily

operations of the firm. Working Capital further classified as Gross Working Capital (GWC) and

Net Working Capital (NWC).

Assessment or Appraisal of Working Capital Finance:

 Simplified Turnover Method (Nayak Committee Recommendations)

This method of evaluating working capital necessity of a firm is given by “Nayak Committee”.

The Board of committee headed by P.R. Nayak analyzed the sufficiency of institutional credit to

SSI and gave its proposals which are as under:

I. In this system, bank credit for working capital purpose for the borrowers lacking fund

based restricts up to Rs.5 Crore for SSI borrowers and Rs.2 Crore for other borrowers.

II. ii. The anticipated turnover or yield esteem might be understood as anticipated gross

deals which will incorporate excise burden as well.

 Maximum Permissible Bank Finance ( Tandon Committee)

RBI established a working group under the chairmanship of P L Tandon to understand

the appropriate lending of bank credit for working capital financing in July 1974. The

committee submitted the ultimate report on December 1975.

The board suggested the following methods of lending working capital finance:

A. I Method= 75% of working capital gap (Total Current Assets - Other Current

Liabilities).

B. II Method= 75% of Total Current Assets - Other Current Liabilities.

C. III Method= 75% of (Total Current Assets - Core Current Assets) - Other Current

Liabilities.

 Chore Committee

The working group chaired by K.B Chore was formed in April 1979 by RBI to examine

the cash credit system with special reference to the gap between the sanctioned limit

and limit the degree of use.

The commission recommended that the evaluation of working capital requirement

assessment must be evaluated based on the II Method of lending proposed by Tandon

Committee.
Credit Appraisal Process of Retail Loan segment

1. Personal Loan

Eligibility The person one who is applying for loan should be State or Central

Government Employee, Employee of Public Sector Undertakings,

MNC’s, with the minimum 2 years of service.

Purpose of Loan The purpose is to cover expenditure on education, marriage, travel

and so on.

Repayment 12 to 60 months depending upon the income of the applicant or

borrower.

Security ➢ Primary: NIL

➢ Collateral:

Third party guarantee of equal means of an employee acceptable to

the bank or Assignment of LIC or Pledge of NSC’s for the full value of

the limit.

Documents to be ➢ Application.

produced by the
➢ Sanction cum terms and conditions letter.
applicant
➢ DPN and DP Note and Delivery letter.

➢ Personal loan agreement.

➢ Guarantee agreement.

➢ Letter of Undertaking from the applicant.

Credit Assessment Process followed in issuance of Personal Loan:

The person should have the SB Account in the Bank since 6 months.

Salary should be credited to this SB Account or Salary Slip Statement of the last 2 years

should be produced by the Borrower.

They should produce the IT Returns for 3 years period, which in010dicates the Net

Annual Income.

They should produce the Guarantor.

2. Vehicle Loan

Eligibility The person eligible for vehicle loan must be a employee or

Professional and self-employed as Doctors or Chartered
Accountants or Advocates and so on.,
Purpose The purpose is to allow customers to buy a two wheeler or car for
private use
Repayment 3 to 5 years in Equated Monthly Instalments

Margin and Limit Rs Margin Security

security Up to 10% Primary: Hypothecation over car to

Rs.50000 be bought.
Collateral: Third party assurance.
Over 25% Primary: Hypothecation over car to
Rs.50,000 be bought.
up to Rs.5 Collateral: Third party assurance.
Lakhs
Above Rs.5 25% Primary: Hypothecation over car to
Lakhs be purchased.
Collateral: Mortgage of immovable
properties like land or building
Documents to be ➢ Application Cum appraisal and sanction or recommendation to
the higher authority.
Obtained ➢ Sanction communication and Terms and Conditions letter.
➢ Supplementary letter of Hypothecation.
➢ Guarantee Agreement.
 ➢ Deed of Hypothecation.
➢ RTO Form No. 29 and 30 (in duplicate) undated.

2.2 Literature Review

The main aim of our bank is

to analyze the performance
of the State Bank of India.
Through this
project, we also come to
know the financial situation
of our commercial bank. It is
emphasized
that the economic position of
a bank or a company may
not only be known through
its profit but
The main aim of our bank is
to analyze the performance
of the State Bank of India.
Through this
project, we also come to
know the financial situation
of our commercial bank. It is
emphasized
that the economic position of
a bank or a company may
not only be known through
its profit but
The main aim of our bank is
to analyze the performance
of the State Bank of India.
Through this
project, we also come to
know the financial situation
of our commercial bank. It is
emphasized
that the economic position of
a bank or a company may
not only be known through
its profit bu
The main aim of our bank is
to analyze the performance
of the State Bank of India.
Through this
project, we also come to
know the financial situation
of our commercial bank. It is
emphasized
that the economic position of
a bank or a company may
not only be known through
its profit bu
The main aim of our bank is to analyze the performance of the State Bank of India. Through this

Project, we also come to know the financial situation of our commercial bank. It is emphasized

That the economic position of a bank or a company may not only be known through its profit but

Many aspects need to be evaluated. This project has used data for the years 2022 which has

also been compared to the data from the years 2021. Although SBI is a public sector bank, it

has shown very good performance on the criterion of the CAMELS analysis. Apart from

having good results on the yardstick of liquidity, it has also scored very high on the list of asset

quality and adequacy of the Capital. The management efficiency and quality of earning of SBI is

also very stable and sound. The analysis of the bank also builds on the fact that the bank is

expanding every day. Studies on this bank indicate that it is reducing its cost and

increasing in terms of its profitability. Research on the ratios of the bank for the past decade

show economies of scale. It infers from this fact that the bank is progressing in terms of its

profits and is reducing its costs simultaneously.

CAMELS APPROACH

This approach is an international system used by banks and companies to evaluate its

economic

And financial performance. It is calculated based on six factors. C refers to Capital Adequacy, A

is Asset Quality, M is Management, E stands for Earnings, L is Liquidity and S

means

Sensitivity. This approach is mostly used by rating bodies of developed countries and is a very

Trusted approach since the financial crunch of 2008. It is a very dependable system especially

in the case of a risky banking institution (Finance, 2020). This study involves the comparison of

the ratios of the CAMELS analysis of 2019 with the previous years (Al Muhairi and

Nobanee 2019.
 LIQUIDITY

CAPITAL ASSEST
ADEQUACY QUALITY

CAMELS

MANAGEMENT
SENSITIVITY
QUALITY

EARNINGS

NANCY ARORA, Dr. ARTI GAUR AND Ms. BABITA (2013) they says that to mitigate the

credit risk, legitimate assessment of the clients is to be done. In this paper we contemplate the

credit risk evaluation model of SBI bank and to check the practicality of the business, monetary

and technical parts of the clients of the undertaking proposed and its financing pattern. It is

additionally important to lessen the different risk parameters, hence observation of movement of

loan procedure is required.

SATYA VARATHAN (2012) the author explains about the important activities exercised by the

credit bureau of the bank to decide if to acknowledge or dismiss the application for loan. The

article bargains in banking, such as working capital and its administration, strategies for
evaluation, gathering of credit reports. The techniques to be utilized by the banks so as to

compute as far as possible are Turnover strategy, MBPF framework and money spending

framework.

HRISHIKES BHATTACHARYA (2011) the author explains about the vital structure which must

include around the benefit goals in order to develop the quality credit resources portfolios and to

guarantee sufficient capital growth. The investigation of loaning techniques, credit evaluation,

risk examination and loaning choices inside the general destinations of loaning associations.

The effect of capital guidelines on the risk attitude and gainfulness of the banks, procedures to

protect banks from a liquidity emergency, and the need of a portfolio approach in developing

models for credit introduction and advance administration inside a risk return framework.

AW MUREITHI (2010) the purpose of the study was to analyses the credit evaluation process

adopted by the financial intermediaries offering WEF (World Economic Forum) loans. The study

found that most of the organizations get their funds from foreign donors, and existing credit

policy is the most important factor in establishing a credit control policy.

CHRISTIAN (2006) the author mainly focused on the financial repression usually associated

with that interest rate controls, statutory pre-emption change the intensity of three related

policies. And directed credit and these policies have an effect.

BONIN AND HUANG (2001) Associations credit planning might be tolerant or stringent. On

account of a liberal arrangement, the firm loans generously even to those whose credit value is

flawed. This limits expenses and misfortunes from awful obligations however may lessen

income acquiring from credits, productivity and income.

LENTZ, GEORGE H AND WANG K (1998) The author stats that this study has various

strengths and weaknesses of the appraisal techniques are assessed, issues relating to the use

of neighborhood appraisal techniques for lending activities are also mentioned and the

development of appraisal methodologies are discussed. The study result shows the frequently

encountering the accommodation of data constraints improvises the accuracy of appraisal

estimates.

SIMPSON, ROBERT, REBECCA AND WALZAK (1996) Says that to protect the integrity of

data upon which underwriting decisions are made by the mortgage industry in order to reduce

the mortgage fraud and to decrease its losses. The study results speaks of three hindrances for

the purpose of better adoption of aggressive quality control protocols which are lack of

commitments by the management, certain frauds tolerances made by the honest professionals

in the market and also unwillingness to maintain as appropriate reviewer.

 CHAPTER: 3
RESEARCH DESIGN

show economies of scale.
It infers from this fact that
the bank is progressing in
terms of its
profits and is reducing its
costs simultaneously
(Sharma, 2017).
CAMELS APPROACH
RESEARCH DESIGN

3.1 Statement of Problem

Banks and other financial institutions are facing with numerous risks. The most widely

recognized and genuine among them is credit risk, which is just the likelihood that the borrowers

will default the reimbursement of loan they get from a bank or any other financial institutions.

Appropriate appraisal of the borrower assesses the financial circumstances and capability of the

borrower to reimburse the loan inside the specified period of time. Assessing the credit

worthiness of borrower by a lender prior granting the loan is termed as credit appraisal. So the

project is about study of such credit appraisal hence the project is titled as “A STUDY ON

CREDIT APPRAISAL METHODS IN STATE BANK OF INDIA (SBI)”.

3.2 Need for the Study

When an individual or an organization utilizes a credit that implies they are borrowing cash from

bank or some other financial institutions by guarantee to reimburse inside a pre chosen period.

So as to evaluate reimburse i.e. assessing their credit value, the banks utilize different systems

which contrast with the diverse sort of credit facility given by the bank. In the present situation

where it is seen that enormous organizations and financial institutions have been ruined due to

the credit defaulting. So Credit Appraisal has turned into an essential perspective in that

banking and is expanding the prime significance.

3.3 Objectives of the Study

To study the credit appraisal methods at SBI.

To understand the commerical financial & technique viability of a propasal proposed and

its finding pattern.

To check the primary & collateral security cover available for recovery of such funds

3.4 SCOPE OF STUDY

 Be consistent and objective in choosing projects ·

  Make sure its programmer benefits all sections of the community, including those from

ethnic groups who have been left out in the past.

 Appraisal is an important decision making tool - Appraisal involves the comprehensive

analysis of a wide range of data, judgments and assumptions, all of which need

adequate evidence. This helps ensure that projects selected for funding.

3.5 Research Methodology:

The study is highly dependent upon providing various loans and credit facilities. Methodology is

a description of the process, rules, methods employed in a study. Research in common

phrasing states to a search for knowledge. It can also describe research as a scientific and

systematic search for relevant information on a definite topic. In fact, the research is an art of

systematic examination.
CREDIT APPRAISAL means an investigation \ assessment done by tha bankpriorbefore

providing Any loan & advance \ project finance also checks the commercial,financial & technical

viability Of the project proposed its funding pattern & furtherchecks the primary & collateral

security cover available for recovery of such funds. It is a process by which a lender appraises

the technical feasibility , economic viability and bankability including creditworthiness of the

prospective borrower.credit appraisal process of a customer lies in assessing if that customer

lies in assessing if that customer is liable to repay the loan amount in the stipulated time ,or not

3.5.1 Research Design

The research design followed for the study is descriptive and analytical in nature, as the study

labels the current facts and statistics. The study is based on secondary data such as loans and

advances for the period of last five years.

3.5.2 Source of Data

Information primarily gathered from both essential and auxiliary sources.

o Primary Data: Primary Data is collected by interaction with the Branch Manager and

Departmental head.
 o Secondary Data: Secondary Data includes information generated from bank’s previous

records, annual reports of the bank, manual provided by the bank, books and articles,

magazines, newspapers, etc.

3.6 Limitation:

 As the credit appraisal is one of the crucial areas for any bank some of the technicalities

are not revelead .

 Credit appraisal system includes various types of details studies for different areas of

analysis, but due to time constarint our analysis was of limited areas only.

 All financial tools which are applied in this appraisal have their own limitations.

 Time was also a major constraint for the study.

 CHAPTER: 4
DATA ANALYSIS AND INTERPRETATION
 DATA ANALYSIS AND INTERPRETATION

1. Credit to Deposit Ratio (CDR)

This ratio shows how the loans lent by the bank are done by deposits. It is the percentage of

loan-assets formed by banks from the deposits arrived. The higher the ratio, the higher the loan

assets formed from deposits and vice versa.

Credit to Deposit Ratio= Total Loans/ Total Deposits

Table 4.1 Showing the Credit to Deposit Ratio

Years Loans Deposit CDR

2017-18 229,931.84 2,706,343 0.0849

2018-19 181,979.66 2,911,386 0.062

2019-20 163,110.10 3,241,621 0.050

2020-21 145,597.30 3,681,277 0.039

2021-22 167,138.08 4,051,534 0.041

Analysis: From the above table we can understand the aggregate advances to aggregate

deposits. It can be seen that 0.084 in the year 2017-18, and it has slightly decreased to 0.062 in

the year 2018-19 and it keeps on decreasing in the coming years of 2019-20 and 2020-21 to

0.050 and 0.039 respectively. So it can say that there are less vacillations in the aggregate

advances to the aggregate deposits year by year. But it has increased to 0.041 in the year

2021-22.
Chart 4.1.1 Showing Credit to Deposit Ratio

Credit To Deposit Ratio

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
2017-18 2018-19 2019-20 2020-21 2021-22
YEARS
 2. Total Deposits of SBI

Table 4.2 Showing Total Deposits of SBI

(Amount in Thousands)

Year Total Deposits Total Percentage Percentage of

(%) Change (%)
-
2017-2018 2,706,343 100

2018-2019 2,911,386 107.58 7.58

2019-2020 3,241,621 119.78 19.78

2020-2021 3,681,277 149.56 36.00

2021-2022 4,051,534 149.70 49.70

Analysis: Above table shows the total deposits of state Bank of India for the last 5 years from

2017- 18 to 2021-2022. In this table 2017-18 has been taken as base year and it has been

compared. If we take 100 percent deposits in the year 2017-18, it keeps an increasing every

after year.

Chart 4.2.1 Showing Total deposit In Percentage

 Total Deposit %

100
149.7

107.58

149.56

119.78

2017 -2018 2018-2019 2019 - 2020 2020 -2021 2021- 2022

Interpretation:

From the above graph it is understandable that the percentage change in total deposits of the

SBI is gradually increasing every year. It gives the positive impact that deposit rate has

increased from 100 percent in the year 2017- 18 to 107.58, 119.78, 149.56, 149.70 in the year

2018-2019,2019-20, 2020-21, 2021-22 respectively. It is found that total deposit is increased.

3. Total Borrowing of SBI

Table 4.3 Showing Total Borrowings of SBI

(Amount in Thousands)

Years Borrowings Total Percentage Percentage of

(%) Change (%)
2017-18 362,142.07 100 -

2018-19 403,017.12 111.29 11.29

2019-20 314,655.65 86.89 -13.11

2020-21 417,297.70 115.23 15.23

2021-22 426,043.38 117.64 17.64

Analysis: The above table shows the total borrowings of KGB for the year 2017-18 to 2021-22.

For calculation purpose the year 2017-18 is considered as a base year. In the year 2017-18 the

total borrowings were 100 percent and in the year 2018-19 it has been increased to 111.29

percent. But in the year 2019-20 it has reduced to 86.89 percent, and further it increased to

115.23 percent in the year 2020-21. The borrowing percentage in the year 2021-22 was 117.64

percent.
Table 4.3.1 Showing Total Borrowings in Percentage

Total Borrowings %
100
117.64

111.29

115.23

86.89

2017-18 2018-19 2019-20 2020-21 2021-22

 4. Trends of Non-Performing Assets in SBI

The trends of Gross Non-Performing Assets and Net Non-Performing Assets of S.B.I. from

2017-18 to 2021-22 has been depicted in table 1.

Table 1: Gross NPA and Net NPA

Gross NPA Net NPA

Years Gross NPA Gross Trend Net NPA Net NPA% Trend %
(Rs in NPA % of % (Rs in of
crore) Advance Crore) advance
2017-18 223427.46 10.91 100 110854.70 5.73 100

2018-19 172750.36 7.53 69.02 65894.74 3.01 52.53

2019-20 149091.85 6.15 56.37 51871.30 2.23 38.92

2020-21 126389.02 4.98 45.65 36809.72 1.50 26.18

2021-22 112023.37 3.97 36.39 27965.71 1.02 17.80

Average 61.49 47.09

Table 1 shows the trend of SBI regarding Gross NPA and Net NPA. An international standard of

gross NPA shows that it would be 2 to 3 percent. The gross NPA which stood at 10.91 per cent

in the year 2017-18 gradually decrease to 3.97 per cent in the year 2021-22. Accordingly, the

Net NPA of S.B.I. also decrease from 5.73% in the year 2017-18 to 1.02 % in the year 2021-22.

The trend percentage of Gross NPA and Net NPA shows that 38.51% gross NPA and 52.91 per

cent net NPA of SBI has decreased during the period under study.
Impact of NPA on Profitability Profitability is the most important part for analyzing the financial

health of any business enterprise. Bank is also a business enterprise plays an important role in

the development of the country. So all banks are required to maintain good profitability position

but the NPA pressurizes the banks and badly affect the profitability of banks. Increase in profits

leads to a lower dividend pay-out by the banks and affects the ROI expectations of the

customers. For appraising the impact of NPA on profitability of SBI, we have estimated Net-

worth of SBI after accounting for net NPA of SBI and Return on Assets (ROI).

Gross NPA and Net NPA

100 100

69.02
56.37
52.23
45.65
38.92 36.39
26.18
17.8

2017-18 2018-19 2019-20 2020-21 2021-22

Gross Trend % Net Trend%

Table 2 Shows the Impact of NPA on Net Worth of the State Bsank of India

Table 2: Net NPA and Net Worth

Years Capital (in Reserves Total Net Net NPA % NPA Trend % of
Rs Crore) & Surplus Worth (in (in Rs to NW NPA to NW
(in Rs Rs Crore) Crore)
Crore)

2017-18 892.46 218236.10 219198.56 110854.70 50.59 100

2018-19 892.46 220021.36 220913.82 65894.74 29.90 59.10

2019-20 892.46 231114.97 232007.43 51871.30 22.36 44.20

2020-21 892.46 252982.73 253875.19 36809.72 14.50 28.66

2021-22 892.46 279195.60 280088.06 27965.71 09.98 19.73

Average 25.47 50.35

It is evident from Table 2 that trends of NPA to NW are decreasing during the study period. The

estimated share of Net NPA to Net Worth was as high as 50.59 percent in 2017-18, while it was

lowest in 2021-22 as 09.98 per cent. Due to high NPA SBI has suffered loss in 2017-18 and

NPA to Net Worth percent decreased 49.65 percent. The average percentage of NPA to NW

was 25.47 and it has increased about 49.65 percent. Thus, it is clear from above table that NPA

affect to Net worth of SBI but the trend is decreasing. This position highlights that SBI has

special attention in the management of NPA.

Net NPA and Net Worth

120

100

80

60

40

20

0
2017-18 2018-19 2019-20 2020-21 2021-22

% NPA TO NW Trend % NPA TO NW

Table 3: NPA and Return on Assets

Years Total Net Existing Net NPA Bank O.C. of New Actual
Assets (Rs Profit ROA (Rs in Rate Net Net ROA
in crore) (Rs in crore) NPA Profit
crore)

2017-18 3454752 -6547 -0.19 110854.70 6.25 6928 381 0.01

2018-19 3680914.25 862 0.02 65894.74 6.75 4448 5310 0.14

2019-20 3951393.92 14488 0.37 51871.30 5.40 2801 17289 0.44

2020-21 4534429.63 20410 0.45 36809.72 5.40 1564 21974 0.48

2021-22 4987597.41 31676 0.64 27965.71 4.25 1189 32865 0.66

Average 0.23 0.35

NPA directly effect on Return on Assets (ROA). Table 3 shows the position of Total Assets, Net

Profit, Net NPA and return on Assets from 2017-18 to 2021-22. The table shows that in 2017-18

ROA of bank is -0.19 percent while the estimated actual ROA of the bank is 0.01 percent.

Existing ROA and actual ROA have been continuously improving. In 2021-22 existing ROA is

0.64 percent and actual ROA is 0.66. If income on NPA is allowed to added back to the profit of

bank, probably SBI would have one of the top-rated banks in terms of ROA. The average

existing ROA is 0.23 percent and estimated actual ROA was 0.35 percent. This situation of SBI

proves that NPA are a biggest challenge of SBI. The ROA of SBI is improving every year due to

following the good NPA management.

Remedies of NPA

There are a number of factors responsible for weak performance of bank and as a result

accounting turning into NPA. The major chunks of the profits of SBI are suffering due to Non-

Performing Assets. If SBI wants to increase their profitability then the reduction of NPA is

significant. The following effective remedies may be helpful to reduce the NPA:

Bank needs adequate manpower for effective management.

Awareness & Training camps should be organized by bank for providing knowledge

about the NPA.

The credit section should carefully watch the working signals viz. non-payment of

quarterly interest, dishonor of cheque etc.

Effective inspection system should be implemented.

Checking financial projections like profitability ratios, liquidity ratios, cash book and

bank statements of customer.

 5. Corporate Social Responsibility

CSR is one of the activities through which your Bank plays the role of a responsible corporate

citizen. The CSR at SBI aims to integrate economic, environmental and social objectives to

implement national priorities for social development. The aim of CSR policy in your Bank is “To

participate in activities that benefit community development, social responsibility and

environmental sustainability, and reach out to socially & economically disadvantaged sections of

society.”

1%

20%

31%
Misc
Health care & sanitation
Education
Empowerment of Women & Senior Cit -
izens
9% Environment
Protection of National Heritage
War Veterans
Sports
4%
4% Rural & Slum Area Development

6%

16% 10%
 6. Share Price Movement
The movement of the SBI share price and the BSE Sensex, NSE Nifty is presented in the following tables
 BSE (₹) NSE (₹) LSE ( GDR) US $

MONTH
HIGH LOW HIGH LOW HIGH LOW

APRIL 21 370.55 328.80 370.65 328.85 50.40 43.25

MAY 21 425.30 350.45 425.20 350.60 58.40 46.75

JUN 21 439.65 412.80 439.65 412.90 59.70 55.40

JUL 21 441.75 420.40 441.55 420.40 60.00 56.30

AUG 21 457.05 406.95 456.95 406.70 61.50 54.90

SEP 21 463.65 428.95 463.70 429.10 63.80 58.40

OCT 21 519.15 451.75 519.15 451.65 70.00 60.80

NOV 21 530.45 460.60 530.45 460.55 71.10 60.80

DEC 21 494.70 445.85 494.70 446.00 64.60 59.20

JAN 22 538.35 470.85 538.30 470.80 72.00 62.79

FEB 22 540.45 472.65 540.55 472.65 72.10 61.30

MAR 22 501.75 440.20 501.90 440.30 66.30 56.70

Market Price Data

Details of case study

Company:- Janak Transport Co.

Firm:- Partnership

* Shri Harisinghbhai Lavjibhai Chaudhari;

* Shri Jesangbhai Lavjibhai Chaudhari;
* Shri Vinodkumar Lavjibhai Chaudhari;
* Shri Pratapbhai Lavjibhai Chaudhari;&
* Shri Janakkumar Jesangbhai Chaudhari

Industry:- Transport Activity

Segment:- C& I

Date of Incorporation:- 03.09.82

Banking with SBI since:- 16 years as a current A/C holder

Banking arrangement:- Multiple Banking Arrangement

Regd. & Admin. Office:- Opp. Simandhar Flat,

Nr. Pashabhai Petrol Pump,
Highway, Mehsana.

Janak Transport Co. is a partnership firm established in 1982 for carrying a transport business.

As the company is in this business since incorporation & the unit has good contracts with ONGC
since last 26 years so it has a good repo with ONGC.

As the company has a good repo with ONGC, the ONGC outlook of the business is considered
positive.

The firm has approached for term loan of Rs. 295 lacs to finance the purchase of Mahindra-
Bolero. The total project cost is estimated to be Rs. 363.44 lacs.
Brief of Contract:

(1). Fixed hire charges/ taxi/ month: Rs. 29150

(with fixed 3000 Km run/ month & 12 hours duty/ day)

(2). Additional/ km charges beyond 3000 km. Rs. 3.57

(3). Duration of contract = 3 Years

Proposed Credit Requirement:

Fund Based = Rs. 295 lacs