A Synopsis on

“Credit Appraisal System of Housing Loans”

 1. INTRODUCTION

Housing is one of the basic needs of every individual as besides providing

shelter and security, it also enables easy access to the credit market by working

as collateral comfort / security. The urban population of India has been growing

at a rapid pace. With the growing population of India, increasing nuclear family

structure & urbanization the demand of home is also ever increasing. In addition

to it, the present upswing in economic growth of India has caused increasing

buying power of Indian consumer, so has boosted the real estate market.

Housing also plays an important role in terms of the multiplier effect it has on

the economy due to its strong backward and forward linkages with various

industries and as a direct and indirect employment generator.

A person can generally seek a first time housing / home loan for buying a

house or a flat, renovation, extension and repairing to his/her existing house.

Indians with a regular source of income, which includes salaried individuals,

self-employed professionals, self-employed business people, NRI individuals

and existing property owners who can pledge it as security for the loan, are all

eligible for a home loan. The individual applying for the loan should be above

21 years of age when the loan period begins and should be less than 65 years

when the loan period closes. Generally as a thumb rule, banks or financial

institutions lend 85-90% of the cost of the property. 10-15% of the money is
expected to be paid as a down payment (Margin requirement) for the loan. By

taking a home loan from a bank or a housing finance company the borrower

pledges his/her home as the lender’s security (Mortgage) for repayment of the

loan.

The interest rates for Home Loans can be fixed or floating, or partly

fixed and or partly floating, suiting the needs of the borrower. Home loans are

generally taken for long tenures as the loan amount is usually a huge sum.

A home loan can be taken anywhere between 5 and 30 years. The amount of

loan one is eligible for depends on the individual’s credit profile. The bank or

financial institution will hold the title or deed to the property till the loan has

been paid back with the interest due for it.

 INTRODUCTION OF CREDIT APPRAISAL

Credit appraisal means an investigation done by the bank or financial institution

prior before providing any loans and advances/project finance and also checks

the commercial, financial and technical viability of the project proposed its

funding pattern and further checks the primary and collateral security cover

available for recovery of such funds. Credit appraisal is a process to ascertain

the risks associated with the extension of the credit facility. It is generally by the

financial institutions which are involved in providing financial funding to its

customers. The process by which leader appraises the creditworthiness of the

prospective borrower is known as Credit Appraisal. This normally involves

appraising the borrower’s payment history and establishing the quality and

sustainability of his income. The lender satisfies himself of the good intensions

of the borrower, usually through a personal interview.

Credit appraisal is done to evaluate the creditworthiness of a borrower.

The credit appraisals for any organization basically follow these steps: -

 Assessment of credit need

 Financial statement analysis

 Financial ratio of the company

 Credit rating

 Working capital requirement

 Term loan analysis

 Submission of documents

 NPA classification and recovery

 2. REVIEW OF LITERATURE

In India, the various types of loan available mainly classified as secured

and unsecured loans. The volatility in interest rates in India has affected

borrowers of all types of loans. However, home loan borrowers are the most

affected, as home loans are by far the biggest loans quantum-wise.

Processing fees, low per capita income, high land prices, rising construction,

inadequate financial assistance, stamp duty, notarization charges, franking

charges and insurance premium are some of the key points where customer face

a problem while applying loan.

Wide range of loan schemes on offer in market from multiple lenders.

You need to consider following point: -

 Lona purpose

 Loan Eligibility

 Lenders interest rates

 Associated fees

 Loan tenure

 Repayment method
At the end of FY-21, the outstanding loan portfolio of home loans in India stood

at a whopping ₹22.4 lakh crore, growing 12.1% since its size in FY-20.

 OBJECTIVE OF THE PROJECT

The Credit Manager plays a crucial role in increasing overall profitability

as the major portion of funds are utilized by finance company for the purpose of

lending of loans and advances to get more return on account of the “Interest”

reducing risk in financing

The overall objective of this project is to understand the current credit

appraisal system used in financial companies. The Credit Appraisal system has

been analysed as per the different credit facilities provided by the financial

companies. The detailed explanation about the techniques and process has been

discussed in detail in the further chapters.

The project forms a very vital aspect during the curriculum of M.B.A. At the

end of the first-year students are required to undergo summer internship project

and training for span of two months. It is very essential to have adequate

knowledge about every aspect of the job, so as to handle each & every situation

effectively for applying theoretical knowledge in practical life.

The project gives the live experience about the various aspects of the

management that is helpful from future point of view. The project provides
opportunity to understand the effectiveness in performance of the organization

as well as the student during the 2 months.

3. RESEARCH METHODOLOGY

 OBSERVATION METHOD

Observation is a complex research method because it often requires the

researcher to play a number of roles and to use a number of techniques;

including our six senses, to collect data. The observed the situation by putting

myself in the actual situation and watched carefully. On the basis of knowledge,

skills and experience the data has been collected. The observation methods

completed with the objective of “observing people in their natural setting - as

they go about their everyday lives”.

 EXPERIMENTAL METHOD

Experimental method is found suitable for this study because the topic is not a

theoretical topic and there is need to have experiments in this project study.

 SAMPLE SIZE
Seven cases of Home Loan Proposals have been studied for understanding of

the Credit Appraisal System. One practical case handled and studied under the

supervision of sales and credit officer.

 TIME DURATION

The permitted time by the university for completion of Summer Internship

Project for Masters of Business administration degree is ten months. Continuous

efforts have been put to work on this Summer Internship Project. It has been

completed and submitted within the permitted time period.

4. HYPOTHISIS

A hypothesis is tentative statement asserting a relationship between

certain facts. A conjectural statement of the relationship between two or more

variables. A tentative statement about something, the validity of which usually

unknown.

An unproved proposition or supposition which provides a basis for

further investigation. A proposition which can be put to a test to determine its

validity. A tentative generalization, the validity of which remains to be tested.

For this project work following hypothesis have been formulated: -

  Information about query found at the time of document verification and

analysis.

 Information about job or business related question.

 Personal information about financial condition.

5. DATA ANAYLSIS

 PRIMARY DATA

Primary data are those which are collected for the first time and are always

given in the form of raw materials and originals in character. These types of

data need the application of statistics methods for the purpose of analysis and

interpretation.

Primary data for this project has been collected by following methods:

 Direct personal investigation - Company visit

 Observations – Observation of documents and process

 Indirect personal investigation - Analyzing the reports and Case studies

 Interview with focus group - Interviewing the staff in the company

  SECONDARY DATA

Secondary data are those which have already been collected by someone other

than investigator himself and have gone through the statistical machines. They

are usually refined of the raw materials.

The sources of for this project are collected directly either form published or

unpublished sources.

 Official publications – Audit Reports, Branch and Company Prospectus

 Semi-Official publications - Newspapers and Reference Books

 Technical journals and Loan modules - Websites

 Financial audit reports - Annual Reports

Observation and experimental methods are used for collection of primary data

and secondary data for this project. Out of available methods these two methods

found suitable for the project study. These have fulfilled the requirements for

data collection properly. These following two methods used are explained

below.

 ABOUT THE COMPANY

The bank was founded by the Maharaja of Baroda, Maharaja Sayajirao

Gaekwad III on 20 July 1908. Bank of Baroda is an Indian state-owned

International banking and financial services company headquartered in

Vadodara (earlier known as Baroda) in Gujarat, India. It is the second largest

bank in India, next to State Bank of India by asset. Its headquarters is in

Vadodara, it has a corporate office in the Mumbai.

In 1961, BoB merged in New Citizen Bank of India. BoB also opened a
branch in Fiji. The next year it opened a branch in Mauritius. Bank of
Baroda In 1963, BoB acquired Surat Banking Corporation in Surat,
1970s Gujarat. In 1965, BoB opened a branch in Guyana. In 1969, the Indian
government nationalised 14 top banks including BoB.

In 1980, BoB opened a branch in Bahrain and a representative office in

Sydney, Australia. That same year BoB also opened an Offshore
Banking Unit (OBU) in Bahrain. Back in India, in 1988, BoB acquired
1980s Traders Bank, which had a network of 34 branches in Delhi.

In 1992, BoB opened an OBU in Mauritius, but closed its representative

office in Sydney. Then in 1992 BoB incorporated its operations in
Kenya into a local subsidiary. In 1996, BoB Bank entered the capital
1990s market in December with an Initial Public Offering (IPO). In 1997, BoB
opened a branch in Durban.

The bank has three banking offices, two in Gaborone and one in
Francistown. BoB also opened a representative office each in Kuala
Lumpur, Malaysia, and Guangdong, China. 2005 BoB built a Global
Data Centre (DC) in Mumbai. 2006 BoB established an Offshore
2000s Banking Unit (OBU) in Singapore. 2008 BoB opened a branch in
Guangzhou, China (02/08/2008) and in Kenton, Harrow United
Kingdom.

In 2010, Malaysia awarded a commercial banking licence to a locally

incorporated bank to be jointly owned by Bank of Baroda, Indian
Overseas Bank and Andhra Bank. BoB also opened a branch in New
Zealand. In 2011, BoB opened an Electronic Banking Service Unit
2010s (EBSU) was opened at Hamriya Free Zone, Sharjah (UAE). It also
opened four new branches in existing operations in Uganda, Kenya (2),
and Guyana.
6. CONCLUSION AND SURVEY

Indian financial institution has witnessed tremendous changes in the wake

of the new economic reforms. The reforms have positively impacted on the

financial system, which have become more resilient competitive and efficient,

with the better productivity. On the contrary, it has become more entrenched

and diversified having mode forays into insurance and investment company.

Some of the financial institutions have acquired the status of multinational

financial institution.

The Credit Manager plays most important role as a part of the Financial

Institution. The Financial Institution should utilized maximum funds for the

purpose of lending by considering both important functions of the Sanction as

well as Disbursement. It is necessary that the Proposal which is sanctioned must

be disbursed. The Process of sanctioning has to go from various crucial stages.

This study definitely helps to understand what the basic criteria are for the same

and what are the key issues are involved in the processing.

This study is useful for the purpose of how to overcome the issues and the

queries related to the credit norms which should be arises while processing and
what are the ideal solutions on the problem according to the credit policy of the

finance company.

This study clarify that what are basic facts and requirements of the

Disbursement; what are the general causes by which the proposal should be

rejected. The Study deals with the Credit policy of the finance company and

shows the importance of the Credit Appraisal System for securing the credit or

loan given by the financial institution.

 To study the appraisal process of Home Loan proposal.

 To understanding the process and key issues in sanctions.

 To study the restricted areas of credit of the finance company.

 To understand and analyze the performance of the finance company

regarding sanction, disbursement.

 To find out the causes of rejection of proposals.

 SCOPE OF THE PROJECT

Now a day’s Indian financial sector is the booming sector in India. The main

function of finance company is to provide loan to its customers. People take

loan from finance company to fulfil their various financial needs such as buying

a car, building a home, running a business, paying for their children’s education.
Home is the place where everyone relaxes after coming back from whole days

tiring work. It is that place where one gives time to his family and spends

beautiful moments with them. To acquire a home this can be called as “Own

house” is a lifetime decision and has to be taken with lots of planning and

requires huge amount of finance. Different finance company provide home

loans at different interest rates. This project elaborates on the capability of

finance company operating in home loans which is faced with challenges of

rapidly changing products and business processes and also to handle large

transaction volume handling due to high business volumes.

 LIMITATIONS

Following are the limitations for carrying out this project work:

 The study was related to the financial services sector where the Financial

Institution did not given each & every information of their working

procedure.

 The study was related to Credit Appraisal System for specifically Home

Loan, so other Credit Appraisal System was not taken into consideration

for the study.

 As the data was not made available through the primary sources some of

the data was collected through the secondary sources.

7. CHAPTERISATION

A) Introduction

B) Review of literature

C) Research Methodology Used

D) Hypothesis

E) Data Analysis

F) Conclusion & Survey

8. BIBLIOGRAPHY

Reference Books: -

 Enterprise Performance Management Book

9. REFERENCES

 www.dvhousing.com

 www.wikipedia.com

 www.rbi.org.in

 www.investopedia.com

 www.nhb.org.in

 www.indiabudget.nic.in