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The South Indian Bank is one of the earliest banks in South India. It has become a major player in banking. It has its operations all over the country and promises to deliver the experience of next generation banking. The business of SIB is growing at higher rate both in respect of deposits and advances. SIB offers a variety of loans for different categories of people. It extends two types of credit facilities to their corporate customers. The first type known as Working capital finance is extended to meet the day to day short term operational requirements of the borrower. The second type of finance in the form of short term and medium term loans is provided to customers to meet the long term capital requirements for setting up the new project, expansion and diversification of the existing project and so on. It is the funds of depositors i.e., the general public that are mobilized by means of advances. Thus it is extremely important for the bank to assess the risk associated with the credit.

The process of credit appraisal begins when the customer approaches the bank and applies for credit. The SIB has a special department called the Integrated Risk Management Department(IRMD).The branch forwards the application to the Regional Office which initially conduct an appraisal and sent for evaluation to IRMD. Based on the parameters set by the Board of SIB, the IRMD analyses the details and rates the prospective customer. If the bank finds the customer eligible, the loan is sanctioned. The South Indian Bank has a comprehensive credit management policy which was tailored to fall in line with the banking guidelines issued by the Reserve Bank of India. The study is based on the credit appraisal process of loans in South Indian Bank.



Finance today, holds the key to all human activity. It consists of raising, providing and managing of all money, capital or fund of any type to be used in connection with the business. Banks being money transacting enterprises require finance as raw material for manufacturing the finished goods i.e., Credit. The upswing in the Indian economy, the younger population, the low penetration of banking services in the country and the host of other factors, the Indian banking sector today stands on the threshold of exponential growth. Without a sound and effective banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades Indias banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitan in India. In fact, Indian banking system has reached even to the remote corner of the country. This is one of the main reasons of Indias growth process. According to PricewaterhouseCoopers (PwC) report, India could become the third largest banking hub in the world by 2040.

Banking in India
Banking in India originated in the last decades of 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origin back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969, the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980.

The word bank is derived from the Greek word "Banque" or Italian word "Banco". Both means a bench at which money lenders and money changers used to display their coins and transacts their business in market place.

As per Section 5(b) of Banking Regulation Act, 1949, banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, and order or otherwise. Currently, India has 96 scheduled commercial banks, 27 public sector banks, 31 private banks and 38 foreign banks. They have a combined network of over 55.000 branches and 44,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 70% of total assets of the banking Industry, with the private and foreign banks holding 20.2% and 9.8% respectively.

Early History
At the end of late 18th century, there were hardly any banks in India in the modern sense of the term. With large exposure to speculative ventures, most of the banks opened in India during that period could not survive and failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. At the beginning of the 20th century, Indian economy was passing through a relative period of stability. Around five decades have elapsed since the India's First war of Independence, and the social, industrial and other infrastructure have developed. At that time there were very small banks operated by Indians, and most of them were owned and operated by particular communities. The banking in India was controlled and dominated by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank of Madras - which later on merged to form the Imperial Bank of India, and Imperial Bank of India, upon India's independence, was renamed as the State Bank of India. There were also some Exchange banks, as also a number of Indian joint stock banks. All these banks operated in different segments of the economy. The Presidency banks were like the central banks and discharged most of the functions of central banks. They were established under charters from the British East India Company. The exchange banks, mostly owned by the Europeans, concentrated on financing of foreign trade. Indian joint stock banks were generally undercapitalized and lacked the experience and maturity to compete with the Presidency banks, and the Exchange banks. There was potential for many new banks as the economy was growing. Lord Curzon had observed then in the context of Indian banking: "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments". Under these circumstances, many Indians came forward to set up banks, and many banks were set up at that time, a number of which have survived to the present such as Bank of India and Corporation Bank, Indian Bank, Bank of Baroda, and Canara Bank.

The partition of India in 1947 had adversely impacted the economies of Punjab and West Bengal, and banking activities had remained paralyzed for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: In 1948, the Reserve Bank of India, Indias central banking authority was nationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a licence from the RBI, and no two banks could have common directors.

By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Mrs. Indira Gandhi, the-then Prime Minister of India expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalization. The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the Government of India issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9th August, 1969. After the nationalization of banks in India, the branches of the public sector banks rose approximately to 800% in deposits and advances took a huge jump by 11,000%. 1955: Nationalization of State Bank of India. 1959: Nationalization of SBI subsidiaries. 1969: Nationalization of 14 major banks. 1980: Nationalization of 7 banks with deposits over 200crore.

In the early 1990s, the then government headed by Mr. P V Narasimha Rao embarked on a policy of liberalization and gave licenses to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks such as Global Trust Bank which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank, HDFC Bank etc. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment(FDI), where all Foreign Investors in banks may be given voting rights which has gone up to 49per cent with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.

BANKING STRUCTURE IN INDIA Commercial Banking in India

The commercial banking structure in India consists of: Scheduled Commercial Banks Non-scheduled bank in India Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955, a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959, a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 but does not include a co-operative bank". "Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank".


The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal value of Rs 2, 20,000. Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, 10 nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of cooperative and indigenous banks. Major Public Sector Banks in India Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara bank, Central Bank of India, Dena Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce, Punjab & Sind Bank, Punjab National Bank, State Bank of India, State Bank of Bikaner&Jaipur, State Bank of Hyderabad, State Bank of Travancore, State Bank of Indore, State Bank of Saurashtra, Syndicate Bank, UCO Bank, Union Bank, United Bank of India. Major Private Sector Banks in India Bank of Punjab, Bank of Rajasthan, Catholic Syrian Bank, Centurion Bank, City Union Bank, Dhanalaxmi Bank, Development Credit Bank. Federal Bank, HDFC Bank, ICICI Bank. IDBI Bank, Induslnd Bank, Jammu & Kashmir Bank, Karur Vysya Bank, Lakshmi Vilas Bank, Nedungadi Bank, Ratnakar Bank, SBCL South Indian Bank, United Western Bank, UTI Bank, Vijaya Bank. Foreign Banks in India Foreign banks have brought least technology and latest banking practices in India. They have made Indian banking system more competitive and efficient. Major foreign banks in India are ABN-AMRO Bank., Abu Dhabi Commercial Bank Ltd., American Express Bank Ltd BNP Paribas., Citibank, DBS Bank Ltd, Deutsche Bank, HSBC Bank, Standard Chartered Bank, Tai Bank.

Banking in Kerala Kerala boasts of a well-developed banking infrastructure. With progressing time Kerala banking system has attained a high benchmark. Commercial, Nationalized a large number of Grameen banks have sprung up within the state. In fact there was a surge of Banks in the state following the nationalization of the banks in 1969. Kerala has been experiencing better growth of economy in the banking sector. The State Bank of India, Canara Bank and Syndicate Bank are the principal nationalized banks. Apart from these commercial banks like Vijaya Bank, Dhanalaxmi Bank and the Federal Bank also offer commendable finance and banking facilities. The Grameen Banks like South Malabar Grameen Bank and North Malabar Grameen Bank provide loans at low interest rates, special, subsidized lands and relief facilities to the local farmers and plays a great role in enhancing the agrarian productivity of the state. Recent Trends Currently banking in India is generally fairly mature in terms of supply, product range and reach- even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. With the growth in the Indian economy expected to be strong for quite some timeespecially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect mergers and acquisitions and takeovers.


The banking system remains, as always, the most dominant segment of the financial sector. Indian banks continue to build on their strengths under the regulator's watchful eye and hence, have emerged stronger. In the annual international ranking conducted by UK-based Brand Finance Plc, 18 Indian banks have been included in the Brand Finance Global Banking 500. In fact, State Bank of India (SBI), which is the first Indian bank to be ranked among the Top 50 banks in the world, has improved its position from 36th to 34th, as per the Brand Finance study released on February 1, 2011. The brand value of SBI has enhanced to US$ 1.12 billion. ICICI Bank, the only other Indian bank in the top 100 club has improved its position with a brand value of US$ 2.5 billion.

Indian banks contributed 1.7 per cent to the total global brand value at US$ 14.74 billion and grew by 19 per cent in 2011, according to the study. Nationalized banks, as a group, accounted for 51.2 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 22.5 per cent, according to Reserve Bank of India's (RBI) 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks: September 2010'. The share of new private sector banks, Old private sector banks, foreign banks and Regional Rural banks in aggregate deposits was 13.5 per cent, 4.5 per cent, 5.2 per cent and 3.1 per cent respectively. With respect to gross bank credit also, nationalized banks hold the highest share of 50.9 per cent in the total bank credit, with SBI and its associates at 23.1 per cent and New Private sector banks at 13.7 per cent. Foreign banks, Old private sector banks and Regional Rural banks held relatively lower shares in the total bank credit with 5.2 per cent, 4.5 per cent and 2.5 per cent respectively. The report also found that scheduled commercial bank offices (with deposits of US$ 2.25 or more) accounted for 66.2 per cent of the bank offices, 96.6 per cent in terms of aggregate deposits and 93.8 per cent in total bank credit. Bank loans registered a growth of 21.38 per cent in 2010-11, while deposit growth stood at 15.84 per cent, according to data released by RBI. Analysts and bankers said a growth rate of 18 per cent in deposits and 20 per cent in credit should be sustainable for banks in 2011-12. PORTERS FIVE FORCES ANALYSIS OF BANKING INDUSTRY 1. Threat of New Entrants. The average person can't come along and start up a bank, but there are services, such as internet bill payment, on which entrepreneurs can capitalize. Banks are fearful of being squeezed out of the payments business, because it is a good source of fee-based revenue. Another trend that poses a threat is companies offering other financial services. 2. Power of Suppliers. The suppliers of capital might not pose a big threat, but the threat of suppliers luring away human capital does. If a talented individual is working in a smaller regional bank, there is the chance that person will be enticed away by bigger banks, investment firms, etc. 3. Power of Buyers. The individual doesn't pose much of a threat to the banking industry, but one major factor affecting the power of buyers is relatively high switching costs. If a person has a mortgage, car loan, credit card, checking account and mutual funds with one particular bank, it can be extremely tough for that person to switch to another bank. In an attempt to lure in customers, banks try to lower the price of switching, but many people would still rather stick with their current bank. On the other hand, large corporate clients have banks wrapped around their little

fingers. Financial institutions - by offering better exchange rates, more services, and exposure to foreign capital markets - work extremely hard to get high-margin corporate clients. 4. Availability of Substitutes. There are plenty of substitutes in the banking industry. Banks offer a suite of services over and above taking deposits and lending money, but whether it is insurance, mutual funds or fixed income securities, chances are there a non-banking financial services company that can offer similar services. On the lending side of the business, banks are seeing competition rise from unconventional companies. Sony, General Motors and Microsoft all offer preferred financing to customers who buy big ticket items. 5 Competitive Rivalry. The banking industry is highly competitive. The banking sector is in a race to see who can offer both the best and fastest services, but this also causes banks to experience a lower Return on assets. They then have an incentive to take on high-risk projects. In the long run, its likely to see more consolidation in the banking industry. Larger banks would prefer to take over or merge with another bank rather than spend the money to market and advertise to people.




Company profile of South Indian Bank Ltd.

SOUTH INDIAN BANK LTD (SIB) is a private sector bank headquartered at Thrissur in Kerala. It is headed by Dr.V.A Joseph, Managing Director & CEO of the bank. The bank has been successful in widening its coverage across the country with 642 branches and 3 extension counters transforming it into a pan India institution. The branch network now covers 26 states/union territories and has a network of 489 ATMs. The bank offers major services in various segments of accounts & deposits, loans, mutual funds, insurance, money transfers and other value added services .The Kerala government had given permission to SIB to accept commercial taxes. The bank has been appointed as the largest service provider (point of sale) for the New Pension Scheme (India) launched by the govt. of India.

History of South Indian Bank Ltd.

South Indian Bank is one of the leading scheduled commercial banks in India with a strong focus on technology and service culture. South Indian Bank had a very humble beginning. SIB was formed on the 29th January 1929 by a group of 44 enterprising men, who with a capital of only Rs 22,000 joined together at Thrissur to liberate the business community from the clutches of greedy money lenders. The bank gained the confidence and received the patronage of the public in increasing measure over the years and in the 1960s when there was a crisis in the banking industry in Kerala, South Indian Bank took over fifteen other smaller banks. South Indian Bank came into being during the Swadeshi movement. The establishment of the bank was the fulfillment of the dreams of a group of enterprising men who joined together at Thrissur, a major town in the erstwhile State of Cochin to provide for the people a safe, efficient and service oriented repository of savings of the community on one hand and t o free the business community from the clutches of greedy money lenders on the other by providing need based credit at reasonable rates of interest. Translating the vision of the founding fathers as its corporate mission, the bank has during its long sojourn been able to project itself as a vibrant, fast growing, service oriented and trend setting financial intermediary.

SIB was the FIRST among the private sector banks in Kerala to become a scheduled bank in 1946 under the RBI Act. SIB was the FIRST bank in the private sector in India to open a Currency Chest on behalf of the RBI in April 1992. SIB was the FIRST private sector bank to open a NRI branch in November 1992. SIB was the FIRST bank in the private sector to start an Industrial Finance Branch in March 1993.


SIB was the FIRST among the private sector banks in Kerala to open an "Overseas Branch" to cater exclusively to the export and import business in June 1993. SIB was the FIRST bank in Kerala to develop in-house, fully integrated branch automation software in addition to the in-house partial automation solution operational since 1992. SIB was the FIRST Kerala based bank to implement Core Banking System. SIB was the THIRD largest branch network among Private Sector banks, in India, with all its branches under Core banking System.

To emerge as the most preferred bank in the country in terms of brand, values, principles with core competence in fostering customer aspirations, to build high quality assets leveraging on the strong and vibrant technology platform in pursuit of excellence and customer delight and to become a major contributor to the stable economic growth of the nation.

To provide a secure, agile, dynamic and conducive banking environment to customers with commitment to values and unshaken confidence, deploying the best technology, standards, processes and procedures where customer convenience is of significant importance and to increase the stakeholders value.

Sri Amitabha Guha, Chairman Dr. V.A. Joseph, Managing Director& Chief Executive Officer Sri Jose Alapatt Sri Paul Chalisserry Sri Mathew L Chakola Dr N.J Kurian Sri Mohan E Alapatt Sri K Thomas Jacob Sri H.Suresh Prabhu



The performance highlights of the bank for the financial year ended march 31, 2011 are as follows: Key parameters Deposits Gross advances Total gross business Net profit Capital & reserves Capital adequacy(%)-Basel-I Basel-II Earnings per share(EPS) : a)basic EPS(In Rs)(face value Rs 1) b)diluted EPS(In Rs)(face value Rs 1) book value per share(in Rs)(face value Rs 1) gross NPA as % of gross advances net NPA AS % OF NET ADVANCES RETURN ON AVERAGE ASSETS (%) Rs in crores 29721 20659 50380 292.56 1845.16 13.17 14.01

2.59 2.58 16.33 1.11 0.29 1.05

(Source:-annual report of sib-2010-11)


PROFIT The bank has achieved a record net profit of Rs 292.56 crores during the year 2010-2011 registering a growth of 25.25% over the previous year. The bank could achieve this quantitative enhancement in net profit essentially on account of higher scale of operations and better management of assets and liabilities of the bank. The profit and loss account shows an operating profit of Rs 548.08 crores before depreciation, tax and provision as per details given below:
(Rs in crores)

Profit before depreciation, taxes & provisions Less: Depreciation Provision for NPA/NPIs Provision for depreciation on investments Provision for contingencies Provision for income tax/wealth tax Provision for standard advances Provision for restructured advances Net profit Transfer from investment share Brought forward from last year Profit available for appropriation : : : : : : : : : : 22.82 28.84 9.37 20.00 152.94 21.60 (0.05)


255.52 292.56 4.70 17.03 314.29

The bank could achieve a total gross business of Rs 50380 crore,consisting of total deposits of Rs 29721 crores and gross advances of Rs 20659 crores as on March 31,2011 registering a growth of 29.24% over the previous year. In CASA segment, the bank has achieved a year to year growth of 20%.During the year 2010-11,7.51 lakh new SB A/Cs were opened, of which ,2.82

lakh accounts belong to students. This was specifically aimed at inculcating banking and savings habit among the younger generation.


Table 2.2 Holders name Other companies General public Foreign institutions Financial institutions N.banks Mutual Funds Others The banks shares are listed on: The Cochin Stock Exchange Ltd(CSE) The Stock Exchange Mumbai(BSE) The National Stock Exchange of India Ltd Mumbai(NSE) No. of shares 109008966 468695832 409106518 82091810 36091133 25070641 % shareholding 9.65% 41.48% 36.20% 7.26% 3.19% 2.22%

Employee strength of South Indian Bank

As on March 31, 2011, the Bank had 5619 personnel on its rolls as against 5132 as on March 31, 2010.Cadre wise break up of personnel is as under: Table 2.3 Designation Male Female Total Officers 1813 675 2488 Clerks 1160 1092 2252 Sub-staff 596 21 617 3569 1788 5357 Part -time employees 98 164 262 TOTAL STAFF 3667 1952 5619


SIB-A Customer Oriented Bank

Despite acquiring the latest technological capabilities available to the banking industry in the country, the Bank continues its emphasis on personalized customer service, which has been the Bank's core strength for all these 79 years. Incidentally, the Bank had also been selected, in the Outlook Money - C- Fore Survey, as the best private sector Bank in India in the 'Service Quality 'segment.


Rapid advancement in Information Technology (IT) made a paradigm shift in the way business has been conducted and banking was also not an exception. The stiff and fierce competition being experienced in the banking horizon especially from foreign banks as well as new generation private sector banks forced the managements of old generation private sector banks to ponder upon new dimensions of banking, deploying IT in the best possible manner. The Board of Directors and the Top Management embraced this idea in early 2000 and thus the 'SIBerTech' initiative was born. 'SIBerTech' was the initiative to deploy Core Banking Solution (CBS) and Bank could achieve 100% CBS status as on March 31, 2007. Leveraging on the CBS platform Bank could introduce a host of services such as Anywhere Banking, on line ATMs, Net Banking, Mobile Banking, E commerce, M commerce etc. The following are some of the new products and services that are being introduced during the current year. SIB recently signed a marketing agreement with Life Insurance Corporation of India, the largest and the most popular public sector insurer in our country, servings their corporate agent to market all their life insurance products, which have a ready acceptability among the masses in our country. This approach making tie up will be a forerunner for many more things to come in the service of the customers. The fully automated platform for online trading in stocks and shares listed on both Bombay Stock Exchange and National Stock Exchange, in association with a few leading stock brokers is in final stages and is expected to be commissioned shortly. The Bank has already put place in association with Bajaj Allianz General Insurance Company Ltd. An arrangement to offer online health, travel and motor insurance in addition to all general insurance products, which are already available through the network of our branches.



The main products and services of SIB are divided into three main heads:




A) ACCOUNTS AND DEPOSITS SIB initiates customers to begin a relationship by opening an account as a window to experience next generation banking .with all their branches networked under core banking system; SIB has the latest product offerings, and value added services. Savings account- for routing the personal cash flow Term deposits- for high Returns on your investments Financial Inclusion Smart Card Account

B) LOANS As time changes, needs change and so does the spending solutions available. As a result, mindset has also changed. Nowadays, loans are an integral part of personal finance. It makes sense in todays financial scenario. The South Indian Bank foresees every kind of need and offers various special packages as given.


Personal Loan - Easy general purpose loans Vehicle loans - for private, commercial or agricultural purposes Home Loans - for residents, NRIs and Senior Citizens Gold Loans - Easy Loans against Gold Educational Loans - for higher studies Agriculture Loans - for various agricultural needs Flexi loan - Loan against property (Residential/Non-residential) Other loans-for certain specific purposes OTS scheme for Micro & small enterprises(MSE) C) MUTUAL FUNDS Mutual Funds is one of the preferred investment options for all those who want to play safe, yet save more than what traditional saving avenues offer. South Indian Bank has tied-up with the leading Mutual Funds, so that customers may pick and choose, as per their investment goals. D) INSURANCE At every point of life risks are many. Coverage for life and property are always advisable to ensure protection. South Indian Bank offers its customers the most beneficial policies from insurance majors. Whether for households or for businesses, the bank has all kinds of policies: General Insurance - tie-up with Bajaj Allianz Insurance ECGC Export Credit Guarantee Corporation joins hands with SIB under bank assurance mode E) MONEY TRANSFERS Fast, reliable and with minimal charges, money transfers with South Indian Bank is a nohassle affair. Be it within the country or abroad, the online money transfer services make the business of transferring money look one of the easiest jobs. With all branches networked under the Core Banking system, customer can send and receive money in an instant and meet their urgent needs. Domestic Transfers - Transfer/Receive funds within India International Transfers - Transfer/Receive funds to/from abroad

F) VALUE ADDED SERVICES Value Addition is the norm when customers open an account with SIB. SIB offers different types of value added services to opt from, as per customers convenience, with the power of online services. New Pension System

Any Branch Banking Global ATM cum Debit Card Internet Banking Mobile Banking Credit Card SIB Collect Demit Services

NRI BANKING A) ACCOUNTS AND DEPOSITS SIB with its rich experience serving NRIs helps in creating products and services that suit customers exact needs. The wide range of accounts and technology based value added services. Presents a great opportunity to begin a relationship with us. In addition to Savings. Accounts, under NRE, NRO category, SIB also offer high return deposit schemes, in Indian Rupees (NRE/NRO) and Foreign Currency (FCNR/RFC). NRE Rupee Account - Non Resident External Rupee Account (Savings/ Deposits). NRO Rupee Account - Non Resident Ordinary Rupee Account (Savings/Deposit) Foreign Currency Deposits - In USD, GBP and Euro- (FCNR / RFC ) B) LOANS Loan schemes for NRIs include apart from the usual personal loans, home loans, loan against deposits, etc. to help meet financial goals. SIB has different schemes for different purposes. Personal Loans - Easy general purpose loan Home Loans - For individuals and Senior Citizens Pravasi Swagat - For NRIs returning for ever to India SIB Flexi Loan - Loan against property (Residential/Non-residential C) MONEY TRANSFERS Fast, reliable and with minimal charges, money transfers with South Indian Bank is a no hassle affair. From across the globe, our services of online money transfers, tele transfers and DD drawing arrangements, make the business of transferring from any place around the globe look quite easy. International transfers-transfer/receive funds to/from abroad Within India-transfer/receive funds within India


D) INSURANCE Customers working outside their country and away from loved ones, take the trouble to ensure security for all .At every point of life risks are many. Coverage for life and property are always advisable to ensure protection. South Indian Bank has the most beneficial policies from the insurance majors. Whether it is for households or for businesses, SIB brings for its customers all kinds of policies. E) VALUE ADDED SERVICES Value addition is the norm when customers utilize SIB services. These range from ATM cards to special debit cards. On introduction of the prestigious CORE banking solution in technology partnership with the Infosys Technologies Ltd, South Indian Bank is now providing absolutely on-line anywhere banking facilities at all branches, covering all the major centers in the country and abroad. The different value added services include: Any Branch Banking Welcome Kit International ATM cum Shopping Card Internet Banking Mobile Banking Demit Services NRI Branches NRI Division Hadi Express Exchange SIB Flash

BUSINESS BANKING A) BUSINESS ACCOUNTS The bank offers different types of Business Accounts such as Current Account, Overdrafts (OD), Cash Credits (CC) and Mercantile Credits. These accounts allow the convenience of conducting day-to-day banking operations, in addition to offering working capital credit requirements. Normal Accounts Premium - CD SMART Premium Accounts GeneraL


B) DOMESTIC FINANCE A business requires a constant flow of finance for its growth. The finance can be from various sources, including Bank finance. The bank helps help to understand each and every requirement of business, and provide you the right mix of finance. Working Capital finance Long Term Finance Non Fund Based finance

C) INTERNATIONAL FINANCE Export Finance To cater to the high growth export sector, the bank offers the following: Pre-shipment credit to take care of purchase and processing of raw materials, for making the goods ready for export. Advances such as Packing Credits (against LCs/ confirmed orders) shall help the customer to maintain his cash flow. Post-shipment credit is extended to exporters against assured sale receivables, till the actual sale proceeds are realized. Facilities such as Purchase/Discount of export documents under Export Orders, Advances against export bills sent on collection, are few of such advances. We also offer foreign currency loans, advances against export incentives receivables etc. Our SWIFT services help instant financial services for exporters. Click here for SWIFT service details. We facilitate insurance through Export Credit Guarantee Corporation (ECGC)

Import Finance To help our customers in Import finance, bank offers Letter of Credit services remittance services Import Bill collection services etc.

D) MONEY TRANSFERS Fast, reliable and with minimal charges, money transfers with South Indian Bank is a nohassle affair. Be it within the country or abroad , our online money transfer services, make the business of transferring money look one of the easiest jobs. With all our branches networked under the Core Banking system, you can send and receive money in an instant and meet your urgent needs.


Domestic Transfers - Transfer/Receive funds within India International Transfers - Transfer/Receive funds to/from abroad

E) VALUE ADDED SERVICES We offer best-of-the-breed technology based online services which would take care of your business needs. We also offer personalized value added services for the owners and staff of every kind of business concern. We invite you to a world of next generation banking Any Branch Banking - For your business accounts

International ATM cum Shopping card - For proprietorship firms

Internet Banking - For all types of business concerns

Mobile Banking - For proprietorship firms

SIB Collect - Fast collection of cheques/drafts

Demat Services - for online holding of shares

Insurance - general insurance and life insurance

BRAND IMAGE The incorporation of the new logo has helped to attract the youth into the bank and thereby substantially improve the savings deposit base. Banks website is also redesigned every year to make it more communicative, informative and educative to the visitors. BRAND AMBASSADOR SIBs optimism is visibly radiated through hoardings that feature Malayalam super hero Mammooty,the banks brand ambassador. The bank, as part of the global brand building exercise, has signed South Indian actor Padmashree Bharath Mammootty as its brand ambassador banking on the film star's `pan India appeal, clean image and popularity among the NRI community'. His tech savvy image goes hand-in-hand with the bank which has always been

in the forefront of embracing technology. The initial contract between the bank and actor was for three years which was later extended for five more years.[4] Currently SIB is the only bank in South India that has a brand ambassador. Through endorsing Mammootty as its global brand ambassador, SIB has received a huge boost especially in the Middle East.

Corporate Social Responsibility (CSR) initiatives of SIB

The banks CSR policy epitomizes active participation in the social and economic development of the society. The policy on Corporate Social Responsibility strictly confirms to the guidelines of RBI and Ministry of company affairs on CSR. The bank necessarily focuses on major areas like education, healthcare, sustainable livelihood, infrastructure development and social causes and a specific budget is allocated for such activities. As a responsible corporate citizen, the bank supports and pursues the Green Initiative of the Ministry of corporate affairs.(MCA).in conformance with such initiatives, the bank started undertaking electronic delivery of documents including the notice and explanatory statement of Annual General Meeting ,Audited Financial Statements, Directors Report, Auditors Report etc for the year ended March 31,2011,to the email address of the shareholders.

The organization structure of SIB has been shown in the following pages:They have been shown in 3 LEVELS HEAD OFFICE level REGIONAL OFFICE level BRANCH level



































1. Accounts Department 2. Credit Monitoring Department 3. Corporate Financial Management 4. IT Division Department 5. Integrated Risk Management Department (IRMD) 6. Inspection and Vigilance department 7. Legal department 8. Marketing department 9. Personnel department 10. Planning & development, NRI cell department 11. Secretarial department 12. Organization methods & compliance department.

1. ACCOUNTS DEPARTMENT Accounts department of SIB has sub-departments like Credit department and Credit recovery department The main functions of accounts department are as follows: Inter branch reconciliation Maintaining employee provident fund

2) CREDIT MONITERING DEPARTMENT Credit department carries out three major functions: Credit sanctioning The loan proposal from the branches and regional offices are processed in this department and also loans above a certain limit are sanctioned from this department. Credit recovery The main function of this division is the recovery of loans advanced and NPA management.

Credit monitoring The function of this division is to monitor whether the operations are running smoothly and also to carry out the recovery of loans and NPAs. 3) CORPORATE FINANCIAL MANAGEMENT The main functions of CFM department consist of: Preparation of balance sheet and allied activities Computation and filling of service tax, income tax etc. Chest management Statutory requirement maintenance as per the regulation of RBI. Interbank deposits Sanctions for the interbank deposits must be given from this department and also the rate for this is fixed by the CFM. Filing of returns with RBI Statutory liquidity ratio is calculated on a daily basis Record information regarding maintaining CRR with RBI.

4) INFORMATION TECHNOLOGY (IT) DIVISION DEPARTMENT The main function of IT department in the Head office is to record the data in MIS regarding credit information, payroll etc to the credit department and to the personnel department respectively. All the functions concerned with various departments are coordinated by this department. The head office of IT department is at Cochin. The software used in south Indian bank is finacle, from Infosys. This department has a major role to play after the introduction of core banking, internet banking etc. All branches are connected to this data centre through a private wide area network. There is a disaster recovery center with those departments. In case of any disaster as a part of business, continuity plan is thus established. If there occurs any complaint to the system in one branch, their work will not become pending as they could get the assistance from the nearest branch. All such activities are coordinated by this department. 5) INTERGRATED RISK MANAGEMENT DEPARTMENT (IRMD) Risk is an integrals part of banking business. IRMD has classified risk into 3 categories: Operational risk Market risk Credit risk


The bank aims to achieve an appropriate tradeoff between risk and return and thereby maximize shareholder value. the IRMD which is independent of operational departments takes care of various risks associated with banking business. 6) INSPECTION AND VIGILANCE DEPARTMENT:

This department ensures adherence to the set rules and regulations by the branches ,regional offices or departments at administrative office. The inspection is conducted at regular intervals and reports are submitted to the Audit Committee of the executives or the board, which reviews these reports and ensures corrective actions are taken to rectify the lapses or irregularities. 7) LEGAL DEPARTMENT: The main functions of legal department are All legal aspects with respect to customers or outsiders are dealt by this department Monitoring of suits filed and decreed accounts (above Rs. 500000). Verification of local advocates report in respect of credit facilities( above Rs25000000) Monitoring of suits or consumer complaints against banks. Settlement of claimed petitions of deceased depositors Framing documents according to law. Issuing circulars to branches in matters involving legal issues. Liaison with regional offices, advocates etc. 8) .MARKETING DEPARTMENT

The marketing department at the Bank has taken various marketing oriented initiatives to ensure business growth and competitiveness in the market. An array of products and services were introduced keeping in view customer preferences and as a result, the bank was able to live up to their expectations. This exercise has helped the bank to design each customer contact point as easy and result oriented as possible. The bank has leveraged on the Core Banking platform to offer varied financial products and services in a seamless and effective manner. 9) PERSONNEL DEPARTMENT

The human resource department at SIB is known by the name Personnel Department. The main functions of this department are the recruitment of staff, internal promotions and salary payments to the employees. Other functions include conducting training programs, performance appraisal, motivation, employee safety, grievance handling etc.




Planning and development department is responsible for taking up important decisions on different new plans such as opening a new branch, getting RBI permission, lease agreement of new premises etc. The department also formulates deposit schemes. Its interest rates, service charges etc .It also looks after various security aspects for the bank. They are also responsible for taking long range plans, sets yearly targets etc. The NRI cell department is fully dedicated to the service of NRIs .This department publish quarterly newsletters exclusively for the NRIs. It makes arrangement for smooth remittance for the NRIs. The cell also offers best support to branches in matters relating to NRI accounts and closely monitors the growth of NRI business. 11) SECRETARIAL DEPARTMENT

This department consists of a number of departments like Risk Management Committee, Customer Service Committee, and Shareholders Committee etc. Their function includes: Issue of shares Conducting board meetings, committees etc Bond issues Dividend payment Redemption of shares Investors complaints and their redressal



The main function of this department is to inform the recent arguments from RBI to the top management periodically. This department acts as an intermediary between RBI and SIB. The main function of this department is Anti Money Laundering.


South Indian Bank is planning to raise its capital during the current fiscal to take care of its future requirement and also to start a non-banking finance company as a fully-owned subsidiary. SIB's Chief Executive Officer and Managing Director, Dr V.A Joseph, said the bank proposed to raise Rs 1,000 crores to start the NBFC arm, which would focus on bullion business and also meet its future business growth plans. The bank is targeting a business volume of Rs 62,000 crores this fiscal; it plans to open more new branches and ATMs in the current financial year so as to reach the corporate goal of 700 branches and 600 ATMs by March 31, 2012.


South Indian Bank has bagged the Business world Indias Best Bank 2010 Award. South Indian Bank received the award for the Best Bank in the old generation banks category. South Indian Bank bagged THE BEST WEB SITE AWARD FROM Kerala Management Association. South Indian Bank was awarded the BEST BANK IN ASSET QUALITY among all sector banks in India. The best Asian Banking Web Site award from Asian Banking & Finance Magazine. South Indian Bank Bagged the Special Award from IDRBT for Banking Technology Excellence. private



A) STRENGTHS 1) 100% technology driven operations with 100% CORE banking Branches 2) Strong clientele base in South India and Middle East 3) Attractive financial products for the youth 4) Faithful employee base 5) Efficient management 6) Staff attrition rate is very low. 7) NPA rate is very low. 8) Industry experience of more than 80 years.

B) WEAKNESS 1) Inflexibility in decision making 2) Operational complexities due to diversification of services

C) OPPORTUNITIES 1) Expanding operations to all the states in India. 2) Changing environment Being a developing sector, banking offers a lot of opportunities like rural banking, retail banking etc, which can be effectively utilised by the bank. 3)Technological Development The South Indian bank being an early adapter of technology can utilize its technological leadership to venture into new opportunities. D) THREATS 1) Cut throat competition from foreign banks and new generation banks 2) Changing reforms in banking sector may pose threats to current operations.





Submitted to


In partial fulfilment of the requirement for the award of


(2010 2012) By








A credit appraisal is an important part of determining the eligibility for a loan, and the quantum of the loan. A prospective borrower has to go through the various stages of the credit appraisal process of the bank. Each bank has its own criteria to satisfy itself on the credit worthiness of the borrower. The eligibility for the loan that a person can get depends on his credit worthiness, determined in terms of the norms and standards of the bank. Being a crucial step in the loan process, a borrower needs to be careful in planning his financing modes. The credit worthiness, basically, assures the repayment capacity of the borrower - whether the borrower is capable of repaying the loan and dues on time. If the credit appraisal is not done carefully, it would affect the loan repayment, which in turn affects the profitability of the bank. The purpose of carrying out study on this topic is to understand the steps involved in credit appraisal, the factors affecting it and to understand the credit appraisal process followed at South Indian Bank Ltd.


This study helps to understand the various processes involved in the credit appraisal process of the bank. It also helps the bank to evaluate the efficiency of the techniques used for evaluating the credit worthiness of the borrowers.


a) To study the credit appraisal of loans in South Indian bank Ltd. b) To evaluate the advances and deposits of the bank c) To evaluate the working capital loan and term loan allotted by the bank

Research design is descriptive study.


The study was done with the help of secondary sources of data-data from files and annual reports of the bank for the past 5 years from 2006-07 to 2010-11. Personal communication with guide and other officers at the SIB Regional office, Bangalore also helped in collecting information.



The study was conducted for a period of 40 days commencing from May 2 to June 10, 2011 at South Indian Bank Regional office, Bangalore.


Lack of availability of breakup of data. Limited time was another constraint.





Credit Appraisal is the process by which a lender appraises the creditworthiness of the prospective borrower. It is a very important step in determining the eligibility of a loan borrower. Every potential borrower has to go through the various stages of a credit appraisal process of the bank, which might include an interview with the bank officials. However, just like every bank charges different rates for different loans from different customers, in the same way, each bank has its own set criteria that one must satisfy to qualify as a certified borrower of money/assets from the bank. All banks have their own rules to decide the credit worthiness of their borrowers. Creditworthiness of a customer lies in assessing if that customer is liable to repay the loan amount in the stipulated time, or not. Here also, every bank has their own methodology to determine if a borrower is creditworthy or not. It is determined in terms of the norms and standards set by the banks. Being a very crucial step in the sanctioning of a loan, the borrower needs to be very careful in planning his financing modes. The banks need to be cautious, lest they end up increasing their risk exposure. All banks employ their own unique objective, subjective, financial and non-financial techniques to evaluate the creditworthiness of their customers. While assessing a customer, the bank needs to know the following information: Incomes of applicants and co-applicants, age of applicants, educational qualifications, profession, experience, additional sources of income, past loan record, family history, employer/business, security of tenure, tax history, assets of applicants and their financing pattern, recurring liabilities, other present and future liabilities and investments (if any). Out of these, the incomes of applicants are the most important criteria to understand and calculate the credit worthiness of the applicants. As stated earlier, the actual norms decided by banks differ greatly. Each has certain norms within which the customer needs to fit in to be eligible for a loan. Based on these parameters, the maximum amount of loan that the bank can sanction and the customer is eligible for is worked out. TECHNIQUES USED IN CREDIT APPRAISAL Credit appraisal is a skill which has to be acquired by study and supplemented by practice. Intuitive guess work has little place in appraising the credit rating or credit needs of a corporate unit. The credit managers of banks and Non Banking Finance Companies (NBFCs) are duty bound to accept or reject a proposal on the basis of its viability or non - viability. Credit appraisal is done by banks or financial institutions by obtaining credit Information of the borrowing company. Credit information of the borrowing company can be obtained by the following sources: 1. Bank references:-Information from the bankers with whom the company has its account and also the bankers who might have lent to the company. 2. Trade reference: References from the companys customers, suppliers, etc.

3. Credit rating agencies: These are agencies that provide ready and detailed information required by banks and financial institutions for financing the capital requirements of the companies which are credit rated by these agencies. Examples:-agencies like CRISIL, CARE, ICRA etc 4. Company financial reports: One of the most convenient and commonly used tools of credit evaluation by the banks. 5. Press reports and published books. 6. Stock market opinion: Banks may also refer to shareholders or share dealers to know the market sentiments about the prospective company. 7. Charges registered: The information about the charges created on the assets of a company would indicate to what extent the companys assets present and future are charged. OTHER TECHNIQUES USED IN CREDIT APPRAISAL: 1. Personal discussion 2. Factory visit 3. Study of financial statements 1. PERSONAL DISCUSSION: This is the most significant source of primary information which is original, detailed and most trustworthy. We can know better the details about the history of the company, background of the promoters, nature of the companys business etc. We can also know about; a. Character of the borrower b. Market, product (share of market, competition, price, sales volume). c. Investors perception (dividend policy). 2. FACTORY VISIT: Under factory visit information collected are: a. operating capacity b. infrastructure and other utilities c. labor relations d. internal control system for raw material (imported, indigenous) 3. STUDY OF FINANCIAL STATEMENTS: Financial statements contain a wealth of information. If properly analyzed and interpreted they can provide valuable insights into a firms performance and position. Financial analysis determines the significant operating and financial characteristics of a firm.



Rating Summary based on AFS as on 31.03.2008 (Tax Audit) I. INDUSTRY RISKS (Production Stage Risk) Raw Materials Marks Max 16 Indigenous, easily available, non-seasonal,steady price Seasonal / Almost steady price Perishable /Imported Availability uncertain, fluctuating price Building own or lease more than 10 years, others excellent Rented where the remaining agreement period is more than 5 years Rented building with short duration, satisfactory Else Prime / Industrial area Non Industrial area / by lanes Else State-of-the-art Current technology Obsolete technology Trouble free environment and co-ordial relationships Medium type relation ship and environment Strained relations and Prone to threat of Strike R&D Available / Not required Required but not available 3 2 1 0 3 2 3 3

Infrastructure (Building, Power, fuel, labour, transportation etc)

1 0 3 2 0 3 2 0 3 2 0 1 0 1



Industrial climate & relationships

R & D Arrangement

II. MANAGEMENT RISKS Experience group

Experience of the promoter/s

Reputed Business group Moderate New Venture At least one of the promoters are

3 2 0 3

10 3

Employed executives

technocrat or experienced New in the field Skilled /Qualified person in all key areas Skilled /Qualified person in few key areas No Skilled /Qualified person are employed

0 4 1-3 0

III. OPERATIONAL RISK Supply of informations to the Bank

Record of Irregularity *

Limit Management

Dealing with the bank

Limit Utilization

Promt supply of informations Delayed supply of informations Defaults in supply of informations No irregularity Any instance of irregularity Irregularity means LC devolvement, BG invocation, non-payment of installment and interest within a reasonable time , Discounted cheque return more than 5% etc." Within DP with fluctuating balances Occassional over drawings, but within permissible level Limit rarely used and within DP Overdrwan frequently and watch category More than 10 years Less than 10 years but more than 6 years Less than 6 years but more than 3 years Less than 3 years New account Credit turn over More than 4 times of limit and more than 80% of the sales are routed through a/c Credit turn over More than 3 times of limit and more than 60% of the sales are routed through a/c

2 1 0 2 0

16 2

3 2 1 0 4 3 2 1 0 3

Compliance of sanction stipulations

Credit turn over More than 2 times of limitand more than 40% of the sales are routed through a/c Credit turn over less than 2 times of limit and less than 40% of the sales are routed through a/c 100% compliance Majority complied Poor compliance

2 1 0


Marketing arrangements

Product is regular consumable/ Industrial item with demand Product is short shelf life but with demand Fashionable goods but with demand Short life goods with competition from Indian counter part Short life goods with competition from overseas producers= Fully tied up through organized marketing net work Through marketing agents Own arrangements with good marketing strategy Open Marketing >= 125% 2. Prorata for all coverages 25125% 25% <25% If 2nd Charge, only 50% marks FINANCIAL RISKS Liquidity CR >= 1.33 CR < 1.33 > 1.25

5 4 3 2

8 5

3 2 1 0 10

V. Collateral Security Collateral

10 10

2 0


40 9 5

5 4

QUICK RATIO (Ratio of Current assets excl stock/ Current Liability)

CR < 1.25 > 1.10 CR < 1.10 > 1.00 CR<1 QR >= 1.00 QR < 1.00 > 0.90 QR < 0.90 > 0.75 QR < 0.75 Increased Maintained Reduced Loss Increased Maintained Reduced Increased Maintained Reduced Loss

3 2 0 4 3 2 0 3 2 1 0 3 2 0 5 4 2 0

B Profitability Operating Profit margin (Operating profit / sales)

Return on capital employed

Cash Profitability (Computed leaving stock variation)

C Interest Coverage Ratio

Interest Coverage (PBDIT/Interest) If >=2 If <2>1.5 If <1.5>1.25 If <1.25 D Leverage TOL/TNW <=3 >3<=4 >4.0 <=5 >5 Working Capital Borrowiing / Sales <=20% >20%<=30% >30%<40% > 40% Growth in Sales Turn over compared to Above 25% previous year Above 10% Less than 10% Reduced E Solvency

5 3 2 0 3 2 1 0 3 2 1 0 3 2 1 0

Stock Turn over Ratio

>=6 <6>=4 <4>=3 <3 =0 Debtors Turn over Ratio (Including Debtors> >=6 6 months) <6>=4 <4>=3 <3 =0

3 2 1 0 3 2 1 0

Rating Awarded 61 to 70 71 to 80 Above 80 46 to 50 51 to 55 56 to 60 40 to 45 Less than 40


Adequate Safety High Safety Highest Safety High Risk Medium Risk Moderate Risk Very High Risk Default


RATING SCORE FOR TERM BORROWERS A. MANAGEMENT RISKS. 1 Age of applicant/ Average age of applicants Source of Income Below 25 years Above 25 years upto 50 yrs Above 50 years upto 75yrs Above 75 years Profit / Salaried Reputed Public/Pvt cos or govt service Trader /Contractor / other business of established nature Agriculture Broker / Capital market (wide fluctuation in income anticipated) 3 Past satisfactory dealings with our bank. 1. > 8 years SB/CD a/c 2. > 4 years upto 8 years 3. > 2 years upto 4 years 4. < 2 years Max. Marks 5 7 5 0 6 5 2 0 7 6 3 0 7 7

20 B.Operational Risks: 1 Supply of information to the Bank. 2 Record of irregularity Regular Delayed Blocked Prompt repayment Stray case of Minor Irregularity Occassional irregularity Irregular 100% compliance Majority complied Poor compliance >= 200% Pro-Rata basis for 125 to 200% 125% <125% >=50% 25% > 50% <10% > 25% Available Nil

Compliance of sanction stipulations Security Cover (Primary + Collateral)

5 2 0 5 4 2 0 5 3 0 6 4 0 4 3 2 1 0

Out of the above ,Liquid security, like deposits/ NSC/ KVP / Gold etc

Type of security

Residential property along with or without commercial property Commercial / industrial property alone Agriculture/ vacant plot Movables only

5 3 2 0

15 C. Market Risks 1 Variation in Income level of Borrower (Gross Income/ Turn Over) 2 Appreciation / depreciation of the value of asset Utilization of the asset Up by 10% or more Up but less than 10% Remained at Same Reduced Highly Apreciated Appreciated Remained at same level Reduced / No asset acquired For own business / occupation For letting out / let out Investment No asset acquired Urban area with good demand Urban area moderate demand Rural area with good demand Rural area with moderate demand Rural developing area 1. Consumption 2. Investment Capital maket 3. Investment Others 4. Productive-and Remunerative 6 4 2 0 6 5 2 0 6 4 2 0 6 4 3 2 0 0 2 4 6 6

Location of the Security

Purpose of the Asset/Loan

30 D Financial Risks 1 Return on Capital employed More than 15% More than 10% More than 5% More than 0 Negative >3.0 >2.5<3.0

Ratio of cash surplus to repayment commitment

5 4 3 2 0 5 3

(incase of entity with Balance sheet & P&L account DSCR for the year to be taken) Profile, Loan to net worth of all borrowers together. (incase of entity with Balance sheet & P&L account TOL/TNW & Income to borrowings for the year to be taken)

>2.00<2.5 >1.50 <2

2 1 5

(1) High Income High net worth 5 NW>5times loan & loan less than 30 times monthly income, (2.5 times annual income) (2) Medium income & Net worth NW>3 times loan & loan less than 36 times monthly income, (3 times annual income) (3) Average income & Net worth NW>1.5 times loan & loan less than 42 times monthly income, (3.5 times annual income) (4) Else, Low income & Low net worth. NW >= loan & Loan amount . 48 times MI 3

Gross Income to Loan Borrowings

>3.5 times >3 times to 3.5 times >2.5 times to 3.5 times Else

5 3 2 0

RATING AWARDED 1. Above 80% 2. Above 70% & up to 80 % 3. Above 60% & up to 70 % 4. Above 55 & up to 60 % 5 Above 50% & up to 55% 6 Above 45 & up to 50% 7 Above 40% & up to 45 % 8 Below 40% SIB: AAA SIB: AA SIB: A SIB: BBB SIB: BB SIB: B SIB: C SIB: D Highest Safety High Safety Adequate Safety Moderate Safety Inadequate Safety High Risk Very High Risk Default



I. INDUSTRY RISKS A. Production Stage Risk 1 2 3 4 5 Raw Materials Powe & Fuel & Labour Technology Infrastructure R & D Arrangement

Maximum 10 3 2 2 2 1 10 5 3 2

B. Post-Production Risk 1 2 3 Demand Competition Marketing Arrangements

II. MANAGEMENT RISKS A. Promoters 1 2 3 4 Experience of the Group Management Proficiency Experience of the Promoters. Employed Executives 10 3 2 2 3 10 2

III Operational Risks 1 Supply of informations to the


Bank 2 3 4 Record of Irregularity. Limit Management Compliance of sanction stipulations 4 2 2

IV Collateral Security Collateral cover V Financials Liquidity CR NWC Profitability Op. profit (Excl. Int.) Op. profit margin(Excl. Int.) Return on Capital Employed Net Profit Interest Coverage PBDIT/Interest Solvency Term Indebtness

5 5 55 13 8 5 15 4 3 4 4 5 5 12 6


Overall Indebtness Efficiency in utilisation of CA Stock Velocity Debtors Velocity

6 10 5 5

Rating Grading Above 60 to 70 Above 70 to 80 Above 80 Above 45 to 50 Above 50 to 55 Above 55 to 60 Above 40 to 45 Less than 40 SIB A Adequate Safety SIB AA High Safety SIB Highest AAA Safety SIB B High Risk SIB BB Inadequate Safety SIB BBB Moderate Safety SIB C Very High Risk SIB D Default



Max Marks A. FINANCIAL RISKS I Profitability >=10% <10%>=5% <5%>=2% <2% Loss 1) >=20% 2) <20%>=10% 3) <10%>=5% 4) <5%>=0% 5) Operating loss 1. If >=2 2. If <2>1.5 3. If <1.5>1.25 4. If <1.25 1. Does exist 2. Does not exist 1. CR>=1.33 2 CR<1.33>=1.25 3 CR<1.25>=1.1 4 CR<1.1>1. 5 <1 1) Above 3 2) Between 2 and upto 3 3) Between 1 and upto 2 4) Below 1 4 3 2 1 0 4 3 2 1 0 3 2 1 0 0 2 4 3 2 1 0 3 2 1 0 40

Net Profit / Sales

Operating Profit / Sales




Any huge contingent liability exeeding TNW Liquidity

Current Ratio


Net Sales / Total Current Assets

Leverage TOL/TNW 1) <=3 2) >3<=3.50 3) >3.50 <=4 4) >4<=4.5


4 3 2 1

Working Capital Borrowing / Sales

Growth in sales / turn over compared to previous year

Stock Turn over Ratio

Debtors Turn over Ratio (Including Debtors> 6 months)

Tangible net worth to sales

4) >4.5 1) <=20% 2) >20%<=30% 3) >30%<40% 4) > 40% 1) Above 50% 2) Above 25% 3) Above 10% 4) Less than 10% 5) Reduced 1) >=6 2) <6>=4 3) <4>=3 4) <3 =0 1) >=6 2) <6>4 3) <4>=3 4) <3 1) <=20% 2) >20%<=30% 3) >30%<40% 4) > 40%

0 3 2 1 0 4 3 2 1 0 3 2 1 0 3 2 1 0 3 2 1 0

BUSINESS RISKS 1. Consumable items/ Durable 4 3 2 0 2 1 0 1 2 3 3 4 2. Short life / Perishable / Fashionable goods 3. Luxuary goods 4. Hazardous Items 1. High demand 2. Consistent Demand 3. Low demand 1) Trade of only a single item 2) Trade of more than 2 items 3) Several items traded 1. Own


Item Traded

Demand for the traded item/s Whether muliplicity in number of items traded Infrastructure


3 3

Locational advantage

2. Rented, where remaining agreement period more than 5 years 3. Else 1. Prime 2. High floors / bylanes 3. Others

2 1 3 2 1


MANAGEMENT RISKS Experience of the trader/ group 1. Reputed Business group 2. Moderate 3. New Venture by 1st generation Entrepreneurs 1 . Over 10 times loan amount 2. Over 5 times but less than 10 times 3. Over 2 times but less than 5 times 3. More than loan amount 4.Less than loan amout 1. More than 10 years 2. Less than 10 years but more than 8 years 3. Less than 8 years but more than 5 years 4. Less than 5 years but more than 3 years 5. Less than 3 years 6. New Customer 1) All concerns are profit making and well managed 2) All other cases 1. No instance 2. There are instance 3 1-2 0 4 3 2 1 0 5 4 3 2 1 0 1 0 2 0 1 5 3


Total Networth of the proprietor/partners/director s (If Personal Gtee)

Dealing with us

Performance of group concerns Any instance of attachment by Govt Dept. / Court


OPERATIONAL RISKS Supply of informations to

15 1.Prompt supply

the Bank

Record of irregularity

Compliance of sanction terms Whether any of the group concerns are highly irregular / NPA Any qualification by auditors affecting financials.

2.Delayed supply 3.Defaults in supply 1. No irregularity 2. Single instance 3. More than once instances of irregularity 1. 100% compliance 2. No major non-compliance 3. All others 1. Yes 2. No 1) Does exist 2) Does not exist More than 4 times of limit 3-4 times of limit 1-2 times limit Less than 1 time

1 0 3 1 0 2 1 0 0 2 0 2 4 3 1 0

Turn over in the account


FACILITY RISK Security coverage 1. >= 150% Pro-rata Marks for 50% to 150% =50% < 50% 1. Liquid security as NSC, LIC , FD at least equal 2. Pro-rata for liquid security/ Prime urban property / Residential Urban property 3. Other urban / village residential 4. Other mortuguages 5. Only personal guarantee 10 2 0 5 5 10


Nature of collateral

3-4 2 1 0


Rating Grading Above 60 to 70 Above 70 to 80 Above 80 Above 45 to 50 Above 50 to 55 Above 55 to 60 Above 40 to 45 SIB A SIB AA SIB AAA SIB B SIB BB SIB BBB SIB C Adequate Safety High Safety Highest Safety High Risk Medium Risk Moderate Risk Very High Risk Default

Less than 40



APPLICATION OF FINANCIAL TOOLS IN CREDIT APPRAISAL Creditworthiness and credit risk are closely but inversely related concepts. A high creditworthiness implies good financial soundness of the company and this is judged in terms of liquidity position and solvency position of the company .Thus in order to be rated as financially sound, the company has to satisfy the twin criteria of liquidity and solvency. The following financial ratios are generally used for ascertaining these twin tests:1. Liquidity ratios Current liabilities are paid out of current assets. Hence the extent of current assets over current liabilities is a test of short term liquidity. Therefore higher the net working capital of a company better and more creditworthy it is from the angle of liquidity .The two ratios calculated are:a) Current ratio= Current assets Current liabilities b) Quick ratio= Total current assets - inventory Total current liabilities Quick ratio is a slightly stricter test of liquidity of a firm. It is considered as a satisfactory index of short term liquidity of a business unit.

2) Solvency ratios These ratios are also known as long term debt paying capacity ratios. The two main solvency ratios from the angle of long term creditors and the total outside creditors (long term and short term) are as follows: A) Long term Debt-Equity ratio= Long term debt Tangible net worth B) Total outside liabilities equity ratio= Total outside liabilities Tangible net worth A lower quotient is a better test of solvency. Liquidity and solvency ratios are based on balance sheet of a company and they relate to past period. But healthy ratios of previous years cannot be taken as indicator of future continued creditworthiness of the company. A company can continue to maintain its creditworthiness in future only when it is able to maintain good profitability. Hence the banks have to ascertain the profit earning capacity of the concern to determine its future creditworthiness. The following profitability ratios are calculated in this regard. a) Margin ratio = Operating profit before interest and tax(OPBIT Sales

b) Return on investment (ROI) = Operating profit before interest and tax Total capital employed b) Plough back ratio=Net profit retained in business Net profit after tax The margin ratio indicates the available margin on sales and return on total capital employed indicates the earning power of the company. An increasing ROI year after year or a higher ROI of the company as compared to the industry average is a healthy sign and indicates continued creditworthiness of the company under appraisal. An important process in the credit appraisal is the credit rating. Based on the parameters set by the Board of SIB, the concerned officer analyses the details and rates the prospective customer. Pricing for the loans are determined based on the ratings given to the proposed loans.

Assessment of working capital needs of a firm involves: 1) Critical examination of business plan 2) Computation of maximum permissible bank finance (M.P.B.F) Apart from M.P.B.F, turnover method is also used for assessing the working capital requirements of borrowers. Turnover method will apply for credit needs up to Rs 2 crores of small scale industry, small business and traders. Bank will provide credit up to 20% of projected turnover of the company. M.P.B.F method applies to corporate wanting credit up to Rs 10 crores. Large companies with credit needs above Rs 10 crores will be assessed by using cash budget route. The company would be asked to draw up a cash budget for next year detailing the periodicity and quantum of fund needs. This will be helpful both to bank and the borrowers in managing efficiently their funds. Funds will be provided by banks up to 75% of cash deficit, while 25% deficit will be contributed by the company. CREDIT APPRAISAL PROCESS AT SOUTH INDIAN BANK The credit appraisal process at South Indian Bank is considered very thorough and conservative. The bank undertakes the following steps to complete the credit appraisal process: 1. Meet the client: The branch manager finds the suitable clients with credit requirements for their business or clients approach directly to the bank. If the Branch manager is satisfied with the client, the case goes to the regional office for a complete check and evaluation. 2) The branch manager after the first course of interaction with the client asks for the various documents required to appraise the project.


In the starting of the business deal, broadly two requirements are needed. a) Mandatory requirements b) Statutory requirements Mandatory requirements and the documentary evidences needed for each case of appraising are; Mandatory Requirements Documentary Evidence 1) A suitable premise in a suitable place to operate from Copy of the rent agreement in case of leased properties and copy of the title deed in case of owned premises along with the land tax and building receipts. Power allocation letter from the electricity board/electricity bill Water connection letter from the water authority /water bill

2)Power allocation

3)Water connection

4)Nature of Association a)Proprietorship b)Partnership c)Joint venture d)Private limited company e)Public limited company

Declaration Copy of partnership deed Joint venture agreement Memorandum and Articles of Association Certificate of Commencement of Business

Statutory requirements and documentary evidences needed for each case are: Statutory requirements State government licenses Ex. sales tax registration certificate Central government license Local body license Factory license Department specific licenses: a)Drug controller in the case of pharmaceutical connected activities including medical shops b)forest department in case of timber based industries including furniture c)pollution control board in the case of manufacturing industries d) Excise department in case of distilleries, manufacturing process where alcohol content are involved. e)explosives department in case of quarries and firework related business f)geological survey in case of service

Documentary evidences Copy of sales tax registration certificate VAT registration certificate Factory registration certificate Copy of license

Copy of license Copy of license Copy of license

Copy of license Copy of license

industries, job works and excisable items g)approved plan and construction permissions from the competent authority in case of building /housing finance along with estimates h)land tax, building tax, approved plan and completion certificate in case of buildings

Approved plan/permission letter/estimates

Tax paid receipts

These documents provide: Evidence of association and activity Legality of association and activity Name and addresses of institutions Name and addresses of persons behind the show 3) Initial de-dupe check: This is better known as the de-duplication checks in which the bank checks the credit reporting of the client ,whether he holds any over-dues etc. the bank also checks the client in RBI defaulter list. 4) Check the banking: The bank checks the banking of the existing account if any, and also the existing association of the client with other banks. 5): Audited financial test: The bank undertakes a complete check of financials as mentioned in the requirements, these audited financials are put in software of the bank and then projections are made on the basis of the financials and then various profitability ratios are analyzed and the financial soundness of the company is analyzed. The financial viability of the company is checked on various parameters. 6) Deviation check: The bank after checking the financial soundness of the company goes for the verification of the deviation check of policy compliance if any, in case of major deviations the case is presented in front of the regional office. 7) Internal verification: the bank through its various sources makes a complete thorough investigation of the handling of business of the client. This enables the bank to make sure that the client is not forging with the financials of the company. 8) Approval by Credit Department: Credit limits of the loan decides which level of management has to take decisions .If the amount is too high the approval has to be taken from the Credit Sanction Department of the head office located at Thrissur. 9) Decision on disbursement of loan: When the case is presented to risk department it analyses the variety of risk involved in the sanctioning of loan. If it crosses the parameters then the possibility of disbursement of loan declines, then the H.O makes its final approval on the limits required by the client and the limit deserved by the client, the bank makes its final way to the approval of the loans.


10)Discussion between client & bank on approval: The bank propose its terms and conditions to the client and the amount of loan that is approved to the client at what rate of interest and what portion of collateral is kept by the bank, when the client agrees on all these terms ,the case reaches the sanctioning stage.





Every bank has its own hierarchical structure for dealing with credit proposals. Branches of south Indian bank are categorized as small, medium, and large branches. Above branches there are regional offices and above them is the head office which is at Thrissur. Branches and regional offices are delegated with financial powers according to the classification of the branch and the seniority of the functionary heading the regional office. Hence the credit decision has to be filtered and calibrated in such a manner that the value chain develops as the proposal flows up the line to the sanctioning authority in the bank. The building up of the value chain is essential to ensure that the duplication of the paper work is avoided, authority at each level to whom the proposal flows up has documented and decision making time is minimized. At every stage the loan proposal should be owned by the people handling it as a team and, with value addition the proposal should move to the next stage. Value chain for large credit proposals Originating branch use their skills and expertise to appraise and recommend large proposals and sent it to the regional office. Regional office calls for the additional information if required. Regional office forwards the complete proposal with all documents and recommendations to the head office for the decision. Head office provides value addition by examining the proposal from the policy, funds availability and the risk-return tradeoff consideration.




Table 4.2 Table showing deposits and advances of SIB ltd for the years 2006-07 to 2010-11
(Rupees in000s)

YEAR DEPOSITS 2006-07 122392087 2007-08 151561215 2009-09 180923322 2009-10 230115241 2010-11 297210752 Source: (Compiled from annual Reports of SIB)

ADVANCES 79189121 104537496 118520274 158229174 204887333

Figure 4.1 Graphical representation of deposits and advances of SIB Ltd

350000000 300000000 250000000 200000000 DEPOSITS 150000000 100000000 50000000 0 2006-07 2007-08 2009-09 2009-10 2010-11 ADVANCES

Interpretation The graph shows that both deposits and advances are increasing over the years. But it can also be inferred from the graph that the level of advances is not in par with the deposits.

Table 4.3 Table showing percentage increase in deposits and advances taking year 2006-07 as base year and absolute increase in deposits and advances over the previous years (Rupees in000s)
YEAR Deposits % increase in deposits(bas e year-200607) Absolute increase in deposits Advances % increase in advances(bas e year 200607) Absolute increase in advances

2916912 8 2009-09 180923322 47.82 2936210 7 2009-10 230115241 88.01 4919191 9 2010-11 297210752 142.83 6709551 1 Source: (Compiled from annual Reports of SIB)

2006-07 2007-08

122392087 151561215


79189121 104537496 118520274 158229174 204887333

32 49.61 99.81 158.73

25348375 13982778 39708900 46658159

Interpretation The table shows the percentage increase in deposits and percentage increase in advances over the years taking 2006-07 as the base year. The absolute increase in the amount of advances is lesser when compared to that of deposits.


Table 4.4 Table showing interest on deposits and interest on advances. (Rupees in000s) YEAR INTERST ON INTREST DEPOSITS EARNED 2006-07 6837546 6944144 2007-08 8948117 9605668 2009-09 11369699 12709026 2009-10 13393832 15186247 2010-11 16213561 19300200 Source: (Compiled from annual Reports of SIB) Spread 106598 657551 1339327 1792415 3086639

Fig 4.2 Graphical representation showing interest on deposits and interest on advances
25000000 20000000 15000000 10000000 5000000 0


Interpretation: The above graph shows that interest earned on advances are more than the interest on deposits ,ie the spread of the bank is increasing indicating the liquidity position of the bank is well off.


Table 4.5 Table showing advances on cash credits, overdrafts and demand loans and advances on term loans (Rupees in000s) ADVANCES ON CASH CREDITS,OVERDRAFTS AND LOANS REPAYABLE ON DEMAND 2006-07 34336790 2007-08 47825010 2009-09 53166128 2009-10 68048845 2010-11 100092729 Source: (Compiled from annual Reports of SIB) YEAR AVANCES ON TERM LOANS

38998159 45309813 48382047 59592705 70415203

Fig 4.3 Graphical representation of advances on cash credits, overdrafts and demand loans and advances on term loans


Interpretation It can be observed from the graph that advances on cash credits, overdrafts and demand loans are increasing at higher rate compared to advances on term loans. The advances on CC, O/D and demand loans have increased by 191.50% in 2010-11 when compared to the year 2006-07, whereas the term loan advances have increased only by 80.56%.


Table No 4.6 Net NPAs to Advances of South Indian Bank Ltd. (In percentage) YEAR NET NPA TO NET ADVANCES 2006-07 0.98 2007-08 0.33 2008-09 1.13 2009-10 0.39 2010-11 0.29 Source: (Compiled from annual Reports of SIB)

Figure 4.4 Net NPAs to Advances of South Indian Bank Ltd NET NPA TO NET ADVANCES
1.2 1 0.8 0.6 0.4 0.2 0







Interpretation The figure shows a decreasing trend in the ratio of Net NPA to the advances of the bank expect in the F.Y 2008-09. In 2006-07, 2007-08, 2009-10 and 2010-11 financial years, it is even below the international norms of 1%.




Credit appraisal has gained an increased importance in todays banking scenario because of its far reaching consequences. It is the funds of depositors i.e. general public that are mobilized by means of advances. Thus it is extremely important for the lender bank to assess the risk associated with credit; thereby ensure the security for the funds deposited by the depositors. In SIB the credit appraisal is done by thorough study of the project which involves the evaluation of management where a detailed study about the promoters is carried out in order to ensure that promoters are experienced in the line of business and are capable to implement and run the project. Then, a technical feasibility study is done to determine the technical soundness of the project. A detailed study relating to financial viability of the project is done to ensure that project will generate sufficient surplus to repay the loan installment and interest .Another important process done by the bank is the risk analysis which determines the risk associated with the project .This is done by performing a Sensitivity analysis and Credit rating. With Sensitivity Analysis the projects capacity to service debts under worsened conditions are determined. Credit rating provides rating for various parameters like management, financial, market etc and thereby determines the credit worthiness of the borrower. It is on the basis of the credit risk level, collateral securities to be given by the borrower are determined. South Indian bank has a very thorough and conservative process of credit appraisal. Apart from this, there has been an increased emphasis on monitoring the accounts. For instance, they take monthly information, where earlier it used to be quarterly. Everything is computerized so it's easy for the borrowers to give the required information to the bank- their actual sales against what their projections were, what they have done etc. More important than the quality of advance is the monitoring process. A second grade appraisal followed by first grade monitoring can still help the account to be healthy whereas a first grade appraisal followed by second grade monitoring will definitely end up as a problem. This has been well understood at SIB and they have a well performing monitoring system for their advances.



It is found that the absolute increase in the advances amount is lesser when compared to the increase in deposit amount. Increase in the deposit amount in 2010-11 when compared to base year = 122392087*142.83% =Rs 174812617 Increase in the advances amount in 2010-11 when compared to base year =79189121*158. =Rs 125696891.8 So the bank can give away more advances maintaining their stringent credit policies which would help them to generate more revenue. It can be seen that the term loan advances of the bank are less when compared to the working capital advances. Giving away more of working capital loans might result in higher credit risk for the bank and so it is appropriate to sanction more of term loans than working capital loans. Interest rate on term loan is 12-14% whereas the interest rate on working capital loan is 14-16%.Though the working capital loan provides with a higher interest rate, the risk associated with the repayment is so high that the term loan is preferable. It can be seen that the interest earned on advances are more than the interest on deposits ,i.e. the spread of the bank is increasing indicating the liquidity position of the bank is well off. Allocating more of advances will further boost up the spread of the bank. Over the years from 2006 to 2011 the NPA ratio is showing a decreasing trend from 0.98 to 0.29%..The credit of decreasing NPA ratio can be attributed to the credit appraisal process of the bank. The thorough credit appraisal process ensures the payment of interest and repayment of principal amount. The monitoring and recovery department works efficiently and see that the borrowers pay back the loan amount or in case of inability to recover the loan amount, the recovery department realizes the loan amount by selling or auctioning the security


BIBLIOGRAPHY Prof. Singh S. P. and Dr.Singh S (1999) Financial Analysis for Bank Lending In Liberalised Economy, Himalaya Publishing House, Mumbai.