Beruflich Dokumente
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SIP project report submitted in partial fulfilment of the requirements for the PGDM Programme
ACKNOWLEDGEMENT
Summer internship has long been an indispensable part of our curriculum of PGDM programme. Between the first and second year, this is an ideal way to get exposure to the real business world and learn about an industry. I have done my summer internship project in the Commercial and Institutional Credit Department(C&IC) at New Delhi Zonal Office, Bank of India, for 2 months from 11th April to 9th June, 2012.
My sincerest thanks and respect goes H.S.Anand and Ravi Kant Chaudhary, Chief Manager and their team C&IC Department for the immense help and guidance. I am indeed very thankful to them for their unending support right from the inspection of this project. They continuously shared their precious time and provided me right guidance at every stage.
I am grateful to Prof. Hanish Rajpal, Assistant Professor at Institute of Management Technology, Nagpur for helping me the queries and difficulties related to my internship project. His support and encouragement has a lot to do with the completion of this Project.
I am indebted to all employees of Bank of India, who directly or indirectly helped me in making my project a success. I greatly acknowledge the contribution of all.
Lovish Gupta
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TABLE OF CONTENTS
1. Executive Summary. 2. Introduction. 3. Objectives... 4. About Bank of India... 5. Description of the concepts/ models introduced in the study 5.1 Lending Money to the Public...... 5.2 Importance of Lending 5.3 Modes of Delivery of Credit facilities. 5.4 Principles of Lending.. 5.5 How Lending Function works 6. Facts and Figures.... 6.1 Total Priority Sector Advances... 6.2 Total Non-Priority Sector Advances... 6.3 Cash Credit, Overdrafts and Loan repayable on Demand.. 6.4 Advances Portfolio... 6.5 Interest Income on Advances.. 6.6 Yield on Advances... 7. Methodology followed... 8. Findings.. 9. Interpretation and Conclusions..... 10. Recommendations.. 11. Limitations. 12. Future improvements. 13. Appendices.... 14. Bibliography.. 12 13 14 15 17 20 22 23 25 26 39 42 44 45 46 47 48 49 50 60 4 5 9 10
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1. EXECUTIVE SUMMARY
This project ANALYSIS OF THE CREDIT METHODOLOGY has been prepared with facts and figures pertaining to Bank of India, New Delhi Zonal Office and undertaken to understand the credit exposure and appraisal of the borrower of Bank of India. Indian Banking Industry is growing faster than ever before and shows great opportunities with in rural as well as semi-urban India. Bank of India with its age old name has a place in peoples mind. But with the globalization, private banks that came just 10-15 years back are giving tough competition to Bank of India. Bank of India is one of the largest nationalized banks in India while its direct competitors are Bank of Baroda, Punjab National Bank, Central Bank etc. Whereas it is also competing with other private banks like ICICI Bank, HDFC Bank, Standard Chartered Bank etc. In the Banking Sector, deposits and advances plays a vital role on which income of the bank depends because on deposits banks gives the interest and on advance bank charges interest which is more than the deposit interest and the difference between the lending and the deposit interest is the profit of the bank. In this project various kinds of loans and advances and their bifurcation is discussed over a few years. The report also includes the brief description of the mechanism of giving credit to the customers.
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Indias 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 Resolution Policy adopted by the government in 1948 envisaged a mixed economy. 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 RBI to regulate, control and inspect the banks in India. Banking means the accepting, for the purpose of lending or investment, of the deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise.
Nationalization
GOI issued an ordinance and nationalized the 14banks with effect from the midnight of July 19, 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the Banking business of India. Later on in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the nationalized banks from 20 to 19. After this till 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth rate of Indian economy.
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Liberalization
In the early 1990s, the Narsimha Roa government embarked on a policy of liberalization, licencing a small number of private banks. These came to be known as New Generation Tech-savvy Banks and include Global Trust Bank, Axis Bank (earlier as UTI Bank), ICICI Bank and HDFC Bank. The move along with the rapid growth rate 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 setup with the proposed relaxation in the norms for Foreign Direct Investment, where all foreign investors in banks may be given voting rights which could exceed the present cap of 10%, at present it has gone up to 49% 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. All this leads to the retail boom in India. People not just demanded more from their banks but also received more. Today, rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets, Indian Banks are considered to have clean, strong and transparent Balance Sheets related to other Banks in comparable economies in its region. The Banking Industry is highly competitive industry in India where so many banks compete with each other. There are around 500 commercial, regional and co-operative banks in India which makes it difficult for the players to survive. As per the current scenario, the banking industry is suffering from the stage of recession, but as far as the global banking is concerned, the Indian banking system is very much protected from the global recession due its traditional phase and rigid rules. The public sector banks are the basic foundation of the Indian banking sector.
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The Bank has sizable presence abroad, with a network of 29 branches (including five representative offices) at key banking and financial centres viz. London, New York, Paris, Tokyo, Hong-Kong and Singapore. The international business accounts for around 17.82% of Bank's total business. Our Mission "to provide superior, proactive banking services to niche markets globally, while providing cost-effective, responsive services to others in our role as a development bank, and in so doing, meet the requirements of our stakeholders". Our Vision "to become the bank of choice for corporates, medium businesses and upmarket retail customers and to provide cost effective developmental banking for small business, mass market and rural markets"
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Overdraft: The word overdraft means the act of overdrawing from a Bank Account. In other words, the account holder withdraws more money from a Bank than has been deposited in it. Bill discounting: Bill discounting is a major activity with some of the smaller Banks. Under this type of lending, Bank takes the bill drawn by the borrower on his (borrowers) customer and pays him immediately deducting some amount as discount/ commission. The bank then presents the bill to the borrowers customer on the due date of the bill and collects the total amount. If the bill is delayed, the borrower or a customer pays the bank a pre-determined interest depending on the terms of transaction. Term Loan: Term Loans are counter parts of Fixed Deposits in the Bank. Banks lend money in this mode when the repayment is sought to be made in fixed, pre-determined instalments. This type of loan is normally given to the borrowers for acquiring long term assets i.e. assets which will benefit the borrower over a long period (exceeding at least one year) like purchases of Plant & Machinery, constructing building for factory, setting up new projects fall in this category. Financing for purchase of automobiles, consumer durables, real estate and creation of infrastructure also falls in this category. The asset for which loan is given is held as principle security and other collateral securities may be taken for security reasons as per the requirements. Future profitability is considered as primary importance so the person is able to pay and not a defaulter. So, profitability ratio and Debt Service Coverage Ratios are considered to the most important. Non Fund Credit: This type of credit is not given in real but bank provides Guarantee and Letter of Credit (L/C) to avail this credit. 5.2 IMPORTANCE OF LENDING: Lending is a core function of a Bank, which contributes significantly to its profits. Funds mobilized from deposits are deployed by Banks in making loans and advances to various business, trade and commerce. The main purpose of loans and advances is to earn profit by way of interest spread i.e. the differential between the average interest rates receivables of loans and payables on deposits.
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5.3 MODES OF DELIEVERY OF CREDIT FACILITIES: Sole Banking Arrangements Multiple Banking Consortium Lending Syndication
Sole Banking: Here all the credits needs of a borrowing unit are met by a single Bank. The accounts are rated like AAA for (LC1 to LC2) and AA for (LC3 to LC4) where Bank of India is Sole Banker. Borrowers shall normally obtain Banks prior approval in case they would like to switch over to Multiple Banking Arrangement or consortium lending. Whenever a customers credit requirements exceeds the exposer ceiling or Rs. 400 crore whichever is higher, the borrower would be encouraged to scout for another Bank/ Institution to share credit facilities under Multiple Banking, Consortium or Syndicate Arrangements. Multiple Banking: Here the credit needs of different divisions of a borrowing company are met independently by different banks without any formal agreement/ arrangement amongst them. Where Bank of India is the sole banker and the borrower desires to avail of credit limits from other Bank/s without formal consortium arrangements, the reasons for the borrower waiting to shift to another bank are ascertained and recorded. The Bank can permit the borrower to bank elsewhere provided the borrower agrees to furnish from time to time details of the various facilities availed from other bank/s. Again Banks exposure for working capital needs should not exceed 75% of the total working capital requirements of the borrower.
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Consortium Lending: The entire credit needs of a borrowing unit are financed by a group of Banks by forming a consortium. It is a concept to promote collective applications of banking resources. Syndication: A syndicated credit is an arrangement between two or more lending institutions to provide a credit facility using common loan documentation. Advantages of Consortium: Notionally borrower to deal with one bank Entire fund requirement arranged by the syndication lender Unlike consortium default risk shared under syndication Borrower gets competitive price through bids Fixed price lending Bank of India encourages financing under such agreements. 5.4 PRINCIPLES OF LENDING: Banks follows the basic principles of prudence while lending, as the money banks are lending belongs to their depositors and has to be repaid on demand or on maturity as per the terms of the deposits. The Bank also follows certain other principles, as described below that help banks in honouring their commitments to the depositors and earing profit from their lending activities. 1. Safety and Security Principle: Safety principle means timely return of the funds, lent by the bank. While granting a loan, a bank carefully examines the economic, commercial and financial viability of the applicants business, quality of its management (integrity, honesty, willingness to repay loan, reputation in market, business acumen etc.) and the past track record. Assets acquired by bank loan are charged/ hypothecated to the bank by the way of its security in the form of mortgages of immovable property and pledge/ hypothecation of goods and receivables of the borrowers wherever necessary additional collateral security of tangible assets and/ or third party guarantees are also obtained by bank.
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2. Risk Diversification Principle: Lending involves risk taking and banks always strive to minimize such a risk. The main risk in lending is, credit risk, arising from the business failure of the borrower or default in payment of the principle/ interest by the borrower due to other reasons. The credit risk is sought to be diversified by banks by avoiding concentration of loans to a few borrowers/ industries/ sectors, as per the prudential norms set internally and stipulated by the regulatory authorities.
3. Profitability principle: Profit-earning is necessary for any business to sustain and grow. Further, the logical corollary to risk taking, is profit making. Banks seek to earn profit by charging an interest higher than payable by them on their deposits. The difference between the average interest earned of loans/ investments (yield) and paid in deposits (cost of funds) is the gross interest spread. 4. Liquidity Principle: A bank has to manage its assets and liabilities in such a manner that it can meet all its deposits liabilities in time, out of money acquired as repayment of loans. It has to attune the maturities of its liabilities. No bank can afford a delay or default in meeting its deposits or other liabilities, as this would result in loss of trust and faith of the depositors/ customers, on which rest the edifice of banking business. 5. Loan Purpose Principle: Banks grants loans and advances for lawful purposes as per public policy and its own objectives. Unlawful activities include money laundering (for terrorists activities, illegal trafficking and drugs) or for activities banned or restricted by the RBI and other regulatory and statutory activities are not financed. While avoiding giving loans for unlawful or restrictive purposes, a bank may have special knowledge and expertise of certain industries and would therefore lend mainly to the units in these segments. Every banks portfolio is therefore different as per its objectives and credit policy. 6. Government Policies: There are certain government policies under which banks have to give loans to the priority sector.
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Key Ratios
Current Ratio: Current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. It is expressed as follows: Current Ratio = Current Assets Current Liabilities
The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands. Acceptable current ratios vary from industry to industry. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. Debt equity Ratio: The debt-to-equity ratio is a financial ratio indicating the relative proportion
of shareholders equity and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known as Risk, Gearing or Leverage. The two components are often taken from the firm's balance sheet or statement of financial position (socalled book value), but the ratio may also be calculated using market values for both, if the company's debt and equity are publicly traded, or using a combination of book value for debt and market value for equity financially. Interest Coverage Ratio: A ratio used to determine how easily a company can pay interest on outstanding debt. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses. Interest Coverage Ratio: Earnings before Interest & Tax Interest Expense
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Debt Service Coverage Ratio: The debt service coverage ratio (DSCR), also known as "debt coverage ratio," (DCR) is the ratio of cash available for debt servicing to interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity's (person or corporation) ability to produce enough cash to cover its debt (including lease) payments. The higher this ratio is, the easier it is to obtain a loan. The phrase is also used in commercial banking and may be expressed as a minimum ratio that is acceptable to a lender; it may be a loan condition or covenant. Breaching a DSCR covenant can, in some circumstances, be an act of default.
Operations Department
Once the Credit Manager approves the loan, the application moves to the operations department. On being satisfied with the attached documentation, the operations department keep for safekeeping. It also handles other miscellaneous tasks such as sending a copy of loan payment history to the applicant if he so desires on receipt of the appropriate payment. Finally, after the loan has been fully paid by the applicant, it is also the duty of the Operations Department to grant the NOC to the applicant and thus close the case.
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(Rs. in Crore)
2012 16490 2314.6 197 200 57.29 40.39 519.5 200.36 210.5 424 296 40 129.56 14175.4 3268 27 6258 316 461 183 89 816 245 2512.4
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4000
2000 0
2009
2010
2011
2012
(Rs. in Crore)
2011 17015 3136 13879 2012 16490 2314.6 14175.4
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2009
2010
2011
2012
(Rs. in Crore)
2012 197 200 57.29 930.36
Here the major contribution in the priority sector is of Micro, Small and Medium enterprises. The main reason for high contribution of these industries is that the data is collected from the metropolitan city and here the major dealing is with enterprises. Due to the setting of new industries agricultural loan is decreasing year by year in this area. There is a drastically increase in micro enterprises loans because Bank of India is providing more loans to the very small business to grow them and these small business does not have sufficient funds to start the organization.
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NBFC's
Others
(Rs. in Crore)
2012 3268 6258 816 2512.4
There is decrease in advances in 2012 as an organization which had a loan against Fixed Deposit of Rs. 1000 crore premature the FD to cancel the loan so to avoid paying interest on the loan.
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Loan against TDR (FD): This is the loan taken against the Fixed Deposit. So, risk while giving this kind of loan is negligible. If a person fails to repay the loan bank can take back the amount from the Fixed Deposit. Home Loan above 25 lakhs: Home loan if less than 25 lakhs then it is considered to be priority sector loan otherwise not. Infrastructural Loans: These loans are like making of roads, building of dams and power plants etc. Retail Trading: Retail trading if less than 20 lakhs then it is considered to be priority sector lending otherwise not. Commercial Estate Loan: It is related to the builders who make the colonies, flats and sells them on profit. Personal Loan: This loan is given to the person for his personal needs like marriage or for any other kind of need. Capital Market Loan: These loans are given for the purchase of stock and shares and these stock and shares held as the security to minimize the loss. NBFCs Loan: Non-Banking Financial Corporation Loans are given to the corporations who act as bankers and provide loans to the public. E.g. Indiabulls, Bajaj Capital etc. Education Loan: Education loan is considered to be priority sector advance if it is less than 10 lakhs in India and 20 lakhs in abroad and if it is more than this amount it is treated as nonpriority loan. There are more type of loans like loans given under Prime Minister Rojgar Yojna, Loans given to SC/ST, to women entrepreneurs, to minority and weaker section etc. The distinction between the Micro, Small and Medium is done on the basis of Fixed Plant and Machinery. If the value of is less than 25 lakhs it is considered to be micro, if it is greater than 25 lakhs but less than 5 crore it is small enterprise and greater than 5 crore and less than 10 crore is medium enterprise and beyond this large enterprises.
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6.3
Table 5: Cash Credit, Overdrafts and Loan Repayable on Demand
2008 Pre-Shipment Credit PCFC (Pre-Shipment Credit in 2079 209.27 1193 813 1.94 1863 281.52 1321 1067 4.14 1985 698.41 1032 1281 8.07 2182 836.97 1678 914 22 2454 1024 3147 835 285.18 2009 261.79 2010 290.16
(Rs. in Crore)
2011 682 2012 795
Foreign Currency) NPA Packing Credit Demand Loans Foreign Currency Demand Loans Cash Credits Overdrafts Total cash credit, overdrafts and loans repayable on demand
4294.27
4532.52
4996.41
5610.97
7460
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(Rs. in Crore)
2011 682 2012 795
Packing Credit Loan is very low in the year 2008, but it can be seen that in the year 2012, there is drastic increase in the pre-shipment credit- packing credit. The reason for this increase is that the branch increased its number of customers in the year 2011 and this made the branch to get more exposure in packing credit loan to the big corporate. Also, the packing credit limit for the existing customer had increased in accordance with the sufficient pre requisite terms and conditions.
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(Rs. in Crore)
2011 135.04 2012 16.57
The above figures show the growth in Pre-Shipment Credit. It can be seen that in the year 2009, there is negative growth in pre-shipment credit. But in the year 2011, there is a remarkable increase by growth rate of 135%. This made the interest income increased to such a higher rate in 2011.
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Banks are also permitted to utilize the foreign currency balances available under Escrow account and Exporters Foreign Currency accounts. It ensures that the requirement of the funds by the account holder for permissible transactions is met. But the limit prescribed for maintaining maximum balance in the account is not exceeded. In addition, banks may arrange for borrowings from abroad. Banks may negotiate terms of credit with overseas bank for the purpose of grant of PCFC to exporters, without the prior approval of RBI, provided the rate of interest on borrowings does not exceed 3.75% over 6 months LIBOR.
Analysis:
Before 2009, bank has not issued any PCFC but from 2009 it has started to issue this credit and this credit is increasing with the passage of time. Figure 6: PCFC (Pre-Shipment Credit in Foreign Currency)
25 20 15 10
5
0 2008 2009 2010 2011 2012
(Rs. in Crore)
2011 2012
8.07
22
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Demand Loans
A loan which is repayable on demand (i.e. without prior notice), rather than on a specified date is known as demand loan. In other words, it is a loan (such as on overdraft) with or without a fixed maturity date, but which can be recalled anytime (often on 24- hour notice) by the lender and must be paid in full on the date of demand. Also, the borrower can pay off a demand loan at any time without incurring early payment penalties. It is also known as Call Loan or money at call. It is given for a maximum period of 3 years such as micro, small, medium loans etc. and if the loan is repayable in more than 3 years it becomes the term loan. Figure 7: Demand Loans
2500
2000
1500
1000
500
(Rs. in Crore)
2011 2182 2012 2454
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10
-10
-15
(Rs. in Crore)
2012
12.46
Analysis:
Demand loans shows downfall in the year 2009 by Rs. 216 crore and then slowly increased in the year 2011 and 2012. The reason for this was that the ratio of interest income was relatively less in demand loans than any other. So the exposure from demand loans was shifted to other which probably gave high rate of return in the interest rates. Also, this increased interest income. Therefore, the target for demand loan merely shut down and then increased a little in next consecutive years.
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2008
2009
2010
2011
2012
(Rs. in Crore)
2011 2012
836.97
1024
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20
0 2009 2010 2011 2012
(Rs. in Crore)
2011 2012
19.84
22.35
Analysis
Foreign Currency Demand Loan is showing a decreasing trend and this is because of the same reason that the rate of interest income vis--vis demand loans was not feasible and viable enough to make bank to earn profits.
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Cash Credit
It is usually a credit at a bank established by the negotiation of a loan from a bank. It is like a running current account facility to the corporate specifying the withdrawal limit and drawing power. The application for the cash credit loan is received by the branch, and the branch officer process the application, if the loan amount is within the sanctioning limit power of the branch then they can approves the loan otherwise they send the application to the Zonal office after analysing and giving their comments. When the application for the cash credit loan is received, the first step is to check the documents whether the required documents are attached with the file or not. Then the balance sheet of last two years and proceeding 4 years is analysed and the key ratios: Current ratio, Debt equity ratio, Interest service coverage ratio and profitability ratio are calculated and compared with the standard bank. Interest Service Coverage Ratio is considered to be the most important ratio for cash credit loan because it shows whether the applicant is able to pay off the interest amount of the loan or not. If the applicant is able to fulfil those standard format requirements then the further processing is done of his application otherwise the loan has been rejected and when the applicant fulfils the ratio requirements, then the maximum amount of loan for which the applicant is credible is calculated. While calculating CC limit, more stress is given on the primary assets mortgaged by the bank i.e. stock and debtors but secondary security of property and third party guarantees may be required to remain on the safer side. Credibility is calculated from the primary assets, 40% margin is there in case of debtors (Book Debts) and 25% margin in case of Stock. Then it is calculated whether the company or firm is Micro, Small or Medium which is done on the basis of Fixed Plant and Machinery. If the value of is less than 25 lakhs it is considered to be micro, if it is greater than 25 lakhs but less than 5 crore it is small enterprise and greater than 5 crore and less than 10 crore is medium enterprise and beyond this large enterprises.
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The SBS rating form is filled and the rate of interest is calculated on the basis of category of SBS rating in which applicant lies. Standard format is there for SBS rating to check how stronger the applicant has the credibility. More the credibility lesser will be the rate of interest. Proper inspection is done by the authorized person of the applicants property which is held as the secondary security. Then the market value, book value and the circle value of the property is calculated. The value of the property which is taken into consideration is the circle rate, it is the rate at which bank can sell the property at any point of time. Processing officer gives his comments on various ratios and findings after analysing the application. Working capital assessment is done and the processed application has been sent to the sanctioning authority. Sanctioning authority analysed the application according to their needs and if they found suitable then approves the loan unless gives their comments and sent back to the processing officer, if processing officer is able to fulfil such requirements then he can do otherwise asks for branch manager help. If the requirement is fulfilled by the branch manager, then the loan is approved, otherwise it has been rejected. The credibility of the applicant is reviewed every year with the same procedure.
(Rs. in Crore)
2012 3147
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Overdrafts
An overdraft occurs when withdrawals from a bank account exceed the available balance. In this situation a person is said to be overdrafts. If there is a prior agreement with the account provider for an overdraft protection plan, and the amount withdrawn is within this authorized overdraft limit, then interest is normally charged at the agreed rate. If the balance exceeds the agreed limits, then fees may be charged and higher interest rate might apply. Figure 11: Overdrafts over last 5 Years
1400 1200 1000 800 600 400 200 0 2008 2009 2010 2011 2012
(Rs. in Crore)
2011 914 2012 835
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(Rs. in Crore)
2011 -28.65 2012 -8.64
It can be seen that in the year 2009, there was a drastically increase in the overdrafts with a growth rate of 31.24%. Also, in the year 2010, there has been an increase in the overdrafts but thereafter that it has shown a negative growth rate. The reason for this could be the customers are becoming more efficient to maintain their account and also there requirement is also within their limits.
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6.5
Table 16: INTEREST INCOME ON ADVANCES
2008 1 Interest earned (a)+(b)+(c)+(d) (a) Interest/discount on advances/bills (b) Income on Investments (c) Interest on balances with RBI and other interbank funds (d) Others 2 3 4 Other Income TOTAL INCOME ( 1 + 2 ) Interest expended (a)On Deposits (b)On Borrowings (c)Subordinated Bonds (d)Others 5 Operating expenses (a)+(b) (a) Employees cost (b) Other operating expenses 6 7 TOTAL EXPENDITURE (4)+(5) OPERATING PROFIT (3-6) 52 2116 14471 8125 7058 562 505 ---2644 1657 987 10769 3702 65 3051 19398 10848 9776 533 539 ----3094 1937 1157 13942 5456 61.06 2616.63 20494.62 12122 10812 555 755 ----3667.82 2296.07 1371.75 15789.86 4704.76 294.35 2641.78 24393.50 13941 121786 8129 6350 3146 5068.24 3475.44 1592.80 19009.27 5384.23 264.31 3321.17 3801.84 20167 179570 11453 6658 3991 4940.66 3053.42 1887.24 25107.89 6693.95 12355 9276 2639 388 2009 16347 12539 3370 373 2010 17877.99 13103.23 4464.30 249.40
(Rs. in Crore)
2011 21751.72 15500.23 5171.71 785.43 2012 28480.67 20240.63 7141.76 833.97
This is the income earned by Bank of India by way of lending money. This contributes to the profit largely. Thus, it is treated very carefully as this lay down the true financial position of the bank i.e. profitability to much extent.
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25000
20000
15000
10000
5000
(Rs. in Crore)
2011 15500.23 2012 20240.63
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(Rs. in Crore)
2011 2012
Growth (%)
35
18
31
Analysis: Though interest income on advances is increasing but the actual increment is shown by the growth rate as shown. The branch growth is declining in interest income from 35% in 2009 to 31% in 2012.
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(Rs. in Crore)
2012 14.75 9.25 5.5
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10
5 0 2009 2010 2011 2012
Analysis
Thus it is showing an increasing trend and there is a sign of good or better performance. Bank should focus on minimizing cost of deposits and maximizing yield on advances. It also shows the sign of productivity of the bank because there is hardly any change in number of employees in the bank. Table 20: Net Profit of the Bank
2009 Net Profit 3073 2010 1787 2011 2542
(Rs. in Crore)
2012 2678
The main reason of large change in profit in 2009 is that more are more deposits in the bank and due to more deposits bank have to pay more amount of interest and the amount of the operating expenses also increases which causes a decline in the Net Profit. There are various government schemes under which bank has to lend the money to priority sectors at low rate of interest which restricts the bank to earn more on lending.
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7. METHODOLOGY
The following is the methodology used in the project:
Design: This is an Analytical work on processing of loans and advances in Bank of India, one of the largest Nationalized Banks.
Data Collection: Both the primary and secondary data are used in the study. Primary data- Calculated the creditworthiness of certain companies by stressing on ratio analysis but for privacy of the bank the data is not available in the report.
Secondary data- Internet, Books, Banks Circulars, Educational Material and Bank
files etc.
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8. Findings
Need for credible, independent judgments on the creditworthiness and solvency of depository institutions in the zonal office. Zonal office of Bank of India, credit analyses presents proven methodologies that will allow you to produce an informed evaluation of the impact of a banks credit risk on investment, lending and acquisition decisions. Bank of India credit analysis teaches the qualitative and quantitative factors and methodology used to evaluate banks credit policy. Through complimentary case studies and hands on analyses, participants leave with knowledge of technique and perspective necessary to access the creditworthiness and solvency of depository institutions so they can make independent decisions.
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10. Recommendations
Executives/Co-ordinators shows that the presence of errors is mostly avoidable, only if a little time is spent in reviewing the file before logging it into Credit. Loans schemes of Bank of India are very good but aggressive marketing is required to compete with marketing strategies of private banks. Efforts should be made for direct marketing with clients/ corporates for entry into consortium arrangements. All the employees and customers should be more aware about the details of the internet banking. Focus should be made to increase fee based income besides high yielding advances.
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11. Limitations
Due to the shorter period of time of 2 months, it is not possible to go in depth of each kind of particular loan, so more stress is given on Cash Credit loans, Term loans and Consortium lending during the training period. Bank of India has certain rules of privacy because of them I am not able to show the guidelines of the Bank set for the approval of loan, parameters of the key ratios and to show any processed application. Comparisons made for recommendations were with the past year data of Bank of India and the industry benchmarks but there is a possibility that some other banks are doing more well in some particular areas. As a trainee and not a permanent employee of the bank, bank managers hesitate to disclose the regulatory matters and some information and may be some guidelines of the bank. Even they disclose they cant permit to use the information in the report. Eg. Name of any party.
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13. Appendices
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(Rs. in lakhs)
31.03.2013 Estimated
31.03.2014 Projected
8. Operating profit before interest(3-7) 9. Interest 10.Operating profit after interest(8-9) 11. (i) Add other non-operating income (ii) Deduct other non-operating exp. 12. Profit before tax/loss {10+11(iii)} 13. Provision for taxes 14. Net profit/loss (12-13) 15. (a) Dividend & Dividend Tax (b) Rate 16. Retained profit (14-15) 17. Retained profit/Net profit (% age)
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(Rs. in lakhs)
31.03.2013 Estimated 31.03.2014 Projected
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23.Surplus(+) or deficit(-) in P&L account 24. NET WORTH 25. TOTAL LIABILITIES CURRENT ASSETS 26.Cash and bank balances 27.Investments(other than long term investments) 28.(i) Receivables other than deferred & export (ii)Export receivables(including bills purchased & dis.) 29. Instalments of deferred receivables (due within 1 yr.) 30.Inventory: (i) Raw materials(including stores & other items) (ii) Works-in-process (iii)Finished goods (iv) Other consumable spares 31.Advances to suppliers of raw materials & stores/spares 32.Advance payment of taxes 33.Other current assets 34. TOTAL CURRENT ASSETS(total of 26 to 33) FIXED ASSETS 35.Gross Block(land & building, machinery, WIP) 36.Depreciation to date 37. NET BLOCK (35-36) OTHER NON-CURRENT ASSETS 38.Investments/book debts/adv./deposits (i)Investments in subsidiary companies/affiliates (ii)Advances to suppliers of capital goods & contractors 39.Non-consumables stores & spares 40.Other non-current assets including dues from directors 41. TOTAL OTHER NON-CURR.ASSETS 42. Intangible assets (patents, goodwill, prelim.) 43. TOTAL ASSETS (34+37+41+42) 44. TANGIBLE NET WORTH (24-42) 45. NET WORKING CAPITAL(17+24)-(37+41+42) 46. Current Ratio 47. Total Outside Liabilities/ Tangible Net Worth 48. Total Term Liabilities/Tangible Net Worth
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Rules for lending under Consortium Arrangements Number of Participating banks: Maximum 10 banks in case of fund based working capital limits up to Rs. 100 crore and maximum 15 banks in case of limits exceed Rs. 100 crore. Minimum share of each bank: 5% of fund based credit limits or Rs. 5 crore whichever is more. Entry into consortium: A new bank can be inducted into the consortium if the existing member banks/s is/ are not able to take up share in enhanced limits or when the existing bank/s is/ are unable to adhere to recommended time frame for disposal of proposal. Exit from the consortium: The member bank will not be permitted to leave the consortium before the expiry of at least 2 years from the disbursement of its share after the joining of the consortium. If a member bank is unable to take up its enhanced share, such enhanced share in full or in part can be reallocated among the other existing members. If the other existing members are also unable to take up such enhanced share of an existing member bank, a new bank willing to take up the enhanced share may be inducted into the consortium with the borrower. In cases where the other existing member banks or a new bank are unwilling to take over the entire outstanding of an existing member desirous of moving out of the consortium after the expiry of above mentioned period of 2 years, such bank may be permitted to leave the consortium by selling its debt at a discount and/or furnishing an unconditional undertaking that the repayment of its dues will be deferred till the dues of other members are repaid in full. Sanction of additional/ad hoc limit: Lead bank to have the freedom to sanction additional/ad hoc credit limits up to a predetermined percentage in emergent situations/contingencies. The other members to be advised immediately about such sanction together with their pro-rata share in the additional limits.
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Lead Bank Fees: Where Bank of India is the lead Bank, it may charge service charges excluding Service Tax as follows: Limits up to Rs. 10 crore: Over Rs. 10 crore up to Rs. 50 crore: 0.25% p.a. Maximum Rs. 2.00 lakhs 0.15% p.a. Minimum Rs. 2.00 lakhs Maximum Rs. 7.00 lakhs Over Rs. 50 crore: 0.10% p.a. Minimum Rs. 7.00 lakhs Maximum Rs. 15.00 lakhs Grant of facility to the borrower by a non-member bank: The borrower should not obtain any additional banking facility or open current accounts or obtain bill limits, guarantees/acceptances, letter of credit etc. without the concurrence of the lead bank. As and when such permission is granted, other member banks should be advised. In case of borrowers availing of term loan finance from Bank of India, they need not necessarily avail working capital limits from it and vice versa. They should, however, ensure proper tie up for the same. Time frames for sanction of fresh/ enhanced credit limits: Proposal for sanction of fresh/enhanced credit limits Proposals for renewal of existing credit limits Proposal for sanction of ad hoc limits Proposed 45/25 days 10 days 5 days
Documentation: Single Window Concept Leading (SWCL) for documentation. Release of assets: In case, the borrower desires to have release of an asset which is charged to the consortium the borrowers request should be considered in a joint meeting of all the member banks after taking into consideration the existing value and nature of asset to be released and other assets available, the purpose for release of asset, the existing position of the accounts. However, in emergent situations, the leader and the member bank having the next largest share will be vested with the powers to take a decision in the matter. The decision will be communicated by the leader and it will be binding on all member banks in the consortium subject to provisions of the inter-se-agreement.
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Commitment charges: These are stipulated on the utilized portion of the working capital/credit limits in relation to the quarterly operating limit/drawing limit at rates prescribed from time to time. Shares of limits fund based and non-fund based in the consortium: It is desirable that non-fund based limits should be shared in the same proportion as the fund based limits in the consortium. Rate of interest: Each member bank will have the discretion to decide Credit rating, and consequently, the rate of interest to be charged on the portion of credit limits extended by it to the borrower, in keeping with their risk perception and internal rules framed in this regard. Sharing of risk: This will be done in the same proportion as banks share in the fund based working capital limits. Periodic Meetings: Consortium meetings of all member banks will be held annually to access the credit requirements of the borrower. The lead bank and the bank having the next largest share in the credit facilities should meet at quarterly intervals to access the performance of the borrowers on the basis of statements under the Quarterly Information System (QIS) and fix the operating limits/individual banks share thereof for the next quarter. Submission of Information: Each of the member bank should submit to the lead bank on quarterly basis information on the following aspects so that a proper review of the performance of the company can be done during the quarterly/annual meeting held: 1) Extent of utilization of limit 2) Conduct of the account and status of the account 3) Any adverse audit observations in the account Inspection/Verification of securities: A joint inspection should be done by all member banks in rotation, the order of which may be decided in the joint consortium meeting. Apart from the joint inspection annually, stock audit/verification to be done by an audit/Chartered Accountant once in a year. All expenses in this regard will be borne by the borrower.
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Classification of Accounts: As per recent RBI directives, each bank may classify the borrowers account according to its own record of recovery and other aspects having a bearing on the recoverability of the advance. In view of this, it will be responsibility of the bank classifying the account as NPA to advice the lead bank and other member bank of the consortium of such classification promptly. Once the account has been categorized as NPA by any of the member bank, a joint meeting of all the member banks should be called to determine future course of action. Bank reserves the right to amend, alter, add, modify or cancel any and all terms and conditions of the ground rules as and when required by the bank.
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14. Bibliography
Study Materials from Bank of India: Credit Policy 2011, Bank of India Large Corporate Credit, Bank of India Credit Monitoring Policy by Bank of India Workshop Materials from Credit Officers
Reference Books: Financial Management, I.M. Pandey Indian Institute of banking and finance, Legal Aspects of Banking Operations, Macmillan India Ltd
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