1

New Delhi Institute of Management

50 (B&C), 60, Tughlakabad Institutional Area, New Delhi-110062
E-mail : placement@ndimdelhi.org Website : www.ndimdelhi.org

Title Page

SUMMER TRAINING REPORT ON
To study the credit appraisal process at Punjab National
Bank
Project Title
<Font Size 22>
For
<Font Size 18>
Company name
<Font Size 22>
Under the supervision
of
<Font Size 18>
Name of Industry mentor
<Font Size 22>
Submitted By- Submitted to-
Student Name Name of Faculty guide
2

Roll number <Font Size 20>
<Font Size 20>

3


(specimen copy)
SUMMER TRAINING REPORT ON

Corporate Social Responsibility in public sector
For
Power Grid
Under the supervision
of
Abhinandan



Submitted By- Submitted to-
Harsh suri Name of Faculty guide
Shagun arora
Roll number 418


4

ACKNOWLEDGEMENT

I wish to express my sincere gratitude to the Human Resource Department of
Barista Coffee Company Ltd. for allowing me study the various functions of the
Human Resource Department as required for making this project.

I am deeply indebted to Mr. Sanjay C. (CEO) , Mr. Rajesh Rathi (Sr. Manager ,
HR) , Mrs. Anjali Bhupendra (Associate Manager, HR) and Mr. Rohit Bhardwaj
(Sr. Executive, HR) for all the help and cooperation, encouragement and Guidance.
I would specifically thank Mr. Bhardwaj for sharing his knowledge and experience
during my summer training project at Barista Coffee Company.

Lastly, I feel privileged for getting an opportunity to undergo training in an
esteemed organization like Barista Coffee Company Ltd.


5

DECLARATION
I Sameer Suri student of New Delhi Institute Of Management 2010-2012 Batch
declared that every part of the project report Understanding factors affecting
Employee Satisfaction for Barista Coffee Company that I have submitted is
original.
I was in regular contact with the nominated guide and contacted 4 times for
discussing the project.

Date of project submission:

(Sameer Suri)

Facultys Comments:

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________



(Dr. B.K. Dhup)
6





















EXECUTIVE SUMMARY
7



TABLE OF CONTENTS

1. COVER PAGE
2. TITLE PAGE
3. ACKNOWLEDGEMENT
4. DECLARATION
5. TABLE OF CONTENTS
6. EXECUTIVE SUMMARY
7. INTRODUCTION
I. COMPANY BACKGROUND
II. OVERVIEW OF INDUSTRY
III. EMPLOYEE SATISFACTION
8. RESEARCH PROJECT
9. LITERATURE REVIEW
10. FINDINGS AND ANALYSIS
11. CONCLUSION
12. LIMITATIONS & CONSTRAINTS
13. RECOMMENDATIONS & SUGGESTIONS
14. REFERENCES / BIBLIOGRAPHY
15. APPENDIX
8

















1. INTRODUCTION
9



Overview of the Industry

There have been many great developments in the Indian banking industry over the
last few decades and is expected to remain the same in the coming years.

The Indian baking industry is divided into two categories, the first one is scheduled
bank and the second one is non-scheduled bank. Commercial banks and other co-
operatives banks come under schedule bank. Scheduled bank is having almost
67,000 branches in India.

Currently, India is having 88 schedules commercial banks, in which 28 public
sector banks, 29 are private sector banks and 31 are foreign banks.

Many efforts are being made to improve the regulation of the banking sector by the
policy makers which consist of Reserve bank of India (RBI), Ministry of finance
and related government, financial sector regulatory entities.

Major players in the Industry
Major players are as follow
HDFC bank
Axis bank
Bank of India
Punjab National Bank
ICICI ban limited
Union bank of India
Citi bank
Canara bank
Bank of Baroda
10












INTRODUCTION TO THE COMPANY

11

Company Background
Punjab National Bank was founded in 1894 and today is the second largest state-
owned commercial bank in India with about 5000 branches across 764 cities. PNB
serves more than 36 million customers. The bank has been ranked 248
th
biggest
bank in the world by Bankers Almanac, London. The banks total assets for
financial tear 2007 were about US$60 billion. PNB has a banking subsidiary in the
UK, as well as branches in Hong Kong, Dubai and Kabul, and representative
offices in Almaty, Dubai, Oslo, and shanghai.
Punjab National Bank is one of the big four banks of India, along with ICICI Bank,
State Bank of India and HDFC Bank- its main competitors.
Vision and Mission Statement
Vision
To make the bank as a world class progressive, cost effective and customer
friendly institution providing suitable financial and related services and also
excelling in corporate sector.
Mission -Banking for the unbanked

Brief History
Punjab National Bank was registered on 19 May 1894 under the Indian Companies
Act with its office in Lahore.
PNB has got the recognition as a bank which started solely with Indian money and
has survived to the present.
Punjab national bank has also got the opportunity in past to handle the accounts of
national leaders like such as Mahatma Gandhi, Shri Jawahar Lal Nehru, Shri Lal
Bahadur shastri, Shrimati Indira Gandhi, as well as the famous jalianwala Bagh
Committee.


12

Company Timeline
1895 PNB established in Lahore.
1904 PNB established branches in Karachi and Peshawar
1947 Due to partition of India and Pakistan at Independence, Punjab
National Bank lost its premises in Lahore, it continued to operate in Lahore.
1960 PNB amalgamated Indo-Commercial Bank Limited in 1933 in a
rescue.
1961 PNB acquired Universal Bank of India.
1963 The Government of Burma nationalized PNBs branch in Rangoon
(Yangon)
1965 After the Indo-Pak war the Indian banks were seized by the
government of pakistan, including PNBs head office, which may have
moved to Karachi. Punajab National Bank is also having its branches in East
Pakistan (Bangladesh).
1969 PNB and 13 other major banks on 19
th
July, 1969 were nationalized by
Indian Government.
1978 In London a branch of PNG was opened.
1986 The reserve Bank of India wanted PNB to transfer its branch in
London to State Bank of India after the branch was found indulged in a
fraud scandal.
1988 Hindustan Commercial Bank Limited was acquired by PNB in a
rescue.
1993 PNB acquired new Bank of India, which the government of India has
nationalized in 1980.
1998 PNBs representative office in Almaty, Kazakhstan was established.
2003 PNB took over Nedungadi Bank (established the bank in 1899.
2004 A branch was established by PNB in Kabul, Afghanistan.

13

PNB Branches (National & International)

PNB has its Branches in all the 7 metropolitan and cosmopolitan cities in India,
Which are New Delhi, Mumbai, Calcutta, Chennai, Bangalore, Hyderabad and
Ahmedabad.
Punjab National Bank has its branches in both urban as well as rural areas. PNB
has always focused in setting up its branches abroad by recognizing economies of
scale. Some of them are in these places :

Almaty

Kazakhstan

Shanghai

China

London

Kabul

Afghanistan

Forbes Global 2000 Ranking
The ranking of Punjab National Bank was 1243 in the Forbes Global 2000

14

Products and Services

There are some products as well as services which are divided in to several
categories like personal, international, business, treasury, corporate and
rural. In personal banking section the products offered by PNB are deposits,
debit cards, Gen-Next, merchant banking, insurance, personal banking
services, loans, lockers and credit cards.

Investment banking

Consumer banking

Commercial banking

Retail banking

Private banking

Asset Management

Pension

Mortgage loans

Credit cards

In business sectors there are some products and services offered by PNB which are
such as deposits, business banking services, loans and advances and lockers. In
corporate banking section, Punjab National Bank offers products and services like
wholesale banking, loans and advances, deposits and corporate banking services.

15

Awards and Recognitions
Gold trophy of SCOPE meritorious Award for Best Managed Bank,
Financial Institution or Insurance Company for the year 2009-2010 by
standing conference of public Enterprises, from the president of India was
awarded to Punjab National Bank.
PNB adjusted as Top Indian Company under Banks Category by Dum and
Bradstreet .
Golden peacock Corporate Social Responsibility Award, 2011 by institute
of Directors was given to PNB.
BML Munjal Award for Excellence in Learning and Knowledge
Development By Hero Mind mine Institute was awarded to Punjab
National Bank.
Golden Peacock National Training Award 2011 for the best training
provided by Institute of Directors was bagged Punjab National Bank.
PNB bagged Second prize under the category of Best Wind Power Project
Finance 2011 by World Institute of Sustainable Energy.




Banks Logo




16















3. RESEARCH PROJECT











17


Objectives of the Study / Project
To learns the importance and details of financing the others as well as in
SME sector.

To study the chain of events of processing a loan proposal from receiving
the application from the borrowers, doing credit rating of the borrower and
the company, analyzing the financial statements, sanctioning to
disbursement and the post sanction reviews.

To learn the procedures of doing the rating.

To learn about the loan policy adopted by Punjab national bank.

To learn how credit report is prepared in the bank.

To study how internal as well as external rating is done.

To study how rate of interest is determined by PNB for giving loan.

To get a clear picture on how the banks operates and work carried out in a
bank.






18












4. LITERATURE REVIEW









19

Assessment of working capital
The main objective of any industry is to earn sufficient amount of profit in order to
survive. For this an industry needs funds to finance to acquire fixed assets like
plant and machinery, land and building etc. and also to carry out day to day
operations of the business. Working capital is described as the finance needed to
obtain the desired level of fixed assets in order to continue the operations of the
company without any problem. There are two things on which the working capital
is based, firstly, the volume of activity which includes the level of operations (sales
and production). Secondly, the activity carried out on manufacturing process,
products etc.
Methods for the assessment of working capital
Operating cycle method: Every manufacturing activity has its own operation
cycle which includes purchase of raw material and using that raw material to
convert into finished good and making sale by selling those finished goods. The
time that lapse between the cash expenditure and cash receiving from the sale of
these finished good is called the length of operation cycle.
Operating cycle is also called as cash to cash and it shows how cash is converted
into raw material, stock in progress, bills receivable and finally back to cash.
20

Traditional method:

Raw material Number of months Rs.1
Stock in progress Number of months(cost
of production)
Rs.2
Finished good Number of months(cost
of production)
Rs.3
Sundry debtors Number of months(cost
of production)
Rs.4
Total current assets 1+2+3+4
Credit received on
purchase
5
Advance payment on
order received
6
Total working capital
needed
1+2+3+4-(5+6)
MPBF Method- In this there are three methods for the assessment of working
capital requirement
First method of lending: In this method, around 75% of the working capital
gap is financed by the bank. The working capital gap is equal to total current
assets minus current liabilities other than borrowing from the ban and the
rest of the 25 % of the working capital gap is taken as the margin which is to
come from long term borrowings which include funds owned and term
borrowings. This is done to maintain a minimum current ratio of 1.17:1 and
the borrowers margin is considered as the difference of 1.17 and 1. The
borrowers margin is also called as net working capital.
21

Second method of lending: Around 75% of the total current is financed by
the bank and the borrower has to provide a minimum of 25 % of total current
assets as the margin out of long term sources. This is done to maintain a
minimum current ratio of 1.33:1.
Projected balance sheet method: This method is used for the borrowers who are
involved in manufacturing as well as trading activities and requiring fund based
working capital finance up to 25lakhs and more. In this method, the projected
balance sheet, financial position is analysed in detail in order to find out how much
working capital will be required. The analysis is based on the classification of
current assets as well as liabilities, collection of financial information of the
borrower and evaluation of liquidity in the operations of the business.
Assessment of term loan
The term loan is given to fund the capital expenditure which is needed for
acquiring of the land and building, plant and machinery etc. The term loan is also
provided to improve the quality of the product or to increase the productivity as
well profitability. The term loan is given for the acquisition of the fixed assets.
For the assessment of term loan a study is done which is called Techno Economic
Feasibility Study. Careful analysis of all the things which is associated with the
success is done in order to make the study successful. For this the entrepreneur is
required to submit a detailed project report which must be passed by an approved
agency. The study includes technical as well as managerial aspects and also the
projected performance of the company. The feasibility study is considered as a part
of credit appraisal process.


22

BASEL accords and risk management
The Basel accords are generally the banking supervision accords namely Basel 1
and Basel 2 issued by the Basel committee on banking supervision.
Basel 1 provided a set of norms for the allocation of the capital which enabled
many banks in the allocation of the capital in order to counter risk faced by them.
CRAR= Tier 1 + Tier 2 capital/Risk weighted assets
Tier 1 capital includes equity share capital, statutory reserve, other disclosed
free reserve, capital reserve representing surplus arising out of the sale of asset.
Tier 2 capital includes revaluation reserve (at 55% discount), general provision and
loss reserve, subordinate debt and hybrid debt capital instruments.
Risk weighted assets: Risk weighted assets were introduced by Basel. In this all
the assets of the bank are having some weights and by multiplying the weights
with the value of the assets we get the risk based value of the a

23

Credit appraisal
Introduction
Credit appraisal is a process by which the lender accesses the credit worthiness of
the borrower. It takes various things into account which includes income of the
borrower, number of dependents, monthly expenditure, and repayment capacity.
The banks are being exposed to different risk due to changes in the financial as
well as technical sector. These risk are classified into different categories:

Industry Risks Industry risk includes Government
regulations and policies, availability of
infrastructure facilities, Industry rating.
Business risks Business risk includes operating
efficiency, competition faced from the
units engaged in similar products,
demand and supply position etc.
Management Risks Management risks background integrity
and marketing standing/reputation of
promoters, organizational set up and
management hierarchy, achievement of
targets etc.
Financial Risks Financial risks financial
strength/standing of the promoters,
reliability and reasonableness of
projections, past financial performance
etc.
24

Market Analysis
Market analysis includes the market demand and potential is to be examined for
each product item and its variants/substitutes by taking into account the selling
price of the products to be marked with the prices of the competing
products/substitutes, discounts structure, arrangement made for after sale service,
competitors and their level of operation with regard to production and products and
distribution channels being used etc.

Technical Analysis
In technical analysis in a dynamic market, the product, its variants and the product-
mix proposed to be manufactured in terms of its quality, quantity, value,
application and current taste/trend requites through investigation.

Financial Analysis
Financial analysis includes all the important aspects which need to be analyzed
under this head should include cost of project, means of financing, cost of
production, cost of production, break-even analysis, financial statements as also
profitability/funds flow projections, financial ratios, sensitivity analysis which are
discussed as under:








25

Cost of project & Means of Financing

Land and building including transfer, registration and development charges
as also plant and machinery, equipment for auxiliary services etc. are
considered to be the major cost of any project are

Besides Banks loan, the project cost is normally financed by bringing
capital by the promoters and shareholders in the form of equity, debentures,
unsecured long term loans and deposits raised from friends and relatives
which are not repayable till repayment of banks loan. Resources are raised
for financing project by raising term loan from banks/Institutions which are
repayable over a period of time, deferred term credits secured from suppliers
of machinery which are repayable in installments over a period of time.

In case of project finance, the promoter/borrower may bring in upfront his
contribution (other than funds to be provided through internal generation)
and the branches should commence its disbursement after the stipulated
funds are brought in by the promoter/borrower. A condition to this effect
should be stipulated by the sanctioning authority in case if project finance,
on case to case basis depending upon the resourcefulness and capacity of the
promoter to contribute the same.


26

Profitability Statement
The profitability statement which also known as Income and Expenditure
Statement .After considering the net sales figure and details of direct
costs/expenses relating to raw material, wages, power fuel, consumable
stores/spares and other manufacturing expenses to arrive at a figure of gross profit
profitability statement is prepared. The following things are taken into account to
arrive at figure of net profit which are other expenses like salaries, office expenses,
packing, selling/distribution, interest, depreciation and any other overhead
expenses and taxes. Those projections of profit/loss are prepared for a period
covering the repayment of term loans. The economic appraisal includes
scrutinizing all the items of cost, and examining the assumption, if any, to ensure
that these are realistic and achievable.

Break-Even Analysis
Analysis of break-even point of business enterprises would help in knowing the
level of output and sales at which the business enterprises just breaks even i.e.
there is neither profit nor loss. A business earns profit if it operates at a level
higher thank the break-even or break-even point. If, on the other hands, production
is below this level, the business would incur loss, The break-even point in an
algebraic equation can be put as under:

Break-even point
(Volume or Units)
Total Fixed Cost/(sales price per
unit-Variable Cost per unit)
Break-even point
(sales in rupees)
(Total Fixed Cost * Sales)/(Sales-
Variable Costs)


27

Fund-Flow Statement:

A fund-flow statement is also called as Statement of Movement of Funds .It is
made by comparing the successive balance sheets on two specified dates and
finding out the net changes in the various items appearing in the balance sheets.
A critical study of the statement shows the various changes in sources and
applications(uses) of funds to ultimately give the position of net funds available
with the business for repayment of the loans, A projected Fund flow Statement
helps in answering the under mentioned points.
How much funds will be generated by internal
operation/external sources?
How the funds during the period are proposed to be deployed.
Is the business likely to face liquidity problems?


Balance sheet projections:

Balance sheet is the statement which helps to analyze as to what an enterprise
owns and what it owes at a particular point of time.
An appraisal of the projected balance sheet data of the unit would be concerned
with whether the projections are realistic looking to various aspects relating to
same industry.

28

Financial Ratios:

While analyzing the project, it is important to study the ratios also :
Ratio Formula Remarks
1 Debt-Equity ratio Debt(Term
Liabilities)/Equity
The level of DER varies
from case to case
depending upon the
nature of the project,
promoters strength
availability of collateral
securities et.. These days
the
Debt-equity of 1.5:1 is
considered reasonable.
A very high ratio means
the need of lower
repayment of loan in a
shorter period.
2. Debt-service coverage ratio Debt+
depreciation+ Net
Profit)After
Taxes)+ Annual
interest on long
term debt/Annual
interest on long
term debt +
Repayment of debt
DSCR is must be 1.5 to
2. A very high ratio
means that loan can be
repaid in a shorter
period. This ratio shows
the ability of a company
to make its payment for
loan which includes
principal as well as
interest.
3. Tangible net worth(TNW)/Outside
liability Ratio
Tangible net
worth(paid up
capital + Reserves
& surpluses minus
Intangible
Assets)/Total
outside Liabilities (
Total Liabilities
Net worth)
This ratio gives a view
of capital structure of
the borrower. If the ratio
is higher, It means that
borrower is depending
more on its own funds
and less on outside
funds and vice versa.
29

4. Profit Sales Ratio Operating
profit/Sale
This ratio calculate the
margin which is
available after covering
the cost of
manufacturing,
5. Sales to tangible assets ratio Sales/Total assets
Intangible Assets
This ratio is of keen
importance as it shows
how assets can be
utilized to their best
level. If the ratio is
higher, it means that the
assets are being properly
utilized and focus is
required to be given on
Fixed assets when they
become old and
depreciated. As, in these
cases the ratio is higher
as the value of the
denominator is very low.
6. Output-Investment Ratio Sales/Total Capital
Employed(including
fixed and current
assets)
This ratio is the
indicator of efficiency
with which the total
capital is turned over as
compared to other units.
7. Current Ratio Current
assets/Current
Liabilities
If the ratio is higher it
means there is higher
short term liquidity. It
shows the short term
financial position of the
firm.


30

Internal rate of return
The discount rate often used in capital budgeting that makes the NPV of all cash
flows from a project equivalent to zero. If IRR is higher, it means that the project is
considered more preferable to undertake. IRR must be higher than the cost of
project.

Sensitivity Analysis
Sensitivity Analysis is a systematic approach which is used to reduce the
uncertainty which is caused by some assumption made. Sensitivity analysis helps
in measuring the profitability of a project. In this, sensitive elements are assigned
different values and the values are assigned both optimistic and pessimistic.

31

Management of credit risk/Credit risk rating
It was introduced in 2001.

Credit Risk Rating software is a part internal sever of the bank which
is named as PND-TRAC (Techniques for Risk Assessment of Credit)
on 15.03.2006.

The main objective of the credit risk management is to create credit
portfolio at low to moderate levels of risks.

Credit Risk
Credit Risk is the risk of default by borrower due to incapacity to
repay his debts in accordance with the agreed terms and conditions.
Credit Risk Rating
Borrowers are assigned credit rating, based on an analysis of their
ability and willingness to repay the debt which is taken from the
bank. This rating is assigned on a scale, which generally has 6-8
levels.

Companies which fall under same credit risk category have similar
chances of default. The chances of defaults are lower, when the
credit rating is better and vice-versa.
The credit risk management process includes following things:
a) Credit risk identification

b) Credit risk management

c) Credit risk grading

d) Analysis of data related to rating
e).Credit risk control
32

Identification of credit risk
It is necessary to identify the areas in which there is credit risk in case of every
borrower as well as industry.
Credit risk management
In order to analyse management of credit risk the bank has developed following
models:

Sr.
No.
Credit Risk Rating Model Applicability
Total Limits Sales
1. Large Corporate Above Rs15 crore
(OR)
Above Rs
100 crore
expect
Trading
concerns
2. Mid corporate Above Rs5 crore and
up to Rs 15 cr (OR)
Above Rs 25
cr and up to
Rs 100 cr.
All trading concerns falling in the
large corporate category shall also be
rated under this model
3 Small Loans Above Rs 50 lakh and
up to Rs 5cr (AND)
Up to Rs 25
cr
4 Small Loans 2 Above Rs 2 Lakh and
up to Rs 50 Lakhs.


33

Sources of risks considered in the rating models
The credit risk rating model takes into account the following broad areas in
evaluating the default risk of a borrower
1. Financials
2. Business/Industry performance
3. Industry Outlook
4. Quality of Management
5. Conduct of Account
The rating tool is focused on the above-mentioned areas for analyzing the credit
risk rating of a company. The areas are categorized into sub-areas and each sub-
area is further split into a number of parameters.
Different weights (in%) assigned for the above mentioned areas under various
models as under-
Models
Parameters Large Mid Small Loan
SL
SL ll New project
Financial 40% 40% 40% 36% 25%
Business
and Industry
25% 25% 20% 16% 30%
Management 25% 20% 20% 28% 45%
Conduct of
A/C
10% 15% 20% 20% ---

Weights in bold denote highest weights assigned in particular model.



34


Credit risk rating tool methodology
The rating is done on the basis of following parameters such as - financial,
business/industry, management, conduct of account, etc. The Scores are
assigned to each of the parameters in the different sections on a scale of 0 to
4 up to 2 decimal points with Zero being very poor and 4 being excellent.
The scoring of some of these parameters is subjective while for some others
it is done on the basis of pre-defined objective criteria. For assigning scores
to the different parameters guidelines have been discussed in concerned
rating manuals.
The scores given to the individual parameters are multiplied by allocated
weights which are aggregated and the scores are then calculated in terms of
percentage. Credit rating is better when the scores are higher; weights have
been assigned to different parameters based on their importance.
Weights assigned to different parameters have been loaded in the PNB
TRAC software. After allocating scores to all the parameters, the aggregate
score is calculated and displayed by the software.
N no score should be given, when the particular parameter is not applicable.
The parameter should be made NA so that the weight assigned to that
parameter gets distributed among the other parameters in that section
automatically.
The overall percentage score which is obtained from step 2 on a scale of 0 to
100 is then translated into a rating on a scale from AAA to D according to a
pre-defined range as under





35


How Credit rating is done
Example:
The table below shows how the credit risk rating is done at PNB:

Parameters Score obtained (in
%)
Weights assigned Weighted score
Financial
evaluation
60 40% 24
Business and
industry evaluation
70 25% 17.50
Management
evaluation
80 20% 16
Conduct of account 60 15% 9
Total 66.50


Total score is 66.50 which indicate credit risk rating A


36

Credit risk rating:
The bank has adopted the credit rating model below:

Rating category Risk profile Score(%) obtained Grade within
the rating
category
PNB AAA Minimum Risk Above 80.00 PNB - AAA
PNB AA Marginal Risk Above 77.50 up to 80.00

PNB - AA+
Above 72.50 up to 77.50

PNB - AA

Above 70.00 up to 72.50

PNB - AA -
PNB A Modest Risk Above 67.50 up to 70.00
Above 62.50 up to 67.50
Above 60.00 up to 62.50
PNB -A +
PNB - A
PNB - A -
PNB BB Average Risk Above 57.50 up to 60.00
Above52.50 up to 57.50
Above 50.00 up to 52.50
PNB - BB +
PNB - BB
PNB - BB -
PNB B Marginally
Acceptable
Risk
Above 47.50 up to 50.00
Above 42.50 up to 47.50
Above 40.00 up to 42.50
PNB - B +
PNB - B
PNB - B -
PNB C High Risk Above 30.00 up to 40 PNB - C
PNB D Caution Risk 30.00 and below PNB - D

Ratings with AAA, AA, A, BB AND B grades signify Investment Grade and C
and D rating grades are called High Risk grade.

37

Interpretation and analysis:
Loan policy of Punjab nation bank
Objective: The loan policy of Punjab national bank aims at maintaining the
development of healthy loan portfolio while dispensing the credit and managing
the risk.
Basic tenants of the policy:
The loan facilities are considered by bank only after bank obtaining the loan
application from the borrower. The PNB bank also checks weather the
borrowers company is having the required background necessary to run a
business in a successful way.

The project for which the loan is to be given should be technically stable
which means its ratios like debt equity ratios, current ratio, debt service
coverage ratio, interest service coverage ratio, breakeven ratio must be able
to meet with the standard set by Punjab national bank for these ratios.

The project for which the finance is to be provided must be economically
stable which means it should be able to make sufficient surplus in order to
pay its debts.

The project should not be under-financed as well as over-financed because it
can have an adverse impact on the successful implementation of the project.
For this cost as well as source of financing the project should be properly
analyzed.
The company to whom loan is provided should be financially stable which
means it must be able to earn sufficient profits every year and should have
good reputation in the market as well as stake in the business which means it
must have enough adequate resources to meet the marginal requirement.


38

The loan should be sanctioned by the sanctioning authority according to the
delegated loaning authority and should be paid out only after obtaining and
executing all the necessary documents.

During implementation stage the project should be properly analyzed in
order to save time and avoid overrun as well as unnecessary cost.

The benchmark prime lending rate is considered and fixe at 11% by the
policy.

The norms for taking over of advances from other banks and financial
institutions have been set by the policy.

According to the policy the bank doesnt take over any non-performing
assets (NPA) from other banks.









39

Credit appraisal process at Punjab national bank

Pre-sanction Procedure
Application for loan and their processing: The first step in the processing
of the loan is the receiving of the application from the applicant and
submission of project report along with the request letter.

Receipt of document: The second step is the receipt of the documents
which includes the balance sheet of the company, KYC papers and
document related to properties.

Pre-sanction inspection: It is done by the officials of the bank by visiting at
the site to check the present status of the project in order to provide term
loan facility.

Check for RBI defaulter list, willful list and CIBIL data: It is done to
make sure that the name of the borrower is not there in defaulters list. This
list is updated by all the banks in the RBIs database of defaulters list.

Determination of interest rate: After determining credit rating, the interest
rate is determined.

Legal search report: It is done by the advocate of the bank to check
whether the land is mortgagee or not and also to check whether there is no
legal restriction on land

Valuation report: It is done by the official of the bank who estimates the
original value of the property in order to do the valuation of the property and
to ensure that property is worth the value which the borrower is showing.

ICAI: The banks do check whether the CA of the company is genuine CA
or not.
40

Filling of balance sheet as per CMA requirement: The balance sheet of
the company is required to be filled by the borrower according to companies
act before a detailed analysis can be done.

TEV report: It is done to estimate whether the fresh proposal is capable of
working successfully or not both technically as well as economically.

Vetting of document: Vetting of document is done by the approved
advocates.

Assessment of proposal: In this step, the assessment of proposal is done.
Sanction of approval of loan by appropriate sanctioning authority.In this
stage the loan is approved by appropriate sanctioning authority.

Documentations, agreements and mortgages: Before sanctioning of the
loan, the make sure that all the necessary document, agreement are received
and other document related to mortgage.

Disbursement of loan: under this stage, loan is disbursed by the bank.










41

Post-sanction Procedure

Preventing Monitoring System (PMS)
Objectives: The objective of PMS is to track and analyze the condition of the
account of borrower and to detect:
a) Indication of unsatisfactory signals at an early stage in a proper manner.
b) Quick actions in order to prevent the account from becoming Non-
performing assets and to reduce loan losses.
PMS consists of two parts: The first one is PMS Index and the other one is PMS
Rank:

PMS Index and rank:
PMS Index called as numerical index which consist of 29 indicator
parameters which are grouped into six sections. Each parameter is given
weights or penalty rate which is in the form of numerical values depending
on their degree of impact on the health of an account. The scores which are
assigned to the parameters are stored for last one year and are known as
cumulative score. Then we look section wise to find the highest the highest
of cumulative scores which is then added to arrive at PMS Index score.
Based on PMS index score a scale of 1 to 10 is made, which is known as
PMS rating scale. The PMS ranks show the health of an account, if the rank
is lower the health of account is better and vice-versa.


PMS Report
PMS Report consists of 8 parts which shows the profile of borrower in detail
and also the borrowers position of accounts, reasons behind adverse signals.



42


Quarterly Monitoring system (QMS)
Banks rely on QMS system in order to judge the performance of big borrower
enjoying working capital facilities of Rs.1crore and above from the system of
banks. QMS includes submission of data depending on economic activity of the
borrower. In two different formats both financial and operational data is required to
be submitted
QMS 1: It is a type of form which is required to be submitted in six weeks
from the end of quarter to which it relates. It provides information about the
performance for the quarter and giving reasons for not achieving the sale or
production targets.
QMS2: Its a type of form which is required to be submitted within 2 month
from the end of the half-year to which relates. This form explains the
sources as well as uses of funds generated by the unit, during half-year.
Analysis of this form explains the diversion of short-term funds for long
term uses.











43

Credit appraisal process at Punjab national bank with flow chart:


44

Determination of interest rate applicable

Benchmark prime lending rate (BPLR)- BPLR is the interest rate which the
commercial bank is expected to charge their most credit-worthy customers.
According to RBI, Banks are allowed to fix their own BPLR for credit limits of
over two lakhs. In Punjab national bank BPLR is fixed at 11%.

Applicable rate of interest: The applicable rate of interest is dependent on the
credit risk rating of the borrower. More the rating is good; less will be the rate of
interest and vice versa. RBI reduces ROI for giving loan to few sectors which
includes agriculture, RBI etc. to increase their participation and boost the sector.



Credit Risk rating Applicable rate of interest
AAA BPLR + 1.50%
A BPLR + 3%
BB BPLR + 3.50 %


45











4. RESEARCH METHODOLOGY

46

Research methodology is based on primary as well as secondary data. Now, after
going the required knowledge for understanding the project, a methodology has to
be prepared for how to complete the project successfully.
The methodology/process followed is as follow:
The project report and all the relevant documents are submitted by the
borrower to the bank

For deep analysis a project report was given to me.

A pre-sanction appraisal and evaluation was done by studying the
companys financial statement.

Restructuring of the companys Balance Sheet and Profit and Loss Account
was done in to the Credit Monitoring Arrangement (CMA) format.

The company of the borrower was rated by using CRISIL Credit Rating
Model.

On being assured of the credit worthiness of the borrower, the loan is
disbursed.
Sampling method: convenience sampling
Sample Size
The sample size for this project is 50. Sampling method for this project is
convenience sampling.
Source of Data
The project is made with the help of secondary data which includes Balance Sheet,
Profit and loss and cash flow statement were studied.
The data is then formatted as per CMA requirement of the bank. The given data
was studied and the necessary ratios were calculated to find the credit worthiness
of the borrower.
47

Primary data



Secondary data

48

Research Hypothesis
1.) Financial ratios are important determinants of acceptance of loan application at
PNB.
2.) Credit risk ratings are important determinants of acceptance of loan application
at PNB.
49

















5. FINDINGS AND ANALYSIS









50



Bank is pretty stringent with approving loan proposals. Out of 50
applications under study only 11 were finally accepted.



Bank does not receive much loan applications from SMEs. Out of 50
applications under study only 4 were from SMEs.

Accepted
22%
Rejected
78%
Proposals Recieved
78%
8%
14%
Company Category
Others SME Medium Enterprise
51



Bank prefers to approve those proposals in which needs to be fully
financed. Out of 11 applications approved in this study only one required
partial financing.


Bank prefers to approve those proposals in which the external rating is
above grade B. 100% of the approved applications had their external rating
above grade B.
Fully Finance
91%
Partially
Financed
9%
Accepted Proposals
A1
46%
A4
9%
B+
18%
BBB
9%
BBB-
9%
A+
9%
External Rating (Accepted Proposals)
52



Bank prefers to approve those proposals in which the internal rating is
above grade B+. 100% of the approved applications had their internal rating
above grade B+.



Bank prefers to approve those proposals in which the current ratio >1.33.
100% of the approved applications had their current ratio >1.33.

AA-
9%
BB
82%
BB-
9%
Internal Rating (Accepted Proposals)

100%
Current Ratio > 1.33
(Accepted Proposals)
53



Bank prefers to approve those proposals in which the equity ratio >1.5.
100% of the approved applications had their equity ratio >1.5.
100%
Equity Ratio > 1.5
(Accepted Proposals)
54














6. CONCLUSIONS


55

Financial ratios are important determinants of acceptance of loan application at
PNB. (Accepted)
Credit risk ratings are important determinants of acceptance of loan application at
PNB. (Accepted)
56
















7. LIMITATIONS & CONSTRAINTS
57

The main limitations of this study are as follow:
As the data was confidential. So the bank didnt provide each and
every thing related companies.
Due to less time each and every aspect of project of various
companies was not revealed.



58










8. RECOMMENDATIONS & SUGGESTIONS

59


These are the recommendation which PNB must follow to improve the way they
work:

According to things observed employees in Punjab national bank at circle
office works with full focus and are very hard working as well as punctual.
So, there is hardly any recommendation to be given. The process being
followed by PNB for sanctioning the loan is simple, flexible as well as easy
to understand.

Most of the work at the circle office of Punjab national bank is done through
paper. So, there is a need for them to introduce any software, database or any
other things which can reduce their paperwork. Doing this will enable them
to reduce their paper work as well as loss of information.




60













9. REFERENCES / BIBLIOGRAPHY

61


62














10. APPENDIX

63