A STUDY ON RECRUITMENT AND SELECTON

With reference to A.P MAHESH CO-OPERATIVE BANK URBAN LTD

A Project Report submitted in partial fulfillment of the requirement for the award of MASTERS DEGREE IN BUSINESS ADMINISTRATION By DUDDU SOUJANYA (Roll No: 1225112115) Guided By: Mrs. G. ARTHI (ASSOCIATE PROFESSOR)

GITAM INSTITUTE OF MANAGEMENT GITAM UNIVERSITY

(Established U/S 3 of UGC Act, 1956) VISAKHAPATNAM (2012-14)

DECLARATION

I hereby declare that this project report entitled IMPACT OF INTEREST RATE FLUCTUATIONS ON CONSUMER LOANS with special reference to APMAHESH COOPERATIVE BANK URBAN LTD ; HYDERABAD, has been prepared by me in the partial fulfillment of the requirement for the degree, Masters of Business Administration by GITAM University. I also declare that this project work is the result of my own effort and has not been submitted to any other university/institution for the award of any other Degree/Diploma, fellowship or similar titles.

DATE: PLACE: VISAKHAPATNAM

(DUDDU SOUJANYA)

CERTIFICATE

This is to certify that this project entitled IMPACT OF INTEREST RAT FLUCTUATIONS ON CONSUMER LOANS with special reference to AP MAHESH CO-OPERATIVE BANK URBAN LTD, HYDERABAD submitted to GITAM University in partial fulfillment of the requirements for the degree of Master of Business Administration, is the bonafide work done by Ms.DUDDU SOUJANYA and has been carried out under my guidance and supervision.

Date: Place: Visakhapatnam.

ACKNOWLEDGEMENTS

I want to render my acknowledgement to the following distinguished personalities who helped me in completing my project work successfully.

I wish to express my deep sense of gratitude Prof. K Siva Ram Krishna, Principal, College of Management Studies, GITAM, Visakhapatnam for permitting me to do this project.

I take this opportunity to sincerely express my profound gratitude to Ms.G.ARTHI, Associate Professor, College of Management Studies, GITAM, Visakhapatnam for her guidance, valuable advice, constant encouragement, all through for the successful completion of this project.

I am highly indebted to the Management of A.P MAHESH CO-OPERATIVE BANK URBAN LIMITED for permitting me to do the project. My special thanks to Mr. NANDA KUMAR (Branch Manager), HYDERABAD, for allowing me to undertake this project and for all the facilities provided to me, and for giving encouragement, inspiration and guidance.

I also thank all my family members and friends for their cooperation and encouragement during the project.

(DUDDU SOUJANYA)

PREFACE
Raising interest rates slows the economy. Higher interest rates mean higher borrowing costs for individuals and businesses; and that usually means there's less money to spend elsewhere. Lowering rates makes it less expensive to borrow money. Consumers and businesses can afford to buy more products and services. That speeds up the economy, keeps people employed, and keeps the economy from sinking into a recession Negotiate a better interest rate with customers .Bank in all likelihood be prepared to re-evaluate the interest rate applicable to their loans If they have already whittled the interest rate down to the extent that it can go no lower- save for a reportage decrease consider changing the term of loan tenure Proper negotiating with customers, providing them with better services during these fluctuation retains these customers from shifting to other bank providing with better services

CONTENTS CHAPTER I
INTRODUCTION NEED/SIGNIFICANCE OF THE STUDY OBJECTIVES OF THE STUDY SCOPE OF THE STUDY RESEARCH DESIGN LIMITATIONS CHAPTER II BANKING SECTOR PROFILE A.P MAHESH CO-OPERATIVE BANK URBAN LTD CHAPTER III TOPIC RELATED CONCEPTS REVIEW OF LITERATURE CHAPTER IV ANALYSIS OF THE STUDY CHAPTER V FINDINGS OF THE STUDY SUGGESTION & CONCLUSION BIBLOGRAPHY ------------------------------44 45 46 ----------35-42 ----------33 ----------11 ----------------------------------------.. ----------9 2 3 3 4

ANNEXURE

-----------

47

LIST OF TABLES

S No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

TABLE NUMBER 2.1 2.2 3.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18

TABLE NAME

PAGE NUMBE R 44 45 45 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84

Financial performance of Mahesh bank Growth of Mahesh bank Recent changes in RBI interest rates Loan duration of customers Types of loan taken by customers Reason for taking loan Rating of interest rates Rating of Emi charged Rating of sanctioning time Rating of sanctioning procedure Opinion about bank interest rates Other bank a/c holders Service quality of bank Customers changing loan tenure Opinion on shifting to other bank Opinion on bank extending of repayment period Rating the effect of interest rates Rating of EMI charged during fluctuation Rating of repayment period Rating of recovery process

S No 1 2 3

CHART NUMBER 4.1 4.2 4.3

CHART NAME

PAGE NUMBE R 67 68 69

Loan duration of customers Types of loan taken Reason for taking loan

LIST OF CHARTS

4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18

Rating of interest rates Rating of Emi charged Rating of sanctioning time Rating of sanctioning procedure Opinion about bank interest rates Other bank a/c holders Service quality of bank Customers changing loan tenure Opinion on shifting to other bank Opinion on bank extending of repayment period Rating the effect of interest rates Rating of EMI charged during fluctuation Rating of repayment period Rating of recovery process

70 71 72 73 74 75 76 77 78 79 80 81 82 83 86

CHAPTER -I

Introduction Interest rates are one of the major drivers of our economy, setting the pace for investment markets. Learning how interest rate changes can influence the marketplace can also help you understand how they impact your wallet. With every loan, there is a possibility that the borrower will not repay the money. To compensate lenders for that risk, there must be a reward: interest. Interest is the amount of money that lenders earn when they make a loan that the borrower repays, and the interest rate is the percentage of the loan amount that the lender charges to lend money. The existence of interest allows borrowers to spend money immediately, instead of waiting to save the money to make a purchase. The lower the interest rate, the more willing people are to borrow money to make big purchases, such as houses or cars. When consumers pay less in interest, this gives them more

money to spend, which can create a ripple effect of increased spending throughout the economy. Businesses and farmers also benefit from lower interest rates, as it encourages them to make large equipment purchases due to the low cost of borrowing. This creates a situation where output and productivity increase. Conversely, higher interest rates mean that consumers don't have as much disposable income and must cut back on spending. When higher interest rates are coupled with increased lending standards, banks make fewer loans. This affects not only consumers, but also businesses and farmers, who cut back on spending for new equipment, thus slowing productivity or reducing the number of employees. The tighter lending standards mean that consumers will cut back on spending, and this will affect many businesses' bottom lines. This will cause the businesses to reduce the number of employees that they have and to hold off on any major equipment purchases.

This chapter deals with the present study on impact of interest rates fluctuations. The chapter covers Need and significance of the study Scope of the study Research design-Data collection methods, Data tabulation, Analysis method Presentation of the study Limitations of the study

NEED AND SIGNIFICANCE OF STUDY To know impact of interest rate fluctuations on consumer loans General options taken by customers during interest rate fluctuation To know the extent of customer satisfaction with the services provided by the bank

OBJECTIVES OF THE STUDY

The following are the objectives set for the purpose of the present study. To know the profile of the Company that is the AP MAHESH CO-OPERATIVE BANK To study the factors impacting interest rate fluctuation. To study the satisfaction of customers with the services provided by the bank To suggest suitable measures of improvements if needed by the Company

SCOPE OF THE STUDY The scope of the study is limited The sample for the study covers only two fifty customers of five branches The study covers only the impact of interest rate fluctuation on consumers

RESEARCH DESIGN A research design specifies the methods and procedures for conducting a particular study .it is a map (or) blue print to which the research is to e conducted .descriptive research design hs been considered as a suitable methodology for present study and for data analysis

Sampling design:
The sampling design used was convenience sampling ,which is a non probability sampling method .The convince factor were the availability and approachability of respondents

Population: Hyderabad Sources of data:

Primary Data It is the information collected directly from the market the primary data for the study has been collected using a Questionnaire. The questionnaire consists of 25 questions to elicit information regarding the impact of interest rate fluctuations on loans. The questions are both open-ended and closed-ended. All the questions are having Rating Scales namely highly satisfactory, satisfactory, averagely satisfactory, dissatisfactory, highly dissatisfactory. Secondary Data It is the information collected from already published (EXISTING) SOURCES. This data is present in a recorded from The sources are Reports of the company Magazines Journals Newspapers Internet websites Company websites

Analysis technique:
Quantitative analysis is preferred using the data collected at each

Tools used:
Percentage analysis

Pie chart

Sampling
Sampling technique: non probability sampling Sample unit: customers who take loan from AP Mahesh co-operative bank Sample size: 250 Method: direct interview through questionnaire Data analysis method: PIE CHART Area of study: Different branches of Mahesh bank in Hyderabad Timing of study: 10:30 am -3:30am

LIMITATIONS OF THE STUDY

The following are some of the limitations faced during the study in the company.

The information gathered from the individuals may not be accurate during the survey Options expressed by the employee in the questionnaire may not be genuine or what they

exactly feel The questions may not cover the entire concepts of the topics as it is subjected to limited questions A major report of the study is based on secondary source This study is in consideration with the time budjet

CHAPTER -II

INDIAN BANKING INDUSTRY:

Indian Banking Sector is extremely critical for the economic development of the country. The last decade witnessed unprecedented growth and value creation in Indias banking sector with little impact from the global financial crisis due to strong regulation and discipline. However, the scenario is now changing due to various reasons. Tightening of monetary policy, a burgeoning fiscal and current account deficit, the need for increased infrastructure lending, de-regulation of interest rates on savings accounts, etc have diluted the robust performance of banks in comparison to other sectors. The RBI had increased lending rates 13 times between March 2010 and October 2011 in a bid to rein in inflation. A direct result of this

has been the impact on demand, leading to reduced revenue, lower margins and an increase in non performing assets (NPAs) of banks. Today, there are various concerns facing the Indian Banking Industry. However, some of the issues that need immediate attention are as follows: FINANCIAL INCLUSION Financial inclusion refers to delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income group. PRIORITY SECTOR LENDING It is based on bringing unbanked into banking community. While sectors included under PSL meet this overarching agenda, it also has to be feasible and self sustaining. Banks are being asked to use Banking Correspondents (BCs) to help meet with their PSL targets. PAYMENT SYSTEM - The Reserve Bank aims to develop a more efficient and integrated payment system in the country. In its 'Payment Systems In India: Vision 2012-15' document, main focus of RBI is to provide a modern electronic payments system that is safe, simple and low-cost for use by all. INVESTMENTS IN PHYISCAL GOLD AND REAL ESTATE - Today, a lot of money is invested by Indian households in acquiring physical gold and real estate industry that involves huge cash transactions. It is therefore extremely essential for the government to look at ways to reduce high cash transactions so that the money could be channelized by the banks in other revenue generation schemes and liquidity in the system remains intact. On the other hand, though investments in real estate sector contribute to employment creation, it should be made more transparent so that the black money flowing into this sector is controlled and becomes accountable. There should be more digitization of data.

DEVELOPMENTS IN COOPERATIVE BANKING

Over recent years, the financial health of the urban co-operative sector has shown an improvement. In 2011-12, the sector showed an increased return on assets and a further fall in the ratio of Non- Performing Assets (NPAs). As per the new CAMELS rating model, 61 per cent of the UCBs, accounting for about 78 per cent of the total banking business of the UCB sector, had ratings of A and B, indicating the good financial health of this sector. As regards rural co-operatives, State Co-operative Banks and District Central Co-operative Banks showed some signs of improvement in profitability and asset quality in

2010-11, partly attributable to the prudential regulatory reforms and implementation of the revival package for the short-term rural co-operative sector. However, long-term rural co-operatives, such as State and Primary Co-operative Agriculture and Rural Development Banks, showed very weak financial health. Going forward, it is necessary to persevere with recapitalisation and regulatory reforms so that the rural co-operative sector can lend support to financial inclusion and agriculture. 1. INTRODUCTION Co-operatives account for a relatively small share in the bank-dominated Indian financial system; however, given their geographic and demographic outreach, they hold a key position in the system. Geographically, co-operatives have been instrumental in extending formal financial services to villages and small towns in India. Demographically, these institutions have enabled access to financial services to low and middle- income groups in both rural and urban areas. Notwithstanding their role in enhancing the inclusiveness of the financial system, these institutions have been marred by weak financial health, partly on account of operational and governance-related concerns. Hence, there has been an ongoing effort to revitalise these institutions by means of various development and regulatory initiatives. In the case of urban co-operatives, the Reserve Bank has moved towards a more unified regulatory framework consequent to its Vision Document of 2005 aimed at creating a consolidated and stronger urban co-operative banking sector. As regards the short-term arm of rural co - operatives, the application of prudential regulations followed by recapitalisation has paved the way towards improving the financial health of these institutions. Apart from these ongoing initiatives, several new policy measures have been introduced with regard to the co-operative sector in 2011-12.

In light of these policy initiatives, this chapter analyses the performance of co-operatives in 2011-12, drawing time-series as well as cross- sectional comparisons with other segments of the financial system, where necessary. As data on rural co-operatives are available with a lag of one year, the analysis for these institutions only goes as far as 2010-11. The analysis covered in this report broadly pertains to 1,618 Urban Cooperative Banks (UCBs) and 94,531 rural co- operatives, including short-term and long-term cooperatives, as given in Chart V.1.

The chapter is organised into six sections. Section 2 analyses the performance of UCBs, using data on their assets and liabilities, income and expenditure, and soundness indicators. Section 3 reviews the performance of various tiers of the short-term and long-term rural co-operative credit structure. Sections 4 and 5 discuss salient developments pertaining to rural co-operatives with regard to licensing and implementation of the revival package for these institutions. Section 6 enumerates the developments related to Kisan Credit Cards (KCCs), a scheme for rural credit involving rural co-operatives. Section 7 concludes with the major observations from the chapter.

2. URBAN CO-OPERATIVE BANKS

EMERGENCE OF A STRONGER UCB SECTOR THROUGH CONSOLIDATION

The Urban Co-operative Bank (UCB) sector has emerged financially stronger since 2005, when the Reserve Bank conceived a Vision Document for the revival of this sector. Through the Document, the Reserve Bank laid down a multi- layered regulatory and supervisory approach aimed at the merger/amalgamation of viable UCBs and the exit of unviable UCBs. On account of this process of consolidation, there has been a continued reduction in the number of UCBs (Chart V.2). In continuation with this trend, at end-March 2012, the total number of UCBs stood at 1,618 as against 1,645 at end-March 2011. Further, there was a steady rise in the number of financially stronger UCBs (defined as UCBs belonging to Grades I and II) and a decline in the

number of financially weaker UCBs (defined as UCBs belonging to Grades III and IV) between 2005 and 2011.

Maharashtra, the State with the largest concentration of UCBs, accounted for the maximum number of mergers. In the total number of mergers that took place until end-March 2012 since 2005, Maharashtra had a share of about 61 per cent, followed by Gujarat with a share of 19 per cent and Andhra Pradesh with a share of 8 per cent (Chart V.3).

Companys Profile: AP MAHESH URBAN CO-OPERATIVE BANK

GENESIS: The A.P. Mahesh Co-operative Urban Bank Limited is India's premier Urban Co-operative Banking Institution. The Bank has attained this premier position without compromising the spirit of co-operative

principles, while at the same time striving to assimilate and implement newer methods of work organisation and management, with a firm commitment to its objectives. REGISTRATION AND COMMENCEMENT OF OPERATIONS: The A P Mahesh Co-operative Urban Bank Ltd. (popularly known as Mahesh Bank) was registered as a Primary Co-operative Society on 30th June, 1977. The Bank has commenced its operations on 9th August, 1978. The Bank was accorded SCHEDULED STATUS by Reserve Bank of India from 26th October, 1996 - the first Co-operative Bank to be accorded this status in the entire South India. Dr C. Rangarajan, the then Governor, Reserve Bank of India graced the occasion. The Bank has been registered as a Multi-State Co-operative Bank under the Multi-State Co-operative Societies Act, 1984 with effect from 30.05.2001 - again the first Co-operative Bank to achieve this coveted position in South India. Mahesh Bank presently has 39 branches - 31 in the twin cities of Hyderabad and Secunderabad and one each at Khammam, Vijayawada, Guntur, Rajahmundry, Visakhapatnam, Warangal in Andhra Pradesh., Jaipur in Rajasthan and Mumbai in Maharashtra. Mahesh Bank is the first Co-operative Urban Bank in the State of Andhra Pradesh to introduce computerization at all its branches. Core Banking Solution (Anywhere Banking) introduced at all branches. The Bank has been granted license to undertake money transfer business and specified non trade current account transactions by the RBI as Authorised Dealer Category-II. The Capital to Risk Weighted Assets Ratio (CRAR) of the bank stood at 25% as on 31-3-2013 as against a minimum stipulation of 9% prescribed by RBI.

VISION: To make brand MAHESH BANK synonymous to trust and reliability, to be a leader amongst the Multi State Scheduled Co-operative Banks in the whole of South India, to provide excellence and personalized services and to contribute to Co-operative movement by making credit available to the customers and more particularly to Individuals and SMEs, thereby contributing to their growth, by striving to maintain Net NPAs at 0% level. MISSION:

By the year 2020, Mahesh Bank aims to achieve ambitious Business target of Rs. 10,000 crores, Profit of Rs. 100 crores, Low cost deposit ratio of 30%, CD ratio of 70%, Gross NPAs to be maintained below 3%, Net NPAs at '0%' and 100 Branch and ATM network. SERVICES OFFERED BY BANK: Savings account: Bank offers a saving a/c facility with a min balance to be maintained as Rs 500. Current account: Current Account can be opened by Individuals / Businessmen / Proprietorship concerns/ Partnership Firms / Public or Private Limited Companies. And a min balance to be maintained is Rs 3000. Core banking: The bank introduced Core Banking Services any

where banking facility , from which they can transact their banking operations as per their convenience.
Mobile banking: Mahesh Bank Offers Interbank Mobile Payment Service (IMPS), a unique concept of mobile based account to account funds transfer for registered Bank account holders in collaboration with National Payments Corporation of India (NPCI). RTGS/NEFT facility to customers: where funds are transferred at nominal cost. Forex services Mutual funds: The Bank has entered into a tie-up with the Reliance Mutual Fund, which is a 100% subsidiary of Reliance Asset Management Ltd. Money transfer: Instant money transfer (inward remittances) through Western Union Money Transfer from abroad can be transacted with any of our branches Life insurance: The Bank is a Corporate Agent of Max Life Insurance Company Ltd. vide Licence No. 2147260 (licence to act as a Corporate Agent under the Insurance Act, 1938 (IV of 1938)). Other services: ATM card, pan card, e-seva are offered by the bank.

Financial progress of the bank (year on year) :

PERFORMANCE
Business Deposits Advances Profit Before Tax Net Profit 2005 2006 2007 2008 2009 2010 2011 2012 2013 (Unaudited) 2005.84 1274.66 731.18 28.09 19.04

(Rs. in Crores) 513.92 570.82 690.00 842.18 1018.76 1243.10 1513.19 1907.18 366.02 395.06 432.95 515.81 147.90 175.76 257.05 326.37 4.00 4.00 4.87 4.81 6.51 5.15 14.57 9.93 639.94 378.82 16.29 11.67 785.85 457.25 19.33 13.94 907.58 1160.43 605.61 21.58 15.02 746.75 24.03 17.51

Working Funds Members Funds Per Employee Business Interest Earned Interest Expended Total Income

477.36 500.35 569.34 643.70 91.34 1.07 43.63 26.90 45.80 93.50 1.31 45.86 23.89 47.94 99.41 106.17 1.60 50.44 24.24 52.47 1.88 63.89 31.13 66.82

778.98 115.02 2.30 78.10 42.82 80.45

938.66 1075.69 1357.37 126.13 2.72 95.32 55.91 144.01 3.22 105.10 55.07 166.37 3.65 134.23 78.42

1516.59 188.36 3.54 167.12 100.18 171.34

97.65 107.75 137.87

Table no: 2.1

GROWTH
Business Deposits Advances PBT Net Profit Working Funds Members Funds Per Employee Business Interest Earned Total Income -0.16 1.13 -3.50 -32.09 -32.09 -4.21 -0.32 8.13 -5.07 -10.63 11.07 7.93 18.84 21.75 20.25 4.82 2.36 18.47 5.11 4.67 20.88 9.59 46.25 33.68 7.07 13.79 6.32 22.14 9.99 9.45

(In Percentages) 22.06 19.14 26.97 123.81 92.82 13.06 6.80 17.50 26.67 27.35 20.97 24.07 16.07 11.80 17.52 21.02 8.34 22.34 22.24 20.40 22.02 22.80 20.70 18.66 19.46 20.50 9.67 18.26 22.05 21.38 21.72 15.49 32.45 11.64 7.75 14.60 14.18 18.38 10.26 10.34 26.04 27.86 23.31 11.35 16.78 26.19 15.52 13.35 27.71 27.95 4.82 9.84 -2.92 16.90 8.55 11.73 13.21 -3.01 24.50 24.28

Table no: 2.2

CHAPTER -III

THEORETICAL FRAME WORK

TOPIC RELATED CONCEPTS: What is an interest?

Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds. When money is borrowed, interest is typically paid to the lender as a percentage of the principal, the amount owed to the lender. The percentage of the principal that is paid as a fee over a certain period of time (typically one month or year) is called the interest rate. A bank deposit will earn interest because the bank is paying for the use of the deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase. The interest is calculated upon the value of the assets in the same manner as upon money. Interest is compensation to the lender, for a) risk of principal loss, called credit risk; and b) forgoing other investments that could have been made with the loaned asset

How interest rates are determined?

In countries using a centralized banking model, interest rates are determined by the central. In the first step of interest rate determination, the government's economic observers create a policy that helps ensure stable prices and liquidity for the country. This policy is routinely checked to ensure that the supply of money within the economy is neither too large (causing prices to increase) nor too small (causing prices to decrease). Because retail banks are usually the first financial institutions to expose money to the economy, they are the principal instruments used by the central bank to manipulate the money supply. By adjusting the interest rates on the money it lends to or borrows from the retail banks, the central bank is able to regulate the supply of money to the end user (individuals and companies). If the monetary policy makers wish to decrease the money supply, they will increase the interest rate, making it more attractive to deposit funds and reduce borrowing from the central bank. On the other hand, if the directors wish to increase the money supply, they will decrease the interest rate, which makes it more attractive Interest rates control the flow of money in the economy. High interest rates curb inflation, but also slow down the economy. Low interest rates stimulate the economy, but could lead to inflation.

interest rates are increasing and the Consumer Price Index (CPI) is decreasing, this means the economy is not overheating, which is good. But, if rates are increasing and GDP is decreasing, the economy is slowing too much, which could lead to recession. If rates are decreasing and GDP is increasing, the economy is speeding up, and that is good. But, if rates are decreasing and the CPI is increasing, the economy is headed towards inflation.

Why different banks have different interest rates?

Most bank interest rates are around the same level, but there will certainly be differences. Some banks pay more than others for the same product. Banks raise rates when they want to gather money. If they need to get deposits in the door, a high rate on savings accounts will attract money. If, on the oth er hand, they dont need cash, they can keep rates lower. Organizational structure is also important. Some banks have shareholders demanding that the bank grow (and/or share income with the shareholders), and its hard for those banks to pay high rates to depositors

How is monthly EMI calculated?

Equated Monthly Instalment (EMI) is the amount paid by borrowers each month to lender of the loan. EMI can be calculated for a car loan, home loan, personal loan, gold loan etc. The principal amount borrowed and the interest are added and then divided by the number of months, an individual desires to pay the total amount. The instalments thus derived are called EMIs. If you are planning to go for home loan, here are few tips. The calculation of EMI is based on your interest rates, loan amount and the tenure of the repayment for the entire loan. Formula used: EMI= (loan amt *interest) *(1+interest)^n [(1+interest) ^n]-

REGULAR INTEREST RATE ADJUSTMENTS When the economy is growing -- companies are profitable, unemployment is low, and consumers are spending money -- short-term rates are raised to keep the economy from building too fast and risking inflation. Inflation is when too much money chases too few goods and services, driving prices upward. Raising interest rates slows the economy. Higher interest rates mean higher borrowing costs for individuals and businesses; and that usually means there's less money to spend elsewhere. The Fed will lower short-term rates when the economy is contracting -- or slowing. Lowering rates makes it less expensive to borrow money. Consumers and businesses can afford to buy more products and services. That speeds up the economy, keeps people employed, and keeps the economy from sinking into a recession. A recession occurs when consumers get tight-fisted with their money and don't buy the products and services that keep companies afloat and workers employed. When the Fed cuts short-term rates it is cutting the rate that banks charge each other to borrow money. Those cuts are eventually passed on to businesses and consumers. The same thing happens in reverse when the Fed raises short-term rates.

CHANGE DATE may 03 2013 march 19 2013

PERCENTAGE 7.25% 7.50%

Jan 29 2013 April 17 2012 October 25 2011 September 16 2011 July 26 2011 June 16 2011 may 03 2011 march 17 2011

7.75% 8.00% 8.50% 8.25% 8.00% 7.50% 7.25% 6.75%

RBI LATEST INTEREST RATE CHANGES

With every loan, there is a possibility that the borrower will not repay the money. To compensate lenders for that risk, there must be a reward: interest. Interest is the amount of money that lenders earn when they make a loan that the borrower repays, and the interest rate is the percentage of the loan amount that the lender charges to lend money. The existence of interest allows borrowers to spend money immediately, instead of waiting to save the money to make a purchase. The lower the interest rate, the more willing people are to borrow money to make big purchases, such as houses or cars. When consumers pay less in interest, this gives them more money to spend, which can create a ripple effect of increased spending throughout the economy. Businesses and farmers also benefit from lower interest rates, as it encourages them to make large equipment purchases due to the low cost of borrowing. This creates a situation where output and productivity increase .Conversely, higher interest rates mean that consumers don't have as much disposable income and must cut back on spending. When higher interest rates are coupled with increased lending standards, banks make fewer loans. This affects not only consumers, but also businesses and farmers, who cut back on spending for new equipment, thus slowing productivity or reducing the number of employees. The tighter lending standards mean that consumers will cut back on spending, and this will affect many businesses' bottom lines. This will cause the businesses to reduce the number of employees that they have and to hold off on any major equipment purchases.

REVIEW OF LITRATURE
The concept of the interest rates According to Michael p. Todaro (1992), interest rates is the amount the borrower must pay to the lender over and above the total borrowed expressed as the percentage of the total amount of the

funds borrowed. ACCA (2003), explained the interest rates as a measure of the cost for the borrowing. Bank interest rates are rewards expected by the lenders (bank) for the period the borrower spends using the borrowed funds. It is the time value of money for the funds granted to borrowers in a specific period of time. Types of the interest David C.(1990) categorizes the interest rate as the bank base rates, personal loan rates, deposit rate, inter bank interest rates, house purchase loan rates and the overall level of interest rates while Wikipedia Articles(2007) categorized interest rates as simple interest rates, compound ,cumulative and real interest rates. According to APPS (1991), interest rates are regarded as purely monetary phenomenon, a payment for the use of money. The possession of the actual money wills our disquietude and the 6 premium which we require to make us part with the money is the measure of the degree of our disquietude. By the way of contract, this theory emphasizes the supply and demand for money, arguing that it is the interaction of variables which determines the interest rates. It stated that the classical theory focuses on what might be termed as the economic variables and argues that the level of real interest rates is determined by the level of savings ( which provides the level of loanable funds) and the level of investment in the capital equipment ( which provides the demand for the loanable funds). This theory dismisses the relevance for the money, arguing that its use is to merely determine the absolute price level and does not influence the interest rate. Factors that determine changes in the general level of interest rates Robert L.H (1969) asserts that when lenders or investors are uncertain about the future interest rates, they may wish to hedge their belts. This introduces new dimensions into the interest rates calculations and gives rise to the term structure of the interest rates while APPS(1991) noted that the inflationary policies and the related monetary policies would often bring about an increase or the fall in the general level of the interest rates. Effects of rising and falling interest rates One factor that influences the level of interest rates in Uganda is the actions of the Central Bank of Uganda (BoU). In trying to avoid massive swings in the business cycle, the BoU will adjust short-term interest rates. It raises interest rates to slow down an economy that is expanding too rapidly and lowers them when the economy is heading for a recession. Rising and falling interest rates will directly affect consumer and personal financial decisions. Rising interest rates make saving relatively more attractive and borrowing relatively more expensive. Falling interest rates have the opposite effect. Consequently, the effect of an interest rate rise or fall will depend on whether you are a saver or a borrower.

Effect of interest rates on loan repayment The level of interest rates has a direct effect on a consumer's ability to repay a loan. For example, Thordsen and Nathan (1999), assert that when interest rates are low, people are willing to borrow because they find it relatively easy to repay their debt. When interest rates are high, people are reluctant to borrow because repayments on loans cost more. Some consumers may even find it

difficult to meet their existing loan repayments, especially if interest rates increase faster than the rise in a consumer's income. If interest rates rise sharply and stay high for a long period, some consumers will default on their loans. The Effects of an Interest Rate on the Supply of loans When the Government regulates the working of the market, supply and demand cannot interact freely to find the equilibrium quantity and price. When there is an artificial ceiling the allocation of resources is distorted if the equilibrium price is above the ceiling. The consequence is people who want finance, but due to their circumstances do not qualify at the ceiling interest rate are 9 denied access. As this large segment of the market cannot access funds in the formal economy they have to resort to the informal economy. By limiting the interest rate chargeable, the government may force many actors in this sector out of business existence. By placing a ceiling on the interest rate, but not providing an alternative means of finance, the government effectively excludes the people they were trying to protect. And, since interest rates are not allowed to rise above a given price, there are no incentives to expand the quantity of loans offered and this will create a shortage. Basically this will encourage people to consume more of the service than if the market price were charged. One of the key factors influencing the lack of supply of credit to small enterprises is the non-recoverability of costs. Charging a rate of interest on loan is the main source of income for almost all financial institutions in the banking industry. It is the only way by which they can recover their costs financial, operating and risk. The components of an interest rate in most loans includes, Cost of capital, Sufficient return to cover the risk of loan loss or bad debt, Operating costs and A profit margin. Given these, the banking or lending institutions can only survive by fully recovering all the costs of the first three components, and grow if they can also receive the last component.

CHAPTER -IV

INTRODUCTION

In this chapter, the analysis and interpretation is done with respect to the questionnaire prepared and given to the customers of AP MAHESH URBAN CO-OPERATIVE BANK

This questionnaire throws light on the issue pertaining to satisfaction of the customers with the services offered by the bank , impact of interest rate fluctuation on loansof these customers

The analysis of study consists of A graph representing the data in the table A 2-3 lines of interpretation of every graph

1) Duration of loan Loan duration

Loan duration a) b) c) Total one year before two to three years before more than three years

No of respondents 60 65 125 250

Table no: 4.1

4.1 -loan duration

one year before more than three years 24% 50% 26% two to three years before

Interpretation: Out of 250 customers 60 have taken loan a year before,65 have taken two to three years before and 125 have taken more than three years before In percentage 50 percent have taken loan three years before,26 percent have taken two to three years before ,and 24 percent have taken a year before

2) Various types of loans taken by customers Types of loans Types o loans

a) b) c) d) Total education loan housing loan vehicle loan others

No of respondents
25 125 40 60 250

Table no: 4.2

4.2-types of loans
education loan housing loan vehicle loan 10% 24% 16% others

50%

Interpretation: Out of 250 customers 50 percent have taken housing loan,24percent have taken other type of loan such as gold and business loans,16 percent have taken vehicle loan and 10 percent have taken education loan

3) Reason for taking loan from bank Reason for taking loan
Reason a) b) Total No of respondents

fast processing brand image of bank

210 40
250

Table no:4.3

4.3-reason for taking loan

fast processing 16% brand image of bank

84%

Interpretation: Out of 250 respondents 84 percent say reason for taking loan from this bank is its fast processing,16 percent say the reason is the brand image of the bank

4) Rating of interest rates charged by the bank

Rating of interest rates

Rating a) b) TOTAL Highly satisfactory Averagely satisfactory No of respondents 160 90 250 Lickerd scale rating 640 270

Table no :4.4

4.4-Rating of interest rates

Highly satisfactory Averagely satisfactory

36% 64%

Interpretation: Out of 250 respondents 64 percent are highly satisfactory with the interest rates charged by the bank an 36 percent are averagely satisfactory

5) Rating of EMI charged by the bank Rating of EMI charged

Rating a) b) Total satisfactory Averagely satisfactory

No of respondents 170 80 250

lickerd scale value 680 240

Table no: 4.5

4.5-rating of EMI charges

satisfactory Averagely satisfactory

24% 76%

Interpretation: Out of 250 customers 76 percent are satisfied by the EMI charged by the bank and 24 percent are averagely satisfied

6) Rating of sanction time of bank Ratings of sanctioning time

Rating a) b) Total satisfactory Averagely satisfactory

No of respondents 195 55 250

lickerd scale value 780 165

Table no : 4.6

4.6- rating of sanctioning time

satisfactory Averagely satisfactory

24%

76%

Interpretation: Out of 250 respondents 76 percent are satisfied with the sanctioning time of the bank 24 percent are averagely satisfied

7) Rating sanctioning procedure of bank Rating of sanctioning procedure

Rating a) b) Total satisfactory Averagely satisfactory No of respondents 190 60 250 lickerd scale value 760 180

Table no: 4.7

4.7- rating of sanctioning procedure

satisfactory Averagely satisfactory

24%

76%

Interpretation: Out of 250 respondents 76 percent are satisfied with the sanctioning procedure of the bank and 24 percent are averagely satisfied

8) Customer opinion about competitive interest provided by the bank Opinion about competitive interest rates of bank
opinion a) b) Total yes no no of respondents 145 105 250

Table no: 4.8

4.4 -opinion about compititive interest rates of bank

yes 24% no

76%

Interpretation: Out of 250 respondents 76 percent say their bank provides them competitive interest rates whereas 24 percent say it doest provide them with competitive interest rates

9) Customers having accounts in other banks Other bank ac holders

option a) b) Total yes no no of respondents 190 60 250

Table no: 4.9

4.9- other bank ac holders

yes no

24% 76%

Interpretation: Out of 250 respondents 76 percent are having a/c in other bank along with Mahesh bank ,24 percent hold a/c only in the Mahesh bank

10) Service quality of the bank Quality of service

Rating a) b) c) Total very good Good Average No of respondents 30 170 50 250

Table no: 4.10

4.10- service quality of bank

very good Good 12% 20% Average

68%

Interpretation: Out of 250 respondents 68 percent of customers feel that the service quality of the bank is very good,20 percent feel that the service quality is good, 12 percent feel that average service is provided

11) Do customers opt for change in loan tenure No customers changing loan tenure
options a) b) Total Yes NO NO of respondents 85 65 250

Table no: 4.11

4.11-option about loan tenure

Yes 43% 57% NO

Interpretation: Out of 250 respondents 57 percent of customers extend their loan tenure during interest rate fluctuation , 43 percent of customers do not change their loan tenure

12) Customers opinion regarding shifting to the other bank providing with competitive interest rates Opinion on shifting to other bank
customer opinion Yes No No of respondents 130 120 250

a) b) Total

Table no: 4.12

4.12- customer opinions in shifting bank satisfactory Averagely satisfactory 12%

88%

Interpretation: Out of 250 respondents 88 percent of customers are interested in shifting to other banks providing with competitive interest rates ,12 percent of customer are not interested in shifting the bank

13) Repayment period extension by the bank during interest rate fluctuation Customer opinion on their bank in extension of repayment period
customer opinion Yes No No of respondents 105 145 250

a) b) Total

Table no: 4.13

4.12- customer opinions on repayment period extension

satisfactory

Averagely satisfactory
12%

88%

Interpretation: Out of 250 respondents 88 percent say their bank do not extend their repayment period during interest rate fluctuation , 12 percent are satisfied with the repayment period

14) Affect of upward or downward interest rates on customers

Rating the effect of interest rates

a) b) C) TOTAL Rating very good Good Average No of respondents 30 100 120 250

Table no: 4.14

4.14-rating the effect of interest rates

satisfactory Averagely satisfactory Dissatisfactory

20%

10%

70%

Interpretation: Out of 250 respondents max customers i.e. 70 percent of them say that changes in interest rates have average impact on them

15) Rating of bank EMI charges during interest rate fluctuation

Rating of bank EMI Rating a) b) C) TOTAL satisfactory Averagely satisfactory Dissatisfactory No of respondents 25 175 50 250 Table no: 4.15 lickerd scale value 100 525 100

4.14-rating of EMI charges

satisfactory Averagely satisfactory 10% 20% Dissatisfactory

70%

Interpretation: Out of 250 respondents during interest rate fluctuations 70 percent of customers are averagely satisfied with the EMI charged by the bank, 10 percent are satisfied and 20 percent are dissatisfied

16) Rating of repayment period allowed by the bank

Rating of the repayment period Rating a) b) C) TOTAL satisfactory Averagely satisfactory Dissatisfactory Table no: 4.16 No of respondents 25 175 50 250 lickerd scale value 100 525 100

4.14-rating of repayment period

satisfactory Averagely satisfactory 10% 20% Dissatisfactory

70%

Interpretation: Out of 250 respondents during interest rate fluctuations 70 percent of customers are averagely satisfied with the repayment period allowed by the bank, 10 percent are satisfied and 20 percent are dissatisfied

17) Rating of the recovery process by the bank

Rating of the recovery process Rating a) b) C) TOTAL satisfactory Averagely satisfactory Dissatisfactory No of respondents 25 175 50 250 Table no: 4.17 lickerd scale value 100 525 100

4.14-rating of recovery process

satisfactory Averagely satisfactory Dissatisfactory

20%

10%

70%

Interpretation: Out of 250 respondents during interest rate fluctuations 70 percent of customers are averagely satisfied with the recovery process of the bank, 10 percent are satisfied and 20 percent are dissatisfied

CHAPTER V

FINDINGS OF THE STUDY:

 50 percent have taken loan three years before,26 percent have taken two to three years before ,and 24 percent have taken a year before 50 percent have taken housing loan,24percent have taken other type of loan such as gold and business loans,16 percent have taken vehicle loan and 10 percent have taken education loan 84 percent say reason for taking loan from this bank is its fast processing,16 percent say the reason is the brand image of the bank 64 percent are highly satisfactory with the interest rates charged by the bank an 36 percent are averagely satisfactory 76 percent are satisfied by the EMI charged by the bank and 24 percent are averagely satisfied 76 percent are satisfied with the sanctioning time of the bank 24 percent are averagely satisfied 76 percent are satisfied with the sanctioning procedure of the bank and 24 percent are averagely satisfied 76 percent say their bank provides them competitive interest rates whereas 24 percent say it doest provide them with competitive interest rates 76 percent are having a/c in other bank along with Mahesh bank ,24 percent hold a/c only in the Mahesh bank 68 percent of customers feel that the service quality of the bank is very good,20 percent feel that the service quality is good, 12 percent feel that average services are provided 57 percent of customers extend their loan tenure during interest rate fluctuation , 43 percent of customers do not change their loan tenure 88 percent of customers are interested in shifting to other banks providing with competitive interest rates ,12 percent of customer are not interested in shifting the bank 88 percent say their bank do not extend their repayment period during interest rate fluctuation , 12 percent are satisfied with the repayment period 70 percent of them say that changes in interest rates have average impact on them 70 percent of customers are averagely satisfied with the EMI charged by the bank, 10 percent are satisfied and 20 percent are dissatisfied High interest rates increase the cost of mortgages and reduce the demand for more types of housing. Conversely ,a fall in interest rates stimulate higher market demand If interest rates fall ,the effective disposable income of home owners who have variable rate mortgages with their bank will increase leading to an rise in their purchasing power Some business operates in markets which are very sensitive to changes in interest rates. these markets often involve goods and services where the purchase is financed by debt

SUGGESTIONS:

 Negotiate a better interest rate with customers .Bank in all likelihood be prepared to reevaluate the interest rate applicable to their loans If they have already whittled the interest rate down to the extent that it can go no lowersave for a reportage decrease consider changing the term of loan tenure Increase the service quality of bank by speeding your sanctioning times and procedures

CONCLUSION:
Raising interest rates slows the economy. Higher interest rates mean higher borrowing costs for individuals and businesses; and that usually means there's less money to spend elsewhere. Lowering rates makes it less expensive to borrow money. Consumers and businesses can afford to buy more products and services. That speeds up the economy, keeps people employed, and keeps the economy from sinking into a recession Customers who have taken loans based on the type of loan they have taken they opt either for change in the loan tenure or opt for change in EMI according to their convince. Some shift to other banks providing with competitive interest rates.

BIBLOGRAPHY
BOOKS:

WEBSITES:

ANNEXURE

Questionnaire
Please help me in this survey process by filling this questionnaire. Your cooperation will be highly obliged.
s 1) Name: 2) Address: 3) Occupation: 4) Annual income: 5) When do you have taken loan from your bank? a) One year before b) Two to three years before c) More than three years before 6) What type loan you haven taken from your bank? a) Education loan b) Housing loan c) Vehicle loan d) Others 7) Reason for taking loan from your bank a) Fast processing b) Interest rate c) Brand image of the bank d) Margin amount e) Others 8) How do you rate the interest rates charged by your bank? a) Highly satisfactory b) Satisfactory c) Averagely satisfactory d) Dissatisfactory e) Highly dissatisfactory 9) How do you rate the EMI of your bank? a) Highly satisfactory b) Satisfactory c) Averagely satisfactory d) Dissatisfactory e)Highly dissatisfactory 10) How do you rate sanctioning time of your bank? a) Highly satisfactory b) Satisfactory c) Averagely satisfactory d) Dissatisfactory e) Highly dissatisfactory

11) How would you rate the sanctioning procedure of your bank?

a) Highly satisfactory b) Satisfactory c) Averagely satisfactory d) Dissatisfactory e) Highly dissatisfactory 12) Does your bank offer competitive service charges? a) Yes b) No 13) Do you think your bank offers competitive interest rates? a) Yes b) No 14) Do you serve any alternative bank? a) Yes b) No 15) What do you feel overall service quality of your bank? a) Excellent b) Very good c) Good d) Average e) Poor 16) Would you recommend this bank to your friends and relatives? a) Yes b) No 17) Do you opt for change in loan tenure under the floating rate of interest? a) Yes b) No 18) Do shift to another bank that offers you with more competitive interest rate? a) Yes b) No 19) How fluctuation in interest rates upward or downward affect you? a) Excellent b) Very good c) Good d) Average e) Poor 20) How do you rate the bank EMI charges during interest rate fluctuation? a) Excellent b) Very good c) Good d) Average e) Poor 21) Does your bank extend repayment period when the interest rate are fluctuating? a) yes b) no

22) What do you think about impact of interest rate fluctuation on our economy?

________________________ 23) How do you rate the repayment period allowed by your bank? a) Excellent b) Very good c) Good d) Average e) Poor 24) How do you rate the recovery process of your bank? a) Excellent b) Very good c) Good d) Average e) Poor 25) How will your bank treat towards your repayment of loan during interest fluctuation will be? a) Excellent b) Very good c) Good d) Average e) Poor