Академический Документы
Профессиональный Документы
Культура Документы
On
Submitted to : Submitted by
:
I would like to take this opportunity to extend my heartfelt gratitude to all those who have
made this project a possibility and have guided me at every stage of this project.
I owe enormous intellectual debt to Ms.Pooja Kashyap Project Guide who has
augmented my knowledge in the field of Finance and for lacing his confidence in me.
Giving me this opportunity and for his valuable contribution to the project.
I would also like to thanks the members of Standard Chartered Bank, New Delhi for their
direct and indirect support and guidance, which in turn enriched my knowledge and
thoughts in this field from different perspective. I fell indebted towards them for helping
me in the successful completion of this study.
Ms.Pooja Kashyap
Faculty Guide.
ABS,JAIPUR
The Indian Economy is booming on the back of strong economic policies and a healthy
regulatory regime. The effects of this are far-reaching and have the potential to ultimately
achieve the high growth rates that the country is yearning for. The banking system lies at
the nucleus of a country’s development robust reforms are needed in India’s case to fulfill
that. The BASEL II accord.from the Bank of International Settlements attempts tp put in
the place sound frameworks of measuring and quantifying the risks associated with
banking operations. The paper seeks to showcase the changes that will emerge as a result
of banks adopting the international norms.
The structure of the paper is three-fold, where we begin by projecting the risk
management scenario and its effects on internal operations of a bank, followed by the
changes brought about in the banking sector of India and finally the macro effects on the
economy. This enables one to discern the complete scenario that will emerge in the years
ahead.
The Risk Management scenario will strengthen owing to the liberalization, regulation and
integration with global markets. Management of risks will be carried out proactively and
quality of credit will improve, leading to a stronger financial sector.
In the present paper the operational efficiency of the bank and different parameters
regarding Credit Rating & other constraints and attempt is made to make a cause & effect
relationship between different variables to give the answer of different issues.
CHAPTER-3 LOAN………………………………………………………………………
3.1 WHAT IS LOAN……………………………………………………………..
3.2 TYPES OF LOAN……………………………………………………………
3.2.1 RETAIL LENDING……………………………………………………………
3.2.2 INDUSTRIAL AND COMMERICAL LENDING…………………………
3.3 PRINCIPLE OF SOUND LENDING POLICY………………………………
3.4 HOW REPAYMENT IS DONE……………………………………………
CHAPTER-4 NPA………………………………………………………………………………
4.1 WHAT IS NPA…………………………………………………………
“Analysis of Credit Risk & Back End Operations in banks”
6
4.2 ASSET CLASSIFICATION………………………………………………
4.2.1 SUB STANDARD ASSETS……………………………………………
4.2.2 DOUBTFUL ASSETS…………………………………………………
4.2.3 LOSS ASSET…………………………………………………………
4.3 SYMPTOMS OF SICKNESS………………………………………………
Banking industry has revolutionized the transaction and financial services system
worldwide. Banking Industry services is nothing but the access of most of the banking
related services (Such as verification of accounts details, going with the transactions etc.)
In today’s world, progress of online services is available to all the customers of the
concerned bank and can accessed at any point of time and from anywhere provided the
place is equipped with the internet facility. Now-a-almost all the banks all over the world,
especially the multinational ones, provide their customers with online banking facilities.
The Indian Banking Industry can be categorized into-
a) Non Scheduled Banks
b) Scheduled Banks
Scheduled Banks constitute banks and co-operative banks. There are about 67,000
branches of scheduled banks spread across India. During the first phase of financial
reforms, there was a nationalization of 14 major banks in 1969. This crucial step led to a
shift from Class banking to Mass Banking. Since.
As far as the present scenario is concerned the banking industry is in a transition phase.
The public Sector Banks (PSBs), which are the foundation of the Indian system account
for more than 78 percent of the total banking industry assets. Unfortunately they are
burdened with the excessive Non-Performing Assets (NPAs) massive manpower & lack
of Modern Technology.
On the other hand the Private Sector Banks in India are witnessing immense progress.
They are leaders in Intent banking, mobile banking, phone Banking ATMs. On the other
hand Public Sector Banks are still facing the problem of unhappy employees. There has
been a decrease of 20 percent in the employee strength of the private sector in the wake of
the Voluntary Retirement Schemes (VRS). As far as foreign banks are concerned they are
likely to succeed in Indian.
“Analysis of Credit Risk & Back End Operations in banks”
8
Indus land bank was the first private bank to set up in India. IDBI, ING Vyasa Banks, SBI
Commercial and International Bank Ltd. Karur Vysya Bank Ltd. Bank of Rajasthan etc.
Standard Chartered has a long and proud history in South Asia, In 1858 in established its
first branch opening in Kolkata- then the most important commercial city in India and the
center of the jute and indigo trades. It have gone on to become the largest international
bank in India in terms of branch network and profits.
Today its number many of the emerging Indian multinationals amongst our clients and are
expanding our strategic and advisory capabilities to keep pace with their financial needs
and understanding of the evolving needs of our clients.
This is backed by our strong capabilities across all product segments with a particular
regional emphasis on convertible bonds and commodity derivatives, as well as project and
asset backed finance, and cross-border M&A business.
Standard Chartered have 83 branches in India and 17 in New Delhi were we assign our
project, it has a presence in Bangladesh, Nepal and Sri Lanka.
Standard Chartered Bank has deep roots and a long heritage in international banking.
Have an extensive history in some of the world’s most dynamic and fast-growing
markets, such as Asia and the Middle East. No one has a better understanding of the
wealth management needs of clients across these markets.
Standard Chartered—a financial services giant—has top credit ratings and a 150 year
history in banking with a long term commitment and financial investment in the Private
Bank. The Standard Chartered Private Bank offers a full ranges of customized wealth
management products and services, including those offered by our award - wining
In Standard Chartered Private Bank, Clients will receive individual attention from Private
Banker who works with Investment, Fiduciary, Credit and Treasury specialists in the
Local markets to create a carefully chosen portfolio of products and services designed to
meet you wealth management needs.
• Trade Finance
• Commodity trade finance
• Cash management
• Custody
• Foreign exchange
• Debt capital markets
• Corporate finance
• Supply chain finance
A. Fiduciary Services
It offer extensive estate planning and fiduciary services to give you greater control over
you wealth, whatever you personal, family and business circumstances or the political
situation
In your home country. With Trust Company locations in both the Cayman Islands (Grand
Gayman) and Guernsey (Channel Islands), we make the following services available to
you to ensure a smooth transfer of assets from one generation to another :
• Full Trust
• Express Trust
• Registered Office Facility
• Private Investment Company
C. Credit Facilities
Operations :
Personal Banking , Private Banking, SME Banking ,Wholesale Banking
Accounts
Credit Cards
Debit & Prepaid Cards
Loans & Mortgages
NRI Banking
Exclusive Banking
Standard Chartered Bank in India is the largest International Bank Group in India. The
combined Balance Sheet (as at 31st March, 2007) of SCB Indian is Rs 293 billion (USD 6
billion)
And is having a combined customer base 2.4 million in retail banking and over 1550
corporate customers.
The Key Business of Standard Chartered Bank in India include consumer banking-
Primarily Credit Cards, Mortgages, Personal loans and wealth Management and wholesale
Banking, where the bank specializes in the provision of cash Management, trade, finance,
treasury and custody services.
In India, the RBI has implemented the Basel II norms. Basel II is the second of the Basel
Accords, which are recommendations on banking laws and regulations issued by the
Basel Committee on Banking Supervision.
The purpose of Basel II, which was initially published in June 2004, is to create an
international standard that banking regulators can use when creating regulations about
how much capital banks need to put aside to guard against the types of financial and
operational risks banks face. Advocates of Basel II believe that such an international
standard can help project the international financial system from the types of problems
that might arise should a manor bank or a series of banks collapse. In practice, Basel II
attempts to accomplish this by setting up rigorous risk and capital management
requirements designed to ensure that a bank holds capital reserves appropriate to the risk
the bank exposes itself to through its lending and investment practices. Generally
speaking, these rules mean that the greater risk to which the bank is exposed, the greater
the amount of capital the bank needs to hold to safeguard its solvency and overall
economic.
The first pillar deals with maintenance of regulatory capital calculated for three major
components of risk that a bank faces : credit risk, operational risk and market risk. Other
risks are not considered fully quantifiable at this stage.
The third pillar greatly increases the disclosures that the bank must make. This is
designed to allow the market to have a better picture of the overall risk position of the
bank and to allow the counter parties of the bank to price and deal appropriately.
The plausible advantages that would have in store for India would be both banking as
well as non-banking.
• Banking Opportunities
With second highest growth rate in the world and huge scientific and general work force,
India is now well recognized as one of the fast emerging nations in the world. A sound
and evolved banking system should thus be a prime requirement to support the hectic and
enhanced levels of domestic and international economic activities in the country. Though
India is credited with a strong banking system, still some better risk practices by Indian
banks are required. A majority of Indian banks are either at nascent or at a very low
level of competence in Credit, Market and Operational risk measurement and
management system. They are lagging behind in use of modem risk methodologies and
tools in comparison to their western counterparts. Economic reforms, higher market
dynamics and large-scale globalization demand a robust risk management system in the
Indian banks . as suggested by the recent Global Trust bank fiasco the current level of risk
based supervision and market disclosures are also not very satisfactory in the Indian
banking system. Basel II gives an opportunity and a framework for improvement to the
Indian banks. A Basel II compliant banking system will further enhance the image of
India in the League of Nations. The country rating of Indian will wurely improve, and
• Non-Banking Opportunities
• Willaim B. English & William R. Nelson in their article bank risk rating of
business loan, published in 1998 based on federal research survey of 100
banks said that use of risk rating system is quite widespread but smaller bank
generally have less detailed than do larger bank. New survey also allows them
to asses the relationship between loan risk rating & loan term Riskier loan
generally carry higher rate of interest, even after taking account of other term
loan. There are more complex relationship between loan risk & other loan term.
• Marwan Elkhoury in their discussion paper Credit Rating Agencies And Their
Potential Impact on Developing Countries, published in Jan’ 2008 said that
Credit rating agencies (CRAs) play a key rolein financial markets by helping to
reduce the informative asymmetry between lenders and investors, on one side,
• Tor Jacobson jesper Linde Kasper Roszbach in their paper Credit Risk Versus
Capital requirements under Basel (( : are SME loans and retail credit really
different ? published in 2nd feb’2004 discuss about SME loan & retail credit &
realize that Much of the work done on the differences between the risk
properties of retail, SME and corporate credit has been based on parameterized
model of credit risk. He has used new quantitative evidence on the implied
credit loss distributions for two Swedish banks using aparametric Monte Carlo
re-sampling method following Carey {1998}. He said that that retail credit and
SME loans will receive a special treatment in recognition of the fact that the
riskiness of such exposure treatment in recognition of the fact that the riskiness
of such exposure derives to a greater extent from idiosyncratic risk and much
less from common factor risk.
Accurate analyzation becomes very difficult because many of the factors were
i) Payment System ii) C.L.P.U (Central Loan Processing Unit) iii) Internal
Services
Traders : 16 Companies
Contractors : 6 Companies
SME : 18 Companies.
1. Primary Data
2. Secondary Data
1. Primary Data :
Primary Data is collected from the borrowers profile availed in the bank and telephonic
interview.
“Analysis of Credit Risk & Back End Operations in banks”
19
2. Secondary Data
Secondary Data is collected from the website of Standard Chartered Bank and other
concern agencies as well as studies available.
The information for the literature survey has been obtained mainly from : News published
in Indian & International news paper on the subject of Payment Systems.
Chapter - 2
CREDIT RISK MANAGEMENT
Credit Risk is simply defined as the risk of non payment due to a loan in time. The
service include payment of interest and other charges & repayment of principal account
by installment or otherwise. If these are not paid as & when due credit risk is involved
because the bank loses not only the cost of funds to carry this for a further purpose but
also the profit that would have been earned on simultaneous investment of this amount.
A default therefore reduces the present value of the loan & consequently the value of the
bank’s business. According to prudential norms, a loan assets becomes a sub-standard
asset where there is a two-quarter on interest & installment payment. A substandard asset
immediately entails provisioning for losses. The bank is not entitled to book profit for
unpaid interest.
The technical capacity for business to service its loan is estimated by its debt coverage
ratio or priority obligation ratio.
The Rating Methodology involves an analysis of industry risk, the issuers business
financial & Management risk. A rating is assigned after assessing all the factors that could
affect the credit worthiness of the entity. Typically industry risk assessment sets the stage
for analyzing more specific company risks factor & establishing the priority of these
factors in the overall evaluation. For instance, if the industry is highly competitive,
careful assessment of the issuer’s market position is stressed. If the company has large
capital requirement, the current information provided by the issuers or facts from reliable
sources.
It consist of nature & basis competition, key success factors, demand & supply position,
structure of industry, cyclical/seasonal factors, government polices & so on. A lender
should always keep in mind that it is the financially week companies that become
insolvent during the cyclically induced decline of the industry. The incidence of solvency
is also high at the bottom of the boom phase & recovery phase from a recession, because
in the former case, labour cost & interest continue to remain or become high against a fall
in sale & in latter case, & interest continue to remain or become high against a fall in sale
& in latter case, the firms are unable to support a rising demand of their product due to
erosion of capital base during recession. It is important therefore, to capture cyclical trend
in an Industry to evaluate borrowing risk.
Financial Risk
After evaluating the issuer’s competitive position & operating environment, the analyst
proceeds to analyse the financial strength of the issuer. Financial risk is analysed largely
through quantitative means, particularly by using financial ratios. While the past financial
performance of the issuer is important, emphasis is placed on the ability of the issuer to
maintain /improve its future financial performance.
As ratings rely on audited data, the analysis of the audited financial results begins with a
review of accounting quality. The purpose is to determine whether ratios & statistics
derived from financial statements can be used to accurately measure a company’s
performance& its position. Relative to both its peer group & large universe of companies.
Management Risk
TYPES OF BORROWER
There are several types of borrowers, but I have taken only three types of
borrowers for my study. These are :-
1- Traders
2- Contractor
3- SME
2.2.1- Traders
A trader is a person who buys or sells goods. He did not manufacture goods. He
purchases goods from manufacture & sells to retailers. He can be a person who is dealing
in import or export.
2.2.2- Contractor
2.2.3. SME
The Term ‘ enterprise’ has been defined under section 2 (e) so as to mean any
industrial undertaking or a business concern or any other establishment, by whatever name
called, engaged in production or manufacture of goods, in any manner pertaining to any
industry specified in the first schedule to the industries (development & regulation) Act,
1951 or engaged in providing of rendering of any service of services’.
For the purpose of the Act, any class or classes of enterprises may be classified as micro,
small or medium enterprises by a notification issued in this behalf.
Chart
CHAPTER -3
WHAT IS LOAN
Lending of funds to the constituents, mainly traders, business & industrial enterprises,
constitutes the main business of the banking company. The major portion of a bank’s
funds is employed by way of loans & advances, which is the most profitable employment
of its funds. The major part bank’s income is earned from interest & discount on the funds
so lent. The business of lending, nevertheless, is not without certain inherent risks. While
lending his funds, a banker, therefore, follow a very cautious policy & conducts his
business on the basis of the well-known principles of sound lending in order to minimize
the risks.
Crop Bank offers a variety of loans to choose from. The various retail loans are given
as ‘Crop Schemes’ highlighting the traditional Crop Bank commitment on giving the
bestin terms of service, speedy disposal and of course at a very competitive interest
Interest calculation on credit facilities will be done on the basis of 365 days only,
irrespective of whether the year is leap year or not.
Cash Credit
Cash credit is the main method of lending by banks in India & accounts for
about 70%of total bank credit. Under this system, the banker specifies a limit, called
cash credit limit, for each customer, up to which the customer is permitted to borrow
against the security of tangible assets or guarantees. The customer withdraws from his
cash credit account as & when he needs the funds & deposits any amount of money
Which he finds surplus with him on any day. The cash credit account is thus an active &
running account to which deposits & withdrawals may be affected frequently.
DBC/BDD
DBC/BDD stands for discounted bill purchase facility under which the proceeds of
cheques, bank draft & instruments of such nature like, interest warrants, dividend
warrants, refund orders etc., are credited to an account holder without waiting for
realization of the relative instruments.
Import/inland LC cum BG
Letter of commercial credit plays an important role in the trade of the country. In most
cases the exporter are not personally very well aware about the importers In foreign
country. In such cases the exporters bear great risk if they draw bills on the importers,
after dispatching the goods as per their order, because if the importer default in making
the payment, the exporter will suffer heavy loses. To avoid such risk, the exporter ask
the importers to arrange a letter of credit from importer’s bank in favour of the exporter,
informing him that the issuing bank undertakes to accept the bills drawn in respect to
exports made to the foreign buyer specified therein.
Bills of exchange
CC-PCL-FDBN/FDBP/FDBD
PCL (Packing credit limit) pre shipment means any loan or advance grantedor any other
credit provided by a bank to an exporter for financing the purchase, processing,
manufacturing or packing of goods prior to shipment/ working capital expenses towards
The PCL granted to an exporter may be liquidated out of proceeds of bills drawn for the
exported commodities on its purchase, discount etc. thereby converting pre-shipment
credit into post shipment credit.
Overdraft
When a current account holder is permitted by the banker to draw more than what stands
to his credit, such an advance is called an over draft. The banker may take some
collateral security or may grant such advances on the personal security of the borrower.
The customer is permitted to withdraw the amount as & when he needs it & to repay it by
means of deposit in his account as & when it is feasible for him. Interest is charged on the
exact amount overdrawn by the customer & for the period of its actual utilization.
Bank Guarantee
According to Indian contract Act, 1872, Guarantee is a “contract to perform the promise or
discharge the liability of a third person in case of his default.”
the person who undertakes the above obligation to discharge the liability of a third person
is called the guarantor or the surety. The person in respect of whose default the guarantee
is given is called the principal debtor & person to whom the guarantee.
Term loan
Tern loan is a credit facility granted for the purpose of acquisition of capital assets, such
as purchase of land, construction of building, purchase of machinery, modernization,
renovation and rationalization of plant, furniture & fixtures which is repayable form the
future earning of the enterprise. Hence repayment is mde in installments,as per a
prearranged schedule normally not exceeding 7 years, except in respect of certain
There are certain principles of bank lending that have been followed by banks since long.
These principles are :-
a) Safety
As the bank lends the funds entrusted to it by the depositors, the first & foremost
principle of lending is to ensure the safety of the funds lent. By safety is mean that
borrower is in a position to repay the loan contract. The repayment of loan depends upon
the :-
b) Liquidity
Banks are essentially intermediaries for short tern funds. Therefore, they lend funs for
short periods & mainly for working capital purposes. the loans are therefore largely
payable on demand. The banker must ensure that the borrower is able to repay the loan
on demand or within a short period.
Profitability
The banks must employ their funds profitably so as to earn sufficient income out of
which to pay interest to the depositors, salaries to the staff & to meet vaiours their
establishment expenses & distribute dividends to the shareholders. Banks are free charge
their own rate of interest on advances of above Rs. 21 lakhs. A customer with high
reputation is charged the lower rte of interest as compared to an ordinary customer. The
“Analysis of Credit Risk & Back End Operations in banks”
29
sound principle of lending is not to sacrifice safety or liquidity for the ske of higher
profitability.
While lending his funds, the banker enquires from the borrower the purpose for which he
seeks loan. Banks do not grant loan for each & every purpose, they ensure the safety &
liquidity of their funds by granting loans for productive purposes only, viz., for meeting
working capital, needs of an enterprise. Loans are not advanced for speculative &
ceremonies or for pleasure tips or for repayment of a prior loan.
This is also a cardinal principle of sound lending. A prudent banker always tries to
select the borrower very carefully & takes tangible assets as securities to safeguard his
interests. Tangible asset are no doubt valuable yet some risk is involved therein. An
industry or trade may face depressing condition or the natural calamities like floods &
earthquakes, political disturbances in certain part of the country may ruin even a
prosperous business. To safeguard his interest against such unforeseen contingencies. The
banker follow the principle of diversification of risks based on the famous maxim ‘do not
keep all the cggs in one basket’ it means the banker should not grant loans only to big
firms or few industries or in a few cities or regions of the country only. The advance on
the other hand, should be over a reasonably wide area, distributed amongst a good
number of customers belonging to different trades 7 industries.
CHAPTER -4
NPA
An amount due under any credit facility is treated as ‘past due’ when it has not been paid
within 30 days from the due date. Due to the improvements in the payment & settlement
systems, recovery climate, up gradation of technology in the banking system, etc., it was
decided to dispense with ‘past due’ concept, with effect from mar 31, 2001. Accordingly,
as from that date, a NPA shall be an advance where.
Branches are required to classify non performing assets further into the following three
bases on the period for which the asset has remained non performing & the reliability of
the dues.
A Sub Standard asset is one, which has remained NPA for a period of less or equal to
12 months in such cases, the current net worth of the borrower/ guarantor or the current
market value of the security charged is not enough to ensure recovery of the dues to the
banks in full.
Code
Loss Asset are considered uncollectible & of such little that their continuance as
bankable assets are not warranted, although there may be some salvage or recovery value.
In such cases loss has been identified by the bank or internal of external auditors or RBI
inspectors abut the amount has not been written off wholly.
Attitudinal Changes
3. Transport bottlenecks.
CHAPTER- 5
a) Business Risks
b) Financial Risk
c) Industry Risk
d) Management Risk
5.2. Tables:
30
25 Type of Risk
20 Business Risk
Type of Risks 15 Financial Risk
10 Industry Risk
5 Managment Risk
Total
0
Traders Contractors SME Total Average Risk
Type of Borrower
ANALYSIS :
We can analysis that traders are having maximum Industry Risk i.e. 7.12 as compared to
Contractor & SME where it is 6.43 & 6.98 because structure of industry, cyclical factors,
government policies etc. are uncertain & unpredictable, so traders have no control over it
as compared to contractor & SME who have little control. Because of this industry Risk,
Repayment can be affected.
SME are having maximum Business Risk as compared to Trader & Contractor because
SMEs are dealing in small & medium Business, they at the same time, are having Risk
both from other SMEs & large Enterprises dealing in same business. And they are small
they do not have large amount of funds to fulfill there losses, if they fails. This will affect
their repayment capacity. They are also having maximum management Risk because what
most of the traders do, they said they are dealing in export (they have all documents
Contractors are having more Financial Risk because they work on contract basis, they
don’t have huge pool of resources, they buy the resources at the same time they receive
the contract. So if they fail to fulfill the contract on time & the party cancels the contract,
they might be not in a position to repay the loan.
Management Risk
Business Risk
Industry Risk
Financial Risk
Industry Risk
28%
Business Risk
24%
Analysis:
As far as average risk if Trader is concerned, they are having more management &
industry risk i.e. 28% each because of structure of industry, cyclical factors, government
policies etc. which are uncertain & unpredictable, and Trader have least control over it.
Traders are having maximum control on their financial position, that is why they are
having least financial risk. They are also having control over business position which is
greater than management & industry risk by lesser than financial risk.
Business Risk
Financial Risk
Industry Risk
Management Risk
Financial Risk
19%
Industry Risk
29%
Analysis:
SMEs are also having maximum industry risk because industry in uncertain, on one has
control over it. After industry, SMEs are having maximum business risk because they are
having competition from both small enterprises & large enterprises. Then comes to
management risk, their percentage is also high. As they are small enterprises, they don’t
have effectively coordinated management. They are also having less financial risk.
Management Risk
Business Risk
Industry Risk
Financial Risk
Industry Risk
26% Business Risk
24%
Analysis :
As Traders, Contractor is also having maximum management risk & least financial Risk
i.e. 27% & 23%. We can say they are having maximum control on their financial position.
But their industry risk in low as compared to management risk i.e. 26%. Their business
risk is 24%, which means that they are having control on business risk but less than
financial risk & more than industry & management risk.
Cash Credit
No of forms of loan taken by borrower
DBC/BDD
40
35 Forward purchase
30
Forward sale
25
Forms of Loans 20 Import/inland Lccum
15 BG
Bills of exchange
10
5 CC-PCL-
0 FDBN/FDBP/FDBD
Trader Corp Mobile
Contractor SME
Overdraft
Type of Borrower
Bank Guarantee
Term Loan
Analysis: TOTAL
According to this table, we can analyse that most of the traders & SMEs prefer to take
Cash credit Limit because under this they can draw upto the prescribed limit & repayment
can be made whenever interest is also determined on the basis of running balance.
However in SMEs, borrowers also prefer to take term loan to finance their fixed Asset. In
Contractor, most of them prefer to take overdraft facility because by this they want to
exceed the limit of their loan. Traders also prefer to take Import LC so they can easily
import something.
Table 3: Total Amount of loans granted by banks to borrowers as per facility taken
Overdraft
Analysis:
We cam analysis that while the number of borrowers on trading category who took
import/inland LC cum BG are lesser than cash credit, the amount are more than cash
credit. So we can say that while the people are not frequently opt for import inland LC
cum BG, but if they opt, they opt for larger amount.
In SMEs, 61.62 crores are land to 12 borrowers while only 45.4 crores of forward
purchase contract, 22.65 of CC-PCL-FDBN/FDBD/FDBP is lended & term loan accounts
for only 50 lakhs. Because as SMEs are not dealing in very high scale they don’t have big
In Contractors, the overdraft facility is taken big quantity i.e 4.6 crores as compared to
others.
Table 4 : Average interest rate charge from borrower as per facility taken
CC-PCL-
FDBN/FDBP/FDB
D
Corp Mobile
Analysis :
Overdraft
Average interest rate of contractor is higher as compared to Trader & SMEs. In
Contractor higher average interest rate is 14.2% which is charged for import/inland I.C
Bank Guarantee
cum BG & lowest rate is 13.58% which is charged for overdraft facility.
Term Loan
Here we can say that maximum borrower range between of CB 4 to CB 6 i.e. the
borrower scord marks between 82 & 85. Bank do not grant loan to a person scoring
below 60. We can see that maximum amount of loan. I.e. 201.19 crore aregranted to
SMEs at CB 4 Risk while the minimum amount of loan is granted at CB risk & minumum
in CB 6.
Analysis :
Here we can say that as revenue of all borrowers is increasing, they are in a good position
to repay the loan. We can say that Borrower A has very strong position as compared to all.
While borrower F is at lover position.
Analysis:
Both Trader & SMEs opt for Cash credit for same purpose i.e. for working capital &
receivable finance. SMEs also opt for inventory finance. Contractors did not opt for Cash
credit. All three types of borrowers took DBC/BDD for receivables finance. Only SMEs
opt for forward purchase & sale contract. Import/inland LC cum BG is taken by both
Trader & SMEs. Bills of exchange & CC-PCL-FDBN/FBBP/FDBD are taken only by
SMEs. Crop Mob is taken by Trader & SMEs for purchase of new car only. No overdraft
facility is taken by SMEs; it is taken by Trader & contractor for Working Capital Needs.
Bank Guarantee is taken by all three borrowers. Term Loan is also taken by all three
borrowers, but it is taken by SME in large quantity.
CHAPTER-5
CONCLUSION
Traders are the one involved in selling and purchasing of goods and services. For this, they
need cash; so that they can purchase goods otherwise their business will collapse. So they take
loan to continue their business effectively & efficiently.
Traders normally do not want long term finance because they are into purchasing & selling, they
don’t want fixed Asset like Plant & Machinery, Furniture & fixture, Land & building etc. The
whole purpose is to act as a mediator between manufacturer & ultimate consumer. For this they
need short term finance to meet their working capital needs & to run their business efficiently.
Traders generally take three types of loan-
1. Cash Credit
2. Inland/Import LC
3. Overdraft
4. BG
1. Cash Credit
Traders need cash credit to meet their Working Capital needs & Receivable needs.
2. Inland/Import LC
Sometimes the exporter or other party are not very well personally aware about the Trader. In
such cases the exporters bear great risk if they draw bills on the importers, after dispatching the
goods as per their order, because if the importer default in making the payment, the exporter will
suffer heavy loses. To avoid such risk, the exporter ask the importers to arrange a letter of credit
from importer’s bank in favour of the exporter, informing him that the issuing bank undertakes to
accept the bills drawn. So Traders ask for this facility.
3. Bank Guarantee
4. Overdraft
If Trader is having Current Account with bank, they can also asked for overdraft facility
instead of taking new loan. In this bank exceeds the limit of the account & borrower can withdraw
unto that limit.
Contractors
Contractors are the one who works on contract basis. Their contract period can be of 1
month, 2 month, 1 year, 5 year or more depend upon the need of the part giving contract. They
want long term finance once in their long course of business. They only want short term finance.
For this take-
a) Overdraft
b) Bank Guarantee
SME
SME stands for small & medium enterprises. A small enterprise is an enterprise where the
investment in plant & machinery in more than Rs. 25 Lakhs but less than Rs. 5 crores. A medium
Enterprise is an enterprise where investment in plant & machinery is more than 5 crore but less
than Rs. 10 crore. SME is one of the priorities for the bank. Banks deal differently with SMEs.
They even charged lower rate of interest from SMEs.
SMEs from almost 95% of all industrial units in the country. They need loan for both long & short
term purposes.
SMEs needs long term finance to establish their business. For this they take Term Loan.
SMEs need term loan for the purpose of acquisition of capital assets, such as purchase of land,
construction of building, purchase of machinery, modernzation, renovation and rationalization of
plant, furniture & fixtures. This loan will be repaid by the future earning of the firm.
Apart from loan term finance, SMEs also need funds for short term purpose to continue their
business effectively & efficiently. For this they mainly take Cash Credit. They want Cash credit to
meet their working Capital finance, inventory finance & Receivable Finance.
i) CC-PCL-FDBN/FDBP/FDBD
ii) DBC/BDD
v) Import/Inland LC
e) Any amount to be received remains overdue for of more than 30 days in respect of other
accounts.
Where any one or more of the stipulated irregularities persist for 90 days then the 91st day is to be
considered as the date of NPA.
PART-II
“Analysis of Credit Risk & Back End Operations in banks”
49
BACK-END OPERATION
Key point :
• Payment systems need to become more efficient and Cheque truncation is a step
in this direction.
• Cheque truncation is the next logical step in Payments system after MICR, ECS,
EFT & RTGS. This would put India on the global map.
CTS promises to bring multiple benefits to customers by substantially reducing the time
taken to clear the cheques as well as to the banks by enabling them to offer better
customer services and increasing operational efficiency by cutting down on overheads in
physical clearing. In addition, CTS also offers better reconciliation and fraud prevention
CTS uses cheque image, instead of the physical cheque itself, for clearing of the cheque
The cheque image is truncated at the presenting bank. Subsequently, the cheque image
moves through various steps in the cheque-clearing cycle and transactions are settled on
the basis of images and electronic data.
• Batch Scan-A batch mode scanning application with MICR data display and Image
quality analysis
Mortgages
Loans
Personal
1.1 MORTGAGES :
Mortgage product offers two interest rate options to the customer-Fixed and Variable.
Fixed Interest Rate Loans implies that the interest rate advised to the customer at the time
of initial loan draw down will not change for the entire tenor of the loan. Variable interest
Rate loans implies that the interest rate is variable and subject to change during the tenor
of the loan.
For variable interest rate loans, the interest rates will be reviewed and changed once
every 6 months based on the interest rates advised by Finance each month.
Customer, however, has the option to change from a Fixed Interest rate to variable interest
and vice versa during the tenor of the loan.
Processing Fees
In Mortgage product, the loan processing fees is collected in two stages. Loan Processing
Fee at the time of sanction or administrative fee is collected at the time of sourcing the
mortgage application from the customer for an in-principal sanction of the loan. This fee
is normally 0.5% of the total processing fee payable by the customer and is non-
refundable.
Disbursement Types :
The mortgage loans will be sourced by the local sales team. The Unit is lead by RSM
(Regional sales manager) with area sales managers under him/her. The sales model for
this is DSA (Direct selling agents), OBST (Out Bound sales Team), DST (Direct sales
Team).
Customer is explained the broad features of the product. The following information must
be gathered from the customer :
On receipt of files from CAU service delivery proceeds with the disbursement of the case,
subject to the following checks.
Disbursement Team
Check for the clearance of the LPC cheque and availability of the customer
funds submitted by the customer to the CAU at the time of Sanction as well as
disbursal of the loan.
Disbursement sheet consists of the details of the loan along with the payee
details in whose favour the pay order is to be issued.
Safe Keeping Record (SKR) is properly filled and all the documents are as per
the SKR.
- Lodges all the documents in a lodgement sheet and stores the customer documents
in a water proof jacket at a fire proof locations-Sends a confirmation letter to the
“Analysis of Credit Risk & Back End Operations in banks”
56
customer confirming the receipt of the property documents of the customer.- On
receipt of the Welcome kit from CLPU, sending across the same to the customer
subject to credit approval- Maintaining the customer documents and storing all
the subsequent property documents in the same customer jackets.
RISK Control
Here can be possibility of excess A Maker checker concept is in place, with every
disbursements due clerical errors file being duly checked and approved by the
Manager, before disbursement.
Case wherein LPC fund not available, LPC fund availability is checked prior to login
getting processed . of the files at the Disbursement Team, Area
Operations.
Correct Lodgment of document can A maker checker concept is again in place,
lead to stoner issues. wherein any lodgment done for the property
documents is checked by both the custodians
independently.
Sk of the title documents The title documents are stored in water proof
gettingdamaged with the usage if jacket separately for each customer, and
time. thereafter lodged in a fire proof cabinet
“ The risk of direct or indirect loss resulting from inadequate or failed internal processes,
and systems or from external events”
Output control
ATM Reconciliation (Moved to Chennai) and Site Visit
Legal Cases Customer disputes
Enquiries from Regulatory bodies.
Deceased Case Vetting
Internal Safe Custody
CBOS (Cheque book Ordering System)
Combipack and Dining Card
Archival and Retrievals of Vouchers
PAN data Updation
Debit card PIN dispatch and returning
“Analysis of Credit Risk & Back End Operations in banks”
57
Command Queries
Generation of Interest TDS
Generation of Duplicate Statement
Signature Capturing for C & IB and Priority Banking.
KCS / KCSA Checking
Statement dispatch related work
TC’s Reconciliation
• Unintentional Errors
• Judgment can be affected by
o Incompetence (cannot do)
o Carelessness (can do but forgot)
o Ignorance (did not know the need)
o Indifference/Poor motivation (can do but don’t want to)
• Transactions conducted by individuals, acting beyond their capacity.
• Lack of clarity of role
• Inadequate staff-leads to stress and oversight
• Inadequate segregation of duties
Legal Risk :-
Legal Risk is the risk of loss from a contract that cannot be legally enforced. It arises
because :-
2. Jesper Tor Jacobson & Kasper Roszbach Linde (2004), Research paper on “Credit risk
versus capital requirements under Basel II: are SME loans and retal credit really
different ?”
3. Barry Eichengreen and Ashoka Mody, Research paper “Lending booms, reserves and
the sustainability of short-term debt: inferences from the pricing of syndicated bank loans,
available online on 28 august 2000.
4. Marwan Elkhoury (2008), discussion paper “Credit Rating Agencies And Their
Potential impact on Developing Countries.” United nation conference.
5. Lyn C. Thomas (2000), article “Asurvey of credit and behavioral scoring: forecasting
financial risk of lending to consumers”
6. Richard Cantor and Frank Packer (1997), journl on “Differences of opinion and
selection bias in the credit rating industry”
7. Suk Hun Lee (2002), journal of development economics “ Are the credit ratings
assigned by bankers based on the willingness of LDC borrowers to repay ?”
8. Richard Cantor and Frank Packer (1996), economic policy review “Determinantsand
impact of Sovereign Credit Ratings”
10. Press release “CRISIL assigns first Bank Loan Raings under Basel II”
13. Pamela Nickell, Willian Perraudin and Simone Varotto, “Ratings versus equity-based
credit risk modeling: an empirical analysis”.
14. Arnoud W.A. Boot and Todd T Mibourn (2002), paper “Credit Ratings as
Coordination Mechanisms”
15. Article (Feb, 2008), “Demand for SMEs credit rating on the rise. “
16. Hrishikes Bhattacharya, (1998), Banking Strategy, Credit Appraisal & Lending
Decision.
17. P.L. Varshney, (2008), Banking Law & Practice. (sultan chand publication)
20. <http://Standardchartered.com
Age :
Sex :
Address :
Type of Organization :
Year of Establishment :
Q5. What type of facility you prefer for taking short term loan?(if taken)
a) CB 1 b) CB 2 c)CB 3 d) CB 4
e) CB 5 f) CB 6 g) CB 7 h) CB 8