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A BANK is a financial institution which accepts different forms of deposits and lends them to
the prospective borrowers as well as allows the depositors to withdraw their money from the
accounts by cheque.
The Banking system has its origin in the western world to which India was introduced by
the British rulers way back in the 17
century. According to Union Budget 2007-08, MoF,
GOI, N. Delhi today Indian banks are considered among the best banks in the developing
world and its attempts to emerge among the best in the world is going on.
The Indian Banking industry, which is governed by the Banking Regulation Act of India,
1949 can be broadly classified as follows:
Brief History:
Initially in India Banks were operated by the private firms. These banks were lending mainly
to large corporate houses and their rate of interest was also very high. Even the Reserve Bank
of India, which was set up in 1935 (by the RBI Act, 1934) was also a private bank. It was
nationalised in 1949, and after then it emerged as the central banking body of India. After
the nationalisation of RBI the Government of India felt the necessity of nationalising some
selected private banks in the country due to following major reasons:
(i) As the banks were owned and managed by the private sector, the services of banks
were having a narrow reach- the masses had no access to the banking service.
(ii) The Government needed to direct the resources in such a way that greater public
benefit could take place.
(iii)The planned development of the economy required a certain degree of government
control on the capital generated by the economy.
Nationalisation of banks took place in the following two phases:
1. Emergence of SBI:
The Government of India, with the enactment of the SBI Act, 1955 partially nationalised the
three Imperial Banks and named them the State Bank of India- the first public sector bank
in India. In a further move towards nationalisation the GoI partially nationalised eight more
private banks via SBI (Associates) Act, 1959 and named them as the Associates of the SBI.
At present the SBI Group has a total number of eight banks- SBI being one and seven of its
2. Emergence of Nationalised Banks:
After successful experimentation in the partial nationalisation, now the Government decided
to go for complete nationalisation. With the help of the Banking Nationalization Act, 1969
the Government nationalised a total number of 20 private banks:
(i) 14 banks with deposits more than Rs. 50 crore nationalised in July 1969, and
(ii) 6 banks with deposits more than Rs. 200 crore nationalised in April 1980.
After the merger of the New Bank of India and Punjab National Bank in September 1993, the
total number of nationalised banks came down to 19. Today there are 27 public sector banks
in India out of which 19 are nationalised.
In the fiscal 1992-93 the Government started a comprehensive banking system reform for its
further expansion:
(i) In 1993 the SBI was allowed access to the capital market with permission given to
sell its share to the tune of 33 percent through SBI (Amendment) Act, 1993.
(ii) In 1994 the Government allowed the nationalised banks to have access to the capital
market with a ceiling of 33 percent sale of shares through the Banking Companies
(Amendment) Act, 1994.
In 1994 itself the Government allowed the opening of private banks in the country. The first
private bank of reform era was the UTI Bank, now known as the Axis Bank. Since then few
dozen Indian and foreign private banks have been opened in the country.
Bank of India was founded on 7th September, 1906 by a group of eminent businessmen
from Mumbai. The Bank was under private ownership and control till July 1969 when it was
nationalised along with 13 other banks.
Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50
employees, the Bank has made a rapid growth over the years and blossomed into a mighty
institution with a strong national presence and sizable international operations. In business
volume, the Bank occupies a premier position among the nationalised banks.
The Bank has presently over 3250 branches in India spread over all states/ union territories
including 141 specialised branches. These branches are controlled through 48 Zonal Offices .
There are 29 branches/ offices (including three representative offices) abroad. Besides, Bank
has opened over 980 ATMs in various corners of the country.
The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions
Placement in February 2008. . Total number of shareholders as on 30/09/2009 is 2,15,790.
While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront
of introducing various innovative services and systems. Business has been conducted with
the successful blend of traditional values and ethics and the most modern infrastructure. The
Bank has been the first among the nationalised banks to establish a fully computerised branch
and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. The Bank is also a
Founder Member of SWIFT in India. It pioneered the introduction of the Health Code System
in 1982, for evaluating/ rating its credit portfolio.
The Bank's association with the capital market goes back to 1921 when it entered into an
agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is
an association that has blossomed into a joint venture with BSE, called the BOI Shareholding
Ltd. to extend depository services to the stock broking community. Bank of India was the
first Indian Bank to open a branch outside the country, at London, in 1946, and also the first
to open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a
network of 29 branches (including five representative offices) at key banking and financial
centres viz. London, Newyork, Paris, Tokyo, Hong-Kong and Singapore. The international
business accounts for around 17.17% of Bank's total business as on 30 June, 2010.

Banks Mission
"To provide superior, proactive banking services to niche markets globally, while providing
cost-effective, responsive services to others in our role as a development bank, and in so
doing, meet the requirements of our stakeholders".

Banks Vision
"To become the bank of choice for corporates, medium businesses and upmarket retail
customers and to provide cost effective developmental banking for small business, mass
market and rural markets"

Branches and ATMs:

Head Office
C - 5, "G" Block,
Bandra Kurla Complex,
Bandra (East),
Mumbai 400 051.
Ph: . 022-66684444
ZONAL OFFICES in Jharkhand:
Zone Name Address Contact at
1 Dhanbad
S. R. Mansion,Sastri
Nagar,P.O. Dhanbad ,
PIN:826 001
Phone No:0326 - 2303650,
FAX No:0326 - 2302522,
2 Giridih
Kutchery Road ,
City:GIRIDIH , PIN:815
Phone No:06532 - 226321,
FAX No:06532 - 222496,
3 Hazaribagh
P.B. No. 34,Vidya
Niwas,Raja Ram Mohan
Roy Road,Zulu Park ,
PIN:825 301
Phone No:06546 - 223246,
FAX No:06546 - 222900,
4 Jamshedpur
Post Box No.36, Main
Road, Bistupur ,
PIN:831 001
Phone No:0657 - 2436469,
FAX No:0657 - 2428978,
5 Ranchi
Pradhan Towers,
Main Road,Ranchi
(South), Jharkhand ,
City:RANCHI , PIN:834
Phone No:0651 - 2200837,
FAX No:0651 - 2330138,
BOI Branches in Dhanbad:
Presently BOI has got 44 branches in Dhanbad district.
ATMs in Dhanbad:
The Bank has opened 12 ATMs in Dhanbad till date.
Besides India, Bank has its presence in USA, West Indies, UK, Channel Islands, France,
Belgium, Japan, Hongkong, Peoples Republic of China, Kenya, Singapore, Combodia,
Indonesia, Socialist Republic of Vietnam, Republic of South Africa and UAE.
It is said of the Bank The sun never sets in Bank of India.


Deposits Schemes:
1. Star Saving Plus
2. Star Current Deposit Plus
3. Star Diamond Plus
4. Star Suraksha Savings Banking Account
5. Star Benefit Current Deposit Account
6. Deposit Schemes for Global Investors/NRIs
7. Star Supreme Floating Rate Deposit Scheme
Insurance Products:
1. Star Flier Scheme for Individual Diamond SB Customers
2. Star Domestic Travel Insurance
3. Deposit Linked Insurance Plan
4. Family Floater Mediclaim Policy
5. Star Education Loan Insurance Scheme
6. Home Loan Insurance
7. Mutual Funds
Credit Schemes:
1. Agriculture
(i) Agriclinics and Agribusiness
(ii) Cold storage
(iii) Composite Cash Credit Scheme
(iv) Crop Finance
(v) Farm mechanisation, Implements & Equipments
(vi) Financing for Drought Animals & Carts
(vii) Land Development
(viii) Minor Irrigation
(ix) Poultry Development
(x) Purchase of Land
(xi) Rural Godowns
(xii) BOI Shatabdi Krishi Vikash Card
(xiii) Kisan Credit Card
(xiv) Kisan Samadhan Card
(xv) Star Bhumiheen Kisan Card
2. Personal Loans:
(i) Star Mitra Personal Loan
(ii) Star Pensioner Loan Scheme
(iii) Star Home Loans
(iv) Star Holiday Loan Scheme
(v) Star Mortgage Loan Scheme
(vi) Star Autofin
(vii) Star Personal Loans
(viii) Star IPO
(ix) Star Education Loan
(x) Star Mahila Gold Loan Scheme
(xi) Clean Loan/OD for financing Health Insurance Premium
3. SMEs:
(i) Star Laghu Udyog Suvidha
(ii) Credit Linked Subsidy
(iii) Akshay Urja Shops
(iv) Artisan Credit Cards
(v) KVIC (REGP) Scheme
(vi) Laghu Udyami Trade Card
(vii) Priyadarshini Yojana
(viii) Solar Water Heaters Scheme
(ix) Star Dhanvantari Suvidha Scheme
4. Government Sponsored Schemes:
(i) Prime Ministers Employment Generation Programme (PMEGP)
(ii) Swarnajayanti Gram Swarojgar Yojna (SGSY)
(iii) Swarna Jayanti Shahari Rojgar Yojna (SJSRY)
(iv) Scheme for Liberation and Rehabilitation of Scavengers (SLRS)
Debit Cards:
1. Starlinks International Debit cum ATM Card (Visa Electron)
2. BOI Global Debit cum ATM Card (Master Card)
3. Star Vidya Cards
4. SME Debit Cards
Credit Cards:
1. India Card (Master Card)
2. Pensioners Credit Card
3. Gold Card (VISA)
4. Gold International (VISA)
5. Shatabdi Krishi Vikas Card (Visa)
Techno-Enabled Services:
1. ATM
2. BOI Star e-Pay-Payment of utility bills
3. DGFT online payments
4. ECS (Debit & Credit)
5. Internet Banking
6. E-Payment of Direct and Indirect Taxes
7. Online Fund Transfer
8. Online Booking of Railway & Airline Tickets
9. S.W.I.F.T
10. Star Cash Management
11. Star Share (e) Trade
12. Telebanking & SMS Banking
13. Star Sandesh On Line SMS based alerts for ATM Financial Transactions &
Internet Banking Funds Transfer
14. Customer Corner Provided on Banks Website for Customer Suggestion and
Grievance Redressal
Chairman and Managing Director:
Shri Alok Kumar Misra has taken over as the Chairman and Managing Director of
Bank of India with effect from 5th August, 2009. Shri Misra was the Chairman & Managing
Director of Oriental Bank of Commerce prior to the present assignment.
Shri Misra is endowed with qualities of leadership and is a firm believer in good team work.
His interest also includes playing Golf.
Executive Director:
1. Shri B.A. Prabhakar has taken over as Executive Director of Bank of India with effect
from 15th October, 2008. Prior to the present assignment, Shri Prabhakar was General
Manager with Bank of Baroda, looking after its treasury operations. Earlier, he has served as
the Chief Executive of Bank of Barodas operations in the United Kingdom.
2. Shri. M. Narendra has taken over as Executive Director of Bank of India with effect
from 6th November, 2008. Shri. Narendra was Chief General Manager at the Corporation
Bank prior to the current assignment.
In Bank of India Hirapur SME Branch, the Organization Structure is as below:
The Bank was founded in September 1906 as a private entity and was nationalised in July
1969. Now, Bank Of India, is a Body Corporate constituted under The Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970, with its Head Office at Star House,
Plot No.C-5, G Block, Bandra-Kurla Complex, Bandra East), Mumbai 400 051.
The Bank is doing the business of banking which means the accepting of deposits for the
purpose of lending or investment, of deposits of money from the public, repayable on demand
or otherwise, and withdrawal by cheque, draft, order or otherwise.
In additions to the business of banking, Bank of India is also engaged in other forms of
business as contemplated under Sec. 6 (1) of the Banking Regulation Act, 1949.
Deriving from this definition, Bank of India performs the following functions :
1. Accepting Deposits from public/others (Deposits)
2. Lending money to public (Loans)
3. Transferring money from one place to another (Remittances)
4. Acting as trustees
5. Keeping valuables in safe custody
6. Government business (such as payment of Pensions)
To gauge credit scoring in BOI-SME Branch.
One of the important functions of banks is offering credit, besides accepting deposits.
However, offering credit is fill with fraud and risk. So before offering credit to an individual
or organization, their financial health must be analyzed. Credit should be disbursed only
after ascertaining satisfactory financial performance. Based on the financial health of the
individual or the organization, the banks assign credit ratings. These credit ratings are used to
decide whether to sanction credit or not and fix the interest rate.
Credit Policy of RBI:
RBI announces Credit Policy twice a year- One for Busy Season (October-March) and the
other for Slack Season (April-September). However, in the recently announced RBI Policy,
the RBI has decided to have a policy review in an interval of one-and-half months, in order
to have a firm grip on the implementation/execution of is various suggestions and its impact
on our economy. The Credit Policy for the busy season is usually announced in the month of
October while that of slack season is announced in the month of April every year. In the busy
season the demand for bank credit is comparatively higher than the slack season, as more
money is needed for the marketing and distribution of agricultural products.
Of late the share of agricultural credit is coming down compared to industrial credit (which is
not seasonal in nature) and therefore the need for announcing two separate policies is slowly
losing its relevance. Accordingly RBI has started announcing the credit policy once in a year
in the month of April followed by a Mid-term review in October.
Through its Credit Policy, RBI tries to:
(i) regulate money supply (M
) and thus inflation,
(ii) curb hoarding of essential goods & speculation,
(iii) make credit available to the deserving sectors at reasonable cost.
Priority Sector Finance:
Priority Sector constitutes certain sectors of the economy and sections of the society which
are crucial for the development of the economy. Banks are directed to provide adequate and
timely credit for all activities classified under priority sector.
Components of Priority Sector Finance:
1. Agriculture
(i) Direct Finance to Farmers for agriculture purposes:
a) Short Term Loans:
For raising crops.
Advances upto Rs. 10 lakh is provided to farmers.
Repayment period is within 36 months.
b) Medium and Long Term Loans:
All loans with repayment period of 36 months and above, given for agricultural purposes are
called Term Loans for agriculture. They fall into ten broad categories as given hereunder:
(1) Land development and reclamation: e.g. waste land development
(2) Minor irrigation: sinking of well, deepening of well, purchase of pump sets, etc.
(3) Farm mechanisation: purchase of tractors, power tillers etc and purchase of vehicles such
as Vans for farm supervision etc.
(4) Animal husbandry and Allied activities: Animal husbandry includes Dairy, Sheep rearing
etc and Allied activities includes Sericulture, Apiculture etc.
(5) Fisheries (Pisciculture):
(6) Plantation and Horticulture: Plantation includes traditional plantations like tea, rubber,
coconut etc and non-traditional plantations like medicinal plants. Horticulture includes
Pomeculture (growing of fruits), Floriculture (growing of flowers), and Olericulture (growing
of vegetables).
(7) Farm forestry: includes Sylviculture (growing of trees like Eucalyptus, Tamarind, Neem
(8) Non-conventional sources of energy: biogas plants, wind mills etc.
(9) Storage and marketing facilities for the agriculturist: construction and running of
warehouses/ godowns/ cold storage for storing own produce of the agriculturist.
(10) Loans to agriculture graduates for setting up Agri Clinic and Agri Business Centres.
The Agri clinics provide consultancy services on agriculture and allied activities while Agri
Business Centres provide inputs and farm equipments on hire. The maximum project cost
allowed under this scheme is Rs. 10 lakh per individual and Rs. 50 lakh for a group of five or
more individuals.
(ii) Indirect Finance to Agriculture:
Finance given to agencies / organisations which supply certain inputs / services to farmers are
classified as indirect finance to agriculture. Following types of Finances are included under
this category:
a) Dealers of fertilizers, pesticides, seeds and other inputs like cattle feed/ poultry feed, etc.
availing credit limit upto Rs. 40 lacs.
b) Dealers of drip/ sprinkler irrigation system/ farm machinery which are located in rural/
semi urban areas availing credit limit upto Rs. 30 lacs.
c) Supplier of custom services in farm machinery, storage facility, plant protection services
and cooperative processing units. A custom service is one which maintains tractors/
bulldozers/threshers/ other implements for undertaking work from farmers on contract basis.
d) Loans to individuals/organisations who undertake spraying operations.
e) Loans to electricity boards for providing low tension connections for energisation of dug
f) Loans to Farmer Service Cooperative Society, Large Agricultural & Multipurpose Credit
Societies, Co-operative Banks, Co-operative Marketing Societies for on-lending to farmers.
g) Loans to small farmers/marginal farmers for purchase of shares from primary market
in sugar/cotton/spinning/ginnery mill/rice mill/oil seed and rice bran processing mills etc.
Finance can be given upto Rs. 6000/- per farmer.
h) Finance to commission agents (Arthias) to meet their fund requirement for supplying
inputs in credit to farmers.
i) Subscription to special bonds/deposits issued by (i) NABARD, for exclusively financing
agriculture or (ii) Rural Electrification Corporation (REC) and 50% of contribution to RRBs
in form of finance.
j) Loans to cooperative marketing society for marketing produce of their members.
k) Loans to state sponsored corporations for (i) on-lending to weaker sections, (ii) financing
institutions for distribution of fertilizers/pesticides/seeds etc. (iii) hire purchase schemes for
distribution of agricultural machinery/implements.
l) Loans to storage units, including cold storage units, which are designed to store agricultural
products, irrespective of their location would be treated as indirect finance to agriculture,
except when they are registered as SMEs.
m) Deposits made in Rural Infrastructure Development Fund in NABARD.
2. Small and Medium Enterprises:
(i) Direct Finance to SME:
Investments made by banks in securitised assets representing direct lending to SME sector
would be treated as their direct lending under priority sector provided the securitised loans
are originated by banks/FIs. For example village cottage industries and artisans.
(ii) Indirect Finance to SME:
Advances given to the following organisations will be classified as indirect finance:
a) Agencies which supply inputs to artisans/village cottage industries.
b) Agencies which procure and market finished goods produced by artisans and village &
cottage industries.
c) Govt. sponsored organisations/corporations which provide funds to the weaker sections in
priority sector, e.g., SC/ST Development Corporation.
d) Subscription to bonds issued by SIDBI, NSIC, SFCs, SIDCs.
e) Subscription to bonds issued by NABARD for financing exclusively to non-farm sector.
f) Finance to KVIC by consortium of banks for on-lending to Khadi & Village Industrial
g) Finance for Industrial Estates.
h) Finance to NBFCs/HUDCO/other financial intermediaries for on-lending to small sector
3. Others:
(i) Small Road & Water Transport Operators (SRTOs)
Advances to SRTOs owning not more than ten vehicles including the one proposed to be
financed. Advances of NBFCs for on-lending to SRTOs not owning more than 10 vehicles.
(ii) Retail Trade
All retail traders in essential commodities (Fair Price Shops) and Consumer Cooperative
stores irrespective of the amount of advance. And any other retail trade with credit limit not
exceeding Rs. 10 lacs. However finance to retail traders in fertilizer will be classified as
Indirect Finance to Agriculture and that in mineral oil will be classified as Small Business.
(iii) Small Business
Small business includes enterprises which provide any service other than professional
services and whose original cost of equipment does not exceed Rs. 20 lacs. Banks are free to
fix individual limits for working capital.
(iv) Professional and Self Employed Persons
Loans should be granted to professionals like Doctors, Chartered Accountants, Lawyers,
Engineers or any other person trained in any art/craft or skill.
(v) Housing
Direct housing loans for repair of houses are classified as priority sector finance.
Assistance given to Govt./non-governmental intermediary agencies for construction of houses
and also for slum clearance and rehabilitation of slum dwellers.
(vi) Education
Education loans upto Rs. 7.5 lakh for studies in India and upto Rs. 15 lakh for studies abroad
would be classified as priority sector advance. But loans granted to educational institutions
cannot be classified as priority sector finance.
(vii) Pure Consumption Loans
Pure consumption loans such as loans for Marriage ceremonies, Medical expenses, Birth
or funeral or religious or general consumption, Educational needs are classified as priority
sector finance.
(viii) Loans to Self Help Groups or Non-Government Organisations.
(ix) Advances to Software industries
(x) Advance to Food Processing Industries
A. Domestic banks in public as well as private sector excluding RRBs:
1) Minimum 40% of the net bank credit should go to the priority sector.
2) Minimum 18% of the net bank credit should go for financing agriculture both direct
and indirect. Where a bank fails to achieve the sub-target of 18%, it is required to deposit the
shortfall amount subject to a maximum of 1.5% of its net bank credit with NABARD to be
credited to Rural Infrastructure Development Fund. This deposit will earn a floating rate of
interest which is 2% over Bank Rate payable at quarterly intervals.
3) Minimum 10% of the net bank credit should go for weaker sections.
4) Minimum 1% of the net bank credit outstanding at the end of the previous year should
be financed under DRI scheme.
5) Out of the total credit to be given to SME sector, 40% should be made available for
units with investments upto Rs. 5 lacs, 20% for units with investments between Rs. 5 lacs to
Rs. 25 lacs and balance for others.
6) All scheduled banks are required to allocate a minimum of 3% of their incremental
deposits of previous year for housing finance.
B. Foreign Banks operating in India:
Foreign banks operating in India should lend at least 32% of their net bank credit to priority
sector. For foreign banks, export credit will be considered as priority sector finance. Foreign
banks should provide 12% of their net bank to export sector and also same amount to SME
sector. Where a foreign bank fails to achieve the priority credit target, it will make good the
amount by placing it in one year deposit with SIDBI.
C. Urban Cooperative Banks:
60% of the net bank credit of UCBs should go to priority sector.
D. Regional Rural Banks:
RRBs are required to achieve priority sector lending target of 60% of their total advances
outstanding. At least 25% of the priority sector credit should be advanced to weaker sections.
Prime Lending Rate or simply PLR is the rate of interest which a bank charges on advances
given to its prime, i.e. excellent borrowers. The rates of interest charged to other borrowers
are generally linked to this rate. The Board of Directors of each bank fix the PLR. It can
change the same as & when required. Banks are free to charge interest even below the Prime
Lending Rate (i.e. Sub PLR).
Presently the PLR of Bank of India is 12% p.a.
However, as per recent RBI norms Banks have been advised to implement Base Rate. This is
the rate below which bank usually does not lend. Exceptions being loan against term deposits,
agricultural loan, export credit etc. presently the Base Rate of Bank of India is 8%, which is
effective from 1
July, 2010.
Banks are permitted by the RBI to charge interest on term loan on the basis of fixed rate or
floating rate. In case of fixed rate, the rate of interest remains same throughout the tenor of
the loan while in case of floating rate, the rate of interest is fixed in relation to an anchor
rate & is changed as & when there is a change in the anchor rate at predetermined intervals.
Accordingly many banks are charging floating rate of interest on Housing Loans & other
term loans.
With respect to advances where rate of interest is deregulated, banks are required to stipulate
the rate of interest depending upon the credit rating of the borrower. The credit rating of the
borrower is to be done by the financing bank itself.
Rating of a borrower is done through a score sheet containing different parameters mostly
relating to financial disciplines like (i) Regularity in submission of financial statement, (ii)
Regularity in submission of stock statement, (iii) Maintenance of Net Working Capital, (iv)
Maintenance of current ratio, (v) Timely payment of interest/instalment etc. Depending
upon degree of compliance/non-compliance each parameter is awarded certain points &
the average score is found out by dividing the total score by total parameters taken into
consideration. Depending upon the average score the borrower is rated on a ten point scale
and is assigned rating like A
, A, B+, B, C etc. The rating technique and symbols vary from
bank to bank.
Top rated borrowers are charged Prime Lending Rate while lower rated borrowers are
charged progressively higher spreads on the principle higher the risk higher is the rate of
The credit rating assigned to a borrower is reviewed every year at the time of review of
account & interest is charged as per the new rating.
MSME stands for Micro, Small and Medium Enterprises and are companies whose turnover
falls below a certain limits.
Enterprises classified broadly into:
i) Enterprises engaged in the manufacture/production of goods pertaining to any industry &
ii) Enterprises engaged in providing/rendering of services.
Manufacturing Enterprises:
Defined in terms of investment in plant and machinery (excluding land & buildings) and
further classified into:
Micro Enterprises - investment up to Rs.25 lakh.
Small Enterprises - investment above Rs.25 lakh & up to Rs.5 crore.
Medium Enterprises - investment above Rs.5 crore & up to Rs.10 crore.
Service Enterprises:
Defined in terms of their investment in equipment and further classified into:
Micro Enterprises - investment up to Rs.10 lakh.
Small Enterprises - investment above Rs.10 lakh & up to Rs.2 crore.
Medium Enterprises - investment above Rs.2 crore & up to Rs.5 crore.
According to Ministry of Micro, Small and Medium Enterprises in India, the Micro and
Small Enterprises (MSEs) sector plays a pivotal role in the overall industrial economy of
the country. It is estimated that in terms of value, the sector accounts for about 39% of the
manufacturing output and around 33% of the total export of the country. Further, in recent
years the MSE sector has consistently registered higher growth rate compared to the overall
industrial sector. The major advantage of the sector is its employment potential at low capital
cost. As per available statistics, this sector employs an estimated 31 million persons spread
over 12.8 million enterprises and the labour intensity in the MSE sector is estimated to be
almost 4 times higher than the large enterprises.
The Importance of Micro, Small and Medium Enterprises (MSMEs) in any economy cannot
be overlooked as they play a key role in industrialization of a developing country like India.
They have unique features:-

Smaller in size

Development of decentralised sector

More employment opportunities

Comparatively high labour-capital ratio

Need a shorter gestation period

Focus on relatively smaller markets

Need lower investments

Ensure a more equitable distribution of national income


Effective utilisation of locally available resources and thus help in the growth of local
economy, and

Stimulate the growth of industrial entrepreneurship.

However the following are the issues of MSME financing:
Emphasis to preserve narrow profit margins makes the MSMEs myopic about the
innovative improvements to their product and processes and to capture new markets.
They are unable to compete with big players in terms of product quality, range of
products, marketing abilities and cost.
Absence of a wide range of Financing and other services to raise money and sustain
the business.
Absence of Infrastructure, Quality labour, Business acumen and limited options /
opportunities to widen the business.
Poor IT and Knowledge Infrastructure.
To overcome all these difficulties, Indian MSMEs not only need the policy support from the
Government but also need institutional support to fund modernization and technology up-
gradation, infrastructure support and adequate working capital finance.
The Indian MSME market seems to be emerging a promising hunting ground for banks and
financial institutions because it is poised for tremendous growth. As the access of MSMEs
to capital markets is very limited, they largely depend on borrowed funds from banks and
financial institutions. In majority of the economies, while the investment credit to MSMEs
was being provided by financial institutions, commercial banks extended working capital.
In the recent past, with growing demand for universal banking services, the term loan and
working capital are becoming available from the same source. Besides the traditional needs
of finance for asset creation and working capital, the changing global environment has
generated demand for introduction of new financial and support services by MSMEs.
Companies that intend to seek credit facilities approach the bank. Primarily, credit is required
for following purposes:-
1. Working capital finance
2. Term loan for mega projects
1. Working Capital Finance
Every business needs funds for two purposes- for its establishment and to carry out its day to
day operations. Long term funds are required to create production facilities through purchase
of fixed assets such as plant and machinery, land, building, furniture etc.
Working capital refers to that part of firms capital which is required for financing short term
or current assets such as cash, marketable securities, debtors, and inventories. In other words
working capital is the amount of funds necessary to cover the cost of operating the enterprise.
It refers to funds which are used during an accounting period to generate a current income of
a type which is consistent with major purpose of a firm existence.
Need for working capital
The prime objective of the company is to obtain maximum profit thought the business.
The amount of profit largely depends upon the magnitude of sales. However the sale does
not convert into cash instantaneously. There is always a time gap between sale of goods
and receipt of cash. The time gap between the sales and their actual realization in cash is
technically termed as operating cycle. Additional capital required to have uninterrupted
business operations, and the amount will be locked up in the current assets. Regular
availability of adequate working capital is inevitable for sustained business operations. If the
proper fund is not provided for the purpose, the business operations will be effected.
Every business needs some amount of working capital. It is needed for following purposes-

For the purchase of raw materials, components and spares.

To pay wages and salaries.

To incur day to day expenses and overhead costs such as fuel, power, and office
expenses etc.

To provide credit facilities to customers, etc.

Component of Working Capital
There are two of the major following components of the Working Capital:
Current Assets:
Current assets are those assets which can be converted into cash in the normal course of
business within a short period- say a maximum of one year. They are also called floating or
circulating assets because they cannot be put to constant use. They are meant for resale or
produced for the purpose of sale i.e., converting them into cash. In brief, the list of current
assets comprises of:
Cash in hand and bank balances;
Bills receivables;
Sundry debtors (less provision for bad debts);
Short-term loans and advances;
Inventories of stocks as:
Raw- material,
Stores and spares,
Finished goods.
Temporary Investments of surplus funds;
Investments held for short term and easily marketable securities:
Prepaid Expense;
Accrued Incomes.
Current Liabilities:
Current liabilities are those liabilities which are intended to be paid in the ordinary course of
business within a short period of normally one accounting year out of the current assets or the
income of the business. Such as:
Bills Payable;
Sundry creditors or accounts payable;
Accrued or outstanding Expenses;
Short-term loan, advances and deposits;
Dividends Payable;
Bank overdrafts;
Provision for taxation.
Working Capital Cycle
The working capital cycle is also known as the operating cycle of working capital. This
concept is used on the continuity of flow of funds through business operation. This flow
of value is caused by different operational activities during a given period of time. The
operational activities of an organization may comprise:
Purchase of raw materials,
Conversion of raw materials into finished products,
Sale of finished products, and
Realization of accounts receivable.
Material cost is partly covered by trade credit from suppliers and successive operational
activities also involve cash flow. If the flow continues without any interruption, operational
activities of the company will also continue smoothly. Movements of cash through the above
process are called the circular flow of cash. The period required to complete this flow is
called the operating period or the operating cycle.
To estimate the working capital requirement, the number of operating cycles in a year
is to be calculated. This is calculated by dividing the number of days in a year by the length
of the cycle. Total operating expenses of a year divided by the number of operating cycles in
that year is the working capital required.
Work in
Working Capital Cycle
When a company approaches for a Working Capital Finance then the Bank of India follows
the following steps for the assessment of its working capital:
1. Estimating the projected level of operation or Ascertaining the reasonableness of
projected level of operation.
2. Estimating the reasonable level of Total Current Assets required for achieving the
projected level of operation.
3. Estimating the reasonable level of other current liabilities in the corresponding period
and then finding out the working capital gap.
4. Determining the reasonable level of Net Working Capital required to be brought in by
the unit and then finding the MPBF.
5. Margin Requirement and Fixation of limits on the basis of available chargeable
Current Assets.

Sanction of the credit limit is always for the future requirement. The borrower has to
submit the projected sales figure expected to be achieved during the relevant year.

For advances of Rs. 10 lacs and above the borrower is required to submit the financial
data in CMA format. He gives in CMA Form II, the sales figure during the last two
years, estimated sales figure for the current year and the projected sales figure for the
following year.

The Bank makes sure whether the sales projection is realistic or not. For finding
out reasonableness of the projection the Bank takes the following points into
From the Sales figure submitted, the Bank finds out the percentage of rise or fall
in Net Sales as compared to previous years and ascertains that the projection is in
line with the past trend. If there is no relationship between projection and the past
trend, the genuineness of assumption on which sales is projected must be cross
checked and only the realistic figure is to be calculated.
While finalising sales figure the factors to be kept in mind are:
(a) Available capacity and capacity utilization,
(b) Marketability of the product- competition and the marketing strength of the
(c) Availability of critical raw material,
(d) Availability of power, etc.
In case of new units, the Bank ascertains the reasonableness of projection in the
light of data available for marketability of product, the performance units and
installed capacity of the unit.

After finalising the projected level of sale, the Bank cross checks whether the
projections made in operating statement (given in CMA form II) for raw material
consumption, cost of production, cost of sale are reasonable. This is generally done
by comparing the trend of cost of sales to sales and percentage of Raw Material
consumption and other manufacturing expenses to the cost of production.

After finalising the projected sale, the Bank ascertains the level of Working Capital
which is required to be maintained for achieving this state.
For it the Bank first calculates the Holding Period of Raw Material, WIP, Finished
Goods and Receivables.
(1) Period of Holding of Raw Material
It is the number of months of raw material consumption a unit usually keeps in stock.
It is calculated by the following formula-
(2) Holding Period of W.I.P.
It is expressed with reference to Cost of Production.
(3) Holding Period of Finished Goods
It is calculated with reference to Cost of Sales.
(4) Holding Period of Receivables/ Debt Collection Period
It is calculated with reference to Credit Sales or Sales figure (when credit sales figure
is not available).
Once the Holding Period is accepted, the Bank refers to the projected operating
statement and find out the following figures after ascertaining that they are realistic.
1. Projected figures for Raw Material Consumption
2. Projected figures for Cost of Production
3. Projected figures for Cost of Sales
4. Projected figures for Sales
Then, Total Current Assets is calculated by adding projected value of Raw Material, Spares,
Work-in-Process, Finished Goods, Receivables and Other Current Assets.

Sundry Creditors and Other current liabilities are a source of financing working
capital. While assessing the maximum permissible bank finance, the Bank make
certain that to what extent this source of finance was available in the past and whether
in the projections same trend is reflected or not. Number of days credit enjoyed by the
unit can be calculated by using the following formula:

Apart from Sundry Creditors other items in Other current liabilities should be
projected at reasonable level depending upon the past trend.

Then the Working Capital Gap is found out by deducting projected level of other
current liabilities from projected level of Total Current Assets.

The Bank does not finance the entire working gap.


As per Tandon committee recommendations, the borrower should bring NWC which
is equal to or more than 25% of the working capital gap (1
method of lending). In
case he is required to be fitted in 2nd method of lending he should bring NWC equal
to 25% of the Total Current Assets.

Where the NWC already available in the business is more than the Tandon Committee
norms the borrower must continue to maintain the same. In no case the borrower
is allowed to withdraw the NWC or use the same for acquisition of fixed assets or
investment in sister concerns, without specific approval of the Bank.

MPBF is lower of the following two

(i) WCG NWC as required by the Tandon Committee
(ii) WCG NWC, available in the business

After determining the MPBF, the various limits (Bills, Packing Credit, Working
Capital, Term Loan) are determined depending on the available chargeable current
assets less suitable margin.
Tendon committee has suggested three methods of lending. Out of these the Reserve Bank
of India accepted only two. These methods of lending are used for calculating Maximum
Permissible Bank Finance (MPBF).
(1) First Method Of Lending:
As per Method I, the borrower is required to bring minimum NWC to the extent of the 25%
of Working Capital Gap. The balance which is maximum 75% of the working capital gap will
be the Maximum Permissible Bank Finance. This approach was considered suitable only for
very small borrowers i.e. where the requirements of credit were less than Rs.10 lacs.
(2) Second Method Of Lending:
Under second method, the borrower is required to bring minimum NWC to the extent of 25%
of the Total Current Assets & the balance will be MPBF. RBI stipulated that the working
capital needs of all borrowers enjoying fund based credit facilities of more than Rs. 10 lacs
should be appraised (calculated) under this method.
Difference between the two methods:
These two methods of lending envisage different levels of contribution from long term funds
(NWC) by the borrowing unit with an objective to slowly reduce the dependence on bank
borrowing. The NWC contribution in 2nd method is higher compared to 1st method. The
Maximum Permissible Bank Finance in 2nd method is lower compared to 1st method.
Nayak Committee recommended a new method of assessment of working capital. This
method was initially made applicable for all units availing working capital limits upto Rs. 50
lacs. Subsequently this method of lending is made applicable to all small scale units availing
fund based working capital limits upto Rs. 5 crore from the banking system, and other units
availing the same upto Rs. 2 crore.
Method of Assessment:

As per this method, minimum working capital requirement of such units should be
computed at 25% of the projected annual turnover.

The margin should be calculated as equal to 5% of the projected turnover.

The minimum working capital finance will therefore be calculated as equal to 20% of
the projected turnover.
Points to Note:
In conventional methods, the bank calculates Maximum Permissible Bank Finance
while in this method the bank calculates the minimum finance. The bank is free to
finance any amount above this minimum limit.
The working capital requirement of a unit basically depends upon two important
factors namely (i) projected turnover & (ii) length of working capital cycle.
By stipulating 25% of the annual turnover as the working capital requirement, the
method assumes that the length of the working capital cycle would be minimum three
months (i.e., 25% of one year).
The margin requirement is stipulated to be 5% of the projected turnover. In other
words the margin requirement is 1/5 or 20% of the total working capital requirement
of the unit.
While applying this method, the bank is very careful in accepting the projected sale.
The projected sale must be realistic and should be in conformity with the past trend.
The assessment of working capital should be done both on traditional method (which
depends upon finding out total current asset build-up) and the new method (which is
on turnover basis).

In case the limits determined as per the former method comes to less than 20% of the
turnover, the assessment should be thoroughly re-examined.

In special circumstances if it is justified, working capital finance can also be fixed

at a level less than 20% of the turnover. However, in such a case the consent of the
borrower should be obtained in writing.

Where the existing level of Net Working Capital is more than 5% of the turnover, the
available NWC should be taken into consideration & accordingly the limits can be
fixed at a level lower than 20% of the projected turnover.

In case of seasonal industries, peak level and non peak level limits should be fixed
with reference to peak and non peak season projected turnover.

Other current liabilities and sundry creditors will be treated in the same manner as is
the case with traditional method.

Fixation of limits will be done with reference to build-up current assets as assessed
under traditional method.
Drawings in account will be regulated on the basis of statement given for actual inventory
and receivable.
2. Term Loan Finance
Term loan is sanctioned for acquiring fixed assets, i.e. land, building, machinery, vehicles,
etc. Term loan is repayable in instalments spread over three to ten years and its repayment is
out of profit.
General Guidelines for Sanction of Term Loan by Bank of India:
- The credit exposure limit of the bank towards projects promoted by a single borrower
should not exceed 15% of the Capital Fund of the bank (additional 5% is permitted for
infrastructure projects) and to that of a group not exceed 40% of the banks capital fund.
- In case of projects undertaken by public sector units, term loan can be sanctioned only
if the unit is a company formed under the Companies Act or a corporation formed under a
- Bank extends financial assistance for purchase of second-hand assets as per the policy
framed by the bank concerned in this regard.
- Bank prefers to sanction term loans which are eligible for refinance.
- To be eligible for refinance, the term loan should be given as per the norms prescribed
by the Refinancing Institutions like SIDBI, NABARD, etc. and the industry should not be
one which is classified under Negative List.
Generally the entrepreneur submits a project report prepared by SISI/TCOs/Approved
Consultants. The appraising official cross checks the reliability of the assumptions made in
the project report and if necessary recalculates the projections on fresh assumptions made.
While sanctioning Term Loans to Industries, a detailed analysis is made on the following
aspects of a project:
(1) Managerial Competence
(2) Technical Feasibility
(3) Commercial Viability
(4) Financial Viability
(1) Managerial Competence
A thorough study need to be made on the capability of the entrepreneurs in implementing and
managing the project by examining some points as hereunder:
(i) Past experience,
(ii) Qualification,
(iii) Technical and Managerial Skill,
(iv) Entrepreneurial Skills (i.e. Ambition, Tenacity, Risk taking Aptitude, etc.)
(v) Character (Honesty, Integrity)
(vi) Capability to arrange promoters contribution/margin and other funds in contingencies.
(2) Technical Feasibility
Study of technical feasibility involves the study of all aspects relevant to production of
finished goods of proper quality. Points under this head are as hereunder:
(i) Licenses, permits required to start the project and their availability.
(ii) Location of the project vis a vis the availability of raw material, utilities, (power, steam,
water, fuel, etc.) and transport.
(iii) Product and Process : (The manufacturing process adopted, vis a vis the modern
technology available and the standing of the supplier of technology and his stake (as
collaborator, shareholder, etc.) is to be examined. Wherever feasible, performance
guarantee may be insisted upon from the suppliers of technology).
(iv) Plant and Machinery : (Suitability, Capacity, Standing of Suppliers, Availability of
performance guarantee and cost etc. are to be examined).
(v) Raw Material and Labour Availability : (Quality, Cost, Regularity in Supply are to be
(3) Commercial Viability
The bank examines whether the goods can be sold in quantity and price as projected
by entrepreneur. Unless the products are sold at or near to the projected level the expected
cash flow will suffer and the unit would become sick. To avoid such an eventuality, a
thorough examination is to be made on the following points:
(i) The present and futuristic trend of demand for the product.
(ii) The level of competition from similar products and substitutes and the strength of the
(iii) The capability of the unit to penetrate the market to gain and retain a comfortable market
(iv) The present stage in the life cycle of the product.
(v) Price of the product vis a vis the substitutes and price elasticity of demand.
(4) Financial Viability
Study of Financial Viability involves the study of the following aspects:
(i) Whether sufficient finance at reasonable cost is available to execute the project (cost of
project and means of finance).
(a) Cost of the project:
It includes all the expenditures required to bring the project into the stage of
commercial production and consists of the following major components:
1. Land and Site Development
2. Building
3. Plant & Machinery
4. Miscellaneous Fixed Assets (Electric installation, Vehicles, Furniture, etc)
5. Technical Know How (Cost of technology, Patent, etc)
6. Preliminary Expenses (expenses in formation of company, public issue, law charge
7. Pre-operative expenses (Salary, Interest on Term Loan, etc. before commencement
of production)
8. Margin on Working Capital (as per second method of lending)
9. Provision for contingencies (unforeseen expenditures)
(b) Means of Finance:
Sources from which cost of project are funded are: (i) Capital (ii) Surplus, for existing
units (iii) Quasi Equities (iv) Term Credits (v) Leasing.
The main points to be examined from means of finance are-
1. Whether the means of finance is sufficient compared to the cost of project?
2. What is average cost of finance and how it compares with the return from the
3. What is Debt Equity Ratio? Is it per IDBI/SIDBI requirement? Or is it satisfactory?
4. What is Promoters Contribution? Is it as per IDBI/SIDBI norms or is it
(ii) Whether sufficient profit will be available to service the creditors and share holders
(Projected Profitability Statement and Funds Flow Statement).
Projected Profitability Statement is to be prepared for all the years covering the
repayment period of the term loan.

The starting point for preparing a projected profitability statement is the estimation of
sales which is based on demand forecast.

Then capacity utilisation is calculated. It should be 40% to 50% during the initial
years and it should increase yearly to reach around 75% to 80%.

Then amount of sale should be calculated.

All the costs incurred are determined. Raw material cost is calculated at present actual

Wages are calculated. It should be increased 5% to 10% per year.

Repair and maintenance should be 2% of machinery cost.

Other costs like Insurance, Rent etc should be realistically projected for the first year
and then increase by 5% to 10% every year.

Depreciation should be as per actual calculation.

Now Profit before tax and after tax is calculated.

(iii) Whether sufficient funds/cash will be available to repay term loan instalment (Debt
Service Coverage Ratio and Projected Cash Flow).
After ascertaining the profit, the next step is to calculate the repaying capacity of the
unit. This is done by calculating DSCR which is given as:
Where lease rental are payable by the unit, it should also be added to the numerator and
denominator for calculating DSCR. It is calculated for each year.
The ideal ratio for DSCR is 2:1
DSCR helps to determine the length of the moratorium period, the repayment period and
the amount of instalment.
Where DSCR is low, the repayment period can be extended. Conversely, if the DSCR is
high the repayment period can be reduced.
In case the DSCR is very low, even after the extending the repayment period, the
proposal should not be considered for finance.
The repayment period and instalments should be linked to future cash accrual of a unit.
(iv) Whether the Break-even point and the margin of safety are satisfactory.
Break-even point is the amount of sales at which a unit makes no profit or no loss. In
other words it is the level of sale at which sales revenue is equal to the cost of units sold.
A unit can earn profit only if its level of sales is above the break-even point. A unit with
comparatively low BEP is generally preferred for finance.
The difference between Projected Sales and BEP sale is known as Margin of Safety. A
unit a Higher Margin of Safety is generally preferred for finance.
What will be the position of the company in future years (study of Projected Balance Sheets
for the years covering the currency of term loan).

In personal loan the risk is assessed on the basis of income level of the borrower. It
should be made certain that after repayment of the EMI at least 40% income should
remain with the borrower.

For salaried employee it is their annual salary, and for professional and the business
persons it is their annual income or profit.

Personal loan is given mainly for the personal use of the borrower. It was initially also
known as Consumer Loan, as it is sanctioned for the use of consumer products, such
as Car Loan, Home Loan, etc.

Personal Loan is generally repaid within 3 years. If a borrower takes more time than
the stipulated period, in that case the borrower is considered Defaulter, and a Penal
Interest is charged to him.
Bank of India also provides various types of retail credit, some of which are briefly discussed
1. Star Education Loan
Objective: The Star Educational Loan Scheme aims at providing financial support from
the bank to deserving/ meritorious students for pursuing higher education in India and abroad.
Eligibility: Students of Indian nationality who have good academic record and have
secured admission to professional, technical, and certain undergraduate and post-graduate
courses. However, professional courses not approved by AICTE and conducted by Institutes
not recognised by State Universities is outside the purview of the eligibility under the scheme.
Quantum of Finance:
Studies in India Maximum Rs. 10.00. lakh
Studies abroad Maximum Rs. 20.00 lakh
Repayment: Course period + 1 year or 6 months after getting job, whichever is earlier. It is
generally done in 5- 7 years.
Upto Rs. 4 lakh : No security
Above Rs. 4 Lakh & upto Rs. 7.5 lakh : Collateral security in the form of a suitable third
party guarantee.
Above Rs.7.5 lakh : Collateral security of suitable value or at the discretion of the Bank
suitable third party guarantee along with the assignment of future income of the student.
RATE OF INTEREST : (w.e.f. 01.04.09)
Upto Rs.4.00 lacs 2.50% below BPLR., Min. 9.50% p.a.
Above Rs.4.00 lacs upto Rs.7.50 lacs 2.00% below BPLR, Min. 10.00% p.a.
Above Rs.7.50 lacs - 1.25% below BPLR, Min. 10.75% p.a.
Simple interest during the repayment holiday/moratorium period. Penal interest @2%
for loans above Rs.4 lakh for the overdue amount and overdue period.
Int. Concession of 0.50%p.a. for woman beneficiaries for limits upto Rs.50,000/- and
1% for limits over Rs.50,000/-
1% int. concession if interest is serviced during moratorium period, where repayment
holiday is specified for interest/repayment under the scheme (concession available for
moratorium period).
2. Star Home Loan
Objective: To purchase/construct/repair house or flat.
To purchase a plot of land for construction of house.
Eligibility: Salaried employees/ Professional/ Self-employed/ Business Persons/
Corporate/ NRIs/ Persons of Indian Origin (PIOs).
Quantum of Loan:
For construction/purchase of a house/flat- Rs.300 lacs
Repairs/renovation/extension/addition to house/flat- Rs.20 lacs
Purchase of a plot - Rs.30 lacs
Purchase/acquire household articles for furnishing the house/flat- Rs.1.00 lac. (15% of
Home Loan amount)
Minimum size of Housing Loan:-
At Metro and Urban Centres:- Rs. One Lakh
At Rural and Semi Urban Centres:- No minimum size of loan.
Repayment: Highly flexible - maximum 20 yrs. including moratorium period of 18 months
(max.) in monthly instalments. Repayment will start on completion of construction/ purchase
of house/ flat or 18 months after first disbursement, whichever is earlier.
Security: Mortgage on land/ flat/ house of the property to be financed.
Calculation of quantum of loan is related to Income/repayment capacity of proponent/
Salaried Employees :
48 times of gross monthly salary or 4 times of gross annual
income based on I-T Returns.
Professionals /Individuals
Engaged in Trade /Commerce/
4 times of their Gross annual income based on I-T Returns
Chartered Accountants 5 times of Gross annual income based on I-T Returns.
Doctors 6 times of Gross annual Income based on I-T Returns
HUF/Proprietorship /Partnership
Firm/ Company
4 times of cash accruals (PAT+Depreciation) as per their
Balance Sheet/P&L Account
In case of Individuals:
Net take home pay/income (net of EMI of Proposed loan)
should not be less than 45% of the gross monthly salary/
income of applicant(s)
In case of HUF/Proprietorship/
Partnership firm/Company :
DSCR should be minimum 1.5.
3. Star Holiday Loan
Purpose: To meet the expenses (like airfare/Train/Bus charges, expenses for
accommodation, sightseeing, etc.) for going for pilgrimage/tours/excursions etc. undertaken/
to be undertaken by Self/spouse/children/ parents/family members/close relatives of
proponent within India or abroad.
Eligibility: Salaried employees/ Professionals/Self-employed /People engaged in business/
Individuals with high net worth/Agriculturists/Pensioners/Staff members.
Quantum of Loan:
Maximum Rs. 2.00 lacs (clean)
Max. Rs.5.00 lacs (in case liquid collateral security is offered like TDRs, NSCs, IVPs, KVPs,
LIC Policy (Surrender Value) etc. at least equal to 50% of loan amount sanctioned).
Rs. 10.00 lacs (In case liquid collateral security is offered like TDRs, NSCs, IVPs, KVPs,
LIC Policy (Surrender Value) etc. at least equal to 100% of loan amount sanctioned).
Pensioners : Max. Rs.1.00 lac
Minimum size of loan :-
At Metro and Urban Centres : Rs.10,000/-
At Rural and Semi Urban centres: No minimum size of loan.
Repayment: Maximum in 24 EMIs (Equated monthly instalments) w.e.f one month after
first disbursement from loan account. In special/ exceptional case, upto 36 EMIs.
4. Star Mortgage Loan
An attractive loan to take care of varied requirement against security of non-agricultural
a. To meet the credit needs of trade, commercial activity, other general business, Profession
as also for their bonafide requirements.
b. To meet marriage or medical or educational expenses of family members including near
c. To undertake repairs/renovation/extension to the residence/commercial property.
d. Purchase of consumer durables.
e. To purchase/construct house/flat, purchase of plot.
f. To purchase 2/4 wheeler vehicles.
g. For going on pilgrimage/tours/excursions, etc.
h. Repayment of existing loans from other Banks/FIs.
Quantum of Advance:
(Rs. in lacs)
Min. Max.
a. For agriculturists 0.50 2.00
b. For Others :
Individuals/Prop. Firm/
Partnership firm/
1.00 50.00
Company :
Prop./Partnership 1.00 100.00
firm/company 1.00 100.00
5. Star Autofin
Purpose: Purchase of two/four wheeler vehicles. For purchase of used/ second hand 2
and 4 wheeler (age of the vehicle not to exceed 3 years).
Eligibility: Salaried employees, Professionals, Self-employed, individuals with high net
worth, People engaged in trade/commerce/ business, Directors of Companies, Senior
Citizens, Pensioners, Farmers, Staff Members, Retired employees (other than dismissed/
compulsorily retired) of our Bank. (Age of the individual borrower not to exceed 65 years at
the time of availing the advance).
Quantum of Loan:
Maximum limits for finance :
1) Individuals (Resident in India) :

For Indian make vehicles Rs.25 lacs

For imported vehicles Rs.75 lacs.

2) For Companies and corporate entities Rs.100 lacs (Can be a fleet of vehicles)
3)Non-resident Indians Rs.25 lacs.
4)For vehicles run on non-conventional energy and not required to be registered with RTO.
Two wheelers Rs.50,000/- (Max.)
Four wheelers Rs.4.00 lacs (Max.)
The limits are subject to :
(a) 24 times of gross monthly emoluments in case of salaried employees/pension/ or two
times of gross average annual income as per last 3 yeas I.T. Returns
(b) Two times average annual cash accrual (i.e. PAT + Depreciation) as per firms/ companies
last 3 years audited balance sheet, P&L A/c.
(c) In respect of farmers depending on his repayment capacity as is applicable in Agriculture
(d) Net take home pay should be at least 40% of income (net of proposed EMI).
A) For Individuals for new vehicles
4 wheelers imported vehicles-Max. 7 years.
4 wheelers - Indian vehicles 6 years.
2 wheelers max. 5 years.
B) For Corporates/Firms,etc. Max. 5 years.
C) For second hand vehicles Max. 3 years.
6. Star Personal Loan
Star Personal Loan Scheme provides loan to meet various Personal requirements of
customers and their family.
Bank offers loans for marriage expenses, medical expenses, educational expenses,
purchase of consumer durables etc. Maximum quantum of advance is Rs.10.00 lakhs,
depending upon the income, with very attractive interest rate and easy repayment
Products BOI Star Personal Loan Scheme
Eligibility Salaried employees, Professionals and individuals with high
net worth, regular pensioners or family pensioners drawing
regular monthly pension through Branch, Staff members,
retired employees (other than dismissed/compulsorily retired)
of our Bank.
Clean/Unsecured loans Secured loans

Marriage expenses of
self, son, daughter or a
dependent near relative.

Medical Expenses
incurred/to be incurred
for self, spouse, children,
dependent near relative.

For education of self/

spouse/children/ near
dependent relatives.

Any other personal

expenses of bonafide
nature as approved by the

Repayment of existing
housing loans from
other banks/Financial
Institutions, etc.

Education of self,
spouse, children, near
dependent relatives.

Purchase of consumer
durables, computers,
professional equipments
Max. Loan Rs.2.00 lacs Rs.10.00 lacs
Min. Size of loan At Metro and Urban Centres:
At Rural and Semi Urban
centres: No minimum size of
Minimum size of
loan:- At Metro and
Urban Centres : Rs.10,000/-
At Rural and Semi
Urban centres: No
minimum size of loan.
Eligible Amount 10 times of net monthly
emoluments in case of
salaried employees
50% of gross annual income
as per last Income Tax
Return for Professionals/
Individuals of high net worth
20 times of Gross monthly
emoluments in case of
salaried employees
100% of gross average
annual income as per last
three Income Tax Returns for
Professionals/ Individuals of
high net worth.
Repayment 36 Equated monthly
instalments w.e.f. one month
after first disbursement.
Exceptional cases upto 60
Maximum 60 Equated
monthly instalments w.e.f.
one month after first
disbursement from loan
Security Equitable/Legal Mortgage of commercial or residential
Hypothecation charge on assets acquired.
Collateral security in the form of pledge of gold/ gold
ornaments, NSC/ Indira Vikas Patra, Bonds, Assignment of
LIC policies, Relief Bonds etc.
7. Star IPO
An attractive loan for purchasing shares through IPO.
Purpose: To subscribe to Initial Public Offerings (IPO) including through book-building.
Eligibility: Individuals who have PAN Number and Demat account with us.
Quantum of Advance: Maximum Rs. 10.00 lakh per borrower.
Repayment Period: Maximum 60 days.
The procedure associated with a term loan involves the following steps:
Process of loan
1. Submission of application
2. Lending committee
3. Primary assessment
4. Final assessment
5. Branch head sanction
6. Documentation
7. Creation of security
8. Disbursement of loan
1. Submission of application
The first step is the submission of duly filled in form or the loan application. It is the choice
of the customer as to which type of loan he wants to avail and accordingly the prescribed
application is required to be submitted by him depending upon his needs.
2. Lending Committee
At the Branch level the final assessment is done & decision is taken either to accept or reject
the application. Due weightage is given to experience of the promoter, security aspect,
economic viability and feasibility of the project.
3. Primary assessment
When the application is received, the credit officer of the bank scrutinizes the application
form to ascertain whether it is complete in all respect for processing. If it is incomplete the
borrower is asked to provide the required additional information. When the application is
considered complete, the bank prepares a flash report, which is essentially a summarization
of the loan application, to be evaluated at the Senior Level. On the basis of evaluation of the
flash report, a collective decision is taken whether to go about the project or not. The factors
taken into account are: location of the project, prior experience of institution in handling
similar projects, representation of institutions in the state and promoter group, and existing
work load of the institutions.
4. Final assessment
After referring the application form and appraisal, the credit officer puts his recommendation
for sanction of the loan to the Sanctioning Authority.
5. Branch head sanction
The applicants eligibility as per the norms provided by the considering his gross income after
deducting his liabilities (which is also known as Net Worth) his actual repayment capacity is
ascertained as per norms.
6. Documentation
Once the Loan is sanctioned the borrower/guarantor is required to execute various standard
documents of the Bank. This is done to ensure Banks repayment or else Bank can proceed
against them in a court of law on the strength of these documents.
7. Creation of security
The term loans are secured through the first mortgage, by way of deposit of title deeds of
immovable properties and hypothecation of movable properties. As the creation of mortgage,
particularly in the case of land, tends to be a time consuming process, the institutions permit
interim disbursement against alternate security (institution the form of guarantees provided
by the promoters).
8. Disbursement of loan
After the loan is sanctioned, documents are executed and securities are charged, then Bank
issues a sanction letter to the borrower. Thereafter the account of borrower is opened in the
Branch. Disbursement is made by means of Demand Draft/ Payslip of the bank drawn in
favour of supplier of item. For this margin money is recovered from the borrowers account.
Credit Rating
Bank of India uses standard credit rating done by standard credit rating institutions, such as
CRISIL. Apart from this, the Bank also uses its internal Credit Rating of the borrowers. It is
different for the SME and for retail credit.

In case of personal loans, the credit score is used to check whether the borrower is
eligible for the sanction of credit or not. A minimum of 20 marks is needed for the
sanction of retail/ personal loan.

In SME sector, the credit score is used to determine the interest rate to be charged on
the borrowers.
Rating Sheet for Personal Loan
Criteria Options Score
1. Age
Maximum Marks - 5
>20<25 Years 2
>25<30 Years 4
>30<40 Years 5
>41<50 Years 3
>51<55 Years 2
> 56 Years 0
2. Length Of Service
Maximum Marks - 5
>10 Years in Current EMPL 5
>7<10 Years in Current EMPL 4
>5<7 Years in Current EMPL 3
>3<5 Years in Current EMPL 2
1-3 Years in Current EMPL 1
Below 1 Year 0
3. Period In The Business/
Maximum Marks - 5
Above 5 Years 5
>4<5 Years 4
>3<4 Years 3
>2<3 Years 2
>1<2 Years 1
Below 1 Years 0
Employment Details
(Working With / In)
Maximum Marks - 10
PSUs/Banks/Insurance Companies 10
Multinational Companies 9
Government Departments 8
Other Corporates 7
Small Sector (Pvt. Ltd/Partnership/Proprietorship) 4
Unorganised Sector 2
Professionals & Self
Employed Persons
Maximum Marks - 10
Doctor 10
Lawyer/C.A./I.C.W.A./Architect 8
Big Business Operator (Industry/Trade/T/O>50 Lacs) 8
Small Business/ Shop Owner Operator (Industry/Trade/
T/O<50 Lacs)
Other Self Employed 3
4. Residence Ownership Of
Maximum Marks - 5
House is self-owned in the same place 5
House is self-owned at the other place 3
House is owned by spouse 3
Rented house in own name for >5 years 3
Rented house < 5 years 0
5. Family Composition /
Maximum Marks - 3
Dependents < 2 3
Dependents >2 - < 4 2
Dependents > 4 0
6. Ownership Of Car/
Telephone/Credit Card
Maximum Marks - 4
Car Owner + Telephone Owner 4
Only Car Owner 3
Only Telephone Owner 2
Only Holding Credit Card 1
7. Net Add. Income From
Spouse / Family Members
If Any
Maximum Marks - 5
Income beyond Rs. 10,000/- P.M. 5
Income > 5001 & upto Rs. 10,000/- P.M. 3
Income> 3000 & upto Rs. 5,000/- P.M. 2
Earning Between Rs. 2,000/- - 3,000/- P.M. 1
8. Deposit Position / Potential
Maximum Marks - 5
Average Deposit Last 1 Year > 25,000/- 5
Average Deposit Last 1 Year > 15-25,000/- 4
Average Deposit Last 1 Year > 10-15,000/- 3
Average Deposit Last 1 Year > 5-10,000/- 2
Average Deposit Last 1 Year < Rs. 5,000/- 0
9. Existing Borrowing
Maximum Marks - 3
Bank Borrowers Standard Asset 3
Other Bank/Institutions Borrower No Default 1
10. Whether Salary Deduction
Maximum Marks - 5
Employee Agreeable for Salary Deduction 5
Employer not Agreeable for Salary Deduction but post
dated cheques obtained
Total Maximum Marks 50
Rating Sheet for SMEs
There are three categories in the SME credit scoring:
(A) Financial Risk Score Based on Latest Balance Sheet
(B) Management Risk Score
(C) Business / Industry Risk Score
(A) Financial Risk Score
Parameters Measures Score
1. Sales Growth 15% & above increase over previous year 1
5% & above but below 15% increase over
previous year
0% & above but below 5% increase over previous
Negative over previous year 4
2. Profitability
(PBITDA/ Sales*100)
25% & above increase over previous year 1
15% & above but below 25% increase over
previous year
0% & above but below 15% increase over
previous year
Negative over previous year 4
3. Liquidity
(Current ratio) (Current
Assets/Current Liabilities)
1.50 & above 1
1.33 & above but below 1.50 2
1.00 & above but below 1.33 3
Below 1.00 4
4. Leverage
0.00 above but below 1.00 1
1.00 & above but below 3.00 2
3.00 & above but below 4.00 3
4.00 & above 4
5. Coverage
(a) Debt Service Coverage
2.00 & above 1
1.50 & above but below 2.00 2
1.00 & above but below 1.50 3
-1.00 & above but below 1.00 4
(b) Interest Service
Coverage Ratio
2.00 & above 1
1.50 & above but below 2.00 2
1.00 & above but below 1.50 3
-1.00 & above but below 1.00 4
(B) Management Risk Score
Parameters Measures Score
1. Management Character
(a) Diversion of Funds There is no possibility of diversion of funds and
there are no group companies
Diversion of funds is unlikely, though there is no
group - marginal amounts may be diverted for
personal use
Diversion of funds is likely on a regular basis to
group entities and for personal use
The borrowing entity is only a front for diversion
to the rest of the
(b) Integrity Well established member of the community whose
integrity is unquestionable
Generally respected by peers and by the
Does not always act in an upright and honest
Should repayment capacity be impaired,
management may not cooperate with lender
or no information could be obtained about
managements integrity
(c) Business Commitment Promoter is highly involved in this business, has
long standing
Promoter is fairly committed to this business but
has substantial
This business occupies only a small portion of
his time and investment and his most significant
business interest lies elsewhere
No involvement by the promoter, business merely
legacy or promoter diversifying into other areas
where his involvement will increase in future or
unable to gauge commitment
2. Management Capacity
Financial Strength Financially very strong; high net worth and
flourishing group
Good financial strength; minor group entity may
not be doing well
Financial strength is OK; however poor group
entity could impact
Very poor financials or financial strength could not
be ascertained
Competence Management is very good. Person is well
organised and knowledgeable about the company
and the industry in which he operates
Person has reasonable management skills but
weakness in one or two areas is evident. Tasks are
performed satisfactorily.
Person exhibits limited managerial skill. Individual 3
does not have a complete understanding of the
Person exhibits a total lack of skill. Decisions are
illogical and loan repayment could be at risk.
Business Experience Several years of sound business experience in the
same line and extremely successful
Fairly long experience in the same line of business
with limited success
Fair experience but in related line of business 3
Very short or no experience in any business 4
Internal Controls Internal control is fairly good and is dependent on
the owners long standing relationship with his
Internal control is not very tight and employees
have too much discretion
Internal control is totally dependent on the owners
presence in the business location and his personal
No internal control at all the owner does not have
a clue to what is happening
Employee Quality Motivated and loyal employees who have a sound
understanding of the business
Employees are loyal but do not have much
Employees are not motivated and do not contribute
their best
Employees are neither motivated nor competent 4
3. Management Succession
Successor Identification Well-defined succession plan in place; business
not dependent on one person
Business dependent on one person at present, but
in the event of incapacitation of that person a good
succession plan is in place
Succession is not addressed adequately and hence
dealing with a change in the management team
could adversely affect the companys performance;
however the damage can be contained
Succession has not been addressed and in the event
of incapacitation of the key person, the business
would suffer financial setbacks
Successor Preparedness Successors have far more than the necessary skills,
experience and knowledge about the business
Successors have adequate skills, experience and
knowledge about the business even though there
would be some learning and adjustment needed to
be fully capable of replacing current management
Successors have some skills and knowledge about
the business but a lot of learning and adjustment
needed to be fully capable of replacing current
Successors are poorly prepared for assuming the
role of current management and are not currently
nor could they be made capable of replacing
current management
4. Management Reputation
Business Loan History Obligations to creditors are met before or within
agreed terms
Payments have extended beyond agrees upon
terms on an infrequent basis
Often borrower allows bills to extent 60-90 days
beyond payment days
Credit checks indicate the borrower is consistently
late, without cause, in paying its suppliers or
information could not be obtained on how the
borrower handles its payment responsibilities
Credit Track Record Company has never violated any term and
condition of its loan agreement
Company rarely does not meet all terms and
conditions of its loan agreement
Now and then the company breaches a significant
term or condition of the credit agreement
Company consistently violates loan agreement
Firms Age Firm in existence for more than 10 years 1
Firm in existence for more than 5 years 2
Firm in existence for more than 2 years 3
Firm in existence for less than 2 years 4
Reputation with customers
and suppliers
Excellent relationship with suppliers with no
disruption of supplies. Excellent reputation with
customers resulting in growth and timely payments
Good relationship with suppliers with some
disruption of supplies. Good reputation with
customers resulting in growth and generally timely
Fair relationship with suppliers with frequent
disruption of supplies. Fair reputation with
customers but increase in credit period and some
Poor relationship with suppliers. Poor reputation
with customers with substantial increase in credit
period and high defaults
(C) Business / Industry Risk Score
Parameters Measures Score
1. Customer Quality and
Diversified customer base having reasonable size,
stable purchase pattern from the firm and likely to
pay outstanding invoices on a timely basis
Generally diversified customer base who may
not have either a reasonable size or a stable
purchase pattern from the firm but is likely to pay
outstanding invoices on a timely basis. There may
be a few large customers.
Customer has neither reasonable size nor a stable
purchase pattern from the firm but is likely to pay
outstanding invoices on a timely basis. The firm
may have only a few customers with little product
Customers are not expected to pay on time. The
firm may have only 1-2 customers
2. Supplier Quality and
Firm has a choice of suppliers supplying quality
goods & services
Firm has a choice of suppliers supplying average
quality goods & services
Firm has very few suppliers supplying goods &
services. Quality of goods & services is not very
Monopsonistic situation with no control over
3. Impact of Competition on
GP Margins
Current industry structure not expected to lead to
decline in GP margin
Industry competition may result in marginal
decline in margins
Industry competition has resulted/may result in
significant decline in margins
GP margins have declined significantly due to
competition and expected to decline further
4. Sales Trend (product) Product has no substitutes, regulatory threats
demand will remain stable or grow
Product has limited substitutes (other brands or
other products) and regulatory threats; however,
this will not pose a threat to the borrower
Demand for product may be affected by lower-
price substitutes and regulation; however the
threats is unlikely
Demand faces serious threat due to substitutes and
5. Regulatory/Fiscal risk-
Impact of duties (product)
There are no foreseen changes in the direct/indirect
tax structure or import/export restrictions which
could impact the industry profitability
While some changes in the direct/indirect tax
structure or import/export restrictions which
impact the industry are foreseen theses may have
some impact on industry profitability
Some changes are foreseen in the direct/indirect
tax structure or import/export restrictions which
impact the industry. These may have a major
impact on industry profitability and affect viability
of marginal players
Significant changes in the direct/indirect tax
structure and/or import/export restrictions which
impact the industry. These may have a significant
impact on industry profitability and viability of
6. Technology Dependence
Technology is tested and not expected to change in
the long run
Technology is tested and likely to change in the
medium term
Technology is tested but likely to change in the
medium term
Outdated technology or technology subject to very
fast obsolescence or technology as yet untried/
7. Environmental Impact
Unlikely to face pollution related problems in the
Limited likelihood of facing pollution related
problems in the future
Polluting industry but complies with current norms
which are subject to change
Polluting industry and does not comply current
4.1 - Tools and Techniques:

Pie chart
Percentage analysis
Data Source:
The data collected was Secondary Data, as it was collected from the Banks internal record.
Retail Loans:
In Bank of India Hirapur SME Branch the main retail loan disbursed in the FY 2009-10 are:
Table 1:
Type of Credit No. of Disbursed Credit %
Star Personal Loan 57 80.28
Star Education Loan 13 18.31
Star Home Loan 1 1.41
Total 71 100.00
From the table and chart above it can be seen that:

80.28% of disbursed loan is Star Personal Loan

18.31% of disbursed loan is Star Education Loan

1.41% of disbursed loan is Star Home Loan

Table 2:
Gender No. of Disbursed Credit %
Male 58 81.69
Female 13 18.31
Total 71 100.00
From the table and chart above it can be seen that:

81.69% loan is disbursed to females

18.31% loan is disbursed to males

Star Education Loan
Table 3:
Gender No. of Disbursed Credit %
Male 8 61.54
Female 5 38.46
Total 13 100.00
From the table and chart above it can be seen that:

61.54% loan is disbursed to males

38.46% loan is disbursed to females
Table 4:
Loan Disbursed No. of Disbursed Credit %
Below 3 Lakh 1 7.69
3 L 4L 5 38.46
4L 5L 4 30.77
5L 6L 1 7.69
Above 6 Lakh 2 15.38
Total 13 100.00
From the table and chart above it can be seen that:

38.46% of disbursed loan is between Rs. 3 lakh and 4 lakh

30.77% of disbursed loan is between Rs. 4 lakh and 5 lakh

15.38% of disbursed loan is for Above Rs. 6 lakh

7.69% of disbursed loan is between Rs. 5 lakh and 6 lakh

7.69% of disbursed loan is Below Rs. 3 lakh

Star Personal Loan
Table 5:
Gender No. of Disbursed Credit %
Male 49 85.96
Female 8 14.04
Total 57 100.00
From the table and graph above it can be seen that:

61.54% loan is disbursed to males

38.46% loan is disbursed to females
Table 6:
Loan Disbursed No. of Disbursed Credit %
Below 40 thousand 6 10.53
41,001 60,000 5 8.77
60,001 80,000 11 19.30
80,001 1,00,000 17 29.82
Above 1,00,000 18 31.58
Total 57 100.00
From the table and graph above it can be seen that:

31.58% of disbursed loan is for Above Rs. 1,00,000

29.82% of disbursed loan is between Rs. 80,001 and 1,00,000

19.30% of disbursed loan is between Rs. 60,001 and 80,000

10.53% of disbursed loan is Below Rs. 40,000

8.77% of disbursed loan is between Rs. 40,001 and 60,000

SME Credit
In Bank of India Hirapur SME Branch the main SME Credit disbursed in the FY 2009 10 are as
Table 7:
Schemes No. of credit disbursed %
Small scale industries 12 75.00
Government subsidy linked scheme 2 12.50
Small Business 1 6.25
Professional & self employed 1 6.25
Total 16 100.00
From the table and graph above it can be seen that:

75% of disbursed loan is for Small scale industries

12.5% of disbursed loan is for Government subsidy linked scheme

6.25% of disbursed loan is for Small Business scheme

6.25% of disbursed loan is for Professional & self employed scheme

Table 8: Type of Credit:
Type of Credit No. of Disbursed Credit %
Retail 71 81.61
MSME 16 18.39
Total 87 100
From the table and graph above it can be seen that:
81.61% loan is disbursed to retail sector

18.39% loan is disbursed to MSMEs


Upon analysing the above data it is revealed that flow of credit to SME sector is 75%
of the total credit portfolio of the branch. This is justified in view of the fact that
Hirapur Branch has been designated as a specialised branch for SME.

In the retail credit segment Personal Loan occupies more than 80% of the credit and
the male borrowers were more than the female borrowers.

In Personal Loan segment more credit was disbursed for amount upto Rs. 1,00,000
and in this case there were more male borrowers than the female borrowers.

In Education Loan segment more credit was disbursed between Rs. 3 lakh to Rs. 4
lakh band width and the female students were more than the male students.

Officers were busy in their daily schedule. So it was difficult to get the required data
at time.

Data collected were highly sensitive, so I had to convince the Bank officers of its
utmost secrecy and security.
1. http://www.bankofindia.com accessed on 21.05.2010
2. Dash, S.K. (2005). Tit Bits of General Advances & Financial Services (Chapter 1,
3. Ministry of Micro, Small and Medium Enterprises (http://msme.gov.in/
4. MSME Act, 2006
5. Union Budget 2007-08