SYMBIOSIS SCHOOL OF BANKING & FINANCE

Constituent of Symbiosis International University

Re -Accredited by NAAC with ‘A’ Grade

Established under Section 3 of the UGC Act, 1956, vide notification No: F.9.12/2001-U-3of the Government of India.

Credit Appraisal For Working Capital And Retail Loans

Internship Report Submitted to SIU in Partial Completion of the Requirement of

MBA Banking and Finance at Symbiosis School of Banking & Finance

Pune - 412115.

NAME OF THE STUDENT PROJECT MENTOR (SSBF)

ANMOL RATTAN SINGH SAHIWAL DR. BINDYA KOHLI

PRN: 22

PROJECT MENTOR/REPORTING OFFICER

MR. DATTA BHALKE AND MRS SNEHA TELANG

DURATION

APRIL 3rd ,2017 TO MAY 26th ,2017

1
 Table of contents
Sr.No. Particulars Page No.
1. Certificate of completion
2. Acknowledgment 3
3. List of charts and tables 4
4. Introduction 5
5. Chapter I- Framework of the study:
6. Specific objectives of the project 6
7. Significance of the study 6
8. Scope of the study 6
9. Limitations of the study 6
10. Period of Study 7
11. Chapter II- Methodology 7
12. Various Departments of a bank 8-9
13. Process of sanctioning the loan 10
14. Various authorities involved in loan sanctioning 11-12
15. Various types of loan for industries 13
16. Working capital loan 14-16
17. Note prepared by bank 17-21
18. Case study 22-28
19. Housing Loan 29-35
20. Case study 36-37
21. Education loan 38-40
22. Case study 41-43
23. Recommendations 44
24. Conclusion 45
25. Bibliography 46

2
 ACKNOWLEDGEMENT

I wish to express my gratitude to my external mentors Mr. Datta Bhalke, Senior Manager, Bank
of Maharashtra, Mrs. Sneha Telang, Deputy Manager, Bank of Maharashtra who helped me in
gaining the knowledge of Credit appraisal Process.

I also wish to express my gratitude to the officials and other staff members of Bank of
Maharashtra who help me during the period of my internship.

I would also like to thank my project internal mentor Dr. Bindya Kohli for guiding me
throughout this project.

3
 LIST OF CHARTS

Sr.No. Particulars Page No.

1. Bank structure 9

2. Process of sanctioning the loan 11

3. Various authorities involve in this process 12

4. Overall process involve in appraisal 13

4
INTRODUCTION

Bank of Maharashtra is an Indian bank situated in the city of Pune. The bank was set up in the
year 1935 with an underlying approved capital worth Rs. 10.00 Lakhs, although it became
operational in the early phase of the next year. Government of India has given a license of
nationalization in the year 1 9 6 9 the bank which have headquartered in Pune contains total 1849
ATMs all over the country Commonly known as a common man's bank, Bank of Maharashtra is
one of the oldest and successful commercial bank in India with more than 50 years of presence
.Bank provides various range of services like corporate banking, commercial banking, forex etc.
Legislature of India holds 81.61% of the aggregate shares. The bank has a branch network of
over 1895 branches, bank contain total staff of 14189 out of which 44.87% are officers, 39.22%
clerical staff and the remaining 15.89% are sub-staff. Bank of Maharashtra is listed on the
Bombay Stock Exchange, National Stock Exchange.it has shown a proceeded with execution in
the most recent couple of years in scaling up its productivity level. Net Income of the bank has
shown a continuous CAGR of 3.55% during the last couple of years. In the same period, net
interest margin (NIM) of the bank stood at steady level of 0.03 in FY15.

MANAGEMENT

On the Board, bank have 8 directors and they are responsible for the management of the Bank’s
business. The board monitors the corporate performance with other functions such as approving
the business strategy, checking on and endorsing the yearly spending plans and acquiring points
of confinement and settling introduction limits. Mr. R.P. Marathe is the Chief Executive Officer
and the Managing Director of the bank. He has has over 35 years of rich Banking experience in
Corporate Strategic Planning, Credit Appraisal, Performance Budgeting, Economic Research,
MIS, Environmental Scanning, and Data Warehouse functions. He also worked at exceptionally
large branches having exposure to Corporate Credit and Trade Finance for over six years.
Shri Ravindra P. Marathe served as the Executive Director of Bank of India (from 10.03.2015 to
26.09.2016). He started his career with Bank of Baroda as Planning Officer in 1982.

5
Shri Ravindra P. Marathe was appointed as Managing Director and Chief Executive Officer of
Bank of Maharashtra on 26th September, 2016.

OBJECTIVES OF THE PROJECT

The objective of the project was to study and understand the concept of credit appraisal for
Working Capital Loans, Term Loans and Retail Loans.

SIGNIFICANCE OF THE STUDY

 The project helped me to understand the various process, rules and techniques that are
there is the banking system for the procedure of credit appraisal.
 My project aims at emphasizing on the various regulations and guidelines that are
followed by the bank while granting loans, with examples for each type of loan.

LIMITATIONS OF STUDY

 Time constraint was there as the period of study was only 60 days.
 The senior manager had prior commitments and was pre-occupied with the daily activities
and transactions at the office, due to which he was not able to devote sufficient time to
clear my doubts during the course of the study.
 The staff was relatively less and so each employee at the branch had to perform multiple
roles which kept them occupied.
 One other major constraint was the language. The employees preferred to converse among
themselves in Marathi, which I do not understand.

PERIOD OF STUDY

The duration of my project was 8 weeks.

6
METHODOLOGY

The methodology that I adopted for conducting this study is as follows –

 Mentor Interaction – Through this, I understood the actual process of credit appraisal
and its implementation. How this process is important for any business and how it
helps verify and monitor the activities of bank.
 Reading material-Circular given by bank get me through the benchmark set by the
bank for proposal.
 Studying the previous credit appraisal files and notes.
 Assistance in making of notes for the new loan proposals.

7
VARIOUS DEPARTMENTS IN A BANK:

Inspection
Corporate
Credit
banking

Informatio
n
Forex
technolog
y

Human
operations BANK Resource
departmne
t

fig1.1 various department in a bank

OPERATIONS-
Major basic function of every bank is accepting deposits from public and lending to needy
sector-manufacturing, trading, agriculture & implement social schemes of the Govt. customer
service. It involves customer service etc.

FOREX-
Banks have integrated domestic treasury/forex management to have more synergy in their
operations. It involves lending of funds for import/export.

INSPECTION DEPARTMENT-.Bank management is more man management. Bank

conducts number of audits like concurrent audit, credit audit, internal audit is conducted at its
branches depending upon the risk profile of each branch to ensure there is sufficient exercise of
internal control & functioning of branch conforms to rules, systems & procedures.

INFORMATION TECHNOLOGY-Post computerization, all banks have this department

manned by technically technology products like mobile banking, net banking with security
features. This has enabled business/ trading community to a large extent as they can deposit their

8
excess cash daily into their account even after 7 or 8 pm closure of their business and the amount
is accounted in to their account on the same day safely &securely.

CREDIT DEPARTMENT-

Credit department deals with finding the credit worthiness of any borrower, borrower can be
corporate, individual, partnership firm etc. It is very essential component in lending due to which
borrowing capacity of any borrower can be find out.
Lending cash is one of the primary elements of any bank. In the lending procedure, choice of
borrower is the most essential and crucial employment for a bank .Before customer gets the loan
facility it is necessary to check the five Cs. The five Cs are:
• Character – Loan specialists need to know the borrowers are straightforward and have
uprightness. Moreover, the lenders should be sure the candidate has the foundation, instruction,
industry learning and experience required to effectively work the business.
• Capacity –While lending, lender must check the cash flows of the business to pay its debts and
other liabilities.
• Capital –Amount of personal investment in the business shows you are willing to take risks on
personal basis
• Conditions – Business conditions in the country with macro as well as micro economic factors
taken into consideration
• Collateral – Collateral is an important parameter for sanctioning the credit facility which can
vary depending upon the credit facility given to borrower

In addition, objectives of credit department are to follow the Basel norms and compliance with
Central Bank Ltd. At present credit department performs following activities:
• Credit Appraisal Process
• Corporate Loan
• Retail Loan
• Recovery and Monitoring Activity
• Risk management
Credit is a resource for any monetary organization. That is the reason it is especially important to
guarantee that an advance does not turn out to be awful. The initial phase in lending that is to

9
request appropriate documentation of the borrower i.e KYC of the client. A default credit may be
difficult to recoup because of absence of appropriate documents.

The elements of credit division can be extensively differentiate under two heads. The first is the
payment and checking of advances. For this situation the division sanctioned advances if there is
no default in CIBIL reports, checking all records and gathering securities after appropriate lien
and charges creation after terms of endorsement. The department likewise intermittently audit
states of past due advances, expiry etc.

PROCESS OF SANCTIONING THE LOAN

Apply of Loan

Credit appraisal
of borrower

Sanctioning of
loan
Fig1.2 overall sanctioning process

Application of loan can be from Large industries, Individual, Partnership firm, proprietary firm
etc.Various higher authorities involves in sanctioning the loan

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Authorities involved in sanctioning of loan:

CREDIT
DEPARTMENT HEAD

SENIOR MANAGER

Assistant General
Manager
Fig 1.3 Authorities involved in sanctioning

1. AGM-Assistant general manager is the branch head or zonal head of any bank, AGM
takes care of all the operation happening in the branch i.e from retail to commercial.
AGM have the authority of sanctioning the loan in corporate as well as individual. AGM
of the branch directly reports to head office of the bank

2. Credit Department head-Credit department head is responsible for carrying out all the
activities of the branch dealing with credit, i.e sanctioning the loan of any borrower,
visiting the field etc.

3. Senior manager-Senior manager mainly the persons who have wide experience in the
field of their working, Senior manager handles all the facility that has been given to
borrower i.e in fund based or in non-fund based. They are mainly responsible for
preparing the note of any borrower before sanctioning the loan.

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PROCEDURE OF LOAN SANCTION:

Overall profileof credit

the borrower Cersai report
Rating

Exposure limit
Guranter net all terms and
of the
borrower worth condiition

facility availed Sanctioned by

security valuation
to orrower official

Fig 1.4 Overall credit appraisal of borrower

12
Various types of loans offered by the bank to enterprises:

1) Cash credit
2) Bank Guarantee
3) Term loan
4) Letter of Credit

1. Cash Credit: It is a short term loan that is provided by the bank to its customers for meeting
the working capital requirements of the company. This loan is given against a charge on the
current assets of the company i.e. usually the closing stock or the debtors of the company.

2. Bank Guarantee: It is a promise given by the bank on behalf of its customer that the
liability of the customer would be met in case of its default.

3. Term Loan: It is a loan that is usually given for a tenure of 5 to 15 years and it is to be
repaid by the customer in equal installments. They are generally given to buy assests that
help in the generation of cash flows that in return help to repay the loan.

4. Letter of Credit: It is a letter issued by one bank to the guaranting the other bank that the
payment would be made by them under certain conditions in case their customer fails to meet
his commitment.

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WORKING CAPITAL
Working capital tells us about the efficiency of the company and also the short term financial
position of the company. Working capital is calculated as:

Working Capital = Current Assets – Current Liabilities

It may also be calculated by calculating the difference between the long term sources of money
against the long term usage of funds. Working capital is usually a measure of the fact that the
company has enough finances in the short term to pay off its short term liabilities and also to
make sure that the company does not over invest in short term assets and utilizes the funds
properly.

WORKING CAPITAL LOAN

Banks finance the working capital requirements of the companies against some security
deposited by the company. There are different methods by which the banks calculate the extent
to which it can provide loans to its customers. These loans are usually for upto an year and are
extended and enhanced/reduced keeping in mind the current state of the customers business.

METHODS OF ASSESSMENT

1. TURNOVER METHOD
2. WORKING CAPITAL GAP METHOD
3. CASH BUDGET METHOD
4. LOAN AGAINST PROPERTY

1. TURNOVER METHOD:
The turnover method was suggested by the Nayak Committee for the small scale industries. This
method is utilized when the working capital requirement limit is Rs. 6 crores. The working
capital is assessed in the following way:

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S No Particulars 2016-2017 (Rs.)

1 Net sales 1000.00

2 25% of sales 250.00

3 5% of sales 50.00

4 NWC 157.42

5 20% of sales 200.00

6 25% of sales-NWC 92.58

7 Lower of 5 or 6 92.58

2. WORKING CAPITAL GAP METHOD:

The Working Capital Gap method was suggested by the Tandon Committee. It is utilized for
working capital loans which are required above Rs. 6 crores. The working capital is assessed in
the following way:

Sr.No Particulars Amount

1 Total Current assets 426.18

2 Other current Liabilities (other than bank borrowings) (169.09)

3 WC Gap (1-2) 257.09

4 Min. NWC-20% of Current assets (excluding export

receivables) 85.24

5 Actual NWC Level (Current Assets – Current

Liabilities) 114.72

6 3-4 171.85

7 3-5 142.37

8 MPBF(lower of 6,7) 142.37

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3. CASH BUDGET METHOD:
This method takes into account the projected monthly inflows and outflows of cash. Any excess
of outflow over the inflow is treated as deficiency and is financed by the bank. It is mainly used
for Seasonal Industries (Sugar/ Rice Mills/Textiles/Tea/Tobacco/Fertilizers).

4. LOAN AGAINST PROPERTY:

This method is used by the banks when the working capital loan is given against the security of
property, i.e. the borrower mortgages his property in return for the loan. The calculations to
calculate the amount of loan under this method is as follows:

S No Particulars Rs. In Lakhs

1 Property as mentioned above (RV) 94.12
2 60% of above 56.47
3 Projected turnover of the firm (as per projections given) 170.00
4 Average of last two year sales audited [()/2] 165.00
5 30% of average of last two year sales (=30% of item in row 4) 49.50
6 Ceiling for projections 130% of average (=130% of item in row 4) 214.5
7 Accepted projections lower of 3 & 6 170.00
8 33.33% of accepted projections (in row 7) 56.67
9 Limit Requested by the Company 70.00
10 Eligibility of the firm – Lower of 2, 8 and 9 56.47

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NOTE PREPARED BY THE BANK INCLUDES
1) Summary of the account

Summary of the account includes type of account i.e cash credit or other than this, Activity code,
name of the firm and the borrower, banking since with the bank, Address of the firm,IRAC
status, Category-Priority or Non Priority Based and Request for i.e renewal, Enhancement of
loan etc.

2) Fund based facility and Non fund based facility

Fund based facility includes cash credit,Term loan etc. whereas non fund based facility includes
Bank guarantee, Pre-shipment credit, Post shipment credit. Existing loan of the borrower and
their current status. The amount proposed by the borrower and balance in the account on the date
of preparing the note.

3) Exposure Limit of the group

It includes applicant Company or borrower with their names and nature of facility with
prudential limit of the borrower. If there is any other concern group of the borrower then total
fund has been sanctioned i.e. total to the group

4) Date of last Sanction and last sanctioning authority-

Previous sanction of loan with its date so that while preparing next note for the loan we can get
the date of last sanction. And the authority who is responsible for this loan it can be branch head,
assistant general manager or senior manager.

5) Details of the consortium lending-

Consortium lending is the lending in which various banks lend the amount to the same borrower.
It mainly happen if the is amount is more. To minimize the risk this type of lending occurs, In
details Name of the bank, nature of facility have by borrower, existing share amount(%) by the
bank and proposed share amount(%) by the bank and rate of interest on the limits, name of the
lead bank has been mentioned, name of the sanctioning authority etc.

17
6) Present position of the account

Present position of the account includes the nature of the facility given by the bank i.e. fund
based or non-fund based. Security that has been given (collateral hypothecation or debtors).If the
nature of facility is cash credit then Drawing Power is the measure of working capital permitted
to draw from the Working Capital limit allocated to him. It can be calculated by (stock + debtors)

10) Security details

Security details include the details of the security i.e. collateral or primary. Collateral security are
those security that is offered to the said credit facility or pledge to the bank it can be House or
machinery etc. primary security is the asset created out of the credit facility i.e. stocks, company
inventories and receivables, bonds, stocks etc. Current value of collateral and security needs to
be done by the borrower.

11) Percentage of collateral cover

It can be found out by total market value of the security divided by total amount of facility
secured by collateral

12) Guarantee

Guarantee can be given by personal or corporate with their net worth. Personal includes name of
the borrower So that if the account became NPA, this amount will be used for paying the loan
taken from bank.

13) ECGC cover and Credit Risk rating

ECGC refers to Export Credit Guarantee Corporation which covers the risk of the exporter
.Credit risk rating has been given by the bank based on the several parameters and they are

a) Management Risk-it shows the risk with the management, if the management is of good
experienced professional with their background, payment period etc. Based on the good or bad
rating is given.

b) Financial Risk-It denote the financial risk of the company with its profit and loss in the past
and future performance by its balance sheets and with several ratios, accounting quality etc. if it
follows the banks benchmarks then based on that rating is given

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c) Market Risk-Market risk includes the current scenario of the market about the borrowers
company if its falls under the banks parameters then good rating is given.

d) Business risk-This risk includes industry characteristics, company financials and based on that
rating is given

14) Shareholding pattern

Shareholding pattern includes all the shareholders of the company i.e. public, private etc.
Shareholding by FIIs, Directors, relatives. Percentage of holding is also given so that net shares
pledge by the borrower.

15) RBI Defaulters List

Latest defaulters list given by Central bank in respect of Director, borrower, partners, guarantor’s
proprietor, etc. In case of similarity of names found then suitable affidavit to be obtained.

16) Associate / Sister Concerns having account with Bank

If any borrower having other company and maintaining the account with the bank then details
has to be given based on that group risk assessment is done and if there is any outstanding
amount with this concerns then it should be reflected in the note. If there is any NPA that should
also be reflected.

17) Financial analysis

Financial analysis can be done by balance sheet, profit and loss account and cash flow account-

Balance sheet-it shows the present position of the borrower or the company based on that
Lending can be possible, it consist of liabilities and assets. Assets are further divided into current
and long term asset whereas liabilities into long term and short term.

Current liabilities-Liabilities which has to be paid within one year, it mainly consists of short
term loan, Tax etc.

Long term liabilities- Liabilities which can be paid by more than one year it includes long term
loan, debentures, and other term liabilities etc.

Current assets-Asset which can be converted into cash within one year or less than that it
mainly includes fixed deposits, stock, receivables etc.

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Long term asset-Asset which can be converted into cash in more than one year. It mainly
includes investments, term deposits, plant and machinery etc. Generally investment is taken in
long term assets as it is difficult to get the amount within one year.

Key financial ratios-The ratios that are essential for calculating the financial performance and
they are

a) Net profit/sales-Net profit to Sales ratio measures the profitability of any business it mainly
used to determine a financial performance of business.PAT/Sales is a more profitable to measure
as it take into consideration of tax payment .A PAT/Sales of more than 8% shows very good
financial performance by the company .it should be in the range of> 6-3 %

b)Net % increase in profit-This ratio shows how much profit is increase from the previous year,
so if there is increase in profit on year on year basis then sanctioned will be done

c) TOL/TNW-Total outside liability to Total net worth is the also called as exposure ratio. It
denotes how much debt has been taken by business .A low TOL/TOW ratio denotes good levels
of promoters stake in the business whereas a high TOL/TOW ratio denotes low levels of
promoters stake in the business, which is considered risky. In rating exercise, business with a
TOL/TNW of less than 1 score the maximum amount of debts while a TOL/TNW ratio should be
in the range of 1-2.

d) Current ratio-Current ratio measures the business liquidity calculated by dividing the total
current assets of the business by total current liability. The ratio is great indicator of a business
ability to repay its short term liability due over next 12 months. A present proportion of more
than 1.5 infers the business has sufficient money streams throughout the following 12 months to
take care of the liabilities while if the ratio is less than one implies cash flow problem .current
ratio of more than 1.35 is acceptable. It can be given as

Current ratio=Current assets/Current liability

e) Profit before Depreciation, Interest-PBDIT is also known as interest coverage measure the
number of times a company can make a interest payments on its debts with its earning .A low
EBDIT/INT of less than 1 would imply the business would have trouble honoring its interest
payment on time.

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f) Cash accruals-Cash accrual can be calculated by Profit after tax plus depreciation. Cash
accrual shows the business has generating the cash to pay its debts .Net cash accrual is the sum
of profit after tax and depreciation. Higher cash is preferable, as it provide better coverage for the
lenders for their debts .In most companies with a net cash accrual should be 8%-18%.

e) Increase in Net sale-Measuring increasing in net sales is very good metric to gauging how the
company is doing. Growing business have lower financial risk and better prospects as compare
to company which have lower increase in net sales.

f) DSCR-it measures the company ability to pay its current debts is a financial ratio that
measures a company's ability to pay its current debts it is the ratio of operating income /total
debts service costs.

The debt service coverage ratio is important to both lenders and investors .since it measures the
repaying capacity of its debts.

DSCR= Operating income/Total debt service costs,

Net operating income is the operating income which can be found out by deducting the expense
from income. Operating income can also be given by EBITDA which signifies the depreciation
and interest is deduct, when we deduct the depreciation we get EBIT. Total debt service costs is
the cost of borrowing to pay back the lender it includes principle, interest etc. The debt service
coverage ratio measures a firm's ability to maintain its current debt levels. Higher ratio is always
more favorable than a lower ratio. A higher ratio indicates that there is more income available to
pay for debt.

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 CASE STUDY

Borrower Profile

1. Date of Incorporation: 18.10.2000

2. Banking with us since : 27.04.2001

3. Registered Office* : 1157, Sadashiv Peth, Pune- 411 003

4. Factory Address : 1] Plot No. 47/30/1c, Survey No.47, CTS No. 3703,

Area 5861 Sq.Ft. Aranyeshwar Road, 60’0’ wide

office, Pune Satara Road, Pune- 411 009.

2] Industrial Unit No.7,8,9,10, 1st Floor, Bldg Name-

Suprim Industrial Premises Coop Society Ltd, Plot
No. 18 out of Survey No. 49/1, Araneshwar Road,
Village Parvati, Taluka-Haveli, Dist-Pune-411 009.

5. Constitution : Private Limited

6. Background in brief :-
MNO Manufacturing Company Pvt Ltd is in manufacturing of surgical power tools, The
Company was incorporated on 18.10.2000 prior to which the unit was a partnership. The MNO
group has been in the manufacture of surgical tools for last 37 years.

MNO was started by Shri Madhukar Gokhale who is a mechanical Engineer. This unit
manufactures instruments connected with Neuro and cardiac operations.

22
 2. FINANCIAL ANALYSIS

2.1 Balance sheet Spread- As per annexure

(IN Rs. LAKHS)

Tentati Proj.1 Tentati

Liabilities Aud.16 Proj.17 ve 17 Proj.18 Assets Aud.16 7 ve 17 Proj.18
Eq. Cap 15 15 15 15 FA 193.39 171.2 189.02 201.16
Pref. Shares 10 10 10 10 Less-Depn. 30.22 28 30.2 31
Res. & Surplus 346.2 420.85 414.54 455.54 Net FA 163.17 143.2 158.82 170.16
NET WORTH 371.2 445.85 439.54 480.54

Secured Loan
Current
TL from BOM 36.71 33.21 37.27 27.25 Assets
FD
Unsec.Loan(Frm.
Frnds/partner/rela
tives) 89.94 94.44 101.94 90 Stock 297.93 312.67 361.53 310
Receivable
Other term liab. 27.45 27.45 27.95 27.45 s 335.27 314.51 309.63 333.2
TOTAL TERM
LIAB 154.1 155.1 167.16 144.7 Cash /Bank 10.52 11 5.04 15
OCA ( Adv
Current Liab. to staff/crs) 37.46 178.12 67.29 194.42
Trade Payables 197.22 190 201.66 185
TOTAL
CURRENT
Bank Borrowing 200.46 248 241.06 300 ASSETS 681.18 816.3 743.49 852.62
Other CL/Provi
(HDFC) 118.22 85.92 56.21 85.92
Payables to
Sister concern 2.65
Non
Advance from Current
customer assets
Other NCA
518.55 523.92 498.93 570.92 ( dep./ 24.11 0 35.44 0
Receivable
s for more
than 6mths 143.69 134.79 132.7 142.8
Loans &
Adv 30.58 30.58 34.03 30.58

Intangible
Def tax
assets 1.15 1.15

1196.1 1124.8 1105.6

TOTAL 1043.9 1124.8 1105.6 6 TOTAL 1043.9 7 3 1196.16

23
 2.2 Key Financial Indicators
Est .15
*(last Tentativ Proj.18
Particulars Aud.13 Aud.14 note) Aud.15 Aud.16 Proj.17 e 17
Net Sales 747.69 800.9 880.00 868.05 964.03 1070.00 981.75 1200.00
% Increase / 1.84% 12.15%
Decrease 7.12% 9.88% 8.38% 11.06% 10.99%
Net Profit 37.58 34.22 41.50 53.03 24.18 74.62 68.30 85.54
% to Net Sales 5.03% 4.27% 4.72% 6.11% 2.51% 6.97% 6.96% 7.13%
Cash Accruals 57.32 52.59 63.50 85.34 86.08 102.62 98.5 116.54
Tangible Net
Worth
(excld.quasi
cap./
Revaluation 414.54 455.54
reserves/intangi
ble assets) 235.75 269.97 299.59 322.05 346.24 420.85
TOL / TNW 1.57 1.63
Ratio 2.14 1.78 1.38 1.90 2.01 1.67
Net Working 267.59* 252.06 281.7
Capital 114.72 167.56 * 129.88 186.75 292.38
Current Ratio 1.37 1.54 1.97 1.31 1.31 1.56 1.49 1.49

2.3 Comments in brief on key financial Indicators

Sales: The firm has achieved 99.39% of targeted sales i.e Rs 964.03 lakhs out of the projected
sales of Rs 970 lakhs. For current financial year co. has estimated sales of Rs.1070.00 Lakhs. As
per VAT return from April 15 to Dec 15 gross turnover is Rs.511.58 Lakhs and turnover routed
through CBS till date is around Rs.560.92 Lakhs. Thus considering past trend Company can
achieve targeted sales. For year 2016-17 company has shown growth by 13 % which is normal
and acceptable.

Net Profit: The profitability for last year 2015-16 is 2.51%. There is decrease in profitability by

54.40% from previous preceding year i.e 2014-15. There is decrease in profitability due to high

deferred tax liabilities.

Cash accruals: Cash accruals are sufficient to meet repayment obligations.

24
TNW: Net worth is increasing due to retention of part-profit in business.

TOL/TNW: There is a further increase in the ratio due to low profit in the financial year 2015-

16. However ratio is showing improvement upcoming year due to increase in TNW & the ratio is

well within the benchmark level of 4:1.

Net Working Capital: It is sufficient and adequate for proposed limit.

Current ratio: The ratio is above the benchmark level.

2.4 Net Working capital

Tentative Proj.18
Particulars Aud.13 Aud.14 Aud.15 Aud.16 Proj.17 17
Capital 25.00 25.00 25.00 25.00 25.00 25.00 25.00
Profit/Res& 414.54 455.54
surplus 235.75 269.97 322.05 346.24 420.85
Term Loans 37.27 27.25
BOM 62.44 37.64 54.32 36.71 33.21
Unsecured 101.94 90.00
loans 80.45 81.69 89.94 89.94 94.44
Other Term 27.95 27.45
Liabilities 25.15 25.15 28.45 27.45 27.45

Long Term
Sources (A) 428.79 439.45 519.76 525.34 600.95 606.7 625.24
Net Fixed
assets 161.51 152.80 185.18 163.17 143.2 158.82 170.16
Def Tax
assets 0.38 -1.59 12.56 1.15 0.00 1.15 0.00
Deposit 3.54 7.06 36.19 0.00 0.00 27.94 0.00
Loans & 34.03 30.58
Advance 51.94 1.07 35.82 30.58 30.58
Recv. More
than 6 mths 95.51 111.41 120.13 143.69 134.79 132.7 142.8
Intangible 0.00 0.00
assets 1.19 1.14 0.00 0.00 0.00
Long Term
Uses (B) 314.07 271.89 389.88 338.59 308.57 354.64 343.54
Net 114.72 167.56 129.88 186.75 292.38

25
Working
Capital (A
– B) 252.06 281.7
20% of
current
assets 85.24 95.28 109.09 136.24 163.26 148.70 170.52

5% of sales 37.38 40.05 43.40 48.20 53.5 49.09 60

2.5 Comments on adequacy of NWC: It is adequate and increasing due to retention of part-

profit. The NWC is reduced in FY 2014-15 due to investment in fixed assets.

2.6 Treatment proposed to meet shortfall if any: No NWC shortfall envisaged.

2.7 Comments on Funds Flow:
 Capital is improving on retention of part- profit.
 Increase in NWC due to increasing reserves and surplus, i.e retention of profit
into business.
 USL from directors.
 Other term liabilities pertains security deposit from dealers.
 Loans & Advances are to sister concern/ related parties thus classified under Non
Current assets.
 Receivables more than six months are classified as NCA by auditors. That is
around 30% of total debtors. Hence considering past, in estimate & projected year
we have assumed 30% debtors as more than 6 months.

3.3 Fixed Assets Coverage Ratio (FACR) : NA

3.4 Financial Projections & DSCR Calculations : NA

Net profit is sufficient to serve repayment obligations.

3.5 Comments on above projections, Techno Economic Viability study, etc. NA

3.6 Moratorium requirements: NA
3.7 Implementation / Repayment Details: NA

II Working capital

3.8 Fund Based: Enhancement in working capital requested upto Rs.250.00 Lakhs

26
 3.8.1 Method Applied: Working Capital Gap method

Rs. in Lakhs

Sr.No Tentative Proj.18

Particulars Aud.13 Aud.14 Aud.15 Aud.16 Proj.17 17
1 Total Current 743.49 852.62
assets 426.18 476.42 545.45 667.83 816.3
2 Other current 257.87 270.92
Liabilities 169.09 176.52 254.52 318.09 275.92
3 WC Gap 257.09 299.90 290.93 349.74 540.38 485.62 581.7
4 Min. NWC-20%
of Current assets
(excld export
receivables) 85.24 95.284 109.09 136.24 163.26 148.7 170.52
5 Actual NWC 252.06 281.7
Level 114.72 167.56 129.88 186.75 292.38
6 3-4 171.85 204.62 181.84 213.5 377.12 336.92 411.18
7 3-5 142.37 132.34 161.05 162.99 248 233.56 300
8 MPBF(lower of
6,7) 142.37 132.34 161.05 162.99 248 233.56 300

27
 Holding Level

Rs. in Lakhs

Tentative
Particulars Aud.13 Aud.14 Aud.15 Aud.16 Proj.17 17 Proj.18
Stock 189.39 194.50 245.06 297.93 312.67 361.53 310
Cost Of Sales 398.64 430.18 460.42 552.18 588.68 586.9 642.67
Stock 224.84 176.06
turnover in
days 171.03 162.77 191.61 196.94 193.87

Debtors 318.37 371.37 400.43 478.96 449.3 442.33 476.00

Sales 747.69 800.90 868.05 964.03 1025.00 981.75 1200
Debtors
turnover in 164.45 144.78
days 153.29 166.93 166.07 181.34 159.99

Creditors 93.65 90.50 152.02 197.22 190.00 201.66 185

Purchases 368.61 435.29 510.98 605.03 603.42 574.05 640
Creditors 128.22 105.51
turnover in
days 91.46 74.85 107.10 118.98 114.93

 Stock Turnover: Age of stock is of around 6 months.

 Debtor’s turnover: Debtors are around 5 months. Condition stipulated for DP calculations
debtors upto 90 days to be considered.

 Creditor’s turnover: The creditors holding levels are improving by enhancement in CC

limit.

 It was high in FY 2014-15. On enquiry the firm has informed that they had imported BLDC
motors for the new product which created pressures on finance. Therefore the level was high.

28
HOUSING LOAN:

1.Purpose: To provide housing finance to Public in general for the following purposes

a. For construction of new house / flat.

b. For outright purchase of house / flat (New or Old).
c. For repairs / renovation of the existing house / flat.
d. Home Conversion Loan.
e. Land Purchase Loan.
f. Bridge Loan.
g. Stamp Duty Loan.
h. Refinance Loan Scheme.
i. Take over of housing loan from other bank/ institution.
j. Additional loan on account of escalation of cost / for expansion etc.

In respect of purposes mentioned under item b to j above, additional terms and

conditions/guidelines are provided under point no. 9 below.

2.Eligibility:
 Salaried persons, professionals / Businessmen having sufficient disposable income to meet the
repayment. The employment should be in State / Central Govt., Public or Private Sector
Companies, Establishments of repute. The sanctioning authority should be satisfied about
repaying capacity of employee.
 Farmers having minimum five acres of irrigated land holding.
 Non Resident Indians are also eligible for the loan.

3.Age Criteria:
 Minimum: 21 years
 Maximum: 50 years in case of salaried persons.
55 years for applicants others i.e. Business, professionals etc.

4. Quantum of Loan:

4.1 For salaried class:

(a) Equal to 50 times of monthly gross salary or 60 times of net monthly salary whichever is
higher - or
(b) 85% of the cost of house / flat to be purchased / constructed (including registration and
other essential charges i.e. Electricity Deposits, Mortgage charges etc.)
(c) Loan eligibility will be minimum amount of (a) and (b) above.

29
 4.2 For individuals in business / profession or self-employment.

(a) Equal to average annual income of last 3 years x 4 times to be worked out as eligibility
for quantum of loan. For example, if the average income of a businessman / Professional is
around Rs.5.00 lakhs (to be ascertained from sources such as Balance sheet, Income tax
return etc.) then the loan quantum in such cases would be Rs.5.00 lakhs multiplied by 4 times
which works out to Rs.20.00 lakhs - or
(b) 85% of the cost of the house / flat to be purchased / constructed.
(c) Loan eligibility will be minimum amount of (a) and (b) above.
In case of individual businessmen or professionals, the income may be ascertained from
different sources such as (1) Balance sheet, (2) Income tax returns etc.

Before considering the sources, consistency of income be ensured. For the businessmen
carrying proprietary concern and professionals/self employed persons, the term total income
would mean “Net Profit plus Depreciation”. However, repayment obligation on account of
term liabilities should be taken into consideration while deciding the quantum of loan and
EMI.

4.3 For Farmers.

For finalizing the quantum of loan, net annual income may be considered. (i.e., 4 times of
average net income of last three years).The branches may cross check the Gross & Net
Annual Income of the applicant with reference to the land holding, cropping pattern, sugar
factory bills/cotton bills, Agricultural Produce Marketing Committee Bills etc.

The loan quantum depends mainly on the repaying capacity of the applicant. Branches may
consider other factors such as past experience in repaying the loans availed.

4.4 Income of Spouse and other relatives:

The income of son, daughter, sister, brother along with the spouse to be taken for deciding
the quantum of loan and repayment capacity provided the property is in the name of all joint
members or their guarantee is obtained.

4.5 Maximum Amount:

4.5.1 For Purchase/Construction of House Property: No maximum limit for Metro and Urban
area. In respect of Semi-urban & Rural area, the amount of loan should not exceed Rs
15.00 lakhs.
4.5.2 For repairs & renovation the amount of loan shall not exceed Rs 5.00 lakhs in all the
areas (i.e. Rural / Semi-Urban/ Urban / Metropolitan).

After finalization of quantum of loan, the branches should cross check with the total annual
income of the applicant to ascertain the applicant's capacity to repay equated monthly instalment
of the proposed loan. In case, the applicant is unable to service the EMI, the loan quantum may
be reduced suitably. In other words, the loan quantum depends mainly on the repaying capacity
of the applicant.

30
In any case, total deduction including proposed EMI should not exceed 65% of gross monthly
salary/annual Income.

4.6 Margin:
For Purchase/Construction of new House Property : Minimum 15%

For Purchase/Construction of old House Property : Minimum 25%

For repairs and Renovations : Minimum 25%

5. Repayment -
8.1 Reducing the tenor/ Revision in Rate of interest:
Sanctioning authority may permit reduction in repayment period and consequently apply
for a revision in interest rates. This will be applicable to those existing housing loans
where the remaining/residual tenor of the loan is 10 years or more as per original
sanction. For this revision, beneficiary has to make formal request and guarantors to
agree for the same.

The revised interest rate shall depend on the revised remaining repayment tenor and
corresponding slab for ROI prevailing on the date of permitting such revision. (Please see
example given below). These revised Tenor / ROI requests shall be subject to the
following:
 Borrower is able to repay the entire loan outstanding with revised higher EMI.
 Bank is satisfied about the repaying capacity of the borrower to pay revised higher
EMI.
 There were no instance of delayed payments and balance outstanding on the date of
request has no overdue component.
 Applicable processing fee, if any may be charged while considering such request of
revision in tenor.

Example: In case, the original tenor was 20 years, and has run for 5 years, (including the
moratorium period) the remaining tenor is 15 years. On accepting the request to reduce
the total tenor to 10 years (i.e. revised remaining tenor shall be 5 years). Accordingly, the
EMI may be increased, with ROI as applicable for the revised remaining tenor of 5 years.
The revised ROI shall be on prospective basis i.e. from the date of sanction for reduced
tenor.
8.2 Flexibility in Repayment Schedule: With the intention to assist the Bank’s borrower to
manage his liquidity, the following flexibility in repayment schedules are permitted:

8.2.1 Lump sum repayment: A borrower can make, lump sum payment from own sources,
over & above stipulated EMI, without any “pre-payment charges”. Such lump sum
repayment could be for full or part liquidation of the outstanding housing loan.

31
8.2.2 Step up EMI: It is permitted to have variable EMI depending on the repayment capacity
of the borrower, i.e., with a provision to have a gradual increase in amount of EMI, with
an interval of 5 years. It may be decided upon at the initial stage of sanction, so as to
avoid processing charges, if any in future. For example, a borrower may choose to have
EMI increased, say by 10% or 15% after the end of each 5 years. This would enable the
borrower to repay the loan at faster rate and would ultimately end up paying lesser
amount of interest as compared to those who do not opt for step up EMI. To illustrate
further, we have enclosed one example (Annexure-II) with this circular.

The step up EMI is provided due to the fact that salaried employees generally have some
increase in their salary with the passage of time and in turn acquire higher repaying
capacity. It could also be the case with self employed professionals and other
businessmen.

9.1 Land Purchase Loan: Such loans can be considered where the applicant undertake to
construct the house on the plot of land purchased out of Bank finance, within 2 years.

Suitable clauses for recall and penal interest shall be incorporated in the loan agreement
to protect Bank’s interest in case the customer does not comply with his commitments of
construction as stipulated above. Following additional terms and conditions be stipulated.

 Margin of 30% should be stipulated for purchase of land.

 Maximum repayment period is 20 years to be reckoned from the date of purchase of land.
 Repayment by EMI for the loan for land will start after one month from purchase of land.
 Penal interest should be applied @ 2% after completion of 2 years with a right of recall,
if construction is not completed within this period or the borrower defaults in
constructing the house.

9.2 Bridge Loan: Such loan is required, where the person desires to acquire a flat and intend
to use the proceeds of their existing flats/houses as part of the margin or consideration.
Usually there is time lag of 6 to 9 months before the deal is finalized and the proceeds are
received.
In such cases, this loan should be considered as a short-term loan against the proposed
house/flat. Housing loan together with Bridge loan should not exceed 85% of cost of the
proposed house.

The repayment capacity be assessed on the total amount of loan together with bridge
loan. Bridge loan should be repaid maximum within a period of 9 months.

In case for any reason the old house/property is not sold, then EMI should be stipulated
on the entire loan by converting/merging the bridge loan into housing loan.

32
 Suitable clause should be incorporated in the documentation, which will ensure that
existing flat is taken as additional security for bridge loan in the event of failure to repay
the loan within the stipulated period.

9.3 Stamp Duty loan: Normally this component is taken into account to ascertain the total
cost of project and suitably finance is provided.
However, where the flat/house is acquired by a person by means of Gift, Litigation etc.,
he has to pay stamp duty and registration fee on the market value as per prevailing Govt.
stipulated rates and for which loan may be necessary. Such requests should be considered
as housing loan on the following terms:

Maximum Amount : Rs. 1,00,000/- .

Repayment period : Maximum 60 months

9.4 Refinance Loan Scheme: This type of loan is required to repay debts incurred from
private sources such as loans from friends and relatives for purchase of house. Such
requests should be decided on ascertaining that proceeds of such private loans are routed
through the account of the applicant and that these funds are used to acquire the house.
Obtaining such loan from private sources, purchase of house/ flat, and subsequent
application of loan to the Bank should take place within a period of six months. For such
housing Loan repayment period will be maximum 60 months. Any deviation in such
loans be referred to next higher authority.

9.5 Old House/Flat: In case of purchase of old house/flat, which is more than 10 years old,
the sanctioning authorities may consider the request on merits, on the following
parameters:
 Valuation report by approved valuer.
 Structural stability report by Govt. approved Structural Engineer, certifying the
structural stability of the house with residual working life of the same to be more
than 30 years.
 Applicant’s standing, past experience if any etc.
 Minimum margin of 25%.

9.6 Take over: “Take over” of housing loan from other bank/ institution is included in the
eligible purposes to enable the branches to use take over as one of the effective marketing
strategies and to capitalize on our competitive interest rates. Field offices can consider
taking over of housing loan from other banks/institution, provided there is regular
repayment of loan installment as per schedule of repayment and there are no overdue
with their existing bank/institution.

No prior approval of grid at any level is required for “take over” of existing outstanding
housing loan from other banks/institutions, if there are no deviations whatsoever.

33
9.7 Additional Loan: Additional loan on account of escalation of cost / expansion etc may
be considered on merits under following circumstances:
 Escalation in cost may be permitted as additional housing loan on the same security.
 Similarly, for expansion of the existing house, (on which previous loan is outstanding
without any overdue), additional loan may be permitted, after satisfying the repaying
capacity, eligibility norms, and ceiling on the loan amount.

INDICATIVE LIST OF DOCUMENTS TO BE OBTAINED FROM THE APPLICANTS.

I. PROPERTY DOCUMENTS:

A) In case of Purchase of readymade house.

1. Registered Agreement for purchase between seller and buyer (applicant)

2. Receipts for payments already made to seller
3. Copies of document of title to the property in possession of owner i.e.
(a) Sale Deed / Partition deed / Gift deed / Lease deed.
(b) Property extract such as 7/12 extract or Extract of property register card of city
survey (Akhiv Patrika)
(c) N.A. Permission, if originally agricultural property
(d) Latest Tax paid Receipt to Nagarpalika / Mahanagarpalika
(e) Copy of Sanctioned plan / Approved building plan.
4. Title Verification Report (Search Report) for 30 years from preferably advocate on panel.
5. Valuation certificate from the approved valuer
6. NOC from NIT
7. No encumbrance Certificate, both before and after the sale (wherever applicable)

B) In case of purchase of Flat from owner (RESALE FLAT)

1. 1 to 5 as above
2. Copy of original deed of conveyance of land conveying undivided share
3. No objection certificate from the society for mortgage of flat
4. Share certificate of society if property is in Cooperative Society
5. Co membership of society and permission of society for mortgage
6. No encumbrance Certificate, both before and after the sale (wherever applicable)

C) In case Construction of house on vacant owned plot

1. Absolute sale deed / Partition deed / Gift deed / Allotment deed of plot
2. Sanctioned Plan (Map) approved from competent authority.
3. Detailed estimate from the Architect / Engineer.
4. If the plot is owned by society, No objection certificate for mortgage of plot and
construction thereon.

34
 5. If the plot is leasehold, the valid lease deed and latest receipt for ground rent payment
6. Permission from lessor for Creation of Mortgage, in case of leasehold property.
7. Property extract from competent authority. (Record of Rights and Index of land record.)
8. Copy of tax paid Receipt
9. Search Report for 30 years from preferably advocate on panel
10. NOC from NIT.
D) In case of Booking of Flat from the Builder / Developer. (Ready build / Under
Construction / Construction yet to started):
1. Copy of Original Conveyance deed of land with landlord.
2. If the Plot is lease hold, valid lease deed and latest receipt for ground rent paid.
3. Agreement of Development
4. Sanctioned Plan for flat scheme
5. Copy of Power of attorney given by the landlord in favour of developer
6. Registered Agreement to sale conveying undivided share and stages of payment
7. Copy of latest Tax paid receipt in favour of owner
8. Copy of Record of Rights
9. Original Receipt for payment made to builder
10. Search Report for 30 years from preferably advocate on panel

Search Report of the property: This report should be preferably from the advocate on our
Bank's panel. If the report of any other advocate is to be accepted, it should be ensured that it is
addressed to the Bank. In either case the report should at least indicate the following:

(a) Search Report of the property

(b) Devolution of the rights of the property
(c) Compliance with legal requirements such as ULC, NA permission, approval of building
plan, Commencement certificate, Completion certificate, stamp duty paid on documents.
(d) Formation of society, conveyance in favour of society, issuance / transfer of shares etc.
(e) Nature of the right, title and interest of the mortgagor and compliances required and
mortgage ability of the property.
(f) NOC from the society to mortgage the property
(g) Marketability and encumbrances, if any

II. Other Documents:

A) In case of Salaried Person:

1. Prescribed application form for Housing loan (with photograph)

2. Prescribed form for information from the Employer
3. Prescribed form for Information of Co-Applicant, if any (with photograph)
4. Prescribed Guarantor's form (with Photograph)
5. Salary slip duly authenticated
6. Form No.16 for last financial year
7. Income Tax Return/Wealth Tax Returns for last 3 years.

35
B) In case of Professional / Businessman:

1. Prescribed application form for Housing Loan (with Photograph)

2. Prescribed form for Information of Co-Applicant, if any (with Photograph)
3. Prescribed Guarantor's form (With Photograph)
4. Balance sheet and P & L statement for last 3 years
5. Income tax / sales tax returns for last 3 years

CASE STUDY:
Application for a housing loan for Rs 60,00,000 by Mr. and Mrs. X

All the calculations related to housing loans in relation to the salary of a customer are taken as
the average of the last 3 months salary received for both gross and net salary.

Mr. X Mrs X

Gross Deducti Net Gross Deduction Net Salary

Salary ons Salary Salary s

Jan 85783 16985 68798 Jan 57741 6700 51041

Feb 85783 16709 69374 Feb 57741 11850 45891
March 85783 16309 69474 March 57741 6750 50991
Total 25734 207646 Total 17322 147923
9 3

3 month 85783 69215 57741 49308

average:

Quantum of Loan: Maximum amount of loan that is eligible is 60 times the gross salary or 75
times the net salary whichever is higher.

Avg Gross Income Avg Net Income

143524 118523
Eligible Quantum: 8611440 8889225

Hence the higher amount i.e Rs 8889225 qualifies for the quantum of loan.

Margin Requirement: Since loan is requirement is above 25 lakhs and below 75 lakhs the
margin requirement is 20% of the agreement value.

Agreement Value Margin Margin requirement Eligible Loan:

Of the house Requirement in Rs

12300000 20% 2460000 9840000

36
Deductions: The total deductions allowed out of gross salary is up to 60% of the
Gross salary. Deductions include all payments made to the employer for various reasons such as
income tax, gratuity, pension fund etc. it also includes all the EMIs the customer is already
obliged to pay and also the proposed EMI for the loan applied.

Avg gross income Avg Net Income Avg deductions

143524 118523 25001

Add: Existing EMIs NIL
Proposed EMI for Rs 60 55045
lakh for 18 years
Total Deductions: 80046

60% of Gross Salary: 86114

Since all the conditions are fulfilled Mr. and Mrs. X can be granted a housing loan of
Rs.60,00,000.

37
 EDUCATION LOAN
The educational loan scheme aims at providing financial support from the banking system to
meritorious students for pursuing higher education in India and abroad.

ELIGIBILITY CRITERIA:

STUDENT ELIGIBILITY:

1. Should be an Indian National

2. Should have secured admission to a higher education course in a recognized institution in
India or abroad through entrance test or merit based selection process after completion of
HSC. However, entrance test or selection based purely on the basis of marks obtained in
qualifying examination may not be the sole criterion for admission to some of the post
graduate courses or research programmes. In such cases branches may adopt appropriate
criteria based on employability and reputation of the institution concerned.
3. CIBIL verification of the applicant, co-applicant and guarantor should be done.

COURSES ELIGIBLE:

A. Studies in India:
 Approved courses leading to graduate/ post graduate and PG diplomas conducted by
recognized colleges/ universities recognized by UGC/Govt./AICTE/AIBMS/ICMR etc.
 Courses like ICWA, CA, CFA etc.
 Courses conducted by IIMs, IITs, IISC, XLRI, NIFT, NID etc.
 Regular degree/ diploma courses like Aeronautical, pilot training, shipping, degree/
diploma in nursing or any other discipline approved by Director General of Civil
Aviation/ Shipping/ Indian Nursing Council or any other regulatory body as the case may
be, if the course is pursued in India.
 Approved courses offered in India by reputed foreign universities.

B. Studies Abroad:
 Graduation: For job oriented professional/ technical courses offered by reputed
universities.
 Post Graduation: MCA, MBA, MS etc.
 Courses conducted by CIMA – London, CPA in USA etc.
 Degree/ diploma courses like aeronautical, pilot training, shipping etc provided these are
recognized by competent regulatory bodies in India/ abroad for the purpose of
employment in India/ abroad.

38
EXPENSES CONSIDERED FOR LOAN:

 Fee payable to college/school/hostel.

 Examination/Library/Laboratory fee.
 Travel expenses/ passage money for studies abroad.
 Insurance premium for student borrower.
 Caution deposit, building fund/refundable deposit supported by institution bills/receipts.
 Purchase of books/ equipments/ instruments/uniforms.
 Purchase of computer at reasonable cost, if required for the completion of the course.
 Any other expense required to complete the course- like study tours, project work, thesis,
etc.

QUANTUM OF FINANCE:

Need based finance to meet expenses will be considered taking into the account margin as
follows:

 Studies in India – Maximum Rs. 10 lakhs

 Studies abroad – Maximum Rs. 20 lakhs

The ceilings fixed for studies in India and abroad correspond to the limits fixed by the RBI for
treatment as priority sector lending. It would, however, be open to branches to consider higher
quantum of loan on course to course basis. It may also be noted that even loans in excess of Rs
10 lakhs qualify for interest subsidy under Central Sector Interest Subsidy Scheme subject to
subsidy available only up to a loan amount of Rs 10 lakhs.

MARGINS:

 For loans up to Rs. 4 lakhs – NIL

 For loans above Rs 4 lakhs:
i. Studies in India – 5%
ii. Studies abroad – 15%

RATE OF INTEREST

For loans up to Rs. 4 lakhs: BASE RATE + 1.75%

For loans above Rs 4 lakhs: BASE RATE + 2.75%

The interest should be debited monthly on Simple Basis during the Repayment holiday/
Moratorium period. For the overdue amount, Penal interest @2% be charged for loan quantum
above Rs. 4 lakh for overdue period.

39
REPAYMENT HOLIDAY/ MORATORIUM PERIOD:

Repayment holiday or moratorium period is Course Period + 1 year or 6 months after getting job,
whichever is earlier. (i.e the period of completion of initial course for which student is seeking
admission).

If the student is not able to complete the course within the scheduled time for reasons beyond his
control, extension of time for completion of course may be permitted for a maximum period of 2
years. The concerned Regional Office may at the discretion consider such extensions as the case
may be deemed necessary to complete the course.

In case the student discontinues the course midway, appropriate repayment schedule will be
worked out in consultation with the student/parent.

The accrued interest during the repayment holiday period to be added to the principal and
repayment in Equated Monthly Installments (EMI) fixed.

1% interest concession may be provided by the bank, if interest is serviced during the study
period and subsequent moratorium period prior to commencement of repayment. Repayment of
loan will be in equated monthly installments for periods as under:

For loans up to Rs 7.5 lakhs: up to 10 years

For loans above Rs 7.5 lakhs: up to 15 years

SECURITY:

LOANS SECURITY
i. Up to Rs 4 Clean. Parents to be joint borrower(s). no other security.
lakhs.
ii. Above Rs 4 Besides the parent(s) executing the documents as joint borrower(s),
lakhs and up collateral security in the form of suitable third party guarantee will be
to Rs 7.5 taken. In exceptional cases, may waive third party guarantee if satisfied
lakhs with the net worth/ means of parents/who would be executing the
document as joint borrower(s).

Parent(s) to be joint borrower(s).

iii. Loans above Tangible collateral security of suitable value acceptable to bank, along
Rs 7.5 lakhs with the assignment of future income of the student for the payment of
the installments.
Value of collateral security after providing requisite margin as should be equal
to the quantum of finance.
 Govt. Securities: Public Sector Bonds – 25% in Bank’s favour.
 Units of UTI, Shares (as per the banks approved list from time to time)/

40
 Debenture – 50% in Bank’s favour.
 LIC Policies – Value of security should be considered to the extent of
surrendered value of the policy as on the date of accepting as security.
 Mortgage of Land & Building – In respect of mortgage of immovable
property, the value of security should be taken as per valuation report,
which is not more than 2 years old. Wherever the land/ building is
already mortgaged, the unencumbered portion will be taken as
security by obtaining second charge on the property.

Example: Loan Application for Study Abroad. Quantum of loan required is the maximum possible.

Present Request for Education Loan Rs 5,357,563

Education Cost (as per College Fee structure) 63 03 015

Other Allowable Expenses NIL

Total Education Cost 63 03 015

Studies In India or Abroad Abroad

Margin 15%

Maximum eligibility for loan as per scheme 5357563

Rs.

ALLOWABLE EXPENSES
Particulars USD

Fex Rate per Unit (if studies Abroad) 1 $ = Rs 65

Development Fee 0.00

Caution Deposit / Refundable Deposit 0.00

Books/Equipments/Instruments/Uniforms 0.00

Cost of Computer (If required for the Course) 0.00

Study Tours / Project Work / Thesis / Other 0.00

Fees etc.

Tuition Fees 64,642.00

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Living/Hostel (Mess) expenses 28,736.00

Examination / Library / Laboratory Fee 0.00

Travel Expenses / Passage money for studies 0.00

abroad

Medical insurance 2,546.00

Eligible Caution Deposit / Building Fund/ 0.00

NON Refundable Deposit (Max 10% of total
tuition fee of entire course)

a) Books/Equipments/Instruments/Uniforms, 0.00
b)Computer,
c)Study Tours / Project Work / Thesis etc.
Maximum cap 20% of Total Tuition fees

Computation of eligible quantum of loan

Particulars Rs
Total Eligible expenses 63 03 015
Loan amount requested 5,357,563

Total Education Cost 63 03 015

Minimum Margin reqd as per Scheme 9 45 452
Net Realisable value of security offered 1,00,00,000
Eligible quantum of loan 53 57 000
Actual Margin/ Own funds 9 45 452
Total Eligible expenses $95,924.00
Rs. 63,03,015

The amount of loan that can be sanctioned is the lower of Loan Amount Requested, Eligible Quantum Of
Loan And Net Realisable Value Of The Security Offered.. Thus in this case the amount of loan that can be
given is Rs. 53,57,563

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Security Equitable Mortgage of Flat. No. 02, Fifth Floor," admesuring
about 1150 Sq ft i.e 106.83 Sq mtrs along with open terrace
measuring 6.5 Sq. Mtrs. i.e 70 Sq. Fts situated partly at Stilt
Floor and partly at First Floor. And parking at ground floor
admeasuring 10.4 Sq. Mtrs i.e 112 Sq. Mtrs. in JIJAI FLATS
building of Prashant Co. Op Hsg. Society Ltd. It is constructed
on property bearing Plot No. 25, Survey No. 135/2A, 2B,
3A+4A and Survey No. 136/2B at Village Kothrud, Taluka
Haveli, District Pune.
Search Report Search report of the property is
obtained from Panel advocate Atul S.
Bobade (Patil) dated 30/05/2016. As per
the report, property owner Mr. Rajendra
Maruti Patil and Mrs. Sunita Rajendra
Patil has an absolute, clear and
marketable title over the said property.
Valuation As per the valuation report submitted the
Value of the property in a condition of
Distressed market is Rs. 1,00,00,000.

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RECOMMENDATIONS

Loan appraisal is a very lengthy procedure and requires an in depth study by the credit officer.
But due to the workload the credit officers don’t get much time to evaluate a loan in depth.
Hence more time must be given to them to do an in depth study of the proposal and avoid bad
loans.

Secondly, I feel there needs to be a computerized system (software) through which customers
can fill in their details related to the loan application. Only if it gets approved on the software
with certain prerequisite conditions then only the person should be allowed to approach the bank
for the loan. What I came across many times was that after going into the details of the loan you
find out that a major criteria has not been fulfilled that can be easily found out just by feeding it
to a software. This would save a lot of time to the credit manager. This software should further
list all the documents to be carried along as many times I saw that the evaluation got stalled due
to this reason and led to a wastage of time.

Thirdly, as documentation is a very tedious work in the loan department there should be one
person only looking into the documentation part. This would leave the credit officers with more
time to evaluate the project.

Fourthly, what I came across in the CMAs submitted by the customers for extension of loans or
enhancements of loans was that in their projections their sales would grow at a rate which is way
too high considering their past performances, which may lead to NPAs. What I suggest that the
management of the bank fixes a band of growth rate for each type of industry depending upon
the futuristic economic conditions, geographic location, size of the firm, i.e whether it’s a micro
enterprise a small enterprise and so on. If the company still wishes to project a higher rate of
growth then they should give proper explanations for such projections.

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CONCLUSION

Considering all the technical and legal procedures are being followed by the bank for finding the
technical aspects of the project, technical soundness of the project can be done
proper observation of financial report, valuation of property by approved valuer or CA. A detail
study of financial viability of project is done by detail study of cash flow, fund flow statements,
balance sheets, profit and loss statements and by calculating various ratio which is very much
necessary for project appraisal such as Current ratio, DSCR etc. I n c a s e o n r e t a i l
products things such as CIBIL report, Cersai Report, the financial
s t a n d i n g o f t h e c u s t o m e r a r e a l l t a k e n i n t o a c c o u n t . This shows BANK OF
MAHARASHTRA have sound credit appraisal system.

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BIBLIOGRAPHY
The above information has been taken from the following sources:

1. www.bankofmaharshtra.com
2. Circulars provided by the bank on loans and advances.
3. Credit manual of bank of Maharashtra.
4. Lending policy manual of bank of Maharashtra.

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