CHAPTER-I

INTRODUCTION
Abstract to Credit Appraisal:

Credit appraisal means an investigation/assessment done by the bank prior before providing
any loans & advances/project finance & also checks the commercial, financial & technical
viability of the project proposed its funding pattern & further checks the primary & collateral
security cover available for recovery of such funds.

Credit Appraisal is a process to ascertain the risks associated with the extension of the credit

facility. It is generally carried by the financial institutions, which are involved in providing

financial funding to its customers. Credit risk is a risk related to non-repayment of the credit

obtained by the customer of a bank. Thus it is necessary to appraise the credibility of the

customer in order to mitigate the credit risk. Proper evaluation of the customer is performed

this measures the financial condition and the ability of the customer to repay back the Loan in

future. Generally the credits facilities are extended against the security know as collateral.

But even though the Loans are backed by the collateral, banks are normally interested in the

actual Loan amount to be repaid along with the interest. Thus, the customer's cash flows are

ascertained to ensure the timely payment of principal and the interest.

It is the process of appraising the credit worthiness of a Loan applicant. Factors like age,
income, number of dependents, nature of employment, continuity of employment, repayment
capacity, previous Loans, credit cards, etc. are taken into account while appraising the credit
worthiness of a person. Every bank or lending institution has its own panel of officials for
this purpose.

However the 3 ‘C’ of credit are crucial & relevant to all borrowers/ lending, which must be
kept in mind, at all times.
- Character
- Capacity
- Collateral
If any one of these is missing in the equation then the lending officer must question the
viability of credit. There is no guarantee to ensure a Loan does not run into problems;
however if proper credit evaluation techniques and monitoring are implemented then
naturally the Loan loss probability / problems will be minimized, which should be the
objective of every lending Officer.

NEED FOR THE STUDY

The financial institutions and banks have a vital role to play in the different facets of project
work. They are responsible for appraising the soundness of the project that is presented to
them for financial assistance. The main purpose of this study is to understand the lending
criteria and appraisal technique for financing the project.

SCOPE OF THE STUDY

 To understand the various aspects involved in appraising a project •

 To know the methodology of project appraisal system adopted by Axis Bank
 To undertake the case study of a proposal which Axis Bank has appraised for sanction
of term loan and evaluate the methodology and its compliance to established norms

OBJECTIVE OF THE STUDY:

 To study the credit appraisal system in SME sector, at Axis Bank

 To study the Credit Appraisal Methods.
 To understand the commercial, financial & technical viability of the project proposed & it’s
funding pattern.
 To understand the pattern for primary & collateral security cover available for recovery of
such funds.
RESEARCH METHODOLOGY
Problem Statement:

To study the Credit Appraisal System in SME sector, at AXIS BANK, HYDERABAD.

Research Design:

Analytical in nature

Data Collection:

Primary Data:

 Informal interviews with Branch Manager and other staff members at AXIS BANK.
 E-circulars of AXIS BANK

Secondary Data:

 Books and magazines

 Database at AXIS BANK
 Internal reports of the banks
 Library research
 Websites
Expected contribution of the study:

This study will help in understanding the credit appraisal system at AXIS BANK & to understand
how to reduce various risk parameters, which are broadly categorized into financial risk, business risk,
industrial risk & management risk associated in providing any loans or advances or project finance.

Beneficiaries:

Researcher:

This report will help researcher in improving knowledge about the credit appraisal system and to have
practical exposure of the credit appraisal scenario in AXIS BANK.

Management student:

The project will help the management student to know the patterns of credit appraisal in
AXIS BANK bank.
AXIS BANK Bank:

The project will help bank in reducing the credit risk parameters and to improve its
efficiencies. It will also help to reduce risk associated in providing any loans & advances or
project finance in future and to overcome the loopholes.

Short write-up on the researcher and reason for taking up the project:

 The researcher are MBA 2nd year students, studying in AURORA PG COLLEGE
.HYDERABAD

 The reason for taking up the project is to know and understand the credit appraisal system in
banking sector.
 Credit appraisal is the major focus of banking industries these days, so the project will help in
understanding and analyzing the situation prevailing currently.
 Limitations of the study:

 As the credit rating is one of the crucial areas for any bank, some of the technicalities
are not revealed which may have cause destruction to the information and our
exploration of the problem.
 As some of the information is not revealed, whatever suggestions generated, are based
on certain assumptions.
 Credit appraisal system includes various types of detail studies for different areas of
analysis, but due to time constraint, our analysis was of limited areas only.

- The study was only on desk jobs related to credit. I was not exposed to the field
survey and valuation part.
- As per the bank’s terms and conditions related to internship, approaching
customers was not allowed.
- Actual balance sheets, ratios, financial statements of the customers were not
shared with me for my records and thus my study lacks certain details.
 BIBLIOGRAPHY

BOOKS:

 Srivastava, R.M & Nigam, Divya (2010): Management of Indian Financial Institution
(10th edition), Himalya Publishing House.
 Bhole, L.M (2009):Financial Institution and Markets(5th edition), Tata Mc Graw-
Hills.
 M.Y.Khan’s, Corporate Finance and Its Basic Usage.
 Credit Appraisal, Risk Analysis and Decision Makingbook, by DD Mukherjee.
 Banking Strategy, Credit Appraisal and Lending Decisions: A Risk-Return
Framework. By Bhattacharya, Hrishikesh.

WEBSITES

 http://www.rbi.org.in/,
 www.axixbank .com
 http://www.axixbank.com
 http://www.unionbankofindia.co.in/about_us.aspx,
 http://www.unionbankofindia.co.in/PER_retailloans.aspx,
 http://economictimes.indiatimes.com/shiv-vani-oil-&-gas-exploration-services-
ltd/balancesheet/companyid-10432.cms,
 http://www.shiv-vani.co.in/pdf/Annual%20report/AnnualReport2010-11.pdf
 http://www.shiv-vani.co.in/pdf/Annual%20report/Annual_Rreport_2012.pdf
 http://www.shiv-vani.co.in/pdf/notice/shivani-notice-2011.pdf ,
 http://en.wikipedia.org/wiki/Union_Bank_of_India,last ,