A STUDY ON CREDIT APPRAISAL METHODS WITH SPECIAL

REFERENCE TO CANARA BANK

Project final report submitted in partial fulfilment of the requirements for the
award of the degree

MASTER OF BUSINESS ADMINISTRATION

OF

BANGALORE UNIVERSITY

Submitted By: Shrivathsa K

Register No: 17YUCMD189

Under the Guide Of

Heena Kosar

Assistant Professor

Acharya Bangalore B-School

Bangalore University

2018-2019
 DECLARATION

I, Shrivathsa K here-by declare that the project report upon “Credit Appraisal” for the
fulfilment of the requirement of my course from Bangalore University is an original work of
mine and the data provided in the study is authentic, to the best of my knowledge.

This study has not been submitted to any other Institution or University for award of any
other degree.

HOWEVER, I ACCEPT THE SOLE RESPONSIBILITY OF ANY POSSIBLE ERROR OR

OMISSION.

Shrivathsa K
 ACKNOWLEDGEMENT

It is a matter of Great Pleasure for me in submitting the project report on Credit Appraisal
Methods For the fulfilment of the requirement of my course from Bangalore University.
I am thankful to and owe a deep dept gratitude to all those who have helped me in preparing
this report. Words seem to be inadequate to express my sincere thanks to Ms. Heena Kosar for
her valuable guidance, constructive criticism, untiring efforts and immense encouragement
during the entire course of the study due to which my efforts have been rewarded.

I would also like to thank Mr. Venkatakrishna (Chief Manager), Mr.Vimal, (Employee), who
gave me an opportunity to learn the recurring acknowledgement of what is working in our lives
that can help us not only to survive but surmount ours difficulties. I am highly obliged to those
who had helped me to procure primary data to complete my project. Also, not to be forgotten
all the Lecturers of MBA who contributed their ideas and suggestions.

I express my sincere thanks to whole Canara Bank (Founders Branch.) for giving me all the
facilities during my project and helping & guiding me during my whole internship period.
I want to thank all who have supported me and gave their timely guidance. Last but not least I
am very grateful to all those who helped me in one-way or the other way at every stage of my
work.

Shrivathsa K
 Preface

Internship is a very important part of an MBA curriculum. It provides an optimistic

iconography for ‘Future’ existence through which students are able to see the real industrial
environment which gives an opportunity to relate theory with practice. I undertook one-
month training program at Canara Bank, Founders Branch (Mangalore) and worked on the
project “Credit Appraisal”. This report is the knowledge acquired by me during this period of
training.

Credit Appraisal forms are becoming very important topic for banks. Because it affects the
financial position of any bank or any financial institution. So, as a finance student I have got
this topic to study and make my report. I have tried my best to make this report.
Chapters Contents
1 Introduction
2 Credit Appraisal Concept
3 Bank Profile
4 Objectives and Limitations
5 Literature Review
6 Research Methodology
7 Canara Bank Credit Rating Model
8 Credit Appraisal Process with KIIT
9 Tables
10 Charts
11 Hypothesis
12 Interpretation and Findings
13 Recommendations and Suggestions
14 Conclusion
15 Bibliography
CHAPTER 1
 INTRODUCTION 1

INDUSTRY PROFILE

In the present scenario service sector plays an important role in the country.

Among service sector banking industry is one. Banking is one

o f t h e c l a s s i c a l economic functions and plays a vital role in economic development.

India has a well developed banking system. Most of the banks in India

weref o u n d e d b y I n d i a n e n t r e p r e n e u r s a n d v i s i o n a r i e s i n t h e p r e -

i n d e p e n d e n c e e r a t o provide financial assistance to traders, agriculturists and

budding Indian industries. Indian banks have played a significant role in the development

of Indian economy by inculcating the habit of saving in Indians and by lending finance to

Indian Industry.
CHAPTER 2
 CREDIT APPRAISAL

Definition:

Credit Appraisal: Credit appraisal means investigation/assessment done by the bank before

providing any loans.

Importance of credit appraisal:

 It carry the risk

 To determine the eligibility and quantum of the loan.

 Evaluating the credit worthiness of the applicant. It assures the repayment capacity of the

borrower.
CHAPTER 3
 BANK PROFILE

HISTORY:

Founder Shr i Ammembal Subba Rao Pai, a great visionary and philanthropist,

VISION:

To emerge as a Preferred Bank by perusing global bench mark in profitability, operational

efficiency, asset quality, and expanding the global reach.

MISSION:

To provide quality banking service with good customer care, create value for all stakeholders
and continue as a responsive corporate social citizen.

FUNCTION:

 It lends money.
 It borrows money.
 It helps in investing securities.
CHAPTER 4
 OBJECTIVES OF STUDY

 To understand all the financial data and necessary document provided by the borrower is

completely reliable or not.

 To understand the commercial, financial & technical viability of the proposal proposed

and its funding pattern.

 To understand the work culture and environment of Canara Bank.

 To understand all the steps taken by Canara Bank provide finance for the establishment of

new industrial, infrastructure, public service project, as well as expansion, diversification

and modification of the existing ones.

LIMITATIONS OF STUDY

 The study restricted to only one branch.

 The time constraint was a limiting factor, as more time required carrying out study on

other aspects of the topic.

CHAPTER 5
 LITERATURE REVIEW

A number of studies have observed that the profitability of commercial banks through had

started declining from the mid sixties, but the decline was more pronounce in the post

nationalization period, several exogenous ( also called policy induced) and endogenous

factors have been found responsible for this trend. An attempt has been made to briefly

review some of the studies which investigated the profitability behavior of commercial banks

in India.

Many studies have not taken in the home loan of Indian banking with their financial

performance. So in this situation the present study reviewed the research work in two

dimensions. The first being findings and recommendations by various committee and

commissions The second dimension highlighted the empirical studies conducted by bankers

or academicians,.

Rangaranjan(1988) Remarks that division of banks credit for productive purpose in essential

for economic development. Banks are more rigid in lending activities and therefore deserving

and needy people are not getting financial assistance. New measures are essential to ensure

that loan reach deserving hands. In his paper "Modern International Comparison between

Productivity and Profitability of Pubic Sector Banks in India" Ojha (1987) compared both

public and private sector banks on the basis of their employees. He found that Indian banks,

for example Punjab National Bank and State Bank group, are going down overall as

compared to private banks. This demoralized them so much because of numerous reasons that

international comparison will not give good impact on national levels.

60 In the essay, “Looking a Fresh at Banking Productivity” Godse (1983) evaluated the main

objective in banking industry is the productivity. He suggested costing of operations can

improve banking productivity, with a little care to capital expenditure, to achieve their target.

Fanning (1982) observed that UK banks productivity has improved in the last 5 years as they

are seriously operating their rules as compared to other banks. In his study “Development

Responsibility and Profitability of Banks” Kulkarni (1979) cited a few aspects which cannot

be ignored by the banks, i.e. costs and social benefits. He suggested that banks should try to

make some developing products for its business at the time of social responsibility, a success.

Varde and Singh (1979) in their study “Profitability of Commercial Banks Over 15 Years”

highlighted two main factors affecting levels of rate of interest, i.e. internal and external

factors. Individual’s managerial efficiency is an example of internal factor and customer

behavior is the example of external factor.

Banking Commission (1972) give some recommendations to the banks to modernization and

improvisation of their financial performance after reviewing 61 their operating methods and

procedures. The attention was paid on customers’ related services and credit procedure etc.

also. It was observed that at present a lot of efforts are made to work out branch profitability,

which is not enough to know the actual value. A need of financial reporting system and

integrated costing development is required.

CHAPTER 6
 METHODOLOGY

The present paper is a case study which is restricted to branch of Canara bank in

Bhubaneswar. The objective of research paper is to study the Credit Risk Assessment

Model of Canara Bank and to check the commercial, financial & technical viability of the

project proposed & its funding pattern. To observe the movements to reduce various risk

parameters which are broadly categorized into financial risk, business risk, industrial risk

& management risk. For the purpose, the secondary data is collected through the Books &

magazines, Database at canara bank, etc.

CHAPTER 7
 CANARA BANK CREDIT RATING MODEL

Particulars Models
Exposure up to rs.2 lakhs an direct agriculture portfolio model
loans educational loans exposure to individuals
under retail lending schemes priority loans and
non priority loans where financial statement are
not available

Total exposure of 2lakhs and above up to 20 small value

lakhs

Total exposure above 20 lakhs and up to 200 manual model

lakhs

Total exposure of above rs 2 crore CRISIL’S Risk assessment model

CHAPTER 8
CREDIT APPRAISAL PROCESS OF CANARA BANK WITH KALINGA
INSTITUTE OF INFORMATION AND TECHNOLOGY [KIIT]

Organisation : KIIT,Private institution.

Founder/Secretary: Dr. Achyuta Samanta

Industry: Educational Institution

Date of incorporation: 30.06.1992

Banking with canara bank since: 07.02.2008

GIST OF PROPOSAL

To sanction fresh term loan of Rs.10 crores for construction of bio technology auditorium

building in the KIIT campus at a total cost of Rs 14.51 crores

PROPOSED CREDIT REQUIREMENT

Fund based= 10 crores.

CHAPTER 9
 COST OF PROJECT AND MEANS OF FINANCE

COST OF THE AMOUNT MEAN OF FINANCE AMOUNT

PROJECT

Land including 0.00 Promoters contribution 4.51

development

Building and other 14.51 Term loan 10.00

civil works

Preliminary and pre 0.00

operative expenses

Total 14.51 Total 14.5

year Current assets Current liabilities Current ratio

2010-2011 55.52 76. 97 0.72

2011-2012 75.83 84. 90 0.89

2012-2013 118.17 83.40 1.42

CHAPTER 10
 Bar Chart
1.6

1.4

1.2

0.8
1.42
0.6

0.89
0.4
0.72

0.2

0
2010-2011 2011-2012 2012-2013
Column3
Column2
Column1 0.72 0.89 1.42
Current Ratio

Column1 Column2 Column3

CHAPTER 11
 HYPOTHESIS

Null hypothesis: - ( H0 )

Profitability of Kalinga institute of information and technology is independent on the credit

rating rated by CANARA Bank.

Year PBDIT NET REVENUE NPAT

2010-11 76.20 209.92 17.23

2011-12 93.71 274.44 15.01

Source SS Df MS F-Ratio 5% of ratio

Between 53707.384 2 (V1) 26853.692

With in 2237.1752 3 (V2) 745.726 36.01 9.55

TOTAL 55944.5592 5 27599.418

CHAPTER 12
 INTERPRETATIONS

As the calculated f-ratio is greater than the tabulated f-ratio at 5% level of significance. So

my H0 is rejected and H1 i.e my alternative hypothesis is accepted. H1 = Profitability of

kalinga institute of information and technology is dependent on the credit rating rated by

CANARA Bank.

FINDINGS

 Sales: Net revenue receipts of the subject society has increased from Rs 209.92 crore as

at 31.03.2011 to Rs 274.44 crore as at 31.03.2012, registered growth of 30.745. Society

has estimated net revenue of Rs 317.61 crore for the financial year 2012-2013.

 Profit / profitability : Society has earned net profit of Rs 15.01 crore during the year

2011-2012. Profit of the society has declined by Rs. 2.22 crore as compared to previous

year on account of increase in interest cost and other administration cost.

CHAPTER 13
 RECOMMENDATION

 The bank must bring more transparency in appraisal of the project there should be

explanation for a appraisal of the project that was sanctioned by higher authority.

 The bank must not rely on software or information provided by the client the bank should

dig in for other sources in order to draw a real picture for the company.

 Banks concerned should continuously monitor loans to identify accounts that have

potential to become non-performing.

SUGGESTIONS

 Current Appraisal System is good.

 The loan processing time should be reduced.

 The documents required for processing the loan should be reduced.

 The bank should completely eliminate the file system and go computerization at every

stage as this removes paper work and creates transparency in the system.

 Care must be taken to ensure that the judgment in appraisal process does not depend on

one single person and a single factor.

CHAPTER 14
 CONCLUSION

 Credit appraisal is done to check the commercial, financial & technical viability of the

Project proposed its funding pattern & further checks the primary or collateral security

cover Available for the recovery of such funds

 Canara bank loan policy contains various norms for sanction of different types of loans

such as Kalinga institute of information and technology case

 Canara bank norms for providing loans are flexible & it may differ from case to case

 A banker’s task is to identify/assess the risk factors/parameters & manage/mitigate them

on continuous basis.
CHAPTER 15
 Bibliography
Books:
Mark, Boleat (1985). National Housing Finance Systems – A Comparative Study, Australia:
Croom Helm Ltd.
Mehta, M. and Mehta, D. (1989). Metropolitan Housing Market: A Study of Ahmedabad,
New Delhi: Sage Publisher.
Mithani, D.M. (1999). Money, Banking, International Trade and public Finance, Delhi:
Himalaya Publishing House.
Morrison, H. (1952). Early American Architecture from the first colonial settlements to the
national period. New York: Oxford University Press.
Nagarajan, N. (2004). Business Strategy-I Vol.-3, Hyderabad: ICFAI University Press.

Reports:
Bloem, A.M. et.al., (2001). The Macroeconomic Statistical Treatment of Non-Performing
Loans, Discussion Paper, Statistics Department of the IMF.
Buckley, R.M. et.al., (2005). Housing Policy in Developing Countries: The World Bank
Research Observer, World Bank.
Batra, Vibha (2010). Housing Finance Companies and the Indian Mortgage Finance Market.
www.icra.in.
Gupta, D.B. (1985). Urban Housing in India, World Bank Staff Working Paper.

Websites Referred:
www.bim.edu

www.businessline.in

www.icra.in

www.scribd.com

www.doorstep.com

www.censusindia.gov.in

www.sudaonline.com

www.suratmunicipal.org

www.nhb.org

www.rbi.org