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Submitted by


Prof. Mr. Harshal Salunkhe







This is to certify that Project report entitled __________________________
Submitted by


in the partial fulfillment and requirement for the award of the degree of MASTER OF BUSINESS ADMINISTRATION in Finance Management of North Maharashtra University, Jalgaon is the original work carried out under our supervision and guidance. (Guide) (H.O.D.) (Principal) Dr. Rakesh Mowar

Mr. H. A. Salunkhe Er. N. K. Patil


I wish to take this opportunity to express my profound gratitude to all those who directly or indirectly have helped me in completion of my project named Loans and Advances. I am very grateful to Shree Mahvir Sahkari Bank Ltd. Jalgaon for allowing me to develop Loans & Advances project & making all kinds of valuable resources & information with intention to success of project It has been learning experience working in the bank .I also whole heartily thanks Mr.R.J.Pawar, Mr.Sudhir Bhalwatkar, sir for their support and co-operation. Last but not the least; I am thankful to all accountants and clerks who have given their precious time for helping me in project & their encouragement to do this project. I would also like to thanks our HOD Mr. Er. N.K.Patil, my project guide Mr. Harshal Salunkhe sir as well as my colleagues without their support this project would not have been successfully completed.

Kanhaiyalal R. Jain M.B.A. (Finance) SSBTs COET Bhambhori Jalgaon.


Sr.no. 1 2 3 4 5 6 7 8 9 10 11 12 Introduction Objectives. Bank Profile


RBI Guidelines: Banking Terms Credit System Loans & Advances Procedure Research Methodology Data Analysis & Interpretation Recommendations Conclusion Bibliography


The Co-operative banks have a history of almost 100 years. The Co-operative banks are an important constituent of the Indian Financial System, judging by the role assigned to them, the expectations they are supposed to fulfill. The co-operative movement originated in the west, but the importance that such banks have assumed in India is rarely parallel anywhere else in the world.

Co-operative Credit Institutions

Urban (Primary) Cooperative Banks

Rural Co-operative Credit Institutions

Urban Co-operative banks are registered under Co-operative Societies Act of the respective state Governments. Prior to 1966, UCBs were exclusively under the purview of state Governments. Consequently, the RBI became the regulatory and supervisory authority of UCBs for their banking related operations. Urban Co-operative Banks play an important role in meeting the growing credit needs of urban and semi-urban areas. Urban Co-operative Banks mobilize savings from the middle and lower income groups and purvey credit to small borrowers, including weaker sections of the society. The number of Urban Co-operative Banks stood 1872 at end of March 2008. The co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer finance, personal finance, etc. The exponential growth of Urban Co-operative Banks is attributed mainly to their much better local reach, personal interaction with customers, and their ability to catch the nerve of the local clientele.

Urban Co-operative Banks have growth rapidly since early 1990s. Various entities in the Urban Co-operative Banking sector display a high degree of heterogeneity in terms of deposits / assets base, areas of operation and nature of business. It is imperative that the sector emerges as a sound and healthy network of jointly owned, democratically controlled and professionally managed institutions.


The present study aims at analyzing the position and functioning operations of bank in India .In particular it aims at; 1) To obtain the knowledge of bank operations in loans and advances.

2) Tracing out the historical evaluation of bank in loans and advances and projecting the future behavior of it in bank. 3) Reviewing the existing situation and analyzing the prospects for the development of bank in todays money market. 4) To study the impact of loans and advances on the profit and loss of the bank.







JURISDICTION JALGAON DISTRICT (Presently there are 5 branches of bank)

1) Navi Peth 2) Dana Bazar 3) Khwajamiya Road 4) Shirsoli 5) Bhambhori

History of Bank
Shri D.R.Mehata Ex. Deputy Governor of RBI & Ex. Chairman of SEBI, Dr. Bhavarlalji H. Jain founder of Jain Irrigation Systems Ltd., Jalgaon motivated to establish and to register "Shree Mahvir Sahakari Bank Ltd., Jalgaon" in 1998. Bank was registered on 14th Feb.1999 since Shri. Dalichand H. Jain is Founder Chairman. All these persons were well versed in the field of Banking, Agriculture & Commercial business. They know the financial difficulties in caring out day to day life of common man. Hence they took main part in establishing.

The bank was established on 14th Feb.1999 in Jalgaon town as Head Office. Area of operation of the bank is whole Jalgaon District. Bank had 5 branches in Jalgaon, bank transactions are fully computerized since inspection. It provides various services to our customers. Bank accepted deposits from various type of customers i.e. Individual Persons, Firms, Trusts, and various Societies in Co-op Sectors.

Features and Services for Account Holders Features:

1] Six days of the week all services are available in Five Branches. 2] Daily 8 hours service at All Branches. 3] Fully Computerized services are available in all branches. 4] Locker Facility available in Dana Bazar and Navi Peth branch. 5] D.Ds for all over India with the help of Nationalized Banks and Private sector Banks. 6] Special Services:-

- Currency Counting Machine for quick counting of Notes. - Referral commission basis Agencies Bajaj Alliance Accidental Insurance Scheme, Life Insurance, General Insurance. - Demat Services through Stock Holding Corporation of India for public - Receives BSNL-Landline and Mobile bills


FINANCIAL AID FOR MEDICAL TREATMENT: * Cancer Operation * Eye Operation * Heart Operations. Educational: * Merit award to student securing first class in M.A., M.Com. M.Sc., M.B.A., Bachelor degree faculties, H.S.C. & S.S.C. examination, fourth & seventh scholarships. * Financial aid on accidental death of shareholder. * Accidental insurance covers of Rs. 1lakhs to shareholders.

Board of Directors
01) Mr. Dalichandji Hastimal Jain 02) Mr. Rajendra Anil Mayur 03) Mrs .Ratna Sureshkumar Jain 04) Mr. Ashok Bhavarlal Jain 05) Mr. Jaywantrao Rambhau Deshmukh 06) Mr. Rajnikant Jayantilal Kothari 07) Dr. Subhash Bhaskar Chaudhari 08) Mr. Subhash Shantilal Lodha 09) Mr. Pradip Gyanchand Raisoni 10) Mr. Namdevrao Dhondu Mahanor 11) Mr. Madhukar Badrilal Chaube 12) Smt. Sunandatai Rajendra Jain 13) Mr .Puroshottam Gajanan Abhayankar 14) Mr.Sunil Manakchand Kotecha 15) Mr. Ravindra Balmukund Gujrathi 16) Mr.Ashok Prlhad Bagul 17) Mr.Bhaskar Rupchand Koli Chairman Vice-Chairman Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director


DEPARTMENTS NAME Investment Credit, Recovery, Personnel and Admin. Accounts, Taxation and MIS. Law and Recovery Internal & Concurrent Audit Share/Record/Property Maintains/Dead stock Planning & Development Computer Departments

MANAGER Mr.M.N.Mahajan Mr. Sudhir Bhalwatkar Mr. Manoj Patil Mr. A.G. Chaudhari Mr.G.D.Wani Mr. Sharad Borse Mr. S.D.Dashputre Mr. Suyrakant Sapkale

DIFFERENT PRODUCTS OF THE BANK There are various products can be provided by the bank to their customers and other people as follows;

Products of Bank

Loans and Advances




HEAD OFFICE ADDRESS-92, NAVI PETH JALGAON 425 001 PH.0257-2229790, 2242090 No of Branches-3, Financial position as on 31-3-2009(audited) Amt. in lakhs 1. Date of establishment 2. Paid up share capital 3. No. of shareholders 4. Reserve and other fund 5. Deposits 6. Investment 7. Loans and advances 8. Working capital 9. No. of employees 10. Dividend 11. Percentage of Gross NPA 12 Percentage of Net NPA 12. Net profit 13. Audit classification : 16-2-1998 : 188.22 : 7309 : 774.93 : 3775.36 : 1566.99 : 2871.96 : 4837.25 : 45 : 8% : 10.34% : 2.05% : 27.39 : A


(Amount in lakhs)

Secured Advances Unsecured Advances Total % of priority sector Total % of weaker sector

2810.96 61.00 63.37 24.70

RBI Guidelines


RBI issued guidelines on Banking terms through their circulars. They are as under:


ALM is the management of structure of balance sheet in such a way that the net earnings from interest in particular are maximized with the overall risk preference of the institution. ALM can also be defined as the management of net interest margin to ensure that its level and riskiness are compatible with the risk objectives of the institutions. Asset Liability Management is a tool that enables banks managements to take business decisions in a more informed framework with as eye on the risks that bank is exposed to.

Net Interest Margin = Total Interest Earned- Total Interest Expense Total Earning Assets
This tells you the average interest margin that the bank is receiving by borrowing and lending funds. ALM functions informs the management as to what the current market risk profile of the bank is and the impact that alternate business decisions would have on the future risk profile.


As per sec.18 Cash Reserve Ratio refers to the ratio of banks balances with RBI to the banks net

demand and time liabilities. A co-operative bank other than Scheduled state co-operative bank/ primary co-operative bank is required to maintain cash reserve with itself or in current a/c (net balance) open with the Reserve bank or State Bank o India or with any other bank notified by the Central Government not less than 3% of DTL as on last Friday of the second preceding fortnight & shall submitted in prescribed form, a return to Reserve Bank on or before the 15th of the subsequent month showing the amount so help on alternative Friday of month.


As per Section 24 (2 A) Every co-op bank shall maintain in cash or unencumbered approved securities an amount which shall not, at the close of business any day, be less than 25% or such other % not exceeding 40% of total of its demand & time liabilities in India or as the Reserve Bank shall may specify from time to time.


The strength of the organization is measured by its own capital. RBI decided to implement Capital Reserve Adequacy Ratio (CRAR) norms or discipline to urban co-operative banks in a phased manner. The uniform CRAR as applicable to Urban Co-operative Banks is minimum 9%. The achievement of CRAR will place the bank uppermost in CAMEL rating as 60 out of 100 marks are allotted to CRAR. Equation for working out CRAR is as follows:


Capital funds Adjusted Value of Risk weighted Assets


The difference between the Average rates of interest paid and Average rate of interest received is called Spread. The amount of spread is varies from bank to bank. In the Vision Document Banking 2010, recently published by the Indian Bank Association, it is expressed that the banks should work out in 1.5% of the Spread.

Exposure Limit means the limit prescribed the RBI, indicating how much maximum loan, indicating all kinds of loans, an Urban Co-operative Bank can sanction to a particular person or Group of persons. This includes Individual Exposure Limit and Group Exposure Limit also. This also, this limit is connected with the Capital funds to the bank and it is determined by the RBI from time to time. The bank also can work out such limit based on the financial status of the bank ending 31st March and 31st September. For the present, the exposure limit is fixed at 15% for an individual and 40% for the Group, of the Capital fund.


C.D. Ratio means the ratio indicating the deposits involved in advancing loans out of the total deposits with the bank. Its full form is Credit Deposit Ratio. According to the Directives of the RBI, the C.D. Ratio worked out as:

C.D. Ratio

Total Loans Deposits

And according to RBI, its maximum ratio should not exceed 70%. The Co-operative Department while giving Audit Classification, gives importance to C.D. Ratio.

Credit Systems

In the changing business scenario the social service approach been partially amended and profitability aspect is gaining ground. With a view to international practices & to bring financial discipline amongst borrowers, to encourage better management of funds & minimize the NPA s, the credit Policy is framed with the objectives of: i) ii) iii) iv) v) Improvement in the quality assets; Increasing exposure largely in standard assets. Reducing exposure to unsatisfactory assets. Achieving targets & priority sector advances. Ensuring credit deployment in tune with capital adequacy requirements and augmenting non-fund based income. vi) vii) viii) ix) x) Avoiding concentration of credit in a particular activity/industry/group. Going for low risk assets and obtaining adequate security. Maximizing interest income as well as non-fund based income. Deploying credit in self liquidating and short term assets. Availing of refinance wherever available to improve CD ratio.

The success or failure of a Bank would largely depend upon the quality of its advances. The officer/manager is expected to make through enquires about the prospective borrower and their credit properties. It is immaterial whether the final decision is to be taken at Board level, but all the information is to be collected and assessment is to be made by the officer/manager initially. At the outset, he should check up that the purpose of the advance is acceptable to bank. The rationale of every sanction of credit facility must be firmly based on favorable outcome of information collection and appraisal done on the following aspects of the credit properties:

a) The Prospective Borrower: He must have the mental and physical abilities to carry out his scheme of business and the trustworthiness required for fair dealings with the bank. b) Commercial Viability: The market conditions and its trend/cyclicality must be conductive to satisfactory demand for the relative product/service generation of sufficient surplus to meet the business needs, bank installment/interest and required drawings by the prospective borrower. c) Technical feasibility: The prospective borrower must possess/ have assured access to know-how, location, land & building, machineries, fixed assets, transport, factory shed(where required), electricity, raw materials and other inputs required, as also the requisite license/permit/clearance from the concerned authorities. d) Financial Feasibility: The cost of the project must be estimated on realistic basis for an optimized scale of business and the sources of funds must be adequate and acceptable from the point of view of safety and security of the proposed advance. Availability of collateral security/guarantee is relevant here.

All of the above aspects are of extreme importance. Even then, for a new business, aspect(i) and (ii) and for an existing business going for expansion, aspect (iv) would be given special attention. Collecting information on above aspects will require effective tapping of following sources: i) ii) iii) iv) v) vi) vii) Personal interview of the prospective borrower. Market enquiries. Report from other banks. Study of the account. Financial statements. Statutory returns. Personal visit.

The mass of information collected may have conflicting elements and a balanced view has to be taken while evaluating the merit of the credit proposal. Suitable stipulations in the sanction will

help in reducing credit risk. One obviously important aspect of credit decision is to select the proper mode of advance to fit the transactional need of the prospective borrower and some of these needs may not be that of an outright advance but a deferred/ contingent demand for bank finance.

As defined in the objective of bye-laws of the bank as framed by the management of the bank from time to time it is decided to extend financial support to following sectors: a) Priority Sector advances: (targeted at 60% of Total Advance) i) ii) Advances to individual for activities allied to agriculture. Loans & Advances to cottage/Small scale Industry and equipments/system for the development of new and renewable source of energy. iii) iv) v) vi) vii) Advances made to Road & Water Transport. Retail Traders, Small Business Enterprises, Professional & se\lf-employed Persons. Educational Loan, Housing Loans. Loans to software Industry.

b) Non-priority & other advances: (targeted to 15% of total advances) i) Loan against Term Deposits, NSC s, IVP s, KVP s, Life Insurance Policies, Gold ornaments. ii) iii) iv) v) vi) vii) viii) Term Loan/Project Finance. Loans for consumer Durables. Equipment Leasing /Hire Purchase. Financing of Imports, Wholesale Trade. Bill Discounting, Bank Guarantees, Letter of current. Foreign L.C. & F.B.D. (routed through any other agency arrangement). Property mortgage loan, Loan to Real Estate Developers.


Processing fee presently as under will be recovered. 0.50% of sanction loan amount. b) Confidential Report: Confidential report of Borrower, Guarantor shall be obtained in case of borrower is enjoying credit facility from any other bank/ financial institution. If a borrower is already enjoying credit facility with another primary Co-operative bank, No Objection Certificate from such bank shall be obtained and where the aggregate of the credit facilities enjoyed by the borrower exceeds the ceiling stipulated in the directive for a single party, the prior approval of RBI shall be obtained. c) Process Note: The process note contains the analysis of the gathered facts and figures on the basis of which the credit decision is recorded in the sanction advice. Therefore, to understand the sanction advice logically, and for proper implementations of the sanction stipulations and, as will be seen, for future follow up of the account, the process note is indispensable. Hence every sanction advice should be invariably accompanied by the process note. d) Sanction: Some important terms and conditions are as follow: i) ii) Amount of facility granted purpose thereof and type of advance. Rate of interest w.r.t. PLR and also other charges like processing charge, go down inspection charge etc. payable by the borrower. iii) Quantum of margin and how it will be maintained (e.g. on stock/by way of FDR etc.). iv) v) Full details of principal security and collateral security. Guarantors full name & membership number and their personal net worth etc. vi) Repayment schedule of Term Loan-when the first installment will fall due, whether equated monthly installment, whether gestation period is allowed.


In case of Hypothecation facility it would be made clear that they are for a specific period and are subject to review and are subject to review and renewal after one year.

e) Disbursement: Disbursement shall be allowed only after compliance of all terms of sanction. f) Analysis of Financial Data: i) ii) Banker and financial statement; Financial statement, as understood by bankers comprise of Balance sheet and Profit & Loss A/c. The structure of financial statement, layout, and variety of items would depend on nature of business and its constitution. iii) While it is obligatory for Joint Stock Companies to get their financial statements audited, in case of proprietary and partnership concerns there is no such compulsion of audit . However, for all type of business audited Financial Statements is mandatory as per Income Tax Act. iv) Irrespective of whether financial statements are audited or not, we would have to satisfy ourselves about their quality through objective analysis of the statements. In particular, we have to satisfy thaty y y Income and expenses relate to current years operation P & L a/c gives true & fair view of profit made for the year Profit/Loss out of revaluation or change in accounting practices is stated specifically. v) Important information are also available from some other sources like the y y y vi) Director s report. Auditor s report. Chairman s speech in the annual general meeting.

As bankers are required to look at financial statements from a different prospective than shareholders/owners, creditors or others, a

reclassification of items under Current Assets & Current Liability is to be

made according to RBI guidelines as circularized from time to time. Generally items like Advance payment received from customers, Security Deposit tendered, Deposits received, Term Loan installments payable, Provision for Tax, Disputed Liabilities, Investment in shares, Advances made to other firms/companies, slow moving or obsolete inventory etc. are to be realized. g) Linking Shares: The linking share holding to borrowing shall be as under: i) ii) iii) 5% of the borrowings on unsecured loans. 2.5% of the borrowings on secured loans. 1.5% of the borrowings, in case of secured borrowings by small Scale Industries. h) Other Guidelines: i) Board of directors will have full discretion with regard to amount of loan, repayment, moratorium period, insurance, mortgage etc. ii) An application in the prescribed format of the bank shall be obtained from borrower & it should be completely filled up by the borrower. Incomplete application form shall not be entertained. iii) Request for additional finance/ Temporary overdrafts from existing Directors. Temporary overdrafts shall be given only for a period of three months and of required and if required it can be extended further for another three months. Request for further renewals shall not be entertained. iv) The Board of Directors may permit to take over existing loans from other Banks/Financial Institution. However, while taking over the loans bank shall ensure that loan accounts with other Banks/ Financial Institutions are running regular with no defaults in payment of interest/ installment. v) Ensure that loans & advances have been sanctioned properly (i.e. due scrutiny and at the appropriate level).

vi) Verify whether the sanctions are in accordance with delegated authority. Sanction of limits beyond the discretionary power either orally or on telephone should be discouraged. vii)Ensure that securities and documents have been received and properly charged/ registered. viii) Ensure the post disbursement, supervision and follow up is proper, such as receipts of stock statements, installments, renewal of limits etc. ix) Verify whether there letter of credit, issued by the bank is within the delegated power and ensure that they are for genuine trade transactions. x) Check whether letter of credit, issued by the bank is within the delegated power and ensure that they are for genuine trade transactions. xi) Check the Bank Guarantees issued whether they have been properly worded and recorded in the register of the branch. Whether they have been promptly renewed on the due dates. xii) xiii) xiv) Ensure proper follow up of overdue Bills of Exchange. Verify whether the classification of advances has been done as per RBI guidelines. Verify that instances of exceeding delegated powers have been promptly reported to CEO/ Chairman /Board of Directors by the branch and been got confirmed or ratified at the required level. xv) Review of all borrowers accounts enjoying fund based working capital limit should be undertaken at least once a year, Visit fees to borrowers should be charged as per the norms prescribed by the bank. At the time of review/renewal the Branch Managers shall give their comments in the prescribed format.

A banking company is defined as company which transacts the business of banking in India .The banking regulation act defines the business of banking by stating the essential function of banker. A banking company must perform both of essential functions; a) b) Accepting of deposits and Lending or investing the same. Here, the lending of funds to the constituents, mainly traders, business and industrial enterprises, constitutes the main business of banking company. Major portion of banks funds is employed by a way of loans and advances. There are various kinds of loans are given by banker to its customer .While lending his funds, a banker, therefore follow various cautious policies and conducts his business on basis of well known principles of lending in order to minimize risk. Loans and advances are important products of the bank.


Kinds of credit
Cash credit system


loan system

Purchase & Bill Discounting

The main style of credit or systems of financing prevalent in our country is 1) 2) 3) 4) Cash credit system Overdrafts Loan system Purchase and Bill Discounting.

Here we are study about loan system.

Under the loan system, credit is given for definite purpose and for a predetermined period .Normally; these loans are repayable in installments. Funds are required for single non repetitive transactions and withdrawn only once .If borrower needs funds again or wants renewal of an existing loan; a fresh request is made to the bank. Thus a borrower is required to negotiate every time he is taking a new loan or renewing an existing loan .Banker is at liberty to grant or refuse such a request depending upon his own cash resources and the credit policy of the central bank.


1) Financial discipline on the borrower As the time of repayment of the loan or its installments is fixed in advance, this system ensures a greater degree of self-discipline on the borrower as compared to the cash credit system. 2) Periodic Review of Loan Account Whenever any loan is granted or its renewal is

sanctioned; the banker gets an opportunity of automatically reviewing the loan account. Unsatisfactorily loan accounts may be discontinued at the discretion of banker. 3) Profitability-The system is comparatively simple, interest accrues to the bank on the

entire amount lent to a customer.


y Inflexibility- Every time a loan is required, it is to be negotiated with the banker. To avoid it, borrowers may borrow in excess of their exact requirements to provide for any contingency. y Banks have no control over the use of funds borrowed by the customer. However, banks insist on hypothecation of the asset/vehicle purchased with loan amount. y Though the loans are for fixed periods, but in practice they roll over, that are renewed frequently.

Loan documentation is more comprehensive as compared to cash credit system.

Bank grants loans for different periods Short, Medium and Long and for different purposes

Bank loans

Short term Loans

Long & medium term loans


Short term loans are granted to meet the working capital needs of the borrower .These loans are granted against the security of tangible assets mainly the movable assets like goods and commodities, shares debentures etc. The loans are granted for one year generally not more than one year therefore called as short term loan. The reserve bank has also permitted the banks to extend the loan for another period at the expiry of the tenure of the first loan.


Medium and long term loans are usually called term loans. These loans are granted for more than a year and are meant for purchase of capital assets for the establishment of new units and for expansion or diversification. These loans are usually secured by the tangible assets like lands, buildings, plant and machinery.


While lending his funds, the banker enquires from the borrowers the purpose for which he seeks the loan. Banks do not grant loans for each and every purpose they ensure the safety and liquidity of their funds by granting loans productive purpose only viz, for meeting working capital needs of a business enterprise. Loans are not advanced for speculative purposes like social functions and ceremonies or for pleasure trips and repayment of a prior loan. Loans are capital expenditure for establishing business is of long term nature and the bank grants such term loan also.


There are cardinals principles of bank lending that have been followed by the commercial banks since long. These are the principles of safety, liquidity, and profitability.


Safety- as the bank lends the funds entrusted to it by the depositors, the first and

foremost principles of lending are to ensure the safety of the funds lent .by safety is meant that the borrower is in a position to repay the loan, along with interest ,according to the terms of the loan contract. The repayment of loan depends upon the borrowers:a) b) Capacity to pay and Willingness to pay.


Liquidity- banks are essentially intermediaries for short term funds. Therefore, they

lend funds for short periods and mainly for working capital purposes. The loans are, therefore, largely payable on demand. For ex- goods and commodities are easily marketable while fixed assets like land and buildings and specialized types of plant and equipments can be liquidated after time interval.


Profitability commercial banks are profit-earning institutions; the nationalized banks

are no exception to this.


The loans and advances granted by banks are broadly classified into

Types of Advances Secured Advances Unsecured Advances

1)Secured advances- according to section 5(a) of the Banking Regulation act, 1949,a
secured Loan and advances made on the security of assets, the market value of which is not at any time less than the amount of such loan or advances. Features of secured loan or advances are as follows The loan must be made on the security of tangible assets like goods and commodities, land and Buildings, gold and silver, corporate and government securities etc. A charge on any such assets offered as security must be created in favor of the banker. The market value of such security must not be less than the amount of the loan at any time till the loan is repaid. If the former falls below the latter because of decline in the market prices, the Loan is considered as partly secured.

2) Unsecured advances-unsecured loan or advances means a loan or advances not so

secured. The distinction between secured and unsecured loan is made on the basis of legal title or charge created in the favor of lender. In fact, unsecured loans are also granted to persons of sufficient means tangible assets and with sound financial position, but no charge or right is created on any such assets of the borrower in the favor of banker.


 Strategies that brought past prosperity will not necessarily work in the coming years.  Some borrowers with the history of stability and profitability are moving towards instability and marginal profitability.  Fundamentals and basic assumption need to be re-examined.  Is it possible to probe future with dependable certainty?  If the market is not growing do not relax credit standards.  Avoid over generosity in amount, terms and condition.  Recognize the importance of economic and conditions.  Assess whether the deal is good for the bank as also the borrower? Would I put my money into it?  Need to know the changes in industry, production and technology.  Carefully consider borrowers character, management experience, capabilities.  Moral standing integrity and business style must be thoroughly checked.  Exercise common sense, good judgment credit decisions cannot be entirely based on set of guidelines or analytical techniques.  The ablest banker is the one who knows how not to do business what to do and what not to do.

Please remember loans go bad when good judgment is not exercised, flaw in structuring, inadequate follow up, defective documentation or others defects in the credits process. Guard against unanticipated external factors and notice environmental factors, changing technology, management inefficiencies.

Loans & advances

Interest Rates on Loan

No. Duration 1 2 3 4 Up to Rs.1,00,000 Interest Rate 12 % p.a.

Rs.1,00,001 to Rs.2,00,000 13 % p.a. Rs.2,00,001 to Rs.5,00,000 14 % p.a. Rs.5,00,001 and Above 15 % p.a.

Loans shall be allowed to Members, Associate Members, Eligibility Sympathizer Members, Joint Members, Nominal Members & Staff Member, Partnership Firms, Private Ltd within the framework of the bye-laws of the bank & as per guidelines of Registrar of C-op. Societies and of R.B.I. Purpose For Contraction/land & Building /Plant &

machinery/Equipments, etc. Extent of Loan Maximum to exposure limit of the bank depending upon the repayment capacity, cost of project, etc. Margin Rate of Interest Rebate 25% of valuation of Property. Refer interest rate table on loan It is decided to allow rebate on Term loans and Working Capital loans as per the norms declared by the Board of Directors from time to time Penal Interest In case of default in repayment of loan/ interest/ submission of stock statement/ book debts statements/ insurance, the borrower

shall be liable to pay penal interest @ 2% over and above the period of default. An undertaking to this effect shall be obtained from borrower. Security Registered Mortgage of the property along with Plant & Machinery, Equipment & other fixed assets. Collateral Security Guarantee Disbursement Insurance Repayment Processing Fee Classification Other Guidelines Documentations Equal to 100 of loan amount. Two personal guarantees acceptable to Board of directors. On completion of Sanctioning conditions. Fully insured with all risk cover as per bank clause. To be repaid within 5 to 7 years. As described in Credit Rules. Priority. Refer credit Rules. y y y y Demand Promissory note (firms & associates) Agreement of Term Loan against immovable Property Agreement of Hypothecation of goods. Agreement of Guarantee.

Eligibility Loans shall be allowed to Members, Associate Members, Sympathizer Members, Joint Members, Nominal Members & staff Member, Partnership Firms, Private Ltd within the framework of the bye-laws of the bank & as per guidelines of Registrar of Co-op. Societies and of R.B.I. Purpose y y Extent of Loan For Construction/ Purchase of house. For carrying out Repairs/ Additions/ Renovations, etc.

Need based, depending upon the cost & repay capacity, Maximum up to Rs.15 lakhs.

Margin Rate of Interest Rebate Penal Interest

25% of Loan amount. As described in interest rate table N.A. In case of default in repayment of loan / interest/ submission of stock statement of stock statement/ book debts statements/ insurance, the borrower shall be liable to pay penal interest @ 2% over and above the applicable rate on the amount of default and for the period of default. An undertaking to this effect shall be obtained from borrower.

Security Collateral Security Guarantee

Registered Mortgage of the property. NIL. Two personal guarantees acceptable to Board of Directors.


Lump sum at the time of Registration. If under construction in stages as per Architects Certificates.

Insurance Repayment Processing Fee Classification

Fully insured with all risk cover as per bank clause. For a maximum period of 10 years. As described in Credit Rules. Priority.

Other Guidelines

Ensure that title of the Property is clear and freely marketable.

y y Documentation

Ensure that the title deed is original Ensure that Search & Valuation Report of the property is obtained from approved lawyer/ value of Bank.

y y y y y

Agreement for Housing Loan. Proof of address. Proof of income. Proof of Title of Vendor. Agreement to sale along with original receipts of payment of earnest money.

y y

Application for the loan in prescribed format. Plan of the house/ flat approval by competent authority.

y y

Allotted copy of completion certificate, if obtained. In case of leasehold property, letter of authority from appropriate authority permitting transfer & mortgage of property.

y y y

Non-encumbrance Certificate. Registered Mortgage of the property. Agreement of Guarantee.



Loans shall be allowed to Members, Associate Members, Sympathizer Members, Joint Members, Nominal Members & staff Member, Partnership Firms, Private Ltd within the framework of the bye-laws of the bank & as per guidelines of Registrar of Co-op. Societies and of R.B.I.

Purpose Extent of Loan Margin Rate of Interest Penal Interest

For Working Capital. Maximum within exposure limit. 25% of stock & 50% of Book Debts. As described in interest rate table

In case of default in repayment of loan/interest/ submission of stock statement/book debts statements/ insurance, the borrower shall be liable to pay penal interest @ 2% over and above the applicable rate on the amount of default and for the period of default. An undertaking to this effect shall be obtained from borrower.

Security Collateral Security

Stock & Book Debts. Registered Mortgage of Property equal to 100% of the loan amount.

Guarantee Disbursement Insurance Repayment Processing Fee Classification Other Guidelines

Two personal guarantees acceptable to Board of Directors. On completion of Sanctioning conditions. Fully insured with all risk cover as per bank clause. To be repaid/renewed within one year. As described in Credit Rules. Priority. Refer Credit Rules.


y y y y y y

Demand Promissory Note (firms & associates). Letter of Acknowledgement debt. Master undertaking from borrower. Letter of undertaking. Letter of continuity. Agreement of Guarantee.


Eligibility Individual qualifying the norms of bank as per credit Rules Genuine credit need of the borrower. No ceiling, maximum within Exposure limit of the bank. 25% of the matured value of security. As described in interest rate table N.A In case of default in repayment of loan/interest/ submission of stock statement/ book debts statement/ insurance, the borrower shall be liable to pay penal interest @ 2% over and above the applicable rate on the amount of default and for the period of default. An undertaking to this effect shall be obtained from borrower. Lien on Deposit Receipt, safe custody of IVPs, transfer of NSCs/ KVPs assignment of LIPs, etc. Nil. N.A. On completion of Lien/charge. Nil. Maximum up to the period of maturity. As described in Credit Rules. Non Priority. y y y y Ensure that Lien of the deposit receipt is properly noted & entered in Register. Ensure that deposit receipt is dully discharged. Ensure that on due date of the receipt loan a/c is adjusted. Ensure that Govt. securities are dully endorsed in Registered with Registrar of Companies within 30 days favor of bank. Ensure that KVPs are kept in safe custody as they are freely transferable. Application in the prescribed format. Agreement with Borrower. Letter of continuity. Promissory Note.

Purpose Extent of Loan Margin Rate of Interest Rebate Penal Interest


Collateral Security Guarantee Disbursement Insurance Repayment Processing Fee Classification Other Guidelines

y Documentation y y y y

As name suggest this kind of the loan is given for the purpose of education. The loan is provided to the students or the parents/guardians of the minor students and not the educational Institute. Loan is given for pursuing graduate and postgraduate studies. Professional courses or job Oriented diploma courses in India or higher education abroad. Educational loan is long term loan and it is also secured type of loan. It can be provide to the Shareholders of the bank.

Personal loan is unsecured type of loan. There is no any kind of special Security is

required for the loan. It is given to person depends on their annual income. If the person an employee then the amount of loan depends on its salary It is generally given for purchasing any goods or equipment which is required for personal use.

As name suggest this kind of loan is given for the person for purchasing a vehicle. The banker must directly make payment to the dealer in vehicles on the basis of performance Invoice, to ensure that the loan is properly utilized. The banker must insist that the borrower takes a comprehensive insurance policy on the vehicle in the joint names of the borrower and the banker for its full value. The policy must continue till the entire amount of the loan is repaid.


Clean cash credit is loan which is also given for the business. There is no any kind of security is given for the loan therefore it is also an unsecured type of loan.

Bank is also providing following loans and advances:

1. PIG-O/D 2. FD-O/D 3. SML (Staff Multipurpose Loan). 4. W.C.T.L. 5. Gold Mortgage Loan. 6. Small Business Loan.


The procedure trailed by the Credit Department is as under: 1. Accept the loan Application from the members or shareholders. 2. Maintain the Register of receipts of the Loan Application. 3. After receipt of Loan application visit the unit for inspection. 4. Scrutiny the Loan Application considering for Inspection Report and required documents for sanction of loan. 5. It should be born in mind that the file should be put-up in front of Board of Directors within seven days from the date of receipt of Loan Application. 6. Following Registers are necessary to maintain: Manual: Loan Application Register. y y Computerized: y Register of Loans & Advances sanction to Board of Directors and their relatives. y y y Register Loans & Advances to Priority & Weaker sector. Loan Sanction Register. Mortgage Deed Register.

N.P.A Register: Branch wise & Loan wise. All other registers prescribed by the Reserve Bank of India. Below Rs.10 Lakhs: Rs.10 Lakhs to Rs.50Lakhs: Rs.50 Lakhs and above: Six Monthly. Quarterly. Monthly.

7. Periodical stock and Security verification by staff in respect of: y y y

Research methodology


During my project, I collected data trough the various sources;

Primary & Secondary

Primary data collected through sources like 1) 2) 3) Discussion with branch manager Discussion with experts Discussion with customers.

Secondary data collected through the sources like 1) 2) 3) Various books related to banking Books related to financial management Websites were used at the vital information source.

Data analysis & Interpretation

DATA ANALYSIS & INTERPRETATION Distribution of Loans & Advances Category of Loan Term loan Hypothecation F.D. O/D Cash Credit Housing Loan Personal Loan Vehicle loan Other loan Total 237 140 423.19 1382 9.04 216 121 13.96 2542.19 257 76 205.36 1125 46 301 109 5.51 2124.87 256 58 252 1747 91 381 40 46.96 2871.96 2007 2008
(Rs. in lakhs)


The advances made by the bank are classified as above. Form the above table bank is lending funds mostly in the commercial and industrial sector, because the main Branch of the bank is situated in the market area and the Credit/Loan Department one of the branches of the bank is situated in the Shirsoli i.e. nearby Jain Hills area. Hence bank finds large part of customer from commercial & industrial segment. Other branches of the bank are situated in the residential region so the bank finds more housing more housing loan, personal loan etc. The advances are increasing day by day as the demand is increasing.

Deposits & Advances

4000 3500 Amount (in lakhs) 3000 2500 2000 1500 1000 500 0 2007 2008 Year 2009 deposites advances

As deposit concern, there is an increasing trend in the growth of the deposits. At the current national level the uniform growth rate deposits is 14%. The amount deposits in the year 2007 was Rs. 3458.9 lack, further it increased to Rs. 3462.83 lack in the year 2008 and in the year 2009 also inverse increase Rs. 3775.36 lacks. It shows that the growth rate is more than it is provided by RBI i.e., 16%. In case of advances, there is also increasing trend in the growth of advances. The amount advances in the year 2007 was Rs. 2542.19 lack, further it went down to Rs. 2124.87 lack in the year 2008 and in the year 2009 it increase to 2871.96 lakhs.

CD ratio
80.00% 70.00% 60.00% percentage 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2007 2008 Year 2009 CD ratio

CD Ratio means Credit Deposit Ratio. It shows the percentage of credit given out of the deposits. In the year 2007- CD ratio was 73.50%, it was down to 61.40 %, in 2008. It is increase to 76.11% in 2009. According to RBI, its maximum ratio should not exceed 70% from the year 2007 to 2008 the bank recovered CD ratio within the limit but again in the year 2009 it crossed 70%. It is necessary that the bank must has to keep 3% as CRR and minimum 24% as SLR with the RBI or in the form of investment in any nationalized banks or institutions.

3.5 3 Amount (in lakhs) 2.5 2 1.5 Spread 1 0.5 0 2007 2008 Year 2009

(Rs. In Lakhs)

Particular Average Interest Earned Average Interest Paid Spread

2007 10.62

2008 10.18

2009 11.48







Spread is an income earned by bank as the difference between average interest earned & average interest paid. According to the research by Indian Bank Association, it is expressed that the banks should work out in 1.5 % of the Spread. The spread produced by the bank is as per the rate prescribed by the Indian Bank Association. Bank has earned Rs.1.81 Lakhs in the year 2007, Rs.1.49 Lakhs in the year 2008 and Rs.3.02 Lakhs in the year 2009.

Non Performing Assets (NPA)

7.00% 6.00% 5.00% percentage 4.00% 3.00% 2.00% 1.00% 0.00% 2007 2008 Year 2009

The net NPA of the bank was 5.83% in the year 2007, further it was 4.35% in the year 2008 and in the year 2009 it went down to 2.05%. That is, the rate of NPA of the bank has Fluctuating. The Bank is maintaining its Net NPA within the limit prescribed by the RBI (i.e. within 10%). It indicates that the Recovery System of the bank is permitted. The NPA of the bank places it to the superior position. The NPA of the bank is very much lower as compared to other banks.

Profit of The Bank

30 25 Amount (in lakhs) 20 15 10 5 0 2007 2008 Year 2009

The graph shows that the profit made by the bank is stable. It was Rs.13.31 lack year 2007, further it was increasing to Rs. 18.21 lack profit in the 2008 year and in the year 2009 it is Drastically to Rs. 27.39 lack. Sometimes it happens while maintaining the NPA position of the bank. It affects the profit of the bank infrequently.



1. Bank should try to keep the Credit Ratio lower than it prescribed by RBI (i.e. lower than 70%).

2. Bank Should increases the micro finance or small loans, housing loans, car/two wheeler loans as compared to private and nationalized banks.

3. Bank should reduce lead time for processing of loan proposals.

4. Simplify the Process of application form and documentation.

5. Computerize all the process notes, it reduces the paper work, any error in the dealing out of process note and also reduces the wastages of papers used for Process Note.



To get the true benefits and good return on security investments, it is necessary that the Banks should follow a proactive and scientific approach. The Shree Mahvir Sahkari Bank is working according to the Rules & Regulation, Guidelines of Reserve Bank of India. The bank follows all the banking terms and Laws relating to loans & Advances. The credit Policy of the Bank is prepared according to the section 21 of the Banking Regulation Act 1949 & as per RBI Guidelines. The Bank serves the different people for the different purposes. The Bank offers different kinds of Loans & Advances with the satisfactory rate of interest. Bank issues credit only to the shareholders of the bank. The performance of the bank highlights that it had achieve the tasks targets from time to time and continuously retained good position in financial strength. The Banks are obligatory to ensure compliances with the legal, industry; regulatory, contractual requirement e.g. license requirements, RBI guidelines, insurance requirements, ISO standards, etc.



1. Annual report of the bank. 2. Banking Theory and Practice. By shekhar & Lekshmy Shekhar.

3. Law of Banking. 4. Web site: y www.rbi.org.co.in By Dr. S. R. Myneni.