6.Chapter 4 Research Methodology

CREDIT APPRAISAL PROCESS

RESEARCH METHODOLOGY:

Research is a common parlance which refers to search for knowledge. It is a procedure of logical

and systematic application of the fundamentals of science to the general and overall questions of a study

and scientific technique, which provide precise tools, specific procedures, and technical rather

philosophical meaning for getting and ordering the data prior to their logical analysis and manipulating

different type of research designs is available depending upon the nature of research project, availability of

manpower and circumstances.

Research methodology is a way to systematically solve research problem in it.We study the various

steps that are generally adopted by researcher in studying his research problem along with the logic behind

them. It is necessary for a researcher to know not only the research methods/techniques but also the

methodology. It may be noted, in the context of planning & development, that the significance of research

lies in its quality and not in quantity. Researchers should know how to apply particular research

techniques, but they also need to know which of these methods or techniques, are relevant and which are

not, and what would they mean and indicate and why.

This topic, “CREDIT APPRAISAL PROCESS OF MAHINDRA FINANCE” demanded an

elaborate study of the presently followed credit appraisal process of Mahindra Finance, make suggestions

regarding betterment of the whole system if any, and finally base all the above on solid research work.

4.1. STATEMENT OF THE PROBLEM:

Credit Appraisal Process

During my research at Mahindra finance, I noticed that Mahindra finance always follows a specific

procedure for approving loans, irrespective of their variant. I also observed the whole procedure very

carefully and realized that it could be decomposed into 8 basic steps. They are:-

1) Interest shown by potential customers

2) Briefing by Mahindra Finance

3) Filling up of form

4) Submission of documents required

5) Verification of documents

6) Recording deviations

7) Deviation Approval

8) Loan Approval

Bapuji Academy Of Management And Research, Davangere Page 17


Now, I am going to briefly describe each of the above 8 steps involved in the Credit Appraisal

Process of Mahindra Finance.

1) Interest Shown by Potential Customers

Whenever a person desires to buy a vehicle he/she approaches a dealer. After selecting the Vehicle,

the on road price is being evaluated. If the person opts for financial assistance and Mahindra finance in

particular, he/she becomes a potential customer to Mahindra finance .The dealer makes arrangements for a

meet of between the customers and Mahindra Finance.

2) Briefing by Mahindra Finance

When the customer agrees to take loan from Mahindra Finance, the MMFSL agent briefly talks

about the terms & conditions of Mahindra Finance for availing the loan.

3) Filling up of form

After all the discussions have been completed and the person has agreed to take loan from

Mahindra Finance, he is given a loan application form to fill up.

4) Submission of documents required

For submission of the form, what are the documents required, the agent tells to the person, applying

for the loan. There are 5 types of documents required to submit the form for loan:-

Co-hirer documents: Identity Proof, Residence Proof, Photo with Front attested, Income Proof,

Bank Statement Mention Last 6 Months, PDC- Post Dated Cheques, Signature Verification and

CIBIL Score and LTV (Loan to Value).

CIBIL (Credit Information Bureau of India Limited): CIBIL is India’s first Credit Information

Company (CIC) founded in August 2000. CIBIL collects and maintains records of an individual‟s

payments pertaining to loans and credit cards. These records are submitted to CIBIL by banks and

credit institutions, on a monthly basis.

CIBIL Score: The CIBIL Score is a 3 digit numeric summary of one’s credit history which

indicates the financial & credit health. The Score is derived from credit history as detailed in the

Credit Information Report [CIR] and ranges from 300 to 900 points. Credit score tells the lender

how likely you are to pay back loan or credit card dues based on past repayment behavior.

Guarantor Document

Co-hirer Document

Office Documents: Agreement Duly Sign, Offer Letter, IRR Sheet (Internal rate of return sheet),

MLS (Multiple Listing Services) Form, Vehicle Scheme, Field Investigation Report, Route Map,

Proposal Form, Sanction Letter, Post Tele-verification.



Dealer Documents: Invoice, Sales Certificate, Delivery Challan, Chassis Print, Duplicate Key,

Dealer Recommendation sheet, Balance Of Payment Case, IHM Receipt(Both dealer & Mahindra

Finance), Insurance Policy, Welcome Letter, Tax Challan, RC Copy and Certificate.

5) Verification of documents

After submission of all the documents, the agent verifies all the documents for address, Identity

proof, electricity bills, annual income etc.

6) Recording deviations

If the applicant fails to fulfill any of the requirements, it is recorded as deviation from the usual

requirement. All such deviations are recorded duly, without any fail.

7) Deviation approval

If MMFSL believes that one or some of the deviations are acceptable under the circumstances and a

deviation approval letter is being given by the Mahindra Finance.

8) Loan Approval

After all the process has been completed and MMFSL finds that the person applying for the Loan is

actually eligible for it, the Loan is sanctioned.

Applications for Loan & their processing

Customers, who have evinced interest in availing the loan from MMFSL should fill up the loan

application form, complete in all aspects and should submit the same to the Company’s nearest branch.

The application so received will be acknowledged by the Company immediately on submission and

will be processed for sanction of the loan. The Company will consider all the documents submitted and the

information provided, verify the creditworthiness of the customer and evaluate the proposal at its sole

discretion and will grant loan by issuing a sanction letter within 10 days from the date of receipt of the loan

application and if no communication is received by the customer, the loan application is deemed to have

been rejected and the Company will not send any communication for rejected cases. Sanction letter in the

vernacular language is to be issued to all borrowers whose loan have been sanctioned after due diligence.

4.2. NEED FOR THE STUDY: An important need of credit appraisal is obtaining an understanding of the anticipated expenditure

and benefits of a project, usually expressed in terms of its inputs (costs) and outputs (results).

The expected timing of this must also be made clear.

Whilst detailed appraisal is generally necessary before decisions can be taken and offers made.



It will enable any obviously poor or ineligible ones to be eliminated, avoid duplication and give an

early overall view of the success of the measure.

4.3. LITERATURE REVIEW:

Mritunjay Kumar Pandey conducted a study on Financial Performance Appraisal of TISCO, the

paper of which was published in Accounting World, September 2008, The ICFAI University Press.

The Objectives of the study was to check the profitability and efficiency of the firm in the near

future, to give brief summery about the ratios which affect the organization’s financial structure

and to point out the relationship between ratios and reasons behind it.

Machiko Nissanke, Ernest Aryeetey in their book: Financial Integration and Development

explained about the loan administration and risk reduction by formal lenders (i.e. banks), Credit

Analysis Standards, Increase Project equity requirements, Loan screening of banks and assessing

creditworthiness during screening. Banks consider return on project as an important indicator for

appraising the projects.

Credit Appraisal, Risk Analysis and Decision Making by D.D.Mukherjee.

Banking Strategy, Credit Appraisal and Lending Strategies by Author(s) : Hrishikesh

Bhattacharya

“Analyses lending strategies, credit appraisal, risk analysis and lending decisions keeping in

mind the broad framework of corporate banking strategy, and helps us understand better the vast

and significant changes in the financial market. Numerous examples from the world of business

have been provided to facilitate better understanding”.

A research was conducted by Mr. V.M.V.Subba Rao, B.Com. , FCA, DISA (ICA), MICA on

“Monitoring of Advances -- A New Look”. The researcher gave two views on the commencement

of monitoring process-(i)Narrow view- the monitoring starts only after the advance is disbursed,

(ii)Broad view- at the time of conducting credit investigation of the borrower and continue in all

other stages of credit cycle.

Eleanor Charles in his paper, Appraising the Role of the Appraiser’ Published: September 3,

1995, talked about the centralized function of the appraiser to grant the loan and virtually every

loan applicant will have to rely on an appraisal to set a value on the property against which the loan

is to be made.

RBI reports (2011-13) had maintained that though the Indian banks remained well capitalized,

concerns about the growing non-performing assets loomed large, particularly on the public sector

banks (RBI, 2013). RBI further observed that economic slow-down is not the sole reason for

deteriorating asset quality but also the inadequate appraisal and monitoring of credit proposals by



banks.

Arnoud and Anjan (2007)17 study appear as the lead chapter in a readings book on corporate

finance, financial intermediation and market micro structure. The unifying theme in the book is

optimal design, and various chapters deal with the design of contracts, securities, institutions,

market mechanisms, and regulation from an information-theoretic perspective.

Christian (2006)15 focused on the changing intensity of three policies that are commonly associated

with financial repression, namely interest rate controls, statutory pre-emption and directed credit as

well as the effects these policies had. The main findings are that the degree of financial repression

has steadily increased between 1960 and 1980, and then declined somewhat before rising to a new

peak at the end of the 1980s.

4.4. OBJECTIVES:

To know the loans and advances are issued based on the requirements of the customers.

2. To ensure that the Level of risk is Acceptable and mitigated.

3. To know the level of NPA in MMFSL.

4.5. HYPOTHESIS:

H0: Loans and advances are not issued based on the requirements of the customers.

H1: Loans and advances are issued based on the requirements of the customers.

H0: Level of risk is not acceptable and not mitigated.

H1: Level of risk is acceptable and mitigated.

H0: Level of NPA is not decreased in Mahindra Finance.

H1: Level of NPA is decreased in Mahindra Finance.

4.6. RESEARCH METHODOLOGY:

I have chosen Descriptive Research for this project. The data also consists of secondary data in the

form of articles, journals, and data from websites of the company. 5 years data of Mahindra finance. By

this, I am going to analyse and interpret the results.

4.6.1. Collection of Data



I decided to go for collecting Secondary Data in my project work.

Secondary data is previously collected 5 years Annual Reports of MMFSL from 2010 to 2015,

Balance Sheet, Profit and Loss account.

4.6.2. Tools used:

Microsoft Excel

4.7. SCOPE OF THE STUDY:The topic selected is, “The credit appraisal system with respect to Mahindra Finance”.This means, how the employees in Mahindra Finance appraise individual’s and the corporate firms

lending process and how the whole process is carried forward like an integrated system, keeping certain

aspects like risk, legality into concern.

The scope lays in Mahindra Finance, its potential borrowers, which is tailor made at times to meet

the client need and help with all the services the Mahindra Finance can deliver in order to meet its goals

and objectives.

4.8. LIMITATIONS OF THE STUDY:

During the course of my project, everything did not go the way I planned and expected, for I faced

certain obstacles. Some of these obstacles are stated below,

Interaction with the employees is very limited because of the work schedule.

Regarding the data provided by the company is mostly secondary, i.e. it may have been audited by

the organization so it may not be 100% correct.

The accuracy of analysis depends on the data collected from the financial statements.

Finding and analysis of the report is prepared from the information available in the annual report

and book of account.
