Axis Final Project

8/13/2019 Axis Final Project

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A Study on Credit Appraisal Process in SME Sectorwi th Respect to Ax is Bank

N.M .D. College, Gondia, 2013-14 1

CONTENTS

Page No.

1. Introduction 22. Objective of the study 53.Scope of Study 74. Hypothesis of the study 95. Research Methodology 116. Company Profile 137. Theoretical Background 158. Data Analysis and Interpretation 299. Finding 3510. Limitation 3711. Suggestion 3912. Conclusion 4113. Bibliography 43


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A Study on Credit Appraisal Process in SME Sector of Axis Bank


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INTRODUCTION

Credit appraisal means a investigation/assessment done by the bank prior before

providing any loans and advances/project finance of the project proposed its funding pattern

and collateral security cover available for recovery of such funds.

The small and medium enterprise today constitute a very important segment of the

India economy. These SME units are now being funded by many government and private

banks. The SME sector is one of the greatest contributors of domestic production as well as the

export earnings. Many major mergers have taken place recently. The development of this

sector came about primarily due to the vision of our late prime minister Jawaharlal Nehru who

sought to develop core industry and have a supporting sector in the form of smell scale

enterprises. SME sector has emerged as a dynamic and vibrant sector of the economic small

and medium enterprises t' SME s) constitute 6% of GDP, 34% of national exports and account

the employment of more than 30million people.

WithoutasoundandeffectivebankingsysteminIndiaitcannothaveahealthyeconomy.Theba

nkingsystemofIndiashouldnotonlybehasslefreebutitshouldbeabletomeetnew

challengesposedbythetechnologyandanyotherexternal andinternalfactors.

ForthepastthreedecadesIndia'sbankingsystemhasseveraloutstandingachievementstoits

credit.Themoststrikingisitsextensivereach.Itisnolongerconfinedtoonlymetropolitans

orcosmopolitansinIndia.Infact,Indianbankingsystemhasreachedeventotheremotecornersofthec

ountry.ThisisoneofthemainreasonsofIndia'sgrowthprocess.

Currently,Indiahas96scheduledcommercialbanks(SCBs)-27publicsectorbanks(thatis

withtheGovernmentofIndiaholdingastake),31privatebanks(thesedonothavegovernmentstake;th

eymaybepubliclylistedandtradedonstockexchanges)and38 foreign

banks.Theyhaveacombinednetworkofover53,000branchesand49,000ATMs.

AccordingtoareportbyICRA(InvestmentInformationandCreditRatingAgencyof

IndiaLimited)aratingagency,thepublicsectorbanksholdover75percentoftotalassetsof

thebankingindustry,withtheprivateandforeignbanksholding18.2%and6.5% respectively.

ThefirstbankinIndia,thoughconservative,wasestablishedin1786.From1786tilltoday,


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thejourneyofIndianBankingSystemcanbesegregatedintothreedistinctphases.Theyareasmention

edbelow:

Earlyphasefrom1786to1969ofIndianBanks

Nationalization of Indian Banks and up to 1991 prior to Indian banking sectorReforms.


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OBJECTIVES


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To study the importance of credit appraisal. To determine the method of credit appraisal in SME sector. To study impact of credit appraisal done in SME sector. To provide guidelines to the branches to dispense credit to SME sector.


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SCOPEOFSTUDY

Broad guidelines on lending to SME sector.


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SME loan factory model. Training needs. Reporting and monitoring system


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HYPOTHESIS


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The credit appraisal done in SME sector in axis bankfacilitates the management: ofcredit.

The credit appraisal of SMEs leads to the smooth management financial resources.


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RESERCH METHODOLOGY


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The main objective of research paper is to study the credit risk assessment model of SBI Bank

and total the commercial, financial and technical viability of the project proposed its funding

paten.

RESEARCHDESIGN:

Aresearchdesignisthearrangementoftheconditionforcollectionandanalysisofdata.

Actuallyitistheblueprintoftheresearchproject.

Researchdesignusedwillbeexploratorytype.

DATACOLLECTION

Primarydata:

ItwillbecollectedthroughInformalinterviewswithBranchManagerandotherstaff

membersatAxisbank.

Secondarydata:ItwillbecollectedfromBusinessNewspapers,magazines,internalreportsofAxisbank,

books,Journalandwebsites.

CaseStudy:Tounderstandhowcreditappraisalisdone,Iwillbetakingcasesstudyof

DynamicProducts.Ltd.whichisin manufacturingofFoodcolorproduct.


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COMPANY PROFILE

AxisBankwasthefirstofthenewprivatebankstohavebegunoperationsin1994,aftertheGover


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nmentofIndiaallowednewprivatebankstobeestablished.TheBankwaspromoted

jointlybytheAdministratorofthespecifiedundertakingoftheUnitTrustofIndia(UTI-I),

LifeInsuranceCorporationofIndia(LIC)andGeneralInsuranceCorporationofIndia(GIC)

andotherfourPSUinsurancecompanies,i.e.NationalInsuranceCompanyLtd.,TheNewIndiaAssuranceCompanyLtd.,TheOrientalInsuranceCompanyLtd.andUnitedIndiaInsuranceCo

mpanyLtd.

TheBank'sRegisteredOfficeisatAhmadabadanditsCentralOfficeislocatedatMumbai.

TheBankhasaverywidenetworkofmorethan1281branchesandExtensionCounters(as

on31styMarch2011).TheBankhasanetworkofover7591ATMs(ason30thSeptember

2011)providing24hrsadaybankingconveniencetoitscustomers.ThisisoneofthelargestATMnetworksinthecountry.

TheBankhasstrengthsinbothretailandcorporatebankingandiscommittedtoadoptingthebestindust

rypracticesinternationallyinordertoachieveexcellence.


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Theoretical background

SmallandMediumEnterprisesorSMEsarevitalforthegrowthandwellbeingofthecountry.Thissectorwasrecognizedandgivenimportancerightfromindependenceandis

Theoreticalbackground


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beingencouragedeversincethen.

Though,itcommenced onasmallscale,itgraduallygainedsignificance,becauseitemployed

aconsiderablenumberofpeople.

Whenitstartedgainingmomentum,thissectorwasdefinedasanenterprisewithinvestmentinplantan

dmachineryofuptoRs1lakyandsituatedintownsandvillageswithstrengthof

lessthan50,000people. Thepolicystatementputinplacespeciallegislation torecognize and

protectselfemployed peopleincottageandhomeindustries.Districtindustriescanters

INTRODUCTIONTOSME

IntheIndiancontext,the small andmediumenterprises(SME)sectorisbroadlyaTerm used

forsmallscaleindustrial(SSI)unitsandmedium-scaleindustrialunits.Anyindustrialunitwitha

totalinvestmentinitsfixedassetsorleased assetsorhire-purchase asset ofuptoRs10

million,canbeconsideredasanSSIunitandanyinvestmentofuptoRs100millioncanbetermedasame

diumunit.AnSSIunitshouldneitherbeasubsidiaryofanyotherindustrialunitnorbeownedorcontroll

ed byanyotherindustrial unit.

An SME is knownbydifferentwaysacross the world.InIndia,astandard definitionsurfaced

onlyinOctober2,2006,whentheMinistryofMicro,SmallandMediumEnterprises,

GovernmentofIndia,imposedtheMicro,SmallandMediumenterprisesDevelopment(MSMED)A

ct,2006.

Thisdefinition,howeverwaschangedaccordingtothechangingeconomicscenarioandthus

hasseparatedefinitions toit.Forinstance, anSMEdefinitionfor manufacturing enterprises isdifferent from what an SME definition for service enterprises has to say.

DEFINATION OF SME

SMEs are the engine of growth of any country s economy . They are an essential

source of a country s jobs, create entrepreneurial spirit and jobs in a country and arecrucial for fostering competitiveness and employment .
http://www.made-from-india.com/http://www.made-from-india.com/http://www.made-from-india.com/


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According to the Micro, small and Medium Enterprises Development (MSME) are

classified as:

1 . Manufacturing Enterprises: The enterprises engaged in the manufacturing or

production of goods pertaining to any industry specified in the first schedule to theindustry ( Development and regulation Act ,1951) The Manufacturing Enterprises are

defind in terms of investment in piant and machinarey

2. Service Enterprises : The enterprises engaged in providing or rendering of service

and are defind in terms of investment in equipment .

Manufacturing Sector

Enterprises Investment in plant and machinery

Micro Less than Rs. 25 lakhs

Small Over Rs. 25 lakhs but not exceeding Rs. 5 crores

Medium Over Rs. 5 crores but less then Rs. 10 crores

Service Sector

Enterprises Investment in equipment

Micro less than Rs 10 lakhs

Small over Rs 10 lakh but not exceeding Rs 2 crores

Medium over Rs 2 crore but not exceeding Rs 2 crores

DESCRIPTION OF SME IN THE MANUFACTURING SECTOR

TheTermenterpriseinthemanufacturingcontextstandsforanindustrialundertakingorabusinesscon

cerninvolvedintheproduction,processingorpreservationofgoodsforthelistofeligibleindustriesint

heFirstScheduletotheIndustries(DevelopmentandRegulation Act),1951.

FortheManufacturingSector,theMSMEDAct2006definesmicro,smallandmediumenterprises(M

SMEs)asmentionedbelow:

AmicroenterpriseisanenterprisewhereinvestmentinplantandmachinerydoesnotexceedRs25lakh.

TheinvestmentinplantandmachineryinasmallenterpriseismorethanRs25lakh,

butdoesnotexceedRs5crore.


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A medium enterprise isone where theinvestmentinplant and machinery ismorethanRs5crore,butdoesnotexceedRs10crore.

In allthese,the costexcludesthatofland,buildingand theitemsspecifiedbythe Ministry of

SmallScaleIndustrieswithitsnotificationNoSO1722(E)datedOctober5,2006.

OVERVIEW OF CREDIT APPRAISAL

Creditappraisalmeansaninvestigation/assessmentdonebythebanksbeforeprovidingany

Loans&advances/projectfinance&alsochecksthecommercial,financial&technicalviabilityofthe

projectproposed,itsfundingpattern&furthercheckstheprimary&collateralsecuritycoveravailable

forrecoveryofsuchfunds.

BRIEF OVERVIEW OF CREDIT

CreditAppraisalisaprocesstoascertaintherisksassociatedwiththeextensionofthecreditfacility.Itis

generallycarriedbythefinancialinstitutions,whichareinvolvedinproviding

financialfundingtoitscustomers.Creditriskisariskrelatedtonon-

repaymentofthecreditobtainedbythecustomerofabank.Thusitisnecessarytoappraisethecredibilit

yofthecustomerinordertomitigatethecreditrisk.Properevaluationofthecustomerisperformed

thismeasures thefinancial conditionandtheabilityofthecustomer torepaybacktheLoanin

future.Generallythecreditsfacilitiesareextendedagainstthesecurityknowascollateral.

ButeventhoughtheLoansarebackedbythecollateral,banksarenormallyinterestedintheactualLoan

amounttoberepaidalongwiththeinterest.Thus,thecustomer'scashflowsareascertained

toensurethetimelypaymentofprincipalandtheinterest.

ItistheprocessofappraisingthecreditworthinessofaLoanapplicant.Factorslikeage,

income,numberofdependents,natureofemployment,continuityofemployment,repaymentcapacit

y,previousLoans,creditcards,etc.aretakenintoaccountwhileappraisingthecreditworthinessofaper

son.Everybankorlendinginstitutionhasitsownpanelofofficialsfor thispurpose.

Howeverthe3Cofcreditarecrucial&relevanttoallborrowers/lending,whichmustbekeptin

mind,atalltimes.

Character


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Capacity Collateral

Ifanyoneofthesearemissingintheequationthenthelendingofficermustquestiontheviabilityofcredi

t.ThereisnoguaranteetoensureaLoandoesnotrunintoproblems;howeverifpropercreditevaluationtechniquesandmonitoringareimplementedthen

naturallytheLoanlossprobability/problemswillbeminimized,whichshouldbetheobjectiveofever

ylendingOfficer.

Creditistheprovisionofresources(suchasgrantingaLoan)byonepartytoanotherparty

wherethatsecondpartydoesnotreimbursethefirstpartyimmediately,therebygeneratingadebt,andi

nsteadarrangeseithertorepayorreturnthoseresources(ormaterial(s)ofequalvalue)atalaterdate.The

firstpartyiscalledacreditor,alsoknownasalender,whilethesecondpartyiscalledadebtor,alsoknow

nasaborrower.

Creditallows youto buygoods orcommoditiesnow,andpayfor themlater.Weusecreditto

buythingswithanagreementtorepaytheLoansoveraperiodoftime.Themostcommon

waytoavailcreditisbytheuseofcreditcards.OthercreditplansincludepersonalLoans,

homeLoans,vehicleLoans,studentLoans,smallbusinessLoans,trade.Acreditisalegalcontractwhe

reonepartyreceivesresourceorwealthfromanotherpartyandpromisesto

repayhimonafuturedatealongwithinterest.InsimpleTerms,acreditisanagreementof

postponedpaymentsofgoodsboughtorLoan.Withtheissuanceofacredit,adebtisformed.

BRIEF OVERVIEW OF LOANS

Loans canbeoftwotypesfundbase&non-fundbase:

A. FundBaseincludes: WorkingCapital TermLoanB. Non-fundBaseincludes: LetterofCredit BankGuarantee BillDiscounting

Fund Base:

Working capital


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Theobjectiveofrunninganyindustryisearningprofits.Anindustrywillrequirefundsto

acquirefixedassetslikeland,building,plant,machinery,equipments,vehicles,toolsetc.,

&alsotorunthebusinessi.e.itsday-to-dayoperations.

Funds requiredfor dayto-dayworking willbe tofinanceproduction&sales.Forproduction,fundsareneededforpurchaseofrawmaterials/stores/fuel,foremploymentoflabor,for

powerchargesetc.financing thesalesbywayofsundrydebtors/receivables.

Capitalorfundsrequiredforanindustrycanthereforebebifurcatedasfixedcapital&workingcapital.

Workingcapitalinthiscontextistheexcessofcurrentassetsovercurrentliabilities.Theexcessofcurre

ntassetsovercurrentliabilitiesistreatedasnet,forstoring

finishinggoodstilltheyaresoldout&forworkingcapitalorliquidsurplus&representsthatportionoft

heworkingcapital,whichhasbeenprovidedfromthelong-Termsource.

Term Loan

ATermLoanisgrantedforafixedTermofnotlessthan3yearsintendednormallyfor

financingfixedassetsacquiredwitharepaymentschedule.

ATermLoanisaLoangrantedforthepurposeofcapitalassets,suchaspurchaseofland, construction

of, buildings, purchase of machinery, modernization, renovation

orrationalizationofplant,&repayablefromoutofthefutureearningoftheenterprise,in

installments,asperaprearrangedschedule.

Fromtheabovedefinition,thefollowingdifferencesbetweenaTermLoan&theworking

capitalcreditaffordedbytheBankareapparent:

o ThepurposeoftheTermLoanisforacquisitionofcapital assets.

o TheTermLoanisanadvancenotrepayableondemandbutonlyininstallmentsrangingoveraperiodofyears.

o TherepaymentofTermLoanisnotoutofsaleproceedsofthegoods&commoditiesperse,whethergivenassecurityornot.Therepaymentshouldcomeoutofthefuturecashaccru

alsfromtheactivityoftheunit.

o Thesecurityisnotthereadilysaleablegoods&commoditiesbutthefixedassetsof theunits.

Itmaythusbeobservedthatthescope&operationoftheTermLoansareentirelydifferentfromthoseoft

heconventionalworkingcapitaladvances.TheBankscommitmentisforalongperiod&theriskinvol

vedisgreater.AnelementofriskisinherentinanytypeofLoan


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becauseoftheuncertaintyoftherepayment.Longerthedurationofthecredit,greateristheattendantun

certaintyofrepayment&consequentlytheriskinvolvedalsobecomesgreater.

However,itmaybeobservedthatTermLoansarenotsolackinginliquidityastheyappeartobe.TheseLoansaresubjecttoadefiniterepaymentprogrammeunlikeshortTermLoans

forworkingcapital(especiallythecashcredits)whicharebeingrenewedyearafteryear.

TermLoanswouldberepaidinaregularwayfromtheanticipatedincomeoftheindustry/trade.

ThesedistinctivecharacteristicsofTermLoansdistinguishthemfromtheshortTermcreditgrantedby

thebanks&itbecomesnecessarytherefore,toadoptadifferentapproachin examining

theapplicationsofborrowersforsuchcredit&forappraisingsuchproposals.

TherepaymentofaTermLoandependsonthefutureincomeoftheborrowingunit.Hence,

theprimarytaskofthebankbeforegrantingTermLoansis toassureitself that theanticipated

incomefromtheunitwouldprovidethenecessaryamountfortherepaymentoftheLoan.

Thiswillinvolveadetailedscrutinyofthescheme,itscapitalassets.Financialaspects,

economicaspects,technicalaspects,aprojectionoffuturetrendsofoutputs&sales&estimatesofcost,

returns,flowoffunds&profits.

Non-fund Base:

Letter of credit

Theexpectationofthesellerofanygoodsorservices isthathe

shouldgetthepaymentimmediatelyondeliveryofthesame.Thismaynotmaterializeiftheseller&the

buyerareatdifferentplaces(eitherwithinthesamecountryorindifferentcountries).Thesellerdesirest

o haveanassuranceforpaymentbythepurchaser.Atthesame

timethepurchaserdesiresthattheamountshouldbepaidonlywhenthegoodsareactuallyreceived.Her


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earisestheneedof Letter ofCredit(LCs).TheobjectiveofLCistoprovideameansofpayment

totheseller&thedeliveryofgoods&services tothebuyeratthesametime

DefinitionALetterofCredit(LC) isanarrangement

wherebyabank(theissuingbank)actingattherequest&ontheinstructionsofthecustomer(theapplica

nt)oronits ownbehalf,

o Istomakeapaymenttoortotheorderofathirdparty(thebeneficiary),oristoaccept&paybillsofexchange(draftsdrawnbythebeneficiary); or

o Authorizesanotherbanktoeffectsuchpayment,ortoaccept&paysuchbillsofexchanges(drafts);or

o Authorizes another bank to negotiate the Terms &conditions of the creditarecompliedwith.againststipulateddocument(s),providedthat

Bank Guarantees:

Acontractofguaranteeisdefined

asacontracttoperformthepromiseordischargetheliabilityofthethirdpersonincaseofthedefault.

Thepartiestothecontract ofguarantees are:

a) Applicant:Theprincipaldebtorpersonatwhoserequesttheguaranteeisexecutedb) Beneficiary:Persontowhomtheguaranteeisgiven&whocanenforceitincaseof default.c) Guarantee:Thepersonwhoundertakestodischargetheobligationsoftheapplicantincaseo

fhisdefault.

Thus, guarantee is a collateral contract, consequential to a main co applicant &thebeneficiary.

PurposeofBankGuarantees

BankGuaranteesareusedtoforbothbothpreventive&remedialpurposes.Theguarantees

executedbybankscomprisebothperformanceguarantees&financialguarantees.Theguaranteesare

structuredaccordingtotheTermsofagreement,viz.,security,maturity&purpose.

Branchesmayissueguaranteesgenerallyforthefollowingpurposes:

a)

Inlieuofsecuritydeposit/earnestmoneydepositforparticipatingintenders;b) Mobilizationadvanceoradvancemoneybeforecommencementoftheprojectbythecontra


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ctor&formoneytobereceivedinvariousstageslikeplantlayout,

design/drawingsinprojectfinance;

c) Inrespectofraw materialssuppliesorforadvancesbythebuyers;d)

Inrespectofdueperformanceofspecific contractsbytheborrowers&forobtainingfullpaymentofthebills;

e) Performanceguaranteeforwarrantyperiodoncompletionofcontractwhichwouldenablethesupplierstoperiodtobeover;realizetheproceedswithoutwaitingfor

warranty) Toallowunitstodrawfundsfromtime totimefromtheconcerned

indentersagainstpartexecutionofcontracts, etc.

f) Bidbondsonbehalfofexporters

g) ExportperformanceguaranteesonbehalfofexportersfavoringtheCustomsDepartmentunderEPCGscheme.

Bill discounting: Definition

As per Negotiable Instrument Act, The bill of exchange is an instrument in writing

containinganunconditionalorder,signedbythemaker,directingacertainpersontopayacertainsumo

fmoneyonlyto,ortotheorderof,acertainperson,ortothebearerofthatinstrument.

Discounting of bill of exchange:

Aseller(Drawer)ifneedcash,mayhandovertheB/EtotheBank,NBFC,acompanyorahighNetworth

Individualandobtainreadycashthisisknownasdiscountingofbill.thepractice

inIndiaisthat,thefinancing organization holdstheoriginalB/Etill thedraweepays

onmaturity.Fordiscountingthebill,financierschargeaninterestonthebillamountforthedurationofthebillwhichiscalleddiscountcharges.normalmaturityperiodsare30,60,90, 120days.

Types of Bills

1. DemandBill2. UsanceBill3. DocumentaryBills

a.

Documentsagainstacceptance(D/A)billsb. Documentsagainstpayment(D/P)bills


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4. CleanBillsAdvantages

o ToInvestors1. ShortTermsourceoffinance2. OutsidethepurviewofSection370ofIndianCompaniesAct19563. Notaxdeductedatsource4. Flexibilityo ToBanks1. Safetyoffunds2. Certaintyofpayment3.

Profitability


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CreditAppraisalProcess


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ClassificationofBanks:

TheIndianbankingindustry,whichisgovernedbytheBankingRegulationActofIndia1949 can be

broadly classified into two major categories, non-scheduled banks and scheduled banks.

Scheduledbankscomprisecommercialbanksandtheco-operative

banks.InTermsofownership,commercialbankscanbefurthergroupedintonationalized

banks,theStateBankofIndiaanditsgroupbanks,regionalruralbanksandprivatesector

banks(theold / new domestic and foreign). The Indian banking industry is a mix

ofthepublicsector,privatesectorandforeignbanks.Theprivatesectorbanksareagain

spiltintooldbanksandnewbanks.

Nationalized/Publicsectorbanks Dominatethebanking system inIndia. Nationalization ofbanksinIndiatookplacein1969byMrs.Indira Gandhi. PrivateBanks Madebankingmoreefficientandcustomerfriendly.


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Jolted public sector banks out of complacency and forced them tobecome more competitive.

Foreign banks Have brought latest technology and latest banking practices in India. Have

helped made Indian banking system more competitive and efficient.


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A Study on Credit Appraisal Process in SME Sectorwi th Respect to Axis Bank

N.M .D. Coll ege, Gondia, 2013-14 28

MAJORBANKSININDIA

AxisBank

ABN-AMROBank

AbuDhabiCommercialBank

AmericanExpressBank

AndhraBank

AllahabadBank

BankofBaroda

BankofIndia

BankofMaharastra

BankofPunjab

BankofRajasthan

BankofCeylon

IndianOverseasBank

IndusIndBank

INGVysyaBank

Jammu&KashmirBank

JPMorganChaseBank

KarnatakaBank

KarurVysyaBank

LaxmiVilasBank

OrientalBankofCommerce

PunjabNationalBank

Punjab&SindBank

ScotiaBank
http://finance.indiamart.com/investment_in_india/abn_amro.htmlhttp://finance.indiamart.com/investment_in_india/abu_dhabi_commercial_bank.htmlhttp://finance.indiamart.com/investment_in_india/amex_bank.htmlhttp://finance.indiamart.com/investment_in_india/andhra_bank.htmlhttp://finance.indiamart.com/investment_in_india/allahabad_bank.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_baroda.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_india.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_maharastra.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_punjab.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_rajasthan.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_ceylon.htmlhttp://finance.indiamart.com/investment_in_india/indian_overseas_bank.htmlhttp://finance.indiamart.com/investment_in_india/indusind_bank.htmlhttp://finance.indiamart.com/investment_in_india/ing_vysya_bank.htmlhttp://finance.indiamart.com/investment_in_india/jammu_and_kashmir_bank.htmlhttp://finance.indiamart.com/investment_in_india/jpmorgan_chase_bank.htmlhttp://finance.indiamart.com/investment_in_india/karnataka_bank.htmlhttp://finance.indiamart.com/investment_in_india/karur_vysya_bank.htmlhttp://finance.indiamart.com/investment_in_india/laxmi_vilas_bank.htmlhttp://finance.indiamart.com/investment_in_india/oriental_bank_commerce.htmlhttp://finance.indiamart.com/investment_in_india/punjab_national_bank.htmlhttp://finance.indiamart.com/investment_in_india/punjab_sind_bank.htmlhttp://finance.indiamart.com/investment_in_india/scotia_bank.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_hyderabad.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_bikaner_and_jaipur.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/standard_chartered_bank.htmlhttp://finance.indiamart.com/investment_in_india/south_indian_bank.htmlhttp://finance.indiamart.com/investment_in_india/scotia_bank.htmlhttp://finance.indiamart.com/investment_in_india/punjab_sind_bank.htmlhttp://finance.indiamart.com/investment_in_india/punjab_national_bank.htmlhttp://finance.indiamart.com/investment_in_india/oriental_bank_commerce.htmlhttp://finance.indiamart.com/investment_in_india/laxmi_vilas_bank.htmlhttp://finance.indiamart.com/investment_in_india/karur_vysya_bank.htmlhttp://finance.indiamart.com/investment_in_india/karnataka_bank.htmlhttp://finance.indiamart.com/investment_in_india/jpmorgan_chase_bank.htmlhttp://finance.indiamart.com/investment_in_india/jammu_and_kashmir_bank.htmlhttp://finance.indiamart.com/investment_in_india/ing_vysya_bank.htmlhttp://finance.indiamart.com/investment_in_india/indusind_bank.htmlhttp://finance.indiamart.com/investment_in_india/indian_overseas_bank.htmlhttp://finance.indiamart.com/investment_in_india/centurion_bank.htmlhttp://finance.indiamart.com/investment_in_india/central_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/catholic_syrian_bank.htmlhttp://finance.indiamart.com/investment_in_india/canara_bank.htmlhttp://finance.indiamart.com/investment_in_india/bnp_paribas_bank.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_ceylon.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_rajasthan.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_punjab.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_maharastra.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_india.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_baroda.htmlhttp://finance.indiamart.com/investment_in_india/allahabad_bank.htmlhttp://finance.indiamart.com/investment_in_india/andhra_bank.htmlhttp://finance.indiamart.com/investment_in_india/amex_bank.htmlhttp://finance.indiamart.com/investment_in_india/abu_dhabi_commercial_bank.htmlhttp://finance.indiamart.com/investment_in_india/abn_amro.html


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DATA ANALYSIS

A) CREDIT RISK ASSESSMENT & APPRAISAL PROCESS OF AXIS BANK

CREDIT RISK ASSESSMENT

RISK: Risk is inability or unwillingness of borrower-customer or counter-party to meet their

repayment obligations/ honor their commitments, as per the stipulated terms.

LENDER TASK

Identify the risk factors, and Mitigate the risk

RISK ARISES IN CREDIT:

In the business world, Risk arises out of Deficiencies / lapses on the part of the management (Internal factor) Uncertainties in the business environment (External factor) Uncertainties in the industrial environment (External factor) Weakness in the financial position (Internal factor)

TO PUT IN ANOTHER WAY, SUCCESS FACTORS BEHIND A BUSINESS ARE

Managerial ability Favorable industrial environment Adequate financial strength

CREDIT & RISK

Go hand in hand. They are like twin brothers. They can be compared to two sides of the same coin. All credit proposals have some inherent risks, excepting the almost negligible volume of

lending against liquid collaterals with adequate margin.


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LENDING DESPITE RISKS

So, risk should not deter a Banker from lending. A bankers task is to identify/ assess the risk factors/ parameters &manage / mitigate

them on a continuous basis.

But its always prudent to have some idea about the degree of risk associated with anycredit proposal.

The banker has to take a calculated risk, based on risk-absorption/ risk-hedgingcapacity & risk-mitigation techniques of the Bank.


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Technologyhasmovedfrombeingjustabusinessenablertobeingabusinessdriver.Beitcustomerserv

ice,reducingoperationalcosts,achievingprofitability,developingrisk

managementsystems,weturntotechnologyforprovidingnecessarysolution.Technologicalupgrad

ationwasclearlyidentifiedasoneofthemostsuccessfulstrategyinCustomer

AcquisitionandRetentionfollowedbyExpansionofATMNetwork,Advertisementsand

additionalsalesforce.

CustomerRetentionandCustomerSatisfactionareinexorablyinterred-

linked.Whileconsumersmaybehappytomakepaymentsandinteractwiththeirbankthroughconveni

ent

andcheaper

bankingchannels,theystillexpecthighstandardsofservice.Aconsistentservicereflectsthebanksbr

andandimageacrossallchannels.93.75percentofrespondentbanksinformedthatsuperiorservicepr

eandpostbankinghasbeenoneoftheessentialfactorsratedhighbytheircustomers.75percentofrespo

ndentbanksfeltthatPersonaltouchinthedealingshashelpedtheminwinningcustomers.


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ChallengesfacingbyBankingindustryinIndia

ThebankingindustryinIndia isundergoingamajortransformationdueto changesineconomicconditionsandcontinuousderegulation.Thesemultiplechangeshappeningoneafterotherh

asarippleeffectonabankReferfig.tryingtograduatefromcompletely

regulatedsellersmarkettocompletedderegulatedcustomers market.


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BankingActivities

Overthelastthreedecades,therehasbeenaremarkableincreaseinthesize,spreadandscopeofactivi

tiesofbanksinIndia.Thebusinessprofileofbankshastransformeddramaticallyto includenon-

traditionalactivitieslikemerchantbanking,mutualfunds,newfinancialservices

andproductsandthehumanresourcedevelopment.

Nowdays,thebankershavetodealwithalargenumberofmatters.Theyserveascustodian

ofstocksandsharesandothervaluables,importsintoandexportsoutofthecountryare financedby

banks,anddocumentrelatingtothegoodssoimportedandexported,atonetimeoranother,passthro

ughthehandofbankers.Thus,theyhavenottodealwithbillsof

exchange,butalsowithbillsoflading,railwayreceipts,warehousewarrattsandreceipts,

marineinsurancepoliciesandvariousotherdocuments.Asbankerstheyadvancemoneyon

securitiesandissueletterofcredit,travellerscheque,creditcardsandcircularnotesto

customerswishingtotravelabroadasalsotoeffectpurchaseandshipmentofgoods.They

assistsindustrialundertakingbyunderwritingtheirdebenturesandshares,providingthemwithwo

rkingcapitalfinanceandtoacertainextent,withfinanceforfixedcapitalrequirementsalso.InIndia,

thebankingindustryisentering severalnewactivitiesintheareas

ofmerchantbanking,leasinghousingfinance,venturecapitalandfinancialservicesingeneral.Therangeofservicesprovidedbyourbanksstretchesfromruralfinanceatoneend

tointernationalbankingattheother.

AccordingtosurveydonebyFCCI,Followingshowsmostprofitablenoninterestincomeof bank.


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FINDINGS

Creditappraisalisdonetocheckthecommercial,financial&technicalviabilityoftheprojec


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tproposeditsfundingpattern&furthercheckstheprimaryorcollateralsecurity

coveravailablefortherecoveryofsuchfunds

Creditisthecoreactivityofthebanks&importantsourceoftheirearningswhichgotopayinteresttodepositors,salariestoemployees &dividendtoshareholders

Credit&riskgohandinhand Inthebusinessworldriskarisesoutof:-

Deficiencies/lapsesonthepartofthemanagement

Uncertaintiesinthebusinessenvironment

Uncertaintiesintheindustrialenvironment

Weaknessinthefinancialposition

Banksmainfunctionistolendfunds/providefinancebutitappearsthatnormsaretakenasguidelinesnot asadecision making

Abankerstaskistoindentify/assesstheriskfactors/parameters&manage/mitigatethemoncontinuousbasis

TheCreditAppraisalprocessadoptedbythebanktakeintoaccountallpossiblefactorswhichgointoappraisingtheriskassociatedwithaloan

Thesehavebeencategorizedbroadlyintofinancial,business,industrial,managementrisks&areratedseparately


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LIMITATIONS OF STUDY


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Asthecreditratingisoneofthecrucialareasforanybank,someofthetechnicalitiesmaynotrevealwhichmightcausedestructiontotheinformationandexplorationof

theproblem.

Assomeoftheinformationisnotrevealed,whateversuggestionsgenerated,willbebasedoncertain assumptions.

Findingofthestudywillbebasedontheassumptionsthatrespondentshavegivencorrectinformation.

Informationprovidedbyrespondentsmaybebiased.

Thestudyisacademic innature.


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SUGGESTION


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Timely finance should make available to the small units keeping in viewtheir needs.

The borrowings should be made cheaper by lowering the rate of intereston landings of commercial banks.

Banks should also provide consultancy services and professional guidanceat the time of setting up for considering the long-term and short-term

financial requirements of a small unit for lending purposes.

The Entrepreneurs are of the opinion that they are not getting properassistance from the Government employees in documentation to obtain

the loan from the funding institutions.


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CONCLUSION


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Financemanagementisthebackbone of anyorganizationsandhence yieldsa numberofjoboptionsrangingfromstrategicfinancialplanningtosales.

FromthestudyofCreditappraisalofSME,itcanbeconcludedthatcreditappraisalshouldthereforebebasedonthefollowingfactors,thesame areappliedatAxisBank:

Financialperformance

Businessperformance

Industryoutlook

Qualityofmanagement

Conductofaccount

Axis Bankloanpolicycontainsvariousnormsforsanctionofdifferenttypesof

Theseallnormsdonotapplytoeach&everycase. AxisBanknormsforproviding

loansareflexible &itmaydifferfromcasetocase.

Usually,itisseenthatcreditappraisalisbasicallydoneonthebasisoffundamentalsoundness.But,afterdifferenttypesofcasestudies,ourconclusionwassuchthatcreditappraisalsyste

misnotonlylookingforfinancialwealth.Otherstrong

parametersalsoplayanimportantroleinanalyzingcreditworthinessofthefirm/company.

Inall,theviabilityoftheprojectfromeveryaspectisanalyzed,aswellastypeofbusiness,industry,promoters,pastrecords,experience,projecteddataandestimates,

goals,longtermplansalsoplayscrucialroleinincreasingchancesofgettingprojectapprove

dforloan.


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BIBLIOGRAPHYWebSites

www.rbi.org.inwww.AxisBank.com www.indianbankassociation.com
http://www.rbi.org.in/http://www.indianbankassociation.com/http://www.indianbankassociation.com/http://www.indianbankassociation.com/http://www.rbi.org.in/


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www.bankersindia.com www.wikipedia.com

Books CreditandbankingBy:K.C.Nanda
http://www.bankersindia.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.bankersindia.com/