Retail Banking and Sme Lending at ING VYSYA BANK

7/28/2019 Retail Banking and Sme Lending at ING VYSYA BANK

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CERTIFICATE

This is to certify that the project work done on RETAIL BANKING AND SMEs LENDING

AT ING VYSYA BANK is an original work carried out by Mr. NIPUN KESARI under my

supervision and guidance. The project report is submitted towards the partial fulfillment of two

year, full time post graduate diploma in management.

This work has not been submitted anywhere else for any other degree/diploma. The work was

carried out from 02-05-2011 to 30-06-2011 in ING VYASA BANK.

Dr. Navneet Joshi Nipun Kesari(Faculty Guide) Roll no.-FC10149


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ACKNOWLEDGEMENT

At the outset, I wish to express my sincere thanks to almighty for showering his blessing on

me to develop this project.

I express my sincere thanks to MR. ASEEM ANAND, BRANCH HEAD for givingpermission to carry out this study in his esteemed organization.

I would take this opportunity to express my sincere-most gratitude to Mr. Sumit Khari,

Area Head- Business Banking, New Delhi for giving me this opportunity to complete my

internship in his esteemed organization and his kind support. I also thank him for his help and

valuable guidance and supervision

I am extremely thankful to MR DEEPAK GUPTA, RM, Punjabi Bagh Branch, New Delhi

for his expert guidance, cooperation and help. With great sense of gratitude, I also thank him for

his constant encouragement without which it would not have been possible for me to accomplish

the project successfully.

I am deeply indebted to the Dr. J K Goyal, Director and Dr. Madan Mohan, Dean,

JAGAN INSTITUTE OF MANAGEMENT STUDIES for enabling me to do this project.

I express my gratitude towards my college mentors Dr. Navneet Joshi and Mr. Arnab

Ghosh for their help and guidance in making my report.

Nipun Kesari

FC10149


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DECLARATION

I hereby declare that this project report titled

RETAIL BANKING AND SME LENDING AT ING VYSYA BANK

submitted by me to Jagan Institute is a bonafide work undertaken by me and it is

not submitted to any other University or Institute for the award of any Degree /

Diploma / Certificate or published any time before.

.

NIPUN KESARI(FC10149)


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CONTENT

S.No. Content Page Number

1. CERTIFICATE 3

2. ACKNOWLEDGEMENT 4

3. DECLARATION 5

4. ABOUT ING VYSYA BANK 7-11

5. OBJECTIVE OF THE STUDY 12

6. RESEARCH METHODOLOGY 13

7. RETAIL BANKING 14-23

8. BACKGROUND 24

A MICRO, SMALL AND MEDIUM ENTERPRISES 25-30 B CODE OF BANKS COMMITMENT TO MICRO,

SMALL AND MEDIUM ENTERPRISES

30

C BUSINESS LOAN 31-379. SME LENDING AT ING VYSYA BANK 38

A CREDIT APPRAISAL PROCESS 39-57 B I CASE DETAILS 58-69

II RECOMMENDATION 69

C RESULT AND DISCUSSION 7010. BIBLIOGRAPHY 71


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INTRODUCTION

Contents:

1.Introduction

2. Objective

3. Research Methodology

Research DesignNature of DataMethods Data CollectionResearch Tools


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INTRODUCTION

ABOUT ING VYSYA BANK

ING Vysya Bank Ltd., is an entity formed with the coming together of erstwhile, Vysya Bank

Ltd, a premier bank in the Indian Private Sector and a global financial powerhouse, ING of

Dutch origin, during Oct 2002. The origin of the erstwhile Vysya Bank was pretty humble. It

was in the year 1930 that a team of visionaries came together to form a bank that would extend a

helping hand to those who weren't privileged enough to enjoy banking services. It's been a long

journey since then and the Bank has grown in size and stature to encompass every area of

present-day banking activity and has carved a distinct identity of being India's Premier PrivateSector Bank.

In 1980, the Bank completed fifty years of service to the nation and post 1985, the Bank made

rapid strides to reach the coveted position of being the number one private sector bank. In 1990,

the bank completed its Diamond Jubilee year. At the Diamond Jubilee Celebrations, the then

Finance Minister Prof. Madhu Dandavate, had termed the performance of the bank Stupendous.

The 75th anniversary, the Platinum Jubilee of the bank was celebrated during 2005.

The long journey of seventy-five years has had several milestones

1930 Set up in Bangalore

1948 Scheduled Bank

1985 Largest Private Sector Bank

1987 The Vysya Bank Leasing Ltd. Commenced

1988 Pioneered the concept of Co branding of Credit Cards

1990 Promoted Vysya Bank Housing Finance Ltd.

1992 Deposits cross Rs.1000 crores

1993 Number of Branches crossed 300


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1996

Signs Strategic Alliance with BBL., Belgium. Two National Awards by

Gem & Jewellery Export Promotion Council for excellent performance in

Export Promotion

1998

Cash Management Services, & commissioning of VSAT. Golden Peacock

Award - for the best HR Practices by Institute of Directors. Rated as Best

Domestic Bank in India by Global Finance (International Financial Journal -

June 1998)

2000State -of - the -art Date Centre at ITPL, Bangalore.

RBI clears setting up of ING Vysya Life Insurance Company

2001 ING-Vysya commenced life insurance business.

2002

The Bank launched a range of products & services like the Vys Vyapar Plus,the range of loan schemes for traders, ATM services, Smartserv, personal

assistant service, Save & Secure, an account that provides accident

hospitalization and insurance cover, Sambandh, the International Debit Card

and the mi-b@nk net banking service.

2002 ING takes over the Management of the Bank from October 7th , 2002

2002RBI clears the new name of the Bank as ING Vysya Bank Ltd, vide their

letter of 17.12.02

2003Introduced customer friendly products like Orange Savings, Orange Current

and Protected Home Loans

2004 Introduced Protected Home Loans - a housing loan product

2005Introduced Solo - My Own Account for youth and Customer Service Line

Phone Banking Service

2006Bank has networked all the branches to facilitate AAA transactions i.e.

Anywhere, Anytime & Anyhow Banking


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In terms of pure numbers, the performance over the decades can better be appreciated

from the following table:

Rs. in millions

Year Networth Deposits Advances Profits Outlets

1940 0.001 0.400 0.400 0.001 4

1950 1.40 5.30 3.80 0.09 16

1960 1.60 20.10 13.50 0.13 19

1970 3.00 91.50 62.80 0.74 39

1980 11.50 1414.30 813.70 1.13 228

1990 162.10 8509.40 4584.80 50.35 319

2000 5900.00 74240.00 39380.00 443.10 481

2001 6527.00 81411.10 43163.10 371.90 484

2002 6863.24 80680.00 44180.00 687.50 483

2003 7067.90 91870.00 56120.00 863.50 456

2004 7473.20 104780.00 69367.30 590.01 523

2005 7094.00 125693.10 90805.90 (381.80) 536

2006 10196.70 133352.50 102315.20 90.6 562

2007 11101.90 154185.70 119761.70 889.0 626

2008 14260.00 204980.00 146500.00 1569.00 677

2009 15940.00 248900.00 167510.00 1888.00 857

2010 2223.00 258650.00 185070.00 2422.00 866*

*Outlets comprises of 468 branches, 13 ECs, 28 Satellite Offices and 357 ATMs as o

March 31st 2010. Additionally the bank also has Internet Banking, Mobile Banking

and Customer Service Line for Phone Banking Service.


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The origin of ING Group

On the other hand, ING group originated in 1990 from the merger between Nationale

Nederlanden NV the largest Dutch Insurance Company and NMB Post Bank Groep

NV. Combining roots and ambitions, the newly formed company called

Internationale Nederlanden Group. Market circles soon abbreviated the name to I-N-

G. The company followed suit by changing the statutory name to ING Group N.V.

Profile

ING has gained recognition for its integrated approach of banking, insurance and asset

management. Furthermore, the company differentiates itself from other financial

service providers by successfully establishing life insurance companies in countries

with emerging economies, such as Korea, Taiwan, Hungary, Poland, Mexico and

Chile. Another specialisation is ING Direct, an Internet and direct marketing concept

with which ING is rapidly winning retail market share in mature markets. Finally, ING

distinguishes itself internationally as a provider of employee benefits, i.e.

arrangements of nonwage benefits, such as pension plans for companies and their

employees.

Mission

ING`s mission is to be a leading, global, client-focused, innovative and low-cost

provider of financial services through the distribution channels of the clients

preference in markets where ING can create value.

The new identity

The immediate benefit to the bank, ING Vysya Bank, has been the pride of having

become a Member of the global financial giant ING. As at the end of the year

December 2010, ING's total assets exceeded Rs. 87290 billion, with an underlying net

profit of Rs. 272510 million, employed around 105000 people, serves over 85 million

customers, across 40 countries. This global identity coupled with the backup of a

financial power house and the status of being the first Indian International Bank,

would also help to enhance productivity, profitability, to result in improved

performance of the bank, for the benefit of all the stake holders.


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OBJECTIVES OF THE STUDY

To know about the procedure to apply for loan Conditions on which bank finance the different projects of SMEs

1. Studying the ratios of the company to know the financial position of the company.2. To know the borrowings of the company as well as the liquidity position of the

company.

3. To study the current assets and current liabilities so as to know the position of firm. Different types of conditions to approve the loan. To know how SMEs disburse their loan amount.


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RESEARCH METHODOLOGY:

Research design:

The descriptive form of research method is adopted for study.

The major purpose of descriptive research is description of state of affairs of the institution as it

exists at present. The nature and characteristics of the Advances and Loans have been described

in this study.

Nature of data

The data required for the study has been collected from secondary source .The relevant

information were taken from annual reports, journals and internet.

Methods of data collection:

This study is based on the SME financing and Loan appraisal. Hence the information related to,

profitability of firm ,financial data of firm and turnover were very much required for attaining

the objectives of the present study.

Tools applied:

To have a meaningful analysis and interpretation of various data collected, the following tools

were made for this study.

Annual report of the applicant Financial Statements Analysis Credit Rating Technique (Credit Rating and Information Services of India Ltd. (CRISIL) Interest Rate Calculation


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RETAIL BANKING

Retail banking refers to banking in which banking institutions execute transactions directly withconsumers, rather than corporations or other banks. Services offered include: savings andtransactional accounts, mortgages, personal loans, debit cards, credit cards, and so forth.

The Retail Banking environment today is changing fast. The changing customer demographicsdemands to create a differentiated application based on scalable technology, improved serviceand banking convenience. Higher penetration of technology and increase in global literacy levelshas set up the expectations of the customer higher than never before. Increasing use of moderntechnology has further enhanced reach and accessibility.

SCOPE FOR RETAIL BANKING IN INDIA

All round increase in economic activity. Increase in the purchasing power. The rural areas have the large purchase power at their

disposal and this is an opportunity to market retail banking.

India has 200 million households and 400 million middleclass population more than 90%of the savings come from the house hold sector. Falling to interest rates have resulted in a

shift.

Tax benefits are available for example in case of housing loans the borrower can avail taxbenefits for the loan repayment and the interest charged for the loan.

ADVANTAGES AND DISADVANTAGES OF RETAIL BANKING

ADVANTAGES

Retail deposits are stable and constitute core deposits. They are interest insensitive and less bargaining for additional interest. They constitute low cost funds for the banks. Effective customer relationship management with the retail customers built a strong customer

base.

Retail banking increases the subsidiary business of the banks. Retail banking results in better yield and improved bottom line for a bank. Retail segment is a good avenue for funds deployment. Helps economic revival of the nation through increased production activity. Improves lifestyle and fulfils aspirations of the people through affordable credit. Retail banking involves minimum marketing efforts in a demand-driven economy.


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BUSINESS ACTIVITIES CARRIED OUT BY ING VYSYA

The various products offered by ING Vysya bank are

1) ACCOUNTS AND DEPOSITS2) Current accounts

3) Saving accounts

4) Term Deposit

CURRENT ACCOUNT

The various sub-products in current account which ING Vysya gives are

ORANGE CURRENT ACCOUNT: In today's fast-paced world, your business regularly

requires you to receive and send funds to various cities in the country. ING Orange Current

Account gives you the power of inter-city banking with a single account and access to more than

200 cities.

All you need is to maintain an average balance of Rs. 1,00,000/- per quarter. When the QAB isless than 1 lakh there is a service charge of Rs. 4000/- per quarter. Besides, free facilities

become chargeable as per schedule of service charges. Charges indicated exclude applicable

Service Tax

ADVANTAGE CURRENT ACCOUNT: In today's fast-paced world, your business regularly

requires you to receive and send funds to various cities in the country. ING Advantage Current

Account gives you the power of inter-city banking with a single account and access to more than

300 cities.

All you need is to maintain an average balance of Rs. 50,000/-per quarter. When theQAB is less than 50,000 there is a service charge of Rs. 1500 per quarter. Besides, freefacilities become chargeable as per schedule of service charges. Charges indicatedexclude applicable Service Tax.


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GENERAL CURRENT ACCOUNTS: With ING Vysya general current account you can

access your account anytime, anywhere. Withdraw and deposit cash, issue and encash cheques,

make balance enquires and ask for mini statements anytime, anywhere.

All you need is to maintain an average balance of Rs. 10000/- per quarter. (Non-maintenance ofthis balance entails a nominal charge of Rs. 750/- per quarter).

Charges indicated exclude applicable service tax.

COMFORT CURRENT ACCOUNT: ING's Comfort Current Account lets you save as much

as Rs. 60,000 p.a. for remittance up to Rs. 25 lakhs

All you need is to maintain an average balance of Rs. 25,000/-per quarter. (Non-maintenance of which entails a charge as per the following)

When the QAB is less than 25,000 there is a service charge of Rs. 1000 plus applicableservice taxes, per quarter. Besides, free facilities become chargeable as per schedule ofservice charges. Charges indicated exclude applicable Service Tax.

SAVING ACCOUNTS

The Savings accounts are primarily meant to inculcate a sense of saving for the future and take

care of individuals day to day banking requirements. These accounts are meant to help individualcustomers protect their money. The Savings Accounts also help individuals to handle their

financial transactions through a systematic banking channel. This increases the safety as

customers need not carry physical cash with them. The various products in saving accounts are

ORANGE SAVING ACCOUNTADVANTAGE SALARY ACCOUNTZING ACCOUNTZWIPE ACCOUNTGENERAL SAVING ACCOUNT SARAL ACCOUNT


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1) TERM DEPOSITS

The various term deposits are

FIXED DEPOSITS: If you believe in the long term investments and wish to earn long terminterest on your deposits, then invest in ING fixed deposits. With ING your money will not only

be secured but will earn a good interest.

CUMULATIVE DEPOSITS: With ING cumulative deposits you can invest small amounts of

money that ends up large saving on maturity.

TAX ADVANTAGE DEPOSITS: TAD is eligible for tax exemption under section 80C of the

income tax act 1981. The deposit is in the form of fixed deposit or reinvestment form of 5 year

duration. The rate of interest will be according to the 5 year interest rate which will be declaredby RBI from time to time.

AKSHAYA DEPOSITS: your deposit with interest will be reinvested every quarter to earn a

higher yield.

2) LOANS

HOME LOAN

HOME EQUITY LOAN

NRI LOAN

3) NRI SERVICES

RUPEE SAVING ACCOUNT

RUPEE CURRENT ACCOUNT

RUPEE FIXED DEPOSITS

ACCOUNTS FOR RETURNING INDIANS

FOREIGN CURRENCY DEPOSITS

MI REMIT


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4) CARDS

DEBIT CARDS

CREDIT CARDS

REMMITANCE CARD

OPERATIONS

1) RTGSREAL TIME GROSS SETTLEMENT

RTGS can be defined as the continuous (real-time) settlement of funds transfersindividually on an order by order basis. 'Real Time' means the processing of

instructions at the time they are received rather than at some later time. 'GrossSettlement' means the settlement of funds transfer instructions occurs individually (on

an instruction by instruction basis). Considering that the funds settlement takes place

in the books of the Reserve Bank of India, the payments are final and irrevocable.

The RTGS system is primarily meant for large value transactions. The minimumamount to be remitted through RTGS is 2 lakhs. There is no upper ceiling for RTGS

transactions.

Under normal circumstances the beneficiary branches are expected to receive thefunds in real time as soon as funds are transferred by the remitting bank. The

beneficiary bank has to credit the beneficiary's account within two hours of receiving

the funds transfer message.

The remitting bank receives a message from the Reserve Bank that money has beencredited to the receiving bank. Based on this the remitting bank can advise the

remitting customer that money has been delivered to the receiving bank.

If the money cannot be credited for any reason, the receiving bank would have toreturn the money to the remitting bank within 2 hours. Once the money is received

back by the remitting bank, the original debit entry in the customer's account is

reversed.

With a view to rationalize the service charges levied by banks for offering variouselectronic products, a broad framework has been mandated as under:a) Inward transactionsFree, no charge to be levied

b) Outward transactions2 lakh to 5 lakh - not exceeding Rs. 25 per transaction.Above 5 lakhnot exceeding Rs. 50 per transaction.


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2) NEFTNATIONAL ELECTRONIC FUNDS TRANSFER

NEFT is a nation-wide system that facilitates individuals, firms and corporates toelectronically transfer funds from any bank branch to any individual, firm or

corporate having an account with any other bank branch in the country.

Individuals, firms or corporates maintaining accounts with a bank branch can transferfunds using NEFT. Even such individuals, firms or corporates who do not have a

bank account (walk-in customers) can also deposit cash at the NEFT-enabled branch

with instructions to transfer funds using NEFT.

There is no limiteither minimum or maximumon the amount of funds that couldbe transferred using NEFT.

Reserve Bank of India has waived the processing or service charges for memberbanks till March 31, 2011. Accordingly, member banks participating in NEFT neednot pay any processing or service charges to Reserve Bank of India. Further,processing or service charges to be levied by the member banks from their customershave also been rationalised by Reserve Bank of India as under :

a) Inward transactions at destination bank branches (for credit to beneficiaryaccounts)

Free, no charges to be levied from beneficiaries

b) Outward transactions at originating bank branches (charges for the remitter)

For transactions up to Rs 1 lakhnot exceeding Rs 5 (+ Service Tax)For transactions above Rs 1 lakh and up to Rs 2 lakhsnot exceeding Rs 15 (+Service Tax)For transactions above Rs 2 lakhsnot exceeding Rs 25 (+ Service Tax)

NEFT can be used to transfer funds from or to NRE and NRO accounts in thecountry. This, however, is subject to the adherence of the provisions of the Foreign

Exchange Management Act, 2000 (FEMA).

The remitter can track the NEFT transaction through the originating bank branch. It ispossible for the originating bank branch to keep track and be aware of the status of

the NEFT transaction at all times.


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CHEQUE CLEARING

Clearing is a process by which banks exchange instruments. Funds are transferred from thedrawer of the cheque to the payee. At ING, it is done thrice everyday at 10:00 AM, 12:00 PMand 4:00 PM.

Maximum duration for local cheques3 daysMaximum duration for outstation cheques4 days

CLEARING PROCESS

Things to do at the desk

Accept

PO slips with all details filled Cheque

Ensure -

All details are filled up properly in the slip The amount on the cheque includes the charges Cheque is signed by customer

Process

Receive the pay in slip. Check all the entries. Mark stamp on the receipt portion of the slip. Give the receipt to the customer. Pass the entry in the system. Check if the cheques are local or outstation.

Local NCR Region or Cheques on which payable at par is written on thecheque even if the region is outside the NCR Region.


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Outstation Outside NCR Region and payable at par is not written on thecheque.

Mark stamp on every cheque.

Count the total number of cheques. Make separate envelopes for local and outstation cheques. Write To RCC and number of cheques on the envelopes. Get the envelopes signed by the officer in the bank. Handover the envelopes to the delivery person who collects the cheques from various

branches of ING and deliver them to RCC.

RCC RCC is the place in Karol Bagh, New Delhi where all cheques from all the branches ofING VYSYA BANK are receieved and further distributed according to the addresses on the

respective cheques.

Return/Bouncing of cheques where Instant Credit was given and cheques sent forlocal/outstation clearing :

If a cheque sent for collection for which immediate credit was provided by the Bank is returned

unpaid, the value of the cheque will be immediately debited to the account where the credit was

given. The customers will also be advised immediately about the bouncing of cheques.

On receipt of information about the return / non-payment of cheques sent for collection, thecustomers will be immediately notified about the same and the appropriate charges as per theschedule of charges, as applicable, will be recovered from the customers account, under adviceto the customers.


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BACKGROUND


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Micro, Small and Medium Enterprises

Micro, small and medium enterprises (MSME) sector has been recognised as an engine of growth

all over the world. The sector is characterised by low investment requirement, operational

flexibility, location wise mobility, and import substitution. In India, the Micro, Small and

Medium Enterprises Development (MSMED) Act, 2006 is the first single comprehensive

legislation covering all the three segments. In accordance with the Act, these enterprises are

classified in two:- (i) manufacturing enterprises engaged in the manufacture or production o

goods pertaining to any industry specified in the first schedule to the Industries (Development

and regulation) Act, 1951. These are defined in terms of investment in plant and machinery; (ii)

service enterprises engaged in providing or rendering of services and are defined in terms of

investment in equipment.

Both categories of enterprises have been further classified into micro, small, medium and large

enterprises based on their investment in plant and machinery (for manufacturing enterprises) or

on equipments (in case of enterprises providing or rendering services). The present ceiling on

investment to be classified as micro, small or medium enterprises is as under:

Manufacturing Sector

Enterprises Investment in plant & machinery

Micro

Enterprises

Does not exceed twenty five lakh rupees

Small

Enterprises

More than twenty five lakh rupees but does not exceed five

crore rupees

Medium

Enterprises

More than five crore rupees but does not exceed ten crore

rupees
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Service Sector

Enterprises Investment in equipments

Micro

Enterprises

Does not exceed ten lakh rupees

Small

Enterprises

More than ten lakh rupees but does not exceed two crore

rupees

Medium

Enterprises

More than two crore rupees but does not exceed five core

rupees

Profile of Indian MSME Sector

S.No. Particular Value

1 Number of micro and small enterprises 140 Lakhs

2 Employment 600 Lakhs

3 Share in GDP 8-9%

4 Share in manufacturing output 45%

5 Share in exports 40%


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Small and Medium Enterprises (SMEs) sector in India is definitely growing at an exceptional

rate. Still, there are some important things that need to be focused upon so that best out of these

enterprises can be obtained. Here is a brief analysis of the Indian SME sector.

Some Figures of Interest

The Indian SME market is worth $5 billion. There are around 14 million SME units in India that produce more than 8,000 products. Nearly 90 percent of the Indian industrial units belong to the sector of small and medium

enterprises.

The SMEs contribute 40 percent to the overall industrial output of the country. The sector accounts for about 39% of the manufacturing output and around 40% of the

total export of the country. The major advantage of the sector is its employment potential

at low capital cost.

As per available statistics, this sector employs an estimated 60 million persons and thelabour intensity in the MSE sector is estimated to be almost 4 times higher than the large

enterprises.

It is source of innovative products. This sector creates 1.3 million jobs per annum. Finally, these enterprises are estimated to grow at the rate of 20 percent per year for

upcoming years. In recent years the MSE sector has consistently registered higher

growth rate compared to the overall industrial sector.

Main Reasons for SME Growth

Foreign and local fund providers are taking huge interest in the small and mediumenterprises of India.

Banking sector has also shown a keen interest in lending credit to these enterprises. Many recent mergers have taken place in the sector. The sector has significantly contributed towards the domestic production as well as the

export earnings.

Low investment is required to start and maintain these enterprises.


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The sector has contributed impressively towards job creation and increase in individualincomes.

Technological growth is also a factor for growth of SME's in India as there are severaltrade portals and business directories available online with huge database of buyers,

sellers, manufacturers who are basically back bone of SME's.

The SMEs are dominant players in some of Indias major export sectors namely Textilesand Garments, Leather products, Sports goods, Gems and jewellery, Handicrafts among

others. They also contribute substantially in industrial goods segments in sectors such as

electrical, engineering, rubber and plastics.

Opportunities for SMEs in INDIA

With their inherent strength and resilience SMEs can weather adverse situations like global

financial crisis and economic slowdown, as they are not dependent on public money. Many

overseas companies are approaching Indian SME to out source their manufacturing activities. In

service sector too, many are setting up BPO and KPO in India, which are a real boon for the

Indian SME sector. Unless and until the SMEs equip themselves with the latest technologies,

processes and machinery, they will not be in a position to meet the stringent quality standards set

out by the buyers. Even if they are exploring new markets, the products and services have to be

suitably modified to meet the market requirements with innovative designs and features. It is an

excellent opportunity for the Indian SMEs to convert the present global melt down condition to

their advantage by catering to the needs of the markets, which are already reeling under the

recession.

Challenges Ahead

Even after recording an impressive growth in the recent years, the small and medium enterprises

of India face many challenges:

Infrastructure needs to be developed for setting up the SMEs in the rural sector of thecountry. Transportation, electricity and communication are the main parts of the

infrastructure required.

Technology need to be evolved so that quality products are manufactured by the sector.
http://trade.indiamart.com/http://dir.indiamart.com/http://dir.indiamart.com/http://trade.indiamart.com/


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Lack of information about the inputs, including raw material, machinery and skills, is onecritical challenge in front of the owners of these enterprises.

High level of research and development is required.

Administrative framework for MSMEs

The Government has been encouraging and supporting the SME sector through policies for

infrastructural support, technology up gradation, preferential access to credit, reservation of

products for exclusive manufacture in the sector, preferential purchase policy, etc. It has been

offering packages of schemes and incentives through its specialized institutions in the form of

assistance in obtaining finance; help in marketing; technical guidance; training and technology

up gradation, etc.

Government of India has set up a new governing body for promotion and development of Micro,

Medium and Small Scale Enterprises via MSME Development Act, which came into force

from 2nd October 2006. The President under Notification dated 9th May 2007 amended the

Government of India (Allocation of Business) Rules, 1961 by which, Ministry of Agro and Rural

Industries (Krishi Evam Gramin Udyog Mantralaya) and Ministry of Small Scale Industries

(Laghu Udyog Mantralaya) have been merged into a single Ministry, namely, Ministry of

Micro, Small and Medium Enterprises.

The Ministry of Micro, Small and Medium Enterprises (MSME) is the administrative Ministry

in the Government of India for all matters relating to Micro, Small and Medium Enterprises. It

designs and implements policies and programmes through its field organizations and attached

offices for promotion and growth of MSME sector. The Office of the Development

Commissioner (MSME) is an attached office of the Ministry of MSME, and is the apex body to

advise, coordinate and formulate policies and programmes for the development and promotion of

the MSME Sector. The office also maintains liaison with Central Ministries and other

Central/State Government agencies/organizations financial institutions.

In view of the Government of Indias ambitious target of average GDP growth rate of 9% during

the 11th Five Year Plan, SMEs are playing a vital role in achieving this target. It is imperative

for the government to address the major issues plaguing the sector and take further inclusive

growth oriented policy initiatives to boost the sector. This includes measures addressing


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concerns of credit, fiscal support, cluster-based development, infrastructure, technology, and

marketing among others. As mentioned earlier, SMEs constitute 40% of Indias merchandise

exports and in order to increase Indias export share to the global trade, SMEs are expected to

enlarge their scope manifold.

Code of Bank's Commitment to Micro and Small Enterprises

This is a voluntary Code, which sets minimum standards of banking practices for banks to follow

when they are dealing with Micro and Small Enterprises (MSEs ) as defined in the Micro Small

and Medium Enterprises Development (MSMED) Act, 2006. It provides protection to MSEs and

explains how banks are expected to deal with them for their day to -day operations and in times

of financial difficulty. The Code does not replace or supersede regulatory or supervisory

instructions issued by the Reserve Bank of India (RBI) and we will comply with such

instructions /directions issued by the RBI from time to time. The provisions of the Code may set

higher standards than what is indicated in the regulatory or supervisory instructions and such

higher standards will prevail, as the Code represents best practices agreed by IVBL as their

commitment to MSMEs.Objectives of the Code

The Code has been developed to

a. Give a positive thrust to the MSE sector by providing easy access to efficient banking services.

b. Promote good and fair banking practices by setting minimum standards in dealing with MSEs.

c. Increase transparency so that they can have a better understanding of what they can reasonably

expect of the services.

d. Improve IVBL understanding of MSEs business through effective communication.

e. Encourage market forces, through competition, to achieve higher operating standards.

f. Promote a fair and cordial relationship between MSEs and IVBL and also ensure timely and

quick response to MSEs banking needs.

g. Foster confidence in the banking system.


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BUSINESS LOAN

Assets of banks consist mainly of loans to businesses and consumers and their liabilities

comprise of various forms of deposits from consumers. Their main source of income is from

what is called as the interest rate spread, which is the difference between the lending rate (rate at

which banks earn) and the deposit rate (rate at which banks pay). Banks generally do not lend

100% of their deposits. They are statutorily required to maintain a certain portion of the deposits

as cash and another portion in the form of liquid and safe assets (generally Government

securities), which yield a lower rate of return. These requirements, known as the Cash Reserve

Ratio (CRR ratio) and Statutory Liquidity Ratio (SLR ratio) in India, are stipulated by the

Reserve Bank of India and banks need to adhere to them.

Bank gives loan to companies to meet their working capital requirement or as guarantee.

Working Capital refers to that part of the firms capital, which is required for financing short

term or current assets such as cash marketable securities, debtors and inventories. Funds thus,

invested in current assets keep revolving fast and are constantly converted into cash and this cash

flow out again in exchange for other current assets. Working Capital is also known as revolving

or circulating capital or short-term capital.

FACTORS DETERMINING WORKING CAPITAL

_ Nature of the Industry _ Demand of Industry

_ Cash requirements _ Nature of the Business

_ Production Cycle _ Credit control

_ Inflation or Price level changes _ Profit planning and control

_ Manufacturing time _ Volume of Sales

_ Attitude towards Risk _Firms finance and dividend policy_ Terms of Purchase and Sales _ Inventory Turnover

_ Business Turnover _ Business Cycle

_ Current Assets requirements _ Repayment ability

_ Cash reserves _ Operation efficiency

_ Change in Technology


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SOURCES OF WORKING CAPITAL

Sources of working capital are:

_ Owned fund (Equity, Reserves, etc.)

_ Bank borrowings(Cash Credit, Packing Credit, B/D, L/C)

Sources of additional working capital include the following:

_ Existing cash reserves

_ Profits

_ Payables (credit from suppliers)

_ New equity or loans from shareholders

_ Bank overdrafts or lines of credit Long-term loans

To help companies in meeting their requirements, banks provide fund based and non fund based

loans to the companies depending upon the requirement.

Fund Based

Fund based facilities are such facilities extended by banks which involve outgo of funds from the

bank when the customer avails the facilities.

Cash credit/Overdraft facilityCash credit/overdraft is a form of credit facility in which a borrower is sanctioned a pre -

arranged limit with the freedom to borrow as much money as he requires. In case of flow

of credit to the account, he can withdraw afresh subject to the limit sanctioned. As such,the limit works

as a revolving line of credit. Bank charges interest on the outstanding balances.

An overdraft allows the individual to continue withdrawing money even if the account

has no funds in it. Basically the bank allows people to borrow a set amount of money. As

security is always taken from the client against overdraft limit, it is a secured limit and

thus it is also called Secured Overdraft facility (SOD).

Cash Credit (CC) is same as Overdraft facility, Only difference between cash credit and

over draft is that in cash credit both stock and debt are considered while in overdraft

facility only debt is considered. Thus, client has to send monthly stock statements and list

of debtors to the bank from with monthly drawing power is calculated.


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Bill DiscountingBill discounting is a major activity with some of the smaller Banks. In case of

discounting of a bill, a bank buys the bill (i.e. Bill of Exchange or Promissory Note)

before it is due and credits the value of the bill after discount charges to the customers

account. The transaction is practically an advance against the security of the bill and the

discount represents the interest on the advance from the date of purchase of the bill until

it is due for payment. Only usance bills are discounted.

Under this particular type of lending, Bank takes the bill drawn by borrower on

his(borrower's) customer and pay him or her immediately deducting some amount as

discount/commission. The Bank then presents the Bill to the borrower's customer on the

due date of the Bill and collects the total amount. If the bill is delayed, the borrower or his

customer pays the Bank a pre-determined interest depending upon the terms of

transaction.

Term Loan

Term Loan are the counter parts of Fixed Deposits in the Bank. Banks lend money in this modewhen the repayment is sought to be made in fixed, pre-determined installments. This type of loanis normally given to the borrowers for acquiring long term assets i.e. assets which will benefit theborrower over a long period (exceeding at least one year). Purchases of plant and machinery,constructing building for factory, setting up new projects fall in this category. Financing forpurchase of automobiles, consumer durables, real estate and creation of infra structure also fallsin this category.


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Pre shipment CreditPre-shipment Credit is offered to an exporter by way of packing credit to enable him to

finance purchase/import of raw materials, processing and packing of the goods meant for

exports. Import can be on DA (Payment against acceptance) or DP (payment against

receipt of document) basis.

DP means documents against payment (a sight payment) . In this case the documents are

sent to the buyers bank who holds the documents until payment is receieved by that

bank. Once payment is received, the bank releases the documents to the buyer.

DA means documents against acceptance. This is NOT a banker's acceptance and it is

NOT a deferred payment undertaking by the bank. In this case, the documents are sent to

the buyers bank who releases only the draft to be accepted by the buyer. Once the draft is

accepted with a stated maturity date and returned to the buyers bank, the bank will release

the documents to the buyer. The buyer has the obligation to make payment at maturity,

but if they do not pay, the bank will NOT make payment to the seller.

Post shipment CreditPost-shipment Credit is offered to an exporter to finance export sales receivables after the

date of shipment of goods till the date of realisation of export proceeds. Like pre

shipment, payment for post shipment can also be on DA or DP basis.

Non-Fund based

Non-fund based facilities are such facilities extended by banks which do not involve outgo offunds from the bank when the customer avails the facilities but may at a later date crystallise into

financial liability if the customer fails to honour the commitment made by availing these

facilities.


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Letter of creditA Letter of Credit (LC) is a letter from a bank guaranteeing that a buyer's payment to a

seller will be received on time and for the correct amount. In the event that the buyer is

unable to make payment on the purchase, the bank will be required to cover the full or

remaining amount of the purchase.

LC are of two types- usance and sight. The main difference between the two is that in

Sight LC where the purchaser is not provided any credit period while in Usance LC

credit period is provided by the seller to make payment for the goods. Thus in Sight LC

the bank send the LC first and then the goods arrive whose papers remain with the bank

till the time the buyer make payment to the bank and signs these papers. On the sellers

side, the LC will be payable only once the goods are under the possession of bank and on

buyers side goods can be received only after the payment is done to the bank. In case of

Usance LC, goods are first dispatched and then the client is given a credit period in which

he has to make the payment to the seller. If the client does not make payment in the given

credit period, bank send the LC to the seller.

LC can be used for buying material from its own country or from foreign country. If the

goods are bought from its own country, in our case from India, it is called Inland Letterof Credit (ILC). If the goods are bought from a foreign country i.e. imported, it is called

Foreign Letter of Credit (FLC).

Bank GuaranteeBank Guarantee (BG) is a guarantee from a lending institution ensuring that the liabilities

of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will

cover it.

A bank guarantee and aletter of creditare similar in many ways but they're two different

things. Letters of credit ensure that a transaction proceeds as planned, while bank

guarantees reduce the loss if the transaction doesn't go as planned. A letter of credit is an

obligation taken on by a bank to make a payment once certain criteria are met. Once
http://www.investopedia.com/terms/b/bankguarantee.asphttp://www.investopedia.com/terms/l/letterofcredit.asphttp://www.investopedia.com/terms/l/letterofcredit.asphttp://www.investopedia.com/terms/l/letterofcredit.asphttp://www.investopedia.com/terms/l/letterofcredit.asphttp://www.investopedia.com/terms/b/bankguarantee.asp


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these terms are completed and confirmed, the bank will transfer the funds. This ensures

the payment will be made as long as the services are performed. A bank guarantee, like a

line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the

sum is only paid if the opposing party does not fulfil the stipulated obligations under the

contract. This can be used to essentially insure a buyer or seller from loss or damage due

to non performance by the other party in a contract.

LEF (Loan Equivalent Factor)For commercial loans, when granting a revolving line of credit, a bank usually provides a

credit limit. A borrower obtains an immediate loan amount and the future availability of

the total loan amount. Accordingly, the corresponding exposure for the bank has two

parts: the outstanding balance (NB) and the current commitment (NE). The outstanding

balance refers to the amount drawn by the obligor, while the current commitment

includes drawn and undrawn portions that the bank has promised to lend to the borrower

at his or her request. The probability of drawing the undrawn portion in the next 12

months is defined as the loan equivalency factor (LEF) off balance sheet. Since a

probability always has values from 0 to 1, LEF is constrained into a range of 0 to 1.

Buyers Credit Raw MaterialA Raw Material Guarantee (an import credit guarantee) may be issued as security for a

loan granted to a foreign borrower in connection with a long-term contract with an Indian

buyer concerning import of raw materials (for example, concentrates for the basic metals

industry).

While giving loans bank does the analysis of various parameters to check the risk associated with

the repayment of loan. One of the major parameter is financial analysis where key ratios areanalysed. In general the levels and risk associated with these key ratios are:


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Particulars Formula Low

Risk

Medium

Risk

High

Risk

Current Ratio Current Assets

Current Liability

>1.40 1.20-1.40


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SME LENDINGAT

ING VYSYA BANK


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CREDIT APPRAISAL PROCESS AT ING VYSYA BANK

1) Login of the credit file.

2) To watch out that weather the case is doable or not.

3) Preparation of the note.

4) Appraisal by the risk department.

5) Sanction letter.

STEP FIRST: LOGIN OF THE CREDIT FILE

In this very first step, the marketing team of the bank gets the cases on the basis oftheir references and the data in their hand . After that the marketing team will hand over thecase to the credit department along with the necessary documents for further process ofthe case.

Following is the list of necessary documents required to log in a case.1. Duly filled application form.2. Audited financials of last three years.3. Provisional financials of last year (if audited is not available)4. Bank statement of last six months( through which bank A/c the firm does the

maximum banking)5. ITR (Income Tax Return) of Promoter/ Property owner.6. Vintage proof.7. Sanction letter of prevailing limit (if any).8. CIBIL FORM

Once all the documents are completed for log in .The case is shown in MIS as a log in bycredit department.

STEP TWO: DECISION OF GO-NO-GO CRITERIA BY THE CREDIT DEPARTMENT

Once all the login documents are completed the process of checking of do ability(GO/NO GO) is done.

In this very step the dedupe checkup is to be done. In this dedupe checkup we do a checkout whether there is any overdue or default on the borrower side or not.Once the dedupe checkup is clear the credit team prepare the finspred (software for analyzing thefinancials) for the case with the help of the audited financials .And also check out the track


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record in the bank statement of client .We can check the track record with the help of thefollowing things.

1. Counts of credit transactions2. Total amount of credit transactions (%of the ratio to turnover)3.

Counts of debit transactions4. Total amount of debit transactions (%to the ratio of expenditure)

5. Number of INWARD cheque returns6. Number of OUTWARD cheque returns7. Timely payment of EMIs and Interest.

After preparing the finspread on the basis of certain ratios and track record of bank statement thecredit team decides that the case is doable or not.

Following are the some of the main parts or ratios on which the bank gives more emphases while

to judge that the case is doable or not.

1. LEVERAGE of the company must have the leverage of 6 according to the bank norms(i.e. TOL/TNW total outstanding liability, tangible net worth)

2. CURRENT RATIO of the company3. MPBF (Maximum Permissible Bank Finance)4. DSCR (debt security coverage ratio) in case of term loan5. Profitability ratio (like gross profit margin, EBIDTA rate, PAT margin)6.

THIRD STEP: NOTE PREPARATION

Once the case is to be approved as doable a set query is send to the marketing team for furthermovement of case or we can say for the preparation of noteIn the note the credit team summarizes up all the details of the borrower.

NOTE WRITING INCLUDES THE FOLLOWING1. Business background2. Process of business.3. Comment on financial statement of the company4. Future plan of the company and comments on the projection.5. Bank statement analysis6. Promoters background7. Market reference of the client8. Industry scenario9. Detailed terms & condition of the sanction including:10.Type of limit to be sanctioned (fund basedCC / OD/ TL/ PC/ WCDL etc & non fund

based - LC/BG/For ex limit etc.)11.Amount of Limit to be sanctions


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12.Rate of interest (for fund based facility) and rate of commission (for non fund basedfacility) and processing fee

13.Detail of security (primary and collateral)14.Detail of Personal guarantee.15.Other terms & conditions as required.16.

And other information specific to case to case.

Once the note is prepared the case is sent to the centralized risk management department(CRMD).the risk department is totally independent from credit department the credit departmentsent the prepared note to risk department to examine the proposal.

STEP FOUR: APPRAISAL BY THE RISK DEPARTMENT

In this step the risk department scrutinizes the whole proposal and they bring out theobservations, and send a list of query to the credit department.

As and when credit department will get a list of query raised by the risk department they replieson the same with help of the marketing department start working on them to solve out the quiresalong with the help of marketing department.

After solving all the observation the case s uploaded for sanction to the appropriate authority asper the delegation of power by the bank.

STEP FIVE: SANCTION

After the uploading of the case, the case is presenting by the credit department along withmarking department to the appropriate author for the sanction of the case. During thepresentation of the case various observation are raised by the appropriate sanction author and onthe basic of discussion, the authority decide to approve / reject or withdrawn for modification.

If case is withdrawn for modification for the adding of some information or document. The creditdepartment along with mark modifies the proposal as required by authority and again uploads thesame and discuss with the authority to get it approved or rejected.

Once the case got sanctioned minutes are generated. On the basis of minutes the CAL (CreditAgreement Letter) are prepared and issued to customer.


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CREDIT APPRAISAL PROCESS AT ING VYSYA BANK

The credit appraisal process at ING Vysya bank is considered very thorough and conservativethe bank undertakes the above steps to complete the credit appraisal process.

1. Meet the client: The bank has appointed various Relationship managers( RM) andexecutives who find the clients with credit requirements for their business, if the RM aresatisfied with the client and its expectation with the bank the case goes to the regionaloffice for a complete check and evaluation.

2. Take KYC Documents& Application form: The RM after the first course of interactionwith the client asks for the various document required to appraise the project. KYCdocuments as mentioned in the policy guidelines are Know your customer (KYC) thecustomer can be best known with his financials and other vintage proofs mentioned in the

requirement list.

3. Initial Dedupe Check: This is better known as initial de-duplication checks in this thebank checks the credit reporting of the client whether he holds any over-dues etc. Thebank also checks the client in RBI defaulter list.

4. Check the Banking: The first thing the bank checks is the banking of the existing limitaccount if any, the bank tries to check the existing performance of client with the otherbanks, and in case more number of inward returns due to in-sufficiency of funds. Thenthis is also a deviation and if there is over utilization of the limit on all the days then thiscalls for accountability by the client.

5. Audited financial test: The bank under takes a complete check of financials as mentionedin the requirements, these audited financials are put in finspread software of the bank andthen projections are made on the basis of financials and then various profitability ratiosare analyzed and the financial soundness of the company is analyzed. The financialviability of the company is checked on various parameters as mentioned.

6. Deviation check: The bank after checking the financial soundness of the company goesfor the verification of the deviation check of policy compliance, if any in case of majordeviations the case is presented in front of the zonal credit committee, their decisionstands the final verdict on the approval f the case.

7. Internal Verification: The bank through its various sources makes a complete thoroughinvestigation of the handling of business of the clients, this enables the bank to make surethat the client is not forging with the financials of the company.

8. Approval by ZCC: If the credit limit is below Rs5oo lakhs then the approval is soughtby Zonal head of the business banking and if the amount exceeds the above stated


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amount then the case is first discussed by ZCC and is then presented on ECC(electroniccredit committee) depending upon the policy compliance failed by the client.

9. Decision on disbursal of loan: When the case is presented to risk department it analysesthe variety of risk involved in the sanctioning of loan if it crosses the parameters then the

possibility of disbursal of loan declines then the ZCC makes its final approval on thelimits required by the client and the limit deserved by the client, the bank makes it finalway to the approval of the loans.

10.Discussion between client &Bank on approval: The banks proposes its terms andconditions to the client and the amount of loan that is approved to the client at what rateof interest and what proportion of collateral is kept by the bank, when the client agrees onall these terms then only the case reaches the sanctioning stage.


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Whole of my internship can be divided into three stages. At stage one I worked on drawing

power. This helped me to understand the significance of drawing power and method of its

calculation. At stage two I did OPERATIONS. This stage is a very important part of banking as

through this trackbanks real customer orientation is seen by doing fast and accurate work. Stage

three of my internship is credit appraisal. All these stages are described below in detail:

Drawing Power

Drawing Power tells us the monthly requirement of client having Cash Credit facility. For this

stock statements are analyzed and checked to see whether the given creditors and debtors are in

accordance with the details given by clients to the bank. The method used to calculate DP is:

1. We take monthly information of stock, Creditors and debtors from the client

2. We find the eligible debtors from the information given. This is found by calculating the

number of debtors less than certain days, specified by the bank during approval of loan.

3. Then we find the DP on Debt by the formula: eligible Debt x (1- margin on debt)

4. Similarly we find value of paid stock by subtracting creditors from total stock.

Once paid stock is found, we find DP on stock by the formula: Paid stock x (1-margin on stock)

5. Then we find total DP required by adding DP on stock and DP on Debt.

6. Then we subtract this total DP by the outstanding facility enjoyed by the client from other bank. This

gives us net DP

If the net DP is less than the limit given by us then the Available DP is equal to net DP, otherwise

Available DP is equal to the credit limit given by IVBL.


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DP

Availabl

e300.00

484.13

300.00

75.00

200.00

60.00

0.00

1200.0

0 600.00

NetDP

420

484.1

3 720.7

5 387.0

7 293.4

4 112.2

4 - 159.2

2242.

09 1151.

80

Tot

al

O/s0.00

0.00

900

350.

00 0 0.00

0.00

2500 40

0

Total

DP

420

484.1

3 1620.

75 737.0

7 293.4

4 112.2

4 - 159.2

4742.

09 1551.

80

DP

on

Debt

304.44

346.34

1962.7

5 751.12

123.83

187.11

13.31

2024.9

1 1047.8

0

Margi

n%

35%

25%

25%

35%

35%

25%

40%

25%

35%

Valid

Debt

468.37

461.78

2617

1155.5

7 190.51

249.48

22.19

2699.8

8 1612

Valid

upto

90 Days

180Days

90 Days

90 Days

90 Days

90 Days

90 Days

90 Days

90 Days

Total

Dedt

518.21

462.12

3249

1382.8

9 257.8

249.48

222.19

3234.5

4 1612

DP

on

Stock

115.56

137.79

-342

-14.06

169.61

-74.87

-172.58

2717.1

8 504.00

Margi

n%

25%

25%

25%

25%

25%

25%

25%

25%

25%

Paid

Stock

154.08

183.72

-456

-18.74

226.14

-99.826

-230.11

3622.9

127.74

Creditor

s 0.00

241.19

2714

1071.48

33.71

253.506

787.12

2303.67

46.36

Stock

154.08

424.91

2258

1052.7

4 259.85

153.68

557.01

5926.5

7 174.1

Limit

(in

lakhs

3

00

5

00

3

00

7

5

2

00

6

0

4

00

1

200

2

00

Case

1. 2. 3. 4. 5. 6. 7. 8. 9.


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Credit Appraisal

What is the difference between fresh sanction and enhanced limits. For this we first make CAM,

Credit Appraisal Memo. The purpose of this memo can be:

1. Fresh Proposal The proposal of the company which has approached the bank for the first time, i.e.which does not have any previous relationship with the bank.

2. Enhancement When a company is already enjoying one or more of the FB or NFB facilities from thebank and wants to increase the limit for the same then enhancement proposal is made.

3. Adhov Sometimes for a certain period the given limit is not sufficient for the company to meet itsrequirements. In such case Adhov limit, over and above the average sanction limit, is provided to the

client. Adhov is provided for maximum 90 days.

4. Review If the client is new or the performance of the company as per projected is doubtful then a midreview date is decided while approving fresh/enhancement proposal. Is such case mostly the client asks

for more limit as predicted by bank to fullfill its requirement. So post sanction conditions are put to the

proposal, for example company has to maintain a turnover of 12 million and its TOL/TNW should not be

more than 6. To monitor whether these conditions are meet review proposals are made before the end

mid review month. The facility limit will remain same after sanction of review proposal only if all the

condition are fulfilled.

5. Renewal If the client wants to keep the facility limit same as existing limit, renewal proposal is madebefore the end of existing facility.


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CAM include following informations:

I. Borrowers BackgroundThis include details about line of activity and end product of client, business process of the factory,

promoters background, information about promoters share in the company and their experience,

infrastructure details of the company i.e. name and address of factories/offices/godowns of the clients

and information about the FB and NFB loan facilities enjoyed by the client from different banks.

II.Credit BaseIt includes future expansion plans of the firm, in case there is any major change in business process.Details regarding major customers and suppliers of the company, their contribution percentage, their

contact person with contact number. Details about contact person of suppliers and customers are

required to cross check the details about the company and their business.

III.Relationship/Business Rationale This includes details about relationship experience if the client isalready having relationship with the bank. Business rationale include the estimates of the earning

that the bank will get after the proposal is passed in the form of processing fee and gross interest.

IV.Financial Analysis of Client This includes the financial summary of the client for current year, auditeddetails of previous year and projections for next year. In this financial summary some ratios are also

included, they are TOL/TNW, inventory turnover, debtors turnover, creditors turnover and NP

margin. This financial summary is used to analyse various parameters about the company and

reason behind any major change in the company. The parameters that are analysed are turnover,

profitability, leverage and liquidity of the company.

V.Risk Appraisal - Once the proposal comes we analyse the profile of the company to calculate the riskinvolved in giving the asked facility to it. The risk appraisal is done based on following risks:


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1. Business Risk and outlook - It covers Market Dynamics, Competitive Positioning, Supply ChainManagement, Technological Development/ Obsolescence Risks, Dependence on Single Supplier,

Dependence on single Buyer and Products are dependent on a Single industry.

2. Management Risk - It covers Management capabilities, Dependence on few individuals, Presence ofprofessionals and succession plan.

3. Performance Risk - It covers Technical know-how, Raw material souring/availability, Product deliverycapabilities and Competition comparatives - cost, product features.

4. Structure Risk - It covers Product Structure, Document structure and Process Structure.5. Industry Sector Concentration- It concentrates over exposure to a Particular industry by the Bank.6. Country Risk - It covers convertibility, bans/sanctions on the country, Currency Risk.7. Environment Risk - It covers the risks arising out of dealing with hazardous materials, disposal of

waste/effluent, Activities/Location dealing with social/environment issues.8. Regulatory Risk - It covers compliance with statutory/Regulatory requirements, legal requirement and

lending regulations.

9. ING Vysya Banks Reputation Risk - It covers Moral and Ethical issues and Social/Governance Issues.10. Specific Purpose of Asset Collateral - It cover the risks arising out of assets put to specific usage and

tailor made assets and the problems in disposal in case of need.

11. Financial Risks - It covers Operating Efficiency, Financial Stability and Cash Flows.12.Transaction Risk - It covers Documentation Risk, Covers/Collateral Valuation Risk and Interest Rate Risk.13.Any other Risk

VI.Take Out It covers both primary and secondary takeouts. It is the hypothecation and collateralsecurities kept by the company with the bank which can be taken by the bank in case of default.

VII.SWOT It includes the strength, weakness, opportunities and threat of the company.

VIII.Policy Deviation Deviation from credit policy is also checked for the clients. There are three parametersacross which deviation is analysed and observed. They are deviation in credit policy financial

parameters, deviation in policy other parameters and verification of defaulter list.

(a) Deviation in Credit Policy Financial Parameters: The limits for the financial parameters

are decided by IVBL, across which deviation is to be calculated. Under this explanation /


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justification for considering the request despite deviation has to be mentioned along with the

time frame within which the deviation has to be corrected and brought within the threshold level

has to be mentioned. The parameters and its limits are:

Parameter Median Threshold Actual as of last audited

B/s dated 31-03-XX

Remarks*

Minimum EBITDA/Net Sales 0.03 0.02

Minimum Interest Coverage Ratio

(EBITDA/Interest & other finance

charges)

1.75 1.50

Minimum Current Ratio (Current

Assets/Current Liabilities)

1.15 1.00

Maximum Debt Equity (Total interest

bearing Debt/TNW)

2.00 3.00

Maximum TOL/TNW 3.50 4.50

Minimum DSCR (EBITDA/interest plus

current maturities in long term Debt)

1.40 1.25

*Here justification for considering with deviation is given. If the minimum value is above median then it is

accepted, if its between median and threshold then also the deviation is considered but if the minimum value is less

than threshold then the parameter fails.

(b) Deviation in Other Credit Policy Parameters: It includes exposure norms in unit and

industry/sector, tenor norms for exposure & rating, regulatory restrictions, takeover norms,

FEMA/FERA requirements and Sec 19(2) of Firm act. All these are supposed to be compiled

with the proposal and if not compiled then time lines has to mentioned within which compliance

will be done. This is important as it states various norms to be followed by the firm across which

deviations are checked to insure that in future company would not be facing any legal issues

related to these norms. This information also helps to understand the firm better and thus if any

change occurs in future the bank would be in a better position to examine the risk associated with

it and problems that bank could face in future.


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(c) Verification of Defaulters List: We also check for the promoters in the default lists and take

out their cibil to check the credibility of the promoters. These defaulter lists are RBI Defaulters

list, Wilful defaulters list, RBI Caution list, ECGC and Special Approval list. CIBIL Database is

also checked.

IX.Highlights of credit investigation done It contains the summary of credit investigation report. CIRincludes:

- Observations made on statement of account of the client

- Personal enquiries made with banks/financial institutions

- Market opinion with customer of the client, creditors of the clients and independent sources.

- Details about visit to factory/office

- Information through any other source

- Conclusion to credit investigation.

X.Compliance with statutory requirements It includes confirmation that all IT/ST/ PF/ESI paymentshave been made and there are no overdue and that all statutory approvals have been taken for

conducting the business/ manufacturing activity

XI.Summary of conduct of the account It is done in case enhancement/review/renewal. It includes veryshort summary of Account performance and covered in detail in Account relationship and

monitoring sheet. Summary of account performance include earning of bank from this relationship

and detail about utilization of working capital limit. Utilization of working capital is found from MIS

system of IVBL.

XII.Cover/Collaterals and covenants It includes details about primary cover, collaterals and net worth ofthe guarantees. This is done to insure that in case of default in repayment of facility, cover and

collaterals provided by the firm to the bank are sufficient to overcome losses.

XIII.Risk rating/Risk-reward/Profitability Bank earns profit from the facilities given in the form of thegross interest and income through commission.


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Interest rate is decided at the time of approval of facilities. This interest rate varies from client

to client depending on their credit rating and previous relationship with bank. Base Rate of the

bank, IVBR ( ING Vysya Base Rate), is the minimum interest rate that can be enjoyed by the

customer.

Parameter

Exc

ellent

Stro

ng

Goo

d

Satisfactory

Ade

quate

Marginal

Vulnerable

(1) (2) (3) (4) (5) (6) (7)

BusinessRisk

Industry/Business

Status

Industryw

ell

stablished

and

growingve

ry

fast,i.e.>20%

Industrywelleastablishedand

growingfast,i.e.>10%annually

Industryw

ellestablished

and

growing

modest,

i.e.

>5%

Matureindu

strybutwithmodest

growth

Regulatory

change/

price

fluctuations

arefrequent

Industrysub

jecttowidecyclical

swings/Hazardous

Industryin

longterm

decline/

Unfavourable

Clients Growth

Successfultrackreco

rdformorethan

25years

Goodtrackrecordf

ormorethan15

years

Goodtrackrecordf

ormorethan10

years

Goodtrackrecordormorethan5years

Acceptabletrackrecordformorethan

3years

Establishedformorethan3years,

viabilitynotyetprove

n/stablished

Borrowerisastartup

venture


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Competitive Position

MonopolyinL

ocalMarket

Localmarket

leader.Weak

comprtition

Clienthassign

ificantmarket

share(>20%m

arketshare)

Clientisone

oftheseeral

large

player

with

>10%

Lessthan5%m

arketshare

Losing

market

share

or

facingcutthroatcompetition

Insignificant

player

comparedtoco

mpetition

Suppliers

Longterm

relations

hipwithwell

establishedsuppliers.

Longtermcontractw

ithsuppliersis

inplace.

Borrowerisveryim

portanttothe

suppliers.

Dependant

on

one/

two

large

suppliers.

Commodity

busine

ss.

Supplier-

Buyerrelationshipisunimportant.

Borrowerisunimp

ortantto

the

suppliers.

Supplierrelationship

isunstable.

Customers

Long

term

relationship

wi

th

well

establishedCustomers.

Longtermcontractwithcustom

ersisin

place.

Borroweris

very

important

to

the

customers.

Dependantonone/twolargecustomers.

Commodity

business.Seller-C

ustomer

relationshipisunimportant.

Borrower

is

unimportant

to

the

customers.

Customerrelationshipisunstable.

Financial

Liquidity

CurrentRatio

>2.0

CurrentRatio

>1.5

CurrentRatio

>1.33

CurrentRatio

>1.20

CurrentRatio

>1.0

CurrentRatio

20%PBDIT

>

15%

PBDIT

>

10%

PBDIT

>

5% PBDIT

3.0

DSCR

>

2.5DSCR

>

2.0

DSCR

>

1.5

DSCR

>

1.25

DSCR

>

1.0

DSCR

200%grossliabilities.

Goodliquidity.

Free

assets

>

100

%

liabilities.

Satisfactoryliquidity.

Freeassets>50%grossLiabilities.

Fairliquidity.

Freeassetsavailablebutliquidityis

susceptible.

Freeassetsnegligible.

Stillhassome

capacitytoborrowclean.

Poorfundraisingcapacityincaseof

need.

Management

Competence

M

ostcompetentinbusinesscom

munity.

H

ighlyenlightened.

H

ighly

competent,

enterprising

and

knowledgeable.

A

boveAveragecompetence.

G

oodbusinesssense,butperhapsweak

in

finance/administration.

A

veragecompetence.Lacksstrategic

th

inking.

A

veragecompetencelevel.

U

nprovencompetence.

Management

Commitment

This

is

the

only

business.

Unwave

ringcommitment.

Strongc

ommitment.Thisbusinessis

themain

contributor.

Goodcommitment.Thisisoneof

thefewmainbusinesses.

Thisisoneoftheseveralactivities.

Commitmentisadequate.

Levelofcommitmentchangingfrom

yeartoyear.

This

is

a

minority

activity.

Commitmentisunclear.

Managementlackscommitmentto

thisbusiness.


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Succession

P

rofessional

management.Succession

no

issue.

S

uccessorisalreadyidentified

andreadyto

s

tep-in.

O

wner/shavewelldefined

and

practical

s

uccessionplan.

N

odifficultyanticipantinsuccession.

O

nemanshow.Hislegalheirm

aybeableto

takeover.

O

nemanshow.Butprofessio

nalmanagers

w

illensurecontinuity.

S

uccessionmayposeaproblemifownerdies.

Employee Quality

Allkeypositionheldbywell

qualifiedmemberoffamily.

Highlyqualifiedandmotivated

em

ployeesatalllevel.

Mo

tivatedandloyalemployees

withsoundknowledge.

Loyalandhonestemployeesbut

lacksmotivation.

Mo

tivated

employees,

but

questionableloyalty.

Em

ployeesarenewand/ornot

experienced.

Em

ployees

have

little

competenceand/orauthority.

Internal Controls

Exc

ellent

internal

control

systemwithfrequenttesting.

Goodinternalcontrols.Have

stoo

dthetestoftime.

Goodinternalcontrolsystems.

No

majorlapsessofar.

Inte

rnal

controls

exist

but

larg

elyuntested.

Notformalinternalcontrols.

Ownerssupervisonstrong.

Notformalinternalcontrols.

Ownerssupervisionaverage.

Min

orlapsesnoticeddueto

the

lackofinternalcontrols.


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The Commission earned by the bank depends on the type of proposal/facility. IVBL charges 0.5%

on the renewal of the existing limit. While if it is a case of enhancement of limit or fresh

proposal, 1% is charged on the limit provided.

Credit Risk Rating is an important part of Credit Appraisal as it determines the risk associated

with the bank and thus profitability of the bank. To do credit risk rating we first calculate the

credit risk which is further divided into three heads Business Risk, Financial Risk and

Management Risk.

While calculating cumulative risk of the firm, we give marks to the firm on the basis of various

parameters under each head and find risk in respective head. Once individual risks are found, we

Repayment Record

Borrower

always

prepays

amountdue.Excellenttrack

Good

repayment

record.

Occasionallyprep

ays.

Allpaymentsaremadeontime.

Payments

are

occasionally

delayedfora

few

days

or

Afewpayments

delayedupto

30daysornewrelationships.

Frequentoverduebutsettled.

Mostlysettledwithin30days.

Mostpaymentsa

redelayedfor

morethan30days.

Compliance Record

Strongcommitmenttocompliancein

letterandspirit.

Complieswithallcon

ditionsand

covenants.

Allmajor/criticalconditionsare

compliedwith.

Seeks

prior

approval

when

conditionscannotbecom

pliedwith.

AttitudetocomplianceislaxorNew

relationship.

Unsatisfactorycompliancerecords.

Chronicdefaulterincom

pliance.


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do weighted summation to find the overall score of the firm based on which Credit Risk Rating

is given to the firm.

Credit Risk rating varies from CRR1 to CRR7. The parameters are rated based on following

condition:

After giving score to each parameter, risk rating is calculated for business risk, Financial risk and

management risk. It is a average of all sub parameter under a particular group.

The final score of the firm is the cumulative summation of all twenty parameters. On the basis of

this cumulative score overall Credit Risk Rating of the firm is done as follows:

Total Score Credit Risk Rating Remark

1 20 to 29 Excellent

2 30 to 49 Strong

3 50 to 69 Good

4 70 to 89 Satisfactory5 90 to 109 Adequate

6 110 to 129 Marginal

7 130 to 140 Vulnerable

Credit Risk Rating of a firm is always done based on the details of latest available audited Balance Sheet

and Profit & Loss statements.

XIV.Conclusion/Recommendation On the basis of analysis of above discussed parameters, it isdecided by the author of the report whether it is beneficial for the bank to sanctioned the

concerned facility limit to the client.


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CASE DETAILS

ABC INDIA PVT. LTD

Control InformationApplication No. Application date 10/06/10

Borrower Name ABC India Pvt. Ltd.

Banking arrangement Sole Asset Classification Standard

Line of activity Manufacturing ofAuto Dies

Priority Sector No

Constitution Private Limitedcompany

Banking with IVBL

since

New customer

Sub-section for PSA Manufacturing Service Enterprise Micro Small

Type of Exposure Renewal Review Enhancement Fresh Ad hocOthers

Approval Authority ZCC Last approval on NALimits valid till 30.06.11 Mid review date (if any) None

No of Policy deviations 1 Grmeoup N NA

Credit Risk Rating

Particulars 1 2 3 4 5 6 7 Remark

(Financial Information per last audited

accounts as on 31-Mar-10)

Industry/Business Status Industry well established

Clients History-Growth in

Turnover & Profitability

more than 10 years

Competitive Position One of the several large players

Suppliers Depend on 2-3 large

Customers Borrower is very important to its

clients suppliers

Liquidity 0.74

Leverage [TOL/TNW] 2.04


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Sales Growth Sales widely fluctuating

PBDIT/Sales >5%

DSCR 3

Integrity Generally respected for integrity but

not yet tested

Family Standing/History Well established family

Financial Standing Good Liquidity

Management Competence Very competent

Management Commitment Strong commitment.

Succession owner have well established

succession plan

Employee Quality Motivated employees

Internal Controls good internal controls, no lapse so

far

Repayment Record New Relationship

Compliance Record New Relationship

Business Risk Score 4.0

Financial Risk Score 4.6

Management Risk Score 3.2

Total 75

CRR 4

EXPOSURE TO BORROWER AND CRR

Exposure to Borrower/ Group and CRR

Existing Proposed

Borrower Group Borrower Group

Exposure Nil Nil 900.0 900.0

CRR - - 4 4


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PURPOSE OF APPLICATION:

i. Credit facilities recommended

Sl No Nature offacility1

Existing

Limit

O/S ason O/D2 if

any

Proposed limit3 Terms- RoI, margin,tenor, usance period,

commission details, etc)

By Br/

RM

By

RO

Existing Proposed

1. TERM LOAN 500.0 500.0 4.25 % belowIVRRi.e.11.50%p.a.(Currently IVRRis at 15.75%)Margin: 25%

Repayable in 60monthlyinstallments ofRs. 8.33lacsalong withinterest, startingfrom Jan 2011onwards

2. CC 200.0 200.0 4.25 % belowIVRRi.e.11.50%p.a.

(Currently IVRRis at 15.75%)Margin: 25%0N STOCKAND BOOKDEBTS

3. BankGuarantee

200.0 200.0 Commission: -1.2%p.a., CashMargin: 20%,Tenor max 36Months

Total 900.0 900.0


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FINANCIAL ANALYSIS OF CLIENT

Particulars Previous Year

Actual (2007)

Previous

YearActual(2008)

last year

audited(2009)

Provisional

(2010)

Projecte

(2011)

1) Sales 1,994.45 913.85 1,664.89 1,530.98 2,194.00

2) PBDIT 166.39 225.93 279.09 349.88 592.00

3) Interest 78.68 76.99 90.90 65.65 95.00

4) Depreciation 117.64 136.43 147.86 153.67 250.00

5) Taxes 6.64 3.98 4.93 0.00 74.10

6) PAT -36.58 8.53 35.41 130.56 172.90

7) Capital 873.45 881.98 923.57 1,087.96 1,260.86

8) Unsecured Loans 0.00 0.00 0.00 0.00 0.00

9) Loans from Other/Our Banks

a) Term Loans558.46 453.75 495.24 1,026.85 1,487.76

b) OD/CC 653.43 650.00 650.00 450.00 600.0010) Current Lia.