Summer Internship Report - Dena Bank

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Summer Internship report on retail and MSME advances in Banks.

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  • SUBMITED FOR PARTIAL FULFILMENT OF REQUIREMENT FOR THE

    AWARD OF DEGREE

    MASTER OF BUSINESS ADMINISTRATION

    SESSION 2013-2015

    DEPARTMENT OF BUSINESS ADMINISTRATION

    UNIVERSITY OF LUCKNOW

    Under the guidance of Mr. Kaustubh Dwivedi (Senior Manager, Credit &Risk and Chief Mentor)

    and

    Mr. M K Madhukar Branch Manager, Bangla Bazar Branch, Lucknow

    On ROLE OF RETAIL & MSME ADVANCE IN BANKS

    Conducted at

    DENA BANK

    Zonal Office and Bangla Bazar Lucknow Branch

  • Department of Business Administration, University of Lucknow -2-

    PREFACE

    The objective of this project is to study the working of DENA BANK for providing

    loans & advances, credit transaction and credit appraisal to Retail and MSME sector. MSME

    sector is critical to Indias economy and potentially a key driver if growth, job orientation,

    innovation and economic prosperity.

    After undertaking in the depth theoretical study such as type of advances, MSME Policy

    of DENA BANK, credit rating, CMA and various financial under MSMEs. It was found that

    several industries are growing under banking finance and MSMEs is one of the fast growing

    industries from all the sectors. According to the Fourth Census of MSME in 2006-07 in India,

    the number of MSMEs was estimated at 36.17 (only 1.56 million registered-source MSME

    annual report 2012-13, Government of India) million employing about 80.52 million persons.

    By the year 2011-12 the estimated numbers of MSME units were 44.77 million with

    employment of 101.26 million persons. Out of these MSMEs, 31.79 percent are engaged in

    manufacturing and 68.21 per cent in service enterprises. This sector contributes to about 44 per

    cent of the total manufacturing output and accounts for over 40 per cent of the total exports of

    the country and forms the second largest source of employment next only to agriculture.

    The project was an attempt to understand and perform the work in credit transaction

    and credit appraisal proposal which I have included is just an example of it. I have worked on

    many such proposals, which are beyond the scope of this project. Hence the whole experience

    of working in such a renowned public sector unit was very good and made me learn a lot out

    of it.

  • Department of Business Administration, University of Lucknow -3-

    ACKNOWLEDGEMENT

    The project ROLE OF RETAIL & MSME ADVANCE IN BANKS has been

    conducted by me during 1st June, 2014 to 31st July, 2014 at Dena Bank, Zonal Office

    Lucknow and Dena Bank Bangla Bazar Branch, Lucknow. I have completed this project,

    based on the primary and secondary reseach under the guidance of my bank guide

    Mr.Kaustubh Dwivedi (Senior Manager, Credit & Risk and Chief Mentor).

    He has helped me to learn about the process of giving loans and advances to MSME

    sector by giving me a valuable insight into the role played by Banks in MSME sector. My

    increased spectrum of knowledge in this field is the result of his constant supervision and

    direction that have helped me to absorb relevant and high quality information.

    I would also like to thank Mr M P Madhukar Branch Manager Dena Bank Bangla

    Bazar Lucknow Branch for giving me detailed information about Retail advances given by

    Dena Bank.

    My heartiest gratitude extended to my faculty guide Dr.Ajai Prakash, Professor

    Department of Business Administration, University of Lucknow who has helped me in every

    aspect of my work. The greatest credit goes to the blessings bestowed upon me by Almighty

    God without whose yearning; I could not have even moved a step forward and to my parents

    who are always a constant source of inspiration in all my endeavors.

    KRISHNA PRASAD

    MBA (2013-2015)

    DEPARTMENT OF BUSINESS ADMINISTRATION

    UNIVERSITY OF LUCKNOW

  • Department of Business Administration, University of Lucknow -4-

    DECLARATION

    I hereby declare that the project report entitled ROLE OF RETAIL & MSME

    ADVANCE IN BANKS submitted for the Degree of Master of Business Administration, is

    the record of authentic work carried by me during the period from 1st June, 2014 to 31st July,

    2014 and the project report has not formed the basis for the award of any degree, diploma,

    associateship, fellowship or similar other titles. It has not been submitted in any other

    University or Institute for the award of any degree or diploma.

    KRISHNA PRASAD

    DATE: 31st July, 2014

  • Department of Business Administration, University of Lucknow -5-

    Table of Contents

    Banking Industry in India ................................................................................................ 6

    COMPANY PROFILE DENA BANK .......................................................................... 12

    Milestones ............................................................................................................................................................ 12

    Dena Bank has been the first Bank to introduce: .............................................................................................. 13

    International Operations: First Foot Print in Overseas..................................................................................... 13

    SWOT Analysis of Dena Bank ............................................................................................................................ 15

    PESTEL ANALYSIS ........................................................................................................................................... 16

    Competitive forces Model: Porters Five Forces Model-Industry Analysis ....................................................... 18

    OBJECTIVE OF RETAIL LENDING POLICY ............................................................. 25

    My Work Profile............................................................................................................. 26

    GENERAL INSTRUCTION ON LOANS AND ADVANCES .......................................... 26

    RETAIL LOAN PRODUCTS ......................................................................................... 28

    Dena Niwas Housing Finance Scheme ...................................................................................................... 32

    Dena Vidya Laxmi Educational Loan Scheme .......................................................................................... 33

    Dena Suvidha (Personal Loan) Scheme .................................................................................................... 34

    Research Methodology ................................................................................................... 36

    Pre-Sanctioned Loan ...................................................................................................... 37

    MSME Advances ............................................................................................................ 39

    Recommendations for Banks .......................................................................................... 43

    Conclusion ..................................................................................................................... 45

    References ..................................................................................................................... 62

  • Department of Business Administration, University of Lucknow -6-

    Banking in India in the modern sense originated in the last decades of the 18th century.

    The first banks were Bank of Hindustan (1770-1829) and The General Bank of India,

    established 1786 and since defunct. The largest bank, and the oldest still in existence, is the

    State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost

    immediately became the Bank of Bengal. This was one of the three presidency banks, the other

    two being the Bank of Bombay and the Bank of Madras, all three of which were established

    under charters from the British East India Company. The three banks merged in 1921 to form

    the Imperial Bank of India, which, upon India's independence, became the State Bank of India

    in 1955. For many years the presidency banks acted as quasi-central banks, as did their

    successors, until the Reserve Bank of India was established in 1935.

    In 1969 the Indian government nationalized all the major banks that it did not already

    own and these have remained under government ownership. They are run under a structure

    known as 'profit-making public sector undertaking' (PSU) and are allowed to compete and

    operate as commercial banks. The Indian banking sector is made up of four types of banks, as

    well as the PSUs and the state banks; they have been joined since 1990s by new private

    commercial banks and a number of foreign banks.

    Banking in India was generally fairly mature in terms of supply, product range and

    reach-even though reach in rural India and to the poor still remains a challenge. The

    government has developed initiatives to address this through the State bank of India expanding

    its branch network and through the National Bank for Agriculture and Rural Development with

    things like microfinance.

    Today, banks have diversified their activities and are getting into new products and

    services that include opportunities in credit cards, consumer finance, wealth management, life

    and general insurance, investment banking, mutual funds, pension fund regulation, stock

    broking services, custodian services, private equity, etc. Further, most of the leading Indian

    banks are going global, setting up offices in foreign countries, by themselves or through their

    subsidiaries.

    Banking Industry in India

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    Adoption of banking technology

    The IT revolution has had a great impact on the Indian banking system. The use of

    computers has led to the introduction of online banking in India. The use of computers in the

    banking sector in India has increased many fold after the economic liberalization of 1991 as

    the country's banking sector has been exposed to the world's market. Indian banks were finding

    it difficult to compete with the international banks in terms of customer service, without the

    use of information technology.

    The RBI set up a number of committees to define and co-ordinate banking technology. These

    have included:

    In 1984 was formed the Committee on Mechanization in the Banking Industry (1984) whose

    chairman was Dr. C Rangarajan, Deputy Governor, Reserve Bank of India. The major

    recommendations of this committee were introducing MICR technology in all the banks in the

    metropolises in India. This provided for the use of standardized cheque forms and encoders.

    In 1988, the RBI set up the Committee on Computerization in Banks (1988) headed by Dr. C

    Rangarajan. It emphasized that settlement operation must be computerized in the clearing

    houses of RBI in Bhubaneshwar, Guwahati, Jaipur, Patna and Thiruvananthapuram. It further

    stated that there should be National Clearing of inter-city cheques at Kolkata, Mumbai, Delhi,

    Chennai and MICR should be made Operational. It also focused on computerization of

    branches and increasing connectivity among branches through computers. It also suggested

    modalities for implementing on-line banking. The committee submitted its reports in 1989 and

    computerization began from 1993 with the settlement between IBA and bank employees'

    associations.

    In 1994, the Committee on Technology Issues relating to Payment systems, Cheque Clearing

    and Securities Settlement in the Banking Industry (1994) was set up under Chairman W S

    Saraf. It emphasized Electronic Funds Transfer (EFT) system, with the BANKNET

    communications network as its carrier. It also said that MICR clearing should be set up in all

    branches of all those banks with more than 100 branches.

    In 1995, the Committee for proposing Legislation on Electronic Funds Transfer and other

    Electronic Payments (1995) again emphasized EFT system. Total numbers of ATMs installed

    in India by various banks as on end June 2012 is 99,218. The New Private Sector Banks in

  • Department of Business Administration, University of Lucknow -8-

    India are having the largest numbers of ATMs, which is followed by off-site ATMs belonging

    to SBI and its subsidiaries and then by Nationalized banks and foreign banks.

    EMPLOYMENT SCENARIO IN THE BANKING SECTOR

    As reported in the Economic Times, the countrys leading public sector bank, State Bank of

    India has plans to recruit 25,000 employees in the year 2009. Besides, its life insurance venture,

    SBI Life, has plans to hire 13,000 agents and 200 sales managers. Also, Punjab National Bank,

    the country's second largest public sector lender, and Union Bank of India have plans of hiring

    5,000 people each. The financial year 2008-09 has already shown the banking sector to be

    among the largest job providers in the country with over 50,000 vacancies being notified and

    filled up in the public sector banks alone.

    MAJOR RECRUITERS OF BANKING INDUSTRY

    Public Sector Banks are the major recruiters of candidates aspiring for bank jobs. These banks

    are:

    The State Bank of India Group (Total: 8 Banks) namely SBI (State Bank of India),

    State Bank of Indore, SBBJ (...Bikaner & Jaipur), SBH (...Hyderabad), SBM

    (...Mysore), SBP (...Patiala), SBS (...Saurashtra), and SBT.

    Nationalized Banks (Total: 19 Banks) namely Allahabad Bank, Andhra Bank, Bank

    of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India,

    Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of

    Commerce, Punjab & Sind Bank, Punjab National Bank, Syndicate Bank, UCO Bank,

    United Bank of India, Union Bank of India and Vijaya Bank.

    Private Sector Banks (Total: 27 Banks). The major recruiters in the private sector

    include the ICICI Bank, HDFC Bank, Axis Bank, Federal Bank, Centurion Bank of

    Punjab, Indusind Bank, Kotak Mahindra Bank, Yes Bank, ING Vysya Bank, Bank of

    Rajasthan, Karur Vysya Bank, Karnataka Bank, Jammu & Kashmir Bank, South Indian

    Bank, Bharat Overseas Bank, etc. These banks conduct their own exams, but normally

    follow patterns similar to those of the exams of the public sector banks.

  • Department of Business Administration, University of Lucknow -9-

    Co-operative Banks: All major National and State Co-operative Banks and Scheduled

    Urban Co-operative Banks conduct their own exams to recruit staff. Their recruitment

    exams, too, are generally similar to the exams of the public sector banks.

    COMPETITION IN BANKING INDUSTRY

    The liberalized policies of RBI and Govt. of India relating to Indian Banking have set the stage

    for a competitive banking. In the past competitive advantages have been determined by size,

    branch, distribution capability, artificial barriers to entry etc., which helped old players in

    maintaining a prominent position in the industry despite their inefficiencies. The direction of

    the new policy is to establish a level playing field. The creation of term money market, changes

    in credit delivery mechanism, flexibility in credit assessment process, diversification of sources

    of money etc. will change the factors that determine the survival, growth and profitability in

    the Indian Banking.

    The areas in which the competition in the industry is either prevalent or is likely to emerge:

    Price based competition

    Product based competition

    Quality of service based competition

    Market segment based competition

    Technology based competition

    Skill based competition

    Location based competition

    Early entry strategy based competition

    CHARACTERISTICS OF COMPETITION

    Large no. of users and providers of banking services and none of them able to influence

    the price, demand or supply in a significant manner. Free flow of information about

    industry, its products, range of services, pricing etc. In other words, a situation of near

    perfect competition.

    Competition is demand driven now rather than supply driver which used to be there till

    few years ago. There has to be innovations, differentiation and value addition.

    Competition will be based more on skills or core competencies than on products.

    Competition will have to be based on long term strategies and not short term goals.

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    Competition is not only internal i.e. with the banking system but it is intra-financial

    system.

    The factors on which competitive advantages will be determined are:

    Strategic focus: Majority of banks will have to develop mix of products and business based on

    relative strengths and competence rather than historical reasons. Every product may it be

    deposit or credit or retail lending or corporate banking, must pay for itself in terms of return on

    investment rather than exist to promote or subsidize other business.

    Adaptability: Size alone is not sufficient and adaptability to new products, processes,

    technology, markets and customer needs will be more crucial.

    Cost competitiveness: Competitive pressure would lead to declining margins. Lower cost

    operators will have obvious advantage. Lean and wean organizations are the likely winners.

    Productivity: Cost efficiency would be supported by the ability to work smartly and capability

    to handle volumes and changing processes efficiently will be very crucial.

    Technology: Adopting, assimilating and implementing appropriate technology will

    significantly influence competitive strengths. Technology affects cost, productivity and people.

    The necessity and utility of the branch networks will have to be seen in the context of power

    and reach of technology.

    People: The quality of people will often support an organization in an environment where

    differentiation based on product, pricing and delivery methods will be negligible.

    Risk management: The ability to grow and expand would depend on quality of risk. which

    will determine access to funds as well as the freedom to price products competitively.

    Attitudinal changes: Perhaps the more important than all the other factors is the requirement

    of flexible mind-set to understand, appreciate and anticipate the changes in the market place.

    A large part of the banking industry has for long been conditioned to think in a directed manner

    in an environment where innovation was virtually prohibited.

  • Department of Business Administration, University of Lucknow -11-

    COMPETITIVE STRENGTHS OF BANKS

    PSBs: Bank network, market coverage, product differentiation, technology absorption,

    knowledge of local environment, expertise in niche segment (weakness are poor HRD policies,

    delayed decision making, poor risk management systems)

    Old Private Banks: Knowledge of local environment, personalized service, speedy decisions,

    reasonable branch network, technology absorption (weakness - poor risk management systems,

    poor product innovations)

    i. Foreign and new private Banks: Automation and technology, product innovation,

    strong risk management system, speedy decision making, personalized service,

    progressive HRD policies, expertise in niche market (weakness - branch network

    and poor coverage).

    ******

  • Department of Business Administration, University of Lucknow -12-

    COMPANY PROFILE DENA BANK

    Dena Bank was founded on 26th May, 1938 by the family of Devkaran Nanjee under

    the name Devkaran Nanjee Banking Company Ltd

    It became a Public Ltd. Company in December 1939 and later the name was changed

    to Dena Bank Ltd.

    In July 1969 Dena Bank Ltd. along with 13 other major banks was nationalized and is

    now a Public Sector Bank constituted under the Banking Companies (Acquisition & Transfer

    of Undertakings) Act, 1970. Under the provisions of the Banking Regulations Act 1949, in

    addition to the business of banking, the Bank can undertake other business as specified in

    Section 6 of the Banking Regulations Act, 1949.

    Milestones

    One among six Public Sector Banks selected by the World Bank for sanctioning a loan of Rs.72.3 crores for augmentation of Tier-II Capital under Financial Sector

    Developmental project in the year 1995.

    One among the few Banks to receive the World Bank loan for technological up gradation and training.

    Launched a Bond Issue of Rs.92.13 crores in November 1996. Maiden Public Issue of Rs.180 Crores in November 1996. Introduced Tele banking facility of selected metropolitan centers.

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    Dena Bank has been the first Bank to introduce:

    Minor Savings Scheme. Credit card in rural India known as "DENA KRISHI SAKH PATRA" (DKSP). Drive-in ATM counter of Juhu, Mumbai. Smart card at selected branches in Mumbai. Customer rating system for rating the Bank Services.

    V I S I O N & M I S S I O N

    Mission Statement DENA BANK will provide its Customers -premier financial services of great value, Staff -

    P os i t i v e wo r k env i r o nm en t an d op po r tu n i t y f o r g r o w th and ach i ev em

    en t Shareholders -superior financial returns and Community- economic growth.

    Vision Statement DENA BANK will emerge as the most preferred Bank of customer choice in its

    area of operations, by its reputation and performance.

    Logo

    T h e lo go o f Dena Bank represents Lakshmi, the Goddess of wealth, according to

    Hindu mythology. It was the desire of the founding fathers of the Bank that the

    Bank should be a symbol of prosperity for all its clients, and the logo represents this

    promise.

    International Operations: First Foot Print in Overseas

    Bank has opened Representative office in London on Dec 24, 2013.

    Business Growth:

    Bank is targeting a growth of 20% in business during FY 2014-15.

    Bank targets to:

    Open 150-200 new branches during FY 2014-15.

    Establish specialized NRI branch.

    Strengthening of Retail Processing Hubs

  • Department of Business Administration, University of Lucknow -14-

    Strengthening of SME Processing Centres.

    IT Initiatives:

    As per Ministry directives, Bank has provided on site ATMs in most of the Branches.

    Opening of 200 E-Lobbies across the country.

    Cash Management Services.

    Issue of RuPay Platinum Debit Card.

    Bank will continue its participation in SIBOS-International Technology Exhibition.

    Credit Monitoring: Bank has initiated close monitoring of borrowable accounts to prevent

    slippages. At present, Bank is monitoring all accounts above 10 cr. on daily basis.

    Other Details:

    To cater to needs of new branches being opened and provided personalized customer service, Bank has placed indent with IBPS for recruiting of 586 POs,217 Specialist

    Officer and 834 Clerks for FY 2014-15.

    Bank has covered 2,958 villages under financial inclusion till March 2014 as against target of 2,768 villages.

    Bank has procured 2,000 Micro ATMs for providing to Business correspondents engaged in Rural Areas. This device will facilitate intra-bank, inter-bank, RuPay Card

    and Aadhaar Enabled Payment System transactions.

    ******

  • Department of Business Administration, University of Lucknow -15-

    SWOT Analysis of Dena Bank

    SWOT Analysis

    Strength 1. Rural banking expertise

    2. Government schemes implementation

    3. Innovative schemes for different groups like drive in ATMs

    4. Emphasis on customer satisfaction through modules like customer

    ratings

    5. Introduced Minor Savings Scheme.

    6. Credit card in rural India known as "DENA KRISHI SAKH

    PATRA" (DKSP)

    7. Drive-in ATM counters and Smart cards in Mumbai

    8. Customer rating system for rating the Bank Services

    Weakness 1. Less penetration as compared to other banks

    2. Limited advertising in comparison with leading banks

    3. Less emphasis on IT support

    4. Customer service is low as compared to other banks.

    Opportunity 1. International banking

    2. Favorable Government schemes

    3.Doing aggressive marketing in order to improve brand value

    4. Rural and social banking.

    5. Agriculture based consultancy.

    Threats 1. Economic crisis and fluctuating economic scenarios

    2. Highly competitive environment with foreign banks

  • Department of Business Administration, University of Lucknow -16-

    PESTEL ANALYSIS

    The micro-environment:

    This environment influences the bank directly. It includes suppliers that deal directly or

    indirectly, consumers and customers, and other local stakeholders. Micro tends to suggest

    small, but this can be misleading. In this context, micro describes the relationship between

    firms and the driving forces that control this relationship. It is a more local relationship, and

    the firm may exercise a degree of influence. These are internal factors close to the company

    that have a direct impact on the organizations strategy. These factors include customers,

    employees, suppliers, shareholders, competitors.

    1. Customers

    Organizations survive on the basis of meeting the needs, wants and providing benefits

    for their customers. Failure to do so will result in a failed business strategy.

    2. Employees

    employing the correct staff and keeping these staff motivated is an essential part of

    the strategic planning process of an organization. Training and development plays an

    essential role particular in service sector marketing in-order to gain a competitive

    edge. This is clearly apparent in the airline industry.

    3. Suppliers

    Increase in raw material prices will have a knock on effect on the marketing mix

    strategy of an organization. Prices may be forced up as a result. Closer supplier

    relationship is one way of ensuring competitive and quality products for an

    organization.

    4. Shareholders

    As organization require greater inward investment for growth they face increasing

    pressure to move from private ownership to public. However this movement

    unleashes the forces of shareholder pressure on the strategy of organizations.

    Satisfying shareholder needs may result in a change in tactics employed by an

    organization.

    5. Competitors

    High- There is public sector banks, private sector and foreign banks along with non-

    banking finance companies competing in similar business segments. Plus the RBI is

    all set to issue new banking licenses soon.

    The macro-environment

    Macro environment factors are uncontrollable external forces that affect how a business

    operates. They are largely out of the control of the business, and often require changes in

    operating, management, production, and marketing. Analysts often categorize them using the

    acronyms PESTEL stands for political, economic, social, and technological, environmental

    and legal concerns

    1. Political factors

    o Monetary policy

  • Department of Business Administration, University of Lucknow -17-

    o Regulatory framework

    o Budget and budget measures

    o Changes in interest rates

    2. Economic factors

    o More savings

    o More capital formation

    o Increase in production of goods and services

    o Banking channels

    3. Social factors

    o Increase in population

    o Changes in lifestyle

    o Easy way of lending money

    o Exploring banking facilities in rural areas

    4. Technological factors

    o Internet banking

    o IT services and mobile banking

    o Credit cards

    o Improvement in efficiency

    5. Environmental factors

    o Natural disasters can disrupt production and supply operations, or even

    destroy bank assets. Programs such as environmental risk assessment can help

    companies prepare to handle many of the most likely short-term crises. In the

    long view, however, businesses may have an interest in ensuring that their

    supply chains are not destroyed by unsustainable practices.

    6. Legal factors

    o Legal factors can limit or change how a bank operates. For example, they may

    have to hire additional supervisory staff or purchase safety equipment after a

    new health and safety law is passed.

    ********

  • Department of Business Administration, University of Lucknow -18-

    Competitive forces Model: Porters Five Forces Model-Industry Analysis

    1. Rivalry among existing firms

    With the process of liberalization, competition among the existing banks has increased.

    Each bank is coming up with new products to attract the customers and tailor made Loans are

    provided. The quality of services provided by banks has improved drastically.

    2. Potential Entrants

    Previously the Development Financial Institutions mainly provided project finance and

    development activities. But they now entered into retail banking which has resulted into

    stiff competition among the exiting players.

    3. Threats from Substitutes

    Ralry among existing firms has increased with liberalization. New products and

    improved customer services is the focus.

    Potential Entrants is high as development financial

    institutions as well as private and Foreign Banks have

    entered in a big way.

    Bargaining power of buyers is high as corporate can raise funds easily

    due to high Competition.

    The threat of substitute product is very high like credit unions

    and investment houses. There are other substitutes as well banks

    like mutual funds, stocks, government securities,

    debentures, gold, real estate etc.

    Organizing power of the supplier is

    high. With the new financial

    instruments they are asking higher

    return on the investments

  • Department of Business Administration, University of Lucknow -19-

    Competition from the non-banking financial sector is increasing rapidly. The threat of

    substitute product is very high like credit unions and in investment houses. There are other

    substitutes as well banks like mutual funds, stocks, government securities, debentures,

    gold, real estate etc.

    4. Bargaining Power of Buyers

    Corporate can raise their funds through primary market or by issue of GDRs, FCCBs. As

    a result they have a higher bargaining power. Even in the case of personal finance, the

    buyers have a high bargaining power. This is mainly because of competition.

    5. Bargaining Power of Suppliers

    With the advent of new financial instruments providing a higher rate of returns to the

    investors, the investments in deposits is not growing in a phased manner. The suppliers

    demand a higher return for the investments.

    6. Overall Analysis

    The key issue is how banks can leverage their strengths to have a better future. Since the

    availability of funds is more and deployment of funds is less, banks should evolve new

    products and services to the customers. There should be a rational thinking in sanctioning

    Loans, which will bring down the NPAs. As there is an expected revival in the Indian economy

    Banks have a major role to play.

    *******

  • Department of Business Administration, University of Lucknow -20-

    SECTORIAL DETAILS

    1.) MSME SECTOR

    Introduction

    Micro, Small & Medium Enterprises are the growth engines of the Indian economy due to their

    ability to create jobs, foster entrepreneurship and to provide depth to the industrial base of the

    economy. MSMEs are contributing to the process of economic growth, employment generation

    and helping in more equitable distribution of national income. The major advantage of the

    sector is its employment potential at low capital cost. MSMEs are second only to agriculture

    in the field of employment. Thus MSME plays a very significant role in the socio-economic

    development of the country. With the opening up of the Indian economy due to globalization

    and liberalization, this vital sector of the economy is facing a lot of challenges and competition

    from the domestic as well as multinational corporations.

    Problems & Challenges

    The problems and challenges faced by the SMEs and the factors responsible for their sickness

    are summarized as under:

    1. Increased competition from cheap imports 2. Infrastructural constraints/bottlenecks 3. Delayed realization of receivables 4. Delayed/inadequate credit 5. High cost of funds 6. Insistence on collateral / margin 7. Complicated and cumbersome procedures of banks 8. Limited financial resources 9. Non availability of adequate promoters contribution / equity 10. Obsolete technology. Low R & D and technology up gradation effort 11. Inadequate managerial competence 12. Lack of marketing skills / Poor marketing 13. Inadequacy of inputs and skills 14. Government policies 15. Financial problems 16. Low quality image (Low ability perceived) 17. Difficulty in dealing with Got buying system

    Problems Identified by Banks

    1. High sickness / NPA level 2. Lack of entrepreneurship 3. Infrastructural constraints 4. Competition/ lack of marketing skills 5. Lack of credit information. 6. Obsolete technology/ inertia to technological up gradation 7. Multiple agencies overseeing the development of MSME sector 8. Inadequate reach of banks

  • Department of Business Administration, University of Lucknow -21-

    MSMED Act 2006

    In line with the announcements in the policy package Govt of India brought in a special act

    called THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT,

    2006 which was passed on 16th June, 2006 to provide for facilitating the promotion and

    development and enhancing the competitiveness of Micro, Small and Medium Enterprises and

    for matters connected there with or incidental there to. The Act has come in force w.e.f. 2nd

    October, 2006.

    With the passing of MSMED Act-2006 there has been clarity as per the definition of Micro

    Small and Medium Enterprises. Under the provision of the Act steps are also being taken to

    support MSME sector with a view to increasing their competitiveness and also to provide legal

    protection. With this development in the year 2006 the growth in MSME sector shall be

    accelerated visibly in the ensuing period.

    Classification of Micro, Small & Medium Enterprises is as follows:

    Small Enterprises

    Small (manufacturing) Enterprises:-

    Enterprise engaged in the manufacture/production or preservation of goods and whose

    investment in plant and machinery (original cost excluding land and building and the items

    specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated

    October 5, 2006) does not exceed Rs. 5 crore

    Small (service) Enterprises:-

    Enterprise engaged in the providing/rendering of services and whose investment in equipment

    (original cost excluding land and building and furniture, fittings and other not directly related

    to the service rendered or as may be under the Micro, Small and Medium Enterprises

    Development, (MSMED), Act 2006) does not exceed Rs.2 crore.

    Manufacturing Sector Service Sector

    Original Investment in Plant

    & Machinery

    Original Investment in

    Equipment

    Micro Enterprises Up to Rs. 25 lacs Up to Rs. 10 lacs

    Small Enterprises More than Rs. 25 lacs but not

    exceeding Rs. 500 lacs

    More than Rs. 10 lacs but not

    exceeding Rs. 200 lacs

    Medium Enterprises More than Rs. 500 lacs but not

    exceeding Rs. 1000 lacs

    More than Rs. 200 lacs but not

    exceeding Rs. 500 lacs

  • Department of Business Administration, University of Lucknow -22-

    Micro Enterprises

    Micro (manufacturing) Enterprises:-

    Enterprise engaged in the manufacture/production or preservation of goods and whose

    investment in plant and machinery (original cost excluding land and building and such items

    as per MSMED Act 2006) does not exceed Rs. 25 lakh, irrespective of the location of the unit.

    Micro (service) Enterprises:-

    Enterprise engaged in the providing/rendering of services and whose investment in equipment

    (original cost excluding land and building and furniture, fittings and such items as per MSMED

    Act 2006) does not exceed Rs. 10 lakh.

    Medium Enterprises

    Medium (manufacturing) Enterprises:-

    Enterprise engaged in the manufacture/production or preservation of goods and whose

    investment in plant and machinery (original cost excluding land and building and the items

    specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated

    October 5, 2006) is more than Rs. 5 crore but does not exceed Rs. 10 crore.

    Medium (service) Enterprises: Enterprise engaged in the providing/rendering of services and

    whose investment in equipment (original cost excluding land and building and furniture,

    fittings and such items as per MSMED 2006) is more than Rs. 2 crore but does not exceed Rs.

    5 crore.

    RETAIL BANKING SECTOR

    Retail banking is banking service that is geared primarily toward individual customers Retail

    banking is usually made available by commercial banks as well as smaller community banks.

    Unlike wholesale banking, retail banking focuses on consumer markets. Retail banking entities

    provide a wide range of personal banking services including offering savings and checking

    accounts, bill paying services as well as debit and credit cards. Though retail banking,

    consumers may also obtain mortgages and personal loans. Although retail banking is, for the

    most part, mass market driven, many retail banking products may also extend to small and

    medium sized enterprises.

    Retail banking deals with lending money to individual consumers

    Retail banking consists of both the deposits side which from the liabilities of the bank, and the

    loan side which are the assets of any bank.

  • Department of Business Administration, University of Lucknow -23-

    Retail banking is, however, quite broad in nature - it refers to the dealing of commercial banks

    with individual customers, both on liabilities and assets sides of the balance sheet. Fixed,

    current / savings accounts on the liabilities side; and mortgages, loans (e.g., personal, housing,

    auto, and educational) on the assets side, are the more important of the products offered by

    banks. Related ancillary services include credit cards, or depository services. Todays retail

    banking sector is characterized by three basic characteristics:

    1. multiple products (deposits, credit cards, insurance, investments and securities);

    2. multiple channels of distribution (call center, branch, Internet and kiosk); and

    3. Multiple customer groups (consumer, small business, and corporate).

    The Retail Banking schemes of the bank are as under:

    1. Dena Niwas Housing Finance Scheme. 2. Dena Rent Scheme. 3. Dena Mortgage Loan Scheme. 4. Dena Vidya Laxmi Educational Loan Scheme 5. Dena Trade Finance Scheme. 6. Dena Suvidha Personal Loan Scheme. 7. Dena Auto Finance Scheme. 8. Dena Senior Citizens (Pensioners') Loan Scheme. 9. Dena Consumer Durables Loan Scheme 10. Dena Doctor+ Scheme. 11. Dena Gold Loan Scheme (for individuals other than farmers).

  • Department of Business Administration, University of Lucknow -24-

    RETAIL LOAN POLICY AT DENA BANK

    The retail lending policy is sub policy of the main loans and advances policy of the bank. The

    Retail lending policy is the guideline that covers the required rules and regulations for

    advancing loans under the various retail schemes of the bank.

    In the back drop of the changing economic scenario, the focus of lending is increasingly getting

    shifted from industrial/commercial advances to a diversified portfolio of advance to retail,

    MSME and the core traditional sector i.e. Agriculture. Retail banking is one of the principal

    growth engines for the banks in India and retail advances have been widely accepted as the

    driver of the credit acceleration.

    Due to globalization, foreign banks and new generation private banks have entered the market

    and have brought with them several technologically driven innovative products. In order to

    face the competition effectively, public sector banks are also becoming more technology savvy

    and customer oriented. Thus, non-traditional competition, market consolidation, new

    technology, and advent of Internet are changing the landscape of the retail banking industry.

    Now customers are easily switching banks whenever they find better services and products and

    are difficult to retain. Banks therefore, are finding ways & means to cross-sell various retail

    products to existing customers and keep their base intact.

    0%0%0%11%

    63%

    9%

    0%1%7%

    9%

    Total Dena Consumer Durables Loan Scheme

    Dena Doctor+Scheme

    Dena Gold Loan Scheme

    Dena Mortgage Loan Scheme

    Dena Niwas Housing Finanace Scheme

    Dena Rent Scheme

    Dena Senior Citizens (Pensioner's) LoanScheme

    Dena Suvidha Personal Loan Scheme

    Dena Trade Finance Scheme

    Dena Vidya Laxmi Educational Loan Scheme

  • Department of Business Administration, University of Lucknow -25-

    OBJECTIVE OF RETAIL LENDING POLICY

    1. To strengthen the credit delivery system for retail lending.

    2. To build up and maintain a well-diversified, healthy and high yielding retail portfolio.

    3. To set up an effective Risk Management System to address key issues like risk

    identification, risk measurement, risk monitoring and risk mitigation.

    4. To provide for adequate delegation of discretionary powers at all levels.

    *********

  • Department of Business Administration, University of Lucknow -26-

    The summer internship was held in the Zonal Office and Bangla Bazaar Branch of Dena

    Bank. The internship was based on the loans and advances given to MSME Sector. Hence the

    entire process was based on the Pre-Sanction formalities of credit given to particular enterprise.

    The responsibilities handled at the office were started from reading the companys project file (sent by the company to whom the loan is to be sanctioned) and continued till the loan is

    sanctioned by the competent authority according to the limit to be sanctioned.

    GENERAL INSTRUCTION ON LOANS AND ADVANCES

    The assessment process of sanctioning any loan/advances is based on following

    conditions:

    1. Efficient management of loans and advances portfolio has assumed greater significance as it is the largest asset of the bank having direct impact on its profitability. In the wave

    of the continued tightening of norms of increase recognition, asset clarification and

    provisioning increased competition and emergence of new types of risks in the financial

    sector, it has become imperative that the credit functions are strengthened. RBI has also

    been emphasizing banks to evolve suitable guidelines for effective management and

    control of risk credits.

    2. With a view to ensure a healthy loan portfolio, our bank has taken various steps to bring its policies and procedures in line with the changing scenario which also aim at effective

    management and dispersal of credit risks, strengthening of pre-sanction appraisals and

    post-sanction monitoring systems. Bank has laid down detailed guidelines to be

    followed while considering credit proposals, some of the important ones are listed as

    under:-

    All loan facilities be considered after obtaining loan applications from the borrower and completion of Confidential Report on him and guarantors. The

    borrowers should have the desired background, experience to run their business

    successfully.

    Project for which the finance has been granted should be technically feasible and economically viable i.e. it should be able to generate enough surplus as to

    service the debts within a reasonable period of time.

    Cost of the project and means of financing the same should be properly assessed and tied-up. Both under-financing and over-financing can have an adverse

    impact on the successful implementation of the project.

    Borrowers should be financially sound, enjoy good market reputation and must have their stake in the business i.e. they should possess adequate liquid

    resources in contribute in the margin requirement.

    Loan should be sanctioned by the competent sanctioning only after execution of all the required documents.

    Project financed must be closely monitored during implementation stage to avoid time and cost overruns and thereafter till the adjustments of the banks loan.

    My Work Profile

  • Department of Business Administration, University of Lucknow -27-

    WORKING CAPITAL FINANCE AND TERM FINANCE

    All advantages are granted basically in provide working capital or for term finance.

    Working capital means the funds required for carrying on normal trading under

    manufacturing activities. Term finance covers funds required for acquiring means of

    procedure such as land and building and plant and machinery. Working capital limits

    are granted for sheet periods of say, one year and have to be renewed at the end of that

    period.

    PRODUCTION & SALES FINANCE

    Working capital finance may be for the purpose of production i.e. for acquiring

    inventory (or against inventory) or for sales i.e. for financing receivables. Limits such

    as cash credit, loans/overdrafts are for production whereas bill limits against

    hypothecation of books debts are part of sales finance provided by banks.

    CASH CREDIT ADVANCES

    Cash credit account is a drawing account against credit granted by the Bank and is

    operated in exactly the same way as a current account on which an overdraft has been

    sanctioned. The various types of securities against which CC is allowed are pledge,

    hypothecation of goods or produce, pledge of documents of title to goods, mortgage of

    immovable property, book debts, trust securities, etc.

    In CC accounts borrower is allowed to drawn on account within the prescribed limit,

    and when required.

    GURANTEE

    Issuing of guarantees on the behalf of their customers to third parties is one of the

    services rendered by commercial banks. Such guarantees are contracts to perform the

    promise or discharge the liability of the constituent on whose behalf they are given, in

    case of his default or failure to perform the contracts undertaken by him. The party in

    whose favor the guarantee is given is called the beneficiary, whereas the issuing bank

    is called the guarantor and the third party on whose behalf of guarantee is given is called

    the principal debtor. Every guarantee must specify the amount and period of the liability

    to be undertaken by the bank.

    CREDIT RATING SCHEME

    A credit rating scheme has been introduced to encourage MSME units to get their credit

    rating done by reputed credit rating agencies, with a view to facilitate credit flow to

    them and enhancing the comfort level of lending banks. The scheme, bring

    implemented by the NSIC, envisages that 75 percent of the cost of the credit rating

    exercise, with a maximum limit of Rs 40000 per MEME unit, would be reimbursed to

    the MSME units availing of this onetime facility. Six credit rating agencies namely,

    CRISIL, ICRA, Don and Broadstreet, Onicra, Car and Finch, which have agreed to

    credit, rate MSME units through NSIC.

  • Department of Business Administration, University of Lucknow -28-

    RETAIL BANKING DEPARTMENT

    Revised interest rates on various retail lending schemes w.e.f. 25.7.2013

    Dena Niwas Housing Finance :

    Floating Rate of Interest (linked to Base Rate)

    Limit up to Rs.75 lakhs 10.25%

    Limit above Rs.75 lakhs 10.50%

    *Fixed Rate of Interest (To be reset at the end of every 3 Yrs)

    Limit up to Rs. 25.00 Lacs

    Repayable up to 5 years

    11.25% (fixed) Repayable above 5 years & up to 10 years

    Repayable above 10 years

    Limit > Rs.25 lakhs & Up to Rs.30 lakhs :

    Repayable up to 5 years

    11.25% (fixed) Repayable in > 5 years & up to 10 years

    Repayable in > 10 years

    Limit > Rs.30 lakhs :

    Repayable up to 5 years

    11.75% (fixed) Repayable above 5 years & up to 10 years

    Repayable above 10 years

    * Note: The fixed rate of interest is to be reset after every 3 years. At the time of

    reset it should be fixed by the same spread over the Base Rate applicable on the

    date of reset as was applicable at the time of sanction.

    OTHER RETAIL LENDING SCHEMES:

    S. N. Scheme Revised Rates

    1 Dena Suvidha 13% (fixed) in case of tie-up under Corporate Salary

    Scheme.

    14.00% (fixed) in all other cases.

    RETAIL LOAN PRODUCTS

  • Department of Business Administration, University of Lucknow -29-

    2 Dena Consumer Durables

    Finance

    13% (fixed) in case of tie-up under Corporate Salary

    Scheme.

    14% (fixed) in all other cases.

    3 Dena Senior Citizen

    Pensioners

    14.55%

    4 Dena Auto Finance

    Two Wheelers Repayable up to 3 yrs : 13.30%

    Repayable > 3 yrs : 13.80%

    Four Wheelers Repayable up to 1 yr. : 11% (fixed)

    In >1 yr. & up to 3 yrs : 11.50%(fixed)

    In > 3 yrs & up to 5 yrs : 12% (fixed)

    Old Vehicles (Max.

    years)

    3 Repayable up to 1 yr. : 12% (fixed)

    In >1 yr. & up to 3 yrs : 12.50%(fixed)

  • Department of Business Administration, University of Lucknow -30-

    5 Dena Vidya Laxmi Education Loan:

    Rate of Interest

    A ) Up to Rs. 4.00 lakhs:

    Repayable up to 3 years

    Repayable > 3 yrs.

    11.80% p.a.

    11.80% p.a.

    Above Rs.4.00 lakhs

    Repayable up to 3 years

    Repayable > 3 yrs.

    11.80% p.a.

    11.80% p.a.

    In case of following institutions, Rate of Interest, Margin & Security will

    be as per point No. B

    For studies in India :

    a. Engineering :- IITs, NITs, BITS, IISc Bangalore, MIT-Madras

    b. Management :- IIMs, ISB-Hyderabad, XLRI-Jamshedpur, NMIMS Mumbai,

    JBIMS

    Mumbai

    c. Medical Science :- CMC-Vellore, AIIMS-New Delhi, PGIMER-Chandigarh,

    Armed

    Forces Medical Sciences, Dr.Ram Manohar Lohia Hospital-New Delhi,

    VMM

    College & Safdarganj Hospital

    d. Others: - IIFT-New Delhi, NID-Ahmedabad, Delhi School of Economics.

    For studies abroad :- Universities of Cambridge-UK; University of Oxford-

    UK;

    Imperial College London-UK; UCL-UK; University of Edinburgh-UK;

    University of

    Toronto-Canada; McGill University-Canada; Harvard University-USA; MIT-

    USA;

    Yale University-USA; University of Chicago; Upenn-USA; Columbia

    University;

    Stanford University; Caltech-USA; (USA- Princeton University; University

    of

    Michigan; Cornell University; Johns Hopkins University; Duke University;

    UCB; Northwestern University) ETH Zurich-Switzerland; HKU-Hong Kong;

    University of Tokyo-Japan.

  • Department of Business Administration, University of Lucknow -31-

    B ) ROI :- For studies in India & Abroad Base Rate i.e. 10.25% at present,

    irrespective of repayment period

    & including concessions

    available, if any

    Margin Nil - irrespective of loan amount

    Security :- For studies in India -

    For studies Abroad

    No collateral security is to be obtained irrespective of loan amount.

    As per scheme guidelines.

    For other conditions, contact nearest Dena Bank Branch.

    6 Dena Trade Finance :

    Dena Trade under MSE Up to limit of Rs.5.00 crores as per MSE rate of

    interest

    Limit above Rs.5.00 crores CCHyp. : 13.25%

    TL repayable in 3 yrs : 13.00% TL

    repayable in > 3 yrs : 13.50%

    7 Dena Rent Repayable up to 3 years : 13.25%

    Repayable in > 3 yrs : 13.50%

    8 Dena Mortgage : Term

    Loan

    Repayable up to 3 years : 13.50%

    Repayable in > 3 years : 14.00%

    Overdraft facility 14.50%

    9 Dena Doctor +

    CC Hyp. 13.05%

    TL Repayable up to 3

    years 13.05%

    TL Repayable in > 3 yrs 13.05%

    10 Dena Gold Loan Up to Rs.3 lacs) - 12% (fixed)

    > Rs.3 lacs & up to Rs.100 lacs : 13.55%

    (floating)

    ********************

  • Department of Business Administration, University of Lucknow -32-

    Dena Niwas Housing Finance Scheme

    A Loan for different needs

    Dena Niwas Home Loan is provided for purchasing a plot, construct a house, buy a ready built

    house or buy one under construction. The loan even helps you build an extension to your

    existing house or purchase a house that is up to 50 years old provided the remaining life of the

    house is more than 25 years. Besides you can take this loan for repairs and up gradation, which

    includes the cost of fixtures, POP works, retiling, fittings etc.

    It even gives you the option to shift an existing home loan with any other Bank or Financial

    Institution.

    Eligibility:

    Major individual, resident or non-resident, having a regular source of income.

    Your age on the maturity of the loan is less than retirement age if you are a salaried employee & below 65 years, if you have a business.

    The total deductions do not exceed 60% of your gross income, including the loan installment of the proposed loan.

    Spouses/Co-applicants income can be clubbed for enhanced eligibility.

    Loan Amount

    Up to Rs.200 lakhs for the purchase/construction of a house.

    Up to Rs.10 lakhs for renovation/up gradation.

    Margin

    Loans up to Rs.20 lakhs - 10% of cost of house property (excluding stamp duty, registration charges, etc.)

    Loans above Rs.20 lakh & up to Rs. 75 lakhs - 20% of cost of the house property (excluding stamp duty, registration charges, etc.)

    Loans above Rs.75 lakhs - 25% of cost of the house property (excluding stamp duty, registration charges, etc.)

    Rate of Interest

    Please Check out the Interest Rates Attached above

    Interest Charged on Daily Reducing Balance

    No Prepayment Charges

    Loan Limit of Rs 200 Lacs.

    Purchase of House up to 50 years old allowed

    Floating Rate Linked to Base Rate

  • Department of Business Administration, University of Lucknow -33-

    Repayment

    Up to 25 years-for the purchase of a new flat/house/construction/extension.

    Up to 10 years- for repairs, renovation and up gradation.

    Security

    Simple equitable mortgage of the house/flat/apartment on which the loan is availed.

    Process Fees:

    0.50% of sanctioned limit.

    Dena Vidya Laxmi Educational Loan Scheme

    Dena Bank also considers education loan for Vocational Education and Training

    Education Loan - Government interest subsidy scheme for Economically Weaker Sections

    (EWS)

    Coverage:

    EWS with upper parental income of Rs.4.50 lakhs per annum.

    For recognized Technical / Professional Courses in India after Class XII as approved by Ministry of Human Resources Department, Government of India.

    Certification of income by designated authority in the prescribed format.

    Applicable from academic year 2009-10.

    Interest Subsidy during moratorium period (Course period + 6 months / 1 year).

    The Topper for your childrens Higher Education

    Ensure a bright future for your children. Provide them with the best of higher education in India

    or abroad. Avail Dena Vidya Laxmi Educational Loan.

    Eligibility:

    You are an Indian national and have secured admission to a professional or technical course in an Indian or Foreign university.

    Simply walk in with the mark-sheet of the qualifying exam and proof of admission.

    Course Eligibility

    Study in India:

    Graduation courses, Post-Graduation courses, Masters & PhD, Professional courses.

    Study Abroad:

    Graduation: For job oriented professional / technical courses offered by reputed universities

  • Department of Business Administration, University of Lucknow -34-

    Post-Graduation: MCA, MBA, MS etc.

    Courses conducted by CIMA-London, CPA in USA etc.

    Loan Amount

    Up to Rs.10 lakhs for studies in India.

    Up to- Rs. 20 lakhs for studies abroad.

    Loan takes care of:

    Fee payable to colleges/ schools/ hostels

    Examination/ Library/ Laboratory fees.

    Purchase of books, equipment, instruments and uniforms.

    Passage fare for travel abroad.

    Purchase of computers needed to complete the course.

    Any other expense to complete the course like study tours, project work, thesis etc.

    Margin

    Up to Rs. 4 lakhs- NIL for study in India and abroad.

    Above Rs. 4 lakhs- 5% for study in India and 15% for study abroad.

    Rate of Interest

    Please check out the Interest Rates Table

    1% interest concession if interest is serviced as and when due during the moratorium period

    when repayment holiday is specified.

    SIMPLE INTEREST CHARGED DURING MORATORIUM PERIOD.

    Process Fees

    Rs.1000/- for studies abroad which is refundable on availing the limit.

    Repayment

    For loans up to Rs.7.50 lakhs : Up to 10 years

    For loans above Rs.7.50 lakhs: Up to 15 years

    Dena Suvidha (Personal Loan) Scheme

    Dena Suvidha is the ideal way to fulfil personal needs of your family. Be it to finance a

    marriage or family function. To travel or celebrates a festival. For medical treatment or

    educational purposes. Or simply a vacation. Even an unforeseen event. Dena Suvidha

    (Personal) Loan is always there for all your needs.

  • Department of Business Administration, University of Lucknow -35-

    Eligibility:

    You are a permanent employee between 24 to 55 years having worked for at least 2 years in a Govt. or PSU/ reputed organization.

    You have a gross monthly income of at least Rs. 15,000/-. Income of any other earning member (co-applicants) can be clubbed for enhanced eligibility.

    You can have a salary disbursement arrangement with us or provide an undertaking form your employer.

    Loan Amount

    Minimum- Rs. 15,000/-

    Upton- Rs. 1 lakh or 9 times the net monthly income whichever is less.

    Margin

    NIL

    Rate of Interest

    Please check out the Interest Rates Table Attached.

    INTEREST CHARGED ON DAILY REDUCING BALANCE

    NO PREPAYMENT CHARGES

    Process Fees

    1% of loan amount

    Repayment

    Upton 36 EMIs

    Mode of disbursement

    By credit to your Savings Bank account.

  • Department of Business Administration, University of Lucknow -36-

    Research Methodology

    The methodology being used involves two basic sources of information primary sources and

    secondary source.

    Primary sources of Information

    Meetings and discussion with the Chief Manager and the Senior Manager of both Credit and Credit Risk Management Department

    Meetings with the customers at Retail Branch

    Secondary sources of Information

    Loan Policy and Internal Circulars of the bank

    Research papers, power point presentations and PDF files prepared by the bank and its bank officials

    Referring to information provided by CIBIL, Income Tax Return, Registrar of Companies (Ministry of Corporate Affairs), and Auditor reports.

    Research Design - Analytical in nature

    Expected Contribution Of The Study:

    This study will help in understanding the credit appraisal system in banks & to reduce various

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

    & management risk associated in providing any loans or advances or project finance.

    Limitation of the Study:

    Limitations of this Study are as follows:-

    Time: The short time duration of one & half months is inadequate.

    Vast topic: The subject credit appraisal under SME is too vast to study.

    Scrutinizing of information: Data mining was a time consuming task. Useful information had to be extracted after careful

    scrutinizing from the large data gathered.

  • Department of Business Administration, University of Lucknow -37-

    Pre-Sanctioned Loan

    For a house-hunter, the second biggest hurdle after zeroing in on the dream home is obtaining

    a home loan. How would you like it if you have the loan in your pocket even before you

    approach the developer to negotiate? Banks and housing finance companies offer pre-approved

    home loans even before the borrower decides on the property. While this sounds inviting, there

    may be some not-so-exciting features that you should be aware of.

    The working: The procedure for a preapproved loan is not very different from a regular home

    loan application-you need to submit the documents along with the processing fee.

    These will include (depending on whether the applicant is a salaried individual, self-employed

    professional or an entrepreneur) identity and residence proofs, the latest salary slip, Form 16,

    past six months' bank statement, past three years' income-tax returns (self and business) as well

    as profit/loss statements and balance sheet, certificate and proof of business existence and so

    on. However, a desirable income level is not the only criterion. Your repayment capacity, too,

    is a critical parameter.

    "We take into account the borrower's income-to obligation ratio. Hypothetically, if the

    applicant's income is `1 lakh, his total repayment should not be more than `55,000-60,000,"

    explains Kamlesh Rao, executive vice-president, retail assets, Kotak Mahindra Bank. Even

    after your loan is sanctioned, the disbursal will take place only after you identify a property

    that passes the lenders due diligence test.

    "There is no typical period within which the loan seeker is required to avail of the disbursement.

    However, we keep the file open for six months and if the applicant does not act within this

    period, we send reminders to the individual," informs an HDFC spokesperson. The validity

    period varies with each bank. For instance, the State Bank of India, which has been publicizing

    this facility of late, requires the borrower to identify the property within 60 days for the sanction

    to be valid. In case of Kotak Bank, the validity could range from 1-3 months. "We generally

    prefer a period of one month," says Rao.

  • Department of Business Administration, University of Lucknow -38-

    However, if there is a change in the interest rate, you will be charged the one prevailing at the

    time of taking the loan. While the interest rate may change, the spread over the bank's base rate

    will not be altered, unless a significant period of time has elapsed.

    Benefits for the borrowers: Buying a property typically involves a mountain of paperwork-with

    the builder and, later, with the lender. Availing of a pre-approved loan would mean that one

    part of it is taken care of.

    "The borrower's creditworthiness is established already and this helps in negotiating on rates

    with the builders. Secondly, your total transaction turnaround time comes down," explains Rao.

    Also, banks advise home-seekers on properties that meet their criteria. Besides, lenders have

    tie-ups with builders for various projects. "In the event of the borrower (with a pre-approved

    home loan) finding it difficult to take a decision, the bank may direct him to the right kind of

    project. Thus, if both the loan as well as the project is pre-approved, the processing will be

    much shorter," he adds.

    Tread cautiously: However, bear in mind that it is not always a win-win situation. You would

    lose the processing fee if you defer your purchase or decide to shift to another lender. "The

    processing fee is not refundable. In case of HDFC, it is 0.5% of the loan amount or `10,000, whichever is lower," says the HDFC spokesperson. "We retain 0.25% of the loan amount or

    `5,000," says Rao.

    Therefore, you need to factor in the uncertainty of the actual disbursement while signing up for

    such loans. Even if you do take the decision within the prescribed cut-off date, the disbursal

    may be stalled if the bank does not find the property suitable. "I don't see much value in such

    schemes, unless you are unsure of the amount of loan that you may be eligible for," says Harsh

    Roongta, CEO of Apnapaisa.com.

    "The processing fee may have to be forgone in such cases. If no processing fee is levied, you

    can consider it." In short, though these schemes score high on utility, they may not be suited

    for all. You could consider these schemes if you are comfortable with the prevailing rate of

    interest, the amount required for down payment is in place and you have already narrowed

    down your search to a particular locality, the size as well as the kind of apartment and the

    developer. If you are starting from scratch, it would be probably safer to finalise the property

    before proceeding with the loan-related paperwork.

  • Department of Business Administration, University of Lucknow -39-

    MSME Advances

    Advances to Micro, Small & Medium Enterprises (MSME):

    Bank has well defined policy for lending to Micro, Small & Medium Enterprises (MSMEs) with built-in concessions and incentives. The operative part of the MSME

    policy for the year 2013-14 is as under:

    The Bank shall continue to lay emphasis on financing Micro, Small & Medium Enterprises and our existing MSME credit portfolio shall be enlarged with special focus

    on lending to Micro Enterprises.

    Following recommendations of High Level Task Force constituted by Honble Prime Minister on Micro, Small & Medium Enterprises (MSME) Sector will be implemented:

    Achievement of 20% year on year growth in credit to Micro and Small Enterprises.

    The share of Micro Enterprises in Micro & Small Enterprises lending be increased to 60% by accelerating lending to Micro Enterprises.

    10% annual growth in number of accounts of advances to Micro Enterprises.

    The Reserve Bank of India guidelines on financing to MSMEs shall continue to be followed and be incorporated in various schemes for financing MSMEs. These

    guidelines on timely sanctioning of MSME applications, margin, rate of interest,

    collateral security, etc shall continue to be adhered to.

    The Bank envisages MSEs credit growth through financial inclusion by way of collateral free and without third party guarantee lending by leveraging CGTMSE. As

    per RBI mandatory guidelines, loans upto Rs.10 lakh to Micro and Small Enterprises,

    which are eligible for coverage under Credit Guarantee Scheme of CGTMSE, are to be

    considered on merits without accepting any collateral security / third party guarantee

    and all such cases must be got covered under guarantee scheme of CGTMSE. Further,

    as per Banks guidelines, MSE proposals up to Rs.100 lakh, which are eligible under

    Credit Guarantee Scheme of CGTMSE, are to be sanctioned by the competent authority

    without taking any collateral security/third party guarantee.

    Disposal of Loan Applications within the prescribed time limit is to be ensured as under:

    Upto Rs. 2 lakh 2 Weeks Above Rs.2 lakh & upto Rs.50 lakh 4 weeks Above Rs.50 lakh & upto Rs.100 lakh 5-6 weeks Above Rs.100 lakh & upto Rs.100 crore 6-7 weeks Above Rs.100 crore 8-9 weeks

  • Department of Business Administration, University of Lucknow -40-

    The Bank has approved Credit Rating agencies like SMERA, CRISIL, ICRA, ONICRA and BRICKWORK for rating of the MSME units and is extending interest concession

    of 0.50% for first two rating grades and 0.25% to third rating grade only. However, it

    is to be ensured that at a time only one concession will be admissible to the borrowers

    having good rating of SMERA/CRISIL/ICRA/ONICRA/BRICKWORK.

    In case of MSEs (to new as well as to existing cases) where implementation of project is in progress, liberal moratorium on term loan and working capital shall be extended

    by including interest also, during first 6-12 months of operation on case to case basis

    by the sanctioning authorities. As such, interest debited during this period be treated as

    long term funding of project and instalments after moratorium period shall be fixed

    accordingly.

    Special concession to Women owned enterprises have been extended in margin requirement and interest rates, irrespective to the amount of loan.

    District-wise project profiles With a view to obviate the need for TEV studies for each project, common industrial activities prevailing in a district are being identified at

    Lead Districts of the Bank for preparation of standard project reports for loans up to

    Rs. 1 crore. Wherever, these Standard Project Profiles have been approved by the

    DLRC in the Lead Districts of the Bank, the Techno Economic Viability Study is not required. Similarly project profiles approved by DLRCs in other districts, where we are not lead bank, shall be adopted for financing and TEV reports will not be required.

    The Bank is financing Artisans, Craftsmen, Village & Cottage Industries and Industries falling under KVIC schemes like PMEGP (Prime Minister Employment Generation

    Programme), Interest Subsidy Eligibility Certificate cases etc. These loans are to be

    classified under advances to Micro Enterprises without any investment ceiling. The

    small non farm sector units in rural areas, minorities, SC/ST and other special groups are being financed in terms of GOI/RBI policy and shall continue to be given attention.

    Sufficient Loaning Powers have been vested to ensure faster disposal of MSMEs loan applications:

    (i) Branch Managers have been vested with higher powers to directly dispose of proposals at branch level for financing Micro Enterprises

    (manufacturing/service) covered under CGTSME scheme as

    follows:

    Scale II Managers vested with the powers of Scale-III Managers.

    Scale III Managers vested with 125% of their vested loaning powers.

    (ii) Incumbents of all the specialized MSME branches may consider takeover proposals to the extent of 50% of their regular loaning

    powers in case of MSME advances without obtaining prior approval

    from the next higher authority.

    At present there is a system of online filing of loan applications by MSEs on Banks website. The Bank is providing 20% concession in processing/upfront fee, in case such

    applications received online.

  • Department of Business Administration, University of Lucknow -41-

    Simplified Loan Application (PNB - 1166) for credit requirement up to Rs. 50 Lakh for Micro & Small Enterprises (Manufacturing & Service sector) has been made available

    along with the check list of documents. Loans Applications above Rs. 50 lakh are also

    available along with check list.

    Banks guidelines provide for extending Cash Credit facilities against combined level of stocks and book debts. The sundry creditors are netted against the sundry debtors

    and surplus receivables, if any, are considered for calculation of DP after providing for

    adequate margin. Similarly, surplus sundry Creditors will be reduced from the value of

    stock.

    The Bank is providing Working Capital through simplified turn over method (Nayak Committee) i.e. providing 20% of the turn over as bank finance with 5% promoters contributions to MSEs units (Manufacturing and Service) for credit requirement up to

    Rs. 500 lakh. However in case of Retail Trade this limit is restricted up to Rs. 200 lakh.

    The Quarterly Monitoring System (QMS) forms have been simplified and Current ratio

    norms relaxed to 1.25:1.

    The Bank has adopted Cluster based lending approach for MSME sector. Under Cluster based approach, Bank has adopted 55 MSME clusters and more are to be adopted in

    the years to come. Emphasis will be made for customisation of cluster specific schemes

    for boosting MSME advances. To promote cluster based lending approach, Bank will

    provide financial support to MSMEs, situated in these clusters by way of mapping of

    one of its specialised MSME branches with these clusters. In case of no MSME

    specialised branch is available at the center, endeavor will be made to covert one of its

    branches as MSME specialised branch at such centers where we are lead bank.

    The Bank has 59 specialized MSME branches & 465 MSME focus branches to support finance to MSME units. These branches shall be developed as centres of excellence in

    MSME financing. These branches shall primarily focus for credit growth through

    MSME advances especially advances to Micro Enterprises.

    The Bank has adopted the Code of Banks commitment to Micro and Small Enterprises of Banking Code and Standards Board of India (BCSBI).

    For identifying sick units in MSE sector, Bank has adopted following revised definition of MSEs sick units:

    A Micro or Small Enterprise (as defined in the MSMED Act 2006) will be said to have become Sick, if

    Any of the borrowable account of the enterprise remains NPA for three months or more

    OR

    There is erosion in the net worth due to accumulated losses to the extent of 50% of its net worth during the previous accounting year.

  • Department of Business Administration, University of Lucknow -42-

    The Bank has implemented RBI guidelines of Debt Restructuring Mechanism for MSMEs, to ensure timely and transparent mechanism for restructuring of debts of

    potentially viable units.

    Bank has also set up Rehabilitation-cum-Care Centers at Circle Offices to guide the MSME units on the matters relating to their financial needs and the facilities available

    from the Banks/Govt./RBI.

    For objective decision making, Credit Scoring Models for loans up to Rs. 50 lakh have been launched and made applicable at all branches. These Credit Scoring Models have

    been placed on the server of the bank and available on Finacle with link as PNB Score

    SME and PNB Score. These models i.e. PNB Score SME or PNB Score, as applicable,

    are being used for scoring of eligible MSME accounts.

    To track delinquency in the scored accounts, score card IDs are necessarily being fed in MIS (V) details of accounts opened in CBS.

    The Bank is providing application tracking system to its MSME borrowers. All MSME applications received with required documents, are being entered in Credit Proposal

    Tracking System (CPTS) which automatically generate an acknowledgement

    comprising of unique application serial number, user ID and password for tracking the

    application.

    To promote advances to Micro Enterprises, there is an incentive scheme for branches for financing to Micro Enterprises. Top three branches at All India level and one top

    performing branch from each circle are recommended under the scheme.

    MSME campaigns are being conducted every month in the cluster of 6 to 8 branches in every circle and report of the same is being sent to RBI on quarterly basis. The progress

    of these campaigns is also being updated on Banks website on quarterly basis.

    With an effort to promote Food and Agro processing sector, a special rate of interest is being provided by the Bank, with the objective of integration of food processing units

    with farm sector as well as domestic and international market.

  • Department of Business Administration, University of Lucknow -43-

    Recommendations for Banks

    TIMELY AND ADEQUATE FINANCE

    1. The Loan Application form should be redesigned having the complete list of documents for sanction, Legal documentation and Disbursement separately

    2. A pre-numbered computerized receipt should be issued to the company with date and time with Login and Password for tracking the status of the proposal.

    3. The company should be given a Login and Password to track its loan application online to know what is the status of the application and at which desk it is

    parked? It will also be clear to the company if it is pending due to the non-

    submission of reply by the company.

    4. A comprehensive check list for the balance documents should be issued to the company within next 7 days.

    5. Possibility of in-house Legal and Valuation should be explored, as the outsourcing takes lot of time.

    6. At the time of sanction/ Rejection, a Travel Sheet of the Flow of the application as per Annexure I should invariably be a part of Sanction / Rejection Letter.

    7. Reason of Rejection should also be conveyed to the company.

    CREDIT RATING

    1. There should be different credit rating scale for MSMEs and Large Corporate under Basel II.

    2. The threshold limit for external credit rating should be increased from the present Rs. 5 crore to Rs. 25 crore. IBA should approach RBI with data mapping

    internal rating with external ratings for limits / exposure below Rs. 25 crore

    PARTICIPATION OF INDUSTRIAL ASSOCIATIONS

    1. A representative of MSME Associations should be a member of Regional/ Zonal MSME Review Committee of all the banks. This committee should hold

    meeting every month at all the Regional/ Zonal offices of all the banks to review

    the progress of MSME loan proposals.

    2. New channels of Credit Delivery like Industry Associations / Banking Correspondents may be developed. SIDBI has taken initiative in capacity

    building of select industry associations in different clusters. We recommend

    that the model adopted by SIDBI may be replicated with suitable modification

    if so required, by other banks/FIs for capacity building of Industry Association.

    SME BRANCHES

    1. The SME branches should be headed by some senior executive preferably Asstt General Manager of the bank.

  • Department of Business Administration, University of Lucknow -44-

    RE- APPRAISAL

    1. It has been the practice at the banks that the proposals recommended by branches headed by AGM/ DGM are re-appraised by a junior officer at the

    Regional/ Zonal office. Further the proposals recommended by the Regional

    Managers/ Zonal Managers with the rank of DGM/ GMs are re-appraised by the

    lower ranked officer at the Head office of the bank. Different queries are thus

    raised at different levels. We recommend that at the higher office which may be

    Regional office/ Zonal office/ Head office, the queries should be raised only by

    an officer above or atleast of the same rank officer, who has recommended the

    proposal from Branch / Regional/ Zonal level.

    CENTRAL GRIEVANCES CELL

    1. Central Grievances cell should be formed especially for credit proposals of MSME sector, in line with Banking OMBUDSMAN Scheme.

    CONSORTIUM ARRANGEMENT

    1. It has been observed in many cases that the Lead Bank appraise and assess the total requirement of the company, still the other member banks do not sanction their

    required share to the company on time. There is thus no use of the Consortium

    funding. It should be mandatory for all the Consortium members to sanction the

    facilities assessed by the Lead Bank within a period of one month of the assessment.

    REHABILITATION & EXIT POLICY

    1. As there is a Board for Industrial & Financial Reconstruction (BIFR) for large public and private sectors owning industrial undertakings, similarly a separate

    Board could be constituted for MSMEs so that their restructuring process could be

    hastened. The Board would act as the nodal agency which will be authorised to

    examine and declare the MSME unit as sick unit on a reference by the MSME unit

    like BIFR. Rehabilitation proposal can then be finalised in consultation with banks

    and the borrowers.

    2. SIDBI has formulated Scheme for Management / Restructuring of Stressed Assets, Rehabilitation and model OTS Scheme for MSME and has also circulated the same with banks. An independent view on the scheme formulated by SIDBI may be taken

    up; thereafter the same scheme may be put up by banks to their board for their

    consideration.

    3. The NPA norms for MSEs should be changed from 90 days to 120 days to enable units to help company take steps to revive the company.

    INTERACTION WITH CHIEF EXECUTIVES OF BANK

    1. Most of the time the Chief Executives i.e. CMDs/ EDs of the banks are busy in their internal meetings/ meetings with the large corporates. It is very difficult for SME

    clients to fix up appointments with them. There should be at-least one day during a

  • Department of Business Administration, University of Lucknow -45-

    month as a public day for MSME sector, where the CMDs/ EDs should be available

    for meeting with MSME clients without any prior appointment.

    Conclusion

    The principal aim of a banks credit analysis is to determine the ability and willingness of a

    borrower to repay a requested loan in accordance with the terms of the loan contract.

    The project gives the detailed knowledge of the whole process of loans and advances which

    DENA BANK performs in MSME department. Starting from the loan application from the

    borrower and compilation of confidential reports on him and the guarantor, the process

    continues till the disbursement of loan and after it the close monitoring till the adjustment of

    Banks loan. I have realized during my project that a credit analyst must own multi-disciplinary

    talents like financial, technical as well as legal know-how.

    The project was an attempt to understand and perform the work in Credit appraisal proposal

    which I have included is just an example of it. I have worked on many such proposals, attaching

    all those is beyond the scope of this project.

    The whole experience of working in such renowned public sector unit was very good and made

    me learn a lot out of it.

  • Department of Business Administration, University of Lucknow -46-

    CASE STUDY

    1.) MSME PROPOSAL - CRISTAL ENTERPRISES LTD

    For Approval,

    CAC(Credit Approval Committee)

    Proposal for

    1) Renewal of CCH limits at Rs 35 lacs of M/s CRISTAL Enterprises Ltd. (Excess borrowings of Rs 45.00 lacs converted into WCTL with moratorium period of eight

    months).

    2) Review of Term loan at o/s level of Rs 30.16 lacs as on 01.08.2013. (In line with circular no 185/15/2013/14 dated 17/09/2013 referring Moratorium on

    repayment of loan and interest for a period of one year in respect of all kinds of loans that are

    outstanding in the account in state of Uttarakhand.)

    Branch : Rudrapur Zone : Lucknow

    Dena Vivran ID 119823

    2. PROFILE

    Name of the Borrower M/s CRISTAL Enterprises/

    Registered Office

    Address with e-mail and

    Phone No.

    Address : Flat No 305 EBRO-J Om Nagar Uttarakhand

    Address of

    Unit/Works/Factory Plot No 54 Sector 7 IIE Pant Nagar District U S Nagar Uttarakhand

    Branch: Rudrapur Zone: Lucknow

    Established on 13.11.2010 Whether appearing in

    Dealing with us since 22.02.2012 Standard B List as of Sep 2013 Yes**

    Date of Last Sanction & Authority May 2012 by ZO-CAC

    Group: NA Willful Defaulter List as of March13 No,

    Line of Activity Auto mobile &

    Auto Parts Defaulter / CIBIL List No

    Key Person/Promoter Key Person Smt Geet Devi, Smt Poornima Singh & Madhvee

    Panwar ( All partners in the firm )

  • Department of Business Administration, University of Lucknow -47-

    Promoter Smt Geet Devi,Smt, Poorrnima Singh & Madhvee Panwar ( All

    partners in the firm )

    ** Due to non renewal of limits.

    Multiple / Consortium NA EXISTING PROPOSE

    D

    Leader Bank Asset Classification

    Our share: 100% Asset Category as per

    CMC Guidelines STD Standard

    FB - % 100% D2K Codes & Description

    NFB- % Activity 7899 Any other vehicle

    component

    STL- Sector MNF MSME

    TL- 27.20 lacs Special Category 99 Others

    Priority Yes

    BSR Code: 250755 Basel II Code:

    Risk Weightage 100% Provisioning: 0.25%

    Credit Risk Rating B Risk Grade as per estimated

    Balance Sheet Dated

    31.03.2013**

    B Better

    ** Rating