Summerproject

8/12/2019 Summerproject

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Project report on

CREDIT MANAGEMENT

Of

RAJKOT NAGARIK SAHAKARI BANK LTD. - RAJKOT

Submitted to

N.R. INSTITUTE OF BUSINESS MANAGEMENT, AME!ABA!

On

ju"# $%, &''(

In p)rti)" fu"fi"" ment of *ummer tr)inin+ )* ) p)rt of *tud#

In M)*ter of Bu*ine** Admini*tr)tion pro+r)mme

B#

Manoj Chorada (0301!


2/83

"RE#ACE

Banks are regarded as the blood of the nations economy without them one

cannot imagine economy moving. Therefore banks should be operated very

efficiently, co-operative banks although a small part of whole banking system in

India, but they are very important not only from economical point of view but also

from social point of view as it is more concerned about common peoples welfare

and development.

Advance is heart and recovery is oygen for the bank and for the bank to survive

it is necessary to give advances and recover the amount at the appropriate time.

Through credit management I have tried to cover the various aspects like credit

appraisal, !"A management, recovery management, etc. #.g. credit

management covers all the areas right form the beginning like in$uiry till the loan

has been paid up.

Though credit management, a very vast topic, I have tried to incorporate to the

best of my capacity from all possible aspects in this pro%ect.

I do hope that institution will appreciate this pro%ect.


3/83

ACHNO$LEDGEMENT

%$& 'an no d&&r)*n& )*+, o ho )an/ 'o &&d or 2od/. 4 Anon

I believe an ocean is filled by drops and each and every drop should count,

similarly I should count favor of all my helpers here but this not possible. &o

forgive me for the same.

'irst of all I would like to thank Board o D*r&'or.

I am thankful to manager G.C.Rao+ to give me permission for the summer

training.

I want to epress my sincere obligation to Koa, S*r, K)ar*+2ha*, Sh*+&h2ha*

Nahan*, H*&h2ha* Ra'h'hh,and all the staff members of (!&B, where I

worked so long in a homely pleasant atmosphere.

#specially, I would like to thank Sa+*)2ha* B+o'hand Rajn*2ha* Ra*'hra, my

mentor who guided me in my work.

I am thankful to Mr. Khand&+a+)principal of our college* and Mr. 5*ra+ *r for

their guidance and Mr. N*raj A)arnan* for the arrangement of summer

placement.

+ast but not least my family, which is always behind me in my work for support

any time.


4/83

OBJECTI6E O# ST7D8

Banking is the activity of my interest. I have seen from the annual reports of the

various banks and find that most of their income is from the interest getting on

the credit given so I choose and hence I studied on credit management.

ame of statistics is always attracts me and banking is one the place where we

can learn it very well. &o I have selected bank and have preferred credit

management as topic for my pro%ect.


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RESEARCH METHODOLOG8

There are many methods, which are well known today for research methodology,

out of which one I have chosen is sampling method, which is really easier, still

producing accurate results.

&ampling in laymens language, is nothing but selecting pockets or samples

representing the whole group and analysis of these samples gives the idea about

the respective groups. /n the basis of this, prediction is done and full information

about group is integrated.

Though this is not a first hand method, it gives sufficiently good outcomes if used

carefully by eperts. It saves the time and energy. The only care should be taken,

in order to have great accuracy, is selection of sample should be such that it

should represent the whole group and information we get from them should be

cent percent reliable.

&alient features of my chosen sample

The biggest co-operative bank having head office in my vicinity enables

me to do my work efficiently. This is the striking feature of my sample.

The eclusive schedule bank in (a%kot and hence gets priority over the

others.

enerally the new bank lacks the eperience so it is mandatory to select a

sample, which has enormous eperience. (!&B has a gigantic

eperience of successful 01 years, under the lights of which work

becomes easier.

The other enchanting point is that (!&B have maimum number of

shareholder i.e. above 2 lacs.


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3/!T#!T

"reface

Acknowledgement

/b%ective of study

(esearch methodology

3ontent

I!T(/453TI/!

#arly history of banking

/rigin of word 6bank

&tatus wise bifurcation of bank

Types of bank

(!&B - The &mall 7ans Big Bank

"(/8#3T

7ain 'und Inflow )sources of funds*

7ain fund outflow )funds used*

7eaning of credit and credit management

'orms of credit9advances

Time wise bifurcation of advances

&ecurity wise bifurcation of advances

"rocess of credit

3(#4IT "/+I3:

eneral eligibility criteria for credit in (!&B

Table of interest rate on various advances

&crutiny of credit


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Types of credit

#planation of all types of credit

4ata analysis and observation and suggestion

3(#4IT A""(AI&A+

Appraisal format

/bservation and suggestion

3(#4IT 7/!IT/(I!, '/++/; 5" A!4 (#


8/83

I!T(/453TI/!I!T(/453TI/!


9/83

#A(+: =I&T/(: /' BA!>I!

As early as 2111 B.3., the Babylonians has developed a banking system. There

is evidence to show the temples of Babylon were used as banks. After a period

of time, there was a spread of irreligion, which soon destroyed the public sense

of security in depositing money and valuable in temples. The priests were longer

acting as financial ?0 agents. The (omans did minute regulations, as to conduct

private banking and to create confidence in it. +oan banks were also common in

(ome. 'rom these the poor citi@ens received loans without paying interest,

against security of land for or ? years.

4uring the early periods, although private individuals mostly did the banking

business, many countries established public banks either for the purpose of

facilitating commerce or to serve the government.

=owever, upon the revival of civili@ation, growing necessity forced the issued in

the middle of the 2thcentury and banks were established at


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This is true not only in the case of India but also of other countries. Although, the

business of banking is as old as authentic history, banking institutions have since

than changed in character and content very much. They have developed from a

few simple operation involving the satisfaction of a few individual wants to the

complicated mechanism of modern banking, involving the satisfaction of capital

slowly seeking employment and thus providing the very life blood of commerce.

THE ORIGIN O# $ORD 9BANK:

The word 6Bank itself derived from the word 6bancus or 6ban$ue that is a

'rench. There were others of the opinion that the word 6Bank is originally derived

from the erman word 6back meaning %oint for which was Italianised into 6banco.


11/83

STAT7S $ISE BI#7RCATION O# BANKS

Scedu"ed B)n-*.

NonScedu"ed B)n-*.

S'h&d+&d Ban,

In first schedule, overnment of India notifies the "rimary Banks, which are

licensed and whose demand and time liability are not less than 01 crores in

DEC.

overnment of India notifies the "rimary banks, which are licensed and whose

demand and time liability are not less than 11 crores can only $ualify to be

included in the second schedule since DD.

A bank becomes scheduled when it fulfils the followingsF

6A grade rating from (BI

4emand and Time +iability over 11 3rores

&atisfy the (BI guidelines related to 3(( and &+(

As per the norms "riority &ector wise lending

Benefits of Being a &cheduled co-operative are described belowF

(BI would provide (ediscounting facility at nominal rate

(BI gives remittance facility at par

The demerit of being a scheduled co-operative bank is that the bank will not get1.0G subsidy from (BI.

The conferment of scheduled status on the banks has certain advantages like

refinance facility, directly industrial finance from (eserve Bank of India, avail of

(eserve Bank of India (emittance facility scheme, accept deposits from local

bodies, $uasi-government organi@ation, religious, and charitable institutions,

guarantees and che$ues issued by Banks are accepted by overnment

4epartments. At the same time, it casts greater responsibility on the banks in the

maintenance of books of accounts and submission of returns.

Non-S'h&d+&d Ban,

The banks, which are not applicable as per the criteria of &cheduled Banks, are

called as a !on-scheduled Banks. These are very small banks.


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T8"ES O# BANKS

(egional (ural Bank

!ationali@e Bank

&tate Bank roup

3o-operative Bank

"rivate Bank

'oreign Bank

RESER6E BANK O# INDIA

The =ilton-young commission, appointed in D2H has recommended the

necessity of centrally empowered institution to have effective control over

currency and financial transaction in the country. Accordingly, the overnment

had then passed (eserve Bank of India Act, D? and established the (eserve

Bank of India with effect from stApril D0. The principal aim behind this was to

organi@e proper control over the currency management in the interest of country

benefits and to maintain financial stability. ;ith this, the (BI mainly looks after

the following important functionsF

To keep effective control over creation of credits and currency supply

To control the Banking transactions of 3entral and &tate overnmentsTo act as 3entral administered Authority of all other Banks in the 3ountry.

To organi@e control over 'oreign 3urrency Transaction

To assist for improvement in financial aspects of the country

Na*ona+*;& Ban,

Ascheme.

T)t-)" /On te *pot0 credit *cemeF

"urpose of this scheme is to fulfill the current re$uirement )like business,

marriage, medical treatment, education*. This is given in the limit of (s. lac

against the security of immovable property. This loan is re$uired to be paid in


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the monthly installments of 2 to 2?. &pecialty of the scheme is that within 2?

hour you can get the loan

Sceme for te *oci)" re*pon*ibi"itie* re1uirementF

This scheme covers the social responsibilities, medical treatment and other

occasions. In this scheme loan is sanctioned against security of immovable

property in the limit of (s.0 lac. 7aimum loan repayment period is H months.

Bui"din+ rep)irin+2reno3)tion "o)n *cemeF

(ecently bank has increased limit of loan amount from (s.C0111 to (s.211111

for the (a%kot, Ahmedabad, &urat city and for other branches to (s.11111.

4o)n )+)in*t N.S.5. 2 6.7.P. 2 4.I.5. Po"ic# *cemeF

The loan amount is given in the form of overdraft.


14/83


15/83

MAIN #7ND IN#LO$ (SO7RCES O# #7NDS!

/wned deposit

4eposits

Borrowings

/thers

O8ned depo*it

The owned funds consisting of paid capital of the bank, reserve fund, and other

reserves.

!epo*it*

It is sum of current deposits, fied deposits, saving deposits, special saving

deposits, !(I deposits, inoperative deposits, etc. It is the main 3ash Inflow for

any institution.

Borro8in+*

The borrowed funds consisting of borrowings from other banks )as per some

writer deposits of various types is also part of borrowed funds*, debentures

offered to public, etc.

Oter*

Increase in current liabilities, reduction in debtors, fund from operations like net

income, depreciation, and reserves, less payment to creditors, reduction in

advances, reduction in inventories, reduction in cash, sold marketable securities,

etc.


16/83

MAIN #7ND O7T#LO$ (#7NDS 7SED!

3(( )3ash (eserve (atio* with (eserve Bank of India

&+( )&tatutory +i$uidity (atio* in (eserve Bank of India approved securities

+oanable 'und

/thers

5RR /5)* Re*er3e R)tio0 8it Re*er3e B)n- Of Indi)

The capacity of credits creation of bank is depending upon their cash flow

received. To restrict this credit creation, the reserve bank of India has directed

their terms. In case of scheduled banks and sec.E of banking regulation act are

re$uired to maintain the cash reserve ratio J ?.C0G and non-scheduled bank

J G of their demand and time liability amounts separately. The scheduled

banks are re$uired to deposit the cash reserve ratio amount with (eserve Bank

of India while the non-scheduled banks are re$uired to maintain separate

account for this. The (eserve Bank of India is also empowered to raise the cash

reserve ratio up to 0G only in respect of scheduled banks. It is maintained

reported to (BI every fortnight.

1thApril (BI declared new credit policy and as per that (BI reduced 3(( with

1.20G4emand and time liabilityF

Time "i)bi"it# is related with time like, fied deposits

!em)nd "i)bi"it#is related with the demand like, 3urrent deposits, inoperative

deposit, and matured fied deposits

S4R /St)tutor# 4i1uidit# R)tio0

The cash flow for regular banking transactions mainly depends upon deposit

received in the bank. The reserve bank of India there fore puts some restrictions

on utili@ation of these amounts. The scheduled and non-scheduled banks are

re$uired to deposit 20G amount of their demand and time liability amount in the

security approved by reserve bank of India. These securities are converted into

cash and therefore they are termed as 6li$uid assets and 20G amount termed as


17/83

6li$uid ratio. The reserve bank of India is empowered to raise this li$uidity ratio

from 20G to ?1G. It is maintained average fortnight and reported to (BI.

4o)n)b"e Fund

3redit deposit ratio is not more than C1G.

+oanable funds means amount of money, which is applicable for lending. Three

main factors own fund, deposits, and borrowings decide it. Advances can never

be more than loanable fund.

+oanable fund is a total ofF

C0G of own funds

C1G of deposits

11G of borrowings

Oter*

"urchase of fied assets, purchase of marketable securities, addition to

advances, addition to inventories, payment to creditors, payment of dividend,

etc..


18/83

M&an*n< o CREDIT

The word 6credit is actually derived from the +atin word 63redere. 63redere

means to have trust or faith. Thus 6credit is directly related with trust. That is why

&tate 'ord stated that 63redit is nothing more than that of trust. By this we can

say that credit is a tool that is resulted by the complete mutual trust9faith.

63redit creation implies a situation when a bank may receive interest simply by

permitting customer to overdraw their accounts or by purchasing securities and

paying for them its own che$ue or bank may pay amount to borrower or directly

to seller of goods whom against borrower get amount.

CREDIT MANAGEMENT

3redit management means the total process of lending start from in$uiry from

potential borrower to recover the lending amount from borrower. ;henever my

study is concern, credit management in sense of banking sector is the set of

activities like #cept application, loan appraisal, &hakh posting, monitoring,

recovery, !"A management, etc.


19/83

#ORMS O# CREDIT=AD6ANCES

+oan )term loan*

3ash credit and overdrafts

"urchase 9discounting of bills

Bank guarantee

4o)n2term "o)n

In case of a loan a specified amount is sanctioned by the banker to the customer,

who may either draw the amount in case immediately or may like the amount to

be credited to his current account. But legally it is presumed that he has

withdrawn the amount from the bank and deposited it in his current account. =e

is re$uired to pay interest on the full amount from the date of sanction. A loan

may be repayable in installments or in lump sum.

5)* credit

3ash credit is the main method of lending in India and accounts for above C1G of

total bank credit. 5nder the system, the banker specifies the limit, called the cash

credit limit for each customer, up to which the customer is permitted to borrower

against the security of tangible assets or guarantees. The customer withdrawsfrom his cash credit account as and when re$uires the funds and deposits any

amount of money, which he finds surplus with him on any day. The cash credit

amount is thus an active and running account to which deposits and withdrawals

may be affected fre$uently. The customer is re$uired to provide tangible assets

as security to cover the amount borrowed from the banker. The borrower is

charged interest on the actual amount utili@ed by borrower and for the period

actually utili@ed only.

O3erdr)ft*

;hen a current amount holder is permitted by the banker to draw more than

what stands to his credit, such an advance is called an overdraft. The banker

may take some collateral security or may grant such advance on the personal


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security of the borrower. The customer is permitted to withdraw the amount as

and when he needs it and to repay it by means of deposit in his account as and

when it is feasible for him. Interest is charged on the eact amount overdrawn by

the customer and for the period of its actual utili@ation

Bi""* Purc)*e

The Banker credits customers account with the amount of the bill after deduction

his charges. As the demand bills are repayable on demand and there is no

maturity, the banker is entitled to demand their payment immediately on

presentation before of drawee. Their practice adopted in the case of demand

bills, is known as purchase of the bills.

Bi""* !i*count

In case of bills discounting, a bank credits the amount of the bill to the drawers

account before the reali@ation of the bill and thus lends its funds to him after

deduction his charges. The bills purchased and bills discounted by a bank are,

therefore, shown in its balance sheet as part of loans and advances. In case of a

bill maturing after a period of time maimum for E1 days in (!&B, the banker

retains the bill for that period and reali@es the amount of bill from the drawee on

its due date. This practice is called discounting of the bill.

B)n- Gu)r)ntee

It is a contract to perform the promise or discharge the liability of a third person in

case of his default. In case of guarantee, Bank is taking responsibility to pay the

amount to seller if buyer will not pay amount in time.


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TIME $ISE BI#7RCATION O# AD6ANCES

- &hort-term 'inance F 5p to 2H months

- 7edium-term 'inance F 2H to HH months

- +ong-term 'inance F Above HH months

SEC7RIT8 $ISE BI#7RCATION O# AD6ANCES

&ecured 'inance 9 AdvancesF

&ecured Advances are those advances, which provide absolute safety to the

Banker by means of a charge, created on the tangible assets of the borrower in

favor of the Banker. In such cases, the Banker gets certain rights in the tangible

assets over which a charge is created. A &ecured +oan or Advance means a

loan or advance made on the security of assets, the market value of which is not

at any time less than the amount of such loan or advance.

5nsecured 'inance 9 AdvancesF

5nsecured +oan or Advance means a loan or advance, which are not secured,

this types of advances is not preferable for any banking institutions.


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"ROCESS O# CREDIT

Application inward

&hakh report

Advocate report

Branch report

+oan report

Inspection report

3ommittee report

'ulfill conditions

#$uitable mortgage and e$uitable etension

7ake9sign document

/pen account

Insurance posting

(ecord department - filing

In8)rd )pp"ic)tion

A customer seeking an advance is re$uired to submit an appropriate application

form. There are different types of application forms for different types of

advances available. The information furnished in the application covers, interalias, the followingF name and address of the borrower and his establishment, the

details of borrowers business, the nature and amount of security offered. The

application form has to be supported by various ancillary statements like the

financial statements and financial pro%ections of the firm. A separate in$uiry

department is set under the loan department. =ere, different types of application

forms are available and collect process charge from borrowerK application is

accepted and entered into computer.

S)- report

This is one of the strangest facility of (!&B compare with other co-operative

banks in (a%kot district because of its computeri@ation. This facility provides bank

to total 6-und)"i of the borrower related to dealing with bank not only as a


23/83

borrower but also as partner, as a director also as a guarantor and same detail of

the guarantor also and also about all the types of loans, which are already paid

up, which are overdue, which are running and also about past performance of

particular.

Ad3oc)te report

Bank through its legal departments staff in two matters prepares advocate report

mostly, which are given belowF

In case of land and building loan

Before e$uitable of immovable property as a security

;hen the bank prepares advocate report, bank charges some amount from

borrower.

Br)nc turn o3er report

This report mostly prepare in case of cash credit review9renew, is also known as

a branch turn over report. This report presentsF

"erformance of borrower with the branch in previous year

4ebit-credit transaction of borrower,

&ubmission of stock statement,

"ayment of interest

+ast outstanding balance

Proce**in+ of )pp"ic)tion2"o)n report

The application is processed by the clerical staff and checked and passed by

senior loan officer and monitoring by loan manager. The preliminary involves an

eamination of the following factorsF

Ability, integrity, and eperience of the borrower in the particular business

eneral prospects of the borrowers business

"urpose of advance

(e$uirement of the borrower and its reasonableness

Ade$uacy of the margin


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"rovision of security

"eriod of payment

And prepare the appraisal report for committee approval

In*pection report

Before presenting appraisal report against the committee, bank sends his field

officer9inspection officer to on site inspection. The situation which created by

borrower by providing information of his business to bank is it fact or notL After

the inspection report, this application is ready for putting against the loan

committee of the bank. Inspection varies according to the various loans. 'or e.g.

In case of cash credit he personally visits the business site and verifies the

original books of accounts with that of submitted books of accounts. =e verifies

the real stock with the stock mentioned if any difference is found it is clearly

mentioned in the report.

In case of housing loan inspection officer visits the place and check whether the

building is really in eistence or not, whether the construction is as per the

statical figure provided to him and plan is as per sanctioned by the municipal

corporation.

5ommittee )ppro3)" )nd term* )nd condition*

/nce the application is duly processed, it is put for sanction to the appropriate

authority. =ere appropriate authority means various loan committees, standing

committee and board of directors. +oan manager is a sanctioning authority only

in case of review of cash credit facility. Types of committee and its lending

powers are given belowF

If appropriate authority gives sanction, along with the sanction of advance

the bank specifies the terms and conditions applicable to the advance. These

usually cover the followingsF

The amount of loan or maimum limit of the advances

The nature of the advances

The period for which advance is valid


25/83

The rate of interest applicable to the advance

The primary security to be charged

The insurance of the security

The detail of collateral security, if any, to be provided

The margin to be maintain

/ther restrictions or obligations on the part of the borrower

N)me Of 5ommittee

. Board of directors

2. &tanding committee

. (econsideration committee

?. +oan committee )(s.01111 to 111111*0. +oan committee )(s.1111 to 011111*

H. +oan sub-committee9 )(s.0111 to 11111*

C. +oan sub-committee92 )(s.C011 to 01111*

E. +oan sub-committee9 )5p to (s.C0111*

D. +oan sub-committee9? )5p to (s.0,111*

1.3ommittee for loan against immovable property9 )(s.2,01,11 to

0,11,111*

.3ommittee for loan against immovable property92 )(s.,01,11 to

2,01,111*

2.3ommittee for loan against immovable property9 )(s.20,11 to

,01,111*

.3ommittee for loan against immovable property9? )5p to (s.20,111*

?.(ecovery committee9 )more than (s.,11,111*

0.(ecovery committee92 )(s.,0111 to ,11,111*

H.(ecovery committee9 )5p to (s.,01,111*


26/83

It is common banking practice to incorporate important terms and conditions on a

stamped security document to be eecuted by the borrower. (ate of stamp

duties are given followsF

4emand promissory note F (s.

+etter of guarantee F (s. H1

Agreement letter 5p to 0,11,111 F (s. 01

)+etter of lien* Above 0,11,111 F (s. 29thousand

+etter of pledge F (s. 01

+etter of continuity F (s. 01

Agreement letter for 3ash credit9/verdraft

5p to 0,11,111 F (s. 1

Above 0,11,111 F (s. 29thousand

7aimum limit of stamp duty is (s. 2,11,111

Agreement letter is in case of vehicle loan, security loan, bills purchase, bills

discounting, guarantee, education loan, etc.

E1uit)b"e Mort+)+e And E1uit)b"e E9ten*ion

;hen the loan is sanctioned with condition that to put the real document as a

mortgage in security )prime9collateral*, it is must that to make the e$uitablemortgage of the property. &ome time a property which given in mortgage by

borrower is already put before the bank in case of other loan as a security at that

time e$uitable mortgage is already done by party so there is no need of e$uitable

mortgage again but the e$uitable etension is only needed.

#$uitable mortgage on non-%udicial stamp paper

Amount of *)nctioned "o)n "o)n of nonjudici)" *t)mp p)per for e1uit)b"e

mort+)+e

5p to 0,11,111 92G of sanctioned loan

Above 0,11,111 G of sanctioned loan OR(s. ,11,111

);hichever is less*


27/83

M)-e2*i+n document

This application is now in the document department, document department take

signature of loanee and guarantors in specimen card and also on the sanction

letter to seat beside and verify all the documents. Types of documents are

discussed in each type of loan separately. This process is last for borrower, after

this loan is sanctioned. !o formality is remaining at the borrower side.

Open )ccount

!ow loan is sanctioned, all formalities are completed. &o bank is giving your

amount of loan either by credited in your account or pay the amount to the party,

whose $uotation is provided by borrower to bank. Bank opens your account with

himself to get the actual transaction between bank and borrower.

In*ur)nce po*tin+

It is must for loanee to insure the property or e$uipment, which is hypothecated

with the bank against loan as a security. This policy is assigned in favor of bank,

which is also re$uired. In case of immovable property or new purchase of

machinery, e$uipment, etc. insurance of same amount and in case of old

machinery, goods stock, etc. twice of the price insurance is needed. In case of

education loan, the life insurance of student is re$uired. &hakh department isposting it in borrowers account.

Record dep)rtment : fi"in+

!ow total process is over and whole documents are need filing for bank record.

(ecord department does this work. (ecord department file the documents and

store it to proper place.


28/83

CREDIT POLICYCREDIT POLICY


29/83

General Eligibility Criteria For Credit In RNSB

As per the rules of co-operatives, any one who wants to avail finance has

to become a member of the bank.

As a shareholder of the bank, he9she have to make compulsory deposit, or

the payment of deposit as per rules and regulations of the bank andthereafter, he9she can submit the application for loan. In all the practice

with the bank, you are known by bank through your compulsory deposit

number.

The application will have to be submitted in the prescribed form, wherein

all details and particulars will have to be furnished as demanded in the

form. =e9she has to submit further particulars as may be asked by the

bank.

The loanee will be advanced loan against the security and he9she has to

submit or 2 guarantors, who will be the recogni@ed member and

accepted to the bank.

The interest will be calculated on month-to-month basis.

Taking in view the total amount of loans taken for different purpose by the

firm or individual, the interest will be calculated at the same rate on all the

advances.

It will be necessary to make payment of share deposit or loan deposit at

the rate of 2.0G of the sanction in case of secured loan and 0G of

sanctioned loan or in case of unsecured loan. The maimum share

deposit accepted of (s.20111 and additional deposit over (s.20111 will

be accepted as loan deposit.

The rate of interest on share deposit is 0G and that on loan deposit is

1G.

The company, who wants to take loan from bank, has to get its name

registered for the said loan purpose with the registrar of companies and

has to submit the document of registration charge to the bank.

In case of mortgage of immovable property steps are given belowF

Title clear report


30/83

#$uitable mortgage on non-%udicial stamp paper

Amount of *)nctioned "o)n "o)n of nonjudici)" *t)mp p)per for

e1uit)b"e mort+)+e

5p to 0,11,111 92G of sanctioned loan

Above 0,11,111 G of sanctioned loan OR(s.,11,111

);hichever is less*

&ome time a property which given in mortgage by borrower is already put

before the bank in case of other loan as a security at that time e$uitable

mortgage is already done by party so there is no need of e$uitable

mortgage again but the e$uitable etension is only needed.

In case of immovable property or new purchase of machinery, e$uipment,

etc. insurance of same amount and in case of old machinery, goods stock,

etc. twice of the price insurance is needed. In case of education loan, the

life insurance of student is re$uired.

7argin money means gap between purchase value and bank finance.

Bank always does payment directly to the seller. &o loanee has to deposit

the margin money in the bank.


31/83

INTEREST RATE ON 7ARIOUS A!7AN5ES

"ar*'+ar In&r&ra&

Ina++)&n= R.1000

N)2&r o*na++)&n

5p to 20111)ecept vehicle loan*

5p to 20111 vehicle loan

2011 to 211111

21111 to 111111

Above 111111

&urety loan, home appliances

old loan

+and and building )unsecured*up to 20111

&taff surety loan

+oan against fied deposit

Building repairing up to C0111

Building purchase, construction

C011 to 211111

21111 to111111

2G

?G

?G

0G

HG

HG

?G

HG

HG

7ore than2G of '.4.

?G

?G

0G

2

2

2

2

2

2

01

2

2

C

C

C

?1

?1

?1

HH

HH

?1

2H

?1

HH

Till thematurity

date of '.4.

1E

1E

1E


32/83

S'r*n/ o 'r&d*

;hile scrutini@ing an application from the bank takes into consideration-safety,

li$uidity, purpose profitability, security, and spread of advances.

S)fet#

Bank has to see that the prospective borrower is a reliable user of the finance

and banks money is safe in his hands.

4i1uidit#

Bank has to find out that the borrower is $uite capable in repaying the finance

within reasonable period.

Purpo*e

The purpose for the finance should not be illegal. It should be creative, service

oriented, development oriented, and like. Banks should check end use of funds.

Profit)bi"it#

If the pro%ect or the purpose of the finance is not profitable in the hands of the

borrower than he will not be in a position of repaying the amount to bank. It

should be profitable enough to generate the income to satisfy his needs and

banks dues.

Securit#

The bank has to take into consideration the character, capacity, and capital of the

prospective borrower. Bigger advances and cash credit are to be secured with

collateral security over and above prime security.

Spre)d of )d3)nce*

'or having balanced economy the bank should choose to spread the finance

amongst various sectors of the society, so that the risk of incoming bad advances

is minimi@ed. 3oncentration on one type of advances may turn into bad

advances if the scheme becomes ineffective due to some natural calamities or

government rules or change in taste or demands of the society, by and large.


33/83

T8"ES O# CREDIT

&urety +oan


34/83

E>"LANATION O# ALL T8"ER O# CREDIT

Sr&/ Loan

"urpose "ersonal use

+imit (s. 0111 to 1111

(ate of interest HG

"eriod ?1 months

(epayable #$uate 7onthly installments (s.2 per thousand

&ecurity "ersonal uarantee of two members of the bank

4ocuments +oan Appliances form, +etter of guarantee, 4" note, letter of

&anction.

&ubmit "aper In case of service person pay sleep, in case of businessperson

last yearly business report.

/ther terms

M G of the loan amount if the loan is sanctioned to the tune of (s. 0111 and G

of the loan amount is sanctioned to the tune of (s. 1111 will have to be

deposited in the benefit fund.

5nder the above scheme, if the death of the loanee under surety loan occurs, in

the said circumstances, in remaining loan in his account will be credited from this

account under his loan account and an amount of (s. 111, as Assistance will bepaid to the heirs of the loanee immediately from this fund

The confirmed government employee can be granted a loan of (s. 1111 on

acceptance letter taken from his employer to the effect that they will deduct the

installment from his salary every month regularly and remit the same to Bank.

It is not applicable that the surety loan of other co-operative society is in

presence.

Do)&*' A??+*an'& Loan

"urpose 'or purchasing consumer durable articles vi@. free@e, washing

machine, flour mill, T.


35/83

7argin ?1G

(ate of interest HG

"eriod ?1 months

(epayable #$uate 7onthly installments (s.2 per thousand

&ecurity =ypothecation of goods, personal guarantee of two members of

the bank

4ocuments +oan Appliances form, +etter of guarantee, 4" note,

=ypothecation of goods9articles purchased, insurance policy


last yearly business report, $uotation of the item obtained from

Authori@ed 4ealer

S&'r*/ Loan (A


36/83

&ubmit "aper +ast three-year business report, &hop Act +icense, &&I license,

#lec. 3onnection proof, IT (eturn )in case of new firm pro%ect

report*

If applicant is a "artnership 'irm

"artnership deed copy, (eg., of firms

If applicant is a limited company

(esolution for getting loan, 7emorandum of association,

Articles of association, letter of assurance for registration in

(eg. of 3ompanies

/ther terms

The payment of this kind of loan is given to the seller directly by Bank.

In case of mortgage of old security the insurance of the double amount of old

security and about new security, the insurance of the value of purchase price, is

re$uired to the taken out from the insurance company recogni@ed by bank and

the said insurance policy is re$uired to be recogni@ed to be assigned in favor of

the bank.

The immovable property of either loanee of guarantor will have to be assigned as

collateral security to the bank.

S&'r*/ Loan (A


37/83

)A* #$uitable mortgage of land and building

)B* uarantee of two members of the bank as guarantors.

4ocuments +oan Appliances form, +etter of guarantee, 4" note,

=ypothecation of goods, insurance policy, letter of sanction,

e$uitable mortgage of land and building

&ubmit "aper +ast three-year business report, &hop Act +icense, &&I license,

#lec. 3onnection proof, IT (eturn, (ent receipt

If applicant is a "artnership 'irm

"artnership deed copy, (eg., of firms,




(eg. of 3ompanies

/ther terms

The payment of this kind of loan is given to the loanee by Bank.

Insurance is twice of the value of goods price, is re$uired to the taken out from

the insurance company recogni@ed by bank and the said insurance policy is

re$uired to be recogni@ed in favor of the bank.

The immovable property of either loanee of guarantor will have to be assigned as

collateral security to the bank.

Land And B*+d*n< = Indr*a+ B*+d*n< Loan

"urpose 'or purchase or construction or repairing of immovable property

+imit (s. 111111 or value of the property which ever is less in case of

secured loan for housing purchase or construction

'or industrial purpose as per re$uirement

(s. C0111 7aimum )in case of secured loan repairing of

house property*

(s. C0111 7aimum )land less than 01 yards in case of

purchase*

(s. ?1111 7aimum )repairing of building and less than 01

yards*


38/83

(s. 20111 7aimum )in case of unsecured loan for repairing

of house property*

7argin 1G )in case of secured loan for repairing of house

property*

(ate of interest HG )unsecured loan* and C011 to 211111 ?G and

21111 to 111111 0 G) secured loan )purchase 9construction**

?G )housing repairing )secured loan**

"eriod ?1 months )unsecured loan*

1E months )secured loan )purchase 9 construction* 9 repairing*.

(epayable #$uate 7onthly installments (s.2 )unsecured loan repairing*

(s. C )secured loan )purchase9construction9repairing* per

thousand.

&ecurity #$uitable mortgage of property, two guarantors guarantee

4ocuments /riginal +ekh, certified copy of se$uential document of the

property, loan application form, letter of guarantee, e$uitable

mortgage of property9indemnity Bond, insurance policy, letter of

sanction

&ubmit "aper +ast three-year business report, shop Act +icense, IT (eturn, )In

case of new pro%ect, pro%ect report*, approved plan and estimate.

If applicant is a partnership 'irm"artnership deed 3opy, (eg. of firms




(eg. of 3ompanies

/ther terms

+oanee is re$uired to pay the document inspection and advocate fee along with

process charge as per the rate time-time decided by the bank.

In case of secured loan, when the loan is given for purchase of construction of

the immovable property, the full insurance of the value of construction is re$uired

to be taken out. In case of collateral of unsecured loan, the insurance of double

the value of the sanctioned loan is re$uired to be taken out from the insurance


39/83

company recogni@ed by the bank. The insurance policy is re$uired to the

assigned to the bank.

In case of unsecured loan, the applicant has to submit the original document

showing the ownership of the immovable property. 'or this type of loan, no

insistence is given for title clearance. But the applicant has to submit Indemnity

Bond on stamp paper of 01 whenever the demand of bank and necessary as

per the advice of the legal retainer of the bank. The insurance for the value of

building will have to be taken over and the insurance policy will have to be

assigned to the bank.

Conr'*on L&5&+ And A)on "a*n< S+a2 Char

!/. /'

I!&TA+7#

!T

"A(TI35+

A(

5"T/

(/5!4

'+//(

5"T/ &t.

'+//(

5"T/ 2 !4

'+//(

"linth level 21G 21G 21G

2 +intel level 21G 21G

1G

21G

1G &lab 1G 1G

1G

1G

1G? "laster,

tiles,

electric,

"lumbing

21G 21G 21G

0 3ompletion 1G 1G 1G

6&h*'+& Loan

"urpose "urchase of new two wheeler9purchase of four wheeler old9new

+imit As per demand

7argin 20G )in case of new vehicle purchase*


40/83

/+4 >I!4 /'


41/83

will have to be taken from the insurance company recogni@ed by bank and will

have assign in favor of the bank.

Bank shall make direct payment to the dealer9seller.

In case of second hand vehicle, necessary valuation report from a recogni@ed

valuer to be submitted to the bank.

Go+d Loan

"urpose "ersonal use

+imit (s. 01111 )in (a%kot city* 21111 )out of (a%kot*

"eriod 2H months

(ate of interest ?G

(epayable #$uated monthly installments (s. 01 per thousand.

&ecurity old silver ornaments or items on (e-pledge

4ocuments +oan application form, 4" note


last yearly business report

/ther terms

This kind of loan is given on the re-pledge of ornaments or items of gold-silver.

This kind of loan is not available to the merchants of gold-silver for the purpose of

buying selling.This kind of loan can be given to the member of the bank, but this kind of loan

can also be given to the non-member, taking (s. 0 as admission fee and giving

nominal membership for the loan only.

The purity of the ornaments or items of old, which is given on re-"ledge, should

be minimum 2 3arets.

'or the purpose of this kind of loan the bank shall appoint one or more

goldsmiths, who will make valuation of the ornaments or items of gold-silver and

the loanee has to accept his decision arrived at on the basis of the kind9weight

etc. of gold-silver ornaments or items.

"er .HH? ram )"er T/+A* (s. 111 is


42/83

Ban,a2+& Loan

"urpose To assist the small scale industry

+imit (s 211111

7argin 20G to ?1G

"eriod ?1 months

(ate of interest 5p to 20111 2G

2011 to 211111 ?G

(epayable #$uated monthly installments of 2 (s. "er thousand

&ecurity As a collateral security house property of loanee or guarantor or

fied deposits or national saving certificates as a mortgage C1G

of sanctioned loan, guarantee of two guarantors

4ocuments #$uitable mortgage of property, loan application form, letter of

guarantee, 4" note, letter of sanction, insurance policy

&ubmit "aper &hop Act +icense, &&I license, #lec. 3onnection proof, (ent

receipt, pro%ect report

/ther terms

This loan is sanctioned on the recommendation of district industrial center after

security and taking in view the value of security given against loan and

particulars of guarantor.Amount of subsidy given and sanctioned to the application is credit in his loan

account.

The payment ecept amount, which is sanctioned against working capital, of this

loan is made directly to the party, who has given the $uotation.

T/?& o 2*n& 'ond**on o 2*d/

Trading firm C011 or 1G of loan amount whichever is less

&ervice sector 1111 of 1G of loan amount whichever is less

7anufacturing firm 21111 or 1G of loan amount whichever is less

O5&r Dra


43/83

"urpose To fulfill the need of working capital of business

+imit As per re$uirement

7argin ?1G

"eriod 5p to year

(ate of interest 5p to 20111 2G

2011 to 211111 ?G

2111 to 111111 0G

Above 111111 HG

(epayable The customer is permitted to withdraw the amount as and when

he needs it and to repay it by means of deposit in his account as

and when it is feasible for him

&ecurity =ypothecation of goods stock and or e$uitable mortgage of

property guarantee of two guarantors

4ocuments /verdraft application form, letter of guarantee, e$uitable

mortgage of property, 4" note, letter of continuity, letter of

sanction, insurance policy

&ubmit paper +ast three-year business report, rent receipt, IT return, shop act

license

Cah 'r&d* (


44/83

&ecurity a* as a prime security hypothecation of goods stock

b* As a collateral security machinery, furniture e$uipment, fied

deposit, national saving certificate, e$uitable mortgage of

immovable property

c* uarantee of two guarantors

4ocument 3ash 3redit Application 'orm, Agreement +etter, #$uitable

7ortgage of "roperty, +etter /f &anction, +etter /f 3ontinuity, 4"

note, hypothecation of goods, Insurance "olicy

&ubmit paper +ast three year Business (eport, &hop Act +icense, &&I +icense,

electricity connection proof, IT return, rent receipt

If applicant is a partnership firm

"artnership deed copy, (eg. of firms


(esolution for getting loan, memorandum of association, articles

of the association, letter of assurance for registration in reg. of

companies

/ther terms

+oanee has to submit the stock statement to the bank every month regularly.

+oanee has to submit the balance sheet, profit and loss account every year.

+oanee has to submit the copy of income ta return or income ta assessmentorder every year.

In the cash credit account facility, the turn over will to be done thrice of the

sanctioned facility within H month and the same will have to be done five times of

the sanctioned facility within one year.

The insurance for twice the value of sanctioned cash credit will have to be taken

over and the insurance policy will have to be assigned to the bank.

In case of cash credit the facility can be availed maintaining the goods stock

margin.

&ale of goods and amount of recovery cannot be set off, but the same should be

credited in the bank and the amount of payment should be made by bank che$ue

all the business transaction should be made through bank.


45/83

As per the norms of the reserve bank of India, a borrower cannot operate two

cash credit account at a time with two different banks.

Ed'a*on Loan

"urpose This kind of loan is given to the brilliant students, who do not

further their study because of paucity of finance, with a view to

building their career. The bank is giving loan to cooperate and to

give assistance to such students for education purpose

+imit a* &tudy in India F (s. ,01,111

b* &tudy in abroadF (s. 2,11,111

7argin 5p to 20,111 F nil

20,11 to ,01,111 F 0G

20,111 to 2,11,111 F 20G

(ate of interest ?G

(epayable #$uates monthly installments of (s. 2 per thousand

&ecurity #$uitable mortgage of property, guarantee of two guarantors

4ocument +oan application form, #$uitable 7ortgage /f "roperty, +etter /f

&anction, +etter /f continuity, continuity security letter, 4" note,

Insurance "olicy of student, which is assigned in favor of bank,

letter of lien and set off, letter of guarantee, stamp applicationcum agreement form

&ubmit paper In case of service person pay sleep, in case of businessperson

last yearly business report, two photograph of student

/ther terms

Interest is re$uired to be paid every month

The loan can be sanctioned keeping in view the loanees repaying capacity

3ompulsory first class in every important eamination

+oanee is that who has a property on his own name. &tudent has to %oin as a co-

loanee.

The installment of loan will be stated after H months of the completion of study


46/83

#*&d d&?o* +oan

"urpose To grant loan 9 overdraft to an individual or a firm against '.4.(.

+imit As per re$uirement

7argin 01 G or less

"eriod Till due date of '.4.(.

(ate of interest 2 G more than '.4.(.

&ecurity 4uly discharge '.4.(.

4ocuments 4" note, duly discharge '.4.(., form of application

/ther terms +ien should be noted in the '4( account and on the back of the

'.4.(. duly discharged

B*++ ?r'ha&

"urpose To assist the customer for their short-term need of working capital

+imit As re$uired by applicant

7argin enerally 20 G

(ate of interest E G per annum

"eriod Actual reali@ation period

3harges Table is given

4ocuments 4" note, letter of guarantee, letter of continuity, agreement letter

B*++ D*'on*nI! 5!IT*

7argin on amount of demanded loan

;orking capital as per last balance sheet

#stimated reinvestment of the current year profit

3urrent years estimated working capital )2P*

7argin of working capital )20 G current asset of last year*

7argin for permissible finance )?-0*

If )H* is less than )*, how can they bring difference of amount from long term

sources is re$uired clarification

#&TI7AT#4 "(/'IT A!4 4&3( )4ebt &ecurity 3overage (atio*

i. !ew unit

"A(TI35+A(& :#A(&

2 ? 0 H

. "roduction capacity

2. 5tili@ation capacity )G*. "roduction

?. &ales

0. !et profit

H. 4epreciation

C. Interest on loan


62/83

E. 3ash flow )0PHPC*

D. Amount of #7I of demanded

loan per annum

1.4&3( )E9D*

.Average 4&3(

ii. ;orking capital

* "rofit of current year

2* 4epreciation of current year

* 3ash profit of current year )P2*

?* Amount of #7I of demanded loan per annum0* 4&3( )9?*

7inimum Acceptable 7easure for 4&3( .0 to 2

&ometimes in case of new unit, pro%ect report present unrealistic picture of future.

&o bank should keep it in consideration at the time of calculation of 4&3(.

Accepted measure for it is H1 G.


63/83

APPRAISAL OF I""O#ABLE PROPERTY

!ame of owner and designation of him

Address of property

+and in s$uare yard

"roposed construction in s$uare feet

"lan of construction passed by 7unicipal 3orporation

#stimated cost of property

)Amount of land is calculated as per the address

P Amount of construction is calculated s$uare feet ?11*

INSPECTION REPORT

oods stock

Type of business

(eporting after checking of accounting books, vouchers, etc.

Insurance of stock and mortgaged property is as norms, isnt itL

Is it proper for sanctionL

DEPART"ENT NOTE

CREDIT DESER#EDNESS OF LOANEE

!ame of facility (e$uested amount for credit

"ermissible finance as per appraisal

/T=#( 3(IT#(IA

Borrowings from relatives are retained in business. ;ithout permission

from bank relative cannot withdraw that amount.

Immovable property is needed to take as a collateral security.

+ate9retire partners capital is not withdrawn without permission from bank.

3urrent ratio

4ebt e$uity ratio

&ecurity coverage

4&3(


64/83

OBSER#ATION AND FINDINGS AND S!GGESTIONS

'ormat for collection of minimum information about potential borrower

It is must for any bank who wants to win market to collect the information about

his potential customer. (&!B a bank which eager to increase own market share

also collect the information about future borrower.

5se of software for credit appraisal

Bank has own computer department to develop the software for bank but this

now in initial stage. 7a%ority time consume work is done by the computer though

appraisal of credit is done by manually.

(evision in appraisal format during last two year

(&!B prepared its policy before two year and decide proper criteria for sanction

the loan.

4ifferent appraisal format for different loan segment

There is one common format for all loans are not possible because each loan

re$uire particular information and calculation. =ere in (&!B I find different

appraisal format for different segments. That we see in above appraisal format.

&ystem of fiation of maimum time for loan sanction and sanction within limit

/n paper, there is no maimum limit for sanction the loan but generally as per

the opinion of officer within ten days loan is sanctioned. &ometimes because of

carelessness of the borrower or take time for providing needed documents is

reason for delay of sanction the loan.

In house epertise for appraisal of hi tech pro%ects

&pecial works always need eperts but in (!&B we find lack of the epert for

appraisal of hi tech pro%ect and it is dangerous pr say risky for any institution. I

think (!&B have to recruit epert for appraisal of hi tech pro%ects who has


65/83

special knowledge about business sector and mastery of pro%ect report study and

now because of


66/83

Bank of Indias guidelines. &light modification in these rules for well being of

members is still allowed.

CREDIT "ONITORING$ FOLLO% !P AND RE#IE%CREDIT "ONITORING$ FOLLO% !P AND RE#IE%


67/83

CREDIT "ONITORING$ FOLLO% !P AND RE#IE%

;hen we lend, it is essential for us that to keep watch on it till we recover it. This

is called credit monitoring in terms of banking.

CREDIT "ONITORING SYSTE" IN RSNB

In the (!&B, there is system for credit monitoring specially account, which is

above 1,11,111 rupees is described belowF

'ind out the list of potential !"A accounts above 1,11,111 rupees

&tatements of potential !"A accounts are submitted to head office from

branches

=ead office monitoring this every three months and prepare report on it.

(eport is submitted to board of directors.

Follo& '( a)tion *or )redit +onitoring in RNSB

3onsolidation of data, which comes from the branches and every month, update

the data and generate this and use it for follow up

=ead office directly sends the notice to account holders of such accounts

To stop the slippage of the potential !"A accounts, bank organi@e the committee

under authori@ation of 7r. Bhatt)A..7.* and 7r.


68/83

OBSER#ATION FINDINGS AND S!GGESTIONS

&ystem of loan portfolio review and monitoring

There is system of weekly review and monitoring of loan portfolio in the (!&B,

every week a statement is prepare to be ac$uainted with the present credit

deposit ratio, if this ratio is less than C1G for eample H0G, it represent that bank

can finance up to 0 G at present.

"reparation of 7I& report for loan portfolio review at board level

#very week, present situation of loan portfolio is putting against board of

directors.

3ompliance of prudential guidelines

#posure 3eiling F a* Individual21G of the total capital fund

F b* roup 01G of the total capital fund

"riority sector lendingF "riority H1G of the total advances

F ;eaker 0G of the total advances

This is followed by the (!&B

Ite+, o* (riority ,e)tor,

Advances to individuals for activities allied to agriculture

+oans and advances to cottage9small scale industries and e$uipment 9system fordevelopment of new and renewable sources of energy.

Advances to road and water transport operators for purchase of one vehicle

"rivate retail traders dealing in essential commodities )fair practice shop*

/ther private retail traders with credit limit not eceeding (s. 0,11,111

&mall business enterprise

"rofessionals and self employed persons

#ducational loans

=ousing loans not eceeding (s. 1,11,111

3onsumption loan

Ite+, o* &ea-er ,e)tion

&cheduled caste9scheduled tribe

;omen


69/83

/thers

Timely renew and review by credit limit

#very year (!&B review cash credit accounts and every three years renew that

accounts. At the time of review bank only keep in view the turnover of business,

account inspection, field inspection, renew insurance, renew shop act license,

proof of rent, income ta return or assessment of income ta, turnover with bank.

But process of renew of accounts is totally inspection of party. Bank considers

last three years business progress of the party and deal with bank also.


70/83

NPA "ANAGE"ENTNPA "ANAGE"ENT


71/83

o& a))o'nt be)o+e, Non Per*or+ing A,,et,.

Term "o)n*

If interest or installment of principal remains past due for a period of any two

$uarters it becomes !"A.

"ast due means is an amount due under any of the facility but not paid within 1

days after it becomes due.

5)* credit )nd o3erdr)ft*

If the account remains out of order for a period of any two $uarters, it becomes

!"A.

/ut of order means

If the out-standing balance remains continuously in ecess of the sanctioned

limit9drawing power

There is no credit continuously for si months or

3redit is not enough to cover the interest debited during the same period

Bi""* purc)*e )nd di*countin+

If the bills remains over due and unpaid for the period of two $uarters during the

year it becomes !"A.

/ther credit facility

If any amount to be received remains past due for a period of two $uarters during

the year, it becomes !"A.


72/83

A& '+a**'a*on

The primary )urban* co-operative banks should classify their assets into the

following broad groups, vi@.

"erforming assets

&tandard assets

!on-performing assets

&ub-standard assets

4oubtful assets

+oss assets

!on-performing assets

!"As are loans given by a bank or financial institute where the borrower defaults

or delays payments of interest or repayment of principal. Asset here also

includes a leased asset. A !"A was defined a credit facility in respect of which

interest and9or installment of principal has remained 6past due for a specified

period of time. The specified period in a phased manner is as under

:ear ending If interest has remained unpaid, account become !"A

DD

DD?

DD0 onward

'rom 211?

? $uarters

$uarters

2 $uarters

$uarters

"erforming assets

;hich accounts are not in performing are performing assets. ;hich accounts are

regular or cover due installments are less than si is called performing assets.


73/83

C+a**'a*on O Non-"&ror)*n< A&

After identification of borrowed accounts as !"A the net stage is asset

classification

St)nd)rd )**et*

&tandard Assets is one, which does not disclose any problems and which does

not carry more than normal risk attached to the business. &uch as asset should

not be an !"A.

Sub*t)nd)rd )**et*

In case of sub-standard assets, the current net worth of the borrower9guarantors

or the current market value of the security charged is not enough to ensure

recovery of the dues to the banks in full. In other words, such assets will have

well defined credit weakness that %eopardi@e the li$uidation of the debt and are

characteri@ed by the distinct possibility that the banks will sustain some loss, if

deficiencies are not corrected.

An asset where the terms of the loan agreement regarding interest and principal

have been re-negotiated or rescheduled after commencement of production,

should be classified a sub standard and should remain in such category for at

least E months of satisfactory performance under the re-negotiated or

rescheduled terms. If interest and installment of loans have been paid regularlyas per the terms of re-scheduled. In other words, the classification of an asset

should not be upgraded merely as a result of rescheduling, unless there is

satisfactory compliance of this condition.

!oubtfu" )**et*

An asset is re$uired to be classified as doubtful, if it has remained in the sub-

standard category for 2 months. As in the case of sub-standard assets,

rescheduling does not entitle the bank to upgrade the $uality of an advance

automatically.

A loan classified as doubtful thus all the weakness inherent as that classified as

sub-standard, with the added characteristic that the weaknesses make collection


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or li$uidation in full, on the basis of currently known facts, conditions and values,

highly $uestionable and importable.

4o** )**et*

A loss asset is one where loss has been identified by the bank or internal or

eternal auditors or by the co-operation department or by the (eserve Bank /f

India inspection but the amount has not been written off, wholly or partly, in other

words, such an asset is considered un-collectible and of such little value that its

continuance as a bankable asset is not warranted although there may be some

salvage or recovery value.

PRO#ISION FOR NPA

Assets classification G /f provision to be made

&tandard assets

&ub standard assets

)/n the balance out standing 7I!5& amount

guarantee by #33 and amount covered by term

deposit, !&


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+oss

)/n the balance out standing minus amount

guaranteed by #33*

"rovision against !"A is ade$uate in (!&B, which epress the sound condition

of the bank. The bad and doubtful debt reserve was strengthened and the net

!"A levels have been brought down to @ero.


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#*nd*n


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)S


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RECO#ERYRECO#ERY


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R&'o5&r/

(ecovery management consist of the functions and activities the bank carries out

ac$uire back what the bank has advanced with principal amount as well as

interest on the same. &o it is recovery of what the bank has advanced to loanee

for carrying out their purpose9 ob%ective of taking a loan.

PROCESS OF RECO#ERY

If three installments are outstanding,

!otice through branch office

"ersonal visit and meeting

If no response

!otice through advocate

Though no effect

3laim through court if party ready, of court settlement otherwise

After completion of formalities

Bank will get the order of security from court to recover their due.


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O2&r5a*on=*nd*n


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LIMITATION O# ST7D8

Though I have selected the biggest co-operative bank for my study and no doubt

here I have learnt a lot, but compared to nationali@e bank, its network is small.

The procedure of credit appraisal, various interest rates on different schemes,

recovery programmes are specific to (a%kot !agarik &ahakari Bank +td.

Also credit management is wide topicK I have tried to cover the most related with

it.


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BIBLIOGRA"H8

&hekhar >.3. Banking Theory and "ractices. !ew 4elhiF

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