69607194 project report on business on lag new

8/3/2019 69607194 Project Report on Business on LAG New

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6. Interest Calculation on Loan

The interest towards the loan borrowed can be re-paid by any of the two

options that are provided to the customer. The payment can be:

Payment of monthly interest and principal payment at the end ofthe tenure.

Payment by way of EMI.

Part payment of principal and interest on a monthly basis.

A hypothetical case is taken to illustrate how the calculation of interest is

done under the above three cases.

Payment of Monthly Interest and principle payment at the end of the tenure

A customer borrows Rs.1000000 under a particular scheme of Loan against Gold.

The rate of interest under that scheme is 18% p.a. He opts for repayment whereby he

will pay interest per month and full payment of principal at the end of the tenure. The

tenure in this case is 12 months. He borrows the amount on 1st of January.

In his case, the calculation of interest will be as follows:

At the end of each month, he has to pay an interest of Rs.1500

(100000 X 0.015)

He has to pay the above interest amount for a period of 11 months. Forthe last month, he must pay the amount of Rs.101500 ( Principal and

Interest of last month)

Payment by way of EMI.

In this method, there is need to calculate the EMI by using following

Formula : EMI = P x r x (1 + r)n / ((1 + r)n -1)

Here,

p=principal amount

r = Interest rate per month (ex: if interest rate per annum is 10% then 10/

(12*100)) n= tenure in months

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Example

A person has taken a loan against gold of Rs.1000000/- on 10/1/10 at 18% p.a.

The tenure of the loan is 1 year. He has opted for re-payment by way of EMI.So, in his case, the calculation of interest will be as follows:

The EMI is calculated by using the above formula:

EMI= 1000000 x 0.015 x (1.015)12/ ((1.015)12-1)

Therefore EMI for next 12 months =9168.00

P=100000r= 0.015 per month (i.e. 18% p.a) n= 12 months

Hence, the equated monthly installment the customer has to pay is Rs 9168.So, the net amount that he will pay in the course of 12 months will be,Rs.110016 (9168 x 12)Hence, the interest income will be Rs.10016 (110016-100000)


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7. Break Even & Profit Projections

The calculation for arriving at the break even is done by making certainassumptions which are pertaining to Loan against Gold business.

There are three scenarios under which the calculations are made:

Scenario 1

Assumptions

Initial loan disbursal is 10 lacs and then it increases @ 20 % per month

for first nine months. Thereafter the increase is 50%.

Interest earned on disbursal =1.5% p.m, 18% p.a

Expenditure is assumed to be constant over the period.

Cost of Funds is assumed to be at 10% p.a, i.e.0.833% p.m

It is assumed that 30% of the Opening Balance is repaid every month till 3

months, then for the next three months 50% is repaid and at the end of the

7th month 100% of the opening balance is repaid. This cycle continues.

Notes

The figure in the row of Net Amount Outstanding is the closing balance

of that particular month. i.e. It will be the opening balance for the

succeeding month as shown in the Opening Balance row.

The Net Amount Outstanding of a particular month is arrived by the

calculation as,(A-B+C)

Break Even Period

The BEP will be achieved in the month of May next year.

Total Revenue after 17months 395,428Less Total Cost 3,62,631

Profit/(Loss) after 17 months 32,797


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Scenario 2

Assumptions

Initial loan disbursal is 10 lacs and then it increases @ 20 %, 30%,

40%, 50% and 35% each month for every three months respectively.


Expenditure is assumed to be constant over the period.


It is assumed that 30% of the Opening Balance is repaid every month till 3

months, then for the next three months 50% is repaid and at the end of the


Notes

The figure in the row of Net Amount Outstanding is the closing balanceof that particular month. i.e. It will be the opening balance for the




Break Even Period

The BEP will be achieved in the month of March next year.

Total Revenue after 16months 6,66,437Less Total Cost 3,62,631

Profit/(Loss) after 16 months 3,03,806

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Scenario 3

Assumptions

Initial loan disbursal is 10 lacs and then it increases @ 15%,25%,35%and 45% each month for every three months respectively. Thereafter

the increase is @ 30%.


Expenditure (Net) is assumed to increase @ 2% for first 6 months then

the increase is @ 4% for next 6 months and 5% thereafter.


It is assumed that 30% of the Opening Balance is repaid every month till 3months, then for the next three months 50% is repaid and at the end of the


Notes

The figure in the row of Net Amount Outstanding is the closing balanceof that particular month. i.e. It will be the opening balance for the




Break Even Period

The BEP will be achieved in the month of July next year.

Total Revenue after 19 months 1,212,409Less Total Cost 362631

Profit/(Loss) after 19 months 849,778

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7. Comparison with Existing Players

The comparison of FCFSL is made with the existing competitors. Viz. Muthoot

and Manappuram. The comparison is made on the following aspects:

Branch Structure

Schemes offered

Interest/ Penalty Calculations

Loan to Value


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At Future Money

BranchManager

Customer CareExecutive Valuer

As per the comparison in branch structure of Manappuram Finance, Muthoot Finance,

& Future Money, following observations are made. They are as follow:-

There is same branch structure in the Manappuram Finance & the

Muthoot Finance. In branches of Manappuram Finance & Muthoot

Finance, there are three layers of management namely top level,

middle level and bottom level

In branches of Manappuram Finance and Muthoot Finance, it

found that the Branch Managers are the head of functioning of

branches & responsible for various submissions of various

important reports at Head Office. Assistant Branch Manager is

responsible for supervise the work of Customer Care Executive,

Junior Executive, Account Executive and Valuer of branches and

also responsible for submission of various reports to Branch

Manager. While Valuer, Junior Executive, Account Executive and

Customer Care Executive are to be responsible for gold valuation,

helping to other colleagues of branch, maintain the branch book ofaccount and cash book etc and handle the enquirers, customers

etc. respectively. It means

Branch Grade Duties & ResponsibilitiesBranch Manger Head of the Branch, Manage the functioning of

branch. Also submit daily important reports to

branch.

Asst Branch ManagerSupervise the work of bottom level employeesandalso make important submission to branch

manager.

Valuer Check the gold and decide the loan amount.

Account ExecutiveMaintain the books of account of branches andalso


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acting as cashier of the branchJr. Executive Help the other colleagues of the branch or handle

the operation of the branch.

Customer CareExecutive

Handle the enquirers and customers coming inthe

branch.

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But in Future Money, find the following difference in respect of -

There are only two level of management

There are only three peoples in branch.

Each one in Future Money branches plays dual role of responsibilities. For

Example -

Branch manager is acting as Branch Manager and also as Assistant

Branch Manger responsibilities.

Valuer is responsible for Account Executive responsibilities as well as

valuation of gold i.e. his own job.

Customer Care Executive is responsible to Junior Executive of the

branch as well as handling the enquiry and customer of the branches

i.e. his own responsibility

It will clear from below charts

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SchemesOffered

At ManappuramFinance

Schemes Loan Amount ROI Days

X 1787.00 2.34%30Days

S3 1572.00 1.42%30Days

A 1687.00 2.25%90days

B 1637.00 2.25%180days

C 1437.00 2.25%365days

D 1287.00 1%30Days

S5 1637.00 1.59%30Days

XPlus 1812.00 2.34%

30Days

Interest rates calculated on daily basic

S3 calculated on 5days basic S5 Calculated on 30Days basic X Plus scheme for 6months older customer & had a transaction of

more than Rs.1lac for last 6 months

At Muthoot Finance

Schemes ROI B/B Chains Studs

TPL 1% 1025.00 975.00 925.00

XPL 1.5% 1500.00 1475.00

1425.0

0

EPL/ PPL 2.04% 1610.00 1560.0014700.00

CPL 1.07%

CPL is only for Bank Gold Coins.


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The Platinum scheme is offered at the lowest ROI i.e. 0.95%. The

processing fee for the same is Rs. 250 for loan upto 2 lakhs andRs.350 for loan above 2 lakhs plus service tax of 10.33%

However, the customer needs to make an advance payment of interestto avail this scheme. After the end of the tenure, i.e. 3 months the

customer has to pay the amount or he can shift to another scheme.

By making comparisons for scheme of gold loans of major player with future

money following things found

For higher loan amount offering schemes there is higher rate of interest.

Not on records of Manappuram Finance but they also follow solid or

B/B, chains or ornaments, others or stud pattern.

The future money is new in business so that they come up with new scheme like

Platinium to attract the customer & to create customer base so they will be

offering loan at 0.95 % per month for new customer along with processing fee.

After three months that customer is placed into any of the existing scheme.

There is no provision for staff gold loan but in future money there is

provision for Staff of the company where bank offering only 1% per

month interest rate to staff.

There is no major difference in ROI of three company

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Interest/ Penalty Calculations

At Manappuram Finance

The interest is calculated on a daily basis.

The lock-in interest depends upon the scheme varying from 5 days to entire 30 days.

In case of late payment of interest, the penalty interest rate is to be paid on

the after the due date of each month (i.e. if the due date of interest payment is

31st January 2011 and borrower is not able to repay the loan interest then

penalty interest will be charge from 1st February 2011 onward)

At Muthoot Finance

The interest is calculated on a daily basis.

In case of late payment of interest, the penalty interest rate is to be paid on

the entire period (i.e. From the Beginning of Interest calculation date to the

date of payment of interest)

At Future Money

The interest is calculated on a daily basis at Future Money. However, if the

customer repays the loan within a period of less than or equal to 7 days from

the date of availing the loan, he has to pay the interest on whole 7 days.

At Future Money, in case of late payment of interest the penalty is charged

only on the number of days prior to the due date of interest. (Such feature is

not available at Manappuram and Muthoot Finance

Loan to Value

In Manappuram finance, it is found that the loan to value is 89% to 85% of

gross weight.

For example

Ornament Gross Weight Net Weight(89% LTV (Rs.)

of Gross Weight)

Chain 14.5 grams12.9

23375(12.9*1812)


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In Muthoot finance, it is found that the loan to value is 100% of gross weight.

( as per the visit in Miraroad & Malad branch)

Schemes ROI (%) Gr Weight= Rate per AmountNt weight gram Offered

(Approx.)

EPL 2.25 14.5 1525 22500

XPL 1.58 14.5 1455 21000

RPL 1.33 14.5 1275 18500

TPL 1 14.5 850 12000

But in Future Money, it is found that the loan to value differed on the basis of

gold cartage

Gold caratLTV (% of GrossWeight)

18 to 20 75 to 80

22 83

23 85

24 90 to 100

So, Net weight and Amount to be offered was calculated as,

Gross Weight x LTV % (Based on caratage of gold) = Net Weight

Amount Offered = Net Weight x Rate per gram under a specific scheme.

In Manappuram Finance & Muthoot Finance, they are not accepting the gold

below 20 carats but in future money they accept the gold below 20 carts.

Conclusion


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Gold loan business is not really new to Indian Economy. But today due to rise in

the price of gold the demand for gold loan rises fast. Today many organizations

want to enter into the business the business of gold loan. Many banks, NBFC arealso assumed that it will be good replacement to personal loan.

Even gold loan business was secured even during the economic meltdown as jewels

are as good as cash on hand and can be converted into cash in any corner of globe.

Today, the Manappuram Finance and Muthoot Finance are the leader in thisbusiness. Due to limited players in market for providing the gold loan, therewill be huge scope of any established company or groups of company to enterinto this business. So, this project is useful to those who want to enter into thisbusiness, understand the risk in this business & also helps to understand how

to mitigate with the risk of this business. It also helps the existing players aswell as new players to know what the customer need from they.

This project reports explains product norms of gold loan, process of gold loan

providing, duties of responsibility of peoples in branches, valuation of gold

jewellary. The schemes of the every existing player are same because the main

principle of these business while lending the money to the lender, other things

being equal, higher the loan to value, higher rate of interest and vice-versa.

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Bibliography

www.Indiamicroinance.com/ gold loan-the-new-financial-el-

dorado.html www.manappuram.com

www.muthoot.com

www.futuremoney.com

www.moneylife.in/article/gold-

loan www.stockwatch.com

www.economicstimes .com

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69607194 project report on business on lag new

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