summer internship report - dena bank
DESCRIPTION
Summer Internship report on retail and MSME advances in Banks.TRANSCRIPT
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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
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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.
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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
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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
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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
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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
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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.
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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.
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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).
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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
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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.
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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
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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
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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.
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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
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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.
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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
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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
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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.
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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).
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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
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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.
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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
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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.
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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
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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)
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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.
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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)
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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
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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
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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.
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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 )
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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