a study on credit risk analyses of business entity of (varachha co-operative bank limited,...

THE VARACHHA CO-OPRATIVE BANK LTD. SURAT.

A

STUDY

ON

Credit risk analyses of business entity

OF

(Varachha co-operative bank limited, Surat)

In partial fulfillment of the requirements for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED BY:

MAHENDRA MALANI

ENROL. NO.117920592035

(M.B.A.SEM-2)

Under the guidance of

PROF.DEVANG KALE

Submitted to:

PARUL INSRITUTE OF MANAGEMENT AND RESEARCH

VADODARA

1PARUL INSTITUTE OF MANAGEMENT AND RESEARCH - VADODARA


BANK CRTIFICATE:



Preface:Banks are regarded as the blood of the nation’s economy without them one

cannot imagine economy moving. Therefore banks should be operated very

efficiently, cooperative banks although a small part of whole banking system in

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

also from social point of view as it is more concerned about common people’s

welfare and development.

Advance is heart and recovery is oxygen for the bank and for the bank to

survive it is necessary to give advances and recover the amount at the

appropriate time. Through credit management I have tried to cover the various

aspects like credit appraisal. NPA management, recovery management, etc. E.g.

credit management covers all the areas right from the beginning like inquiry till

the loan has been paid up.

Though credit risk analyses of business entity, a very last topic, I have tried to

incorporate to the best of my capacity from all possible aspects in this project.

I do better try that institution will appreciate this project.



ACKNOWLEGMENT:

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

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

forgive me for the same.

First of all I would like to thank to all the member of board of directors and

especially to Mr. Kanjibhai Bhalala who has given me the advice and

permission for training.

I am thankful to manager Mr.Sureshbhai kakadiya who has also given me

permission for the summer training.

I want to express my sincere obligation to all the staff member of Varachha

cooperative bank; I worked so long in a homely pleasant atmosphere.

I am thankful to Mr. Murty sir (principal of our collage) and Mr. Devang

kale for their guidance and for the arrangement of summer placement.

Last but not least my family and my friends, who is always behind me in my

work for support any time.



INDEX:TOPIC PAGE NO.

BANK CERTIFICATE 2

ACKNOWLEGMENT 3

INTRODUCTION OF BANK INDUSTRIES:

OVERVIEW OF BANKING INDUSTRIES

7

8

INTRODUCTION OF VARACHHA COOPRATIVE BANK

HISTORY OF VCB

THE VCB PROVIDE BANKING SEVICE

VARIOUS TYPES OF DEPOSIT IN VCB

VARIOU TYPES OF LOANS

OBJECTIVE OF VCB

13

14

16

19

23

24

PROJECT ON CREDIT RISK MANAGEMENT

TYPES OF CREDIT RISK

26

28

CREDIT POLICY 36

RESEARCH METHODOLOGY 36

RESEARCH OBJECTIVE 37

RESEARCH DESIGN 37

DATA COLLECTION 37

BENEFIT OF STUDY 37

LIMITATION OF STUDY 37

VARIOUS LOAN AND CREDITS

INTEREST OF VARIOUS LOAN

ALL TYPES OF CREDIT

DATA ANALSIS AND OBJERVATION

LOAN SANCTIONAL IN VCB

37

37

38

52

55

CREDIT APPRAISAL

APPRAISAL FORMAT

FIANANCIAL MASUREMENT OF LOANEE

MACHINERY LOAN APPRAISAL FORMAT

OBSERVTION AND FINDINGD AND SUGGESTION

57

59

62

63

70

CREDIT MONITORING, FOLLOW UP AND REVIEW 72



CREDIT MONITORING SYSTEM IN VCB

FOLLOW UP ACTION FOR CREDIT

MONITORING IN VCB

OBSERVATION FINDING AND SUGGESTION

73

73

74

NON- PERFORMING ASSEST

MEANING OF NPA

IDENTIFICATION OF NPA

PROVISION OF NPA IN VCB

76

77

77

78

RECOVERY MANAGEMENT

PROCESS OF RECOVERY

LOAN RECOVERY MANAGEMENT IN VCB

79

80

82

FINDING AND OBSERVATION 82

CONCLUSION 83

BIBLIOGRAPHY 84



INTRODUCTION:

Current time bank is crucial part of business and it is furnished services to

connecting businessmen for urging dealing. Banking has played a very

important role in the economic development of all the nations of the world. In

fact, banking is the lifeblood of modern commerce is. So depend upon banking

that any cessation of banking activity. Even for a day or two. This completely

paralyzes the economic life of a nation.

OVERVIEW OF BANKING INDUSTRY:

The word bank has been derived from the Latin word bancus or from

banque. Which mean a bench in English? The early bankers transacted their

business at benches in a market place. When banker failed his bench was broken

up by the people. According to some authorities derived from the German word

bank was meaning a joint stock fund Italianated into banco when the German

were masters of a great part of Italy, In India, the Hilton young commission

recommended that word bank or banker should be interpreted as meaning every

person, firm or company accepting deposits of money subject to withdrawal by

cheque, draft or order.

The Indian Banking Companies Act. 1949 define a “Banking company as

a company which transacts the business of banking in any State of India.”

In the economic development of a nation banks occupy an important

place. Banking institutions from an important part of the money market

comprises both organized as well as unorganized sectors. The unorganized


INTRODUCTION

OF BANK


sector includes moneylenders and indigenous bankers and largely caters to the

needs of persons living in villages and small town. It is estimated that about one

third of the total credit requirements of the country are met by the unorganized

sector. Financial Institution in the organized sector have grown significantly in

the last institutions in the organized sector of the Indian Money Market

commercial bank and co-operative banks have been in existence for a petty long

time.

Besides the co-operative banks are Commercial banks and regional Rural

Banks. A variety of specialized financial institutions have been setup in the

country to cater to the specific needs of trade, commerce, agriculture, industry

and other activities.

In the field of agriculture’s finance and allied activities. Co-operative

credit societies and central co-operative have been in operation since long. After

nationalization in a 1969. Commercial banks also have expanded their activities

to rural areas and provide finance for agriculture and allied activities.

Thus quantitatively as well as qualitatively there banking instructions

have increased their services tremendously in recent years.

STRUCTURE OF CO- OPERATIVE BANK:


Primary Co-operative Bank

Central Co-operative Bank

State Co-operative Bank


CO-OPERATIVE BANKS:

Farmers in India are scattered all over the country and need short-term

small borrowing for agricultural purpose. This need is not fulfilled by

commercial banks, which are unsuited for financing agriculture accepted as

security by commercial banks. Therefore special types of banks are necessary

for the financing of agriculture. Co-operative banks are best suitable for this

purpose. The objective of co-operative banks is to offer banking facilities to

persons of limited means requiring credit for productive purpose in the use of

the land and labor at their disposal. The co-operative banking structure in India

may be divided into their component part.

1. Primary Co-operative Banks “or” Credit Society (PCS)

The primary co-operative credit society is an association of borrows and

non-borrows residing in a particular locality. The funds of the society are

derived from the share capital and deposits of members and loans from central

co-operative banks. The borrowing power of the members as well as of the

society is fixed. The loans are given to members for the purpose of cattle, folder

fertilizer, pesticides, implements, etc.

2. Central Co-operative Banks (CCB):-

There are the federations of primary credit societies in a district and are

of two types- those having a membership of primary societies only and those

having a membership of societies as well as individuals. The funds of the bank

consist of share capital, deposits and overdrafts from state co-operative banks

and joint stocks. These banks finance member societies within the limits of the



borrowing capacity of societies. They also conduct all the business of a join-

stock bank.

3. State Co- Operative Banks (SCB):-

The state co-operative bank is a federation of central co-operative banks

and acts as a watchdog of the co-operative banking structure in the state. Its

funds are obtained from share capital from the Reserve Bank of India. The state

co-operative banks lend money to central co-operative banks and primary

societies and not directly to farmers. The principle one being the institution of

provincial co-operative banks to serve as apex banks in the hierarchy of co-

operative pyramid.

Role of Co-operative Banks in India and its structure:

Co-operative banking came into vogue in India in 1904 when the first Co-

operative Credit Society Act was passed. The main function of a co-operative

Credit Society was to provide cheap credit to the members who are small people

with small means and small needs and finance. Another object was to inculcate

the saving habit among the agriculturists and make them take advantage of co-

operation from fellow members of the society. We could bring green revolution

in agriculture sector only due to co-operative activities.

There is a state co-operative bank in each state co-operative as an apex

institution, advancing short term and medium term agriculture credit is three tier

one: a state co-operative bank (SCB) at an apex level in each state, the at the

district level and the primary and society (PCS) in the village, and urban banks

(UB) and other non-agricultural credit societies (NACS) in cities and towns.

The structure of co-operative banks.



As I discussed the co-operative societies came into existence when the

co-operative societies act, 1904 was enacted. These societies, however could

not mobilize enough resources as compared to the loans demanded by its

members. This led to the enactment a new act in 1912. The various sections of

this act are as follow:

1) To keep watch over the activities of the primary co-operative societies

and to assist them the required monetary help and they guidance district

central co-operative banks are established.

2) Establishing of non-leading societies along with the loan-giving (lending)

societies.

3) The difference between the village societies and urban societies is

removed and the type of societies maintain are only of two types.

(i) Societies having limited responsibility.

(ii) Societies having unlimited responsibilities.

In 1919, the Nontague Chemsford Act made co-operative societies and banks

co-operative society acts have been passed by all the state government.

From April 11966 the co-operative banks came under the preview of

banking lagh a paid up capital of Rs. 1 lakh or more have come under the

control of Reserve Bank of India. From above discussion, we see that the

co-operative banks in India have shown very good progress since their

establishment but in spite of showing very much progress there still exists

a number of defects in such co-operative societies and banks. This has led

qualitative improvement to suffer.



HISTORY:

The Varachha Co-operative Bank submitted the application for beginning

of the bank and also registered to the Surat District Registration Department on

27th January, 1995 with registered no SA2914 and the registered office of the

bank is at Affil Tower, Lambe Hanuman Road, Surat-395006. Within the period

of five-month obtaining license from Reserve Bank of India, on 1st July, 1995

with license number as UBD Guj1153 P after finishing has started it’s working

on dated 16th August 1995. By gliting of lamp with inauguration of the bank

was done by the Swami Sachidanand.

Board of Director:

Shree P.B.Dhakesha (FOUNDER CHAIRMEN)

Shree Kanjibhai bhalala (CHAIRMEN)

Shree Prabhudas T. Patel (VICE CHAIRMEN)

Shree Lavjibhai M Nakrani (DIRECTOR)

Shree Kanjibhai R. Vadariya (DIRECTOR)

Shree Vallabhbhai P. Savani (DIRECTOR)

Shree Jivarajbhai K. Patel (DIRECTOR)

Shree Babubhai V. Mangukiya (DIRECTOR)

Shree G.R.Aashodariya (DIRECTOR)

Shree Vimalaben R. Vaghani (DIRECTOR)

Shree Smrutiben L. Dobariya (DIRECTOR)


INTRODUTION OF VARACHHA

MANAG

EMENT

TEAM


A.D.Bhalani GENERAL MANAGER

V.B.Dhanani ASST.GENERAL

MANAGER

S.D.Kakadiya ASST.GENERAL

MANAGER

P.D.Kelavala ASST.GENERAL

MANAGER

D.S.Bhuva BRANCH MANAGER

T.P.Vora CREDIT MANAGER

S.M.Chhaniyora EDP MANAGER


SCENARIO OF

ORGANIZATIO

N


DEVELOPMENT:-


CHAIRMENP.B. Dhakecha

VICE CHAIRMENBhupendrabhai K. Ribadiya

MANAGING DIRECTORBhavanbhai B. Navapara

BOARD OF DIRECTOR

GENERAL MANAGERA.D.Bhalani

Branch Manager

A.D Bhalani

Kamrej Branch

Kaniyalal Dobriya

Ring Road Branch

Girishbhai patel

Kapodra Branch B.C. Sorthiya

Katargam Branch

Mukeshbhai Malviya

Kadodara Branch

D.B. Sorathiya

Punagam Branch

B.J. Sovatiya

Ahmedabad Branch

Arvindbhai patel

Sachin Branch

S.L. Bhut


The development of The Varachha Co- Operative Bank was continuously

increasing after two and half year from establishing of Head Office. We can

know more above bank from given a table of Branch establishment. The

Varachha Co- Operative Bank was not need take loan from government sector

and other. For Developing and Vested it’s branch so progress table as under.

Branch Address Date

Ahmedaba

d

Pancham shoping moll, Near Jivan

vadi, Nikol gam road, Ahmedabad.1-4-2012

Ankleshvar

R-16 square, jaldhara chok, valiya

road, Ankleshvar23-6-2012

Amazing development of bank. To achieve in year 2000-2001. Because

period of one year. The Varachha Co-operative bank was set up the three

Braches within the short time to it’s evident to rapid development of the

Varachha Co-operative Bank.

TH VARACHHA CO-OPERATIVE BANK

ESPECIALLY BANKING SERVICES:

1. Tele-Banking Cum Fax Services:

By using tele-baking services, customer can take information about

personal account ledger (PLA) and it’s transaction. And bye using fax services.

Customer can take statement of last fifteen day on fax services.

2. Vat Machine:



“Visual Account Teller Machine” i.e. called VAT Machine. Customer

can see his statement, balance sheet, and other information by just entering his

account number and PIN number and this facility is very popular in customers.

3. M.I.C.R. Cheque.

“Magnetic Ink Character Recognition” that is known as M.I.C.R. This

crucial technology is also adopted by The Varachha Co-Operative Bank for

rapidly work with a view to speeding up the Cheque clearing process both local

as well as intercity, under this system; the Cheque are processed at high. Speed

on machines. Bank issue Cheque, draft and other payment instrument in

M.I.C.R. Format using the special quality paper and printing specifications. On

M.I.C.R. instrument there is code line at the bottom containing information

printed in magnetic ink, which is required for mechanical processing. The code

line contains the following information.

First six number indicate the Cheque number

Next three number indicate city code

Next three number indicate bank code

Next three number indicate branch code

After some space three is the number for transaction code

M. I. C. R. cheque should not be a folded pin, staples, etc. should only be

used on top left hand corner of the Cheque. Signature of the drawer, rubber

stamp, etc. should be affixed above the code line. Nothing should be written on

the code line. In place of the counterfoils M.I. C. R. chequebooks provide for

Record Slip. At the ends, which are used for recording the details of every

cheque, issued.

4. Teller Payment Service:



Cashier furnishes this service if amount is not exceeding of 20,000 in

Current Account and 10,000 in Saving Account so customer can draw directly

through this service.

5. Other services:

a) Senior citizen

For senior citizen Bank gives half percent more in Fixed Deposit to them

whose age is above 60 years

b) Full Day Banking Services:

Monday to Friday 10:00 a.m. to 6:00 p.m.

Saturday 10:00 a.m. to 2:00 p.m.

c) Safe Deposit Vault services:

Just open in Branch

Kapodara Branch

Katargam Branch

Kamrej Branch

d) N.R.I. (Non Resident in India)

N.R.I. individual can open his account in The Varachha Co-operative

Bank because The Varachha Co-operative Bank is granted through Reserve

Bank of India



VARIOUS TYPES OF DEPOSIT ACCOUNTS IN VARACHHA

BANK:-

Bank Account:

The bank accepted deposits from the public and offers facilitates to the

public according to their requirements and economic status. Though bank

accepts deposits as a fund-raising device. Its primary aim is to serve the society

as financial institution and lend its might to strengthen the capital market.

Keeping all these in video a bank usually offers three types of accounts in which

it accepts deposits.

1) Fixed Time Deposit Account

2) Saving Deposit Account

3) Current Account

Details in Deposit Accounts:

1) Fixed Time Deposit Account:-

Fixed deposit accounts are made with the bank for a fixed period which is

specified at the time of making the deposit. This account attracts those

customers who have money to invest for a longer period but do not want to take

much of risk.

The interest rate varies from one period to another. A deposit of 15 days

attracts a smaller rate of interest and deposits for 5 or more years the highest

rate.

Fixed deposit accounts are usually opened by the following kinds people.

1) Middle Income People.

2) Religious Societies



3) Trustee

4) Educational Institutions

5) Others who want to invest but at no risk at all.

2) Saving Deposit Account:-

The banks with a view to developing the people’s habit of savings the

bank accept saving deposits. Normally people having fixed income belonging to

middle class, deposit their savings in their accounts and the banks provide them

facilities so that they may earn interest.

Saving account open with minimum amount is Rs.1000 and the interest

rate is 3.5%.

3) Current Account:-

Current accounts are also known as demand deposit accounts current

account is running an active account which may be operated upon any number

of times during a working day. There is no restriction on the number and the

amount of withdrawals from a current account. Current account deposit is

known as banker’s demand liability and in order to fulfill its liabilities he keeps

sufficient cash ready every moment.

Function of Current Account

Individual Account

Proprietary Account

Private account

Hindu Undivided Family (HUF)

To encourage saving habits in general public and mobilize savings in the

country for her development plans. So the bank offering.

(i) Recurring Deposit Accounts:



The recurring deposit account has gained wide popularity these days.

Under this the depositor is required to deposit a fixed amount of money every

month for specific period of time. Each installment may vary from Rs.5 to

Rs.500 or more per month and the total period of account varies from 12

months to 10 years. After completion of the specified period, the customer gets

back all his deposits along with the cumulative interest occurred on them.

This type of accept is very popular amongst the salary people since it

provides them an opportunity to raise the enough funds. So that they can utilize

it in the purchase of some useful household good, the purchase of which

otherwise it impossible.

MANAGEMENT TOWARDS PROVISION FOR PROFIT

DISTRIBUTION

Net Profit

Deducted Provision



Reserve Fund 25 %

Share Dividend 15 %

Dividend Equalization Fund 02 %

Education Fund -

Building Fund -

Total -

Distribution Profit = DP

Rest Profit = Net profit – (DP)

Rest Profit

Deduction as per sub-

rule:

Accident annual fund 5 %

Other activity fund 20 %

Donation fund 10 %

Rebate Interest Fund 20 %

Jubilee Festival Fund 10 %

Staff Benefit Fund 10 %

Member welfare Fund 20 %

Co-operative Propaganda

Fund

05 %

Total 100 %

BANKERS:-

Bankers Location

I.D.B.I BANK Surat

AXIES BANK Surat



STATE BANK OF INDIA – Chawlk Bazar –

Nanpura

Surat

BANK OF BARODA Surat

TAMILNADU MERCENTILE BANK Surat

KOTAK MAHINDRA BANK Surat

YES BANK Surat

H.D.F.C. Bank Ltd. Surat

I.C.I.C.I. Bank Ltd. Surat

BANK PROVIDES VARIOUS TYPES OF LOANS:

1) Mortgage Loan

2) Consumer Loan

3) Vehicle Loan

4) Cash Credit Loan

5) Machinery Loan

6) Term Loan

7) Self-employee Loan

8) Loan on National Saving Certificate

9) TUF Loan (Textile Up gradation Fund )

10) Gold Loan

11) Housing Loan

OBJECTIVE OF THE VARACHHA CO-OPERATIVE BANK

To encourage thrift and mutual Co-operating among its members.



To create funds to be lend at moderate of interest to the members of the bank

in accordance with the processor specified in these byelaws

To undertake the management of trust and for that to accept any office of

trustee, executors or office to perform duties of such a confidence nature

either independently or jointly with some other person as the board deems

fit.

To undertake every kind of banking and sheriff business and also to

undertake giving bank guarantee and letter of credit on behalf of members.

To do every kind of trust and agency business and particularly do the work

investment of funds, sale of properties and of recovery or acceptance of

money.

To give possible help and necessary guidance to traders, artisans etc. who

are members of this bank in the conduct of their business.

PROGRESS OF THE VARACHHA BANK:

(Rows 2to 6 are in Crores)

No Contents 03/07 3/08 3/09 3/10 3/11 3/12



1.

No. of

Share

Holders

10717 11569 12669 13566 17192 18837

2.Share

Capital4.31 4.63 5.24 5.91 7.29 7.90

3.Total

Deposit162.9 168.3 171.6 224.2 273.9 289.7

4.Total

Loans73.26 80.23 92.3 94.89 115.88 155.88

5. Net Profit 1.51 2.81 3.02 3.15 4.05 5.06

6.Working

Capital208.3 221.2 226.9 320.4 347.1 374.31

7.No. of

Depositor95783 99907 105674 115528 121922 132277

8.

No. Of

Loan

accepter

6534 8999 9215 7739 6593 7972

9. Dividend 12% 12% 12% 12% 15% 15%



Basic information about topic:

Credit risk refers to the risk that a borrower will default on any type of debt by

failing to make payments which it is obligated to do. The risk is primarily that

of the lender and includes lost principal and interest, disruption to cash flows,


Project

on

credit

risk

manage

ment

http://en.wikipedia.org/wiki/Cash_flow

http://en.wikipedia.org/wiki/Interest

http://en.wikipedia.org/wiki/Principal_sum

http://en.wikipedia.org/wiki/Default_(finance)


and increased collection costs. The loss may be complete or partial and can arise

in a number of circumstances. For example:

A consumer may fail to make a payment due on a mortgage loan, credit

card, line of credit, or other loan

A company is unable to repay amounts secured by a fixed or floating

charge over the assets of the company

A business or consumer does not pay a trade invoice when due

A business does not pay an employee's earned wages when due

A business or government bond issuer does not make a payment on a

coupon or principal payment when due

An insolvent insurance company does not pay a policy obligation

An insolvent bank won't return funds to a depositor

A government grants bankruptcy protection to an insolvent consumer or

business

To reduce the lender's credit risk, the lender may perform a credit check on the

prospective borrower, may require the borrower to take out appropriate

insurance, such as mortgage insurance or seek security or guarantees of third

parties, besides other possible strategies. In general, the higher the risk, the

higher will be the interest rate that the debtor will be asked to pay on the debt.

Types of credit risk

Credit risk can be classified in the following way:

Credit default risk - The risk of loss arising from a debtor being unlikely

to pay its loan obligations in full or the debtor is more than 90 days past


http://en.wikipedia.org/wiki/Guarantee

http://en.wikipedia.org/wiki/Security_(finance)

http://en.wikipedia.org/wiki/Mortgage_insurance

http://en.wikipedia.org/wiki/Credit_check

http://en.wikipedia.org/wiki/Insolvency

http://en.wikipedia.org/wiki/Bankruptcy

http://en.wikipedia.org/wiki/Bank

http://en.wikipedia.org/wiki/Coupon_(bond)

http://en.wikipedia.org/wiki/Bond_(finance)

http://en.wikipedia.org/wiki/Wage

http://en.wikipedia.org/wiki/Trade_credit

http://en.wikipedia.org/wiki/Floating_charge

http://en.wikipedia.org/wiki/Floating_charge

http://en.wikipedia.org/wiki/Company

http://en.wikipedia.org/wiki/Line_of_credit

http://en.wikipedia.org/wiki/Credit_card

http://en.wikipedia.org/wiki/Credit_card

http://en.wikipedia.org/wiki/Mortgage_loan

http://en.wikipedia.org/wiki/Collection_cost


due on any material credit obligation; default risk may impact all credit-

sensitive transactions, including loans, securities and derivatives.

Concentration risk - The risk associated with any single exposure or

group of exposures with the potential to produce large enough losses to

threaten a bank's core operations. It may arise in the form of single name

concentration or industry concentration.

Country risk - The risk of loss arising from sovereign state freezing

foreign currency payments (transfer/conversion risk) or when it defaults

on its obligations (sovereign risk).

Forms of credit/ advances:

1) Loan (term)

2) Cash credit and overdrafts

3) Purchase/ discounting of bills


http://en.wikipedia.org/wiki/Derivative_(finance)


4) Bank guarantee

Loan or term loan:

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

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

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

the amount from the bank and deposited it in his current account. He is required

to pay interest on the full amount from the date of sanction. A loan may be

repayable in installments or in lump sum.

Cash credit:

A cash credit is a short-term cash loan to a company. A bank provides this type

of funding, but only after the required security is given to secure the loan. Once

a security for repayment has been given, the business that receives the loan can

continuously draw from the bank up to a certain specified amount. The

customer is required to provide tangible assets as security to cover the amount

borrowed from the banker. The borrower is charged interest on the actual

amount utilized by borrower and for the period actually utilized only.

Overdrafts:

Overdraw" redirects here. For overdraw in computer graphics, for overdraw in

harmonica playing, see Overblowing. For the term in hydrology,

An overdraft occurs when money is withdrawn from a bank account and the

available balance goes below zero. In this situation the account is said to be

"overdrawn". If there is a prior agreement with the account provider for an

overdraft, and the amount overdrawn is within the authorized overdraft limit,

then interest is normally charged at the agreed rate. If the negative balance

exceeds the agreed terms, then additional fees may be charged and higher


http://en.wikipedia.org/wiki/Bank_charges

http://en.wikipedia.org/wiki/Interest_(finance)

http://en.wikipedia.org/wiki/Balance_(accounting)

http://en.wikipedia.org/wiki/Bank

http://en.wikipedia.org/wiki/Overblowing


interest rates may apply. Interest is charged on the exact amount overdrawn by

the customer and for the period of its actual utilization.

Bills discount:

In case of bills discounting, a bank credit the amount of the bill to the drawer’s

account before the realization of the bill and thus lends its funds to him after

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

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

bill maturing after a period of time maximum for 180 day in RNSB, the banker

retains the bill for that period and realizes the amount of bill from the drawer on

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

Bills purchase:

The banker credits customer’s account with the amount of the bill after

deduction his changes. As the demand bills are repayable on demand and there

is no maturity, the banker is entitled to demand their payment immediately on

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

bills is known as purchase of bills.

Bank guarantee: It is a contract to perform the promise or discharge the

liability of third persons in case of his default. In case of guarantee, bank is

taking responsibility to pay the amount to seller if buyer will not pay amount in

time.



Literature review outlines:

Risk management in banks attracted several researchers worldwide with

different arguments, this section briefly review arguments as follows:

Ariffin (2009):


Credit policy


He investigated the risk management techniques of twenty eight banks through

examining the perception of senior banker toward risk. This study covers 14

countries using a questionnaire and the result reveled that, banks are typically

exposed to the same types of risk in conventional bank with different levels of

the risk.

Khan and Ahmed (2001):

They investigate risk management practices in 17 Islamic financial institutions

across 10 countries. Data has been collected using questionnaire and field level

interview. The result revealed that, the most significant factor in risk

management is rate of return risk as the general from murbaha contract cannot

be hedged through conventional banking tools like interest rate swap and other

derivatives tools which obstruct risk management in Islamic financial

institution.

Santomero (1996):

He argued that all financial institution facing three types of risk:

1) Risk that cans be eliminated or avoided by simple business practices.

2) Risk that can be transferred to other participants, and

3) Risk that must be actively managed at the firm level.

Oldfield and santomero (1997):

They suggest four steps for risk management system as follows:

1) Standard and reports,

2) Position limits or rules,

3) Investment guidelines or strategies, and

General eligibility criteria for credit in VCB:

As per the rules of co-operative, anyone who wants to avail finance

has to become a member.

As a shareholder of the bank, he/she have to make compulsory

deposit of Rs 25000 or the payment of deposit as per rules and



regulations of the bank and thereafter, he/she can submit the

application for loan. In all the practice with the bank, you are

known by bank through your compulsory deposited number.

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

where all details and particular will have to be furnished as

demanded in the form. He/she has to submit further particulars as

may be asked by the bank.

The loanee will be advanced loan against the security and he/she

has to submit 1 or 2 guarantors, who will be the recognized

member and accepted to the bank and who must be shareholders of

the bank in case of housing and machinery loan.

The interest will be calculated on day to day basis.

Taking in view the total amount of loans taken for different

purpose by the firm or individuals, the interest will be calculated at

the same rate on the entire advance.

It will be necessary to make payment of share deposited or loan

deposit at the rate of 2.5% of the sanction in case of secured loan

and 5% of sanctioned loan or in case of unsecured loan. The

minimum share deposited accepted of Rs.25000 and additional

deposit over Rs.25000 will be accepted as loan deposit.

The rate of interest on share deposit is 8.5% and that on loan

deposit is different rate.

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

name registration for the said loan purpose with the registrar of

companies and has to submit the documents of registration charge

to the bank.

Sometime a property which given in mortgage by borrower is

already put before the bank in case of loan as a security at that time



equitable mortgage is already done by party so there is no need of

equitable mortgage again but th equitable extension is only needed.

In case of immovable property or new purchase of machinery,

equipment, etc. insurance of same amount and in case of old

machinery, goods stock, etc. Twice of the price insurance is

needed. In case of education loan, the life insurance of student is

required.

Margin money means gap between purchase value and bank

finance. Bank always does payment directly to the seller. So loanee

has to deposit the margin money in the bank.

Scrutiny of credit:

While scrutinizing an application from the bank takes into

consideration safety, liquidity, purpose profitability, security and

spread of advance.

Safety

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

the finance and bank’s money is safe in his hands.

Liquidity

Bank has to find out that the borrower is quite capable in repaying

the finance within reasonable period.

Purpose



The purpose for the finance should not be illegal. It should be

creative, service oriented. Development oriented and like bank

should check end use of funds.

Profitability

If the prefect or the purpose of the finance is not profitable in the

hands of the borrower than he will not be in a position of repaying

the amount to bank. It should be profitable enough to generate the

income to satisfy his needs and bank’s dues.

Security

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

capital of the prospective borrower. Bigger advances and cash

credit are to be secured with collateral security over and above

prime security.

Spread of advances

For having balanced economy the bank should choose to spread the

finance amongst various sectors of the society, so that the risk of

incoming bad advances is minimized. Concentration on one type of

advances may turn into bad advances if the scheme becomes

ineffective due to some natural calamities or government rules or

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


Research


Compararision of loan data and risk schemes at Varachha:

1) RESEARCH PROBLEM:


Research


Study on credit risk analyses and how to recover of loan and other risk amount of Varachha

cooperative bank ltd.

2) RESEARCH OBJECTIVE:To study the performance of loan of Varachha bank ltd.

To study which are necessary document required for loan and which is the process of loan.

To find out which bank is functioning well in providing loans.

VARIABLE UNDER STUDY:

a) Interest rate

b) Document

c) Repayable

d) Rebate

3) RESEARCH DESIGN:Here descriptive research design is opted. In descriptive research, the cross sectional research

design is selected because the sample taken out of the population is analyzed only once at a

particular time interval. The data of Varachha bank about the loans which has given to the

customers for 2 year will be analyzed.

4) POPULATION:The population consists of the banks and their branches situated in Surat city.

5) SAMPLING:Frame:

All cooperative bank and their branches situated in Surat city.

Technique:

To take sample, judgment method is used and compares the data of loan rate and rate and

non-performing assets of bank.

Samples:



The data of loan schemes of VCB for last two year has been used.

6) DATA COLLECTION:Types of data:

All the data required to carry out the research will be obtained through secondary resources.

So this research is purely based on secondary data and there is no use of primary data.

Instruments used:

Annual reports

Internet

Newspapers

8) SCOPE OF FUTURE STUDY:In this project, only comparison between Varachha bank is considered for the analyses.

Further study can also be done by considering other cooperative bank. As the analysis is

based on 2 years i.e. from 2010 to2011, it can also be done by longitudinal research for the

analysis.

9) BENEFITS OF STUDY:Research has always some benefits in some sense to some body. This study has helped the

researcher as well as can benefits others too like investors, students.

Benefits to researcher:

It may help in getting practical knowledge of banking system

It may help to understand which bank is performing well in sanctioning of loan.

It may help the researcher to learn how to conduct researcher and how prepare a

report.

It also helps to learn how to apply the theoretical concept in practice. It prepares for

the future and gave a lot of exposure.

Benefits to others:

It may help the customers in taking decisions while taking loans which bank is better

in giving loans and recover the amount of which bank is better.



To student for reference in their study.

10) LIMITATION OF RESEARCH:Every project has its own limitation. As every study has some benefits, limitations is not

exemption to the study:

Findings and analysis is relevant only for the given period of time and its usefulness

change with time.

The time period for the analyses is not sufficient for detailed analysis this may be

limitation for the study.

Due to lack of experience on researcher’s side there is an element of error.

Effects of various political, legal and other macro environment factors are ignored.

The limitation of tools used in the project is also the limitation of report.

Interest rate on various advances:

Particulars Interest Interest rebate

Vehicle loan



Two wheeler

Four wheeler

13%

13%

1%

1%

Surety loan, home

appliances

12% 1%

Gold loan

Up to 1,00,000

1,00,000 to 5,00,000

11%

12%

_

1%

Land and building 14% 1%

Staff surety loan 11%

loan against fixed

deposit

More than 2% of

F.D

cash credit 13% _

Self-employed loan 12% 1%

Machinery loan 14% 1%

Consumer loan 14% 1%

Term loan 14% 1%

Mortgage loan 15% 1%

Types of credit:

1) Surety loan



2) Machinery loan

3) Cash credit loan

4) Vehicle loan

5) Gold loan

6) Bankable loan

7) Over draft

8) Fixed deposit loan

9) Bills purchase loan

10) Bank guarantee

Different types of staff loans

1) Staff surety loan

2) Staff vehicle loan

3) Staff domestic appliances loan

4) Staff housing loan

Explanation of all types of credit:

Surety loan:

Purpose Personal use



Limit 500000

Rate of interest 14%

Period 50 months

Security Personal guarantee of two members

of the bank.

Documents Loan applies form, letter of

guarantee, DP notes and letter of

sanction.

Submit paper In case of service person pay sleep,

in case of business person last yearly

business report.

Other term:

When person will take loan that time put the 25% fixed deposit of loan amount.

If the death of the loanee under the surety loan occurs, in the said

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

account under his loan account and an amount as assistance will be paid to the

heirs of the loanee immediately from this fund.

The confirmed government employee can be granted a loan on acceptance letter

taken from his employer to the effect that they will deduct the installment from

his salary every month regularly and remit the same of bank.

Machinery loan:

Purpose For purchasing new

machineries/furniture for business

purpose.

Limit As per requirement


Period In normal 50 months

Security 1) Existing old machineries



2) Equitable mortgage of land

and building

3) Guarantee of two members of

the bank as guarantors

Documents Loan application form, letter of

guarantee, DP notes, hypothecation

of machineries old/new, insurance

policy, letter of sanction.

Submit paper Last three year business report, shop

act license, SSI license, elec.

Connection proof, IT return.

If applicant is a partnership firm

Partnership deed copy, reg., of firm.

If applicant is a limited company

Resolution of getting loan,

memorandum of association, articles

of association. Letter of assurance

for registration in reg. of companies.

Other term:

The payment of this kind of loan is given to the seller directly by bank. In case

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

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

to the taken out from the insurance company recognized by bank and the said

insurance policy is required to be recognized to be assigned in favor of the

bank.

Vehicle loan:

Purpose Purchase of new two wheeler or four



wheeler

Limit No limit

Margin 25% F.D. of amount

Period 36 month

Rate of interest 13% (rebate: 1%)

Security Hypothecation of the vehicle, two

guarantor’s as a collateral security

immovable property of loanee or

guarantor.

Documents Copy of registration of vehicle in

RTO in particular city, higher

purchase agreement in favor of bank,

loan application form, vehicle

dealer’s guarantee letter, letter of

sanction, insurance policy, equitable

mortgage or extension of property.

Submit paper In case of service person pay sleep,

in case of business person last yearly

business report, IT return, quotation

of vehicle

Other term:

It is necessary to take full comprehensive insurance for the vehicle, for which

the higher purchase agreement is done in favor of the bank. The above

insurance will have to be taken from the insurance company recognized by bank

and will have assign in favor of the bank.

Bank shall make direct payment to the dealer/seller.



Gold loan:


Limit 500000

Period 1 year but renew at every year.

Rate of interest Up to 100000----11%

100000 to 500000-------12%

Security Gold silver ornaments or items on re-

pledge

Documents Loan application form, DP note

Submit paper In case of service person pay sleep

and residency proof.

Other terms:

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

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

buying selling.

The purity of the ornaments or items of gold, which is given on re-pledge, be

minimum 24 carets.

In limit 10 grams for men 14000 and women 15000.

Bankable loan:

Purpose To assist the small scale industry

Limit 500000

Margin 25%

Period 40 months


Security As a collateral security house

property of loanee or guarantor or

fixed deposits or national saving



certificates as a mortgage 70% of

sectioned loan, guarantee of two

guarantors.

Documents Equitable mortgage of property, loan

application form, letter of guarantee,

DP note, letter of sanction, insurance

policy.

Submit paper Shop act license, SSI license, elec.

Connection proof, rent receipt,

project report.

Other term:

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

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

particular of guarantor. Amount of subsidy given and sanctioned to the

application is credit in his loan account.

The payment except amount, which is sanctioned against working capital, of

this loan is made directly to the party who has given the quotation.

Over draft:

Purpose T fulfill the need of working capital

of business


Margin 25%

Period Up to 1 year and if required then

renew every year




Security Hypothecation of goods stock and

equitable mortgage of property

guarantee of two guarantors

Documents Overdraft application form, letter of

guarantee, equitable mortgage of

property, DP note, letter of

continuity, letter of sanction,

insurance policy

Submit paper Last 3 year business report, rent

receipt, IT return, shop act license

Cash credit:

purpose To meet the need of working capital

business unit

Limit 70% of stock of goods which are

maintained in stock statement

Margin 30%

Period 12 month


Security a) As a prime security

hypothecation of goods stock.

b) As a collateral security

machinery, furniture

equipment, fixed deposit,

national saving certificate,

equitable mortgage of

immovable property.

c) Guarantee of two guarantors.



Document Cash credit application form,

agreement letter, equitable mortgage

of property, letter of sanction, letter

of continuity, DP note,

hypothecation of goods, insurance

policy.

Other term:

Loanee has to submit the stock statement to the bank every month regularly.

Loanee has to submit the copy of income tax return or income tax assessment

order every year.

In the cash credit account facility, the turnover will to be done their of the

sectional facility within 6 month and the same will have to be done five time of

the sectioned facility within one year.

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

credit account at time with two different banks.

Fixed deposit loan:

Purpose To grant loan/overdraft to an

individual or a firm against F.D.R.

LIMIT 75% of F.D.R

Margin 50% or less

Period Till due date of F.D.R

Rate of interest 2% more than F.D.R

Security Duly discharge F.D.R



Document DP note, duly discharge F.D.R, form

of application

Other term Lien should be noted in the FDR

account and on the back of the FDR

duly discharged

Bills purchase:

Purpose To assist the customer for their short

term need of working capital

Limit As per required by applicant


Period 90 day maximum

Charges As per expenses

Documents DP note. Letter of guarantee, letter of

continuity, agreement letter

Different types of staff loans:

Staff surety loan:


Limit 100000

Rate of interest 6%

Security Personal guarantee of two staff

members of the bank

Documents Application form, letter of sanction,

DP note, letter of guarantee



Staff vehicle loan:

Purpose To purchase a new two/four wheeler

for personal use


Rate of interest 6%

Security Hypothecation of vehicle to be

purchased

Documents DP note, letter of guarantee,

hypothecation of vehicle, insurance

policy

Staff housing loan:

purpose To construct/purchase residential

building

Limit For officer and other upper

cadre: Rs.1200000

For clerk: Rs.800000

For peon and other: Rs.400000

Period 20 years

Rate of interest 6.75%

Security Equitable mortgage of property, two

staff members guarantee

Documents DP note, letter of guarantee, letter of

sanction, insurance policy, equitable

mortgage of property

BENEFITS OF THE STUDY:



It provides the knowledge how these banks manage its credit risk and

keeps them within tolerance level as per the RBI norms.

It helped to know what strategies these banks adopt to reduce its risk

when the bank feels that recovery is impossible.

It gives the knowledge about the reasons for the rising credit risk in co-

operative sector bank.

Data analysis and observation and suggestions:

Though Varachha bank provides me good support and guidance for

effective project work, yet as a student of management and at a neutral position

I would like to suggest to Varachha bank for effective banking operation and

take off high growth.

Presence of loan policy:

In the VCB before eight year there was not proper policy for loan, but separate

circular for each loan. But at present VCB have its own loan policy and criteria

to sensor the loan. Coincidently, RBI also declared in near, each and every bank



should bank should have its own loan policy. This is the point, which is striking

us the foresightedness of the bank management and also loan manager of that

time.

Varachha bank should be more customers segmented by providing better

services immediately, so customer can save their time and satisfied by bank.

second thing is that bank should make reliable and necessary documents for

opening account, it should be not strict the amount of deposits in comparison of

other co-operative bank is high, so it should be low as suitable to customer

Bank not should but must start modern service for standing with competitor like

ATM, credit card, debit card internet banking etc.

Loan policy cover:

Delegation of lending power, method for assessment of working capital, rating

of borrowers, loan pricing

Delegation of lending power:

In the past time. VCB had given delegation of lending power to its selected

branch office but at present RBI hurdle against this, by effect of it, VCB cancel

all the delegation power of its branch office and burden of the head office given

in written in language of suggestion that what should be the decision? And head

office only complete fulfills the legal of formality to sanction the loan. However

it takes more time for sanctioning loan but by the practical approach bank can

solve this difficulty.

Loan pricing:



VCB always give more interest on deposit than other bank in Surat district to

attract the market, effects the loan pricing. So loan rate of VCB is higher.

Though VCB get customer because of its services, its speedy process, practical

approach and its reliability in market. But here one possible is also that the

payer of higher interest is sometime reason for future loss or burden on bank. So

try to get deposit at lower rate to reduce the loan pricing. It is also fact in this

critical situation of cooperative bank. It is very hard to get deposits from the

market but if bank management tries to create trust in public, here one more

benefit is that the depositor and the borrower is the shareholder of the bank or

say owner of the bank. So it is less hard than other types of bank to create trust.

Monitoring of unduly large exposure to an individual or a group:

To stop the unduly large exposure to an individual or a group in VCB loan staff

monitors and draw attention of higher authority.

Reporting format:

Reporting format for excess utilization of lending process by branch manager is

now not needed because as per the new guidelines of the RBI, branch of

cooperative bank has no power to sanction loan.

Credit rating of loans:

AAA:

CASH CREDIT ACCOUNT:

In the account, interest is paid regularly; it is paid to the end of every quarter

within 10 days.

Stock statement is received regularly.

Overdraft is paid regularly with its interest.

Every document is getting regularly for review and renew of account.

Term loan:



In the account interest and installments are paid regularly.

Notice is not given on account for any reason.

AA:

Cash credit account:

In the account which interest is paid regularly; it is paid at the end of the year

quarter maximum 30 days.

Stock statement is received regularly

Overdraft is paid regularly with its interest.

Term loans:

Maximum two installments are due but at the end of the year i.e. on 31 st march,

there is no due installment:

Amount of loan sanction Interest concession

Up to 2500000 1%

2500001 to 5000000 1.5%

Above 5000000 2%

LOAN SANCTIONED BY VARACHHA CO-OPERATIVE BANK IN

YEAR 2010-11 & 2011-12:

(Rs. in Lacs)

Sr.

No

Types of

Loan

2010-11 2011-12

Amount Percentage Amount Percentage

1 Term Loan 278.12 2.408799584 238.62 1.535272

2 Vehicle Loan 2813.524.36774641

4156.7

8 26.74457

3 CC/OD Loan 1940.5 16.8066863 2573.6 16.55877



5

4Machinery

Loan4520.3

39.15035514748.1

30.5491

5 FD Loan 104.65 0.906374502 90.87 0.584654

6 NSC Loan 5.32 0.046076563 4.03 0.025929

7

Govt.

Sponsored

Scheme Loan

0 0 10.06 0.064726

8 Gold Loan 1204.810.43478261

2394.7

0 15.40741

9Self-

employed35.66

0.30885155132.42

0.851985

10 Staff Loan 143.42 1.242161788 160.21 1.030785

11Housing

Loan252.22

2.184479473619.41

3.985261

12Personal

Loan242.60

2.101160575410.74

2.642686

13Mortgage

Loan4.96

0.04295862.93

0.018852

Interpretation in graph:



term lo

an

vehicle

loan

cc/od lo

an

machinery

loan

fd loan

nsc loan

gover

nment s

ponserd sc

hem lo

an

gold lo

an

self e

mpoled lo

an

staff lo

an

housing l

oan

personal l

oan

mortgag

e loan

0

1000

2000

3000

4000

5000

2010/112011/12




Credit

apprais

al


Appraisal format

Primary information:

Name of the unit:

Date of establishment of business:

Types of business:

Date of starting of dealing with bank:

Address and telephone no.: office Godown factory

Structure of unit:

Proprietorship firm/ partnership firm/ private limited/ public limited

Name of the proprietor/ partners/ directors with compulsory deposit number

Information related to guarantors:

Name of guarantors:



Compulsory deposit number:

Business name:

Annual income:

Land building property:

Information about prevalent loan:

Information about prevalent facility provided by VCB:

Types of facility:

Amount granted:

Due date:

Present balance:

Any other loan a/c in VCB:

About present cash credit facility:

Credit turnover of last year:

Amount of cash credit:

Amount of cash credit with overdraft:



Previous year stock:

Present stock and date:

Measurement Ideal Performance

Credit balance

compare with sale

To pay off of

overdraft/ excess

Submission of stock

statement monthly

interest payoff

Equated monthly

installments on loan

Account overdue( yes

or no)

Similarly in stock

1:1

regular

regular

regular

--------

10 to 15% difference

Information of collateral security:



Immovable property:

Name of owner and designation of him:

Address of property:

Land in square yard:

Construction in square feet:

Estimated price of property:

Other liability on it, mention it.

Machinery/ furniture/ equipment etc.

Amount of property:

Security coverage:

Estimated value of collateral security:

Minus other liability on same property:

Plus other collateral security:

Total collateral security:

Amount of demand/ prevalent facility:



*security coverage: total collateral security/total facility)*100

*accepted measure 50%

Financial measurement of loanee:

Financial measurement More/less (compare with last

year)

Sales

Closing stock

Gross profit

Net profit

Borrowings from relatives

Net worth

(capital + reserve - proprietor /

partners directors debt)

Financial measurement More/ less (compare with ideal)

Current ratio: (current assets/

current liabilities)



Ideal 1.25/ 1 (minimum)

Debt equity ratio: (total debt/*total

equity)* borrowings from relatives

are included

Ideal 3/1 (maximum)

Format of balance sheet:

Capital and liability Property assets

Current liability:

Bank loan CC/OD

Outstanding expenses

Creditors of goods

Other

Current assets:

Stock

Debtors

Stores

Cash on hands

Bank balance

Prepaid expenses

Advances



Total (a)

Medium/long term liability

Bank loan

Finance corp. loan

Other debts

Rnsb term loan

Borrowing from relatives

Others

Total (b)

Capital/ reserve

Capital

Reserve

Profit

Others

Total (a)

Fixed assets:

Land and building

Machineries

Furniture

Vehicle

Other investments

Total (b)

Proprietor/ partner/ directors debt

Others

Goodwill

Patent



Other

Total (c)

General total (A+B+C)

Loss of previous years

Total (c)

General total (A+B+C)

Assessment for cash credit:

I. Capital + borrowers from relatives * 3 ----------------

(As per the last year balance sheet)

II. Working capital (current assets- current liabilities) * 4 -----------

As per last year balance sheet)

III. 20% estimated sales -------------------

(Current year)

Minimum of above three ----------

Or

Demand/ prevalent facility ----------

Or

Maximum permissible finance -----------

(Minimum from above two)



Machinery loan appraisal format:

Information about the machinery to be purchased:

Supplier’s name:

Machinery’s name:

Quantity:

Price:

As per margin permissible loan if given:

Margin of permissible finance (working unit):

Margin on amount of demanded loan

Working capital as per last balance sheet:

Estimated reinvestment of the current year profit:

Current year’s estimated working capital (2+3)

Margin of working capital (25%cureent asset of last year)

Margin for permissible finance (4-5)



Estimated profit and DSCR (debt security coverage ratio)

1) New unit

PARTICULAR YEAR

1 2 3 4 5 6

1) Production

capacity

2) Utilization

capacity (%)

3) Production

4) Sales

5) Net profit

6) Depreciation

7) Interest on loan

8) Cash flow

(5+6+7)

9) Amount of EMI

of demanded

loan per annum

10) DSCR

(8/9)

11) Average

DSCR

2) Working capital:



Profit of current year

Depreciation of current year

Cash profit of current year (1+2)

Amount of EMI of demanded loan per annum

DSCR (3/4)

Minimum acceptable measure for DSCR 1.5 to 2.

Sometimes in case of new unit, project report present unrealistic picture of

future. So bank should keep it in consideration at the time of calculation of

DSCR. Accepted measure for it is 60%.

Appraisal of immovable property:

Name of owner and designation of him:

Address of property:

Land in square yard:

Proposed construction in square feet:

Plan of construction passed by Municipal Corporation:

Estimated cost of property:

(Amount of land\d is calculated as per the address

+ amount of construction is calculated square feet*400)



Inspection report:

Goods stock

Type of business

Reporting after checking of accounting books, vouchers, etc.

Insurance of stock and mortgaged property is as norms, isn’t it?

It is proper for sanction?

Department note:

Credit deservedness of loanee

Name of facility

Requested amount for credit

Permissible finance as per appraisal

Other criteria:

Borrowings from relatives are retained in business. Without permission

from bank relative cannot withdraw that amount

Immovable property is needed to take as a collateral security.

Late/retire partner’s capital is not withdrawn without permission from

bank

Current ratio

Debt equity ratio

Security coverage

DSCR

Observation and findings and suggestion:

Format for collection of minimum information about potential borrower:



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

about his potential customer. VCB a bank which eager to increase own market

share also collect the information about future borrower.

Use of software for credit appraisal:

Bank has own computer department to manage and maintain the software for

bank but this now in initial stage. Majority time consume work is done by the

computer though appraisal of credit is done by manually.

Revision in appraisal format during last 7—8 year.

VCB prepared its policy before seven-eight year and decide proper criteria for

sanction the loan.

Different appraisal for different loan segment:

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

require particular information and calculation. Here in VCB I find different

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

System of fixation of maximum time for loan sanction and sanction within

limit:

On paper, there is no maximum limit for sanction the loan but generally as per

the opinion of officer within ten days loan is sanctions. Sometimes because of

careless of the borrow or take time for provided needed documents is reason for

delay of sanction the loan.

Practice of rating of borrower and loan pricing:



VCB give rating to the borrower on the base of their last year dealing with bank.

For that VCB have software which give rating to the borrower. At the time of

appraisal, rating is not given.

Compliance of terms and conditions proprietor’s contribution, collateral

securities, etc.

Before preparing the loan report, it is keeping in view that all types of

requirement are fulfilled. Condition letter is given to customer if customer

fulfills all the conditions loan is sanctioned by bank.

Computation of customer profitability per borrower:

Generally I practice, not a single cooperative bank in Surat is calculating the

customer profitability per borrower. If it is calculated bank can know which

customers are more beneficial for them so bank can give attention to maintain

them and can increase profit.

Sanction of loan:

In the cooperative bank, sanctioning power are only in the hands of board of

directors so sometime loans are sanctioned on the bases of relation not on the

bases of the deservedness of customer. I also consider that the cooperative

banks are basically meant for the benefit for the benefit of its embers but within

the limit of reserve bank of India’s guidelines. Slight modification in these rules

for well-being of members is still allowed.+



Credit monitoring, follow up and review:


Credit monitor

ing, follow up and review


When we lend, it is essential for us that to keep watch on it till we recover

it. This called credit monitoring in term of banking.

Credit monitoring system in VCB:

In the VCB, there is system for credit monitoring specially account,

which is above 100000 rupee is describes below:

Find out the list of potential NPA account above 100000 rupees

Statement of potential NPA accounts are submitted to head office from

branches

Head office monitoring this every three months and prepare report on it

Report is submitted to board of directors.

Follow up action for credit monitoring in VCB:

+

Consolidation of data, which comes from the branches and every month,

update the data and generate this and use it for follow up

Head office directly sends the notice to account holders of such accounts

To stop the slippage of the potential NPA accounts, bank organize the

committee under authorization of Mr. V.B.dhanani (A.G.M) and Mr.vora

sir (loan manager) with the help every branch recovery officers, they try

to recover. General manager arranges the meeting for that and gives

guidelines to the committee member.

Observation findings and suggestions:



System of loan portfolio review and monitoring:

There is system of weekly review and monitoring of loan portfolio in the

VCB, very week a statement is prepare be acquainted with the present

credit deposit ratio, if this ratio is less than 70% for example 65%, it

represent that bank can finance up to 5% at present.

Compliance of prudential guidelines:

Exposure ceiling : (a) individual 20% of the total capital

fund

: (b) group 50% of the total capital

fund

Priority sector lending : priority 60% of the total

advance

: Weaker 15% of the total

advance

This is followed by the VCB.

Items of priority sector:

Advance to individuals for activities allied to agriculture.

Loans and advance to cottage/small scale industries and equipment

system for development of new and renewable sources of energy.

Advance to road and water transports operates for purchase of one

vehicle.



Private retail traders dealing in essential commodities (fair practice shop).

Small business enterprise.

Professional and self-employed persons.

Housing loans not maximum criteria

Consumption loan.

Items of weaker section:

Scheduled caste and scheduled tribe

Women and other

Timely renew and review by credit limit:

Every year VCB review cash credit accounts and every 3 year renew that

account. At the time of review bank only keep in view the turnover of

business, account inspection, field inspection, renew insurance, renew

shop act license, proof of rent, income tax return or assessment of income

tax, turnover with bank. But process of renew of accounts is totally

inspection of party. Bank considers last 3 year’s business progress of the

party and deal with bank also.




Non-

perfo

rmin

g

assets

(N.P.

A)


A Non-performing asset (NPA) is defined as a credit facility in respect of which

the interest and/or installment of principal has remained ‘past due’ for a

specified period of time.

Identification:

With a view to moving towards international best practices and to ensure greater

transparency, it has been decided to adopt the ‘90 days’ overdue’ norm for

identification of NPA, from the year ending March 31, 2004. Accordingly, with

effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an

advance where;

Interest and/or installment of principal remain overdue for a period of

more than 90 days in respect of a term loan,

The account remains ‘out of order’ for a period of more than 90 days, in

respect of an Overdraft/Cash Credit (OD/CC),

The bill remains overdue for a period of more than 90 days in the case of

bills purchased and discounted,

Interest and/or installment of principal remains overdue for two harvest

seasons but for a period not exceeding two half years in the case of an

advance granted for agricultural purposes, and

Any amount to be received remains overdue for a period of more than 90

days in respect of other accounts.

Classification:

Banks are required to classify non-performing assets further into the following

three categories based on the period for which the asset has remained non-

performing and the reliability of the dues:

1 Sub-standard Assets

2 Doubtful Assets


http://en.wikipedia.org/wiki/Overdraft


3 Loss Assets

Substandard asset is the asset in which bank have to maintain 10% of its

reserves.

PROVISION OF N.P.A. IN VARACHHA BANK AT 31-03-2012:

( AMT IN LACKS)

LOAN WILL BE RECOVERTOTAL A/CS

AMOUNT MAY BE PROVISION

ACTUAL PROVISIN

A Total loan 7972 15588.17 122.01 936.051) Standard assets 7967 15532.48 66.39

2) Non-performing assets

5 55.62 55.62

---sub standard - ----doubtful= up to1 year

1 to 3 year3 year or more

----loss assets 5 55.62 55.62B PROVISION:

1) Standard assets against

206.60

2) Bed & doubtful debt reserve

360.20

3) Non-performing assets against

369.25

TOTAL 7972 15588.10 122.01 936.05




Recover

y


Recovery:

Recovery management consist of the functions and activities the bank carries

out acquire back what the bank has advanced with principle amount as well as

interest on the same. So it is recovery of what the bank advanced to loanee for

carrying out their purpose objective of taking a loan.

Process of recovery:

If three installments are outstanding,

Notice through branch office

Personal visit and meeting

If no response

Notice through advocate

Through no effect

Claim through court if party ready of court settlement otherwise

After completion of formalities

Bank will get the order of securities from court to recover their

due.



LOAN RECOVERY MANAGEMENT:

GROSS NPA

YEAR TOTAL

LONS

A/CS

TOTAL

LOAN

AMT.

A/CS AMOUNT PER.

%

PROVISION

OF NPA

NET

NPA

%

2008 8999 8022.86 37 221.02 2.75 454.88 0

2009 9215 9203.17 31 212.93 2.31 498.54 0

2010 7739 9488.67 23 222.63 2.35 587 0

2011 6593 11587.98 5 55.84 .84 649.11 0

2012 7972 15588.10 5 55.62 .36 936.05 0

GRAPH DEFINES TO GROSS NPA:

1 2 3 4 50

100

200

300

400

500

600

700

800

900

1000

ACCOUNTSAMOUNTPROVISION OF NPA



Finding and observation:

Findings:

Provide better a fast service to customer.

Bank continues gets audit class A in every year.

The bank has fully computerized system.

The bank can attract more customers through their well services.

A bank is progress in current time because its profit is increase in day to

day.

The customer can know their balance and other transaction related his

account through visual account terminal machine.

It has not more than 9 branches in Surat so far the varaccha cooperative

bank has to face the competition with other bank because bank provides

policies and other facilities.

The accounts, which are not getting benefit of one time settlement:

Loans under government directed programmers.

Loans due from government department undertakings.

Case of willful default, fraud and malfeasance.

Loan with tie up arrangement for recovery (e.g. loan avail by salary

earners)

Loans avail of or guaranteed by directors or by close relatives of director

or by firms companies institution in which the directors are the interest

are the interest or by ex-directors of respective urban cooperative banks.

Loans guaranteed by government (including case where government

guarantee has been involved but not honored by the government)



Conclusion:

Credit risk an investor’s risk of loss arising from borrower who

does not make payment as promised. Such an event is called a

default. Another term for credit risk is default risk.

Bank also transfer amount through NEFT and RTGS for I.D.B.I

and AXIS bank. This transfer is easy to and short time to transfer

amount to one account to another account.

The Varaccha bank provides money on credit base to their

customer by various ways.

In case of credit risk management of the bank get various

documents from the customers as legal proof of their credit.

Varaccha bank will open new branches in Surat and it is spread in

out of Surat like Ahmadabad and Ankleshevar and other city. So

we can say that this bank has growth in current time

Varaccha bank gives more facility in customer in current time and

to give more and better facility in future.

Though Varaccha bank provides me good support and guidance for

effective project work, yet as a student of management and at a

neutral position I would like to suggest to Varachha bank for

effective banking operation and take off high growth.



There should be linking of performance and reward for motivate to

staff and workers. Top management should provide effective salary

to staff members for increase performance.

BIBLIOGRAPHY:

Annual report of bank

Shekhar K.C. banking theory and practices.

New Delhi: vikas publishing house pvt. Ltd., 1985

Magazines, newspaper and authors books (I.M Panday)

Internet:

www.google.com

www.varacchabank.com

www.rbi.org.in.com


http://www.rbi.org.in.com/

http://www.varacchabank.com/

http://www.google.com/