coustmer releationship management in axis bank submitted by gaurav mathur

8/4/2019 coustmer releationship management in Axis Bank Submitted by gaurav mathur

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RESEARCH METHODOLOGY

INTRODUCTION:

Implementing customer relationship management can be a costly undertaking.

Organizations spend a lot of money scrutinizing vendors, buying the right CRM

software, hiring consultants, training employees etc. The only way in which a

company can actually measure its success is if it establishes CRM goals prior to

the implementation as in this way it is able to determine whether or not it has

successfully implemented CRM. Despite the fact that industries have different

business aspects they share some common CRM goals.

Some of the commonly Established CRM Objectives are as

follows:

Increase in Customer Service

Establishing customer loyalty as one of your top CRM goals is absolutelyfundamental to CRM successful implementation .For this task it is essential that the

whole organization realize that they play a part in this goal. This objective cannot

be achieved with the help of a few employees only.

Customers need to feel that they have received excellent service. This ensures

their continued patronage. This is by far one of the most essential goals of

customer relationship management. Customer retention and brand loyalty is

absolutely essential to ensure success. Undoubtedly it is far harder to gain a new

customer than to actually keep one. Customer service is the pivotal point around

which CRM revolves.

Increasing Efficiency

One of the most important goals of CRM is the increase in organization efficiency

and effectiveness. This is almost always adopted by every organization. It is

necessitated by the fact that increase in efficiency is required to boost success.

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CRM achieves this through cost reduction and customer retention. Adequate CRM

training achieves this goal.

Lowering Operating Costs

CRM goals also include the reduction of costs of operation. This goal should be

clearly established and conveyed to all those involved in the CRM implementation

process. CRM manages to reduce operating costs through a workforce

management system. This helps to maximize skills and thus reduce cost. These

reduced costs enable an organization to achieve greater efficiency. If cost reduction

is management's objective then the CRM implementation should be carried out in

such a way that this is achieved. Throughout the process maximum reduction in

costs should be adhered to in order to meet this particular CRM goal.

Aiding the Marketing Department

Another goal of CRM is generally aiding the marketing department in all its efforts.

This includes marketing campaigns, sales promotions etc. If this is fixated as one of

the goals of CRM, then it should be communicated to those involved. This goal is

fundamental as it boosts sales indirectly thereby increasing the profitability.

Questions to ask while establishing CRM goals:

What are your main goals/objectives?

An organization can have a single goal or several CRM goals, all of which need to

contribute to the overall success of the organization and taking into consideration

its resources at hand.

Who is your audience?

Each goal will have a target audience. Organizations need to first identify that

audience and then communicate effectively to them the appropriate messages. It is

vital to study this audience before the actual implementation

What is the best way to achieve CRM goals?

This involves looking at the various strategies an organization can implement to

achieve its goals. There will be several various strategies available and a company

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needs to look at the pros and cons, and then fix on the best method of

accomplishing its CRM goals.

How will you accomplish your CRM goals?

Here it is important for a company to focus on 'the' chosen strategy and understand

the various steps involved. This is essential in order to achieve CRM goals

successfully.

How will you measure success?

The method of measuring CRM success should be decided upon. This can be done

by accessing the actual achievement of CRM goals through the establishment of

various metrics.

Establishing clear CRM goals is vital to any organization. After a clear view of this

has been obtained going ahead with the CRM implementation will be infinitely

easier and will result in reduced costs, efforts, time and no wastage of organization

resources. Overall success is possible as the end objective is clearly defined and

can be worked towards easily with employee cooperation.

PROBLEM STATEMENT:

To study the credit CRM system in SME sector, at AXIS Bank Ahmadabad.

OBJECTIVES:

To study the C.R.M.

To understand the commercial, financial & technical viability of the proposal

proposed and its finding pattern.

RESEARCH DESIGN:

Analytical in nature.

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DATA COLLECTION:

Primary data:

Informal interview with manager and other staff members at Axis Bank.

Secondary data:

Books

websites

database at Axis Bank

library research

BENEFICIARIES:

Researchers:

This report will help researchers improving knowledge about the credit CRM

system and to have practical exposure of the credit CRM system at AXIS Bank.

Management Students:

The project will help the management student to know the patterns of customer

relationship managment in axis bank.5


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Experience : 0 3 Years

Location : Mumbai

Industry Type : Banking/Financial Services/Broking

Functional Area : Banking, Insurance

Job Description

Primarily responsible for supporting the RMs in the usage of Oracle CRM

application. First line of assistance to the RMs in terms of CRM usage. Collate

information and prepare MIS and reports through the CRM. Telecalling RMs for

specific campaigns driven through the CRM. Will report to the Deputy Manager in

charge of the CRM Helpdesk.

LIMITATION OF THE STUDY:

As the credit CRM is one of the crucial areas for any bank, some of the

Technicalities are not revealed.

Credit CRM system includes various types of detail studies for different

areas of analysis, but due to time constraint, our analysis was of limited

areas only.

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INTRODUCTION TO BANKING SECTOR

A snapshot of the banking industry

The Reserve Bank of India (RBI), as the central bank of the country, closely

monitors developments in the whole financial sector.

The banking sector is dominated by Scheduled Commercial Banks (SBCs). As at

end March 2002, there were 296 Commercial banks operating in India. This

included 27 Public Sector Banks (PSBs), 31 Private, 42 Foreign and 196 Regional

Rural Banks. Also, there were 67 scheduled co-operative banks consisting of 51

scheduled urban cooperative banks and 16 scheduled state co-operative banks.

Scheduled commercial banks touched, on the deposit front, a growth of 14% as

against 18% registered in the previous year. And on advances, the growth was

14.5% against 17.3% of the earlier year.

State Bank of India is still the largest bank in India with the market share of 20%

ICICI and its two subsidiaries merged with ICICI Bank, leading creating the second

largest bank in India with a balance sheet size of Rs. 1040bn.

Higher provisioning norms, tighter asset classification norms, dispensing with the

concept of past due for recognition of NPAs, lowering of ceiling on exposure to a

single borrower and group exposure etc., are among the measures in order to

improve the banking sector.

A minimum stipulated Capital Adequacy Ratio (CAR) was introduced to strengthen

the ability of banks to absorb losses and the ratio has subsequently been raised

from 8% to 9%. It is proposed to hike the CAR to 12% by 2004 based on the Basle

Committee recommendations.

Retail Banking is the new mantra in the banking sector. The home Loans alone

account

for nearly two-third of the total retail portfolio of the bank. According to one

estimate, the retail segment is expected to grow at 30-40% in the coming years.

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Net banking, phone banking, mobile banking, ATMs and bill payments are the new

buzz words that banks are using to lure customers.

With a view to provide an institutional mechanism for sharing of information on

borrowers / potential borrowers by banks and Financial Institutions, the Credit

Information Bureau (India) Ltd. (CIBIL) was set up in August 2000. The Bureau

provides a framework for collecting, processing and sharing credit information on

borrowers of credit institutions. SBI and HDFC are the promoters of the CIBIL.

The RBI is now planning to transfer of its stakes in the SBI, NHB and National bank

for Agricultural and Rural Development to the private players. Also, the

Government has sought to lower its holding in PSBs to a minimum of 33% of total

capital by allowing them to raise capital from the market. Banks are free to acquire

shares, convertible debentures of corporate and units of equity oriented mutual

funds, subject to a ceiling of 5% of the total outstanding advances (including

commercial paper) as on March 31 of the previous year.

The finance ministry spelt out structure of the government-sponsored ARC called

the Asset Reconstruction Company (India) Limited (ARCIL), this pilot project of the

ministry would pave way for smoother functioning of the credit market in the

country. The government will hold 49% stake and private players will hold the rest

51%- the majority being held by ICICI Bank (24.5%).

Reforms in the Banking sector

The first phase of financial reforms resulted in the nationalization of 14 major banks

in 1969 and resulted in a shift from Class banking to Mass banking. This in turn

resulted in a significant growth in the geographical coverage of banks. Every bank

has to earmark a minimum percentage of their Loan portfolio to sectors identified

as priority sectors. The manufacturing sector also grew during the 1970s in

protected environs and the banking sector was a critical source. The next wave of

reforms saw the nationalization of 6 more commercial banks in 1980. Since then

the number scheduled commercial banks increased four-fold and the number of

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After the second phase of financial sector reforms and liberalization of the sector in

the early nineties, the Public Sector Banks (PSB) s found it extremely difficult to

complete with the new private sector banks and the foreign banks. The new private

sector banks first made their appearance after the guidelines permitting them were

issued in January 1993. Eight new private sector banks are presently in operation.

This banks due to their late start have access to state-of-the-art technology, which

in turn helps them to save on manpower costs and provide better services.

During the year 2000, the State Bank of India (SBI) and its 7 associates accounted

for a 25% share in deposits and 28.1% share in credit. The 20 nationalized banks

accounted for 53.5% of the deposits and 47.5% of credit during the same period.

The share of foreign banks ( numbering 42 ), regional rural banks and other

scheduled commercial banks accounted for 5.7%, 3.9% and 12.2% respectively in

deposits and 8.41%, 3.14% and 12.85% respectively in credit during the year 2000

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Classification of Banks:

The Indian banking industry, which is governed by the Banking Regulation Act ofIndia

1949 can be broadly classified into two major categories, non-scheduled

banks and scheduled banks. Scheduled banks comprise commercial banks and

the co-operative banks. In Terms of ownership, commercial banks can be further

grouped into nationalized banks, the State Bank of India and its group banks,

regional rural banks and private sector banks (the old / new domestic and

foreign). These banks have over 67,000 branches spread across the

country. The Indian banking industry is a mix of the public sector, private

sector and foreign banks. The private sector banks are again spilt into old banks

and new banks.

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Banking System in

India

Reserve bank of India (Controlling Authority)

Development Financial institutions Banks

IFCI IDBI ICICI NABARD NHB IRBI EXIM Bank SIDBI

Commercial Regional Rural Land Development Cooperative

Banks Banks Banks Banks

Public Sector Banks Private Sector Banks

SBI Groups Nationalized Banks Indian Banks Foreign Banks

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GLOBAL AND LOCAL SCENARIO OF BANKING SECTOR

Indian Banking System: The Current State & Road Ahead

Introduction

Recent time has witnessed the world economy develop serious difficulties in terms

of lapse of banking & financial institutions and plunging demand. Prospects

became very uncertain causing recession in major economies. However, amidst all

this chaos Indias banking sector has been amongst the few to maintain resilience.

A progressively growing balance sheet, higher pace of credit expansion, expanding

profitability and productivity akin to banks in developed markets, lower incidence of

nonperforming assets and focus on financial inclusion have contributed to making

Indian banking vibrant and strong. Indian banks have begun to revise their growth

approach and re-evaluate the prospects on hand to keep the economy rolling. The

way forward for the Indian banks is to innovate to take advantage of the new

business opportunities and at the same time ensure continuous assessment of

risks.

A rigorous evaluation of the health of commercial banks, recently undertaken by the

Committee on Financial Sector Assessment (CFSA) also shows that the

commercial banks are robust and versatile. The single-factor stress tests

undertaken by the CFSA divulge that the banking system can endure considerableshocks arising from large possible changes in credit quality, interest rate and

liquidity conditions. These stress tests for credit, market and liquidity risk show that

Indian banks are by and large resilient.

Thus, it has become far more imperative to contemplate the role of the Banking

Industry in fostering the long term growth of the economy. With the purview ofeconomic stability and growth, greater attention is required on both political and

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regulatory commitment to long term development programme. FICCI conducted a

survey on the Indian Banking Industry to assess the competitive advantage offered

by the banking sector, as well as the policies and structures that are required to

further the pace of growth. The results of our survey are given in the following

sections.

General Banking Scenario

The pace of development for the Indian banking industry has been tremendous

over the past decade. As the world reels from the global financial meltdown, Indias

banking sector has been one of the very few to actually maintain resilience whilecontinuing to provide growth opportunities, a feat unlikely to be matched by other

developed markets around the world. FICCI conducted a survey on the Indian

Banking Industry to assess the competitive advantage offered by the banking

sector, as well as the policies and structures required to further stimulate the pace

of growth.

The predicament of the banks in the developed countries owing to excessiveleverage and lax regulatory system has time and again been compared with

somewhat unscathed Indian Banking Sector. An attempt has been made to

understand the general sentiment with regards to the performance, the challenges

and the opportunities ahead for the Indian Banking Sector.

A majority of the respondents, almost 69% of them, felt that the Indian banking

Industry was in a very good to excellent shape, with a further 25% feeling it was in

good shape and only 6% of the respondents feeling that the performance of the

industry was just average. In fact, an overwhelming majority (93.33%) of the

respondents felt that the banking industry compared with the best of the sectors of

the economy, including pharmaceuticals, infrastructure, etc.

Most of the respondents were positive with regard to the growth rate attainable by

the Indian banking industry for the year 2009-10 and 2014-15, with 53.33% of the

view that growth would be between 15-20% for the year 2009-10 and greater than

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On being asked what is the major strength of the Indian banking industry, which

makes it resilient in the current economic climate; 93.75% respondents feel the

regulatory system to be the major strength, 75% economic growth, 68.75% relative

insulation from external market, 56.25% credit quality, 25% technological

advancement and 43.75% our risk assessment systems.

Change is the only constant feature in this dynamic world and banking is not an

exception. The changes staring in the face of bankers relates to the fundamental

way of banking-which is going through rapid transformation in the world of today.

Adjust, adapt and change should be the key mantra. The major challenge faced by

banks today is the ever rising customer expectation as well as risk management

and maintaining growth rate. Following are the results of the biggest challenge

faced by the banking industry as declared by our respondents (on a mode scale of

1 to 7 with 1 being the biggest challenge):

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They also asked their respondents to rate India on certain essential banking

parameters (Regulatory Systems, Risk Assessment Systems, Technological

System and Credit Quality) in comparison with other countries i.e. China, Japan,

Brazil, Russia, Hong Kong, Singapore, UK and USA.

The recent financial crisis has drawn attention to under-regulation of banks (mainly

investment banks) in the US. Though, the Indian story is quite different. Regulatory

systems of Indian banks were rated better than China, Brazil, Russia, and UK; at

par with Japan, Singapore and Hong Kong where as all our respondents feel that

we are above par or at par with USA. On comparing the results with their previous

survey where the respondents had rated Indian Regulatory system below par the

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US and UK system, they see that post the financial crisis Indian Banks are more

confident on the Indian Regulatory Framework.

The global meltdown started as a banking crisis triggered by the credit quality.

Indian banks seem to have paced up in terms of Credit Quality. Credit quality of

banks has been rated above par than China, Brazil, Russia, UK and USA but at par

with Hong Kong and Singapore and 85.72% of the respondents feel that we are at

least at par with Japan. Thus, they see that the resilience the Indian Banks showed

at the time of financial crisis has led to an attitudinal shift of our respondents withthe past survey indicating Credit quality of

Indian banks being below par than that of US and UK.

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As technology ingrains itself in all aspects of a banks functioning, the challenge lies

in exploiting the potential for profiting from investments made in technology. A lot

needs to be done on the technological front to keep in pace with the global

economies, as is evident from the survey results. Technology systems of Indian

banks have been rated more advanced than Brazil and Russia but below par with

China, Japan, Hong Kong, Singapore, UK and USA. They find no change on

introspection of their past surveys which also highlighted the need for Indian banks

to pace up in adoption of advanced technology.

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Global Expansion of Indian Banking

The idea of creating bigger banks to take on competition sounds attractive but one

must realize even the biggest among Indian banks are small by global standards.

The lack of global scale for Indian banks came into sharp focus during the recent

financial crisis which saw several international banks reneging on their funding

commitments to Indian companies, but local banks could not step into the breach

because of balance sheet limitations.

In this light, 93.75% of all respondents to their survey are considering expanding

their operations in the future. They further asked participants on the methods that

they consider suitable to meet their expansion needs. They divide them into

organic means of growth that comes out of an increase in the banks own business

activity, and inorganic means that includes mergers or takeovers.

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We see from the above graph that amongst organic means of expansion, branch

expansion finds favor with banks while strategic alliances is the most popular

inorganic method for banks considering scaling up their operations. On the other

hand, new ventures and buyout portfolios are the least popular methods for bank

expansion.

Scope for New Entrants

81.25% also felt that there was further scope for new entrants in the market, in

spite of capital management and human resource constraints, as there continue to

remain opportunities in unbanked areas. With only 30-35% of the population

financially included, and the Indian banking industry unsaturated with CAGR of well

above 20%, participants in their survey felt that the market definitely has scope to

accommodate new players.

While there has been prior debate, they questioned banks on NBFCs and Industrialhouses being established as banking institutions and find opinion to be marginally

against the notion, with 35.71% in favour while 42.86% were against them being

established as banks.

However, on further questioning, 57.14% of respondents feel that the above may

be allowed but only if it is along with specific regulatory limitations. Banks felt that

limitations regarding track record, ensuring adequate capitalization levels, a tieredlicense that enables new entrants to enter into specific areas of the business only

after satisfactorily achieving set milestones for the prior stages, cap on promoter's

holdings and wider public holding in addition to a common banking regulator on a

level playing field are essential before they may set themselves up as banks.

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Over the last three decades, there has been a remarkable increase in the size,

spread and scope of activities of banks in India. The business profile of banks has

transformed dramatically to include non-traditional activities like merchant banking,mutual funds,new financial services and products and the human resource

development.

Their survey finds that within retail operations, banks rate product development and

differentiation; innovation and customization; cost reduction; cross selling and

technological up gradation as equally important to the growth of their retail

operations. Additionally a few respondents also find pro-active financial inclusion,

credit discipline and income growth of individuals and customer orientation to be

significant factors for their retail growth.

There is, at the same time, an urgent need for Indian banks to move beyond retail

banking, and further grow and expand their fee- based operations, which has

globally remained one of the key drivers of growth and profitability. In fact, over

80% of banks in their survey have only up to 15% of their total incomes constituted

by fee- based income; and barely 13% have 20-30% of their total income

constituted by fee-based income.

Out of avenues for non-interest income, we see that Banc assurance (85.71%) and

FOREX Management (71.43%) remain most profitable for banks. Derivatives,

understandably, remains the least profitable business opportunity for banks as the

market for derivatives is still in its nascent stage in India.

There is nevertheless a visibly increased focus on fee based sources of income.

71% of banks in their survey saw an increase in their fee based income as a

percentage of their total income for the FY 2008-09 as compared to FY 2007-08.

Indian banks are fast realizing that fee-based sources of income have to be actively

looked at as a basis for future growth, if the industry is to become a global force to

reckon with.

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Financial Inclusion and Expansion of Banking

Services

Transition from class banking to mass banking and increased customer focus isdrastically changing the landscape of Indian banking. Expansion of retail banking

has a lot of potential as retail assets are just 22% of the total banking assets and

contribution of retail loans to GDP stands merely at 6% in India vis--vis 15% in

China and 24% in Thailand. All banks in their survey weigh Cost effective credit

delivery mechanisms (100%) as most important to the promotion of financial

inclusion. This was followed by factors such as identifying needs and developing

relevant financial products (75%), demographic knowledge and strong local

relations (62.5%) and ensuring productive use and adequate returns on credit

employed (43.75%) in decreasing levels of importance. In fact, India has an

expanding middle class of 250 to 300 million people in need of varied banking

services. While 60% of our population has access to banks, only 15% of them have

loan accounts and an overwhelming 70% of farmers have no access to formal

sources of credit, reflective of immense potential for the banking system This is

mirrored in the fact that while our survey finds no discernible shift in the lending

pattern of banks across Tier 1, Tier 2 and Tier 3 cities over the last two years, 93%

Indian Banking System: The Current State & Road Ahead Page | 20 participants24


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still find rural markets to be to be a profitable avenue, with 53% of respondents

finding it lucrative in spite of it being a difficult market. Cost of accessing markets

has been the only sour note in the overall experience of our respondents in rural

markets At the same time, more than 81.25% of our respondents have a strategy in

place to tap rural markets, with the remainder as yet undecided on their plan of

action. Tie ups with micro finance institutions (MFIs)/SHG and introduction of

innovative and customized products are considered most important to approaching

rural markets according to respondents, more so as compared to internet kiosks,

post offices and supply chain management techniques

Additionally, 81.25% of respondents found branchless banking to be an effective

and secure way of reaching out to rural markets, with mobile, biometric and

handheld devices, equally popular amongst banks. Some respondents also found

the Business Correspondents model to be an untapped model for financial

inclusion.

As Indian financial markets mature over time, there is also a need for innovative

instruments to deepen the market further. Suggestions ranged from micro savingand micro insurance initiatives, Cash deposit machines, warehouse receipts, to

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prepaid cash cards, derivatives, interest rate futures and credit default swaps as a

means to further the financial inclusion and expansionary process.

Credit Flow and Industry

India Inc is completely dependent on the Banking System for meeting its funding

requirement. One of the major complaints from the industry has in fact been high

lending rates in spite of massive cuts in policy rates by the RBI. We asked the

banks what they felt were major factors responsible for rigid prime lending rates.

None of the banks in their survey considered the cap on bank deposit rates to be

one of the causes of inflexible lending rates. Due to long-term maturity, the trend

seems to be changing. However, there are other factors which have led to the

stickiness of lending rates such as wariness of corporate credit risk (33.33%),

competition from government small savings schemes (26.67%). Benchmarking of

SME and export loans against PLR (20.00%) on the other hand, do not seem to

have as significant an influence over lending rates according to banks.

The great Indian industrial engine has nevertheless continued to hum its waythrough most of the year long crisis. We asked banks about the sectors that they

consider to be most profitable in the coming years (Fig. 12). All respondents were

confident in the infrastructure sector leading the profitability for the industry,

followed by retail loans (73.33%) and others

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(Source: Annual survey, February 2010)

(FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRY)

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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

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.

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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

a expected revival in the Indian economy Banks have a major role to play.

SWOT Analysis

The banking sector is also taken as a proxy for the economy as a whole. The

performance of bank should therefore, reflect Trends in the Indian Economy. Due

to the reforms in the financial sector, banking industry has changed drastically with

the opportunities to the work with, new accounting standards new entrants and

information technology. The deregulation of the interest rate, participation of banks

in project financing has changed in the environment of banks.

The performance of banking industry is done through SWOT Analysis. It mainly

helps to know the strengths and Weakness of the industry and to improve will be

known through converting the opportunities into strengths. It also helps for the

competitive environment among the banks.

a) STRENGTHS

1. Greater securities of Funds

Compared to other investment options banks since its inception has been a better

avenue in terms of securities. Due to satisfactory implementation of RBIs

prudential norms banks have won public confidence over several years.

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2. Banking network

After nationalization, banks have expanded their branches in the country, which

has helped banks build large networks in the rural and urban areas. Private banks

allowed to operate but they mainly concentrate in metropolis.

3. Large Customer Base

This is mainly attributed to the large network of the banking sector. Depositors in

rural

areas prefer banks because of the failure of the NBFCs.

4. Low Cost of Capital

Corporate prefers borrowing money from banks because of low cost of capital.

Middle income people who want money for personal financing can look to banks as

they offer at very low rates of interests. Consumer credit forms the major source of

financing by banks.

b) WEAKNESS

1. Basel Committee

The banks need to comply with the norms of Basel committee but before that it is

challenge for banks to implement the Basel committee standard, which are of

international standard.

2. Powerful Unions

Nationalization of banks had a positive outcome in helping the Indian Economy as

a whole. But this had also proved detrimental in the form of strong unions, whichhave a major influence in decision-making. They are against automation.

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3. Priority Sector Lending

To uplift the society, priority sector lending was brought in during nationalization.

This is good for the economy but banks have failed to manage the asset quality

and their intensions were more towards fulfilling government norms. As a result

lending was done for non-productive purposes.

4. High Non-Performing Assets

Non-Performing Assets (NPAs) have become a matter of concern in the banking

industry. This is because reduced to meet the international standardsof change in

the total outstanding advances, which has to be reduced to meet the international

standards.

c) OPPORTUNITIES

1. Universal Banking

Banks have moved along the value chain to provide their customers more products

and services. like home finance, Capital Markets, Bonds etc. Every Indian bank

has an opportunity to become universal bank, which provides every financial

service under one roof.

2. Differential Interest Rates

As RBI control over bank reduces, they will have greater flexibility to fix their own

interest rates which depends on the profitability of the banks.

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3. High Household Savings

Household savings has been increasing drastically. Investment in financial assets

has also increased. Banks should use this opportunity for raising funds.

4. Untapped Foreign Markets

Many Indian banks have not sufficiently penetrated in foreign markets to generate

satisfactory business therefore, it can be concluded clear opportunity exists in such

markets.

5. Interest Banking

The advance in information technology has made banking easier. Business can

Effectively carried out through internet banking.

d) THREATS

1. NBFCs, Capital Markets and Mutual funds

There is a huge investment of household savings. The investments in NBFCs

deposits, Capital Market Instruments and Mutual Funds are increasing. Normally

these instruments offer better return to investors.

2. Changes in the Government Policy

The change in the government policy has proved to be a threat to the banking

sector. Due to some major changes in policies related to deposits mobilization

credit deployment, interest rates- the whole scenario of banking industry may

change.

3. Inflation

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The interest rates go down with a fall in inflation. Thus, the investors will shift his

investments to the other profitable sectors.

4. Recession

Due to the recession in the business cycle the economy functions poorly and this

has proved to be a threat to the banking sector. The market oriented economy and

globalization has resulted into competition for market share. The spread in the

banking sector is very narrow. To meet the competition the banks has to grow at a

faster rates and reduce the overheads. They can introduce the new products and

develop the existing services.

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INTRODUCTION TO AXIS BANK

Axis Bank was the first of the new private banks to have begun operations in 1994,

after the Government of India allowed new private banks to be established. The

Bank was promoted jointly by the Administrator of the specified undertaking of the

Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General

Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e.

National Insurance Company Ltd., The New India Assurance Company Ltd., The

Oriental Insurance Company Ltd. and United India Insurance Company Ltd.

The Bank today is capitalized to the extent of Rs. 403.63 crores with the public

holding (other than promoters and GDRs) at 53.72%.

The Bank's Registered Office is at Ahmedabad and its Central Office is located at

Mumbai. The Bank has a very wide network of more than 896 branches and

Extension Counters (as on 31st December 2009). The Bank has a network of over

4055 ATMs (as on 31st December 2009) providing 24 hrs a day banking

convenience to its customers. This is one of the largest ATM networks in the

country.

The Bank has strengths in both retail and corporate banking and is committed to

adopting the best industry practices internationally in order to achieve excellence.

Mission

Customer service and product innovation tuned to diverse needs of

individual and corporate clientele.

Continuous technology up gradation while maintaining human values.

Progressive globalization and achieving international standards.

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Core values

Customer satisfaction through

Providing quality service effectively and efficiently

smile, it enhances your face value a service quality stressed on

Periodic customers service audits

Maximization of stakeholder value

Business divisions

Treasury management

Treasury is responsible for the maintenance of the statutory requirements such as

the cash reserve ratio (CRR), statutory liquidity ratio (SLR) and the investment of

such funds. It also manages the assets and liabilities of the bank. Primary dealingactivities can be classified into

Money market operations

Foreign exchange operations

Derivatives

Merchant Banking and capital markets

Axis Bank is a registered merchant Banker. The services offered are:

Private placement/syndication

Issue management

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Retail banking is one of the key departments in the bank. It has the largest variety

in its portfolio which consists of retail asset and retail liability products. Retail

Banking by definition implies banking services which are offered to individual

customers as opposed to corporate banking which is meant for companies.

International banking

Major functions include

Handling regulatory issues which include compliance with regulations

of various authorities such as RBI regulatios, FEMA etc

Keeping a track of the business volumes being generated by the

branches and controlling the margins

Maintaining relationship with correspondent Banks outside India

Advances

The function involves extending fund and non-fund based credit facilities to different

clients in the country, the department aims to maximize the interest spread earned

on funds available with the bank while keeping the risk on the credit portfolio at

acceptable limits. The department also tries to maximize fee-based income from

both fund based and non-fund based activities.

Board of Directors:

Shri N.C. Singhal

Shri J.R. Varma

Dr. R.H. PatilSmt. Rama Bijapurkar

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Shri R.B. L. Vaish

Shri M.V. Subbiah

Shri Ramesh Ramanathan

Shri K.N. Prithviraj

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INTRODUCTION TO SME

In the Indian context, the small and medium enterprises (SME) sector is broadly aTerm used for small scale industrial (SSI) units and medium-scale industrial units.

Any industrial unit with a total investment in its fixed assets or leased assets or hire-

purchase asset of upto Rs 10 million, can be considered as an SSI unit and any

investment of upto Rs 100 million can be Termed as a medium unit. An SSI unit

should neither be a subsidiary of any other industrial unit nor be owned or

controlled by any other industrial unit.

An SME is known by different ways across the world. In India, a standard definition

surfaced only in October 2, 2006, when the Ministry of Micro, Small and Medium

Enterprises, Government of India, imposed the Micro, Small and Medium

enterprises Development (MSMED) Act,2006.

This definition, however was changed according to the changing economic

scenario and thus has separate definitions to it. For instance, an SME definition for

manufacturing enterprises is different from what an SME definition for service

enterprises has to say.

History

Small and Medium Enterprises or SMEs are vital for the growth and well being of

the country. This sector was recognized and given importance right from

independence and is being encouraged ever since then.

Though, it commenced on a small scale, it gradually gained significance, because it

employed a considerable number of people.

When it started gaining momentum, this sector was defined as an enterprise with

investment in plant and machinery of up to Rs 1 lakh and situated in towns and

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villages with strength of less than 50,000 people. The policy statement put in place

special legislation to recognize and protect self employed people in cottage and

home industries. District industries canters (DICs) were set up and made the focal

point of SSI development, bypassing large cities and state capitals. Also, the

government started providing special services akin to product standardization,

quality control and marketing surveys in order to assist the SSIs in enabling them to

market their products in an underdeveloped market.

The scenario for the small-scale sector changed with the Industrial Policy of July

1991, which, for the first time in Indias development history spoke of liberalization.

What this meant was that medium and large enterprises would no longer need

licenses to run. Export-oriented enterprises could be wholly foreign owned and

foreign equity participation was selectively allowed. Industries could import capital

goods with much fewer restrictions.

1996 saw the government involved in the setting up of a higher level committee,

known as the Abid Hussain Committee, to review policies for small industries and

recommend measures to help formulate a strong and innovative policy package for

the rapid development of SMEs. With liberalization, rapid changes were seen in the

Indian economy. Indian companies were no longer insulated from the global

economy. In fact, there was an urgent need to make them, especially SMEs, more

competitive and resilient.

In 1991, the growth rate of SSIs was almost three times that of the total industrialsector at 3.1 percent. From 1991 to 1995, the growth rate of SSIs exceeded that of

the total industrial sector. Yet, in 1995-96, the growth rate of SSIs was slightly lower

than the total industrial sector, however it increased again in 1996 and continued to

be higher than the total industrial growth rate till 1999. till 2006, the SME segment

saw a lot more development and support from the government.

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Description of SME in the manufacturing sector

The Term enterprise in the manufacturing context stands for an industrial

undertaking or a business concern involved in the production, processing orpreservation of goods for the list of eligible industries in the First Schedule to the

Industries (Development and Regulation Act), 1951.

For the Manufacturing Sector, the MSMED Act 2006 defines micro, small and

medium enterprises (MSMEs) as mentioned below:

A micro enterprise is an enterprise where investment in plant and machinery

does not exceed Rs 25 lakh.

The investment in plant and machinery in a small enterprise is more than Rs

25 lakh, but does not exceed Rs 5 crore.

A medium enterprise is one where the investment in plant and machinery is

more than Rs 5 crore, but does not exceed Rs 10 crore.

In all these, the cost excludes that of land, building and the items specified by the

Ministry of Small Scale Industries with its notification No SO 1722 (E) dated

October 5, 2006.

SME definition for Service Enterprises

A service sector enterprise is defined as one involved in providing services. The

following points will explain how.

Small road and water transport operators that can now own a fleet of

vehicles not exceeding ten in number.

Small business, whose original cost price of equipment used for business,

does not exceed Rs 20 lakh.

Professional and self-employed persons, whose borrowing limits do not

exceed Rs 10 lakh of which not more than Rs 2 lakh should be for working

capital requirements

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Professionally qualified medical practitioners setting up a practice in semi

urban and rural areas, whose borrowing limits should not be less than Rs 15

lakh with a sub-ceiling of Rs 3 lakh for working capital requirements.

Challenges faced by SME

The challenges being faced by the small and medium sector may be briefly set out

as

Follows-

Small and Medium Enterprises (SME), particularly the tiny segment of the

small enterprises have inadequate access to finance due to lack of financial

information and non-formal business practices. SMEs also lack access to

private equity and venture capital and have a very limited access to

secondary market instruments.

SMEs face fragmented markets in respect of their inputs as well as products

and are vulnerable to market fluctuations.

SMEs lack easy access to inter-state and international markets.

The access of SMEs to technology and product innovations is also limited.

There is lack of awareness of global best practices.

SMEs face considerable delays in the settlement of dues/payment of bills by

the large scale buyers. With the deregulation of the financial sector, the

ability of the banks to service the credit requirements of the SME sector

depends on the underlying transaction costs, efficient recovery processes

and available security. There is an immediate need for the banking sector to

focus on credit and SMEs

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OVERVIEW OF CREDIT CRM

Credit CRM means an investigation/assessment done by the banks before

providing any Loans & advances/project finance & also checks the commercial,

financial & technical viability of the project proposed, its funding pattern & further

checks the primary & collateral security cover available for recovery of such funds.

Brief overview of Credit

Credit CRM is a process to ascertain the risks associated with the extension of the

credit facility. It is generally carried by the financial institutions, which are involved

in providing financial funding to its customers. Credit risk is a risk related to non-

repayment of the credit obtained by the customer of a bank. Thus it is necessary to

appraise the credibility of the customer in order to mitigate the credit risk. Proper

evaluation of the customer is performed this measures the financial condition and

the ability of the customer to repay back the Loan in future. Generally the credits

facilities are extended against the security know as collateral. But even though the

Loans are backed by the collateral, banks are normally interested in the actual

Loan amount to be repaid along with the interest. Thus, the customer's cash flows

are ascertained to ensure the timely payment of principal and the interest.

It is the process of appraising the credit worthiness of a Loan applicant. Factors like

age, income, number of dependents, nature of employment, continuity of

employment, repayment capacity, previous Loans, credit cards, etc. are taken into

account while appraising the credit worthiness of a person. Every bank or lending

institution has its own panel of officials for this purpose.

However the 3 C of credit are crucial & relevant to all borrowers/ lending, which

must be kept in mind, at all times.

Character

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Capacity

Collateral

If any one of these are missing in the equation then the lending officer must

question the viability of credit. There is no guarantee to ensure a Loan does not runinto problems; however if proper credit evaluation techniques and monitoring are

implemented then naturally the Loan loss probability / problems will be minimized,

which should be the objective of every lending Officer.

Credit is the provision of resources (such as granting a Loan) by one party to

another party where that second party does not reimburse the first party

immediately, thereby generating a debt, and instead arranges either to repay or

return those resources (or material(s) of equal value) at a later date. The first party

is called a creditor, also known as a lender, while the second party is called a

debtor, also known as a borrower.

Credit allows you to buy goods or commodities now, and pay for them later. We

use credit to buy things with an agreement to repay the Loans over a period of

time. The most common way to avail credit is by the use of credit cards. Other

credit plans include personal Loans, home Loans, vehicle Loans, student Loans,

small business Loans, trade. A credit is a legal contract where one party receives

resource or wealth from another party and promises to repay him on a future date

along with interest. In simple Terms, a credit is an agreement of postponed

payments of goods bought or Loan. With the issuance of a credit, a debt is formed.

Basic types of credit

There are four basic types of credit. By understanding how each works, you will be

able to get the most for your money and avoid paying unnecessary charges.

Service credit is monthly payments for utilities such as telephone, gas, electricity,

and water. You often have to pay a deposit, and you may pay a late charge if your

payment is not on time.

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Loans let you borrow cash. Loans can be for small or large amounts and for a few

days or several years. Money can be repaid in one lump sum or in several regular

payments until the amount you borrowed and the finance charges are paid in full.

Loans can be secured or unsecured.

Installment credit may be described as buying on time, financing through the store

or the easy payment plan. The borrower takes the goods home in exchange for a

promise to pay later. Cars, major appliances, and furniture are often purchased this

way. You usually sign a contract, make a down payment, and agree to pay the

balance with a specified number of equal payments called installments. The finance

charges are included in the payments. The item you purchase may be used as

security for the Loan.

Credit cards are issued by individual retail stores, banks, or businesses. Using a

credit card can be the equivalent of an interest-free Loan- end of each month.-if you

pay for the use of it in full at the

Brief overview of Loans

Loans can be of two types fund base & non-fund base:

Fund Base includes:

Working Capital

Term Loan

Non-fund Base includes:

Letter of Credit

Bank Guarantee

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Fund Base:

Working capital

The objective of running any industry is earning profits. An industry will require

funds to acquire fixed assets like land, building, plant, machinery, equipments,

vehicles, tools etc., & also to run the business i.e. its day-to-day operations.

Funds required for day to-day working will be to finance production & sales. For

production, funds are needed for purchase of raw materials/ stores/ fuel, for

employment of labor, for power charges etc. financing the sales by way of sundry

debtors/ receivables.

Capital or funds required for an industry can therefore be bifurcated as fixed capital

& working capital. Working capital in this context is the excess of current assets

over current liabilities. The excess of current assets over current liabilities is treated

as net, for storing finishing goods till they are sold out & for working capital or liquid

surplus & represents that portion of the working capital, which has been provided

from the long-Term source.

Term Loan

A Term Loan is granted for a fixed Term of not less than 3 years intended normally

for financing fixed assets acquired with a repayment schedule normally not

exceeding 8 years.

A Term Loan is a Loan granted for the purpose of capital assets, such as purchase

of land, construction of, buildings, purchase of machinery, modernization,

renovation or rationalization of plant, & repayable from out of the future earning of

the enterprise, in installments, as per a prearranged schedule.

From the above definition, the following differences between a Term Loan & the

working capital credit afforded by the Bank are apparent:

o The purpose of the Term Loan is for acquisition of capital assets.

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o The Term Loan is an advance not repayable on demand but only in

installments ranging over a period of years.

o The repayment of Term Loan is not out of sale proceeds of the goods &

commodities per se, whether given as security or not. The repayment shouldcome out of the future cash accruals from the activity of the unit.

o The security is not the readily saleable goods & commodities but the fixed

assets of the units.

It may thus be observed that the scope & operation of the Term Loans are entirely

different from those of the conventional working capital advances. The Banks

commitment is for a long period & the risk involved is greater. An element of risk is

inherent in any type of Loan because of the uncertainty of the repayment. Longer

the duration of the credit, greater is the attendant uncertainty of repayment &

consequently the risk involved also becomes greater.

However, it may be observed that Term Loans are not so lacking in liquidity as

they appear to be. These Loans are subject to a definite repayment programme

unlike short Term Loans for working capital (especially the cash credits) which are

being renewed year after year. Term Loans would be repaid in a regular way from

the anticipated income of the industry/ trade.

These distinctive characteristics of Term Loans distinguish them from the short

Term credit granted by the banks & it becomes necessary therefore, to adopt a

different approach in examining the applications of borrowers for such credit & for

appraising such proposals.

The repayment of a Term Loan depends on the future income of the borrowing

unit. Hence, the primary task of the bank before granting Term Loans is to assure

itself that the anticipated income from the unit would provide the necessary amount

for the repayment of the Loan. This will involve a detailed scrutiny of the scheme,

its capital assets. Financial aspects, economic aspects, technical aspects, a

projection of future trends of outputs & sales & estimates of cost, returns, flow of

funds & profits.

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Non-fund Base:

Letter of credit

The expectation of the seller of any goods or services is that he should get thepayment immediately on delivery of the same. This may not materialize if the seller

& the buyer are at different places (either within the same country or in different

countries). The seller desires to have an assurance for payment by the purchaser.

At the same time the purchaser desires that the amount should be paid only when

the goods are actually received. Here arises the need of Letter of Credit (LCs). The

objective of LC is to provide a means of payment to the seller & the delivery of

goods & services to the buyer at the same time.

Definition

A Letter of Credit (LC) is an arrangement whereby a bank (the issuing bank) acting

at the request & on the instructions of the customer (the applicant) or on its own

behalf,

o Is to make a payment to or to the order of a third party (the beneficiary), or is

to accept & pay bills of exchange (drafts drawn by the beneficiary); or

o Authorizes another bank to effect such payment, or to accept & pay such

bills of exchanges (drafts); or

o Authorizes another bank to negotiate the Terms & conditions of the credit

are complied with. against stipulated document(s), provided that

Bank Guarantees:

A contract of guarantee is defined as a contract to perform the promise or

discharge the liability of the third person in case of the default. The parties to the

contract of guarantees are:

a) Applicant: The principal debtor person at whose request the guarantee is

executed

b) Beneficiary: Person to whom the guarantee is given & who can enforce it in

case of default.

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c) Guarantee: The person who undertakes to discharge the obligations of the

applicant in case of his default.

Thus, guarantee is a collateral contract, consequential to a main co applicant & the

beneficiary.

Purpose of Bank Guarantees

Bank Guarantees are used to for both both preventive & remedial purposes. The

guarantees executed by banks comprise both performance guarantees & financial

guarantees. The guarantees are structured according to the Terms of agreement,

viz., security, maturity & purpose.

Branches may issue guarantees generally for the following purposes:

a) In lieu of security deposit/earnest money deposit for participating in tenders;

b) Mobilization advance or advance money before commencement of the

project by the contractor & for money to be received in various stages like

plant layout, design/drawings in project finance;

c) In respect of raw materials supplies or for advances by the buyers;

d) In respect of due performance of specific contracts by the borrowers & for

obtaining full payment of the bills;

e) Performance guarantee for warranty period on completion of contract which

would enable the suppliers to period to be over; realize the proceeds without

waiting for warranty) To allow units to draw funds from time to time from the

concerned indenters against part execution of contracts, etc.

f) Bid bonds on behalf of exporters

g) Export performance guarantees on behalf of exporters favoring the Customs

Department under EPCG scheme.

Bill discounting:

Definition:

As per Negotiable Instrument Act, The bill of exchange is an instrument in writing

containing an unconditional order, signed by the maker, directing a certain person

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to pay a certain sum of money only to, or to the order of, a certain person, or to the

bearer of that instrument.

Discounting of bill of exchange:

A seller (Drawer) if need cash, may handover the B/E to the Bank, NBFC, a

company or a high Net worth Individual and obtain ready cash this is known as

discounting of bill. the practice in India is that, the financing organization holds the

original B/E till the drawee pays on maturity. For discounting the bill, financiers

charge an interest on the bill amount for the duration of the bill which is called

discount charges.normal maturity periods are 30, 60, 90, 120 days.

Types of Bills

1. Demand Bill

2. Usance Bill

3. Documentary Bills

a. Documents against acceptance (D/A) bills

b. Documents against payment (D/P) bills

4. Clean Bills

Advantages

o To Investors

1. Short Term source of finance

2. Outside the purview of Section 370 of Indian Companies Act 1956

3. No tax deducted at source

4. Flexibility

o To Banks

1. Safety of funds

2. Certainty of payment

3. Profitability

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Credit CRM Model

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Receipt of application from applicant

Receipt of documents

(Balance sheet, KYC papers, Different govt. registration no., MOA, AOA, and

properties documents

Pre-sanction visit by bank officers

Check for RBI defaulters list, willful defaulters list, CIBIL data, ECGC, Caution list

etc

Title clearance reports of the properties to be obtained from empanelled

Advocates

Proposal preparation

Valuation reports of the properties to be obtained from empanelled valuer/engineers

Preparation of financial data

Assessment of proposal

Sanction/approval of proposal by appropriate sanctioning authority


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Documentations, agreements, mortgages

Disbursement of Loan

Post sanction activities such as receiving stock statements, review of accounts, renew

of accounts, etc

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Loan administration pre- sanction

process

CRM, Assessment and Sanction functions

1. CRM

A. Preliminary CRM

Sound credit CRM involves analysis of the viability of operations of a businessand the capacity of the promoters to run it profitably and repay the bank the

dues as and when they fall

Towards this end the preliminary CRM will examine the following aspects of aproposal.

Banks lending policy and other relevant guidelines/RBI guidelines,

Prudential Exposure norms,

Industry Exposure restrictions,

Group Exposure restrictions,

Industry related risk factors,

Credit risk rating,

Profile of the promoters/senior management personnel of the project,

List of defaulters, Caution lists,

Acceptability of the promoters,

Compliance regarding transfer of borrower accounts from one bank to

another, if applicable;

Government regulations/legislation impacting on the industry; e.g., ban on

financing of industries producing/ consuming Ozone depleting substances;

Applicants status vis--vis other units in the industry,

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Financial status in broad Terms and whether it is acceptable The Companys

Memorandum and Articles of Association should be scrutinized carefully to

ensure (i) that there are no clauses prejudicial to the Banks interests, (ii) no

limitations have been placed on the Companys borrowing powers andoperations and (iii) the scope of activity of the company.

Further, if the proposal is to finance a project, the following aspects have to beexamined:

Whether project cost isprima facie acceptable

Debt/equity gearing proposed and whether acceptable Promoters ability to access capital market for debt/equity support

Whether critical aspects of project - demand, cost of production, profitability,

etc. areprima facie in order

Required Documents for Process of Loana) Application for requirement of loan

b) Copy of Memorandum & Article of Associationc) Copy of incorporation of business

d) Copy of commencement of business

e) Copy of resolution regarding the requirement of credit facilities

f) Brief history of company, its customers & supplies, previous track records,

orders In hand. Also provide some information about the directors of the

company

g) Financial statements of last 3 years including the provisional financial

statement for the year 2007-08

h) Copy of PAN/TAN number of company

i) Copy of last Electricity bill of company

j) Copy of GST/CST number

k) Copy of Excise number

l) Photo I.D. of all the directors

m) Address proof of all the directors

n) Copies related to the property such as 7/12 & 8A utara, lease/ sales deed,

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o) Bio-data form of all the directors duly filled & notarized

p) Financial statements of associate concern for the last 3 years

After undertaking the above preliminary examination of the proposal, the branchwill arrive at a decision whether to support the request or not. If the branch (a

reference to the branch includes a reference to SECC/CPC etc. as the case

may be) finds the proposal acceptable, it will call for from the applicant(s), a

comprehensive application in the prescribed proforma, along with a copy of the

proposal/project report, covering specific credit requirement of the company and

other essential data/ information. The information, among other things, should

include:

Organizational set up with a list of Board of Directors and indicating the

qualifications, experience and competence of the key personnel in charge of

the main functional areas

e.g., purchase, production, marketing and finance; in other words a brief on

the managerial resources and whether these are compatible with the size

and scope of the proposed activity.

Demand and supply projections based on the overall market prospects

together with a copy of the market survey report. The report may comment

on the geographic spread of the market where the unit proposes to operate,

demand and supply gap, the competitors share, competitive advantage of

the applicant, proposed marketing arrangement, etc.

Current practices for the particular product/service especially relating to

Terms of credit sales, probability of bad debts, etc.

Estimates of sales cost of production and profitability.

Projected profit and loss account and balance sheet for the operating years

during the

Currency of the Bank assistance.

If request includes financing of project(s), branch should obtain

additionally

a) CRM report from any other bank/financial institution in case CRM has been

done by them.

b) No Objection Certificate from Term lenders if already financed by them and60


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c) Report from Merchant bankers in case the company plans to access capital

market, wherever necessary.

In respect of existing concerns, in addition to the above, particulars regardingthe history of the concern, its past performance, present financial position, etc.

should also be called for. This data/information should be supplemented by the

supporting statements

Such as:

a) Audited profit loss account and balance sheet for the past three years (if the

latest audited balance sheet is more than 6 months old, a pro-forma balance

sheet as on a recent date should be obtained and analysed). For non-

corporate borrowers, irrespective of market segment, enjoying credit limits of

Rs.10 lacs and above from the banking system, audited balance sheet in the

IBA approved formats should be submitted by the borrowers.

b) Details of existing borrowing arrangements, if any,

c) Credit information reports from the existing bankers on the applicant

Company, and

d) Financial statements and borrowing relationship of Associate firms/Group

Companies.

B. Detailed CRM

The viability of a project is examined to ascertain that the company would

have the ability to service its Loan and interest obligations out of cash

accruals from the business. While appraising a project or a Loan proposal,

all the data/information furnished by the borrower should be counter checked

and, wherever possible, inter-firm and inter-industry comparisons should be

made to establish their veracity.

The financial analysis carried out on the basis of the companys audited

balance sheets and profit and loss accounts for the last three years should

help to establish the current viability.

In addition to the financials, the following aspects should also be examined:

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The method of depreciation followed by the company-whether the company

is following straight line method or written down value method and

whether the company has changed the method of depreciation in the pastand, if so, the reason therefore;

Whether the company has revalued any of its fixed assets any time in the

past and the present status of the revaluation reserve, if any created for the

purpose;

Record of major defaults, if any, in repayment in the past and history of past

sickness,

If any; The position regarding the companys tax assessment - whether the

provisions made in the balance sheets are adequate to take care of the

companys tax liabilities;

The nature and purpose of the contingent liabilities, together with comments

thereon;

Pending suits by or against the company and their financial implications (e.g.

cases relating to customs and excise, sales tax, etc.); Qualifications/adverse remarks, if any, made by the statutory auditors on the

companys accounts;

Dividend policy;

Apart from financial ratios, other ratios relevant to the project;

Trends in sales and profitability, past deviations in sales and profit

projections, and estimates/projections of sales values;

Production capacity & use: past and projected;o Estimated requirement of working capital finance with reference to

acceptable build up of inventory/ receivables/ other current assets;

Projected levels: whether acceptable; and

Compliance with lending norms and other mandatory guidelines as

applicable

Project financing:If the proposal involves financing a new project, the commercial, economic and

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Financial viability and other aspects are to be examined as indicated below:

Statutory clearances from various Government Depts. / Agencies

Licenses/permits/approvals/clearances/NOCs/Collaboration agreements, asapplicable

Details of sourcing of energy requirements, power, fuel etc.

Pollution control clearance

Cost of project and source of finance

Build-up of fixed assets (requirement of funds for investments in fixed assets

to be critically examined with regard to production factors, improvement in

quality of products, economies of scale etc.) Arrangements proposed for raising debt and equity

Capital structure (position of Authorized, Issued/ Paid-up Capital,

Redeemable

Preference Shares, etc.)

Debt component i.e., debentures, Term Loans, deferred payment facilities,

unsecured Loans/ deposits. All unsecured Loans/ deposits raised by the

company for financing a project should be subordinate to the Term Loans ofthe banks/ financial institutions and should be permitted to be repaid only

with the prior approval of all the banks and the financial institutions

concerned. Where central or state sales tax Loan or developmental Loan is

taken as source of financing the project, furnish details of the Terms and

conditions governing the Loan like the rate of interest (if applicable), the

manner of repayment, etc.

Feasibility of arrangements to access capital market Feasibility of the projections/ estimates of sales, cost of production and

profits covering the period of repayment

Break Even Point in Terms of sales value and percentage of installed

capacity under a

Normal production year

Cash flows and fund flows

Proposed amortization schedule

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Whether profitability is adequate to meet stipulated repayments with

reference to Debt Service Coverage Ratio, Return on Investment

Industry profile & prospects

Critical factors of the industry and whether the assessment of these andmanagement plans in this regard are acceptable

Technical feasibility with reference to report of technical consultants, if

available

Management quality, competence, track record

Companys structure & systems

Applicants strength on inter-firm comparisons

For the purpose of inter-firm comparison and other information, where necessary,

source data from Stock Exchange Directory, financial journals/ publications,

professional entities like CRIS-INFAC, CMIE, etc. with emphasis on following

aspects:

o Market share of the units under comparison

o Unique featureso Profitability factors

o Financing pattern of the business

o Inventory/Receivable levels

o Capacity utilization

o Production efficiency and costs

o Bank borrowings patterns

o Financial ratios & other relevant ratios

o Capital Market Perceptions

o Current price

o 52week high and low of the share price

o P/E ratio or P/E Multiple

o Yield (%)- half yearly and yearly

Also examine and comment on the status of approvals from other Term lenders,

market view (if anything adverse), and project implementation schedule. A pre-64


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sanction inspection of the project site or the factory should be carried out in the

case of existing units. To ensure a higher degree of commitment from the

promoters, the portion of the equity / Loans which is proposed to be brought in by

the promoters, their family members, friends and relatives will have to be brought

upfront. However, relaxation in this regard may be considered on a case to case

basis for genuine and acceptable reasons. Under such circumstances, the

promoter should furnish a definite plan indicating clearly the sources for meeting his

contribution. The balance amount proposed to be raised from other sources, viz.,

debentures, public equity etc., should also be fully tied up.

C. Present relationship with Bank:

Compile for existing customers, profile of present exposures:

Credit facilities now granted

Conduct of the existing account

Utilization of limits - FB & NFB

Occurrence of irregularities, if any

Frequency of irregularity i.e., number of times and total number of days theaccount was irregular during the last twelve months

Repayment of Term commitments

Compliance with requirements regarding submission of stock statements,

Financial

Follow-up Reports, renewal data, etc.

Stock turnover, realization of book debts

Value of account with break-up of income earned

Pro-rata share of non-fund and foreign exchange business

Concessions extended and value thereof

Compliance with other Terms and conditions

Action taken on Comments/observations contained in RBI Inspection

Reports: CO Inspection & Audit Reports

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D. Credit risk rating: Draw up rating for (i) Working Capital and (ii) Term Finance.

E. Opinion Reports: Compile opinion reports on the company, partners/ promoters

and

The proposed guarantors.

F. Existing charges on assets of the unit: If a company, report on search of

charges with

ROC.

G. Structure of facilities and Terms of Sanction:

Fix Terms and conditions for exposures proposed - facility wise and overall:

Limit for each facility sub-limits

Security - Primary & Collateral, Guarantee

Margins - For each facility as applicable

Rate of interest

Rate of commission/exchange/other fees

Concessional facilities and value thereof

Repayment Terms, where applicable

ECGC cover where applicable

Other standard covenants

H. Review of the proposal:

Review of the proposal should be done covering (i) strengths and weaknesses ofthe exposure proposed (ii) risk factors and steps proposed to mitigate them

(ii) Deviations, if any, proposed from usual norms of the Bank and the reasons

therefore

I. Proposal for sanction:

Prepare a draft proposal in prescribed format with required backup details and with

recommendations for sanction.

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J. Assistance to Assessment:

Interact with the assessor, provide additional inputs arising from the assessment,

incorporate these and required modifications in the draft proposal and generate an

integrated final proposal for sanction.

2. Assessment:

Indicative List of Activities Involved in Assessment Function is given below:

Review the draft proposal together with the back-up details/notes, and the

borrowers application, financial statements and other reports/documents

examined by the appraiser.

Interact with the borrower and the appraiser.

Carry out pre-sanction visit to the applicant company and their

project/factory site.

Peruse the financial analysis (Balance Sheet/ Operating Statement/ Ratio

Analysis/

Fund Flow Statement/ Working Capital assessment/Project cost & sources/

Break Even analysis/Debt Service/Security Cover, etc.) to see if this isprima

facie in order. If any deficiencies are seen, arrange with the appraiser for the

analysis on the correct lines.

Examine critically the following aspects of the proposed exposure.

o Banks lending policy and other guidelines issued by the Bank from time to

time

o RBI guidelines

o Background of promoters/ senior management

o Inter-firm comparison

o Technology in use in the company

o Market conditions

o Projected performance of the borrower vis--vis past estimates and

performanceo Viability of the project

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o Strengths and Weaknesses of the borrower entity.

o Proposed structure of facilities.

o Adequacy/ correctness of limits/ sub limits, margins, moratorium and

repayment scheduleo Adequacy of proposed security cover o Credit risk rating

o Pricing and other charges and concessions, if any, proposed for the facilities

o Risk factors of the proposal and steps proposed to mitigate the risk

o Deviations proposed from the norms of the Bank and justifications therefor

To the extent the inputs/comments are inadequate or require modification,

arrange for additional inputs/ modifications to be incorporated in the

proposal, with any required modification to the initial recommendation by the

Appraiser

Arrange with the Appraiser to draw up the proposal in the final form.

Recommendation for sanction: Recapitulate briefly the conclusions of the

CRM and state whether the proposal is economically viable. Recount briefly

the value of the companys (and the Groups) connections. State whether, all

considered, the proposal is a fair banking risk. Finally, give

recommendations for grant of the requisite fund-based and non-fund based

credit facilities.

3. Sanction:

Indicative list of activities involved in the sanction function is given below:

Peruse the proposal to see if the reportprima facie presents the proposal in

a comprehensive manner as required. If any critical information is not

provided in the proposal, remit it back to the Assessor for supply of the

required dat