study on business loans

8/13/2019 study on business loans

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A STUDY ON BUSINESS LOANS AT KARNATAKA BANK LTD

PES- BBM DEC2011MAY2012 1

INTRODUCTION


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FINANCE

Finance is the study of funds and management. Its general areas are business

finance, personal finance, and public finance. It also deals with the concepts of

time, money, risk, and the interrelation between the given factors. It is basically

focused on how the money is spent and budgeted. It is one of the most important

aspects in handling business. Finance addresses the methods wherein business

entities used their financial resources on a certain period of time. It is the

application of a set of techniques used by organizations in managing their

financial affairs. The income and expenditure are emphasized in finance and its

differences can easily be indicated.

Nowadays, loans have been packaged for resale. This means that the debt hasbeen bought by an investor from the bank. These bonds are sold to investors by

financial corporations who have exceeded beyond their expenditures. The

investor can now collect all the interests and be sold again through a secondary

market. Banks serve as facilitators to companies in the provision of credit and

mutual funds. Investments are managed carefully under a financial risk

management to control gambling chances of these financial assets. Financial

instruments are also used to secure these assets on securities exchanges such as

stock exchanges and bonds. A bank provokes the activities of both borrowers and

lenders. Lenders pay deposits to banks on which it pays the interest rates. The

central banks are the last resorts that handle the monetary funds. These banks

affect the interest rates being charged such as an increase in the money supply

will result to a decrease in the interest rates.

Financial capital is a monetary resource allows businesses to purchase items that

will create goods for production and other services. The budget is the

documentation of the entire entrepreneurship. The outline includes the objectives

of the business, the target sets, resulting costs, required investment, planned sales,

growth, financing source, and financial results. It can be directed on long term or

on a short term basis. The capital budget is mainly concerned with the proposedfixed asset requirements. The financing of the expenditure is also indicated in the

capital budget. A detailed plan of all the sources and cash usage is emphasized in

the cash budget. It has six main sections such as the beginning cash balance, cash

collections, cash disbursements, cash excess, cash deficiencies, financing, the

ending cash balance, and the management of current assets.

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A credit comes in various forms such as of open accounts, instalment sales, credit

cards, and supplier credits. The advantages of a credit trade are gaining loyalty and

goodwill amongst costumers, drawing in more customers than cash trades,

stimulates agricultural and industrial production, and increases rates. But there arealso disadvantages to credit trades as well such as risks of bad debt, high

administration expenses, necessitates more working capital, risks of bankruptcy

declaration, and leading to purchasing nonessential items.

An effective credit control may lead to increase in sales, increase in profits,

reduces bad debts, builds customer loyalty, and increases company capitalization.

The information on creditworthiness is acquired through credit agencies, bank

references, credit agencies, chambers of commerce, and credit application forms.Taking legal actions is one part of the many duties of the credit department.

Meanwhile, a corporate finance holds a task in providing financial resources for

certain organizations and balances risks and profitability. It is referred as SME

finance for small enterprises. Managerial finance maximizes a companys wealth

and it also values the stocks. Bonds are long-term funds created by ownership

equity and long-term credits. Short-term funding comes from a line of credit

given by banks as a working capital.

Studying finance will lead you in wiser decisions making on your financial funds.

It can help you identify risks and benefits if you are planning to put up your own

business. Finance discipline requires you certain abilities and trainings which can

be developed over a period of time. Finally, it will give you optimum control over

your financial assets which will certainly help you in attaining a financially

secured life.


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Why Finance is important to the economy?

From a macro perspective, Finance is merely the practical application of

economics. The Financial System is the means by which an economy allocates

money to its highest valued use. In English, it is how people, businesses, and

governments raise the cash needed to do business.

The goal of any financial system is to make sure that those with good ideas get

the money necessary to implement the ideas. How this is accomplished in amarket-based economy is through the stock and bond markets.

In a market-based economy, investors invest in a firm and the firm takes the

investment and uses it to implement the business ideas.

People do not give money without the expectation of getting something in return.If money is given, something is expected back in return. In this case more

money.

The way to get the most money back is to invest in firms that will put the money

to the best use. Of course others know this as well. As more invest with a firm

the value of the firm's stock rises.

In competition for more money, firms will strive to find better investments. This

leads to economic growth, more jobs, and hopefully a higher standard of living.


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FINANCIAL INSTITUTION

Infinancial economics,a financial institution is aninstitution that

providesfinancial services for its clients or members. Probably the most

important financial service provided by financial institutions is acting asfinancial

intermediaries.Most financial institutions are highlyregulatedbygovernment.

Broadly speaking, there are three major types of financial institutions:

1. Deposit-taking institutions that accept and manage deposits and makeloans,

includingbanks,building societies,credit unions,trust companies,andmortgage

loan companies.

2.

Insurance companies andpension funds;and

3. Brokers,underwriters andinvestment funds.

Financial institutions provide service as intermediaries of financial markets. They

are responsible for transferring funds from investors to companies in need of

those funds. Financial institutions facilitate the flow of money through the

economy. To do so, savings a risk brought to provide funds for loans. Such is the

primary means for depository institutions to develop revenue. Should theyield

curvebecome inverse, firms in this arena will offer additional fee-generating

services including securities underwriting, and pre. Fds.Financial institutions in most countries operate in a heavily regulated

environment as they are critical parts of countries' economies. Regulation

structures differ in each country, but typically involve prudential regulation as

well as consumer protection and market stability. Some countries have one

consolidated agency that regulates all financial institutions while others have

separate agencies for different types of institutions such as banks, insurance

companies and brokers.

Countries that have separate agencies include the United States,where the key

governing bodies are theFederal Financial Institutions ExaminationCouncil (FFIEC),Office of the Comptroller of the Currency - National

Banks,Federal Deposit Insurance Corporation (FDIC) State "non-member"

banks,National Credit Union Administration (NCUA) - Credit Unions,Federal

Reserve (Fed) - "member" Banks,Office of Thrift Supervision - National Savings

& Loan Association, State governments each often regulate and charter financial

institutions.
http://en.wikipedia.org/wiki/Financial_economicshttp://en.wikipedia.org/wiki/Institutionhttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_regulationhttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Building_societyhttp://en.wikipedia.org/wiki/Credit_unionhttp://en.wikipedia.org/wiki/Trust_companyhttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Brokerhttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Yield_curvehttp://en.wikipedia.org/wiki/Yield_curvehttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Federal_Financial_Institutions_Examination_Councilhttp://en.wikipedia.org/wiki/Federal_Financial_Institutions_Examination_Councilhttp://en.wikipedia.org/wiki/Office_of_the_Comptroller_of_the_Currencyhttp://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporationhttp://en.wikipedia.org/wiki/National_Credit_Union_Administrationhttp://en.wikipedia.org/wiki/Federal_Reserve_Systemhttp://en.wikipedia.org/wiki/Federal_Reserve_Systemhttp://en.wikipedia.org/wiki/Office_of_Thrift_Supervisionhttp://en.wikipedia.org/wiki/Office_of_Thrift_Supervisionhttp://en.wikipedia.org/wiki/Federal_Reserve_Systemhttp://en.wikipedia.org/wiki/Federal_Reserve_Systemhttp://en.wikipedia.org/wiki/National_Credit_Union_Administrationhttp://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporationhttp://en.wikipedia.org/wiki/Office_of_the_Comptroller_of_the_Currencyhttp://en.wikipedia.org/wiki/Federal_Financial_Institutions_Examination_Councilhttp://en.wikipedia.org/wiki/Federal_Financial_Institutions_Examination_Councilhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Yield_curvehttp://en.wikipedia.org/wiki/Yield_curvehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Brokerhttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Trust_companyhttp://en.wikipedia.org/wiki/Credit_unionhttp://en.wikipedia.org/wiki/Building_societyhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Financial_regulationhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Institutionhttp://en.wikipedia.org/wiki/Financial_economics


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CORPORATE FINANCE

Corporate finance is the area offinance dealing with monetary decisions

thatbusiness enterprises make and the tools and analysis used to make these

decisions. The primary goal of corporate finance is tomaximizeshareholder

value.Although it is in principle different frommanagerial finance which studies

the financial decisions of all firms, rather than corporations alone, the main

concepts in the study of corporate finance are applicable to the financial problems

of all kinds of firms.

The discipline can be divided into long-term and short-term decisions and

techniques.Capital investment decisions are long-term choices about whichprojects receive investment, whether to finance that investment

withequity ordebt,and when or whether to paydividends toshareholders.On the

other hand, short term decisions deal with the short-term balance ofcurrent

assets andcurrent liabilities;the focus here is on managing cash,inventories,and

short-term borrowing and lending (such as the terms on credit extended to

customers).

The terms corporate finance and corporate financier are also associated

withinvestment banking.The typical role of aninvestment bank is to evaluate the

company's financial needs and raise the appropriate type of capital that best fits

those needs. Thus, the terms corporate finance and corporate financier may

be associated with transactions in which capital is raised in order to create,

develop, grow or acquire businesses.
http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Shareholder_valuehttp://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Managerial_financehttp://en.wikipedia.org/wiki/Capital_investmenthttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Shareholdershttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Shareholdershttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Capital_investmenthttp://en.wikipedia.org/wiki/Managerial_financehttp://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Shareholder_valuehttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Finance


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BANK

A bank is afinancial institution and afinancial intermediary that

acceptsdeposits and channels those deposits intolending activities, either directly

or throughcapital markets.A bank connects customers with capital deficits to

customers with capital surpluses.

Banking activities

Banks act as payment agents by conductingchecking or current accounts for

customers, payingcheck drawn by customers on the bank, and collecting checks

deposited to customers' current accounts. Banks also enable customer payments

via other payment methods such asAutomated Clearing House (ACH),Wire

transfers ortelegraphic transfer,EFTPOS,andautomated teller machine (ATM).

Banks borrow money by accepting funds deposited on current accounts, by

acceptingterm deposits,and by issuing debt securities such asbanknotes

andbonds.Banks lend money by making advances to customers on current

accounts, by makinginstalment loans,and by investing in marketable debt

securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered

indispensable by most businesses, individuals and governments. Non-banks that

provide payment services such as remittance companies are not normally

considered an adequate substitute for having a bank account.

Banks borrow most funds from households and non-financial businesses, and

lend most funds to households and non-financial businesses, but non-bank lenders

provide a significant and in many cases adequate substitute for bank loans, and

money market funds, cash management trusts and othernon-bank financial

institutions in many cases provide an adequate substitute to banks for lending

savings too.
http://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Transactional_accounthttp://en.wikipedia.org/wiki/Checkhttp://en.wikipedia.org/wiki/Automated_Clearing_Househttp://en.wikipedia.org/wiki/Wire_transferhttp://en.wikipedia.org/wiki/Wire_transferhttp://en.wikipedia.org/wiki/Telegraphic_transferhttp://en.wikipedia.org/wiki/EFTPOShttp://en.wikipedia.org/wiki/Automated_teller_machinehttp://en.wikipedia.org/wiki/Term_deposithttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Installment_loanhttp://en.wikipedia.org/wiki/Non-bank_financial_institutionhttp://en.wikipedia.org/wiki/Non-bank_financial_institutionhttp://en.wikipedia.org/wiki/Non-bank_financial_institutionhttp://en.wikipedia.org/wiki/Non-bank_financial_institutionhttp://en.wikipedia.org/wiki/Installment_loanhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Term_deposithttp://en.wikipedia.org/wiki/Automated_teller_machinehttp://en.wikipedia.org/wiki/EFTPOShttp://en.wikipedia.org/wiki/Telegraphic_transferhttp://en.wikipedia.org/wiki/Wire_transferhttp://en.wikipedia.org/wiki/Wire_transferhttp://en.wikipedia.org/wiki/Automated_Clearing_Househttp://en.wikipedia.org/wiki/Checkhttp://en.wikipedia.org/wiki/Transactional_accounthttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_institution


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BANKING IN INDIA


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Banking in India originated in the last decades of the 18th century. The

first banks were The General Bank of India, which started in 1786, and Bank of

Hindustan, which started in 1790; both are now defunct. The oldest bank in

existence in India is the State Bank of India, which originated in the Bank of

Calcutta in June 1806, which almost immediately became theBank of Bengal.

This was one of the three presidency banks, the other two being theBank of

Bombay and theBank of Madras,all three of which were established under

charters from the British East India Company. For many years the Presidency

banks acted as quasi-central banks, as did their successors. The three banks

merged in 1921 to form theImperial Bank of India,which, upon India's

independence, became theState Bank of India in 1955.

Indian merchants in Calcutta established the Union Bank in 1839, but it

failed in 1848 as a consequence of the economic crisis of 1848-49. The

Allahabad, established in 1865 and still functioning today, is the oldest Joint

Stock bank in India.(Joint Stock Bank: A company that issues stock and requires

shareholders to be held liable for the company's debt) It was not the first though.

That honour belongs to the Bank of Upper India, which was established in 1863,

and which survived until 1913, when it failed, with some of its assets and

liabilities being transferred to theAlliance Bank of Simla.

When theAmerican Civil War stopped the supply of cotton

toLancashire from theConfederate States,promoters opened banks to finance

trading in Indian cotton. With large exposure to speculative ventures, most of the

banks opened in India during that period failed. The depositors lost money and

lost interest in keeping deposits with banks. Subsequently, banking in India

remained the exclusive domain of Europeans for next several decades until the

beginning of the 20th century.

Foreign banks too started to arrive, particularly inCalcutta,in the 1860s.

TheComptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and

another inBombay in 1862; branches inMadras andPondicherry,then a French

colony, followed.HSBC established itself inBengal in 1869. Calcutta was the

most active trading port in India, mainly due to the trade of theBritish Empire,

and so became a banking centre.
http://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Alliance_Bank_of_Simlahttp://en.wikipedia.org/wiki/American_Civil_Warhttp://en.wikipedia.org/wiki/Lancashirehttp://en.wikipedia.org/wiki/Confederate_Stateshttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/w/index.php?title=Comptoire_d%27Escompte_de_Paris&action=edit&redlink=1http://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Pondicherryhttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Pondicherryhttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/w/index.php?title=Comptoire_d%27Escompte_de_Paris&action=edit&redlink=1http://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Confederate_Stateshttp://en.wikipedia.org/wiki/Lancashirehttp://en.wikipedia.org/wiki/American_Civil_Warhttp://en.wikipedia.org/wiki/Alliance_Bank_of_Simlahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bengal


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LOANS

A loan is a type ofdebt.Like all debt instruments, a loan entails the redistributionof financialassets over time, between thelender and theborrower.

In a loan, the borrower initially receives or borrowsan amount ofmoney,called

theprincipal, from the lender, and is obligated topay backor repayan equal

amount of money to the lender at a later time. Typically, the money is paid back

in regular instalments, or partial repayments; in anannuity,each instalment is the

same amount.

The loan is generally provided at a cost, referred to asinterest on thedebt,which

provides an incentive for the lender to engage in the loan. In a legal loan, each of

these obligations and restrictions is enforced bycontract,which can also place the

borrower under additional restrictions known asloan covenants.Although this

article focuses on monetary loans, in practice any material object might be lent.

Acting as a provider of loans is one of the principal tasks forfinancial

institutions.For other institutions, issuing ofdebt contracts such asbonds is a

typical source of funding.
http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Assethttp://en.wiktionary.org/wiki/lenderhttp://en.wiktionary.org/wiki/borrowerhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Annuity_(finance_theory)http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Loan_covenanthttp://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Loan_covenanthttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Annuity_(finance_theory)http://en.wikipedia.org/wiki/Moneyhttp://en.wiktionary.org/wiki/borrowerhttp://en.wiktionary.org/wiki/lenderhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Debt


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Types of loans

1.

SecuredAsecured loan is a loan in which the borrowerpledges some asset (e.g. a

car or property) ascollateral.Amortgage loan is a very common type of debt

instrument, used by many individuals to purchasehousing.In this arrangement,

the money is used to purchase the property. The financial institution, however, is

given securityalien on the title to the houseuntil the mortgage is paid off

in full. If the borrowerdefaults on the loan, the bank would have the legal right to

repossess the house and sell it, to recover sums owing to it.

In some instances, a loan taken out to purchase a new or used car may be

secured by the car; in much the same way as a mortgage is secured by housing.The duration of the loan period is considerably shorteroften corresponding to

the useful life of the car. There are two types of auto loans, direct and indirect. A

direct auto loan is where a bank gives the loan directly to a consumer. An indirect

auto loan is where a car dealership acts as an intermediary between the bank or

financial institution and the consumer.

2. Unsecured

Unsecured loans are monetary loans that are not secured against the borrower'sassets. These may be available from financial institutions under many different

guises or marketing packages:

credit card debt

personal loans

bankoverdrafts

credit facilities or lines of credit

corporate bonds (may be secured or unsecured)

Theinterest rates applicable to these different forms may vary depending on thelender and the borrower. These may or may not be regulated by law. In the

United Kingdom, when applied to individuals, these may come under

theConsumer Credit Act 1974.
http://en.wikipedia.org/wiki/Secured_loanhttp://en.wikipedia.org/wiki/Pledge_(law)http://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Househttp://en.wikipedia.org/wiki/Lienhttp://en.wikipedia.org/wiki/Default_(finance)http://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Consumer_Credit_Act_1974http://en.wikipedia.org/wiki/Consumer_Credit_Act_1974http://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Default_(finance)http://en.wikipedia.org/wiki/Lienhttp://en.wikipedia.org/wiki/Househttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Pledge_(law)http://en.wikipedia.org/wiki/Secured_loan


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Interest rates on unsecured loans are nearly always higher than for secured loans,

because an unsecured lender's options for recourse against the borrower in the

event of default are severely limited. An unsecured lender must sue the borrower,

obtain a money judgment for breach of contract, and then pursue execution of thejudgment against the borrower's unencumbered assets (that is, the ones not

already pledged to secured lenders). In insolvency proceedings, secured lenders

traditionally have priority over unsecured lenders when a court divides up the

borrower's assets. Thus, a higher interest rate reflects the additional risk that in

the event of insolvency, the debt may be uncollectible.

3. Demand

Demand loans are short term loans (typically no more than 180 days) that areatypical in that they do not have fixed dates for repayment and carry a floating

interest rate which varies according to the prime rate. They can be "called" for

repayment by the lending institution at any time. Demand loans may be

unsecured or secured.

4. Subsidized

A subsidized loan is a loan on which the interest is reduced by an explicit or

hiddensubsidy.In the context of college loans in theUnited States,it refers to a

loan on which no interest is accrued while a student remains enrolled in

education.[2]Otherwise, it may refer to a loan on which an artificially low rate of

interest (or none at all) is charged to the borrower.

An unsubsidized loan is a loan that gains interest at a market rate from the date of

disbursement.
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BUSINESS LOANS

Business loans are most important for any companys survival. Money isnecessary for making growth and investment. The challenges that company face

is in actually arrange the money, and pay the debt. The first option of many

businesses is to go to the bank, but the problem is that the banks will only deal

with companies who have solid operating records.

A key point of funding that many businesses take advantage of is personal

savings. With personal savings there is no one to repay a debt to, so issues such as

interest and monthly payments become moot. Consider it a personal-favour

business loan. The obvious risk is that if your business does fail, it is your

personal funding that is taking the hit.

While money is a large part of keeping a business intact, there are many

other important aspects such as knowledge, experience, and organization.

Keeping a business plan and following a schedule can be the difference between

failure and success. When loaning your funds, take a second and think of how

much you will need and why. The cost of borrowing money can be very high in

the end.

Importance of business loans

Business and SME loans are becoming increasingly popular financing options

across the world and more and more people are going for business loans since

they need capital for their businesses and business loans can satisfy their

requirements.

Small businesses cannot build capital solely by issuing shares and debentures.

To deal with the interim requirements and fluctuating profits, and at the same

time to pay dividends to the shareholders, business loan becomes a necessity.

A business loan helps the businesses to flourish and thus it contributes to theeconomic growth of the country.


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IMPORTANCE OF BUSINESS LOANS TO BANKS

It involves only short term transactions.

No bargaining capacity is involved since the bank regulates the

interest rates according to the RBI guidelines.

It helps to create connection with other businesses.

Yields and returns are more compared to other types of loans.

Losses can be compensated since the loans provided are widely

spread.

Better rated.


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Types of business loans

Unsecured Business Loans:

In this type of loan no collateral is offered as security and loans are granted

based on ones credit history and capability to make repayments in time. It may

be difficult to get an unsecured loan but then impressive line of credit can also be

secured. What matters is credit rating of the business organization and its

repayment capability. Once this gets established, financers do not put any

restrictions on the amount granted.

Secured Business Loans:

In this type of loan, the borrower has to give some kind of guarantee that it is

going to repay back the loan in time. This guarantee normally is in the form of

collaterals wherein creditors receive some property documents from the borrower

as security for the money received. This makes it possible for the lender to get

back the amount lent out, just in case, if the borrower defaults. The assets pledged

are, however, returned back by the creditor whenever the borrower makes full

repayment of loans along with interest. Secured loan provides security to the

creditor as they can sell the collateral to regain the amount of money that is

loaned.

Trade loans:

Trade loans are made available to owners so as to help them start a new

entrepreneurship or continue with an existing one. The amount of the loan can

range from Rs. 25000 to Rs 100 lakh and it depends upon the age of the customer,

his financial standing, repayment capacity and period within which it has to be

repaid (tenure).

Professional Loans:

As the name goes, this form of loan is meant for self employed professionals like

architects, doctors, interior designers, chartered accountants, etc. This type of

loan is also unsecured in nature and cannot be given to units that are in

manufacturing, trading or processing. This form of loan can vary from Rs 25000

to 25 lakhs keeping into consideration applicants age, financial standing, and

repayment capacity. The tenure of the loan is maximum up-to 5 yrs.


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Short term business loan:

This form of loan is provided to people who all of a sudden run in a crisis

situation and need instant cash. This form of loans have short repayment periodand normally the borrower has to pay back within one year span. The loan

amount granted is substantial but then since it is provided instantly so the

repayment period is kept short.

Intermediate Business Loans:

This form of loan has a repayment period of 1 to 3 years. It is given to

entrepreneurs who are in need of capital for starting a new business, to buy

equipment, for building inventory and for increasing working capital.

Long term business loans:

This form of loan is meant for business organizations that are well established. It

allows enterprises to increase their fixed assets for business expansion and

acquisition. The loan has period of 3 to 5 years within which it has to be returned.

This form of funding can be used for start-up businesses, to provide money for

construction efforts, for purchasing land or buildings, and to support long term

working capital with sufficient funds.


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How banks set the price for loans to small businesses

Bank lending to small businesses is one of the most important services banks

undertake. Lending enables businesses to grow, take on more employees and

ultimately generate greater wealth. While the benefits of lending to small- tomedium-sized enterprises (SMEs) and to the wider society are clear, it is

important that banks can earn a return on this activity in order to sustain that

service throughout the business cycle.

Ultimately, the price of lending is determined by the market. Lending is one of

the key areas for competition as firms choose where to place their business or

switch banks: banks that overprice will lose business, while those that underprice

will not be able to sustain their operations.

There are three key drivers behind how banks price lending:

cost of funds;

cost of risk and capital; and

Administration costs.

Cost of funds

In order to lend money to businesses, banks need to attract funds from depositors

by paying them interest. They also need to aim to hold deposits for similar

lengths of time as the term of loans financed. For this reason many institutions

must pay higher interest rates for deposits.

Cost of risk and capital

For every loan a bank makes, it must set capital aside to ensure the bank remains

solvent and depositors are secure, even if that loan isnt repaid. To ensure the

confidence and security of savers, all banks around the world are currently

holding higher levels of capital than in recent years. There is a cost to holding this

capital and, as banks have increased the amount set aside, this cost has risen along

with it.

Price reflects the probabilityin the banks experience and according to its data of the borrower not being able to repay the debt. The higher the level of risk, the

higher the price must be to cover the likely loss. This amount of risk is also

influenced by the level of security offered by the borrowing, so that when the

value of security falls, such as commercial property values, the risk increases, and

vice versa. The methodology and calculations used to determine the cost

associated with the risk of lending are set by the Basel III regulatory framework.

Risk-reflective pricing enables higher-risk, but still viable businesses, to access

finance, whilst lower-risk and well-managed firms get the benefit of lower-cost

funding. Pricing to risk is in businesses interest: even more marginal businesses

can still get access to finance.


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Cost of administration

Meeting a business customer, assessing an application for finance, setting up a

facility, providing the documentation, then monitoring and controlling thatfacility as well as providing regular information and revising facilities as required

has a cost. While banks may use credit and performance-scoring tools, most will

also require a judgement to be made by an experienced relationship manager.

Smaller facilities tend to have a relatively higher administrative cost per pound

lent than larger facilities, and not all of that cost can be recovered through fees.

So small facilities tend to bear higher margins, even if the risk is comparable with

larger lending.

Changes since the financial crisis

In the run-up to 2007, some banks used the wholesale markets to source aproportion of their deposits that they lent to businesses. At the time, that money

was relatively inexpensive and enabled banks to offer lower lending prices than

was historically normal. However, from 2008, with the dramatic freezing of

wholesale markets, this source of funding proved much less attractive. This has

increased demand for other, more traditional funding sources, such as retail

deposits, which in turn has increased the costs of banks raising funds to lend to

something more like a historical norm.

Banks have also been asked by regulators to raise deposits over longer terms than

they have historically, and to hold greater liquidity buffers against unforeseen

circumstances. This means that banks must pay higher market rates for longer

term deposits, and that a higher proportion of those deposits raised cannot be lent

to customers but must be put aside, incurring additional cost.

Combined, these factors mean that (although reference rates like Bank of England

base rate and LIBOR continue to be used in quoting finance costsfor example,

two per cent over Bank of England base rate) they do not reflect the real cost of

funding and banks real costs are considerably higher.

In addition to changes in how banks fund lending, the amount of capital banks are

required to hold by regulators has risen sharply, leading to a corresponding

increase in the cost of capital that is included in the price of debt.

All these factors have considerably increased the cost to banks of providing

finance compared to the more benign economic conditions up to 2007.


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Changes in the cost of finance for SMEs

The vast majority of SMEs are paying substantially less than two years ago in

absolute terms, as a result of reductions in the Bank of England base rate (andother reference rates such as LIBOR) having been passed on to customers in full.

The Bank of England base rate is currently the lowest since World War II.


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The key aspects which bank considers before providing the business loan:

Constitution acts and laws.

Nature of the business.

What all types of business does the bank finance.

Character.

Capacity.

Credit worthiness.

Volume of the business.

Securities provided.

Performance (past and future forecast) of the security.

In case of a new company analysis of the projected financial statement.

In case of existing business 3 years financial statements along with projections for

the next two years.


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DESIGN OF THE

STUDY


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INTRODUCTION TO THE SUBJECT BACKGROUND

A business loan is funding given to business by a bank, an individual(s), or an

organization usually to be repaid by a certain date with a certain amount ofinterest. The amount of a loan, the amount of interest, the repayment date, the

qualification of the loan recipient to merit the loan, the credit analysis, and the

number of lenders used to achieve the desired loan amount are all variable.

RESEARCH DESIGN

A Research design is defined as a framework or blue print for conducting the

research project. It specifies the details of the procedures necessary for obtaining

the information needed to structure and/or solve the research problems. Thus, aresearch design lays the foundation for conducting the project effectively and

efficiently.

TITLE OF THE STUDY

A project on A Study On Business Loans At Karnataka Bank Limited.

OBJECTIVES OF THE STUDY

1. Study of mechanism of business loans.

2. Policies of banks towards business loans.

3. Securities accepted as guarantee.

4. Procedures for analysing the applications of business loans.

STATEMENT OF PROBLEM

Business loans are needed for the purpose of growth and sustenance of anenterprise. Entrepreneurs venturing into a new business or planning to see

business expansion can see things really happening in their favour if they have

enough capital to support their entrepreneurship goals. Financial institutions that

offer loans help entrepreneurs to bail themselves out of their crippled state.

Business loans are provided by banks to enterprises so as to help them meet their

short and long term financial need.


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COMPANY

PROFILE


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Company profile

Karnataka Bank Ltd, a leading A Class scheduled commercial Bank. InIndia, was incorporated on Feb 18th 1924 with a registered office at Mangalore.

The Bank commenced its business on 23rd May 1924 with an Initial Paid up

Capital of Rs. 11,580 contributed by 113 shareholders.

Sri.B.R.Vyasaraya Achar was the first president of the Bank. The Banks

memorandum of Association in its Objective Clause states that the Bank apart

from carrying on the general function of banking business, would set apart and

appropriate from the annual net profit towards the general, mental, moral and

physical advancement of other beneficial purpose of the members of the

Dravidian Brahmin community, such sums as may be deemed fit.

The first three branches of the Bank were at Mangalore Dongerkery,

Madras George, and Udupi Car Street. Sri Kalmadi Gopal Krishna had the

distinguishion of becoming the first Branch Manager. At the end of the Banks

first year of operations the Banks deposits stood at Rs. 0.68 Lakhs and advances

were Rs. 1.22 Lakhs. The Bank celebrated its Silver Jubilee in the year 1949 in its

Silver Jubilee year of operation the Bank earned a net profit of Rs. 0.75 Lakhs

with deposits of Rs.55.59 Lakhs and Advances of Rs. 39.39 lakhs.

Revenue 531.699 ( USD in Millions )

Market Cap 12820.8142206 ( Rs. in Millions )

Corporate Address P B No 599,Mahaveera

Circle,KankanadyMangalore-575002,

Karnataka

www.karnatakabank.com

Management Details Chairperson - Ananthakrishna

MD- P Jayarama Bhat

Directors- Ananthakrishna, H

Ramamohan, Harshendra Kumar, Jairama

Hande P, M Bheema Bhat, P Jayarama

Bhat, R V Shastri, S R Hedge, S V

Manjunath, Sitarama Murty M, T S

Vishwanath, TR Chandrasekaran, U R Bhat,

UR Bhat, Y V Balachandra

Business Operation Bank - Private


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Corporate Goal

The Bank has envisaged to achieve a total business turnover of Rs. 28, 500 Crore,

comprising of a deposit target of Rs. 17, 000 Crore and advance target of Rs. 1,

500 Crore for the year ending March 31, 2008.

The Bank is confident of achieving the same through better customer services and

operational efficiency. Besides, the Bank has plans to increase its total number of

business units to 580, by increasing the total number of branches to 430 and own

ATM network to 150 by March 2008.

Nature of the Business

In the words of Late Shri T.A.Pai Some people believe that Banking means

money lending and that a Banker is not but a glorified Money lender. But

Banking is not money-lending as money lender does not take the risk whereas the

Banker does. Bank is into pooling together the savings of the community

scattered all over and from the very same pool granting loans to the needy in the

society. Thus it acts as a link between the savers and the needy. Thus the two

main products of the Bank are

Deposits and

Loans.


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History

Sri.K.S.N.Adiga became the chairman of the Bank on 23rd Nov 1958. The First

real recognition for the Mangalore based Bank came in the year 1959 with theBank being elevated from C class to B Class. In the stride ofprogress and

expansion, the Bank got reinforced by the takeover of 3banks namely:

Shringeri Sharada Bank Ltd on 1st April1960.

Chitradurga Bank Ltd on December 30th 1964.

Bank of Karnataka Ltd on Dec 29th1966.

In the year 1969 the Bank opened its 75th branch where its deposits crossed Rs.

10 Crore mark to reach Rs. 12.63 Crores, Advances were at Rs. 8.90 Crore and

Net profits were Rs. 3.05 Lakhs. In year 1971 the Bank opened its first branch in

the countrys financialcapital. The following year the Bank was elevated to A

class by the Reserve Bank of India. In its Golden Jubilee year of its operation the

banks total deposits were Rs. 33.14 Crores and Advances were Rs.22.09 Crore

with 146 branches and 126 employees. In 1977 Karnataka Bank Ltd., adopted the

star symbol as its unique visual identity symbol. A product of Late Dr. Shivarama

Karanth, it symbolises stability, discipline, harmony and confidence. The Staff

Training College of the Bank was started at Mangalore Dongerkery on Sept

27th1977. In 1977 the foreign exchange Business of the bank was opened with a

separate department was established In Bangalore as central foreign exchange

department which was later shifted to Mumbai (1979).

The Bank achieved the target of Rs. 100 Crores mark in deposits with the

aggregate deposits being Rs. 104.24 Crores as on 31-12-1979. In 1980 the

Madras George Town Branch celebrated its golden jubilee. In the diamond

jubilee year of the Bank, the deposits of the bank were Rs. 211.34 Crores and

Advances was Rs. 122.22 Crores respectively. In 1989 the Banking year was

extended from 12 months to 15 months to end on 31st March. The Banks

Mumbai Borivili branch was declared as the first Model Branch of the Bank. In

1994-95 the first service branch was opened At Mumbai. The first IndustrialFinance Branch was also opened at Bangalore on 20th March 1995. The first

Agricultural Development Branch of the Bank was opened on 1stApril 1995. The

Bank made it into the stock markets on October 1995with a public issue of Rs. 81

Crores which was oversubscribed by about 2.5 times despite depressed market

condition. During the year 2003, the Bank has taken up corporate agency for

marketing the various life policies of Met Life India Insurance Company Ltd. It

has also taken up corporate agency of Bajaj Allianz General Insurance Co. Ltd for

marketing general insurance products. The banks all round excellence in the twin

parameters of growth and stability has earned it rich laurels in the form of P1+

rating for certificate of deposits from CRISIL.


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Vision, Mission, and Quality Policy

Vision

Bank is a professional managed with good track record of customer loyalty and

consistent profitability. The bank has the resilience to face the new challenges

successfully and achieve the goals in vision by its management. Adopting ethical

management practices, Bank reiterates its commitment to fulfil national and

social priorities, present sound financial and above of all else improve and

innovate to meet the challenges posed by a customer driven banking industry.

Mission

The Mission statement of any organisation generally represents its long term

goals and strategies. Every organisation must have its ownmission, which

describes present business scope of the organisation. The mission statement of

Karnataka Bank Ltd is as follows:

To be a technology savvy, customer centric progressive bank with anational

presence, driven by the highest standards of corporate governance and guided by

sound ethical values.

Quality Policy

The Quality policy of Karnataka Bank Ltd is of providing Quick and Better

service and their by achieving Customer Satisfaction.


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Product/Service Profile

Product for Financial Salaried Persons

Today, personal finance is the fastest growing segment of banks credit

Deployment. Among personal banking products, loans to salaried class, occupies

a prominent place. With this backdrop this loan product has been modified from

time to time.

The purposes for which this loan scheme can be used are Purchase

household articles/consumer durables, Childrens Education, Marriage and thread

ceremony of self/dependents, Medical expenses of self\dependents, Obsequies

Expenses, Repair to own house and any other purpose as to the satisfaction of

sanctioning authority. The quantum of loan provided shall be to a maximum of 10

times of the monthly gross salary or composite credit limit consisting of fixed

loan and overdraft not exceeding 10 times of the monthly gross salary out of

which, the overdraft component shall not exceed 5 times of the gross salary. The

loan has to be repaid with interest within 5 Years.

KBL APNA GHAR

KBL Apna Ghar scheme was introduced in November 2001, duly

reviewing/ modifying Banks erstwhile housing finance scheme. Theterms andconditions of the scheme have been reviewed/ refined from time to time. The

purpose for which loan can be provided are for construction of house/purchase of

ready built house or flat/purchase of site and build house thereon. Renovation

/remodelling/repairs to the existing house/flat.

The quantum of loan provided shall be to a maximum of 60 times of latest

monthly take home (net) salary in the case of salaried or 5 times of latest annual

Net income plus depreciation provided if any, as per P&L a/c in the case of

traders /self employed persons/professionals Or Rs. 75.00 Lakhs. Whichever isless. The quantum of loan provided in the case of renovation/remodelling/repairs.

Of the existing house /flat maximum Rs.10.00 lakh or up to 60% of the value of

the house /flat owned by the applicant, whichever is lower subject to maintaining

a margin of 25% on estimated repairs . A maximum period of 15 years (including

a repayment holiday at the option of beneficiary till the completion of

construction or 18 months from the date of first disbursal of the loan whichever is

earlier ) for construction /purchase of house/ flat, For repairs /

renovations/remodelling- Maximum period of 7 years.


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KBL-VARTHAK LOAN

It was formulated during February 2000, for financing traders/business persons.

The purpose for which KBL-Varthak loan scheme was introduced was in order toprovide for the Working Capital requirements of traders and business persons.

The maximum amount that can provided to individual trader/Businessman are Rs.

25.00 Lakh per Borrower. The repayment conditions for KBL- Varthak Loan are

that in case of Overdraft Accounts the amount has to be paid within a period of

one year and No Holiday period is given. And the loan is Repayable either in

monthly or quarterly instalments.

KBL UDYOG MITHRA

This scheme was introduced during February and the purposes for which the loan

can be availed are for

1. Purchase of Medical Equipment/ Machineries/ Computers,

2. Furnishing the Office, Purchase of Furniture, Books etc.

3. Payment of Advance rent for setting up of an Office.

The maximum Amount of loan facility that can be availed is as follows:

Maximum amount up to 90% of the cost of assets to be purchased.

Maximum amount up to 80% of the cost in the case of purpose specified under

2 and 3. For setting up of an office Doctors, Chartered Accountants, Engineering

consultants the maximum quantum of Advance is restricted to:

1. Rs. 75,000in case of rural branches

2. Rs. 1, 00,000in case of Semi-urban branches.

3. Rs. 1, 50,000in the case of urban branches.

4. Rs. 2, 00,000in the case of Metropolitan branches.

VIDYANIDHI EDUCATIONAL LOAN SCHEME

Was introduced in the year 1998 on the occasion of platinum Jubilee Year

of the Bank .The scheme was designed to provide financial support to the

reserving and meritorious students for continuing their studies in India and

abroad. The amount of loan facility which are provided for students studying in

India is a Maximum of Rs. 7.50 Lakh and for students studying abroad it is a

Maximum Rs. 15.00 Lakh repayment holiday/moratorium is course period +1

year or 6 months after getting job in earlier. The interest is to be debited on

simple basis during repayment holiday/moratorium period. Thereafter on

compounding basis with monthly rests. The loan has to be repaid in 5 to 7 years

after commencement of repayment.


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KBL EASY RIDE

The scheme was formulated during October 2001 for the purchase of two

wheelers. The loan scheme was introduced for the purpose of acquisition of newtwo wheelers of popular brand and make (such as Bajaj, Hero Honda, TVS,

Kinetic, Honda etc.).

1. Maximum amount of loan that can be availed under this facility is 1. 15 times of

net take home salary in the case of salaried persons, Or

2. Equivalent of annual gross income declared in the case of professionals /

businessmen/ self-employed persons, or

3. Maximum up to 100% of the invoice value of the vehicle excluding Comp.

Insurance, Road Tax and extra fittings 1, 2, and 3 whichever is less. However, the

maximum amount of loan that can be considered as fixed at Rs. 75,000/- per

borrower. The loan has to be repaid within a Maximum period of 60 months.

KBL- KRISHIK SARATHI SCHEME

The KBL- Krishik Sarathi Scheme was introduced for purchase of Farm

machineries like Tractor/Power Tiller, Trailer/other implements, Harvester,

Sprayer/ Duster/Other Farm Machineries and Farm vehicles by Agriculture. A

Maximum amount of loan is up to 90% of the cost (excluding Tax, Registration

& Insurance) of new farm Machinery/Vehicle Max Limit Rs. 10.00 Lakh. Theloan amount has to be repaid within 9 years. In case of Tractor/combine in case of

Power Tillers /Threshers its 7 years in case of other Implements /Machineries/ 2

wheelers its 5 years and in case of Farm Vehicles (4 wheelers) its 7 years.

KBL KRISHIK SICHANA SCHEME

The Purpose of the scheme is to provide for all types of Minor Irrigation

development works like Purchase of oil engine/Electric Pump

sets/Drip/Sprinkler/Other Irrigation Systems including purchase of pipes /

Generators. / Repair or replacement of irrigation system/Generators, open well,

Bore well, Tube well. A Maximum amount of up to 85% of the cost of new

irrigation equipments or 60% of the Land value whichever is less. And Max.

Limit being Rs.5.00lakhs. The loan amount has to be repaid between5-7 years.


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Competitors

THE MAJOR PLAYERS (INCLUDING PUBLIC, PRIVATE, AND

FOREIGN SECTOR).

Public Sector Banks

1. Bank of Baroda,

2. State Bank of India,

3. Canara Bank,

4. Punjab National Bank,

5. Allahabad Bank.

Private Sector Banks

1. HDFC Bank,

2. ICICI bank,

3. Kotak Mahindra Bank,

4. UTI Bank.

Foreign Sector Banks

1. Citi Bank,

2.

Standard Chartered PLC,

3. HSBC Bank,

4. ABN AMRO Bank,

5. American Express.


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CompanySales

(Rs.Million)

Current

Price

Change

(%)

P/E

Ratio

Market

Cap.(Rs.Million)

52-Week

High/Low

HDFC Bank 199282.12 437.60 -1.22 22.83 1024187.40 520/396

ICICI Bank 259740.53 721.95 -0.71 14.54 832073.92 1158/641

Axis Bank 151548.06 878.50 0.60 9.60 362446.96 1461/810

Kotak

Mahindra

Bank

43035.58 456.70 -1.46 35.59 337578.56 515/333

Indusind Bank 35893.57 239.60 -2.22 16.00 111829.03 292/181

Yes Bank 40417.47 252.00 -2.02 10.49 88686.35 341/234

Centurion Bk

of Punj12685.30 41.40 0.00 52.93 78932.68 43/41

Federal Bank 40520.28 352.20 -1.99 9.24 60242.93 477/326

ING Vysya

Bank26940.64 290.00 -0.15 11.33 43459.66 390/275

Karur Vysya

Bank22176.95 345.45 -1.57 8.08 37039.49 479/344

Bank of Raj 13594.89 212.10 1.80 0.00 34222.35 214/207

J&K Bank 37131.32 692.25 0.26 4.88 33558.76 915/645

South Indian

Bank24460.17 20.55 0.00 6.94 23223.83 26/17

Standard

Chartered63524.25 75.20 -0.53 0.88 18048.00 135/69

City Union

Bank12184.08 41.90 4.10 6.96 17068.19 51/36

Karnataka

Bank23708.47 68.10 -1.66 5.82 12820.81 155/66

Lakshmi Vilas

Bank10648.36 83.45 0.91 7.62 8138.53 130/80

Devp Credit

Bank5362.62 34.60 -1.98 16.63 6930.61 66/33

Dhanlakshmi

Bank9064.18 48.65 -0.61 15.83 4141.88 136/46


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Organisation structure


37/81



Balance sheet of KBL

Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Sources of funds

Owner's fund

Equity share capital 188.20 133.99 121.58 121.35 121.35

Share application money - - - - -

Preference share capital - - - - -

Reserves & surplus 2,240.89 1,698.76 1,445.44 1,258.25 1,117.27

Loan funds

Secured loans - - - - -

Unsecured loans 27,336.45 23,730.65 20,333.29 17,016.19 14,037.44

Total 29,765.53 25,563.40 21,900.31 18,395.80 15,276.06

Uses of funds

Fixed assets

Gross block 328.91 313.85 292.41 261.65 235.50

Less : revaluation reserve - - - - -

Less : accumulated depreciation 183.38 165.77 153.92 141.88 128.68

Net block 145.53 148.08 138.49 119.77 106.82

Capital work-in-progress - - - - -

Investments 11,506.34 9,992.05 8,961.49 5,963.71 5,048.16

Net current assets

Current assets, loans & advances 707.01 653.80 487.05 430.11 353.34

Less : current liabilities & provisions 841.14 1,130.12 953.52 801.83 525.71

Total net current assets -134.13 -476.32 -466.47 -371.71 -172.38

Miscellaneous expenses not written - - - - -

Total 11,517.74 9,663.81 8,633.50 5,711.77 4,982.61


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Capital structure (in crores)

From

Year

To

Year

Class Of

Share

Authorized

Capital

Issued

Capital

Paid Up

Shares (Nos)

Paid Up

Face

Value

Paid

Up

Capital

2010 2011

Equity

Share 200.00 188.22 188190652 10 188.19

2009 2010

Equity

Share 200.00 134.00 133976322 10 133.98

2008 2009

Equity

Share 200.00 121.60 121574878 10 121.57

2007 2008Equity

Share 150.00 121.40 121343548 10 121.34

2006 2007EquityShare 150.00 121.40 121343548 10 121.34

2005 2006

Equity

Share 150.00 121.40 121260348 10 121.26

2004 2005

Equity

Share 150.00 121.40 121240348 10 121.24

2003 2004

Equity

Share 50.00 40.48 40424716 10 40.42

2002 2003

Equity

Share 50.00 40.48 40416966 10 40.42

2001 2002

Equity

Share 20.00 13.51 13486222 10 13.49

2000 2001Equity

Share 20.00 13.51 13486222 10 13.49

1998 1999

Equity

Share 20.00 13.51 13486222 10 13.49

1997 1998

Equity

Share 20.00 13.51 13502772 10 13.50

1996 1997

Equity

Share 20.00 13.51 13502772 10 13.50

1995 1996

Equity

Share 20.00 13.50 13501310 10 13.50

1994 1995

Equity

Share 20.00 4.50 4500000 10 4.50

1978 1979

Equity

Share 1.00 0.50 250000 20 0.50


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SWOT Analysis

1. Strength

Karnataka Bank Ltd. has posted a net profit of Rs.90.86 crore for the SIX monthsperiod ended September, 2011 as against Rs. 75.20 Crore as at 30.09.2010

showing a growth rate of 20.82%.

The business Turnover of the bank has touched Rs. 47916 crore registering a

growth of 17.65 % on a year-on-year basis. The deposit of the bank grew from

Rs. 25045 Crore to Rs. 28849 Crore (15.19% increase) and advances grew from

Rs. 15683 Crore to Rs. 19067crore (21.58 % increase).

The half yearly Gross income of the bank has increased from Rs. 1248.74 Crore

to Rs. 1609.22 Crore recording a growth rate of 28.87%. The operating profit of

the Bank has increased from Rs. 151.11crore to Rs. 223.79 Crore showing a

growth rate of 48.10%. The Net Interest Income has increased by 34.57% on a

year-on-year basis to Rs. 335.33 Crore from Rs. 249.19 Crore.

The capital adequacy ratio of the Bank stood at 12.85% (under Basel II) as at the

end of September, 2011.

The Bank has retained its "A1+" (pronounced as A one plus) Rating to its

Certificate of Deposits programme of Rs. 2000 Crore. This rating is the highest-

credit-quality rating assigned by ICRA to short term debt instruments.

Instruments rated in this category carry the lowest credit risk in the short term.

The Bank has a wide range of technology backed services such as MoneyplantTM

International Debit Card, Internet banking facility, e-shopping, online railway

ticket booking, VISA bill payment, etc.

2. Weakness

Less reach across country in terms of ATMs, branches as compared to.

Brand visibility is less due to lack of advertising.


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3. Opportunities

The Bank has its presence in 20 States and 2 Union Territories of the country has

486 Branches and 299 ATMs as on date. The Bank has plans to increase thenumber of branches to above 500 and take the tally of its ATMs to 325 by March

2012.

All the 486 branches have been networked under core banking solution covering

100% business.

The Bank is tech savvy and is keen on upgrading its technology-driven offerings

periodically to meet the varying needs and demands of its clients and be at par

with other leading private and public sector banks in the country.

The Bank by networking all its branches under Core Banking solution is offering

Anytime Anywhere banking facility to its customers.

The Bank has introduced a slew of new products which include Point of Sale

(POS) terminal facility also.

The Bank has a strategic tie up with M/s Way2Wealth Brokers Pvt. Ltd. for

providing Online Trading facility. Way2Wealth Online trading platform is

available to the Karnataka Bank's account holders. It will enable the customers of

the bank to trade from any Internet-enabled location.

Bank has bagged the Best Bank Award for "Managing IT Risk" under small

bank category for the year 2010-11, instituted by Institute for Development and

Research in Banking Technology (IDRBT).

This is for the second consecutive year that the Bank has won the award. The

Bank had bagged "Special Award for use of IT for Internal effectiveness" for the

year 2009 instituted by IDRBT.

The Bank which is tech savvy is the first private sector bank to have introduced

core banking solution way back in 2000. The Bank which has adopted

"FINACLE" designed and developed by the IT major Infosys Technologies has

networked all its existing 483 branches thereby ensuring Anywhere Anytime

banking facility to its customers.

The Bank proposes to introduce Gift card, Travel card and ASBA (Application

Supported by Blocked Amount) facilities for its customers during the currentfinancial year.

4. Threats

Economic slowdown

Highly competitive environment

Stringent Banking Norms.


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DATA ANALYSIS

AND

INTERPRETATION


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1.0 Analysis on the basis of Type of business:

This data analysis was made to find out what types of business are they

currently running i.e. the nature of business they are running and the activities

they are into.

ANALYSIS

According to this table we came to know that majority of the business concerns

are trading businesses. The next highest is the manufacturing businesses and

remaining consists of distributing firms and others like (professionals).It is

represented graphically:

SPECIFICATIONS REPONDENTS %

MANUFACTURING 13 26%

TRADING 28 56%

DISTRIBUTION 08 16%

OTHERS 01 02%


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INTERPRETATION

The above graph shows that majority of the business concerns who haveborrowed loans from the bank are trading based companies (56%). This shows

the market side of the business loan category. The manufacturing units or

concerns are next to follow (26%) followed by the firms who involve in

distribution activities. Others (2%) refer to private agencies etc.

MANUFACTURI

NG26%

TRADING

56%

DISTRIBUTION

16%

OTHERS

2%

Type of business


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1.1 Analysis on the basis of form of business:

This data analysis was made to find out what form of business are they

currently running i.e. the ownership pattern of business they are running.

ANALYSIS


are single or sole proprietorship businesses. The next highest partnership

businesses and remaining consists of private and public limited companies. It is



SOLE

PROPRIETORSHIP

28 56%

PRIVATE LTD 03 06%

PARTNERSHIP 18 36%

PUBLIC CO 01 02%


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INTERPRETATION

The above graph shows that most of the companys ownership patterns are based

on sole proprietorship i.e. single ownership led company (56%). The next highest

are the partnership based company (36%). The least of the sample indicates the

private and public limited companies.

SOLE

PROPRIETORSHI

P

56%

PRIVATE LTD

6%

PARTNERSHIP

36%

PUBLIC CO

2%

Form of business


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1.2 Analysis on the basis of term of the business:

This data analysis was made to find the term of the business i.e. the

duration through which the business has been running.

ANALYSIS

According to this table we can infer that there is narrow gap in the sample size

between the business concerns running from (35 years and 510 years). And

the business running from past ten years are in minority. It is represented

graphically:


< 3 YEARS 05 10%

35 YEARS 19 38%

510 YEARS 18 36%

ABOVE 10

YEARS

08 16%


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INTERPRETATION

From the above graph we can say that business concerns running from 3-5 yearsand 5-10 years are in majority of the sample collected. The minority percentage is

gained by the business concerns whose life span is less than 3 years.

< 3 YEARS

10%

35 YEARS

38%510 YEARS

36%

ABOVE 10

YEARS16%

Term of the business


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1.3 Analysis to find out the purpose for borrowing the loan:

This data analysis is made to find out the various purposes for which the

business loan has been availed by the business concern.

ANALYSIS

According to the table we can conclude that majority of the sample size borrow

loans for the purpose running current business i.e. day to day business

transactions, working capital etc. Funds are also borrowed for the purpose of

expanding the business. It is represented graphically:


STARTING NEW

BUSINESS

07 14%

EXPANSION 12 24%

RUNNING

CURRENT

BUSINESS

29 58%

OTHERS 02 04%


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INTERPRETATION

From the above graph we can say that more than half of the majority (58%)

borrows business loans for the purpose of running current business activities. The

next highest percent is used for expanding the scale of business and the remaining

is distributed for starting up of a new business and other purposes like

modernisation, new product line (diversification).

STARTING NEW

BUSINESS

14%

EXPANSION

24%

RUNNING

CURRENT

BUSINESS

58%

OTHERS

4%

Purpose for borrowing loan


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1.4 Analysis to find out about the amount of loan borrowed:

This data analysis is made to find out the limit of loan borrowed by the

business concern from the bank.

ANALYSIS

According to the table we came to the conclusion that most of the business

concerns have borrowed smaller limit of loan (1030 Lakhs). And there is a

moderate borrowing in the range from (3060 Lakhs).and there is also a high

percentage of borrowers who have borrowed more than one Crore. It is



1030 LAKHS 20 40%

3060 LAKHS 16 32%

6090 LAKHS 03 06%

1 CRORE AND

ABOVE

11 22%


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INTERPRETATION

From the above graph we can infer that majority of the sample size are borrowers

who have borrowed mostly from the range of 1060 lakhs. There is also a high

percentage of borrowers who have borrowed from the range of 1 Crore and

above.

1030 LAKHS

40%

3060 LAKHS

32%

6090 LAKHS

6%

1 CRORE AND

ABOVE

22%

Amount of Loan borrowed


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1.5 Analysis on the basis of type of business loan borrowed:

This data analysis was made to find what kind of business loan is

borrowed by the business concern.

ANALYSIS

According to this table we can conclude that majority of the survey have opted

for overdraft facility. After the overdraft majority prefer to borrow term loan.

While only a minority of the sample prefer bank guarantee and letter of credit. It

is represented graphically:


CASH CREDIT/

OVERDRAFT

27 54%

TERM LOAN 12 24%

BANK

GUARANTTEE

06 12%

LETTER OF

CREDIT

05 10%


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INTERPRETATION

According to the above graph the majority of the borrowers opt for overdraft/cash

credit facility because it is short term in nature and fund can be raised in quick

time. Business concerns also prefer to go for term loan because of the fixed time

periods of payments and fixed interest rates.

CASH CREDIT/

OVERDRAFT

54%TERM LOAN

24%

BANK

GUARENTTEE

12%

LETTER OF

CREDIT

10%

Type of business loan borrowed


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1.6 Analysis on the basis of time taken to process the loan:

This data analysis was made to find the total time taken by the bank to

analyse, process, and sanction the loan to the business concern.

ANALYSIS

According to the table we can say that majority are of the opinion that it takes a

fortnight to a month to process and sanctioning of the loan. The latter feel that it

takes 1 week to fortnight to process the loan, while others feel that it takes more

than a month to process the loan. It is represented graphically:



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INTERPRETATION

According to the above graph we can infer that majority of the customers think

that the time taken by the bank to process the loan is fortnight to a month while

the next higher majority feels that the bank takes more than a month to process

the business loan.


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1.7 Analysis on the basis of opinion on interest charged :

This data analysis was made to find what the customers think about the

interest rate that is charged to them in comparison to other banks and the current

market trend.

ANALYSIS


think that the interest rate charged to them is moderate. The next higher majority

says that the interest rate charged by the bank is quite high. While only a minority

thinks that the interest rate is very high. It is represented graphically:


VERY HIGH 03 06%

HIGH 18 36%

MODERATE 26 52%

LOW 03 06%


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INTERPRETATION

The above graph shows that more than half of the total sample thinks that the

sample rate charged by the bank is moderate when compared to other banks. The

next opinion says that the interest rate charged is high followed by those concerns

who feel the interest rate is quite low. The least of the sample size shows that the

concerns feel that the interest rate is very high.

VERY HIGH

6%

HIGH

36%

MODERATE

52%

LOW

6%

Opinion on interest rate charged


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1.8 Analysis on the basis of type of security mortgaged:

This data analysis was made to find the type of property mortgaged as

security in order to obtain the loan.

ANALYSIS

According to the table majority of the business concerns while obtaining a

particular business loan keep commercial property as security. The next higher

percentages of customers keep industrial property as security. It is represented

graphically:

SPECIFICATIONS RESPONDENTS %

VACANT LAND 08 16%

RESIDENTIALPROPERTY

09 18%

COMMERCIAL

PROPERTY

17 34%

INDUSTRIAL

PROPERTY

13 26%

PLEDGE OF

DEPOSITS

03 06%


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INTERPRETATION

From the above graph we can conclude that most of the customers have pledged

their commercial property as security to obtain the loan, while few others have

pledged the securities in the form vacant land, industrial property, residential

property, and pledging of deposits.

VACANT LAND

16%

RESIDENTIAL

PROPERTY

18%

COMMERCIALPROPERTY

34%

INDUSTRIAL

PROPERTY

26%

DEPOSITS

6%

Type of propert motgaged as security


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1.9 Analysis on the basis of reason for borrowing the loan from KBL:

This data analysis was made to find the reason for which the particular

business concern has borrowed the loan from Karnataka Bank Limited.

ANALYSIS

According to this table we can say that the majority of business concerns prefer to

borrow business loans from KBL because of the rate of interest offered by the

bank and quality of service provided by them. It is represented graphically:


RATE OF

INTEREST

20 40%

SERVICES 20 40%

PROXIMITY OF

BRANCH

08 16%

OTHERS 02 04%


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INTERPRETATION

From the above graph we can infer that majority of the customers of KBLappreciate the bank for the quality of the services provided by them and the rate

of interest. While the minority states that proximity or availability of various

branches as the reason to opt for KBL.

RATE OF

INTEREST

40%

SERVICES

40%

PROXIMITY OF

BRANCH

16%

OTHERS

4%

Reason for borrowing the loan from KBL


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INTERPRETATION

From the above graph we can infer that majority of KBLS customers have been

with them from past 5-10 years. There is also a significant percent of customers

(16%) who have been availing the services of the bank since more than 10 years.

< 1 YEAR

8%

15 YEARS

30%

510 YEARS

46%

ABOVE 10

YEARS

16%

Duration with KBL


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2.1 Analysis on the basis of sources of loan awareness:


interest rate that is charged to them in comparison to other banks and the current

market trend.

ANALYSIS

According to the table majority of the information about the business loan has

been obtained from friends and relatives (informal circle) and the next higher

percentage indicates that information is obtained from print media. It is



FRIENDS/RELATIVES 20 40%

PRINT MEDIA 15 30%

COLLEAGUES 07 14%

BANK OFFICIALS 08 16%


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INTERPRETATION

The above graph shows that around 40% of the information about the loan has

been obtained from friends and relatives; the next medium through which

information about the loan is obtained is from print media. Print media refers to

news papers, journals, magazines, pamphlets etc. There is a small gap of 2%

between the colleagues and bank officials. Bank officials refer to interaction of

the borrowers with the banks authority.

PRINT MEDIA

30%

BANK OFFICIALS

16%

FRIENDS/RELATIVES

40%

COLLEAGUES

14%

Sources of loan awareness


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2.2 Analysis to find out the opinion about the banks post loan services:


post loan services provided to them by the bank in comparison to other banks and

the current market trend.

ANALYSIS

According to the table we came to the conclusion that more than half of the

sample size say the post loan services of the bank has been good and up to the

mark. And 20% of the business entities say that the post loan services of the bank

has been excellent. A few of them suggest certain major changes and grade the

post loan services as average. It is represented graphically:

SPECIFICATIONS REPONDENTS PERCENTAGE

EXCELLENT 09 20%

GOOD 26 52%

AVERAGE 12 24%

POOR 03 06%


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INTERPRETATION

From the above graph we can infer that more than half of the

study on business loans

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