29-12-2012, 04:45 PM
PROJECT ON CREDIT APPRAISAL
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EXECUTIVE SUMMARY
The credit appraisal is a holistic exercise which starts from the time a prospective borrower walks into the branch and culminates in credit delivery and monitoring with the objective of ensuring and maintaining the quality of lending and managing credit risk.The process of credit appraisal is multidimensional and includes management appraisal, Technical appraisal, Commercial appraisal, Financial appraisal and economic appraisal. Management appraisal is receiving a lot of attention these days as it is one of the long term factors affecting the business of the concern. Technical appraisal emphasizes on the technical feasibility of the venture and also finds out the possible economic life period of the present technology. Commercial appraisal focuses on the commercial viability of the project. It tries to find matters regarding demand in market, the acceptance of product in the market. It also focuses on the presence of other substitutes of the product in the market. It also focuses on the multiple scope of product. Financial appraisal is done to find out whether the promoter is having the capacity to raise finance-both own equity and debt? What are the sources of margin? Will the business generate sufficient funds to service the debts and other stakeholders? Is the capital structure optimal?
INTRODUCTION
The root cause of financial crisis in India is credit default of big companies and individuals which has badly impacted world economy. Therefore credit worthiness has become very important for any financial institution for providing any kind of credit facility. A credit appraisal is an important part of determining the eligibility for a home loan and the quantum of the loan. A prospective borrower has to go through the various stages of the credit appraisal process of the bank. Each bank has its own criteria to satisfy itself on the credit appraisal of the borrower.
OBJECTIVE OF THE PROJECT
The project is to analyze the credit appraisal process of Punjab National Bank and how the credit worthiness of a borrower is determined on the basis of the norms and standards of the bank.The credit worthiness basically assures the repayment capacity of the borrower- whether the borrower is capable of repaying the loan and dues on time.
BANKING SYSTEM
A bank is a financial institution that provides banking and other financial services to their customers. A bank is generally understood as an institution which provides fundamental banking services such as accepting deposits and providing loans. There are also nonbanking
institutions that provide certain banking services without meeting the legal definition of a bank. Banks are a subset of the financial services industry. A banking system also referred as a system provided by the bank which offers cash management services for customers, reporting the transactions of their accounts and portfolios, through out the day. The banking system in India, should not only be hassle free but it should be able to meet the new challenges posed by the technology and any
other external and internal factors. For the past three decades, India’s banking system has several outstanding achievements to its credit. The Banks are the main participants of the financial system in India. The Banking sector offers several facilities and opportunities to their customers. All the banks safeguards the money and valuables and provide loans, credit, and payment services, such as checking accounts, money orders, and cashier’s cheques. The banks also offer investment and insurance products. As a variety of models for cooperation and integration among finance industries have emerged, some of the
traditional distinctions between banks, insurance companies, and securities firms have diminished. In spite of these changes, banks continue to maintain and perform their primary role—accepting deposits and lending funds from these deposits.
CLASSIFICATION OF BANKS IN INDIA
Indian banking industry has been divided into two parts, organized and unorganized sectors. The organized sector consists of Reserve Bank of India, Commercial Banks and Co-operative Banks, and Specialized Financial Institutions (IDBI, ICICI, IFC etc). The unorganized sector, which is not homogeneous, is largely made up of money lenders and
indigenous bankers.
An outline of the Indian Banking structure may be presented as follows:-
1. Reserve banks of India.
2. Indian Scheduled Commercial Banks.
a) State Bank of India and its associate banks.
b) Twenty nationalized banks.
c) Regional rural banks.
d) Other scheduled commercial banks.
3. Foreign Banks
4. Non-scheduled banks.
5. Co-operative banks.
Reserve bank of India
The reserve bank of India is a central bank and was established in April 1, 1935 in accordance with the provisions of reserve bank of India act 1934. The central office of RBI is located at Mumbai since inception. Though originally the reserve bank of India
was privately owned, since nationalization in 1949, RBI is fully owned by the Government of India. It was inaugurated with share capital of Rs. 5 Crores divided into shares of Rs. 100 each fully paid up.
RBI is governed by a central board (headed by a governor) appointed by the central government of India. RBI has 22 regional offices across India. The reserve bank of India was nationalized in the year 1949. The general superintendence and direction of the bank is entrusted to central board of directors of 20 members, the Governor and four deputy Governors, one Governmental official from the ministry of Finance, ten nominated directors by the government to give representation to important elements in the economic life of the country, and the four nominated director by the Central Government to
represent the four local boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Board consists of five members each central government appointed for a term of four years to represent territorial and economic interests and the interests of cooperative and indigenous banks.
COMMERCIAL BANKS AND ITS OBJECTIVES
A commercial bank is a type of financial intermediary that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits. Some use the term "commercial bank" to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses. This is what people normally call a "bank". The term "commercial" was used to distinguish it from an investment bank.
Commercial banks are the oldest, biggest and fastest growing financial intermediaries in India. They are also the most important depositories of public savings and the most important disbursers of finance. Commercial banking in India is a unique banking system, the like of
which exists nowhere in the world. The truth of this statement becomes clear as one studies the philosophy and approaches that have contributed to the evolution of banking policy, programmes and operations in India.
The banking system in India works under constraints that go with social control and public ownership. The public ownership of banks has been achieved in three stages: 1995, july 1969 and April, 1980. Not only the public sector banks but also the private sector and foreign banks are required to meet the targets in respect of sectoral deployment of credit, regional distribution of branches, and regional credit deposit ratios. The operations of banks have been determined by lead bank scheme, Differential Rate of interest scheme, Credit authorization scheme, inventory norms and lending systems prescribed by the authorities, the formulation of credit plans, and service area approach.
Commercial Banks in India have a special role in India. The privileged role of the banks is the result of their unique features. The liabilities of Bank are money and therefore they are important part of the payment mechanism of any country. For a financial system to mobilize and allocate savings of the country successfully and productively and to facilitate day-to-day transactions there must be a class of financial institutions that the public views are as safe and convenient outlets for its savings. The structure and working of the banking system are
integral to a country’s financial stability and economic growth. It has been rightly claimed that the diversification and development of Indian Economy are in no small measure due to the active role banks have played financing economic activities of different sectors.