Credit Appraisal & Risk Analysis

A Project Study Report On Training Undertaken at PUNJAB NATIONAL BANK, JAIPUR

Titled CREDIT APPRAISAL AND RISK ANALYSIS

Submitted in partial fulfillment for the Award of degree of

Bachelor of Business Administration

University of Rajasthan
2012-2013
Submitted To: Aarti Chopra Submitted By: Tarun Bagra (BBA Sem-IV)

Lecturer Bhavans College of Communication & Management, Jaipur (Raj.)

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Credit Appraisal & Risk Analysis

INDEX
SR. No.
1 2 3 4

Particulars Preface Acknowledgement Introduction to industry Introduction organization to the

Page No.
3 4 5 15

5 6 7

Research methodology Study of title Data analysis interpretation and

23 27 46

8 9 10 11

Swot Analysis Findings and conclusion Recommendations by RBI Bibliography

53 55 57 60

Credit Appraisal & Risk Analysis

PREFACE
Classroom teaching helps the student by making conceptual base clear, but on the job training is the practical way, which helps the students to get the practical knowledge of the concept. Normally the students are not aware of actual requirement in the practical field keeping in view this fact, a system of summer training is has been established to make the students aware of actual difficulties that come in the way of practical field, which is not taught in classroom teaching so, the students are given practical training in the course of their education. Training at Punjab National Bank, has given me a great experience. I was required to prepare a training report on the topic Credit Appraisal & Risk Analysis The managers of Retail & Credit department helped me a lot to prepare this report. I have tried my best to prepare this report during the very short training period.

Credit Appraisal & Risk Analysis

ACKNOWLEDGEMENT

I would like to thank Punjab National Bank, JAIPUR for providing me an opportunity to work on my summer project. I would like to thank Mr. B.S Saxena (Manager) and Mr. S.L Meena (Manager) for providing me continuous guidance & support and for his valuable inputs during the course of my project. The staff at Punjab National Bank was very co-operative and helped me a lot by providing required information as and when I needed it. I am thankful to my Faculty Guide Mrs. Aarti Chopra for her continuous support and guidance. And finally I would like to thank the entire faculty at Bhavans College of Communications & Management, JAIPUR for equipping me to carry out this study.

Credit Appraisal & Risk Analysis

CHAPTER-1 INTRODUCTION TO INDUSTRY

Credit Appraisal & Risk Analysis Bank may be defined as a financial institution which is engaged in the business of keeping money for savings and checking accounts or for exchange or for issuing loans and credit etc. A set of services intended for private customers and characterized by a higher quality than the services offered to retail customers. Based on the notion of tailor-made services, it aims to offer advice on investment, inheritance plans and provide active support for general transactions and the resolution of asset-related problems. The essential function of a bank is to provide services related to the storing of deposits and the extending of credit.Basic function may include Credit collection, Issuer of banking notes, Depositor of money and lending loans.

Now a days banking is not in its traditional way , with the advancement of technology its focusing on more comfort of customer providing services such as: online banking investment banking electronic banking internet banking pc banking /mobile banking e-banking

The importance of banking sector is immense in the progress and prosperity of any State or country.

A Brief History
Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking 6

Credit Appraisal & Risk Analysis functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively

Origin of the Industry

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 the Bank of Hindustan, both of which 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 the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1925 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India. 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 Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India. It was not the first though. That honor 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 the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to 7

Credit Appraisal & Risk Analysis 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 in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondichery, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to

Credit Appraisal & Risk Analysis the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. The fervor of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking".

Nationalization of Banks
By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalise the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August, 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

Credit Appraisal & Risk Analysis The nationalized banks were credited by some, including Home minister P. Chidambaram, to have helped the Indian economy withstand the global financial crisis of 2007- 009

Growth and Present Status of Banks

In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation techsavvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 49% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India. People not just demanded more from their banks but also received more. Currently (2010), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. 10

Credit Appraisal & Risk Analysis With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.

Future of Banking Sector and Initiated Reforms

Financial sector reforms were initiated as part of overall economic reforms in the country and wide ranging reforms covering industry, trade, taxation, external sector, banking and financial markets have been carried out since mid 1991. A decade of economic and financial sector reforms has strengthened the fundamentals of the Indian economy and transformed the operating environment for banks and financial institutions in the country. The sustained and gradual pace of reforms has helped avoid any crisis and has actually fuelled growth. As pointed out in the RBI Annual Report 2001-02, GDP growth in the 10 years after reforms i.e. 1992-93 to 2001-02 averaged 6.0% against 5.8% recorded during 1980-81 to 1989-90 in the pre-reform period. The most significant achievement of the financial sector reforms has been the marked improvement in the financial health of commercial banks in terms of capital adequacy, profitability and asset quality as also greater attention to risk management. Further, deregulation has opened up new opportunities for banks to increase revenues by diversifying into investment banking, insurance, credit cards, depository services, mortgage financing, securitisation, etc. At the same time, liberalisation has brought greater competition among banks,both domestic and foreign, as well as competition from mutual funds, NBFCs, post office, etc. Post-WTO, competition will only get intensified, as large global players emerge on the scene. Increasing competition is squeezing profitability and forcing banks to work efficiently on shrinking spreads. A positive fallout of competition is the greater choice available to consumers,and the increased level of sophistication and technology in banks. As banks benchmark themselves against global standards, there has been a marked increase in 11

Credit Appraisal & Risk Analysis disclosures and transparency in bank balance sheets as also greater focus on corporate governance.

Major Reforms In Banking Sector

Some of the major reform initiatives in the last decade that have changed the face of the Indian banking and financial sector are: Interest rate deregulation. Interest rates on depo sits and lending have been deregulated with banks enjoying greater freedom to determine their rates. Adoption of prudential norms in terms of capital adequacy, asset classification, income recognition, provisioning, exposure limits, investment fluctuation reserve, etc. Reduction in pre-exemptions lowering of reserve requirements (SLR and CRR), thus releasing more lendable resources which banks can deploy profitably. Government equity in banks has been reduced and strong banks have been allowed to access the capital market for raising additional capital. Banks now enjoy greater operational freedom in terms of opening and swapping of branches, and banks with a good track record of profitability have greater flexibility in recruitment. New private sector banks have been set up and foreign banks permitted to expand their operations in India including through subsidiaries. Banks have also been allowed to set up Offshore Banking Units in Special Economic Zones. New areas have been opened up for bank financing: insurance, credit cards, infrastructure financing, leasing, gold banking, besides of course investment banking, asset management, factoring, etc. New instruments have been introduced for greater flexibility and better risk management: e.g. interest rate swaps, forward rate agreements, cross currency forward contracts, 12

Credit Appraisal & Risk Analysis forward cover to hedge inflows under foreign direct investment, liquidity adjustment facility for meeting day-to-day liquidity mismatch. Several new institutions have been set up including the National Securities Depositories Ltd., Central Depositories Services Ltd., Clearing Corporation of India Ltd., Credit Information Bureau India Ltd. Limits for investment in overseas markets by banks, mutualfunds and corporates hav e been liberalised. The overseas investment limit for corporates has been raised to 100% of net worth and the ceiling of $100 million on prepayment of external commercial borrowings has been removed. MFs and corporates can now undertake FRAs with banks. Indians allowed to maintain resident foreign currency (domestic) accounts. Full convertibility for deposit schemes of NRIs introduced. Universal Banking has been introduced. With banks permitted to diversify into long-term finance and DFIs into working capital, guidelines have been put in place for the evolution of universal banks in an orderly fashion. Technology infrastructure for the payments and settlement system in the country has been strengthened with electronic funds transfer, Centralised Funds Management System,Structured Financial Messaging Solution, Negotiated Dealing System and move towards Real Time Gross Settlement. Adoption of global standards. Prudential norms for capital adequacy, asset classification, income recognition and provisioning are now close to global standards. RBI has introduced Risk Based Supervision of banks (against the traditional transaction based approach). Best international practices in accounting systems, corporate governance,payment and settlement systems, etc. are being adopted. Credit delivery mechanism has been reinforced to increase the flow of credit to priority sectors through focus on micro credit and Self Help Groups. The definition of priority sector has been widened to include food processing and cold storage, software upto Rs 1 crore, housing above Rs 10 lakh,selected lending through NBFCs, etc. 13

Credit Appraisal & Risk Analysis

RBI guidelines have been issued for putting in place risk management systems in banks. Risk Management Committees in banks address credit risk, market risk and operational risk. Banks have specialised committees to measure and monitor various risks and have been upgrading their risk management skills and systems. The limit for foreign direct investment in private banks has been increased from 49% to 74% and the 10% cap on voting rights has been removed. In addition, the limit for foreign institutional investment in private banks is 49%. Wide ranging reforms have been carried out in the area of capital markets. Fresh investment in CPs, CDs are allowed only in dematerialised form. SEBI has reduced the settlement cycle from T+3 to T+2 from April 1, 2003 i.e. settlement of stock deals will be completed in two trading days after the trade is executed, taking the Indian stock trading system ahead of some of the developed equity markets. Stock exchanges will set up trade guarantee funds. Retail trading in Government securities has been introduced on NSE and BSE from January 16, 2003. A Serious Frauds Office is proposed to be set up. Fungibility of ADRs and GDRs allowed.

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Credit Appraisal & Risk Analysis

CHAPTER 2 INTRODUCTION TO THE ORGANIZATION

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Punjab National Bank Logo Parent Company Category Sector Tagline/ Slogan USP STP Segment Target Group Positioning Urban and rural banking International Banking Complete Banking solutions Government of India Banking services Banking and finance The name you can bank upon Punjab National Bank is one of the Big Four banks of India

The Vision of the Bank is To be a Leading Global Bank with Pan India footprints and become a household brand in the Indo-Gangetic Plains providing entire range of financial products and services under one roof. The Mission of the Bank Banking for Unbanked, itself says about the very reason of existence of this esteem organization. Punjab National Bank has always worked for the common people of the bank. The bank has started with the concept of Swadeshi Bank.

Punjab under the British especially after annexation in 1849 witnessed a period of rapid development giving rise to a new educated class fired with a desire for freedom from the yoke of slavery. Amongst the cherished desires of this new class was also an overriding ambition to start a Swadeshi Bank with Indian Capital and management representing all sections of the Indian community. The idea was first mooted by Rai Mool Raj of Arya Samaj who, as reported 16

Credit Appraisal & Risk Analysis by Lal Lajpat Rai, had long cherished the idea that Indians should have a national bank of their own. He felt keenly "the fact that the Indian capital was being used to run English banks and companies, the profits accruing from which went entirely to the Britishers whilst Indians had to contend themselves with a small interest on their own capital".

At the instance of Rai Mool Raj, Lala Lajpat Rai sent round a circular to selected friends insisting on an Indian Joint Stock Bank as the first special step in constructive Swadeshi. Lala Harkrishan Lal who had returned from England with ideas regarding commerce and industry, was eager to give them practical shape.

On May 23, 1894, the efforts materialized. The founding board was drawn from different parts of India professing different faiths and a varied back-ground with, however, the common objective of providing country with a truly national bank which would further the economic interest of the country.

The Bank opened for business on 12 April, 1895. The first Board of 7 Directors comprised of Sardar Dayal Singh Majithia, who was also the founder of Dayal Singh College and the Tribune; Lala Lalchand one of the founders of DAV College and President of its Management Society; Kali Prosanna Roy, eminent Bengali pleader who was also the Chairman of the Reception committee of the Indian National Congress at its Lahore session in 1900; Lala Harkishan Lal who became widely known as the first industrialist of Punjab; EC Jessawala, a well known Parsi merchant and partner of Jamshedji & Co. of Lahore; Lala Prabhu Dayal, a leading Rais, merchant and philanthropist of Multan; Bakshi Jaishi Ram, an eminent Civil Lawyer of Lahore; and Lala Dholan Dass, a great banker, merchant and Rais of Amritsar. Thus a Bengali, Parsi, a Sikh and a few Hindus joined hands in a purely national and cosmopolitan spirit to found this Bank which opened its doors to the public on 12th of April 1895. They went about it with a Missionary Zeal. Sh. Dayal Singh Majithia was the first Chairman, Lala Harkishan Lal, the first secretary to the Board and Shri Bulaki Ram Shastri Barrister at Lahore, was appointed Manager.

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Credit Appraisal & Risk Analysis A Maiden Dividend of 4% was declared after only 7 months of operation. Lala Lajpat Rai was the first to open an account with the bank which was housed in the building opposite the Arya Samaj Mandir in Anarkali in Lahore. His younger brother joined the Bank as a Manager. Authorised total capital of the Bank was Rs. 2 lakhs, the working capital was Rs. 20000. It had total staff strength of nine and the total monthly salary amounted to Rs. 320.

The first branch outside Lahore was opened in Rawalpindi in 1900. The Bank made slow, but steady progress in the first decade of its existence. Lala Lajpat Rai joined the Board of Directors soon after. in 1913, the banking industry in India was hit by a severe crisis following the failure of the Peoples Bank of India founded by Lala Harkishan Lal. As many as 78 banks failed during this crisis. Punjab National Bank survived. Mr. JH Maynard, the then Financial Commissioner, Punjab, remarked...."Your Bank survived...no doubt due to good

management". It spoke volumes for the measure of confidence reposed by the public in the Bank's management.

The years 1926 to 1936 were turbulent and loss ridden ones for the banking industry the world over. The 1929 Wall Street crash plunged the world into a severe economic crisis.

It was during this period that the Jalianwala Bagh Committee account was opened in the Bank, which in the decade that followed, was operated by Mahatma Gandhi and Pandit Jawaharlal Nehru. The five years from 1941 to 1946 were ones of unprecedented growth. From a modest base of 71, the number of branches increased to 278. Deposits grew from Rs. 10 crores to Rs. 62 crores. On March 31, 1947, the Bank officials decided to leave Lahore and transfer the registered office of the Bank to Delhi and permission for transfer was obtained from the Lahore High Court on June 20, 1947.

PNB was then housed in the precincts of Sreeniwas in the salubrious Civil Lines, Delhi. Many a staff member fell victim to the widespread riots in the discharge of their duties. The conditions deteriorated further. The Bank was forced to close 92 offices in West Pakistan constituting 33 percent of the total number and having 40% of the total deposits. The Bank, however, continued to maintain a few caretaker branches. 18

Credit Appraisal & Risk Analysis

The Bank then embarked on its task of rehabilitating the displaced account holders. The migrants from Pakistan were repaid their deposits based upon whatever evidence they could produce. Such gestures cemented their trusts in the bank and PNB became a symbol of Trust and a name you can bank upon. Surplus staff posed a big problem. Fast expansion became a priority. The policy paid rich dividends by opening up an era of phenomenal growth. In 1951, the Bank took over the assets and liabilities of Bharat Bank Ltd. and became the second largest bank in the private sector. In 1962, it amalgamated the Indo-Commercial Bank with it. From its dwindled deposits of Rs. 43 crores in 1949 it rose to cross the Rs. 355 crores mark by the July 1969. Its number of offices had increased to 569 and advances from Rs. 19 crores in 1949 to Rs. 243 crores by July 1969 when it was nationalised.

Since inception in 1895, PNB has always been a "People's bank" serving millions of people throughout the country and also had the proud distinction of serving great national leaders like Sarvshri Jawahar Lal Nehru, Gobind Ballabh Pant, Lal Bahadur Shastri, Rafi Ahmed Kidwai, Smt. Indira Gandhi etc. amongst other who banked with us.

Punjab National Bank is one of the Banks which has earned a name of trust among its customers all over the country. As the name of the bank says it has started in the Punjab, but today this esteem organization is having presence in every corner of the country with highest number of branches among Nationalised Banks. Today Punjab National Bank is the biggest nationalized bank as per the Business Mix, Net Profit and on many other parameters.

With over 60 million satisfied customers and more than 5100 offices including 5 overseas branches, PNB has continued to retain its leadership position amongst the nationalized banks. The bank enjoys strong fundamentals, large franchise value and good brand image. Besides being ranked as one of India's top service brands, PNB has remained fully committed to its guiding principles of sound and prudent banking. Apart from offering banking products, the bank has also entered the credit card, debit card; bullion business; life and non-life insurance; Gold coins & asset management business, etc. PNB has earned many awards and accolades during the year in appreciation of excellence in services, Corporate Social Responsibility 19

Credit Appraisal & Risk Analysis (CSR) practices, transparent governance structure, best use of technology and good human resource management.

Since its humble beginning in 1895 with the distinction of being the first Swadeshi Bank to have been started with Indian capital, PNB has achieved significant growth in business which at the end of March 2011 amounted to Rs 5,55,005 crore. PNB is ranked as the 2nd largest bank in the country after SBI in terms of branch network, business and many other parameters. During the FY 2010-11, with 39.16% share of CASA to domestic deposits, the Bank achieved a net profit of Rs 4433 crore. Bank has a strong capital base with capital adequacy ratio of 12.42% as on Mar11 as per Basel II with Tier I and Tier II cap ital ratio at 8.44% and 3.98% respectively. As on March11, the Bank has the Gross and Net NPA ratio of 1.79% and 0.85% respectively. During the FY 2010-11, its ratio of Priority Sector Credit to Adjusted Net Bank Credit at 40.67% & Agriculture Credit to Adjusted Net Bank Credit at 19.30% was also higher than the stipulated requirement of 40% & 18% respectively. The Bank has been able to maintain its stakeholders interest by posting an improved NIM of 3.96% in Mar11 (3.57% Mar10). The Earning per Share improved to Rs 140.60 (Rs 123.86 Mar10) while the Book value per share improved to Rs 661.20 (Rs 514.77 Mar1 0). Punjab National Bank continues to maintain its frontline position in the Indian banking industry. In particular, the bank has retained its NUMBER ONE position among the nationalized banks in terms of number of branches, Deposit, Advances, total Business, Assets, Operating and Net profit in the year 2010-11. The impressive operational and financial performance has been brought about by Banks focus on customer based business with thrust on CASA deposits, Retail, SME & Agri Advances and with more inclusive approach to banking; better asset liability management; improved margin management, thrust on recovery and increased efficiency in core operations of the Bank. The performance highlights of the bank in terms of business and profit are shown below: Rs. In Crore Parameters Operating Profit Net Profit Mar'09 5690 3091 Mar'10 7326 3905 20 Mar'11 9056 4433 CAGR (%) 26.16 19.76

Credit Appraisal & Risk Analysis Deposit Advance Total Business 209760 154703 364463 249330 186601 435931 312899 242107 555005 22.14 25.10 23.40

Bank always looked at technology as a key facilitator to provide better customer service and ensured that its IT strategy follows the Business strategy so as to arrive at Best Fit. The Bank has made rapid strides in this direction. All branches of the Bank are under Core Banking Solution (CBS) since Dec08, thus covering 100% of its business and providing Anytime Anywhere banking facility to all customers including customers of more than 3200 rural & semi urban branches. The Bank has also been offering Internet banking services to its customers which also enables on line booking of rail tickets, payment of utilities bills, purchase of airline tickets, etc. Towards developing a cost effective alternative channels of delivery, the Bank with 5050 ATMs has the largest ATM network amongst Nationalized Banks.

With the help of advanced technology, the Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is concerned. With its policy of inclusive growth, the Banks mission is Banking for Unbanked. The Bank has launched a drive for biometric smart card based technology enabled Financial Inclusion with the help of Business

Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer.

The Bank has started several innovative initiatives for marginal groups like rickshaw pullers, vegetable vendors, dairy farmers, construction workers, etc. Bank has launched a welfare scheme of adoption of village viz., PNB VIKAS. Under the scheme, Bank has selected 117 villages (60 in lead districts and 57 in non lead district) in different circles for all-round improvement in the living standards of the villagers. Besides, Bank has formed PNB PRERNA, an association of the wives of the Banks senior management. The associa tion through its voluntary initiatives has undertaken activities like distribution of food to the poor and needy, provision of computers, books, stationary items to poor girl students at various orphanages and schools etc. Backed by strong domestic performance, the Bank is planning to realize its global aspirations. Bank has opened one branch each at Kabul and Dubai, two branches at Hong Kong and an 21

Credit Appraisal & Risk Analysis Off Shore Banking Unit at Mumbai. In addition to the above, Bank has Representative offices at Almaty, Dubai, Shanghai and Oslo, a wholly owned subsidiary in UK with 7 branches and a subsidiary each in Kazakhstan & Bhutan, and joint venture with Everest Bank Ltd. Nepal. During the year, Bank acquired majority equity stake of 63.64% in Dana Bank of Kazakhstan.

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Credit Appraisal & Risk Analysis

CHAPTER-3 RESEARCH METHODOLOGY

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Research Methodology refers to the method the researchers use in performing research operations. In other words, all those methods, which are used by the researcher during the course of studying his research problem, are termed as Research Methods.

RESEARCH DESIGN
A research project conducted scientifically has a specific frame work of research from problem identification to presentation of research report. This framework of conducting research is known as Research Design.

DESCRIPTIVE RESEARCH DESIGN

Descriptive research includes surveys and facts finding enquirys of different finds. The major purpose of descriptive research is description of the state of affairs as it exists at present. The main characteristics of this method are that the researcher has no control over the variable. He can only report what has happened or what is happening. Most are post facts research projects are used for descriptive studies in which the researcher seeks to measure such items as for example frequency of shopping, preference of people or similar data. Ex post facts studies also include attempt by researchers to discover causes even way when they cannot control the variables. The method of research utilized in descriptive research is survey method of all kinds, including comparative and correctional methods. The study is about customer satisfaction regarding services in PNB. It is being made because Customer satisfaction is the key to the profitability of the banking. It implies the retention of customers for the long term, which is cheaper than altercating new customers. In current scenario bank becoming larger the closure of branches and the advent of internet banking, the question arises whether the customers are satisfied or not.

DATA COLLECTION
PRIMARY DATA with the help of self structured, questionnaire was collected to the address the research objectives and keeping in tune with the research design. 24

Credit Appraisal & Risk Analysis SECONDARY DATA consisted from Journals, Magazines, and Books & Websites.

SAMPLING TECHNIQUE
Sampling is necessary because it is almost impossible to examine the entire parent population or universe. Various factors such as time available, cost, purpose of study etc. make it necessary for the researchers to choose a sample. It should neither be too small nor too big.

SAMPLE SIZE
40 Customers.

MODE OF DATA COLLECTION

Questionnaire

Objectives of study
To study the various services offered by PNB To measure behavior of staff is satisfactory towards customers. To check out staff co-operation towards customers. To measure manager co-operation towards customers.

DESCRIPTION OF EXPERIENCES
Uneducated customers were not abling to fill their Forms properly Due to the lack of the employees ledger were not in good condition. Recording of the data was incomplete and due to which they were not able to clarify the dues. But due to the computer the job of the employees is simpler. Now they have to pass simple entries and all records is maintained easily without any confusion. There job is much simpler than before now they can make changes, add, modify at the same time in a easy manner that is an achievement for bank I learnt many things in the bank but the most interesting thing I like there is the 25

Credit Appraisal & Risk Analysis Environment of the bank the employees help each other rather they the job of other or not but they help each other. Conflicts arise between them because of the lack of the customers they add wrong information in their cheques or vouchers that cannot be passed. I learnt many things I have good and bad experiences both over their before I I was not aware of anything in the bank now I know many things. I can say that while working over their no employee leaves its work pending for net day because if they let it pending than they can not end their day and by hook or crook they have to finish it.

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CHAPTER-4 STUDY OF TITLE

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GENERAL INSTRUCTIONS
INTRODUCTORY 1. Efficient management of Loans and Advances portfolio has assumed greater significance as it is the largest asset of the Bank having direct impact on its profitability. In the wake of continued tightening of norms of income recognition, asset classification and provisioning, increased competition and emergence of new types of risks in the financial sector, it has become imperative that the credit functions are strengthened. RBI has also been emphasising banks to evolve suitable guidelines for effective management and control of credit risks.

2. With a view to ensuring a healthy loan portfolio, our bank has taken various steps to bring its policies and procedures in line with changing scenario which also aim at effective management & dispersal of credit risks, strengthening of pre-sanction appraisal and post-sanction monitoring systems. Further, bank has been continuously endeavoring to strengthen the organizational set-up by opening Specialized Branches to meet the credit requirements of specific types of borrowers, imparting intensive credit management training to staff and deployment of the trained staff at branches/offices having potential for credit growth. Bank has laid down detailed guidelines to be followed while considering credit proposals, some of the important ones are listed as under:

i) All loan facilities be considered after obtaining loan application(s) from the borrower(s) and compilation of Confidential Report(s) on him/them and the guarantor(s). The borrowers should have the desired background, experience/expertise to run their business successfully.

ii) Project for which the finance is granted should be technically feasible and economically/commercially viable i.e. it should be able to generate enough surplus so as to service the debts within a reasonable period of time.

iii) Cost of the project and means of financing the same should be properly assessed and tied up. Both, under-financing and over- financing can have an adverse impact on the successful implementation of the project. 28

Credit Appraisal & Risk Analysis

iv) Borrowers should be financially sound, enjoy good market reputation and must have their stake in the business i.e. they should possess adequate liquid resources to contribute to the margin requirements.

v) Loans should be sanctioned by the competent sanctioning authority as per the delegated loaning powers and should be disbursed only after execution of all the required documents.

vi) Projects financed must be closely monitored during implementation stage to avoid time and cost overruns and thereafter till the adjustment of the bank's loan.

3. Bank extends Loan facilities by way of fund-based facilities and/or non-fund based facilities. The fund-based facilities are usually allowed by way of term loans, cash credit, bills discounted/purchased, demand loans, overdrafts, etc. Further, the bank also provides non fund-based facilities by way of issuance of inland and foreign letters of credit, issuance of guarantees, deferred payment guarantees, bills acceptance facility under SIDBI Bills Rediscounting Scheme etc.

4. The foregoing list contains the usual types of facilities undertaken by the bank. In case loan application is received for any particular facility which is not specifically mentioned above, the same should be forwarded to controlling office(s) for consideration, provided the same can be transacted within the overall policy of the bank.

5. The usual types of facilities sanctioned by the Bank to the borrowers, as also other aspects like Project appraisal, Post sanction follow up, Management of NPAs, Documentation, Limitation etc. are discussed in succeeding chapters. These are briefly explained here under:

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Credit Appraisal & Risk Analysis

LOANS AND ADVANCES

OVERDRAFT: All overdraft accounts are treated as current accounts. Normally, overdrafts are allowed against the Bank's own deposits, government securities, approved shares and/or debentures of companies, life insurance policies, government supply bills, cash incentive and duty drawbacks, personal security etc. Overdraft accounts should be kept in the ordinary current account head at branches. Temporary clean overdrafts in current accounts should be maintained in the ordinary current account ledgers.

TERM LOANS: Term loans are sanctioned for acquisition of fixed assets like land, building, plant/machinery, office equipment, furniture-fixture, etc., for purchase of transport vehicles & other vehicles, for purchase of agricultural equipment, machinery & other movable assets e.g. tractors, pump sets, cattle etc. under various schemes of agricultural advances introduced from time to time, for purchase of house, consumer durables, etc. under Special Schemes introduced from time to time. The Term loan would be a loan, which is not a demand loan and is repayable in terms i.e. in installments irrespective of period or the security cover. Term Loans are normally granted for periods varying from 3 to 7 years and in exceptional cases beyond 7 years. Term loans for Infrastructure Projects can be allowed even with longer repayment period. The exact period for which a particular loan is sanctioned depends on the circumstances of the case.

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Credit Appraisal & Risk Analysis DEMAND LOANS A demand loan account is an advance for a fixed amount and no debits to the account are made subsequent to the initial advance except for interest, insurance premia and other sundry charges. As an amount credited to a demand loan account has the effect of permanently reducing the original advance, any further drawings permitted in the account will not be secured by the demand promissory note taken to cover the original loan. A fresh loan account must, therefore, be opened for every new advance granted and a new demand promissory note taken as security. Demand Loan would be a loan, which is repayable on demand in one shot i.e. bullet repayment. Normally, Demand Loans are allowed against the Bank's own deposits, government securities, approved shares and/or debentures of companies, life insurance policies, pledge of gold/silver ornaments etc. A separate account for each demand loan should be kept in the appropriate demand loan ledger.

CASH CREDIT ADVANCES: Cash Credit account is a drawing account against credit granted by the Bank and is operated in exactly the same way as a current account on which an overdraft has been sanctioned. The various types of securities against which cash credits are allowed are pledge/ hypothecation of goods or produce, pledge of documents of title to goods, book debts, trust securities, etc. In cash credit accounts the borrower is allowed to draw on account within the prescribed limit, as and when required.

BILL FINANCE: Advances against Inland Bills are sanctioned in the form of limits for purchase of bills (ODD) or discount of bills (BD) or bills sent for collection (ABC), to borrowers for their genuine trade transactions. Bills are either payable on demand or after usance period. Demand Bills which are payable on demand or at sight, are purchased from the parties who are sanctioned ODD limits and Usance Bills which are payable on maturity after a certain period of time as per terms of contract are discounted for parties who are sanctioned BD limits.

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Credit Appraisal & Risk Analysis While discounting/purchasing/negotiating usance bills under LCs or otherwise, it is to be ensured that the bills so discounted/ purchased/negotiated have arisen out of the actual movement of goods. Further, branches should not extend bills limits to non-constituent borrower and/or non-constituent member of a consortium/multiple banking arrangement.

PACKING CREDIT: Packing credit is an advance given to an exporter who holds a Code Number assigned to him by the Directorate General of Foreign Trade (DGFT), for financing the purchase, processing, manufacturing or packing of goods prior to shipment, on the basis of letter of credit opened in his favour or in favour of some other person, by an overseas buyer or a confirmed and irrevocable order for the export of goods from India or any other evidence of an order for export from India having been placed on the exporter or some other person, unless lodgement of export orders or Letter of Credit with the bank has been waived. Packing credit advances are generally allowed separately for each Letter of Credit/Firm Order to comply with the guidelines issued by HO Divisions/RBI.

INLAND LETTERS OF CREDIT: Letter of credit (LC) is issued by the Bank at the request of its customer in favour of a third party informing him that the Bank undertakes to accept the bills drawn on its customer up to the amount stated in the LC subject to fulfillment of the conditions stipulated therein. Therefore, when Bank issues LC, it assumes responsibility to pay its beneficiary on production of bills drawn in accordance with the terms and conditions of the LC.

While assessing the non-fund based limits, branches should ensure that projections and cash flows submitted by the borrowers are realistic and in line with the past trend.

Whenever the bills drawn under LC are not paid by the party from its own resources or out of available DP in the CC account on its due date, the LC is said to have devolved. In order to ensure continuance of bank charge on Block Assets/Other Assets for such amount of default, Incumbents are advised to make its payment by debit of LC Due Date Default Account. 32

Credit Appraisal & Risk Analysis In case two consecutive bills, drawn under LCs opened previously were not retired by the party from its own resources or out of available DP in the CC account, further opening of Letter of Credit must not be allowed by the Incumbents without clearance from their next higher authorities.

GUARANTEES: Guarantee is a contract to perform the promise, or discharge the liability of a third person in case of his default. In the ordinary course of business, Bank often issues guarantees on behalf of its customers in favour of third parties. When Bank issues such a guarantee, it assumes a responsibility to pay the beneficiary,in the event of default made by the customer.

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Credit Appraisal & Risk Analysis

RETAIL LOAN SCHEME OF PNB

SCHEME FOR ADVANCE AGAINST GOLD/ SILVER JEWELLERY/ ORNAMENTS
1. Purposes and eligibility Advance is available for productive purposes such as agricultural/allied and other activities as well as for non-productive purposes (meeting medical, educational, marriage expenses and other unforeseen expenses etc.). 2. Eligibility Individuals & Business Enterprises 3. Quantum of loan Productive purposes Need based, without ceiling.

Non-productive purposes - Max. amount of Loan - Rs.2.00 lacs. 4. Security Gold/silver jewellery and ornaments. 5. Nature of facility Loan may be given by way of Demand Loan / Overdraft. 6. Margin GOLD-5% SILVER - 15% 7. Upfront fee Upfront Fee: 0.70% + service tax & education cess. 8. Documentation charges: Up to Rs. 2 lakh Rs. 270/+ service tax & education cess; and

Over Rs. 2 lakh Rs.450/- + service tax & education cess. 10. Repayment Demand Loan Overdraft Maximum 12 months. Renewed annually

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Credit Appraisal & Risk Analysis

CAR FINANCE
Available for purchase of New Car/ Van/ Jeep/ Multi Utility Vehicle (MUV)/ Sports Utility Vehicle (SUV) or for old vehicles that are not older than 3 years (Depriciation @ 15% p.a. on current invoice / showroom invoice). Finance will be provided for purchase of vehicle of indigenous/ foreign makes

Eligibility Individuals as well as Business Concerns (Corporate or non-corporate). Minimum net monthly salary / pension / income 20000/-. Income of spouse /Parent can be added.

Amount of Loan For Individuals / Proprietorship Concerns: 25 times of the monthly net salary OR Rs.25 lacs (for one or more vehicles), whichever is lower. Income of parent(s) / spouse can be taken into account for determining loan amount. In such cases, the parent(s)/ spouse shall stand as additional guarantor.

For Business Concerns (Corporate or non-corporate): No ceiling on loan amount (for one or more vehicles).

Margin

For New Vehicles: 15% For Old Vehicles: 30% Under Tie-up Arrangement : 10%

Security The vehicle purchased with the amount of loan is to be hypothecated to the Bank. It will be registered in the name of the borrower jointly with the Bank.

Guarantee / Collateral Security i)Third party guarantee / collateral security is waived in following cases: 35

Credit Appraisal & Risk Analysis

Permanent Employees of Central Govt. /State Govt. /PSUs/ MNCs/ Listed Companies at NSE/ BSE whose Shares are actively traded and quoted above par. For other than salaried class borrowers where ex showroom cost of the car is exceeding Rs.6 lakh. ii)However the Guarantee of Parent(s) / Spouse will be taken in case their income has been considered for determining loan amount

Repayment

For New Vehicle: The loan amount together with interest is to be repaid maximum in 84 Equated Monthly Installments (EMIs).

For Old Vehicle: The loan amount together with interest is to be repaid maximum in 60 Equated Monthly Instalments (EMIs)

Upfront Fee & Documentation Charges 1. @ 1% of the loan amount, with a maximum of Rs.6,000/- (exclusive of service tax & education cess)

Disbursement The intending borrower will be required to settle the transaction for purchase of vehicle needed by him/her with the seller and will be required to deposit the difference of the cost of the vehicle to amount of loan, and thereafter, the advance will be allowed to him/her from the bank by paying the entire price of the vehicle to the seller directly on behalf of the borrower.

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Credit Appraisal & Risk Analysis

EDUCATION LOAN - VIDYALAKSHYAPURTI

Studies in India 1. 2. 3. Graduation courses B.A., B.Com., B.Sc., etc., Post-Graduation courses, Masters & Ph.D; Professional courses, Engineering, Medical, Agriculture, Veterinary, Law, Dental, Management, Computer etc., Computer Certificate courses of reputed Institutes accredited to Department of Electronics or institutes affiliated to University; Courses like ICWA, C.A., CFA, etc., Courses conducted by IIM, IIT, IISc, XLRI, NIFT, etc., Regular Diploma/Degree courses conducted by Colleges/Universities approved by UGC/Govt./AICTE/AIBMS/ICMR, Regular Degree / Diploma courses like Aeronautical, Pilot training, Shippling etc. approved by Director General of Civil Aviation/ Shippinge, if the course is persued in India. In case the course is pursued abroad, the Institue should be recognised by the competent local (abroad) Aviation/Shipping authority. Advance Diploma in Banking Technology offered by PNBIIT, Lucknow. Courses offered in India by reputed foreign universities. Other courses leading to Diploma/Degree etc. conducted colleges/universities approved by UGC/Govt./AITCE/AIBMS/ICMR etc. Courses offered by National Institutes and other reputed Private Institutes. Diploma courses, Diploma Leading to Degree Courses local as well as abroad and courses offered by recognised universitis of repute through distance learning etc. by

4.

5. 6 7

8.

9. 10. 11.

12. 13.

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Credit Appraisal & Risk Analysis Studies Abroad:

1.Graduation- for job oriented professional/technical courses offered by reputed universities abroad. 2. Post Graduation cources- MCA, MBA, MS, etc. offered by reputed universities abroad. 3. Courses conducted by CIMA- London, CPA in USA etc. Students should approach the branch nearest to the place of residence of their parents. Interest is charged monthly on simple basis during the repayment holiday/moratorium period & concession of 1% in rate of interest is allowed provided the same is serviced regularly during study period. Punjab National Bank has tied up with Kotak Mahindra Insurance to provide life insurance cover for Student borrowers.

Eligibility:

Student eligibility 1. Should be an Indian National. 2. Secured admission to Professional / Technical Courses in India or through Entrance Test / Merit based Selection process. Expenses considered for Loan 1. 2. 3. 4. Fee payable to College / School / Hostel Examination / Library / Laboratory fee. Purchase of books / equipments / instruments / uniforms. Caution Deposit / Building Fund / Refundable Deposit supported by Institution abroad

Bills / Receipts, subject to the condition that the amount does not exceed 10% of the total tution fee for entire course. 5. 6. 7. Travel Expenses / Passage money for studies abroad. Purchase of computers - essential for completion of the Course. Insurance premium for student borrower 38

Credit Appraisal & Risk Analysis 8.Boarding and lodging expenses in recognised Boarding Houses / private accomondations 9.Any other expense required to complete the course - like study tours, project work, thesis etc. Quantum of Finance Need based finance, subject to repaying capacity of the parents / students with margin and the following ceilings :For studies in India: Maximum Rs.10.00 lacs. For studies abroad: Maximum Rs.20.00 lacs.

Margin Upto lacs Above lacs Rs.4.00 Studies in India Studies Abroad 5% 15% Rs.4.00 Nil.

Security Upto Rs.4.00 lacs: Above Rs 4.00 lacs and Upto Rs 7.5 lacs: Co-Obligation of Parents. No Security Co-Obligation of Parents together with collateral security in the form of suitable 3rd party guarantee acceptable to the Bank Above Rs 7.5 lacs: Co-Obligation of Parents. Collateral

Security of suitable value along with Assignment of future income of the student for payment of installments The security can be in the form of land / building / Govt. Securities / Public Sector Bonds / Units of UTI, NSC, KVP, LIC Policy, Gold, Shares/ Mutual Funds/ Debentures, Bank Deposit in the name of the student parent / guardian or any other third party with

39

Credit Appraisal & Risk Analysis suitable Margin. The document should be executed by both the student and the parent/guardian. Repayment Repayment Moratorium Holiday / Course period + 1 year OR 6 months after getting job, whichever is earlier.

The Principle and interest is to be repaid in 5-7 years after commencement of repayment. If the student is not able to complete the course within the scheduled time, extension of time for completion of course may be permitted for a maximum period of 2 years. Upfront Fee For Study in India - Nil For Study abroad - @ 0.50% with a maximum of Rs. 5000/-(refundable on availment of the loan amount) Documentation Charges Upto Rs. 4 lacs Above Rs.4 lacs Rs.270/- + Service Tax & Education Cess Rs.450/- + Service Tax & Education Cess

Additional Benefits provided to the students by PNB

A rebate of 0.50% in rate of interest permitted to women beneficiaries for loans up to Rs. 10 lac for studies in India and Rs 20 lac for studies abroad for existing as well as new girl student borrowers wef. 08.03.2009.

1% interest concession may be provided for loanees if the interest is serviced during the study period/moratorium period.

Second time Education Loan can be sanctioned to the same student borrower for

completion of next higher course.

Check List
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Credit Appraisal & Risk Analysis While applying for the loan, the borrower is required to furnish the following information/papers: Loan application on Bank's format. Passport size photograph Proof of Address(Permanent) / ID Proof. Proof of Age. Proof of having secured pass marks in last qualifying examination. Letter of admission in professional, technical or vocational courses. Prospectus of the course wherein charges like Admission Fee, Examination Fee, Hostel Charges etc. are mentioned. Details of Assets & Liabilities of parents. In case loan amount is above Rs.4.00 lacs : Detail of Assets & Liabilities of parents/co-obligates/ guarantors. In case loan is to be collaterally secured by mortgage of IP, Copy of Title Deed, Valuation Certificate and Non Encumbrance Certificate from approved Lawyer of the Bank to be obtained at the cost of the borrower.

Photocopy of Passport & Visa, in case of study abroad. Any other document/information, depending upon the case and purpose of the loan.

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Credit Appraisal & Risk Analysis

REGULAR HOUSING FINANCE SCHEME FOR PUBLIC

PNB reaches out to you with fast, friendly and most convenient home loans under Normal and Flexible variants (Details also available seperately) having highlighting features : 1. Highlights

Option to choose between Floating and Fixed interest rates. Longest Repayment period of 25 years For Term loan component of flexible variant 0.25% lower interest rate than under normal variant under all tenors of repayment

Flexible repayment option No hidden charges Quick and Fast processing

2. Purpose
1.

Construction or purchase of new/old house/ flat/ plot (Finance for purchase of plot is allowed only under Normal Scheme).

2. 3. 4. 5.

Purchase of house/ flat on First Power of Attorney basis from the original allottee. Carrying out repairs/ renovations/ additions/ alterations/ furnishing. After 3 years loan for personal needs allowed only under Flexible variant. Borrowers are entitled for 20% increase in the original total limit sanctioned after a lapse of five years under Flexible variant.

3. Eligibility 1. Under Normal variant Individuals & Joint owners (age group of 18-65 years) having regular source of income. Income of spouse/children can also be added. 2. Under Flexible variant: Customers who are below the age of 50 years and existing Housing loan borrowers who have availed loan under our Housing Loan scheme for public.

4. Loan Amount 42

Credit Appraisal & Risk Analysis 1. For construction/purchase of house/flat:- Need based. 2. Cost of car parking upto the maximum extent of 5% of the cost of flat/house can be considered in the cost of the project. 3. For carrying out repairs/ renovations/ additions/ alterations: - Maximum of Rs. 20 lacs. 4. For furnishing of house Maximum Rs. 2 Lacs 5. For purchase of Land/ Plot - Maximum Rs. 20 Lacs.

5. Disbursement 1. Under Normal variant in the shape of a Term Loan 2. For purchase of Built-up house/ flat - In lump sum (Down Payment) . 3. For construction of house/ under construction flat - The loan amount will be 4. disbursed in stages as per progress of construction/ demand by selling agency 5. Under Flexible variant 80% in the shape of Term Loan and 20% as overdraft.

6. Overdraft limit can be enhanced maximum upto 50% of the total loan amount sanctioned originally and first such enhancement is allowed after three years 7. Extent of enhancement in overdraft limit will be equal to reduction in term loan amount. These enhancement in overdraft limit are for personal needs and allowed through esperate overdraft account. 6. Margin Construction/ purchase/ repairs/ renovations/ additions/ alterations 25% Land/ Plot 40%

7. Fee/Charges

For loans upto Rs. 300 lacs = 0.50% of the loan amount max. of Rs. 20,000/- + taxes For loans above Rs. 300 lacs =0.90% of the loan amount + taxes Documentation charges of Rs. 1350/- + taxes

8. Repayment For Term Loan component under Normal or Flexible variant For construction/purchase of house/flat - Maximum of 25 years or borrowers attaining 43

Credit Appraisal & Risk Analysis age of 65 years whichever is earlier (can be extended upto the age of 70 years under banks discretion) to be repaid in equated monthly installments inclusive of maximum moratorium period of 18 months. For carrying out repairs/ renovations/ additions/ alterations - Maximum of 10 years inclusive of maximum moratorium period of Six months. For Overdraft component of Flexible variant : Repayment shall be as under For borrower below 55 years : Servicing of interest as and when charged i.e. on monthly basis. For 55 years and above: On monthly reducing drawing power maximum up to the age of 65 years.

9. Moratorium/ Repayment Holiday Moratorium or Repayment holiday where loan is allowed for construction - till completion of construction or 18 months (6 months in case of repair/ renovation/ addition/ alteration) from the date of disbursement of first installment of the loan, whichever is earlier.

10. Pre- Payment Charges

Nil- where the loans is prepaid by the borrower from his/her own sources Nil- where the borrower shifts to other bank within 30 days from the date of upward

revision in the rate of interest to be charged in his/her account or change in other terms of sanction.

2 % - where the account is taken over by some other Bank/ Financial institutions.

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CHAPTER-5 Data Interpretation and analysis

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Credit Appraisal & Risk Analysis

DATA ANALYSIS and INTERPRETATION

TABLE HOW IS BEHAVIOUR OF STAFF? OCCUPATION GOOD SATISFACTORY SERVICE STUDENT RETIRED BUSINESS HOUSE HOLD TOTAL 6 4 2 4 2 18 4 2 0 2 1 9 VERY GOOD 1 1 2 3 0 7 UNATIS FACTORY 2 1 0 2 1 6 13 8 4 11 4 40 32.5 20.0 10.0 27.5 10.0 100 TOTAL %AGE

GOOD SATISFACTORY VERY GOOD UNSATISFACTORY

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TABLE DO YOU FIND OUT STAFF CO-OPERATVE/COURTEOUS? OCCUPATION SERVICE STUDENT RETIRED BUSINESS HOUSE HOLD TOTAL YES 5 3 2 8 2 20 NO 8 5 2 3 2 20 TOTAL 13 8 4 11 4 40 %AGE 32.5 20.0 10.0 27.5 10.0 100

yes no

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Credit Appraisal & Risk Analysis

TABLE IS MANAGER & STAFF RECEPTIVE TO YOUR PROBLEMS? OCCUPATION SERVICE STUDENT RETIRED BUSINESS HOUSE HOLD TOTAL YES 9 3 3 6 3 24 NO 4 5 1 5 1 16 TOTAL 13 8 4 11 4 40 %AGE 32.5 20.0 10.0 27.5 10.0 100

yes no

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Credit Appraisal & Risk Analysis

TABLE HOW MUCH TIME IS TAKEN IN OPENING OF AN ACCOUNT? OCCUPATION 15 MINUTES SERVICE STUDENT RETIRED BUSINESS HOUSE HOLD TOTAL 6 2 2 5 3 18 30 MINUTES 5 4 2 3 1 15 1 HOUR 2 2 0 2 0 6 2 HOURS/ TOTAL %AGE

MORE 0 0 0 1 0 1 13 8 4 11 4 40 32.5 20.0 10.0 27.5 10.0 100

15 minutes 30 minutes 1 hour 2 hours/more

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Credit Appraisal & Risk Analysis

TABLE DO YOU WANY TO AVAIL OUR CREDIT FACILITIES? OCCUPATI ON PERSON AL LOAN CONSUM ER LOAN OTHER S HOUSIN G LOAN CAR LOA N SERVICE STUDENT RETIRED BUSINESS HOUSEHOL D TOTAL 10 10 7 7 6 40 100 1 1 4 2 2 1 4 0 5 0 6 1 0 0 0 2 1 0 2 2 3 1 0 2 0 13 8 4 11 4 32.5 20.0 10.0 27.5 10.0 TOTA L %AG E

personal loan consumer loan others housing loan car loan

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CHAPTER-5 SWOT ANALYSIS

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Credit Appraisal & Risk Analysis

SWOT Analysis
Strength
1. Diversified operations with 5100 branches 2. Strong I.T support with best fit approach 3. Schemes for small and medium scale businesses 4. It is the second largest state-owned commercial bank in India with about 5000 branches across 764 cities 5. Its 56,000+ workforce serves over 37 million customers

Weakness
1. Less penetration in the urban areas 2. Inadequate advertising and branding as compared to other banks 3. Legal issues regarding employees caused a bad name of PNB

Opportunity
1. Small scale business banking across India 2. Expansion in other countries for international banking 3. Installation of more ATMs and better customers services

Threats
1. Economic crisis and economic fluctuations 2. Highly competitive environment 3. Stringent Banking Norms by the RBI and the Govts

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Credit Appraisal & Risk Analysis

CHAPTER-6 FINDINGS AND CONCLUSION

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FINDINGS & CONCLUSION

PNB is having a distribution network of more than 4000 branches. This is the main strength of the PNB, which cannot be the strength of any other bank. PNB is the oldest bank from 1895, so it has a strong band image in the market built over the time & a huge stockpile of the customers under its arms. The age group of employees is mostly towards at higher side, which is adversely affecting the productivity, as they do not have any enthusiasm left. PNB as not much computer savy and works more manually, which restricts its scope of business. The process of certain activities of the bank is very much lengthy, as a result of which now a days people prefer to go towards private banks. The working environment of the bank is not so much healthy and clean as result of which customers even hesitate to enter the bank.

Conclusions
Bank requires good sitting arrangements for the old generation so that they can get their work done easily and in a manner and get fully satisfied. Promotions to the employees should be given and their salary must be increased. Maximum tax benefit is availed from home loan and minimum from car loan. Maximum number of borrowers were get influenced by dealer/agent and minimum by relative. So bank requires introducing new advertisement for loan schemes. Bank requires to make better arrangements in sitting and standing in the branch. Bank has to maintain its working environment as result of which customers not even hesitate to enter the bank

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CHAPTER-7 RECOMMENDATIONS

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GENERAL SAFEGUARDS SUGGESTED BY RBI

RBI has suggested that the following broad safeguards/corrective measures may be observed while allowing advances:

i) Branches should open letters of credit and purchase/ discount/negotiate bills under LCs only in respect of genuine, commercial and trade transactions of their borrower constituents who have been sanctioned regular credit facilities. Branches should not extend the fund based (including bills financing) or non-fund based facilities like opening of LCs, providing guarantees and acceptances to non-constituent borrowers or/and non-constituent Member of a Consortium/Multiple Banking Arrangement.

ii) All proposals for advances, without exception, should emanate from the branches and sanctions should be made only after proper appraisal.

iii) No excess limit beyond the delegated powers should be sanctioned unless it is absolutely essential. Normally, necessity for large and adhoc amounts cannot arise overnight. If it happens, it indicates either unrealistic projections in the credit proposals or improper assessments of credit requirements.

iv) Adhoc amounts/excesses wherever sanctioned should be promptly reported to higher authorities without waiting for regularisation of advances, explaining the circumstances leading to the urgent need for funds. Controlling authorities should monitor the regularisation effectively.

v) Sanctions within discretionary powers should also be promptly reported to the 58

Credit Appraisal & Risk Analysis controlling authorities in the stipulated manner (Bank has prescribed reporting through Monthly Limits Sanctioned Statement).

vi) In case of non-reporting (either of the regular or adhoc sanction), the controlling authorities should obtain the prescribed returns/ statements and scrutinise the same diligently and take prompt follow up action. Observations/discrepancies, if any, should be conveyed to the sanctioning official for corrective action.

vii) Caution should be exercised against attempts by main borrowers to float fictitious companies in order to facilitate sanction of large limits ostensibly within the discretionary power of the sanctioning authority obviating need to put up the proposal to higher authorities for sanction.

viii) In case of oral/telephonic sanctions, proper record of the same should be maintained by the sanctioning as well as the disbursing authority, explaining therein the circumstances under which such sanctions had to be conveyed/obtained. Written confirmation of the competent sanctioning authority must invariably be obtained by the disbursing authority in such cases as also in sanctions beyond discretionary powers.

ix) The discretionary powers of the officials who have a tendency to exceed their powers frequently, should be reviewed by the Controlling Authorities. Bank's guidelines provide that wherever it is felt that the delegated powers are not being exercised judiciously or in Bank's interest, the same may be withdrawn. x) Controlling Authorities should make frequent visits to branches and submit reports of such visits, with special focus on all loan accounts

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BIBLIOGRAPHY
Books
MacMillan Principles and practices of banking, Tata Mc Graw hill publishing company ltd, 2nd revised addition

News Papers
The Economic Times Business Standard

Magazines
Business Outlook Business World

WEBLIOGRAPHY
http:/www.pnbindia.in http:/www.wikipedia.com www.google.com www.infibeam.com

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