CREDIT APPRAISAL PROCEDURES IN J & K BANK

A PROJECT REPORT
Submitted to the

SCHOOL OF MANAGEMENT
In partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION (M.B.A) By

PARVEZ SINGH Reg. No: 35080379

Under the guidance of

Mr. R.SHANMUGAM Assistant Professor

SRM UNIVERSITY
KATTANKULATHUR 603203 MAY 2010

ABSTRACT
Almost all of the industrial enterprises whether they are into manufacturing, trading or service sector need bank finance in order to run their businesses. So everyone approaches the bank at some point of time for business loan whether it is for running day to day business or for setting up of a new project. A banker appraises the proposal and then decides whether to lend the money or not. Some tips on what goes behind the credit appraisal of the proposal by the banker.

Credit Appraisal

is the process of appraising the credit worthiness of a loan

applicant. Factors like age, income, number of dependents, nature of employment, continuity of employment, repayment capacity, previous loans, credit cards, etc. are taken into account while appraising the credit worthiness of a person. Every bank or lending institution has its own panel of officials for this purpose.

This report deals with banks activities related to loans. It include features, history, criteria for loan sanction, board of directors of bank, product and services of bank, demography of customers, etc. Subject matter of this report has been elaborated with simple words and lucid. Tables, charts, figure have been given to facilitate understanding. I gave my complete effort to make it valuable, useful and enrich it with my views so that it gives complete sense and benefit to readers.

TASK ASSIGNED
I was assigned a project in J&K Bank that deals with evaluating and providing credit assistance to applicants and consumers from business establishment to consumable requirements, taking the prescribed norms of the RBI and J&K Bank into consideration. The task starts with the application from the borrower. Then a checklist is created to confirm the presence of all relevant documents and guarantees duly certified and to the satisfaction of JK bank. These documents contain the Detailed

Project Report (DPR) in case of term loan, the stock reports and companys financials along with guarantee in case of cash credit, the salary slips in case of consumable loans to salaried persons and securities in every case. The DPR contains the financial outlook, projections and the assumptions in accordance to the company applying for the loan. After initial scrutiny the borrower is requested to submit any further documents, if required and/or for clarification and queries. For a complex and large project, agency may also be asked to make a presentation to the team of appraisers, where the queries and clarification are addressed to obtain the complete documents and clarification. The Team prepares a final appraisal note in form of Report. We start with institutional financial viability assessment first, which contains the assessment of the net worth of the main promoters (both individuals and corporate according to the share holding pattern), the net worth of companies giving corporate guarantee along with the main company asking for loan. The relevant information from the audited reports of all is taken into account for this assessment. This is how we come across to a fine picture of financial position of the company requesting for financial aid. Confidential reports from existing bankers and lenders to the agency are also sought to ascertain the borrower/promoter's track record. For our regular borrowing agencies, the past record with JK Bank is also checked for any default. From here on the financial appraisal takes up examining the projected future Cash Flows and Balance Sheet. The main criterions used by JK Bank are DSCR (Debt Service Coverage Ratio) and DER (Debt Equity Ratio). The guidelines issued by JK Bank govern the required criterion.

I was required to assess the working capital requirements of various firms applying to JK bank for Cash Credits (Working Capital Loans). We were required to estimate MPBF for the same. Maximum Permissible Bank Finance is the maximum limit of credit that Bank can lend.

ACKNOWLEDGEMENT

My sincere thanks to our beloved chairman Mr. T. R. PACHAMUTHU for giving me an opportunity to do this course.

I express my sincere thanks to our beloved Dean & Head of the Department, Mrs. JAYSHREE SURESH, for providing me with the necessary facilities and endless encouragement.

I express my deep sense of gratitude and thanks to beloved faculty guide Mr.R.SHANMUGAM , for his guidance and invaluable suggestions for carrying out this project. I have immense pleasure in thanking everyone who helped me to achieve my goal.

I wish to express my sincere thanks to Mr.VIJAY DEV SINGH BILLAWARIA, Branch Manager, J&K BANK , Lakhdata Bazaar, Jammu, who was very kind to permit me to do my project in J&K BANK. I also extend my gratitude to all the officers of J&K BANK for their kind help and support for the successful completion of the work in time.

SCHOOL OF MANAGEMENT SRM UNIVERSITY

SRM Nagar, Kattankulathur 603203 GST Road Near Chennai Phone: 044-27453901, 27455919 Fax: 044-2745390 E-mail: info@srmuniv.ac.in Internet: www.srmuniv.ac.in _____________________________________________________________________ __

BONAFIDE CERTIFICATE

Certified that this project report entitled - CREDIT APPRAISAL PROCEDURES IN J&K BANK , is the benafide work of Mr. Parvez Singh (35080379) who carried out the project under my supervision. Certified further that, to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which any degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of the supervisor

Signature of the HOD

LIST OF TABLES AND CHARTS

TABLE NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

PARTICULARS OF THE TABLE Credit / Deposit Ratio Correlation of SGDP and Credit / Deposit Ratio Regression of SGDP and Credit / Deposit Ratio Trend percentage of Profit and Business performance Distribution network of J&K Bank Ratio analysis of Business per Employee Demography of customers Type of loans sanctioned in 1st quarter 2010 Reasons to use J&K Bank Time taken to process the loan

CONTENTS

CHAPTER NO.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. INTRODUCTION

TITLE

PAGE NO.
2 3 5 6 32 35 49 59 60 62 63 65

STATEMENT OF THE PROBLEM OBJECTIVES OF THE STUDY REVIEW OF LITREATURE METHODOLOGY AND LIMITATIONS COMPANY PROFILE ANALYSIS AND INTERPRETATION FINDINGS SUGGESTIONS CONCLUSION BIBLIOGRAPHY APPENDICES

INTRODUCTION
Almost all of the industrial enterprises whether they are into manufacturing, trading or service sector need bank finance in order to run their business. So everyone approaches the bank at some point of time for business loan whether it is for running day to day business or for setting up of a new project. A banker appraises the proposal and then decides whether to lend the money or not. Some tips on what goes behind the credit appraisal of the proposal by the banker.

Credit Appraisal

is the process of appraising the credit worthiness of a loan

applicant. Factors like age, income, number of dependents, nature of employment, continuity of employment, repayment capacity, previous loans, credit cards, etc. are taken into account while appraising the credit worthiness of a person. Every bank or lending institution has its own panel of officials for this purpose.

This report deals with banks activities related to loans. It include features, history, criteria for loan sanction, board of directors of bank, product and services of bank, demography of customers, etc. Subject matter of this report has been elaborated with simple words and lucid. Tables, charts, figure have been given to facilitate understanding. I gave my complete effort to make it valuable, useful and enrich it with my views so that it gives complete sense and benefit to readers.

STATEMENT OF THE PROBLEM

I was assigned a project in J&K Bank that deals with evaluating and providing credit assistance to applicants and consumers from business establishment to consumable requirements, taking the prescribed norms of the RBI and J&K Bank into consideration. The task starts with the application from the borrower. Then a checklist is created to confirm the presence of all relevant documents and guarantees duly certified and to the satisfaction of JK bank. These documents contain the Detailed Project Report (DPR) in case of term loan, the stock reports and companys financials along with guarantee in case of cash credit, the salary slips in case of consumable loans to salaried persons and securities in every case. The DPR contains the financial outlook, projections and the assumptions in accordance to the company applying for the loan. After initial scrutiny the borrower is requested to submit any further documents, if required and/or for clarification and queries. For a complex and large project, agency may also be asked to make a presentation to the team of appraisers, where the queries and clarification are addressed to obtain the complete documents and clarification. The Team prepares a final appraisal note in form of Report. We start with institutional financial viability assessment first, which contains the assessment of the net worth of the main promoters (both individuals and corporate according to the share holding pattern), the net worth of companies giving corporate guarantee along with the main company asking for loan. The relevant information from the audited reports of all is taken into account for this assessment. This is how we come across to a fine picture of financial position of the company requesting for financial aid. Confidential reports from existing bankers and lenders to the agency are also sought to ascertain the borrower/promoter's track record. For our regular borrowing agencies, the past record with JK Bank is also checked for any default. From here on the financial appraisal takes up examining the projected future Cash Flows and Balance Sheet. The main criterions used by JK Bank are DSCR (Debt Service Coverage 9

Ratio) and DER (Debt Equity Ratio). The guidelines issued by JK Bank govern the required criterion. I was required to assess the working capital requirements of various firms applying to JK bank for Cash Credits (Working Capital Loans). We were required to estimate MPBF for the same. Maximum Permissible Bank Finance is the maximum limit of credit that Bank can lend. It is calculated as follows:

Maximum Permissible Bank Finance (MPBF)

Current Assets ( All Current Assets) Less: Current Liabilities ( Crs. + Other Current Liabilities) Working Capital Gap Less: 25% of the Total Current Assets or NWC whichever is higher of the two amounts MPBF

Assessment Of Working Capital Fund Based : under Mortgage Loan Scheme

Sales for last financial year Projected Sales for next financial year Accepted Sales (Maximum 125% of the achieved turnover) Permissible Limit (20% of the accepted sales) Forced Sale value of Property Permissible Limit (75% of the forced Sale Value) Maximum Permissible Limit (Lower of A or B) C B A

10

Available Limit Limit Recommended by the branch

OBJECTIVES OF THE STUDY

Scope of study:
The scope of study is that it gives the structure of how banks usually sanction loans. The study helps to know the various procedures, terms, conditions, criteria and formalities required during the processing of loan sanctioning. It has been done for the entire customer who takes interest in banking.

Objectives:
The objectives of my report are below: a. To analyze the types of loan sanctioning by J&K Bank . b. To study the procedure for sanctioning different types of loan (Term loan, Mortgage loan, Cash credit etc). c. To generate the demographic profile of customers. d. To map the satisfaction levels of customer regarding the services offered by J & K Bank.

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REVIEW OF LITERATURE

Banking in India

Structure of the organised banking sector in India. Number of banks are in brackets. 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 functions. After India's independence in 1947, the

12

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 96 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. Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet 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 most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reason of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money have become the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

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Early phase from 1786 to 1969 of Indian Banks Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.

TYPES OF BANKS IN INDIA

All types of Banks in India are regulated and the activities monitored by a standard bank called the Reserve Bank of India that stands at the apex of the banking structure. It is also called the Central Bank, as major banking decisions are taken at this level. The other types of banks in India are placed below this bank in the hierarchy. The major types of banks in India are as follows:

Public sector banks in India - All government owned banks fall in this variety. Besides the Reserve Bank of India, the State Bank of India and its associate banks and about 20 nationalized banks, all comprise of the public sector banks. Many of the regional rural banks that are funded by the government banks can also be clubbed in this genre.

Private sector banks in India - A new wave in the banking industry came about with the private sector banks in India. With policies on liberalization being generously taken up, these private banks were established in the country that also contributed heavily towards the growth of the economy and also offering numerous services to its customers. Some of the most popular banks in this genre are: Axis Bank, Bank of Rajasthan, Catholic Syrian Bank, Federal Bank, HDFC Bank, ICICI Bank, ING Vysya Bank, Kotak Mahindra Bank and SBI Commercial and International Bank. The Foreign Banks in India like HSBC, Citibank, and Standard Chartered bank etc can also be clubbed here. Old generation private banks

14

Cooperative banks in India - With the aim to specifically cater to the rural population, the cooperative banks in India were set up through the country. Issues like agricultural credit and the likes are taken care of by these banks.

Development Banks/Financial Institutions

IFCI IDBI ICICI IIBI SCICI Ltd. NABARD Export-Import Bank of India National Housing Bank Small Industries Development Bank of India

ROLE OF BANKS IN DEVELOPING ECONOMY

Banks play a very useful and dynamic role in the economic life of every modern state. A study of the economic history of western country shows that without the evolution of commercial banks in the 18th and 19th centuries, the industrial revolution would not have taken place in Europe. The economic importance of commercial banka to the developing countries may be viewed thus:

Promoting capital formation Encouraging innovation Monetisation Influence economic activity Facilitator of monetary policy

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FORMS OF BANK FINANCE

A firm can draw funds from its bank within the maximum credit limit sanctioned. It can draw funds in the following forms:

Overdraft

Under the overdraft facility, the borrower is allowed to withdraw funds in excess of the balance in his current account up to a certain specified limit during a stipulated period. Though overdrawn amount is repayable on demand, they generally continue for a long period by annual renewals of the limits. It is a very flexible arrangement from the borrowers point of view since he can withdraw and repay funds whenever he desires within the overall stipulations. Interest is charged on daily balances- on the amount withdrawn-subject to some minimum charges. The borrower operates the account through cheques.

Cash Credit

It is the most popular method of bank finance for working capital in India. Under this method a borrower is allowed to withdraw funds from the bank up to the sanctioned credit limit. Borrower is not required to borrow the entire sanctioned credit once, rather, he can draw periodically to the extent of his requirements and repay by depositing surplus funds in his cash credit account. There is no commitment charge; therefore, interest is payable on the amount actually utilized by the borrower. Cash credit limits are sanctioned against the security of current assets. Though funds borrowed are repayable on demand, banks usually do not recall such advances unless they are compelled by adverse

16

circumstances. Cash credit is the most flexible arrangement from borrowers point of view. It is more often than not used for working capital.

Purchase of Discounting Bills

Under the purchase or discounting of bills, a borrower can obtain credit from bank against its bills. The bank purchases or discounts the borrowers bills. The provided under this agreement is covered within the overall cash credit or overdraft limit. Before purchasing or discounting the bills, the bank satisfies itself as to the creditworthiness of the drawer. Though the term bills purchased implies that the bank becomes owner of the bills, in practice, bank holds bills as security for the credit. When a bill is discounted, the borrower is paid the discounted amount of the bill.

Letter of Credit

Suppliers, particularly the foreign suppliers, insist that the buyer should ensure that his bank will make the payment if he fails to honor its obligation. This is ensured through a letter of credit arrangement. A Bank opens a Letter of Credit in favor of a customer to facilitate his purchase goods. If the customer does not pay to the supplier within the credit period, the bank makes the payment under the L/C arrangements. This arrangement passes the risk of the supplier to the bank. Bank charges the customer for opening the L/C. The Bank extends such facility to the financially sound customers. Unlike cash credit or overdraft facility, the L/C arrangement is an indirect financing; the bank makes payment to the suppliers on behalf of the customer only when he fails to meet the obligation. There are two banks involved in L/C arrangements. The L/C opener Bank on behalf of the applicant or purchaser and the advisory bank on behalf of the beneficiary or supplier. The L/C opener Bank issues L/C after taking required security. The beneficiary or supplier gives the goods invoice & bill of exchange to the advisory bank. The advisory

17

bank sends the same to the Opener Bank for acceptance, the opener bank take an acceptance from the applicant and sends back the same to the advisory bank. Now the L/C opener Bank makes payment to the beneficiary or supplier in case of purchaser default. The bank charges the customer for opening the L/C.

Bank Guarantee

A Bank Guarantee is a guarantee made by a bank on behalf of a customer (usually an established corporate customer) should it fail to deliver the payment, essentially making the bank a co-signer for one of its customer's purchases.

A bank guarantee is more risky for the merchant and less risky for the bank. A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. With a bank guarantee, a client can default and the bank assumes the liability. Thus it can be said that Bank Guarantee is a commitment made by a bank to a foreign buyer that the bank will pay an exporter for goods shipped if the buyer defaults.

Loan Process & Credit Analysis in Banks:

Loans are the most important assets in a banks portfolio, sound credit analysis is the key to making high-quality loans and managing credit risk. As very few firms have the resources to operate their businesses on a cash basis. Most have to rely on credit just to stay in business.

As shown in the diagram, credit analysis in integral and essential part of loan process. Credit analysis is defined as The process of evaluation an applicants loan request in order to determine the likelihood that the borrower will live up to his/her obligations. It means basically it checks the credit worthiness of the borrower.

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Loan Process Flow: The concept of credit offers a business many benefits, but it always entails risk. Youre caught between two crucial profit objectives. Within your banks credit policies, you want to do as much as you can to grant credit and facilitate sales. But the credit manager is equally obliged to make tough judgments and determinations concerning his/her customers credit-worthiness, to ensure that the bank is paid on time and in full. The entire operations of the banking industry revolve around obtaining deposits and granting loans and different credit facilities to its customers for viable projects. Stage 1 Pre-Qualifying Stage 2 Application Stage 3 Processing Stage 4 Underwriting Stage Closing 5

>> Preliminary determination of borrowing capacity and credit history

>> Fill out loan application. >> Gathering documents from applicant.

>> Credit check. >> Appraisal of property. >> Title search. >> Employment & residential history complied. >> Verification of financial reserves.

>> Loan goes to underwriter for approval. >> All conditions requested by underwriter are met. >> Loan is approved.

>> Signing documents drawn. >> Documents sent to title company. >> Buyers bring in money and sign documents. >> Title company records deed. >> Escrow is now closed. >> Buyers get keys to property.

Figure 2

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The above diagram shows various stages involved in the standard loan process flow.

DETAILS OF LOANS OFFERED BY J&K BANK

The J&K Bank sanction following types of loans:

1. Housing loan:
Quantum for loan: For construction, purchase 60 month, net salary or 75.00 lacs whichever is lower for repairs/ renovation 20 months net salary subject to a maximum of Rs 10.00 lac for purchase of land 20 months net salary/ income subject to maximum of Rs 5 lac with in J&K Bank and Rs 10.00 lac outside J&K Bank ,also as an incentives for small borrower the renovations of existing houses would now be secured by third party guarantee of two persons such other security as is deemed appropriate by the Bank. Eligibility: - Employee of Government, Semi Government, Civics Bodies, and PSUs with minimum five years service. -Repute Businessmen with minimum five years standing. -Professionals and Self employed like doctors & engineers, CAs, Advocates with minimum five years standing. Security: Primary: Mortgage of house property to be purchased/ constructed. Collateral: Third Party Guarantee of one person, or assignment of LIC policies, Pledge of Government, Securities, etc. Margin: 15% for construction/purchase of built house flat. 20% for renovation/purchase of land.

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Rate of Interest:
Housing Loans Repayment Period Floating Rate of Fixed Rate of of loans Interest(% p. a.) for Interest(% p. a.) for loans loans Up to Rs.20.00 lacs Repayment up to 5 PLR-3.25 years. Above 5 years & PLR-2.75 up to 10 years Above 10 years & PLR-2.00 up to 15 years Above 15 years & PLR-1.25 up to 20 years Above Rs.20.00 lacs PLR-2.50 PLR-2.00 PLR-1.25 PLR-0.50 Up to Rs.20.00 lacs 10.25 11.00 XXX XXX Above Rs.20.00 lacs 11.00 11.75 XXX XXX

2. Education Loan:
Scale of finance:
Rs 10.00 lacs for studies in India. Rs 20.00 lacs for studies abroad. Courses financed in India: Post Graduate courses. Professional courses. Courses like ICWA, CA, CFA, etc.

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Courses conducted by IIM, IIT, IISC, XLRI, NIFT, etc. Regular degree /Diploma courses. Courses offered by reputed foreign universities. Distance education and regular courses in diploma degree Courses conducted by AICTE/AIBMS/ICMR, etc. Teacher training courses/nursing courses conducted by institution approved by Central Government/State Government provided the said courses lead to degree or diploma & not to certificate courses.

Courses financed (Abroad): Graduation for job oriented professional/technical courses offered by reputed universities. PG Courses MCA, MBA, MS, etc. Courses conducted by CIMA-London, CPA in USA, etc.

Eligibility:
Should be an Indian National. Should have secured admission to professional/technical courses through entrance test/selection process. Should have secured admission to foreign universities, institutions. Should have passed the qualification examination for admission to the courses. Employed person intending to improve their educational qualification and or receiving training in modern technology in India or Abroad can also be assisted under this scheme provided training offers prospects of better placement.

Security:
Personal guarantee of borrowers. Collateral Security equal to amount of loans.

Margin:
For loans upto Rs 4 lac nil. For loans above Rs 4 lac studies in India - 5% studies abroad 15%.

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Rate of Interest:

Education Loans ( Primary & Higher Education Schemes ) a) Up to Rs 25000/= b) Above Rs.0.25 lacs & up to Rs.5.00 lacs c) Above Rs.5.00 lacs & up to Rs10.00lacs 9.50 * 10.50 * 11.50 *

d) Above Rs.10.00lacs & up to Rs.20.00lacs

12.50 *

Note :In case of Education Loans sanctioned for tenure of more than 5 years, floating interest rate as per the following structure would apply :-

Loan amount a) Up to Rs 25000/= b) Above Rs.0.25 lacs & up to Rs.5.00 lacs c) Above Rs.5.00 lacs & up to Rs10.00 lacs d) Above Rs.10.00 lacs & up to Rs.20.00 lacs

Rate of Interest % p. a. PLR 3.75 PLR 2.75 PLR 1.75 PLR 0.25

a) Term Loan for B.Ed/M.Ed: Purpose:

To provide loan to students, employed persons who want to pursue B.Ed/M.Ed courses for meeting admission/ tuition /examination/library/lab fee.

Eligibility:
Student should be an Indian National. Should be a graduate in any discipline from any recognized universities.

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Should have a secured admission to the recognized Institute/College imparting the B.Ed/M.Ed courses. Loan application should be forwarded by the principal of college.

Quantum of finance: Max- Rs 25000. Margin: Security: Rate of interest:

10% Third party guarantee of one person. PLR with quarterly rests.

a.) Bud shah Primary Education Finance: Objective:

To provide opportunity to have good quality primary education.

Purpose:
To finance the entire cost of education of children including school/fees/uniforms/books/etc.

Eligibility:
All children above the age of 3 years. The finance granted in the name of guardian.

Quantum of finance: Class

Primary education Primary education Secondary education Secondary education

School
Private Govt Private Govt

Max. Amount
30,000 2,000 25,000 5,000

Margin: Security:

10%

Personal guarantee of parents/guardians. Third party guarantee of one person.

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Rate of interest:

PLR quarterly

3. Automobile Loan:
It includes following schemes for Loan Car loans Car loan for used cars Commercial vehicles finance Commercial vehicles finance (used vehicles) Two wheelers

The schemes which are mostly used by customer are:

a) Car loan: Eligibility:

Permanent Employees of State/Central Govt/Employee of Govt/Semi Govt undertaking & Autonomous Bodies. Reputed Establishments and Employees on control basis with Central Govt/Central Govt/Semi Govt. Businessmen, professionals and self employed individuals.

Security:
Primary: Hypothecation of vehicle to be purchased & Banks charge to be registered with RTO. Collateral: No third party guarantee is required in respect of permanent employees of State/Central Govt undertakings & autonomous bodies, public sector drawing salary through J&K Bank and where letter of undertaking from the employer is available. Guarantee of one person for all other applicants of the bank.

Margin:
10% of State Invoice value for employees of State/Central Govt undertaking, Autonomous Bodies, Platinum/God current account holder.10% margin shall also apply

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to businessmen, professionals and self employed person with yearly income of Rs 2,50,000/- and above. 20% of sale invoice value in case of all the other cases. 100% finance shall be available to application if they keep a fixed deposit with the

bank for amount equal or more than the margin money and for duration not less than the repayment period of the loan. This deposit shall be kept under lien to the bank.

Minimum Loan: Rs 75,000/b) Two wheeler Loan: Eligibility:

Employees of Govt/Semi Govt undertaking Autonomous Bodies/PSUs/Private companies or Reputed Establishments/Professionals or Self Employed

Individuals/Businessmen. Student aged 18 years and above, with parent as co-borrower. Minimum age of applicant 18 years. Maximum age at loan maturity: 58 years or age of retirement which ever is higher for Govt.employees & 65 years for others. Minimum employment: The applicant must have been in current employment for a period not less than 1 year or must have a business standing of at least 2 years. Minimum Net Annual Income: 50,000.

Margin:
10% of the sale invoice value for employees of State/ Central Govt undertaking /Autonomous bodies/Platinum/ Gold current account holder.10% margin shall also apply to Business, Professionals & Self Employed persons with yearly income of Rs 2,50,000/-above. 20% of sale invoice value in case of all the other eligible, individuals/entities except employees on contractual basis.

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25% of the sale invoice value in case of employees of private sector organization & employees on contractual basis.

Rate of Interest:

Up to & including Fixed Option

1 year Above 1yr to 3yrs Above 3yrs 13.50 14.50 15.00

Floating Option
PLR PLR+1 PLR+1.25%

Security:
Primary: Hypothecation of two wheeler to be purchased. Collateral: No third party guarantee required in respect of permanent employees of State/Central Govt undertaking & Autonomous Bodies Public Sector drawing salary through J&K Bank and where letter of conformation of employer for deduction of monthly installments is available. Guarantee of one person in case of employees drawing salary through our branches but where letter of confirmation form employer is not available. Guarantee of one person for loan upto Rs 50,000 & other cases. However Branches Heads shall have the discretion on any owner of relaxing the Guarantee requirement in case of select borrowers.

4. Other Loans:
a) Consumer loans: Purpose:
Loan granted for purchase of durable consumer good like. Desktop computer (PC)/Laptop.

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Motorcycle/ Scooter/Air Conditioner/Color T.V/ DVD player/VCR/Generator/Washing Machine (automatic)/ Cooking range. Refrigerator /Dish antenna/DTH equipment/ Vacuums Cleaner/Water filter cum purifier/CD Player/ Cassette Player/Geyser/etc.

Eligibility: Employees of Govt/Semi Govt/Civics Bodies/Self Employed. Security:

Primary: Hypothecation of article financed. Collateral: Third party guarantee of one person.

Rate of Interest: 14%(fixed) Margin:

25%

b) Consumption Loans: Features:

Disbursed in cash. No questions asked about its end uses. Revolving type facility as full limit can be restored on request of the borrower subject to the following: Outstanding balance reduced to below 40% of the Loan Amount. At the time of reinstatement of the limit applicant must have sufficient remaining years of service so that loan is repaid with in the borrowers remaining yrs of service. Fresh D.P note for full amount of loan. Borrower does not have more than two installments in arrears on any point of time during currency loan.

Eligibility:
Permanent Employees of State/Central Govt/ Autonomous Bodies/ Corporate Public and Private Sector undertaking having minimum of 3 yrs confirmed service.

c) Personal Loan to Pensioners:

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1)

Upto Rs 2.00 lacs

13.00

Nature of

facility:
Disbursed in cash. No question asked about it end uses.

Eligibility: Central and State Govt pensioners drawing pension through bank. Security:
Guarantee of spouse eligible for family pension or of any other family member or a third party guarantee which is considered good for the amount of advance.

Rate of Interest: PLR+1% d) Mortgage Loan for Trade & Service Sector: Purpose: To provide hassle free working capital finance to the borrower. Eligibility:
Retail and wholesale traders and other business enterprises with satisfactory track record of 3 years.

Security:
Primary: Hypothecation of stocks and book 29 epts.. Collateral: Mortgage of unencumbered residential house/ flat/ commercial or industrial property with a clear marketable tittles in the name and possession of the borrowers/proprietors/partners/directors either self occupied or vacant.

Rate of interest:

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2) 3)

Above Rs 2.00 lacs & Upto Rs 20.00 lacs Above Rs 20.00 lacs & Upto Rs 50.00 lacs

14.50 15.00

Condition
for all Ltd Upto Rs 2.00 lacs Above Rs 2.00 lacs & Upto Rs 20.00 lacs Above Rs2.00 lacs

Rate of Interest
Xxx PLR PLR+1% PLR+1.50%

Some of other loans include in Mortgage are: Fair price shop scheme. Travel & Tourist Taxi operators. Mortgage loans against immovable property.

5. Specialized Loans:
These loans are sanctioned for special purpose like Tour, Agriculture, Crafting, etc. Some of the special schemes for special purpose are below:

Help Tourism (for Kashmir valley only). All purpose Agriculture Term Loan.

Upto Rs 0.50 lacs Above Rs 0.50 lacs Fruit Advances Scheme (Apple) Zafran Finance. Roshni Financing Scheme. Craft Development Scheme. Dastkar Finance. Giri Finance Scheme. Khalamband craftsmen Finance.

10% 11%

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 Commercial Premises Finance. Laptop/ PC Finance.

Nature of Loans
Sanctioning of loan comes under the category of Bank Advances or Loans/Advances. There are various kinds of Loans having difference in nature, which are discussed below:

1. Term Loans:
These loans are basically given for the purchase of plant and machinery to the concerned party against hypothecation of books-debts and stock. This is given for a period of 5 years i.e. the repayment has to be made by the party with in 5 years.

Eligibility:
Individuals and Business entrepreneurs engaged in trading & service activity having a minimum standing of 3 years with a satisfactory track record of cash profits and net profit during the last one year.

2. Working Capital Finance:

It is also known as Cash Credit Limit. This is basically given to finance to working capital i.e. the amount needed to run the business-capital. It is too given against hypothecation of books-debts and stock. It is renewed after calculation, the drawing power of the party through its stock statement, sundry debtors and sundry creditors statement.

Eligibility:
Individuals and Business Entrepreneurs engaged in trading service activity having a minimum standing of 3 years with a satisfactory track record of cash profit and net profit during the last one year.

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3. Mortgage Loans:
For providing hassle free loan to individuals, trade and services sector.

Eligibility:
Individuals and Business Entrepreneurs engaged in trading and service activity having a minimum standing 3 years with a satisfactory track record if cash profits and net during the last one year.

Compulsory Document
Some document which are needed to be put in record by Bank:
D.P Note Affidavit Irrecoverable power of Attorney (Borrower) Letter of wavier Deed of Guarantee Letter of undertaking Letter of consent by borrower Letter of additional undertaking Letter of consent by guarantor Letter of deposit title deeds Loan agreement

There are different types of forms filled and put as record:

Proposal form for fresh/renewal/enhancement. Personal statement of borrower. Personal statement of first guarantor. Personal statement of second guarantor. Credit report of first guarantor. Credit report of second guarantor.

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 Loan application form.

Factors to be taken into consideration while determining requirements for working capital:
Production Policies

A sugar factory which belongs to a seasonal industry would obviously have its working capital need affected by the length of the crushing season. The production schedule i.e. the plan for production, has great influence on the level of inventories. In some cases raw material can be procured only in a particular season and have to be stocked for the production of the whole year. In many others, the production cycle is limited to a part of the year and raw materials have to be accumulated throughout the year. In all such cases the need for working capital will vary according to the production plans. Similarly, the decision of the management regarding automation, etc, also affects working capital requirements. In a labor- intensive process, the requirements of working capital will be higher. In the case of highly automatic plant, the requirements of long-term funds would be greater.

Nature of the business

The shorter the manufacturing process, the lower is the requirements of working capital. This is because, in such a case, inventories have to be maintained at a low level. Longer the manufacturing process, higher will be the requirements of working capital. This is the

33

reason why highly capital-intensive industries require large amount of working capital to run their sophisticated and long production process. Similarly, a trading concern requires lower working capital than a manufacturing concern.

Credit policy

The credit policy of the company also determines the requirements of working capital. A company, which allows liberal credit to its customers, may have higher sales but consequently will have large amount of funds tied up in sundry debtors. Similarly a company, which has very efficient debt collection machinery and offers strict credit terms, may require lesser amount of working capital than the one where debt collection system is not so efficient or where the credit terms are liberal. The credibility of a company in the market also has an effect on the working capital requirements. Reputed and established concerns can purchase raw material on credit and enjoy many other services also like door delivery, after sales service etc. This would mean that they could easily have large current liabilities; therefore the required working capital may not be very high.

Inventory policy

The inventory policy of a company also has an impact on the working capital requirements since a large amount of funds is normally locked up in inventories. An efficient firm may stock material for a smaller period and may, therefore, require lesser amount of working capital.

Abnormal factors

Abnormal factors like strikes and lockouts also require additional working capital. Recessionary conditions necessitate a higher amount of stock of finished goods remaining in stock. Similarly, inflationary conditions necessitate more funds for working capital to maintain same amount of current assets.

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Market conditions

Working capital requirements are also affected by market conditions like degree of competition. Large inventory is essential as delivery has to be off the shelf or credit has to be extended on liberal terms when market competition is fierce or market is not very strong is a buyers market.

Conditions of supply

If prompt and adequate supply of raw materials, spares, stores etc. is available it is possible to manage with small investments in inventory or work on the just in time (JIT) principle. However if the supply is erratic, scant seasonal, channel zed through government agencies etc., it is essential to keep large stocks increasing working capital requirements.

Business Cycle

Business fluctuations lead to cyclical and seasonal changes in production and sales and affect the working capital requirements.

Growth and expansion

The growth in volume and growth in working capital go hand in hand. However, the change may not be proportionate and the increased need for working capital is felt right from the initial stages of growth.

Level of taxes

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The amount of taxes paid depends on taxation laws. These amount usually have to be paid in advance. Thus need for working capital varies with tax rates and advance tax provisions. Dividend policy

Payment of dividend utilizes cash while retaining profits acts as a source of working capital. Thus working capital gets affected by dividend policies.

Price level changes

Inflationary trends in the economy necessitate more working capital to maintain the same level of activity.

Operating efficiency

Efficient and coordinated utilization of capital reduces the amount required to be invested in working capital

Securities Required in bank finance

Banks generally do not provide working capital without adequate security. The following are the modes of security which a bank may require:

Hypothecation

Under hypothecation, the borrower is provided with working capital finance by the bank against the security of movable property, generally inventories. The borrower does not transfer the property to the bank; he remains in the possession of property made available as security for the debt. Thus hypothecation is a charge against property for an amount of

36

debt where neither ownership nor possession is passed to his creditor. Banks generally grant credit hypothecation only to first class customers with highest integrity. They do not usually grant hypothecation facility to new borrowers.

Pledge

Under this arrangement, the borrower is required to transfer the physical possession of the property for the payment of debt. In case of mortgage, the possession of the property may remain with the borrower, with the lender getting the full legal title. The transferor of interest (borrower) is called mortgager, the transferee (bank) is called mortgagee, and the instrument of transfer is called the mortgage deed. The credit granted against immovable property has some difficulties. They are not self liquidating. Also, there are difficulties in ascertaining the title and assessing the value of the property. There is limited marketability and therefore security may often b difficult to realize. Also, without the courts decree the property can not be sold. Usually, for working capital finance, the mode of security is either hypothecation or pledge. Mortgages may be taken as additional security.

Lien

Lien means right of the lender to retain property belonging to the borrower until he repays credit. It can be either a particular lien or general lien. Particular lien is a right to retain property until the claim associated with the property is fully paid. General lien, on the other hand, is applicable till all dues of the lender are paid. Banks usually enjoy general lien.

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Research Methodology

ResearchDesign:
It has been done in step by step process so as to avoid error, mistakes and to put the matter or data in right manner so to put complete sense in front of reader. Steps which have been applied to report are below: Step 1- Identify the objectives. Step 2-Method of Data collection. Depending upon the sources, statistical data which are classified under categories: Primary Data: This data obtained by a study specifically designed, it is taken or collected by market survey, friend circle, relatives. Its is also known as First Hand Data. A survey questionnaire was given to all the customers in J&K Bank, Lakhdata Bazaar to be filled by them personally. Secondary Data: This data is collected by Magazines, Posters, Internet, Newspapers, Reports Publication, etc. Annual report of the bank was the major source of secondary data. Data was also collected from the J&K Bank website. Step 3- Analysis of collection data. (Through graphs, tables, charts, etc. Statistical tools were also used.) Step 4- Finding & Conclusion.

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According to above steps our report objectives has been discuss early in the chapters and the data has been collected is of both type primary and secondary, secondary data is collected by annual magazine published by bank ,newspapers, internet search, etc.

STATISTICAL TOOLS AND RATIOS APPLIED

RATIO ANALYSIS Accounting ratios are relationships expressed in mathematical terms between figures which are related with each other in some manner. Credit deposit ratio Business per employee ratio Profit per employee ratio TREND ANALYSIS It helps to understand the trend relationship with various items in terms of financial relationships. PERCENTAGE ANALYSIS It simplifies the comparison between different items and helps to understand it and hence express it in an easier manner . CORRELATION AND REGRESSION ANALYSIS Correlation analysis is used to find the degree of relationship between two or more variables . The main objective is to find the relationship between the dependent variable with the provided independent variables. SWOT ANALYSIS It is the analysis of strength , weakness , opportunity and threat posed to any organization in present or future which is being studied .

Limitation
Lack of time limitation: The major limitation was the lack of time. There were many cases of J & K bank and different related topics which need lot of time to study and analyze but due to limited

39

time of 6 weeks it is not possible so, I took few cases to include them in my report, otherwise I would have added few more interesting topics to my report. Reliability of the data used: The data used in my report were secondary as well as primary also . Therefore the data can be trustworthy because whatever the information has been sent on internet by the bank and day to day events related to bank has been organized and published in newspapers and magazines and the cases which I have included in my report are primary which I had worked upon with my complete efforts. Limited geographical extend: The Employees of J & K Bank belong to Jammu & Kashmir, so their culture and their language is quite different. They mostly speaks Kashmiri with each other, they know Hindi also but the pronunciation is little bit typical to understand, so it create little bit problems in starting . Less Variation in customer: Customer of J&K Bank are mostly Businessmen and government employees, so it is very difficult to analyze our objective.

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COMPANY PROFILE
The Jammu & Kashmir bank was established on Oct. 1, 1938 while it had started operating from July 4th, 1939 onwards. This bank is special because of being the first state owned bank of India. The J&K Bank, owing to the extended central laws of the state of J&K, was declared as a government bank according to the provisions of the Indian Companies Act 1956. The year 1971 brought an important turn in the history of the Jammu & Kashmir Bank as in this year the bank was accorded the stature of a Scheduled Bank.

At present, the J&K Bank has around 500 branches across the country and it has recently become a $10 billion company. It is also a listed at the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Services Rendered by J&K Bank Ltd. Support Services Anywhere Banking Depository Services Dematerialization Third Party Services Mutual Funds Cash Management Services Real Time Gross Settlement (RTGS)

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Internet Banking

Stock Broking Depository Participant of NSDL and CDSL Off-market Transaction DP Account Opening

Life Insurance

National Electronic Fund Transfer (NEFT)

SMS Banking ATM Banking Debit & Credit Cards Merchant Acquiring

Non-life Insurance

Market Transaction Remittance

Mission Statement of the bank

The most important change is to move away from trying to govern to trying to serve. The banks overriding mission as a corporation is to use its core competency to serve and empower the people of the state in general and entrepreneurs in particular, rather than serving them as an afterthought.

Future Goals of the Bank

To build a global brand, the Bank feels a need to do two things go global physically and second, more importantly, have a unique business model, product offering and service standards, all of which are globally recognized.

The bank has taken initial steps to achieve the first. As of today, after the state government, the banks second largest shareholders are Foreign Institutional Investors, with a combined stake of almost 36 per cent. Some of the biggest names in the world figure in the sixty plus funds that have invested in the Bank. The list is truly international, with funds from USA, Europe, Singapore, Japan, Sweden, Mexico and Spain, having investments valued at more than $300 million in the Bank.

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As a next step in this direction, the bank plans this year to raise money abroad. The bank will offer Global Depository Receipts and list the Bank in international capital markets. This will be a landmark in J&K bank illustrious history.

The second way to becoming a global brand is to have a unique business model, which is a far more formidable task. The Bank has a wonderful brand in Pashmina. By and large most global brands are products. What the bank is setting out to do is to create a global brand in the financial services industry.

The new identity for J&K Bank is a visual representation of the Banks philosophy and business strategy. The three colored squares represent the regions of Jammu, Kashmir

43

and Ladakh. The counter-form created by the interaction of the squares is a falcon with outstretched wings a symbol of power and empowerment. The synergy between the three regions propels the bank towards new horizons. Green signifies growth and renewal, blue conveys stability and unity, and red represents energy and power. All these attributes are integrated and assimilated in the white counter-form.

Board of directors of J&K Bank

Board of director or BOD means Board Members these members are those whose right decision take the bank at top position or their one mistake make it fall. BOD provide direction to the Bank in order to achieve its vision .A brief profile of BOD of J&K Banks are below: 1. Haseeb A Darbu: Haseeb A Darbu (chairman & Executive Officer) He is professional economist who has been on the BOD of Bank since 11th July 2003. Processing a diverse skill set and wide ranging experience, he started his professional career with the perspective planning Division of the Planning Commission. Later he was appointed Consultant to Economic Advisory council of Prime Minister. His final stint with policy making was with the Tenth finance Commission. Moving from government to the field of business journalism, he joined Indias premier financial daily, business Standard and rose to become the national Editor of paper .in 1997 he was appointed member of the high powered Committee on Economic Reforms for Jammu & Kashmir .At present he continues to work as the economic Advisor to Government of Jammu & Kashmir, a position he has held since January 2003.

2. M.S.Verma: 44

Mayashanker Verma, a career banker with 45 years experience of working in the Indian Financial Sector has held some of the senior most and critical position in the countrys financial system as well as its regulatory regimes .In a career spanning over more than four decades with the State Bank of India, Indias largest commercial bank, his experience has been multi-level and wide ranging on different facts of banking at national and international levels. Encompassing commercial, developmental and Investment Banking as well as assets management and capital market operations. He was the chairman of the State Bank of India from April 1997 to Nov 1998. He has vast experience and understanding in total financial systems. The IDBI under the chairmanship of Mr.Verma recorded very strong growth to become a leading private Sector Bank in India. Mr.Verma also acted as an honorary advisor to the RBI during which he undertook several policies related to education.

3. B.L. Dogra: B L Dogra is a Fellow Member of the Institute of Chartered Accountants of India and is also founder of M/s Dogra Associates, a participating firm of Charted Accountants. Presently linked as Director with J&K Bank, he has also served on the BOD of PNB (Punjab National Bank) and has been associated with Social and Sports Association of state. He has rich and varied experience in the field of Banking and Insurance which has facilated healthy rejuvenation in the Banks business working. 4. Dr.Narendra Jadhav: Dr.Narendra Jadhav is an eminent economist backed with more than 30 years distinguished service with Reserve Bank of India, including as Principal advisor and Chief Economist, when he played an important role in macro-economic policy making in India. Dr Jadhav will be bringing with him a unique set of skills and dimensions, which will add value and compliment the business objective of the bank. A prolific writer, Dr. Jadhav has written 11 books mainly on economic and social issues and has over 100 research papers to his credit in national and international journals of repute. He has also served as Advisor to Executive Director for India at the International Monetary Fund and Senior Economic Advisor to various

45

governments; including Ethopia more recently he was involved in the reconstruction of Afghanistan Economy, as Chief Economic Counselor.

5. Ashok Kumar Mehta: Mr.Ashok Kumar Mehta is the Executive Director of J&K Bank. Mr. Mehta has a long standing association with the Bank, dating back to 1972 and has served Banks hierarchy in various executive capacities as part of Banks Corporate Management. Team, during the course of his career with the Bank, Mr. Mehta has also been chairman of J&K Bank .A rural bank sponsored by the J&K Bank. Mr. Mehta has been instrumental in setting up of the joint insurance venture with MetLife .International, USA and has played key role in forgoing ties with Bajaj Allianz General Insurance Co. And MetLife India. Insurance Co.Ltd for distribution of non life and life insurance product. He has performed pioneering work in initiating and implementing the new HR Package under Nave Subha. Which incorporates new generation include finance and Financial Services, Planning & Development, Account and Estates. 6. Abdul Majid Mir: Mr. Abdul Majid Mir, Executive Director of J&K Bank, has more than 36 years of experience in banking. Mr. Abdul has held various important and senior positions in the bank, as part of its corporate management team. He has special knowledge and practical experience in the field of Finance, Credit, Trade and Retail Banking, Deposits & Liability management and Risk management.

7. G.M.Dug: Mr. Dug well known figure in the hotel industry of Kashmir. Mr.Dug has twice in the past, held the prestigious position of President, Kashmir chamber of Commerce & Industry and provided representation on the Board of several well known State Government undertaking. Mr. Dug has made valuable contribution for the promotion of various segments of J&K economy such as Tourism, Export, Handicraft and industries and in his present association with J&K Bank will be adding value based on his experience and knowledge.

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Features of J&K Banks

Private sector bank despite government holding 53% of equity. Sole banker and lender of last resort to the government of J&K. Plan and non-planed funds, taxes and non taxes revenues routed through the bank. Salaries of government official disbursed by the bank. Only private sector bank designated as agent of RBI for banking. Carries out banking business of central government. Collects taxes pertaining to Central Board of direct taxes in J&K.

SERVICES OFFERED
Depository Services Scheme of J&K Bank Dematerialization (Demat) Stock Broking through INVESTMART an initiative of ILFS Depository Depository Participant Market transaction Off-market transactions Pledge of securities Rematerialisation (remat)

Insurance offered by J&K Bank

Insurance products of Jammu and Kashmir Bank are offered in association with Bajaj Allianz General Insurance Co. Ltd.

Motor insurance Hospital cash 47

Burglary Shop keepers

In association with MetLife, the Bank is offering the following Life Insurance Policy to its customers:

Met Bhavishya- A flexible money-back plan Met Junior- Par Endowment Met Mortgage Protector SP- Single Premium Mortgage Protection Plan Met 100- Limited Pay Whole Life Insurance Met 100 Gold- Par Whole Life Met Platinum (Endowment)-Participating endowment assurance for face amount above Rs. 3 lakh Met Riders- Customization tools for policies.

Credit Card of J&K Bank

Initially there are three types of Credit Cards issued by Jammu and Kashmir Bank:

Gold Card Silver Card Blue Card

All the above cards are also available with photo along with a family address on Cards. The Card is accepted by all those Merchant Establishment who honour MASTER cards. ATMs linked with MASTER cards accept J&K Bank Credit Card. Customer Service The Jammu and Kashmir Bank has proved to be customer driven organization and the people in the organization understand that innovation creates opportunity, quality creates demand and teamwork makes it happen. The Bank, feeling the pulse of customers need

48

that they demand more for less, has endeavored to provide them better quality service, wider choice and above all innovative products. The Bank is always ready to add value to its customers and takes every possible step to improve quality of customer service. The Bank proves its promises to customer quality service by establishing. Customer Advisory Foray at its every major branch. The number of such foray has been consistently rising. In monthly meetings of these forays, the branch managers and customers interact to sort out issues relating to customer service or other related problems. The Bank has a very efficient complaint redress mechanism. It handles the customer queries and complaints on priority. One can find Customer Suggestion Card, at all branches of the Bank and also on its website. Customers accessing the website of the Bank have the option to send their queries through e-mail. Bank on Information Technology The bank has a constant focus on application and augmentation of the information technology in order to modernize Banks operations and deliver value-added services to the customers. The Bank covers more and more branches under the computerization programmes.The bank has extended Anywhere Banking and Tele-Banking facilities to many new locations/branches, The number of ATMs (both off-site and on-site) installed by the Bank has increased to 78 during the year under report, of these 51 ATMs were networked through IST Switch. The Bank is in the process of setting up its DATA centre at Delhi for which creation of infrastructure is in progress. With the commencing of the said data centre the Bank will be able to introduce Internet Banking.

Customer Orientation The Bank has come up with various value added products and services to suit customers expectations and requirement. Its Marketing and Research Cell has been functioning for three years now. The market research is conducted on an ongoing basis to identify needs and expectations of the customers and shape products / services accordingly. Even value addition to the extant products/services is made to suit the growing needs/ demands of the customers. Bank provides value to its customers by delivery of innovative products and services in an effective and efficient manner. In order to reach existant and potential 49

customers in an effective manner creative promotional campaigns are being undertaken to create a strong "Brand Identity" for the Bank. With multiple options available to customer in shopping their products, more focus was laid on retail advertising during the year and extensive promotional campaign through print and electronic media was undertaken which showed significant results in the form of increased demand for the Banks products and customer base. As a part of the advertising strategy the Bank has sponsored weekly radio programmes named "JK Bank Dairy" which is aired from the three stations of radio Kashmir viz., Srinagar, Jammu and Leh. It is an innovative programme and is successfully running for last 18 months. The programme is being produced by Banks own staff. The programme has gained wide popularity among the people as it provides awareness and up-to-date information about banking in general and products/services offered by the Bank in particular. People from all walks of life with their responses have appreciated the usefulness of the programmes, which is evident from hundreds of responses received every week from the listeners. Banks web site is a powerful resource for customer education and information. The website provides the visitors up-to-date information about all the products/services offered by the Bank and other matters of interest relating to the Bank besides, providing some on-line services. The updating of the site is done on daily basis so as to provide the visitors latest information about the Bank. The site attracts on an average 700 visitors weekly. Branch Expansion

With a view to increasing its reach to potential markets and extending banking facilities to un-banked areas coupled with catching on new business opportunities Bank has been opening new branches selectively at centers offering highest business potential. In keeping with this strategy the Bank opened 15 new branches/extension counters during the period under report raising the total number of offices to 454 at the end of March 2003.

50

Registered Office Jammu & Kashmir Bank M A Road Srinagar 190 001 Jammu & Kashmir

Corporate Headquarters M A Road Srinagar 190 001 Jammu & Kashmir Official Website: http://www.jkbank.net/

SWOT ANALYSIS OF J&K BANK

STRENGTH Monopoly bank with 70% plus of market share & functions as a universal bank in J&K state. Financial strength , powerful set of brands that people trust,proven products and services. Effective and integrated distribution network that delovers. Bank with regional focus, national reach and international standards of operation. Only private sector bank with majority of ownership(53.17%) vested with government of J&K.

OPPURTUNITY Technological advances. Tremendous revenue growth

opportunity in all fields. New distribution channels. Retaining market leadership. Expand the research & development department to innovate new products and services.

WEAKNESS Bank only employs permanent residents of J&K State. Concentration of bank network is more in northern region of the

51

country as compared to southern regions. Bank procedures are very flexible to help the customers in best possible way , but this is sometimes taken into negative sense by fraudulent customers.

Strong and stiff competition in near future. Entry of more private banks in J&K . Highly advanced technology used by other banks

THREATS

Journey of J&K Bank

1938- The J&K Bank Ltd was incorporated in 1938 to extend banking facilities in J&K (Jammu & Kashmir) . The bank was constituted as a government company under Companies Act 1956 and is functioning as bankers to State Government

1993The bank tied up with Renter News Agency for instantaneous information about global foreign currency rates and fluctuation there of. 1995Banking Om Budhsman Scheme was launched in June, with a view to provide quick and inexpensive facility to resolve the grievances of banks customers. A loan delivery system was introduced in April to instill discipline in the utilization of bank credit especially by large borrowers. 1998J&K Bank Ltd came out with a public issues of 1,8500,000 equity shares of Rs 10 each for cash at premium of Rs 28 per share aggregating Rs 70.30 crore.

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A recovery drive was launched which include settlement of long outstanding loan account of chronic defaulters by outside court compromises. Bank introduced a new term deposit scheme under the title Jana Priya Jamma Yojna. Housing Loan & Education Loan Scheme for general public have been introduced during the current financial year. 1999The bank entered into a agreement with IBA to connect its ATMs through a shared network. 2000J&K Bank tied up with Infosys Technology to offer internet banking and for its E-commerce initiatives. J&K Bank is in talk with two foreign insurance companies for a joint venture for its insurance subsidiary to be floated by the year end. J&K Bank Ltd the Srinagar based listed bank in the country tied up with Infosys Technology Ltd. J&K Bank Ltd has tied up with American Express to launched a Co-branded Credit Card. 2001The bank has launched J&K Bank AMEX Co. Branded Credit Card pursuant to agreement entered with American Express Bank. The Bank has tied up with the US-based Insurance Based MetLife in the insurance sector. 2002J&K Bank has informed that following persons have ceased to be Directors of the Bank Mr. H.S. Anand and Mr.M.I.shadad further the Company has informed that the following persons were appointed as Director Dr.G.Allaqaband & Mr.D.S.khandari. Further the following finance luminaries were reappointed as additional Director of the Bank in the aforesaid Board meeting. Director A.M.Khusro, Mr.G.P.Gupta and Mr.Vipin Malik. 2003J&K Bank Ltd has informed the following change in the Board. Mr.G.R.Khan and Mr.G.M.Dug have ceased to be Director of the Bank at AGM held on June 02, 2003. Mr.Mohd.Yasir Mir and Mr.B.L.Dogra have been appointed as Director on the Board at AGM held on June 02, 2003. 53

Dr.A.M.Khusro, Mr.G.D.Gupta & Mr.Vipin.Mlik have been appointed as Director of the Bank on June 03, 2003. Dr.Haseeb A Drabu consultant to Economic Advisory Council of Prime Minister and presently the Economic Advisor to the Government of J&K has been appointed as the Director of Bank. J&K Bank has decided to launch Global Access Card in association with Master Card International. 2004J&K Bank approves Rs 300 crores for Reliance Infocom. J&K Bank lied up with ICICI to share the ATM network. J&K Bank has received the Asian Banking Award 2004 in Manila for it customer convenience programs. J&K Bank unveils international division in Srinagar. IDBI Bank lied up for visa transaction with J&K Bank, to launch a platform for the state is merchant establishment. 2006J&K Bank receives approval from RBI for increasing the FIIs holding. 2007J&K Bank Ltd has appointed Mr.M.S.Verma (Executive Chairman State Bank of India) & Mr.G.P.Gupta (Executive Chairman & MD of IDBI) as Director of the Bank in the meeting of Board of Director held on June 09, 2007. 2008Mr.M.S.Verma (Ex. Chairman & State Bank of India) & Mr.G.P.Gupta (Ex. Chairman & Managing Director of IDBI) were reappointed as Director of the Bank on the meeting of BOD held on July 19, 2008

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ANALYSIS OF THE DATA

INFERENCE The credit/deposit ratio continuously increases from 2004-07 and then it slightly decreases in 2007-08 and 2008-09. Here it is clear from the above table that both credit and deposits are

55

continuously increasing , but the rate of increase in deposits is more than the total credit of J & K Bank and thus the CD ratio decreases in 2007-08 & 2008-09 . Thus it can be inferred that deposits are continuously increasing as compared to the total credit of J & K Bank .

INFERENCE 56

The above table clearly shows that the credit/deposit ratio is positively correlated with the state gross domestic product but there us no significance correlation between the state gross domestic product and credit/deposit ratio. i.e. credit/deposit ratio of J & K Bank is positively related to state gross domestic product of Jammu and Kashmir state.

INTERPRETATION The regression table shows that 11.4% of variance explained the stated relationship (adjusted r square = 0.336 , F = 1.55 , b = 0.579) i.e. credit/deposit ratio is positively related to SGDP . Therefore regression analysis strongly supports the credit/deposit ratio of J & K Bank which has a positive relationship with the state domestic product of Jammu and Kashmir state.

57

INFERENCE Profit has increased substantially. In past five years it has more than tripled . The continuous increase of trend % of profit from 100% in 2004-05 to 365.15% in 2008-09 is a healthy sign of very good financial performance . The J & K Bank continued to register an impressive year on tear improvement in profit from 2004-09 and indicates the soundness of performance of bank i.e. very good. Business performance has also registered a continuous increase in all the years from 2004-05 to 2008-09. The constant increase in trend percentage of business performance from 100% in 04-05 to 162.63% in 2008-09 is quite excellent. The bank maintained its growth momentum in all the important areas of its business operations which ultimately lead to better expansion , growth and soundness of bank which are essential for batter economy of the state .

58

INFERENCE Out of the total 431 branches , 316 branches are in semi urban and rural areas. The ATM network of the bank has increased to 300 plus. Out of 300 ATMs , 235 are in the state only and today constitute the largest ATM network in J & K. With a view to provide greater convenience and alternate channels to customers and in order to further its foothold to potential markets and extend banking facilities to rural and unbanked areas coupled with catching on new business opportunities , bank has been opening new branches selectively at centers offering highest business potential and provide easy access to banking . During the financial year 2008-09 , 22 new branches have been added.

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INFERENCE The business per employee as well as net profit per employee of J & K Bank are increasing substantially. There is an increasing trend in both business per employee and net profit per employee which indicates the productivity level has shown appreciable increase from 20042008. hence the J & K Bank is showing healthy growth which is good sign for the development of economy of the state.

FINDINGS FROM THE SURVEY CARRIED OUT IN JK BANK, LAKHDATA BAZAAR

60

Following insights have been found out from the JK Bank , Lakhdata Bazaar branch based on the survey carried out there . A sample size of 50 was taken into consideration . The survey included the filling up of a questionnaire consisting of 13 odd questions . Each question had certain options available as answers to be filled by the customer . Each answer option provided had certain strength or weighted mean according to which the findings have been tabulated and presented in tabular as well as pie chart format. The target customers were the people who had in sometime of life availed loan facility from JK Bank . henceforth the findings have been mentioned below.

DEMOGRAPHY OF CUSTOMER

GOVERNMENT EMPLOYEE BUSINESS MAN STUDENT TOTAL

15 13 0 28

INFERENCE
Most of the loans are sanctioned for either government employees or business man. This is because the bank favors government employees in providing loans as the legal documentation and processes for them are more easier as compared to other groups. The government policies also help small scale businessman too. In the first quarter 2010 none of the education loan has been sanctioned through JK Bank, lakhdata bazaar branch.

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DEMOGRAPHY OF CUSTOMER

STUDENT 0% BUSINESS MAN 46% GOVERNMENT EMPLOYEE 54% GOVERNMENT EMPLOYEE BUSINESS MAN STUDENT

TYPES OF LOANS SANCTIONED IN 1ST QUARTER 2010

HOUSING LOAN EDUCATION LOAN CAR LOAN TWO WHEELER LOAN PCL LOAN AGAINST DEPOSIT MORTGAGE TRANSPORT LOAN WC FINANCE TOTAL 2 0 13 2 15 6 0 4 1 43

INFERENCE
As far as type of loans being sanctioned is concerned PCL (personal consumption loan) and car loan the highest in demand. This owes to the ease with which these loans are sanctioned . The processing time of these loans is also very less. JK Bank also provides assistance to transportation companies and financial assistance to small scale entrepreneurs to enhance their scope of business.

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9% 0% 14%

2% 5% 0%

HOUSING LOAN EDUCATION LOAN 30% CAR LOAN TWO WHEELER LOAN PCL LOAN AGAINST DEPOSIT MORTGAGE 5% TRANSPORT LOAN WC FINANCE

35%

REASONS TO USE JK BANK

Low interest rates Easily accessible Regional banking Better products and services High level of customer relationship management 16 11 17 2 4

INFERENCE
As far as the reasons for using the facilities of JK Bank is concerned majority of them were highly obliged to the reception they receive at the customer dealing end. All the customers are highly impressed by the customer relationship management protocol being followed by the staff. JK Bank is also easily accessible to both rural and urban customer base. The policies of the bank has helped maintain the lowest interest rates for loans in specific areas.

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22% 32%

Low interest rates Easily accessible Regional banking Better products and services

8% 4%

34%

High level of customer relationship management

TIME TAKEN TO PROCESS THE LOAN

0-5 days 1 week 1-2 weeks more than 2 weeks TOTAL

28 14 7 1 50

INFERENCE
The time for processing the loan is the time taken by the bank to process the legal documentation of the loan customer after the customer has submitted all the necessary documents with the bank. The loan processing is really quick as compared to other banks in this segment due to the well defined infrastructure and policies followed in the bank. Customer is the king for JK Bank .

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TIME TO PROCESS LOAN

14%

2%

0-5 days 1 week 28% 56% 1-2 weeks more than 2 weeks

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FINDINGS

J & K Bank is a very prestigious bank and has high levels of customer satisfaction. It has got tremendous amount of support both from the government of Jammu & Kashmir and the local people.

It has a wide variety of loan products to choose from. This range of loan products vary from personal loan to industrial loan.

The majority of the customers of J & K Bank approach for loans related to establishment of small scale businesses like Apple farmers , shawl weavers , dastakars etc. The other major league of loan hailer customers are government employees , this is owing to the fact that the loan procedures followed by J & K Bank are more suitable for government employees.

It has the lowest percentage of NPAs amounting to 5% . This is the stand alone indicator of the efficiency of the loan procedures followed by the bank. It also tells a lot about the friendliness of bank policies towards its customers and high level of customer relationship management .

The credit/deposit ratio has shown an increasing trend , thus adding to the state gross domestic product and improving the economy of the state.

It has a wide network of branches and ATMs in Jammu & Kashmir that accounts to easy accessibility for the local people . The bank has branches all over India too, now its working on increasing the density of its network.

PCL (personal consumption loan) is the most sort for loan in J&K Bank , Lakhdata Bazaar branch.

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SUGGESTIONS
J&K Bank must start by creating a fertile environment for entrepreneurship and building a new infrastructure for innovation through making credit easily

available in all the sectors of economy in J&K State. J&K Bank must make Jammu and Kashmir a more affordable place to do business, by concentrating on both the priority sector as well as on sector of economy and J&K Bank should continue fighting for these reforms. J&K Bank also needs to recognise that if our state is to succeed , minority and women-owned businesses must have the opportunity to compete on a level playing field. J&K Bank need to provide not only credit but also hope, developmental assistance and opportunity to all our young people who aspire to own their business. In the new economy, innovation, knowledge and entrepreneurship mean real jobs for real people. J&K Bank can create these jobs only if they stay ahead of their competitors. J&K Bank should provide easy credit with reasonable interest rates to all citizens in every sector to remain competitors and play its positive pole in economic development. The analysis of poverty scenario in Jammu and Kashmir is a complex one. The unemployment/underemployment, underdeveloped agricultural sector, unbalanced development with huge regional imbalances, illiteracy, shortage of capital, lack of entrepreneurs, etc are some of the major causes of poverty in Jammu and Kashmir. Keeping this in view, the Bank should launch a comprehensive programme like micro credit schemes for upliftment of poor and to raise the living standard of masses and improve their socio-economic conditions so as to achieve balanced economic growth with social justice.

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 The Internet (information technology) is a fundamental part of the innovation infrastructure; they must invest in such projects which will improve information technology and internet in the Jammu and Kashmir state in order to provide highspeed broadband Internet service to every corner of the state. The Bank should follow number of initiatives like providing loans and credit to raise the standard of people and alleviate poverty in the state. The initiatives should cover areas of agriculture, horticulture, village and cottage industries, fisheries, tourism, handicrafts on one hand and promotion of health, sanitation, communication and education on the other.

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CONCLUSION
From that analysis of primary and secondary data of J&K Bank it concludes that the overall role of J&K Bank in economic development of Jammu and Kashmir State is showing an improving trend. But the pace of improving economy of J&K state during successive years is not increasing with satisfactory levels, because there are certain important factors on which the economy like agriculture, horticulture, small and medium scale industries, tourism and service sectors depends. An important aspect highlighted during the study shows that role of J&K Bank in economic development of J&K state is not only affected by factors which are directly related to economic development such as total advances, total deposits, reasonable interest rates, sound financial system and community services like social banking of J&K Bank etc, but is also affected by factors which are positively related to economic development of a country/state are credit/deposit ratio, efficient distribution network, cheap and easily available loans(interest rates), business performance, profitability, business per employee and net profit per employee, and so on. The sectors like agriculture, horticulture, medium/small firms that play an important role in regional economies of Jammu and Kashmir are mainly dependent on local financial institutions in their regions. Thus J&K bank which is regional in nature and has extensive reach in the state is thus one of the important financial institute on which these sectors directly depend. J&K bank stresses on promoting work-life balance, gives attention to social and environmental concerns also and host of factors that facilitate business pursuits and accomplishment of economic goals.

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BIBLIOGRAPHY
Websites:

www.jkbank.org www.google.co.in http://www.wikipedia.org http://www.rbi.org.in http://www.cibil.com http://www.geneva-international.org/GVA3/Forum/Dossier/Technique.E.html. http://www.geneva-international.org/GVA3/Forum/Dossier/Communaute.E.html. www.jml.ch/news/maissen.html. http://www.bank-banque-canada.ca. http://www.regeringen.se/galactica/service=irnews/action=obj_show?c_obj_id=3492 2.

www.moneycontrol.com http://connect.in.com/jammu-and-kashmir-bank/profile-305505.html www.iloveindia.com/.../bank/...banks/jammu-and-kashmir-bank.html http://finance.indiamart.com/...in.../jammu_and_kashmir_bank.html http://business-standard.com/stockpage/stock_details.php?stk_id=532209 www.greaterkashmir.com/today/full_story.asp?Date=7_5

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Books :

Financial Management - By Prasanna Chandra Banking and law practices S.L. Gupta Handbook on working capital- D.P.Sarda Annual report J&K Bank Credit Risk Management In and Out of the Financial Crisis: New Approaches to Value at Risk and Other Paradigms-by Anthony Saunders, Linda Allen

Risk Management in Banking Joel Bessis Bank Management and Financial Services by Peter S. Rose, Sylvia Conway Hudgins Bank Management by Timothy W. Koch, S. Scott MacDonald

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APPENDIX
J & K BANK
SURVEY QUESTIONAIRE- APRIL 2010

DEAR CUSTOMER It has been our earnest endeavor to serve you better. You are requested to respond truly to the questions below and guide us in developing suggestions , so that we can serve you better in future. THANK YOU .

Name : Occupation :

Address :

1. How long have you been banking with J & K bank ? 1.) 1 year 2.) 1-3 years 3.) 3- 5 years 4.) more than 5 years

2. Which loan product have you availed ? 1.) Agricultural loan 5.) Consumer loan 2.) Education loan 6.) Loan against deposit 3.) Car loan 4.) 2 Wheeler loan

7.) Housing loan

3. Where did you get information about the loan ? 1.) Print media 2.) Nearest branch 3.) Electronic media 4.) Any other

4. J & K Bank offers better products than other banks . 1.) Strongly agree 2.) Agree 3.) Neutral 4.) Disagree

(Mention bank and service better than J & K Bank __________________________________________________________________)

5. J & K Bank has better network than other banks . 1.) Strongly agree 2.) Agree 3.) Neutral 4.) Disagree

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6. How much time does it take to get a loan ? 1.) 0-5 days 2.) 1 week 3.) 1-2 weeks 4.) more than 2 weeks

7. Why are you using J & K Bank ? 1.) Low interest rates 4.) Better products and services 2.) Easily accessible 3.) Regional banking

5.) High level of customer relationship management

8. J & K Bank provides special loan arrangements for social cause from time to time . 1.) Strongly agree 2.) Agree 3.) Neutral 4.) Disagree

9. J & K Bank offers the lowest interest rates . 1.) Strongly agree 2.) Agree 3.) Neutral 4.) Disagree

10. J & K Bank offers high level of customer relationship management . 1.) Strongly agree 2.) Agree 3.) Neutral 4.) Disagree

11. J & K Bank keeps you updated about all sorts of loan information. 1.) yes 2.) No

12. Loan products provided are very rigid ? 1.) yes 2.) No

13. Wide no. of options of loan products are available to choose from . 1.) yes 2.) No

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SUGGESTIONS:

BALANCE SHEET OF JK BANK AS ON MARCH 2009

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