Credit Appraisal Management

CHAPTER 1

1.1 Industry Profile:

The growth in the Indian Banking Industry has been more qualitative than
quantitative and it is expected to remain the same in the coming years. Based on the
projections made in the "India Vision 2020" prepared by the Planning Commission
and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-
sheets of banks is likely to decelerate.
The total assets of all scheduled commercial banks by end-March 2010 is
estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at
current market prices as compared to 67 per cent in 2002-03. Bank assets are expected
to grow at an annual composite rate of 13.4 per cent during the rest of the decade as
against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03.

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Co-operative banks:

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 The Co-operative banks have a history of almost 100 years. The Co-operative
banks are an important constituent of the Indian Financial System, judging by the role
assigned to them, the expectations they are supposed to fulfil, their number, and the
number of offices they operate. The co-operative movement originated in the West,
but the importance that such banks have assumed in India is rarely paralleled
anywhere else in the world. Their role in rural financing continues to be important
even today, and their business in the urban areas also has increased phenomenally in
recent years mainly due to the sharp increase in the number of primary co-operative
banks.

While the co-operative banks in rural areas mainly finance agricultural based
activities including farming, cattle, milk, hatchery, personal finance etc. along with
some small scale industries and self-employment driven activities, the co-operative
banks in urban areas mainly finance various categories of people for self-employment,
industries, small scale units, home finance, consumer finance, personal finance, etc.

Some of the co-operative banks are quite forward looking and have developed
sufficient core competencies to challenge state and private sector banks. According to
NAFCUB the total deposits & lendings of Co-operative Banks is much more than Old
Private Sector Banks & also the New Private Sector Banks. This exponential growth
of Co-operative Banks is attributed mainly to their much better local reach, personal
interaction with customers, and their ability to catch the nerve of the local clientele.

Though registered under the Co-operative Societies Act of the Respective

States (where formed originally) the banking related activities of the co-operative
banks are also regulated by the Reserve Bank of India. They are governed by the
Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Categories:

There are two main categories of the co-operative banks.

(a) Short term lending oriented co-operative Banks - within this category there are
three sub categories of banks viz state co-operative banks, District co-operative banks
and Primary Agricultural co-operative societies.

(b) Long term lending oriented co-operative Banks - within the second category
there are land development banks at three levels state level, district level and village
level.

The co-operative banking structure in India is divided into following main 5

categories:
 Primary Urban Co-op Banks
 Primary Agricultural Credit Societies
 District Central Co-op Banks
 State Co-operative Banks
 Land Development Banks.

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 Banking credit is the elemental source of all other forms of credit in the
society. The other significance of bank credit is in the form of checking account
credit. The primary source for this credit comes from the depositor's savings account.

Forms of Banking Credit:

Loans:

Loan is a type of debt in which the lender lends money to the borrower and
the borrower pays back the loan with interest either in installments or as a whole after
a specified period of time. Both the lender and borrower can be a person or an
organization. In present times the group of lenders has been typically reduced to
commercial banks.

The moneylenders have been eliminated as they used to charge a higher rate of
interest and imposed stringent terms and conditions. In the process of lending,
banking credit flows out to satisfy desirable needs of people whose dreams couldn't
have been otherwise realized. There is a list of pre-specified terms and conditions laid
down by the bank. The bank keeps an asset of the borrower as collateral to secure the
loan.

Appraisal:

The appraisal of projects is a comprehensive and systematic review of all the

aspects of the project. It can be considered as a second look by an independent agency
of the project submitted by the Farmers / Entrepreneurs / sponsoring agency.

The appraisal takes independent view of the project with the intention of
improving and revamping the projects with the co-operation of the promoters. The
following important aspects generally covered all the things. They are

 Technical aspects
 Financial aspects
 Economic aspects
 Commercial aspects
 Managerial aspects
 Organisational aspects.

The appraisal of these aspects provides information about the soundness of project for
its effective implementation.

Credit appraisal:

It is the process by which the lender assesses the credit worthiness of the
borrower. It revolves around character, collateral capability and capacity. It takes into
account various factors like

 Income of the applicants

 Number of dependents

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  Monthly expenditure
 Repayment capacity
 Employment history
 Number of years of service and
 Other factors.
Which affect the credit rating of the borrower.

Credit Appraisal is a process to ascertain the risks associated with the

extension of the credit facility. It is generally carried by the financial institutions
which are involved in providing financial funding to its customers.

Credit risk:

Credit risk is a risk related to non repayment of the credit obtained by the
customer of a bank. Thus it is necessary to appraise the credibility of the customer in
order to mitigate the credit risk. Proper evaluation of the customer is performed which
measures the financial condition and the ability of the customer to repay back the loan
in future.

Generally the credit facilities are extended against the security know as
collateral. But even though the loans are backed by the collateral, banks are normally
interested in the actual loan amount to be repaid along with the interest. Thus, the
customer's cash flows are ascertained to ensure the timely payment of the principal
and the interest.

Scope of study:

This study may help the bank

 To improve the performance of the bank.
 To strengthen the appraisal process.
 To reduce Manual works and errors.
 To reduce Non-Performing Asset (NPA).
 To focus on remedial measures for loss prevention and deduction.

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Organisation Profile:

1. Organization name: Coimbatore District Central Co-operative Bank Ltd.

2. Industry it belongs to: Banking Sector.
3. Chairman / Managing Director :

Join Register /Special officer - R.Indumathi MA.HDCM.,

4. Organizational Structure :

TamilNadu State Apex Bank

District Central Co-operative

Bank

Primary agricultural Co-operative

Credit Societies

5. List of competitors :
 Other District Central Co-Operative Banks
 Commercial Banks
 Private Banks
 Foreign Banks
 Other Financial Institutions.

6. Major players in the Industry :

 Primary Agricultural Co-Operative Credit Societies.
 Agricultural Market Societies.
 District Consumer Co-Operative Whole Sale Stores.
 Employee Co-Operative Thrist and Credit Societies.
 Handloom Weavers Co-Operative Societies.
 Power loom Weavers Co-Operative Societies.
 Co-Operative Sugar Mills.

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  Urban Co-Operative Bank.
 Primary Agricultural and Rural Development Banks.

7. Operating region: Coimbatore District and Tirupur District.

8. Industry Contribution to Economy :
 Small Scales Industry Loan (SSI).
 Small and Marginal Enterprise Loan (SME).
 Term Loan.
 Short Term Loan Agriculture.
• Agriculture.
• Non-Agriculture.
 Medium Term Loan Agriculture.

9. Entry & Exit barriers :

 Entry:
Affiliated and Link Societies.
 Exit:
TNSC, NABARD.

10. Awards / Achievements / Quality Certification :

 SHG Loans.
 District Achieve.

11. Branches of Bank:

Head office: Coimbatore.
Other Branches:
1. R.S.Puram
2. Udamalpet
3. Pollachi
4. Krishnapuram
5. Tirupur
6. Avinashi
7. Kinathukadavu
8. Mettupalayam
9. Sulur
10. Annur
11. Palladam
12. Perianaickenpalayam
13. Kottur
14. Dr.Najappa Road
15. Ramanathapuram
16. Negamam
17. Madathukulam
18. Thondamuthur
19. Madhukkarai
20. Perur
21. Kavundampalayam
22. Singanallur

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 23. Anaimalai
24. Pethappampatti
25. Ghandhimanagar
26. Kurichi.

CHAPTER 2
Organisation Stucture :

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 Joint registered / special
officer

Deputy Register/ Chief / Co-operative Register

Revenue officer Personnel officer

Chief General Manager General Manager

Assistant General Manager Assistant General Manager

credit Non Credit

Assistant General Manager Assistant General Manager

Development Administration

Assistant General Manager

Banking

Chief Manager

Manager

Assistant Manager

Assistant

Sub Staff (Peon)

HR Information:

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1. HR Initiatives:

HR INITATIVES

MANAGER

ASSISTANT MANAGER

ASSISTANTS

CASHIER / SHROFF

1. Total number of employees:

 Manager – 1
 Assistant Manager – 5
 Assistant – 2
 Cashier / Shroff – 1.

2. Recruitment & Selection Process:

The above categories of employees are well trained to customer

relationship, public relationship and provide sufficient banking functional
trainings. Appointment procedure Coimbatore District Central Co-operative
Bank recruited through district employment office those who are completed in
any degree with diploma in cooperative training on the basis of registration
under senior most.

The recruiter will recruit the candidate under return examination & oral
interview test. It contains the syllabus or cooperative law organizational
structure & rules & regulation & clerical aptitude numerical ability.

 30% of the appointments are by

 Affiliated society staff.
 Primary agricultural co-operative banks,
 Land development banks,
 Co-operative Marketing societies,

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  Consumer co-operative whole sale stores,
 Employee’s co-operative thrift and credits societies.
 Weaver’s co-operative societies.

 70% of the appointment through district employment exchange.

2008 – 2009:

Membership and Share Capital:

There were 1065 members at the end of the year as against 1056 at the
beginning year. The Share Capital of the members amounted to Rs.2195.27 lakhs.
When compared to 2007-2008 Rs.42.19 lakhs has increased at 1.96%.
(Rs.Lakhs)

31.3.2007 31.3.2008 31.3.2009

1865.75 1935.98 2018.17
117.10 117.10 117.10
I.C.D.P 100.00 100.00 60.00
Total 2082.85 2153.08 2195.27

Deposits and Borrowings:

The outstanding under this head at the end of the year has been Rs.13740.45
Lakhs has increased by Rs.1565.57 when compared to last year and at 12.86%.

Reserves and Surplus:

The outstanding under this head at the end of the year has been Rs.9, 469.45
Lakhs as against Rs.8,404.56 Lakhs at the end of the previous year.

Other Liabilities:
The outstanding under this head at the year has been Rs.1,606.64 Lakhs as
against Rs.1,351.03 Lakhs at the end of the previous year.

Investment:
The outstanding under this head at the year has been Rs.160,79.32 Lakhs as
against Rs. 154,87.59 Lakhs at the end of the previous year.

Loans and Advances:

The outstanding under this head at the year has been Rs.39,692.61 Lakhs as
against Rs.38,856.85 Lakhs at the end of the previous year.

Non-Performing Assets:
The gross NPA to total loans is 13.14% as against 22.80% in the previous
year resulting decrease of NPA.

Net Result:
The bank has earned net PROFIT of Rs.7,68,81,244.42 at the end of the
year. The net profit of the Bank may be distributed in accordance with the Act and
Rules and Bylaws of the Bank.

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Classification:
The Bank is placed under ‘B’ class for the year of Audit.

General:
A Copy of the schedule of defects on the Final Audit of the Bank for the year ended
31st March 2007 as furnished by the auditor is communicated herewith. The Bank will
keep
• The Audit Certificate
• The Receipts and Disbursements Statement
• The Profit and Loss account and
• The Balance sheet open for inspection by any member of the Bank and
shall read out the summary of Audit Memorandum at the General
Body Meeting.
The Bank is also requested to take steps to rectify the defects and settle the Audit
objections within a period of three months and communicate the same to the authority
concerned.

CHAPTER 3

Objective of the study:

• To know about the process of Credit appraisal on CDCC Bank.

• To analyze the appraisal Process.

Economically weaker section people and below poverty line to growth

economic development through arrangement of banking loans and finance supporting
to the growth of life styles.

(i.e.) People like public, street vendors, cottage industries and small traders.

To issue of loans like

 Micro credit
 Revamped Micro credit
 Petty traders loan
 Small scale industries.

The focus of the study is on

 Most of the agriculture loans Short Term, Medium Term, Long Term provided
to the agriculturist are through Primary Agricultural Co-operative Banks.
 To facilitate the farmers, the Primary Agricultural Co-operative banks are
located in rural areas for easy reach.
 To evaluate the quantum of subsidiary interest and principle wavier to the
borrowers by the government.
 Co-operative Banks are the “Lender of the last resort” to the farmers.
 Co-operative Banks are framed under Scale of finance under scale of finance
system utilized by the central and state government committee.

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 During the scarcity of pesticides, fertilisers and manures to the farmers the
Co-operative Banks arranged to supply the above through TN consumer
Co-operative federation at consessional rate.
 The DCCB is the financial /bank to the primary agriculture co-operative
Banks.
 The Central Co-operative Bank is the lead Banks of the primary agriculture
 Co-operative Banks. The lead bank conducted a review meeting to the primary
agriculture Co-operative Banks secretaries and officers. The purpose of review
meeting is to develop the Bank issue of loan to the farmers, introduced
systematic loans & guidelines to the agriculture development like Agricultural
clinic Integrated agricultural development program is used to the agriculture
farmers.
 The above facilities and guide line to the farmers are easily available loans and
advances. This sector is very useful to integral study to the farmers & I take
interest to study this topic.

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 CHAPTER 4

Loan Types:

Loan
Types

Agriculture Other
Loans Advances

Non-Agri
Crop Cash Jewel Loan
Loan
Loan Credit

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Non – Farm Loan:

House
Mortgage
Loan
(HML)
Small Scale
Salary
Industry
Loan
(SSI)

House
Construction
Jewel
Loan
Loan
(HCL)

Non - Farms
Loan

Consumer Handy
Durable Capped
Loan Loan

Self - Help TABSET

Group CO
Loan Loan
TAMCO
Loan

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Non – Performing Asset:

NPA Period:
 NFS – 180 Days.
 Crop Loan – 1 Year.

Ageing of Credit:

 Agriculture – 1 Year.
 Non - Agriculture:
• Short Term – 1 Year.
• Medium Term – 3 Years.
• Long Term – 5 Years.
 NFS – 5 Years.

Interest:

 Short Term Agriculture Loan → 5%.

 Non – Agriculture → 9%.
 Empty Non - Agriculture → 11%.
 House Mortgage Loan → 14%.
 House Construction Loan → 14%.
 Small Scale Industry → 14%.

Jewel Loan:

Jewel loan Amount

Rs.5
Member Associated Fee
11%
Interest (Max 1 year)
(o.d – 11% + 3%)

3%
Fine (Exceeds 1 year)
Rs.100
Appraisal Fees (Above 27000)
Rs.10
Service Tax

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 Rs.15
Insurance
Rs.55
Duplicate Receipt

Applicable Fees slab for Jewel Loan:

S.No Amount Appraisal Fees Service Tax

1 3000 15 2
2 4000 20 2
3 5000 25 3
4 6000 30 3
5 7000 35 4
6 8000 40 4
7 9000 45 5
8 10000 50 5
9 11000 53 5
10 12000 56 6
11 13000 59 6
12 14000 62 6
13 15000 65 7
14 16000 68 7
15 17000 71 7
16 18000 74 8
17 19000 77 8
18 20000 80 8
19 21000 83 9
20 22000 86 9
21 23000 89 9
22 24000 92 9
23 25000 95 10
24 26000 98 10

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Jewel loan:
To get a jewel loan in cooperative bank we want to be a Member first for
that we have to pay or deposit Rs.5. then we have to enter our name, address, phone
number and other details in the given application form that is “Associated Members
Admission Register”.
o Associated Member card
o Associated Member Application
o Jewel Loan Application
o Pro Note
o Payment Receipt
o Jewel loan /receipt
o Appraiser fees application
o Release Form
o Jewel Loan card.

Small Scale Industries Loan

SSI Loan Application:

The company submit their application for enclosed following documents:
 SSI Application Form.
 Asset Document.
• Parent document
• Original document
• Engineer Asset Valuation Certificate
• Income Tax written file for last 3 years
• Income proof certificates
• Business project for last 5 years
• Address proof
– Ration card Xerox.
– Voter ID Card.
• Corporation & TNEB Tax Chelan
• Company registration certification copy.

SSI LOAN:

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 Small Scale Industry loan is a medium term loan sanction for a period of 5
years (i.e.) 60 equal instalments the loan issued on the purpose of small & medium
entrepreneur to promote their business like
 Textiles
 Clothing
 Power loom
 Hosieries
 Medical shop
 Yarn business units
 Mini super markets
 Weaving mills
 Stream calendaring or warping
 Screen printing.

The loan sanction by the bank for the following conditions to the borrowers:
 The borrowers should open Current account in the bank.
 Topography of the business unit.
 Original asset documents with encumbrance certificate for last
15 years.
 Business project for the last 5 years.
 Every month stock position of the business unit. The borrowers
should submit the monthly performance Report of the business.
 The borrower and securities are registered as a associate
member in the bank.
 The borrower will submit the utilization of loan amount.
 The borrower get a loan from bank, the loan amount should be
utilized, to which purpose should be mentioned on the loan application.

House Mortgage Loan (HML):

1. Loan Application.
2. Asset Document.
3. Parent document.
4. Engineer Asset Valuation Certificate.
5. Purpose of Loan.
(i.e.,) Textile, Fabrics, Netting, automobile works.
6. Income Tax written file for last 3 years.
7. Address proof certificate.
i. Ration card Xerox.
ii. Voter ID Card.
8. Panchayatt, Municipal Corporation, Tax Payment & Receipts.
9. Encumbrance Certificate for last 20 years from Register office.
10. Project Report.
11. The borrowers are eligible for loan available so loan disbursement on the date.
12. Loan Repayment on 60 Months – Equal instalments

House Construction Loan (HCL):

1. Loan Application.

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 2. Asset Document.
3. Parent document.
4. Encumbrance Certificate for last 20 years.
5. Plan approved from Panchayatt or Municipal Corporation.
6. Engineer Estimate Certificate.
7. Address proof certificate.
• Ration card Xerox.
• Voter ID Card.
8. Sureties.
9. Hypothecation of Asset.
10. Legal opinion Certificate.
11. Project Report.
12. The borrowers are eligible for loan available so loan disbursement on the date.
13. Loan Repayment on 60 Months – Equal instalments.
14. The HCL Loan Released on 3 Stages.

AGRILOAN:

Agri
Loan

Medium Big
Small
Farmers Farmers
Farmers
(2.5 – 5 (Above 5
(2.5 acre)
acre) acres)

Medium
Medium Medium
Short Term Short Term term Short Term term Long term
term
Loan Loan Loan Loan Loan Loan
Loan
(1 year) (1 year) (5 year) (3 year) (10 year)
(3 year) (5 year)
Agriculture Loan:
Agri loan can be given by the following method:

S.No Crop Name Amount Manure Pesticide Seeds Amount Total

Per acre (4+5+6) (3+7)

(1) (2) (3) (4) (5) (6) (7) (8)

1. Rice 7500 2300 700 500 3500 11000

2. Ragi 3200 600 100 100 800 4000

1150 250 175 125 550 1700

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3. Cotton 6700 2000 2600 700 5300 12000
3500 1000 800 700 2500 6000

4. Onion 4300 2600 1000 2400 6100 10400

5300 2600 1000 1400 5000 10300

5. Turmeric 10000 4000 2500 4350 10850 20850

6. Sunflowers 3250 1100 300 300 1700 4500

2150 500 200 300 1100 3000
7. Tomato 7500 3000 2000 2500 7500 15000
6000 2000 1000 1000 4000 10000

8. Rose 7300 2000 850 -- 2850 10150

9. Jasmine 8000 3000 2000 -- 5000 13000

10. Banana Plant 13600 8000 3000 3400 14400 28000

11000 10000 1800 13200 25000 36000
11. Tea plant 7800 2000 1200 -- 3200 11000

12. Coffee 10000 2000 1500 2000 5500 15500

13. Kambu 3325 900 150 125 1175 4500

14. Cholam 3650 1000 150 200 1350 5000

2800 400 200 100 700 3500
15. Cereals 3600 600 900 400 1900 5500
1800 400 600 200 1200 3000

CASH CREDIT:

CASH CREDIT ACCONUT:

Cash credit loan is an advance payment of particular business under the

hypothecation of goods. Particular amt sanctioned (as per the applicant request) by the
head office .The amount utilized by the borrower as a requirement of the day to day
business. The transaction of Cash Credit under the limit sanction.

CASH CREDIT PUBLIC DISTRIBUTION SYSTEM:

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 Cash Credit Public Distribution System (PDS) the advance payment to the
affiliated primary agriculture co-operative Banks under essential commodities of the
ration articles purchased by the PACB to the Tamilnadu civil supply corporation ltd.

CASH CREDIT:

 Public Distribution System.

 Non - Public Distribution System (Non - PDS).
• General Business.
 Cash Credit Manure.
 Clean Cash Credit.
 Jewel Loan Cash Credit.
 Handloom NABARD Fund (HWCS).
 HWCS Own Fund.
 Power Loom Weaver Co – operative Society NABARD Fund
(PLWCS).
 PLWCS Own Fund.
 Cash Credit Self – Help Group (CCSHG).
 Business Cash Credit (Individual CC).

NORMS FOR CASH CREDIT ACCOUNTS OUT OF ORDER:

i. Cash Credit accounts where the limits are not renewed within 90 days
from due date.
ii. Accounts stand over drawn and such over drawings are not regularized
within 90 days.
iii. Accounts where stock deficit is observed and such irregular is not set-
right within 90 days.
iv. Cash Credit accounts where there are no operations in the account
continuously for more than 90 days.
v. Cash Credit accounts where there are no credits to cover the interest
debited, even if the liability is within the limit, for a period of 90 days.
vi. When one account is regular and another account of the same party is
complying with NPA norms, both accounts are to be classified as NPA.
However, this is not PACS’s for their On-lending agriculture loans to
their members.

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