boi intership project

8/11/2019 Boi Intership Project

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CREDIT

APPRAISAL

IN BANK OF INDIA

PRESENTED

BY :


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RISHI

NIGAM


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cr

CHAPTER

1

INTRODUCTION


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A BANK is a financial institution which accepts different forms of deposits and lends them to

the prospective borrowers as well as allows the depositors to withdraw their money from the

accounts by cheque.

The Banking system has its origin in the western world to which India was introduced by

the British rulers way back in the 17th century. According to Union Budget 2007-08, MoF,

GOI, N. Delhi today Indian banks are considered among the best banks in the developing

world and its attempts to emerge among the best in the world is going on.

The Indian Banking industry, which is governed by the Banking Regulation Act of India,

1949 can be broadly classified as follows:

Brief History:Initially in India Banks were operated by the private firms. These banks were lending mainly

to large corporate houses and their rate of interest was also very high. Even the Reserve Bank

of India, which was set up in 1935 (by the RBI Act, 1934) was also a private bank. It was

nationalised in 1949, and after then it emerged as the central banking body of India. After

the nationalisation of RBI the Government of India felt the necessity of nationalising some

selected private banks in the country due to following major reasons:

(i) As the banks were owned and managed by the private sector, the services of banks

were having a narrow reach- the masses had no access to the banking service.

(ii) The Government needed to direct the resources in such a way that greater public

benefit could take place.

(iii)The planned development of the economy required a certain degree of government

control on the capital generated by the economy.

Nationalisation of banks took place in the following two phases:

1. Emergence of SBI:

The Government of India, with the enactment of the SBI Act, 1955 partially nationalised thethree Imperial Banks and named them the State Bank of India- the first public sector bank

in India. In a further move towards nationalisation the GoI partially nationalised eight more

private banks via SBI (Associates) Act, 1959 and named them as the Associates of the SBI.

At present the SBI Group has a total number of eight banks- SBI being one and seven of its

Associates.


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CHAPTER : 2

ABOUT THE

ORGANIZATION


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2. Emergence of Nationalised Banks:After successful experimentation in the partial nationalisation, now the Government decided

to go for complete nationalisation. With the help of the Banking Nationalization Act, 1969

the Government nationalised a total number of 20 private banks:

(i) 14 banks with deposits more than Rs. 50 crore nationalised in July 1969, and

(ii) 6 banks with deposits more than Rs. 200 crore nationalised in April 1980.

After the merger of the New Bank of India and Punjab National Bank in September 1993, the

total number of nationalised banks came down to 19. Today there are 27 public sector banks

in India out of which 19 are nationalised.

In the fiscal 1992-93 the Government started a comprehensive banking system reform for its

further expansion:

(i) In 1993 the SBI was allowed access to the capital market with permission given to

sell its share to the tune of 33 percent through SBI (Amendment) Act, 1993.

(ii) In 1994 the Government allowed the nationalised banks to have access to the capital

market with a ceiling of 33 percent sale of shares through the Banking Companies

(Amendment) Act, 1994.

In 1994 itself the Government allowed the opening of private banks in the country. The firstprivate bank of reform era was the UTI Bank, now known as the Axis Bank. Since then few

dozen Indian and foreign private banks have been opened in the country.

2. Emergence of Nationalised Banks:

After successful experimentation in the partial nationalisation, now the Government decided

to go for complete nationalisation. With the help of the Banking Nationalization Act, 1969

the Government nationalised a total number of 20 private banks:

(i) 14 banks with deposits more than Rs. 50 crore nationalised in July 1969, and

(ii) 6 banks with deposits more than Rs. 200 crore nationalised in April 1980.

After the merger of the New Bank of India and Punjab National Bank in September 1993, the

total number of nationalised banks came down to 19. Today there are 27 public sector banks

in India out of which 19 are nationalised.

In the fiscal 1992-93 the Government started a comprehensive banking system reform for its

further expansion:

(i) In 1993 the SBI was allowed access to the capital market with permission given to

sell its share to the tune of 33 percent through SBI (Amendment) Act, 1993.

(ii) In 1994 the Government allowed the nationalised banks to have access to the capital

market with a ceiling of 33 percent sale of shares through the Banking Companies

(Amendment) Act, 1994.

In 1994 itself the Government allowed the opening of private banks in the country. The first

private bank of reform era was the UTI Bank, now known as the Axis Bank. Since then fewdozen Indian and foreign private banks have been opened in the country.


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Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from Mumbai.

The Bank was under private ownership and control till July 1969 when it was nationalised along with 13other banks.

Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank

has made a rapid growth over the years and blossomed into a mighty institution with a strong national

presence and sizable international operations. In business volume, the Bank occupies a premier position

among the nationalised banks.

The Bank has 4545 branches in India spread over all states/ union territories including specialized

branches. These branches are controlled through 50 Zonal Offices. There are 54 branches/ offices and 5

Subsidaries and 1 joint venture abroad.

The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions Placement inFebruary 2008.

While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront of

introducing various innovative services and systems. Business has been conducted with the successful

blend of traditional values and ethics and the most modern infrastructure. The Bank has been the first

among the nationalised banks to establish a fully computerised branch and ATM facility at the

Mahalaxmi Branch at Mumbai way back in 1989. The Bank is also a Founder Member of SWIFT in India.

It pioneered the introduction of the Health Code System in 1982, for evaluating/ rating its credit

portfolio.

Presently Bank has overseas presence in 22 foreign countries spread over 5 continentswith 56 officesincluding 5 Subsidiaries, 5 Representative Offices and 1 Joint Venture, at key banking and financial

centres viz., Tokyo, Singapore, Hong Kong, London, Jersey, Paris and New York

Contribution of foreign branches in the global business of the Bank as at 31.03.2014 is as under:

Deposits 24.91%

Advances 28.42%

Business Mix26.44%


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PRODUCTS AND SERVICES AT A GLANCE:

Deposits Schemes:

1. Star Saving Plus

2. Star Current Deposit Plus3. Star Diamond Plus

4. Star Suraksha Savings Banking Account

5. Star Benefit Current Deposit Account

6. Deposit Schemes for Global Investors/NRIs

7. Star Supreme Floating Rate Deposit Scheme

Insurance Products:

1. Star Flier Scheme for Individual Diamond SB Customers

2. Star Domestic Travel Insurance

3. Deposit Linked Insurance Plan4. Family Floater Mediclaim Policy

5. Star Education Loan Insurance Scheme

6. Home Loan Insurance

7. Mutual Funds

Credit Schemes:

1. Agriculture

(i) Agriclinics and Agribusiness

(ii) Cold storage

(iii) Composite Cash Credit Scheme

(iv) Crop Finance

(v) Farm mechanisation, Implements & Equipments

(vi) Financing for Drought Animals & Carts

(vii) Land Development

(viii) Minor Irrigation

(ix) Poultry Development

(x) Purchase of Land

(xi) Rural Godowns

(xii) BOI Shatabdi Krishi Vikash Card

(xiii) Kisan Credit Card

(xiv) Kisan Samadhan Card(xv) Star Bhumiheen Kisan Card

2. Personal Loans:

(i) Star Mitra Personal Loan

(ii) Star Pensioner Loan Scheme

(iii) Star Home Loans


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(iv) Star Holiday Loan Scheme

(v) Star Mortgage Loan Scheme

(vi) Star Autofin

(vii) Star Personal Loans

(viii) Star IPO

(ix) Star Education Loan

(x) Star Mahila Gold Loan Scheme

(xi) Clean Loan/OD for financing Health Insurance Premium

3. SMEs:

(i) Star Laghu Udyog Suvidha

(ii) Credit Linked Subsidy

(iii) Akshay Urja Shops

(iv) Artisan Credit Cards

(v) KVIC (REGP) Scheme

(vi) Laghu Udyami Trade Card

(vii) Priyadarshini Yojana(viii) Solar Water Heaters Scheme

(ix) Star Dhanvantari Suvidha Scheme

4. Government Sponsored Schemes:

(i) Prime Ministers Employment Generation Programme (PMEGP)

(ii) Swarnajayanti Gram Swarojgar Yojna (SGSY)

(iii) Swarna Jayanti Shahari Rojgar Yojna (SJSRY)

(iv) Scheme for Liberation and Rehabilitation of Scavengers (SLRS)

Debit Cards:

1. Starlinks International Debit cum ATM Card (Visa Electron)

2. BOI Global Debit cum ATM Card (Master Card)

3. Star Vidya Cards

4. SME Debit Cards

Credit Cards:

1. India Card (Master Card)

2. Pensioners Credit Card

3. Gold Card (VISA)

4. Gold International (VISA)

5. Shatabdi Krishi Vikas Card (Visa)

Techno-Enabled Services:

1. ATM

2. BOI Star e-Pay-Payment of utility bills

3. DGFT online payments


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4. ECS (Debit & Credit)

5. Internet Banking

6. E-Payment of Direct and Indirect Taxes

7. Online Fund Transfer

8. Online Booking of Railway & Airline Tickets

9. S.W.I.F.T

10. Star Cash Management

11. Star Share (e) Trade

12. Telebanking & SMS Banking

13. Star SandeshOnLine SMS based alerts for ATM Financial Transactions &

Internet Banking Funds Transfer

14. Customer Corner Provided on Banks Website for Customer Suggestion and

Grievance Redressal

2.2 - ORGANIZATION STRUCTURE

Chairman and Managing Director:

Smt. V. R. Iyer took over as Chairperson & Managing Director of the Bank w.e.f. 5thNovember, 2012. Prior to this assignment, Smt. Iyer was Executive Director of Central Bank of India from

September 01, 2010 till she joined Bank of India.

Smt. Iyer (DOB 01.06.1955), post-graduate in Commerce with CAIIB, started her career in Union Bank of

India in 1975. Smt. Iyer, in her career span of 33 years, had good stint in branch banking having worked

in very large and extra large branches. She has extensive exposure in Credit Department, Credit

Monitoring Department and contributed significantly in setting up of Risk Management Department,

rolling out CBS, alternate channels and various other e-initiatives.

Smt. Iyer served as Deputy General Manager (Information Technology) during 2006-07 before getting

elevated as General Manager in January 2008 and was holding the portfolios of Information Technology

and Risk Management.

Smt. Iyer was elevated as Executive Director of Central Bank of India with effect from 01 September,2010 where she looked after Credit, Treasury, Forex, IT, CBS, Risk Management and Inspection & Audit

portfolios.


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Executive Director:

Shri B P Sharma, a Direct Recruit Manager of 1984 has taken over as Executive Director ofBank of India with effect from 18th June, 2012. Shri Sharma, a Science Graduate with honors, a

Graduate of Law and a Master in Social Welfare was the General Manager at the Punjab National Bank.He had started his career with Punjab National Bank as Manager, HRD on 27th August, 1984. He had

held several distinguished positions in the Banks hierarchy in a career spanning 28 years. He has

effectively discharged his responsibilities in the capacity of Deputy Zonal Manager, Zonal Manager and

General Manager. Shri Sharma has worked extensively throughout the country in the areas of Human

Resources, Operations & MSME

Shri R. Koteeswarantook over as Executive Director of the Bank of India w.e.f. 5thAugust, 2013.

Prior to this assignment, Shri Koteeswaran was General Manager, Bank of Baroda from December 01,

2010 till he joined Bank of India.

Shri Koteeswaran joined Bank of Baroda in 1976; he worked in various branches in different centres,

mostly in credit. He was also heading Kisumu Branch in Kenya for 4 years. After returning from overseas

in 1999, he had worked in an Administrative (Zonal) Office for 3 years. He was elevated to Chief

Manager Cadre in 2002 and posted at Central IT Department of the Bank.

He also functioned as Data Centre Manager for 4 years from Nov, 2006 before becoming the Head of IT

& Projects Department in 2010 as General Manager. He also played a big role in creating the Data

Warehousing for the Bank. Besides he has gained rich experience in CRM, Resources Mobilisation,

Marketing, Wealth Management and Official Language Departments.

2.3FUNCTIONING AND PROCESS

The Bank was founded in September 1906 as a private entity and was nationalised in July

1969. Now, Bank Of India, is a Body Corporate constituted under The Banking Companies

(Acquisition and Transfer of Undertakings) Act, 1970, with its Head Office at Star House,

Plot No.C-5, G Block, Bandra-Kurla Complex, Bandra East), Mumbai 400 051.

The Bank is doing the business of banking which means the accepting of deposits for the

purpose of lending or investment, of deposits of money from the public, repayable on demand

or otherwise, and withdrawal by cheque, draft, order or otherwise.

In additions to the business of banking, Bank of India is also engaged in other forms of

business as contemplated under Sec. 6 (1) of the Banking Regulation Act, 1949.Deriving from this definition, Bank of India performs the following functions :

1.Accepting Deposits from public/others (Deposits)

2. Lending money to public (Loans)

3. Transferring money from one place to another (Remittances)

4.Acting as trustees

5. Keeping valuables in safe custody

6. Government business (such as payment of Pensions)


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CHAPTER 3

BACKGROUND

OF

THE PROJECT


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3.1OBJECTIVE

To gauge credit scoring in BOI-SME Branch.

One of the important functions of banks is offering credit, besides accepting deposits.

However, offering credit is fill with fraud and risk. So before offering credit to an individual

or organization, their financial health must be analyzed. Credit should be disbursed onlyafter ascertaining satisfactory financial performance. Based on the financial health of the

individual or the organization, the banks assign credit ratings. These credit ratings are used to

decide whether to sanction credit or not and fix the interest rate.

3.2GENERAL INFORMATIONS ON CREDIT/ADVANCES

Credit Policy of RBI:

RBI announces Credit Policy twice a year- One for Busy Season (October-March) and the

other for Slack Season (April-September). However, in the recently announced RBI Policy,

the RBI has decided to have a policy review in an interval of one-and-half months, in orderto have a firm grip on the implementation/execution of is various suggestions and its impact

on our economy. The Credit Policy for the busy season is usually announced in the month of

October while that of slack season is announced in the month of April every year. In the busy

season the demand for bank credit is comparatively higher than the slack season, as more

money is needed for the marketing and distribution of agricultural products.

Of late the share of agricultural credit is coming down compared to industrial credit (which is

not seasonal in nature) and therefore the need for announcing two separate policies is slowly

losing its relevance. Accordingly RBI has started announcing the credit policy once in a year

in the month of April followed by a Mid-term review in October.

Through its Credit Policy, RBI tries to:

(i) regulate money supply (M3) and thus inflation,

(ii) curb hoarding of essential goods & speculation,

(iii) make credit available to the deserving sectors at reasonable cost.

Priority Sector Finance:

Priority Sector constitutes certain sectors of the economy and sections of the society which

are crucial for the development of the economy. Banks are directed to provide adequate and

timely credit for all activities classified under priority sector.

Components of Priority Sector Finance:

1. Agriculture

(i) Direct Finance to Farmers for agriculture purposes:

a) Short Term Loans:

For raising crops.

Advances upto Rs. 10 lakh is provided to farmers.


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Repayment period is within 36 months.

b) Medium and Long Term Loans:

All loans with repayment period of 36 months and above, given for agricultural purposes are

called Term Loans for agriculture. They fall into ten broad categories as given hereunder:

(1) Land development and reclamation: e.g. waste land development

(2) Minor irrigation: sinking of well, deepening of well, purchase of pump sets, etc.

(3) Farm mechanisation: purchase of tractors, power tillers etc and purchase of vehicles such

as Vans for farm supervision etc.

(4) Animal husbandry and Allied activities: Animal husbandry includes Dairy, Sheep rearing

etc and Allied activities includes Sericulture, Apiculture etc.

(5) Fisheries (Pisciculture):

(6) Plantation and Horticulture: Plantation includes traditional plantations like tea, rubber,

coconut etc and non-traditional plantations like medicinal plants. Horticulture includes

Pomeculture (growing of fruits), Floriculture (growing of flowers), and Olericulture (growing

of vegetables).

(7) Farm forestry: includes Sylviculture (growing of trees like Eucalyptus, Tamarind, Neem

etc.)(8) Non-conventional sources of energy: biogas plants, wind mills etc.

(9) Storage and marketing facilities for the agriculturist: construction and running of

warehouses/ godowns/ cold storage for storing own produce of the agriculturist.

(10) Loans to agriculture graduates for setting up Agri Clinic and Agri Business Centres.

The Agri clinics provide consultancy services on agriculture and allied activities while Agri

Business Centres provide inputs and farm equipments on hire. The maximum project cost

allowed under this scheme is Rs. 10 lakh per individual and Rs. 50 lakh for a group of five or

more individuals.

(ii) Indirect Finance to Agriculture:

Finance given to agencies / organisations which supply certain inputs / services to farmers are

classified as indirect finance to agriculture. Following types of Finances are included underthis category:

a) Dealers of fertilizers, pesticides, seeds and other inputs like cattle feed/ poultry feed, etc.

availing credit limit upto Rs. 40 lacs.

b) Dealers of drip/ sprinkler irrigation system/ farm machinery which are located in rural/

semi urban areas availing credit limit upto Rs. 30 lacs.

c) Supplier of custom services in farm machinery, storage facility, plant protection services

and cooperative processing units. A custom service is one which maintains tractors/

bulldozers/threshers/ other implements for undertaking work from farmers on contract basis.

d) Loans to individuals/organisations who undertake spraying operations.

e) Loans to electricity boards for providing low tension connections for energisation of dug

wells.

f) Loans to Farmer Service Cooperative Society, Large Agricultural & Multipurpose Credit

Societies, Co-operative Banks, Co-operative Marketing Societies for on-lending to farmers.

g) Loans to small farmers/marginal farmers for purchase of shares from primary market

in sugar/cotton/spinning/ginnery mill/rice mill/oil seed and rice bran processing mills etc.

Finance can be given upto Rs. 6000/- per farmer.

h) Finance to commission agents (Arthias) to meet their fund requirement for supplying

inputs in credit to farmers.

i) Subscription to special bonds/deposits issued by (i) NABARD, for exclusively financing


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fix individual limits for working capital.

(iv) Professional and Self Employed Persons

Loans should be granted to professionals like Doctors, Chartered Accountants, Lawyers,

Engineers or any other person trained in any art/craft or skill.

(v) Housing

Direct housing loans for repair of houses are classified as priority sector finance.

Assistance given to Govt./non-governmental intermediary agencies for construction of houses

and also for slum clearance and rehabilitation of slum dwellers.

(vi) Education

Education loans upto Rs. 7.5 lakh for studies in India and upto Rs. 15 lakh for studies abroad

would be classified as priority sector advance. But loans granted to educational institutions

cannot be classified as priority sector finance.

(vii) Pure Consumption Loans

Pure consumption loans such as loans for Marriage ceremonies, Medical expenses, Birth

or funeral or religious or general consumption, Educational needs are classified as priority

sector finance.

(viii) Loans to Self Help Groups or Non-Government Organisations.

(ix) Advances to Software industries(x) Advance to Food Processing Industries

TARGETS FOR PRIORITY SECTOR LENDING:

A. Domestic banks in public as well as private sector excluding RRBs:

1) Minimum 40% of the net bank credit should go to the priority sector.

2) Minimum 18% of the net bank credit should go for financing agriculture both direct

and indirect. Where a bank fails to achieve the sub-target of 18%, it is required to deposit the

shortfall amount subject to a maximum of 1.5% of its net bank credit with NABARD to be

credited to Rural Infrastructure Development Fund. This deposit will earn a floating rate of

interest which is 2% over Bank Rate payable at quarterly intervals.3) Minimum 10% of the net bank credit should go for weaker sections.

4) Minimum 1% of the net bank credit outstanding at the end of the previous year should

be financed under DRI scheme.

5) Out of the total credit to be given to SME sector, 40% should be made available for

units with investments upto Rs. 5 lacs, 20% for units with investments between Rs. 5 lacs to

Rs. 25 lacs and balance for others.

6) All scheduled banks are required to allocate a minimum of 3% of their incremental

deposits of previous year for housing finance.

B. Foreign Banks operating in India:

Foreign banks operating in India should lend at least 32% of their net bank credit to priority

sector. For foreign banks, export credit will be considered as priority sector finance. Foreignbanks should provide 12% of their net bank to export sector and also same amount to SME

sector. Where a foreign bank fails to achieve the priority credit target, it will make good the

amount by placing it in one year deposit with SIDBI.

C. Urban Cooperative Banks:

60% of the net bank credit of UCBs should go to priority sector.

D. Regional Rural Banks:

RRBs are required to achieve priority sector lending target of 60% of their total advances


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outstanding. At least 25% of the priority sector credit should be advanced to weaker sections.

PRIME LENDING RATE

Prime Lending Rate or simply PLR is the rate of interest which a bank charges on advances

given to its prime, i.e. excellent borrowers. The rates of interest charged to other borrowersare generally linked to this rate. The Board of Directors of each bank fix the PLR. It can

change the same as & when required. Banks are free to charge interest even below the Prime

Le

For advances Rs.10 lacs and above in Large and Mid Corporate which will be effective from 01.05.2012 areas under:

Rating Model Spread % over BPLRRevised w.e.f.

01.05.2012

Nil 14.75%

SBS 1-3 MS 1 to MS 2 1.00 15.75%

SBS 4-6 MS 3 to MS 4 2.00 16.75%

SBS 7 MS 5 & MS 6 3.25 18.00%

SBS 8-10 MS 7 to MS10 3.50 18.25%

II. Limits above Rs.2 lakhs and upto Rs.10 lakhs

The rates prescribed by respective SBU to be followed.

In case of advances which are not covered under any other 1% over BPLR i.e. SBUs but falling under C&IC Sector,rate to be quoted is presently 15.75%.In case of various other loans, the rates given in following pages may be followed.

III. Limits Rs.10 lakhs and above (linked to Credit Rating of the borrower):

Interest rates applicable to commercial advances for limits Rs.10 lakhs and above for (i) working capital includingWCDL facilities and Short Term loans upto 1 year and (ii) Term Loans above 1 year are given below :-

Rating Model Spread

Rate of Interest (%) p.a.

Working Capital including WCDL &Short Term Loans (less than 1 year)

Term Loans above 1 year

Prior to01.10.2000 *

On or after01.10.2000

Exist. Rev. Exist. Rev. Exist. Rev.

- Prime -- 15.00 14.75 15.00 14.75 15.00 14.75

SBS1-3

MS1 toMS2

1.00 16.00 15.75 16.00 15.75 16.00 15.75

SBS4-

6

MS3 to

MS42.00 17.00 16.75 17.00 16.75 17.00 16.75


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SBS 7MS5 &

MS63.25 18.25 18.00 18.25 18.00 18.25 18.00

SBS 8-

10

MS7 to

MS103.50 18.50 18.25 18.50 18.25 18.50 18.25

* Term loans (3 years and above) granted prior to 1.10.2000 would attract the same spreads over BPLR ascontracted i.e. 1.15%, 2.30% and 3.50%.

V. Trade Finance (For select customers/transactions)

Card Rate

i.Bills backed by LCs of Banks within theexposure limit given by Risk Mgmt Dept,

HO

Existing Revised

Less than

10crores

10 crores

andabove

Less than

10crores

10 crores

andabove

Not exceeding 90 days11.25 11.00 11.25 11.00

91 days to 180 days11.50 11.25 11.50 11.25

IiBills drawn by customers whose rating isLC1 to LC2/SBS 1-3

Not exceeding 90 days14.75% 14.50%

91 days to 180 days15.25% 15.00%

iii

Customers with risk rating LC3 to

LC4/SBS 4-6 and above for bills drawn oncorporates and PSUs (Br. Cir. Nos.98/157

dated 01/11.2004)

Not exceeding 90 days15.00% 14.75%

91 days to 180 days15.50% 15.25%

nding Rate (i.e. Sub PLR).14.50% p.a


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FIXED RATE & FLOATING RATE OF INTEREST

Banks are permitted by the RBI to charge interest on term loan on the basis of fixed rate or

floating rate. In case of fixed rate, the rate of interest remains same throughout the tenor of

the loan while in case of floating rate, the rate of interest is fixed in relation to an anchor

rate & is changed as & when there is a change in the anchor rate at predetermined intervals.Accordingly many banks are charging floating rate of interest on Housing Loans & other

term loans.

CREDIT RATING OF BORROWERS & INTEREST RATES

With respect to advances where rate of interest is deregulated, banks are required to stipulate

the rate of interest depending upon the credit rating of the borrower. The credit rating of the

borrower is to be done by the financing bank itself.

Rating of a borrower is done through a score sheet containing different parameters mostly

relating to financial disciplines like (i) Regularity in submission of financial statement, (ii)

Regularity in submission of stock statement, (iii) Maintenance of Net Working Capital, (iv)

Maintenance of current ratio, (v) Timely payment of interest/instalment etc. Depending

upon degree of compliance/non-compliance each parameter is awarded certain points &

the average score is found out by dividing the total score by total parameters taken into

consideration. Depending upon the average score the borrower is rated on a ten point scale

and is assigned rating like A+, A, B+, B, C etc. The rating technique and symbols vary from

bank to bank.

Top rated borrowers are charged Prime Lending Rate while lower rated borrowers are

charged progressively higher spreads on the principle higher the risk higher is the rate of

interest.

The credit rating assigned to a borrower is reviewed every year at the time of review of

account & interest is charged as per the new rating.

3.3METHODS OF CREDIT APPRAISAL

3.3.1 - CREDIT APPRAISAL OF MSMEs IN BANK OF INDIAMSME

MSME stands for Micro, Small and Medium Enterprises and are companies whose turnover

falls below a certain limits

.Enterprises classified broadly into:

i) Enterprises engaged in the manufacture/production of goods pertaining to any industry &

ii) Enterprises engaged in providing/rendering of services.


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Manufacturing Enterprises:Defined in terms of investment in plant and machinery (excluding land & buildings) and

further classified into:

SMALL & MEDIUM ENTERPRISES STRATEGIC BUSINESS UNIT

All the interest rates are linked to Base Rate (floating) which is 10.20%

w.e.f. 20.01..2014. Please note that irrespective of the category of the

borrower (i.e. micro, small, medium and other non-regulatory / Sankalp

SME) the rate of interest will be as per the limit proposed and credit

rating assigned. The applicable

rating models are:

Sr NoLimits (Rs.) Applicable rating Model

Presently in forceFrom To

1 1 < 10 Lakh No rating

2 10 Lakh < 5 Crore SBS

3 5 Crore


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Small Enterprises (MSEs) sector plays a pivotal role in the overall industrial economy of

the country. It is estimated that in terms of value, the sector accounts for about 39% of the

manufacturing output and around 33% of the total export of the country. Further, in recent

years the MSE sector has consistently registered higher growth rate compared to the overall

industrial sector. The major advantage of the sector is its employment potential at low capital

cost. As per available statistics, this sector employs an estimated 31 million persons spread

over 12.8 million enterprises and the labour intensity in the MSE sector is estimated to be

almost 4 times higher than the large enterprises.

The Importance of Micro, Small and Medium Enterprises (MSMEs) in any economy cannot

be overlooked as they play a key role in industrialization of a developing country like India.

They have unique features:-

Smaller in size

Development of decentralised sector

More employment opportunities

Comparatively high labour-capital ratio

Need a shorter gestation period

Focus on relatively smaller markets

Need lower investments

Ensure a more equitable distribution of national income

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Effective utilisation of locally available resources and thus help in the growth of local

economy, and

Stimulate the growth of industrial entrepreneurship.

However the following are the issues of MSME financing:

Emphasis to preserve narrow profit margins makes the MSMEs myopic about the

innovative improvements to their product and processes and to capture new markets.

They are unable to compete with big players in terms of product quality, range of

products, marketing abilities and cost.

Absence of a wide range of Financing and other services to raise money and sustain

the business.

Absence of Infrastructure, Quality labour, Business acumen and limited options /

opportunities to widen the business.

Poor IT and Knowledge Infrastructure.

To overcome all these difficulties, Indian MSMEs not only need the policy support from the

Government but also need institutional support to fund modernization and technology upgradation,

infrastructure support and adequate working capital finance.

The Indian MSME market seems to be emerging a promising hunting ground for banks and

financial institutions because it is poised for tremendous growth. As the access of MSMEs

to capital markets is very limited, they largely depend on borrowed funds from banks andfinancial institutions. In majority of the economies, while the investment credit to MSMEs

was being provided by financial institutions, commercial banks extended working capital.

In the recent past, with growing demand for universal banking services, the term loan and

working capital are becoming available from the same source. Besides the traditional needs

of finance for asset creation and working capital, the changing global environment has

generated demand for introduction of new financial and support services by MSMEs.

Companies that intend to seek credit facilities approach the bank. Primarily, credit is required


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for following purposes:-

1. Working capital finance

2. Term loan for mega projects

1. Working Capital Finance

Every business needs funds for two purposes- for its establishment and to carry out its day to

day operations. Long term funds are required to create production facilities through purchase

of fixed assets such as plant and machinery, land, building, furniture etc.

Working capital refers to that part of firms capital which is required for financing short term

or current assets such as cash, marketable securities, debtors, and inventories. In other words

working capital is the amount of funds necessary to cover the cost of operating the enterprise.

It refers to funds which are used during an accounting period to generate a current income of

a type which is consistent with major purpose of a firm existence.

Need for working capital

The prime objective of the company is to obtain maximum profit thought the business.

The amount of profit largely depends upon the magnitude of sales. However the sale does

not convert into cash instantaneously. There is always a time gap between sale of goods

and receipt of cash. The time gap between the sales and their actual realization in cash is

technically termed as operating cycle. Additional capital required to have uninterrupted

business operations, and the amount will be locked up in the current assets. Regular

availability of adequate working capital is inevitable for sustained business operations. If the

proper fund is not provided for the purpose, the business operations will be effected.

Every business needs some amount of working capital. It is needed for following purposes-

incur day to day expenses and overhead costs such as fuel, power, and office

expenses etc.

Component of Working Capital

There are two of the major following components of the Working Capital:

Current Assets:

Current assets are those assets which can be converted into cash in the normal course of

business within a short period- say a maximum of one year. They are also called floating or

circulating assets because they cannot be put to constant use. They are meant for resale or

produced for the purpose of sale i.e., converting them into cash. In brief, the list of current

assets comprises of:

Cash in hand and bank balances;

Bills receivables;Sundry debtors (less provision for bad debts);

Short-term loans and advances;

Inventories of stocks as:

Raw- material,

Work-in-progress,

Stores and spares,

Finished goods.


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Temporary Investments of surplus funds;

Investments held for short term and easily marketable securities:

Prepaid Expense;

Accrued Incomes.

Current Liabilities:

Current liabilities are those liabilities which are intended to be paid in the ordinary course of

business within a short period of normally one accounting year out of the current assets or the

income of the business. Such as:

Bills Payable;

Sundry creditors or accounts payable;

Accrued or outstanding Expenses;

Short-term loan, advances and deposits;

Dividends Payable;

Bank overdrafts;

Provision for taxation.

Working Capital Cycle

The working capital cycle is also known as the operating cycle of working capital. This

concept is used on the continuity of flow of funds through business operation. This flow

of value is caused by different operational activities during a given period of time. The

operational activities of an organization may comprise:

Purchase of raw materials,

Conversion of raw materials into finished products,

Sale of finished products, and

Realization of accounts receivable.

Material cost is partly covered by trade credit from suppliers and successive operationalactivities also involve cash flow. If the flow continues without any interruption, operational

activities of the company will also continue smoothly. Movements of cash through the above

process are called the circular flow of cash. The period required to complete this flow is

called the operating period or the operating cycle.

To estimate the working capital requirement, the number of operating cycles in a year

is to be calculated. This is calculated by dividing the number of days in a year by the length

of the cycle. Total operating expenses of a year divided by the number of operating cycles in

that year is the working capital required.

ASSESSEMENT OF WORKING CAPITAL

When a company approaches for a Working Capital Finance then the Bank of India follows

the following steps for the assessment of its working capital:

1. Estimating the projected level of operation or Ascertaining the reasonableness of

projected level of operation.

2. Estimating the reasonable level of Total Current Assets required for achieving the

projected level of operation.

3. Estimating the reasonable level of other current liabilities in the corresponding period

and then finding out the working capital gap.


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4. Determining the reasonable level of Net Working Capital required to be brought in by

the unit and then finding the MPBF.

5. Margin Requirement and Fixation of limits on the basis of available chargeable

Current Assets.

STEP- 1

ESTIMATING THE PROJECTED LEVEL OF OPERATION OR ASCERTAININGTHE REASONABLENESS OF PROJECTED LEVEL OF OPERATION

Sanction of the credit limit is always for the future requirement. The borrower has to

submit the projected sales figure expected to be achieved during the relevant year.

For advances of Rs. 10 lacs and above the borrower is required to submit the financial

data in CMA format. He gives in CMA Form II, the sales figure during the last two

years, estimated sales figure for the current year and the projected sales figure for the

following year.

The Bank makes sure whether the sales projection is realistic or not. For finding

out reasonableness of the projection the Bank takes the following points intoconsideration:

From the Sales figure submitted, the Bank finds out the percentage of rise or fall

in Net Sales as compared to previous years and ascertains that the projection is in

line with the past trend. If there is no relationship between projection and the past

trend, the genuineness of assumption on which sales is projected must be cross

checked and only the realistic figure is to be calculated.

While finalising sales figure the factors to be kept in mind are:

(a) Available capacity and capacity utilization,

(b) Marketability of the product- competition and the marketing strength of the

unit,

(c) Availability of critical raw material,(d) Availability of power, etc.

In case of new units, the Bank ascertains the reasonableness of projection in the

light of data available for marketability of product, the performance units and

installed capacity of the unit.

After finalising the projected level of sale, the Bank cross checks whether the

projections made in operating statement (given in CMA form II) for raw material

consumption, cost of production, cost of sale are reasonable. This is generally done

by comparing the trend of cost of sales to sales and percentage of Raw Material

consumption and other manufacturing expenses to the cost of production.

STEP- 2

ESTIMATING THE REASONABLE LEVEL OF TOTAL CURRENT ASSETSREQUIRED FOR ACHIEVING THE PROJECTED LEVEL OF OPERATION

After finalising the projected sale, the Bank ascertains the level of Working Capital

which is required to be maintained for achieving this state.

For it the Bank first calculates the Holding Period of Raw Material, WIP, Finished

Goods and Receivables.


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(1) Period of Holding of Raw Material

It is the number of months of raw material consumption a unit usually keeps in stock.

It is calculated by the following formula-

(2) Holding Period of W.I.P.

It is expressed with reference to Cost of Production.

(3) Holding Period of Finished Goods

It is calculated with reference to Cost of Sales.

(4) Holding Period of Receivables/ Debt Collection Period

It is calculated with reference to Credit Sales or Sales figure (when credit sales figure

is not available).

Once the Holding Period is accepted, the Bank refers to the projected operating

statement and find out the following figures after ascertaining that they are realistic.

1. Projected figures for Raw Material Consumption

2. Projected figures for Cost of Production

3. Projected figures for Cost of Sales

4. Projected figures for Sales

Now,

Then, Total Current Assets is calculated by adding projected value of Raw Material, Spares,

Work-in-Process, Finished Goods, Receivables and Other Current Assets.

STEP- 3

ESTIMATING THE REASONABLE LEVEL OF OTHER CURRENT LIABILITIESIN THE CORRESPONDING PERIOD AND THEN FINDING OUT THE WORKINGCAPITAL GAP

Sundry Creditors and Other current liabilities are a source of financing working

capital. While assessing the maximum permissible bank finance, the Bank make

certain that to what extent this source of finance was available in the past and whether

in the projections same trend is reflected or not. Number of days credit enjoyed by the

unit can be calculated by using the following formula:

Apart from Sundry Creditors other items in Other current liabilities should be

projected at reasonable level depending upon the past trend.

Then the Working Capital Gap is found out by deducting projected level of other

current liabilities from projected level of Total Current Assets.

WCG = TCAOCL

STEP- 4

DETERMINING THE REASONABLE LEVEL OF NET WORKING CAPITALREQUIRED TO BE BROUGHT IN BY THE UNIT AND THEN FINDING THEMPBF

The Bank does not finance the entire working gap.

As per Tandon committee recommendations, the borrower should bring NWC which


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is equal to or more than 25% of the working capital gap (1st method of lending). In

case he is required to be fitted in 2nd method of lending he should bring NWC equal

to 25% of the Total Current Assets.

Where the NWC already available in the business is more than the Tandon Committee

norms the borrower must continue to maintain the same. In no case the borrower

is allowed to withdraw the NWC or use the same for acquisition of fixed assets or

investment in sister concerns, without specific approval of the Bank.

MPBF is lower of the following two

(i) WCGNWC as required by the Tandon Committee

(ii) WCGNWC, available in the business

STEP- 5

MARGIN REQUIREMENT AND FIXATION OF LIMITS ON THE BASIS OFAVAILABLE CHARGEABLE CURRENT ASSETS

After determining the MPBF, the various limits (Bills, Packing Credit, Working

Capital, Term Loan) are determined depending on the available chargeable currentassets less suitable margin.

Tendon committee has suggested three methods of lending. Out of these the Reserve Bank

of India accepted only two. These methods of lending are used for calculating Maximum

Permissible Bank Finance (MPBF)

.

(1) First Method Of Lending:

As per Method I, the borrower is required to bring minimum NWC to the extent of the 25%

of Working Capital Gap. The balance which is maximum 75% of the working capital gap will

be the Maximum Permissible Bank Finance. This approach was considered suitable only for

very small borrowers i.e. where the requirements of credit were less than Rs.10 lacs.

(2) Second Method Of Lending:

Under second method, the borrower is required to bring minimum NWC to the extent of 25%

of the Total Current Assets & the balance will be MPBF. RBI stipulated that the working

capital needs of all borrowers enjoying fund based credit facilities of more than Rs. 10 lacs

should be appraised (calculated) under this method.

Difference between the two methods:

These two methods of lending envisage different levels of contribution from long term funds

(NWC) by the borrowing unit with an objective to slowly reduce the dependence on bank

borrowing. The NWC contribution in 2nd method is higher compared to 1st method. The

Maximum Permissible Bank Finance in 2nd method is lower compared to 1st method.


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ASSESSMENT OF WORKING CAPITAL AS PER NAYAK COMMITTEE(TURNOVER METHOD):

Nayak Committee recommended a new method of assessment of working capital. This

method was initially made applicable for all units availing working capital limits upto Rs. 50

lacs. Subsequently this method of lending is made applicable to all small scale units availing

fund based working capital limits upto Rs. 5 crore from the banking system, and other units

availing the same upto Rs. 2 crore.

Method of Assessment:

As per this method, minimum working capital requirement of such units should be

computed at 25% of the projected annual turnover. The margin should be calculated as equal to 5% of the projected turnover.

The minimum working capital finance will therefore be calculated as equal to 20% of

the projected turnover.

Points to Not:

In conventional methods, the bank calculates Maximum Permissible Bank Finance

while in this method the bank calculates the minimum finance. The bank is free to

finance any amount above this minimum limit.

The working capital requirement of a unit basically depends upon two important

factors namely (i) projected turnover & (ii) length of working capital cycle.

By stipulating 25% of the annual turnover as the working capital requirement, the

method assumes that the length of the working capital cycle would be minimum three

months (i.e., 25% of one year).

The margin requirement is stipulated to be 5% of the projected turnover. In other

words the margin requirement is 1/5 or 20% of the total working capital requirement

of the unit.

While applying this method, the bank is very careful in accepting the projected sale.

The projected sale must be realistic and should be in conformity with the past trend.

PROCEDURE OF ASSESSMENT

The assessment of working capital should be done both on traditional method (which

depends upon finding out total current asset build-up) and the new method (which is

on turnover basis).

In case the limits determined as per the former method comes to less than 20% of the

turnover, the assessment should be thoroughly re-examined.

In special circumstances if it is justified, working capital finance can also be fixed

at a level less than 20% of the turnover. However, in such a case the consent of the


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borrower should be obtained in writing.

Where the existing level of Net Working Capital is more than 5% of the turnover, the

available NWC should be taken into consideration & accordingly the limits can be

fixed at a level lower than 20% of the projected turnover.

In case of seasonal industries, peak level and non peak level limits should be fixed

with reference to peak and non peak season projected turnover.

Other current liabilities and sundry creditors will be treated in the same manner as is

the case with traditional method.

Fixation of limits will be done with reference to build-up current assets as assessed

under traditional method.

Drawings in account will be regulated on the basis of statement given for actual inventory

and receivable.

2. Term Loan Finance

Term loan is sanctioned for acquiring fixed assets, i.e. land, building, machinery, vehicles,

etc. Term loan is repayable in instalments spread over three to ten years and its repayment isout of profit.

General Guidelines for Sanction of Term Loan by Bank of India:

- The credit exposure limit of the bank towards projects promoted by a single borrower

should not exceed 15% of the Capital Fund of the bank (additional 5% is permitted for

infrastructure projects) and to that of a group not exceed 40% of the banks capital fund.

- In case of projects undertaken by public sector units, term loan can be sanctioned only

if the unit is a company formed under the Companies Act or a corporation formed under a

statute.

- Bank extends financial assistance for purchase of second-hand assets as per the policy

framed by the bank concerned in this regard.- Bank prefers to sanction term loans which are eligible for refinance.

- To be eligible for refinance, the term loan should be given as per the norms prescribed

by the Refinancing Institutions like SIDBI, NABARD, etc. and the industry should not be

one which is classified under Negative List.

Generally the entrepreneur submits a project report prepared by SISI/TCOs/Approved

Consultants. The appraising official cross checks the reliability of the assumptions made in

the project report and if necessary recalculates the projections on fresh assumptions made

.

ANALYSIS OF TERM LOAN

While sanctioning Term Loans to Industries, a detailed analysis is made on the following

aspects of a project:

(1) Managerial Competence

(2) Technical Feasibility

(3) Commercial Viability

(4) Financial Viability


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(1) Managerial Competence

A thorough study need to be made on the capability of the entrepreneurs in implementing and

managing the project by examining some points as hereunder:

(i) Past experience,

(ii) Qualification,

(iii) Technical and Managerial Skill,

(iv) Entrepreneurial Skills (i.e. Ambition, Tenacity, Risk taking Aptitude, etc.)

(v) Character (Honesty, Integrity)

(vi) Capability to arrange promoters contribution/margin and other funds in contingencies.

(2) Technical Feasibility

Study of technical feasibility involves the study of all aspects relevant to production of

finished goods of proper quality. Points under this head are as hereunder:

(i) Licenses, permits required to start the project and their availability.

(ii) Location of the project vis a vis the availability of raw material, utilities, (power, steam,

water, fuel, etc.) and transport.

(iii) Product and Process : (The manufacturing process adopted, vis a vis the modern

technology available and the standing of the supplier of technology and his stake (as

32

collaborator, shareholder, etc.) is to be examined. Wherever feasible, performance

guarantee may be insisted upon from the suppliers of technology).

(iv) Plant and Machinery : (Suitability, Capacity, Standing of Suppliers, Availability of

performance guarantee and cost etc. are to be examined).

(v) Raw Material and Labour Availability : (Quality, Cost, Regularity in Supply are to be

studied).

(3) Commercial Viability

The bank examines whether the goods can be sold in quantity and price as projected

by entrepreneur. Unless the products are sold at or near to the projected level the expected

cash flow will suffer and the unit would become sick. To avoid such an eventuality, a

thorough examination is to be made on the following points:(i) The present and futuristic trend of demand for the product.

(ii) The level of competition from similar products and substitutes and the strength of the

competitors.

(iii) The capability of the unit to penetrate the market to gain and retain a comfortable market

share.

(iv) The present stage in the life cycle of the product.

(v) Price of the product vis a vis the substitutes and price elasticity of demand.


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(4) Financial Viability

Study of Financial Viability involves the study of the following aspects:

(i) Whether sufficient finance at reasonable cost is available to execute the project (cost of

project and means of finance).

(a) Cost of the project:

It includes all the expenditures required to bring the project into the stage of

commercial production and consists of the following major components:

1. Land and Site Development

2. Building

3. Plant & Machinery

4. Miscellaneous Fixed Assets (Electric installation, Vehicles, Furniture, etc)

5. Technical Know How (Cost of technology, Patent, etc)

6. Preliminary Expenses (expenses in formation of company, public issue, law charge

etc.)

7. Pre-operative expenses (Salary, Interest on Term Loan, etc. before commencement

of production)8. Margin on Working Capital (as per second method of lending)

9. Provision for contingencies (unforeseen expenditures)

(b) Means of Finance:

Sources from which cost of project are funded are: (i) Capital (ii) Surplus, for existing

units (iii) Quasi Equities (iv) Term Credits (v) Leasing.

The main points to be examined from means of finance are-

1. Whether the means of finance is sufficient compared to the cost of project?

2. What is average cost of finance and how it compares with the return from the

project?

3. What is Debt Equity Ratio? Is it per IDBI/SIDBI requirement? Or is it satisfactory?

4. What is Promoters Contribution? Is it as per IDBI/SIDBI norms or is itsatisfactory?

(ii) Whether sufficient profit will be available to service the creditors and share holders

(Projected Profitability Statement and Funds Flow Statement).

Projected Profitability Statement is to be prepared for all the years covering the

repayment period of the term loan.

The starting point for preparing a projected profitability statement is the estimation of

sales which is based on demand forecast.

Then capacity utilisation is calculated. It should be 40% to 50% during the initial

years and it should increase yearly to reach around 75% to 80%.

Then amount of sale should be calculated.

All the costs incurred are determined. Raw material cost is calculated at present actual

cost.

Wages are calculated. It should be increased 5% to 10% per year.

Repair and maintenance should be 2% of machinery cost.

Other costs like Insurance, Rent etc should be realistically projected for the first year

and then increase by 5% to 10% every year.

Depreciation should be as per actual calculation.


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Now Profit before tax and after tax is calculated.

(iii) Whether sufficient funds/cash will be available to repay term loan instalment (Debt

Service Coverage Ratio and Projected Cash Flow).

After ascertaining the profit, the next step is to calculate the repaying capacity of the

unit. This is done by calculating DSCR which is given as:

Where lease rental are payable by the unit, it should also be added to the numerator and

denominator for calculating DSCR. It is calculated for each year.

The ideal ratio for DSCR is 2:1

DSCR helps to determine the length of the moratorium period, the repayment period and

the amount of instalment.

Where DSCR is low, the repayment period can be extended. Conversely, if the DSCR is

high the repayment period can be reduced.

In case the DSCR is very low, even after the extending the repayment period, the

proposal should not be considered for finance.

The repayment period and instalments should be linked to future cash accrual of a unit.

(iv) Whether the Break-even point and the margin of safety are satisfactory.

Break-even point is the amount of sales at which a unit makes no profit or no loss. In

other words it is the level of sale at which sales revenue is equal to the cost of units sold.A unit can earn profit only if its level of sales is above the break-even point. A unit with

comparatively low BEP is generally preferred for finance.

The difference between Projected Sales and BEP sale is known as Margin of Safety. A

unit a Higher Margin of Safety is generally preferred for finance.

What will be the position of the company in future years (study of Projected Balance Sheets

for the years covering the currency of term loan).

3.3.2INTRODUCTION TO PERSONAL LOANS

In personal loan the risk is assessed on the basis of income level of the borrower. It

should be made certain that after repayment of the EMI at least 40% income should

remain with the borrower.

For salaried employee it is their annual salary, and for professional and the business

persons it is their annual income or profit.

Personal loan is given mainly for the personal use of the borrower. It was initially also

known as Consumer Loan, as it is sanctioned for the use of consumer products, such

as Car Loan, Home Loan, etc.

Personal Loan is generally repaid within 3 years. If a borrower takes more time than

the stipulated period, in that case the borrower is considered Defaulter, and a PenalInterest is charged to him.

Bank of India also provides various types of retail credit, some of which are briefly discussed

here:


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1. Star Education Loan

Target group Educational Institutions viz., Universities , Colleges , Schools

Eligibility The institutions must have got necessary approval from Government /Government agencies for running the educational institutionThey should submit 3 years audited financial statementsThey should be profit making for continuous 2 years.New and upcoming educational institutions can also be considered inwhich projections, both financial and non-financial, must be reasonableand justifiable.Entry level credit rating is SBS 5. No deviation to be allowed.

Purpose Construction/ Renovation / Repair of building. Approval forconstruction/addition/alteration from all the concerned authorities must bein place for considering the credit facility.Purchase of Computer, lab equipment, Furniture & Fixtures, books etc

Nature of facility Term Loan

Quantum of Loan Minimum Rs.10 lacs and Maximum Rs.500 lacs

Repayment Term Loan to be repaid in maximum 8 years inclusive of initial moratoriumof 12 to 18 months. Periodicity of instalment to be determined on the basisof cash flow

Appraisal of loan The proponent should have sufficient cash flow to service both instalmentand interest.DSCR should be minimum 1.25.

Margin Minimum 20%

Rate of Interest As per prevailing rate of interest structure in terms of HOBC:104/94 dt. 15-

11-2010

Processing Fee, Documentationcharges etc

For accounts falling within

regulatory definition ofMSME : In terms of HOBC :

102/218 dt. 20-03-2009.

For accounts not falling

within regulatory definitionof MSME but within the new

definition of SME : In terms


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of HOBC: 102/119 dt.19-09-

2008.

Security Primary :

i.) Hypothecation of assets, if loan is considered for machineries /equipments.ii.) Mortgage of land & building over which construction is proposed

Collateral :Suitable collateral to be obtained so that minimum Asset Cover of 1.50 isavailable. Guarantee of key person/promoter/trustee must be taken.

Insurance Assets charged to the Bank to be comprehensively insured coveringvarious risks including civil commotions and riots. The policies should berenewed from time to time and copy retained on branch record. Banksinterest to be got noted in the insurance policy. Separate insurance policy

to be obtained for the mortgaged property.

Due Diligence The bank will conduct its own due diligence (including pre-sanction visit).

Sanctioning Authority As per extant delegation of power

Documentation 1. IFD 10 where fixed assets are charged to the Bank2. IFD 1 where only mortgage is available3. L-516 4. OD-194 where guarantee is proposed5. All other supportive documents as per extant guidelines

Authorized branches All branches of the Bank.

2. Star Home Loan

Eligibility Salaried employees, Professionals, Self-employed persons.Requests are also considered from NRIs, PIOs, HUF, and Prop.

Firm, Partnership firms and corporate

Purpose To purchase/construct house/flat

To renovate/extend/repair existing house/flat. To purchase a plot of land for construction of house

Take over of home loan from other banks/FIs- subject toconditions .


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Quantum of Loan For construction/purchase of a house/flat-Rs.300 Lacs (Rs.500 Lacs in major metrosviz. Mumbai, Kolkata, New Delhi and Chennai)

Repairs/renovation/extension to house/flatRs.50 lacs

Purchase of a plot - Rs.100 lacs

Loan for purchase of household articles along with homeLoan for furnishing the house/flat @15% of Home Loan

amount Max. Rs. 5.00 lacs is offered under Secured

Personal Loan with same Rate of Interest as applicableunder Home Loan with maximum repayment period of 10

years including moratorium period, if any.

Note: Minimum Home Loan :- For Metro/Urban Centres :-Rs.

1 Lac

Processing charges / Other

expenses FOR INDIVIDUALS

Loan Limit Charges- One Time

(inclusive of ST)

For All Loan amounts @0.25% of loan amount

Min.Rs.1, 000 and Max.Rs.20,000/-

For Partnership firms & Corporate BorrowersProcessingcharges will be double that of individuals.

For Rural areasProcessing charges will be 75% that of

applicable to individuals in respect of loans availed byborrowers from rural areas from the Rural Branches. Legal

Expenses/Valuation Charges/Stamp Paper Charges etc., At

actuals.

Margin*% on pure cost of thehouse excluding stamp

duty, registration ,

documentation etc.

For 1st

House/Flat

For Loan

upto Rs.20Lacs

For Loan

over Rs 20lacs - up toRs.75 Lacs:

For Loan

above Rs.75Lacs:

15% 20% 25%

a) For 2nd or 25%


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Subsequent

Home

Loan/House/Flat

b) Where

reimbursementof loan is

considered- 1st

or 2nd

house/loan

Repayment(can be

customized)

Highly flexible - maximum 30 yrs. including moratorium

period upto 36 months (max.) in monthly installments,including Banks approved projects. Loan to be normally

repaid before date of retirement in case of salaried persons and

before attaining 70 years of age in case of others. Repaymentupto 70 years also allowed to salaried employees having

assured post retirement income

Eligible Quantum of

Loan/ EMI

Calculation of quantum of loan is related to Income/repayment

capacity of proponent/borrower

Salaried Employees : 72 times of gross monthly salary or 6 times

of gross annual income based on I-TReturns.

Self-employed/ Professionals etc. 6 times of Gross annual income based on I-T Returns

HUF/Proprietorship

/Partnership Firm/ Company

6 times of cash accruals (PAT+Depreciation) as per Balance Sheet/P&LAccount

In case of Individuals

Net Take Home pay(NTH)/income (net of all deductions

including EMI of Proposed loan) is stipulated as under :-

i. Gross Monthly Income up to Rs.1 Lacs NTH Minimum

40%

ii. Gross Monthly Income over Rs.1 Lac up to Rs. 5 Lacs

NTH Minimum 30%

iii. Gross Monthly Income over Rs.5 Lacs NTH Minimum

25%


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In case of HUF/Proprietorship/ Partnership firm/Company:

DSCR should be minimum 1.5.

Rate of Interest (FloatingROI- linked banks base rate ,

p.a. at monthly rests)

Up to Rs.75

lacsOver Rs.75

lacs

Floating Category Base Rate 0.25 % over BaseRate

Up to 30 years

Note:

Fixed Rate of Interest Not

Offered

10.20 10.45

Security Mortgage/Equitable Mortgage (1st charge) on land/flat/house.Third Party guarantee (if mortgage could not be created before

or at the time of disbursement).

Special Features Free Personal Accident Insurance cover for the borrower

(covering accidental death as well as permanent totaldisablement) as per terms of insurance policy covering loan

outstanding as on the date of accident(Renewal at the

discretion of the Bank).

Life Insurance cover to housing loan borrowers , ataffordable premium against risk of death during tenure of

loan under Group Insurance Scheme in tie up with Star

Union Dai-Ichi Insurance Co. Ltd. at borrowers ownexpenses & option.

Loan furnishing the house/flat at a rate of interest as

applicable to housing loan under the scheme

Other Attractive

Features

Interest on Daily Reducing Balance Basis

No Pre-Payment Charges on Floating Rate Loans

Facility for step up/ step down EMIs

Inclusion of notional rental income in case of 2nd Houseand also Employees staying in Staff Quarters;

Inclusion of Income of Close relatives for enhanced loan

Tax Benefit on Interest and Installments repaid in HomeLoans

Facility for 100% loan irrespective of stage of construction


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OR Bridge Loan subject to conditions:

RATING EXERCISE: The proponent will be eligible for loan subject to obtention of minimum marks orminimum entry level norm fixed by the bank

3. Star Auto express

Target group All existing SME units, as per new definition, run by Individuals, Proprietorship /Partnership firms, Limited Company, Trust, Society

Eligibility The unit / borrower should have sufficient net worth/source of funds to pay forthe margin and initial recurring expenses. Conduct of the existing account musthave been satisfactory.Entry level credit rating should be SBS 5. No deviations to be allowed in entrylevel norms.

Purpose To purchase transport vehicles for delivering their products / Services.Educational institutions also eligible for transport vehicles for providingtransportation services to students / faculty / staff. Only new vehicles will beconsidered. Second hand vehicles not permitted under the scheme.

Items to be financed Chassis + Body building costs + registration , insurance , road tax, accessoriesAMC etc.

Nature of facility Term Loan

Repayment To be repaid in 84 equated monthly installments inclusive of moratorium ofmaximum 3 months.

Appraisal of loan The economic viability should be worked out as per the overall incomegenerated and surplus for loan installment / interest payment from the existingbusiness operation of the unit.

Average DSCR should be minimum 1.25.

Margin and Asset CoverageRatio

Margin will be 20% of the cost of vehicle on road (chassis, body building andinitial insurance, registration ,Road Tax & AMC).

Rate of Interest The rate of interest shall be applicable to existing credit rating of the account aswell as aggregate credit limit arrived at after clubbing proposed finance forvehicle .

Processing Fee,Documentation charges etc

For accounts falling within regulatorydefinition of MSME :In terms of HOBC : 102/218 dt. 20-

For accounts not falling withinregulatory definition of MSME butwithin the new definition of SME :


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03-2009. In terms of HOBC: 102/119 dt.19-09-2008.

Security i. Primary : Hypothecation of the vehicle purchased out of the proceeds of theloan. Banks name as charge holder to be got entered in the books of theRTO

and also the Registration certificate.

ii. Collateral :Micro and Small (Services Enterprises), can be sanctionedcollateral free term loan up to Rs. 100 lakhs, subject to coverage underguarantee provided by Credit Guarantee Fund Trust for Micro & SmallEnterprises.(CGTMSE) For loans above Rs 100 lakhs , suitable collateralsecurity to be obtained depending upon the merits of individual cases.

Comprehensive insurance policy covering various risks including civilcommotions and riots should be arranged. The policies should berenewed from time to time and copy retained on branch record. Vehicles tobe insured in the name of the borrower only but banks interest to be got

noted in the insurance policy.

The bank will conduct its own due diligence (including pre-sanction visit).

As per the banks scheme of delegation

Hypothecation Agreement no. CHA2/CBD 13Deed of Guarantee No.OD-194 ( If applicable )Blank Transfer forms duly signed by the borrower to be kept on record.-Form 29 and 30.Undertaking to inform Engine No. Chassis No.Letter addressed to Insurance Co. duly signed by the borrower authorizing

them to pay claims directly to the Bank.Stamped letter signed by Body Builder. (where applicable) that the vehicleis in his custody for Body Building.

Other supporting documents as applicable i.e.

Identity/Residence proof

Photograph of borrower/co borrower and guarantor with theirsignatures attested by the their Bankers.

Balance sheet and profit loss statement of last two years in case offirms/companies.

Partnership letter in case of partnership firms.

Copy of Memorandum and Articles of Association, certificates ofIncorporation and Commencement of business duly attested and copyof board resolution for a availing the loan in case of limited companies.

For borrowers already having vehicles, copy of Registration Certificate.and

PDCs to be obtained and kept on record.


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Disbursement to be made direct to the suppliers by means of an accountpayee draft/pay order and acknowledgement to be obtained.

All branches of the Bank.

The branch shall maintain all the necessary follow up and controls postdisbursal as per extant instructions like carrying out inspection, ensuringentry of banks name in the RC book and copies of RC/routepermit/insurance to be placed on bank record.

The vehicle to bear prominently the legend Hypothecated to Bank of India___________ Branch

4. Star Personal Loan

Star Personal Loans

Star Personal Loan Scheme provides loan to meet various Personal requirements of customers and their family.

Bank offers loans for marriage expenses, medical expenses, educational expenses, purchase of consumer durablesetc. Maximum quantum of advance is Rs.10.00 lakhs, depending upon the income, with very attractive interest rateand easy repayment plan.

Please approach our nearest Branch and avail the loan to fulfil your personal needs.

Product BOI Star Personal Loan Scheme

Eligibility Salaried employees, Professionals and individuals with high net

worth, regular pensioners or family pensioners drawing regularmonthly pension through Branch, Staff members, retired

employees (other than dismissed/compulsorily retired) of our

Bank.

Types of advance Demand/Term Loan/Overdraft (reducible as per repaymentschedule)

Overdraft limit (not reducible as per repayment schedule)

maximum up to Rs.1 lac to confirmed permanent employees of

Central/State Govt. /Reputed Corporates and PSU's.

Purpose Clean/Unsecured loans

Marriage expenses of self,

son, daughter or adependent near relative.

Medical Expenses

Secured loans

Repayment of existinghousing loans from other

banks/Financial


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incurred/to be incurred forself, spouse, children,

dependent near relative.

For education ofself/spouse/ children/ near

dependent relatives.

For repairs/ renovation/extension of existing

house/flat.

Any other personalexpenses of bonafide

nature as approved by the

Bank

Institutions, etc.

Repairs/ Renovation/

Extension of House

property. Education ofself, spouse, children, near

dependent relatives.

Purchase of consumerdurables, computers,

professional equipments

etc.

Max. LoanMin. Size of loan

Rs.2.00 lacsMinimum size of loan: - At

Metro and Urban Centres:

Rs.10, 000/-At Rural and Semi Urban

centres: No minimum size of

loan.

Rs.10.00 lacsMinimum size of loan: - At Metro andUrban Centres: Rs.10, 000/- At Rural

and Semi Urban centres: No minimumsize of loan.

Quantum of Advance 10 times of monthly net

Emoluments(take home

pay) in case of salariedEmployees

50 % of Gross AnnualIncome as per last Income

Tax Returns for

professionals/individuals

of high net worth

20 times of monthly Gross

Emoluments in case of

salaried Employees 100 % of Gross Average

Annual Income as per lastthree years Income Tax

Returns for

professionals/individuals

of high net worth

Note :While fixing the limit. It should be ensured that the net

take home pay / Income (net of EMI of the proposed advance) is

not less than 40 % of gross income of the applicants.

Product BOI Star Personal Loan Scheme

Rate of Interest (FloatingRate of Interest p.a. atmonthly rests)

5.00 % above Base Rate.(Presently 15.20 %)

4.00 % above Base Rate.(Presently 14.20 %)


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1. Submission of application

The first step is the submission of duly filled in form or the loan application. It is the choice

of the customer as to which type of loan he wants to avail and accordingly the prescribed

application is required to be submitted by him depending upon his needs.

2. Lending Committee

At the Branch level the final assessment is done & decision is taken either to accept or reject

the application. Due weightage is given to experience of the promoter, security aspect,

economic viability and feasibility of the project.

3. Primary assessment

When the application is received, the credit officer of the bank scrutinizes the application

form to ascertain whether it is complete in all respect for processing. If it is incomplete the

borrower is asked to provide the required additional information. When the application isconsidered complete, the bank prepares a flash report, which is essentially a summarization

of the loan application, to be evaluated at the Senior Level. On the basis of evaluation of the

flash report, a collective decision is taken whether to go about the project or not. The factors

taken into account are: location of the project, prior experience of institution in handling

similar projects, representation of institutions in the state and promoter group, and existing

work load of the institutions.

4. Final assessment

After referring the application form and appraisal, the credit officer puts his recommendation

for sanction of the loan to the Sanctioning Authority.

5. Branch head sanction

The applicants eligibility as per the norms provided by the considering his gross income after

deducting his liabilities (which is also known as Net Worth) his actual repayment capacity is

ascertained as per norms.

6. Documentation

Once the Loan is sanctioned the borrower/guarantor is required to execute various standard

documents of the Bank. This is done to ensure Banks repayment or else Bank can proceed

against them in a court of law on the strength of these documents.

7. Creation of security

The term loans are secured through the first mortgage, by way of deposit of title deeds of

immovable properties and hypothecation of movable properties. As the creation of mortgage,

particularly in the case of land, tends to be a time consuming process, the institutions permit

interim disbursement against alternate security (institution the form of guarantees provided

by the promoters).


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8. Disbursement of loan

After the loan is sanctioned, documents are executed and securities are charged, then Bank

issues a sanction letter to the borrower. Thereafter the account of borrower is opened in the

Branch. Disbursement is made by means of Demand Draft/ Payslip of the bank drawn in

favour of supplier of item. For this margin money is recovered from the borrowers account.

Credit Rating

Bank of India uses standard credit rating done by standard credit rating institutions, such as

CRISIL. Apart from this, the Bank also uses its internal Credit Rating of the borrowers. It is

different for the SME and for retail credit.

In case of personal loans, the credit score is used to check whether the borrower is

eligible for the sanction of credit or not. A minimum of 20 marks is needed for the

sanction of retail/ personal loan.

In SME sector, the credit score is used to determine the interest rate to be charged on

the borrowers.

Rating Sheet for Personal Loan

Criteria Options Score

1. Age

Maximum Marks - 5

>2025304151 56 Years 0

2. Length Of Service

Maximum Marks - 5

>10 Years in Current EMPL 5

>7534321


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Income > 5001 & upto Rs. 10,000/- P.M. 3

Income> 3000 & upto Rs. 5,000/- P.M. 2

Earning Between Rs. 2,000/- - 3,000/- P.M. 1

8. Deposit Position / Potential

Maximum Marks - 5

Average Deposit Last 1 Year > 25,000/- 5

Average Deposit Last 1 Year > 15-25,000/- 4



Average Deposit Last 1 Year < Rs. 5,000/- 0

9. Existing Borrowing

Arrangements

Maximum Marks - 3

Bank BorrowersStandard Asset 3

Other Bank/Institutions BorrowerNo Default 1

10. Whether Salary Deduction

Available

Maximum Marks - 5

Employee Agreeable for Salary Deduction 5

Employer not Agreeable for Salary Deduction but post

dated cheques obtained

Total Maximum Marks 50Rating Sheet for SMEs

There are three categories in the SME credit scoring:

(A) Financial Risk ScoreBased on Latest Balance Sheet(B) Management Risk Score

(C) Business / Industry Risk Score

(A) Financial Risk Score

Parameters Measures Score

1. Sales Growth 15% & above increase over previous year 1

5% & above but below 15% increase over

previous year

2. 0% & above but below 5% increase over previous

year

3 Negative over previous year 4

2. Profitability

(PBITDA/ Sales*100)

25% & above increase over previous year 1


previous year


previous year

Negative over previous year 4


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Should repayment capacity be impaired,

management may not cooperate with lender

or no information could be obtained about

managements integrity

4

(c) Business Commitment Promoter is highly involved in this business, has

long standing

1

Promoter is fairly committed to this business but

has substantial

2

This business occupies only a small portion of

his time and investment and his most significant

business interest lies elsewhere

3

No involvement by the promoter, business merely

legacy or promoter diversifying into other areas

where his involvement will increase in future orunable to gauge commitment

4

2. Management Capacity

Financial Strength Financially very strong; high net worth and

flourishing group

1

Good financial strength; minor group entity may

not be doing well

2

Financial strength is OK; however poor group

entity could impact3

Very poor financials or financial strength could not

be ascertained

4

Competence Management is very good. Person is well

organised and knowledgeable about the company

and the industry in which he operates

1

Person has reasonable management skills but

weakness in one or two areas is evident. Tasks are

performed satisfactorily.

2

Person exhibits limited managerial skill. Individual 3

does not have a complete understanding of the

business.

Person exhibits a total lack of skill. Decisions are

illogical and loan repayment could be at risk.

4

Business Experience Several years of sound business experience in the


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same line and extremely successful

1

Fairly long experience in the same line of business

with limited success

2

Fair experience but in related line of business 3

Very short or no experience in any business 4

Internal Controls Internal control is fairly good and is dependent on

the owners long standing relationship with his

employees

1

Internal control is not very tight and employees

have too much discretion

2

Internal control is totally dependent on the owners

presence in the business location and his personal

supervision

3No internal control at allthe owner does not have

a clue to what is happening

4

Employee Quality Motivated and loyal employees who have a sound

understanding of the business

1

Employees are loyal but do not have much

experience

2

Employees are not motivated and do not contribute

their best3

Employees are neither motivated nor competent 4

3. Management Succession

Successor Identification Well-defined succession plan in place; business

not dependent on one person

1

Business dependent on one person at present, but

in the event of incapacitation of that person a good

succession plan is in place

2

Succession is not addressed adequately and hence

dealing with a change in the management team

could adversely affect the companys performance;

however the damage can be contained

3

Succession has not been addressed and in the event

of incapacitation of the key person, the business

would suffer financial setbacks

4


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Successor Preparedness Successors have far more than the necessary skills,

experience and knowledge about the business

1

Successors have adequate skills, experience and

knowledge about the business even though there

would be some learning and adjustment needed to

be fully capable of replacing current management

2

Successors have some skills and knowledge about

the business but a lot of learning and adjustment

needed to be fully capable of replacing current

management

3

Successors are poorly prepared for assuming the

role of current management and are not currently

nor could they be made capable of replacing

current management4

4. Management Reputation

Business Loan History Obligations to creditors are met before or within

agreed terms

1

Payments have extended beyond agrees upon

terms on an infrequent basis

2

Often borrower allows bills to extent 60-90 days

beyond payment days

3Credit checks indicate the borrower is consistently

late, without cause, in paying its suppliers or

information could not be obtained on how the

borrower handles its payment responsibilities

4

Credit Track Record Company has never violated any term and

condition of its loan agreement

1

Company rarely does not meet all terms and

conditions of its loan agreement

2

Now and then the company breaches a significant

term or condition of the credit agreement

3

Company consistently violates loan agreement

covenants

4

Firms Age Firm in existence for more than 10

boi intership project

Documents