credit appraisal techniques
TRANSCRIPT
Credit Appraisal Techniques
Credit appraisal techniques act as tool for the credit portfolio managers to take right decisions. It is the first and
the prime most function performed by the Credit Appraisal Cell before providing any sort loans or advances.
The appraisal technique for each type of loan is separate from each other. Each type of loan whether secured or
unsecured has to be analyzed in a different way. The different techniques of credit analysis or credit appraisal
are discussed as under:
Process of Credit appraisal for Term Loans
Term loans- Loans which are repayable in not less than 36 months are referred to as term loans. In the
interest of sound risk management practices, banks monitor the percentage of Term loans in their credit
portfolio with a view to keeping the term loan component within a pre-determined percentage.
Requirements to be obtained with the proposal:
a) Copies of project report
b) Where loan is on participation basis, a copy of the appraisal note of the lead institution / bank should be
obtained.
c) Scrutiny of proposals
The scope of the project:
Background of promoters
Government consents
The technical appraisal
Cost of the project
Sources of finance
The schedule of implementation
The financial projections and profitability
Cash flow statements
Calculation of debt service coverage ratio (DSCR)
Breakeven analysis
d) Disbursement
e) Follow up (post sanction)
Assessment :
For assessment purposes the forms prescribed are used and debt equity ratio, average DSCR, BEP, pay back
period, etc. are taken into consideration. The following minimum financial parameters are required to be
satisfied for a Term loan proposal to merit consideration:
Debt Equity Ratio
Not more than 2.33:1(1.7:1 may be accepted in
the case of real estate sector and generally for
different type of industry different level of DER
is acceptable.)
Average DSCR
Not less than 1.5to 2 (ratio lower than this is to
be looked into)
Ratios for appraising term loans:
Debt equity ratio: long term debt
Tangible net worth
Average DSCR : Net profit + Depreciation + interest on TL
Term loan installment + interest on TL
Breakeven point : Fixed cost_______
Sales-Variable cost (contribution)
It should be noted that the banks generally consider only term loans repayable within 5 to 7 yrs.
Term loans with maturity beyond 7 yrs are normally not experienced except infrastructure loans.
Debt Equity Ratio:
A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It
indicates what proportion of equity and debt the company is using to finance its assets.
Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well
as companies'.
A high debt/equity ratio generally means that a company has been aggressive in financing its growth
with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot
of debt is used to finance increased operations (high debt to equity), the company could potentially
generate more earnings than it would have without this outside financing. If this were to increase
earnings by a greater amount than the debt cost (interest), then the shareholders benefit
as more earnings are being spread among the same amount of shareholders. However, the cost of this
debt financing may outweigh the return that the company generates on the debt through investment
and business activities and become too much for the company to handle. This can lead to
bankruptcy, which would leave shareholders with nothing.
The debt/equity ratio also depends on the industry in which the company operates. For example for
large projects (with project cost Rs. 100 crore and above) in Power, acceptable level of DER is
2.33:1, in Iron and Steel Industry 2.25:1 , in Infrastructure and Capital Intensive projects 2:1 and in
Real Estate, level of DER is 1.75:1. The CH, GM, ED and CMD have powers to further relax.
Debt Service Coverag Ratio (DSCR):
The ultimate purpose of project appraisal is to ascertain the viability of a project which has a direct bearing on
the repayment of the instalments under the proposed term loan / deferred payment guarantee. While the
repayment program will depend upon the profitability of a project, the quantum of annual instalments has to be
related to the size of the annual cash flows. The repayment schedule should, therefore, be fixed after
ascertaining the annual servicing by the debt service coverage ratio.
The debt service coverage ratio is the core test ratio in project financing. This ratio indicates the degree of
viability of a project and influences in fixing the repayment period, and the quantum of annual instalments. For
the purpose of this ratio , “debt” means maturing term obligations viz. instalments payable during a year under
all the term loans/ deferred payment guarantees and ‘service’ means cash accruals (service) available to cover
the maturing obligation (debt) during each year.
The debt service coverage ratio indicates the ability of the firm to generate cash accruals for repayment
of installment and interest. For example, a DSCR of 3:1 indicates that for each Re.1/-long term debt including
interest to be paid the business generates cash accrual of Rs.3/- to be utilized for repayment of debt. The
difference between the accruals and debt is known as margin of safety (Rs.2/- in this case).
The ratio of 1.5 to 2 is considered reasonable. Ratio lower than this should be further looked
into. A very high ratio may indicate the need for lower moratorium period/repayment of loan in a shorter
schedule. This ratio provides a measure of the ability of an enterprise to service its debts i.e. `interest' and
`principal repayment' besides indicating the margin of safety. The ratio may vary from industry to industry but
has to be viewed with circumspection when it is less than 1.5.
BREAK EVEN POINT OR COST VOLUME PROFIT (CVP) ANALYSIS:
A. The breakeven point is calculated to note the level of production at which the unit neither earns profit nor
incur loss. BEP is the level of operations (in terms of sales or production or capacity utilization) at which total
revenues are equal to total operating costs (fixed and variable) or, in other words, the operating profit is equal
zero. He firm starts earning operating profits only after the break-even is reached. At BEP, “contribution”
exactly equals the “fixed costs.
B. The formula for calculating the break-even point for each year is as under:
Total fixed cost / Contribution
C. Certain items of the cost that are to be incurred by the unit irrespective of the level of production are called
as fixed cost. The same includes depreciation, repairs and maintenance, interest, certain portion of salaries, rent,
insurance, selling expenses other than variable items and administrative expenses
D. The variable cost changes with the levels of production. It includes cost of raw materials, direct wages and
other items, which are apportion able to unit of production.
E. The breakeven point is generally expressed in terms of percentage of capacity utilization
Break even analysis is generally expressed in terms of percentage of capacity utilisation.
The CVP analysis provides answers to such questions as: level of operations needed to
avoid loss, level of sales required to achieve targeted profit, effect of product mix on profits, impact of
expansion, most and least profitable products etc. Break-even analysis is the most widely used form of the CVP
analysis.
Break-even analysis is one of the most useful techniques of profit planning
and controlling. The break-even analysis can help in making vital decisions relating to fixation of selling price
make or buy decision, maximizing production of the item giving higher contribution etc. Further, the break-
even analysis can help in understanding the impact of important cost factors, such as, power, raw material,
labor, etc. and optimizing product-mix to improve project profitability.
It is a useful method for considering also the risk implications of alternative actions. From one alternative a firm
may expect higher profit and also a higher break-even point, while another alternative may produce
comparatively lower profit but at a lower break-even point. The firm has to weigh the probability (riskiness) of
reaching the break-even in the first case before choosing that alternative. Generally, the preferred alternative
would be where the break-even will be reached earlier.
Caution:
Relationship between revenue, variable costs and volume may not be linear.
It is not always easy to have a clean separation of costs into fixed and variable components.
Fixed costs may be ‘stepped’ – not fixed over all volumes.
Complexity involved in using BEP analysis in multi-product businesses
Illustration:
Assumed:
Normal year production 75 lakh units (93.75% of installed
capacity)
Fixed Costs Rs. 13.71 lakh
Variable Costs Rs. 13.35 lakh
Sales realization Rs. 41.25 lakh
Contribution Rs. 27.90 lakh
BEP (production) : (Fixed cost / Contribution)* 75 lakh = 36.85 lakh units
BEP (capacity utilization): (Fixed cost / Contribution)* 93.75 = 46.07%
BEP (sales) : (Fixed cost / Contribution)* Rs. 41.25 lakh = Rs. 20.27 lakh
SENSITIVITY ANALYSIS
Projects do not always run to plan. Costs and benefits estimated at an early stage of a project may indicate a
profitable project, but this profit could be eroded by an increase in costs or a decrease in the value of the
benefits (the revenue). Sensitivity Analysis involves changing input variable estimates from an original set of
estimates (called the base case) and determine their impact on a project’s measured results, such as NPV (or
IRR) from investor’s viewpoint, or DSCR from banker’s point of view.
The Sensitivity Analysis helps in arriving at profitability of the project wherein critical or sensitive elements
are identified which are assigned different values and the values assigned are both optimistic and pessimistic
such as increasing or reducing the sale price/sale volume, increasing or reducing the cost of inputs etc. and then
the project viability is ascertained.
The critical variables can then be thoroughly examined by generally selecting the pessimistic options so as to
make possible improvements in the project and make it operational on viable lines even in the adverse
circumstances.
In the absence of any defined factors and its values for carrying out the sensitivity analysis, a common 5%
sensitivity factor on sale price/cost price of major raw materials is to be applied in appraisals of all the
projects irrespective of the industry. However, 10% sensitivity factor may be applied in highly volatile
industries by assessing the expected volatility in sale price/ cost price of major raw materials in future on
case to case basis.
Process of Credit Appraisal for providing Cash Credit / Working Capital Limits
Working capital for any unit means the total amount of circulating funds required for meeting day to day
requirements of the unit. For proper working a manufacturing unit needs a specific level of current assets such
as raw material, stock in process, finished goods, receivables and other current assets such as cash in hand/ bank
and advances etc. So the working capital means the funds invested in current assets. The trading units need the
working capital for storing the goods and allowing credit to its customers.
Gross Working Capital and Net Working capital
Gross working capital means the total funds required for financing the total current assets. Net Working capital
means the difference the current assets and liabilities. In other words , net working capital denotes the portion of
gross working capital contributed from long term sources. As per practice of Indian banks net working capital
should normally be 25% of total current assets which will give a current ratio of 1.33 to the unit. When net
working capital is negative, it implies that the short term funds have been diverted / used for long term uses and
the unit is facing a liquidity crunch. Such situation may also arise due to losses. In such a situation, the need of
the hour is for raising long term sources. A unit needs working capital because the production, sales and
realizations are not simultaneous. The unit needs cash to purchase the raw material and pay expenses as there
may not be perfect matching between cash inflows and outflows. The stock of raw material is kept to ensure the
uninterrupted and smooth production. It may also be required to cover the situations of shortages etc.
Factors affecting the requirement of working capital:1. Nature of activity: Manufacturing units need more working capital as compared to trading and service
units.
2. The length of operating cycle: More the length of operating cycle, more the requirement of working
capital. lengthy the process of manufacture, more the need of working capital due to increase of length
of working capital cycle
3. Market trend: The market trend of allowing credit to customers also varies from industry to industry and
city to city. More the credit allowed to customers, more the need of working capital.
4. Availability of raw materials: When the availability of raw material is assured and comfortable, lower
stock maintenance is required. When there is expectation of shortage or expectation of rise in prices,
more amounts is blocked in raw materials.
5. Location of the unit: When the unit is located near the source of raw material, lower stock maintenance
is required.
6. Type of customers: When there are regular customers, low stock of finished products is needed. When
the sales are to be made to walk- in customers, more level of stock of finished products is required.
7. Seasonality Factor: When the raw material required is available in a particular season, the stock for
whole of year is to be purchased in the particular season. E.g. Sugarcane, Cotton, Paddy etc. Similarly
the woollen products and products required in a particular season such as ACs, for keeping the
production running, higher level of finished stocks have to be kept.
Role of Banker:
The unit should have sufficient amount of working capital. A portion of it is to be financed from long term
sources called the liquid surplus or net working capital (NWC). The remaining is normally financed by the bank
in the form of working capital limits. Excess maintenance of working capital may result in idle resources and
high interest cost whereas less amount of working capital may mean disruption in the working. So both the
situations are to be avoided. That is why the technique of calculation of right amount of working capital
assumes significance. For financing of working capital, a banker should be able to calculate right amount of
working capital needed by the unit being financed. It shall mean right amount of financing which will result in
higher profitability for the unit and safety of funds of the bank.
Parameters for various stages in computation of working capital:
Stage Time Value
i Raw Material Holding period value of RM consumed
during the period
ii SIP Time taken in RM + Mfg.Exp. during the
converting the period (Cost of
RM into FG production)
iii FG Holding period of R.M + Mfg. Exp. +Adm
FG before being overheads for the
sold period (Cost of sales)
iv Receivables Credit allowed RM+ Mfg. Exp. + Adm.
to buyer Exp.+ Profit for the period
(sales)
The assessment of working capital requirement of business unit has been engaging the attention of the Govt.,
RBI and a series of committees were set up to suggest appropriate modalities of financing working capital as
under.
TANDON COMMITTEE RECOMMENDATIONS
Realising the absence of a proper control system in the flow of bank credit for working capital, RBI constituted
a working group “Tandon Committee’ in July 1974 under the chairmanship of Shri P.L. Tandon. The main task
of the group was:
1. To suggest guidelines to commercial banks to follow up and supervise credit from the view of ensuring
proper end use of the funds and keeping a watch on the safety of the advances.
2. To suggest as to what constitutes the working capital requirements of industry and to suggest the sources for
financing the minimum working capital requirements.
3. To suggest the maximum level of bank finance and the method to compute the same.
4. To make recommendations as to whether the existing pattern of financing working capital requirements by
cash credit or overdraft etc. requires to be modified. If so, to suggest suitable modifications.
The group submitted its final report during December 1975. The recommendations of this Committee are
summarised below:
(i) Norms for Inventory and Receivables
With a view to curbing speculative and hoarding tendencies, the Committee fixed norms (in terms of the
weeks/month consumption) in respect inventory and receivables which industrial units may hold. The norms
were fixed for 15 major industries and indicate the maximum permissible limits for inventory holding.
Deviations from norms not allowed for meeting unforeseen situations.
(ii) Approach to Lending.
The three methods of lending as suggested by the committee are:
First Method: 75% of Working Capital Gap (Total Current Assets – Other Current liabilities)
Second Method: 75% Total Current Assets – Other Current liabilities
Third Method: 75% [(Total Current Assets – Core Current Assets) – Other Current liabilities)
Third method of lending was not accepted by RBI and hence rejected.
(iii) Style of Credit.
Tandon Committee suggested that instead of making available entire limit by way of cash credit it may be
bifurcated into demand loan and cash credit component (modified by Chore Committee).
(iv) Quarterly Follow-up and Supervision
Tandon Committee suggested quarterly forms under the information system made applicable to borrowers with
working capital credit of Rs. 1 crore and over from the banking system. These forms aim at ensuring proper
end-use of credit.
CHORE COMMITTEE RECOMMENDATIONS
In April 1979, a working group under the chairmanship of Sh K.B.Chore was constituted to review the system
of cash credit. The committee submitted the report in Dec 1980. The lending discipline, as enunciated by
Tandon Committee, has been streamlined by certain recommendations made by Chore Committee. The gist of
these recommendations is as follows:
(a) Annual Review
All working capital credit limits of Rs. 50 lacs and above from the banking system should be reviewed at least
once a year. These reviews are intended to ensure that the limits are need-based and continue to be viable
propositions.
(b) Information System
The scope of the quarterly information system originally envisaged by the study group to frame guidelines for
follow-up of bank credit has been enlarged bringing into its ambit all borrowers having credit limits of Rs. 50
lacs and over from the banking system.
Presently this limit of Rs. 50 lac has been raised to Rs. 1 Crore.
(c) Withdrawal of bifurcation of cash credit
The recommendation of the Tandon Study Group to bifurcate cash credit accounts into demand loan and cash
credit components has been withdrawn.
(d) Separate limit for peak level and non-peak level
A recommendation that will induce a greater degree of credit planning pertains to the separate 'Peak-level' and
`non-peak level' credit limits, wherever considered feasible. The period during which these limits will be
utilised will now be indicated in the bank's advice conveying sanction of credit. This recommendation is based
on the pronounced seasonal trends in agriculture-based industries, (such as tea. coffee, sugar, jute, vegetable
oils, etc.), and in the case of some consumer industries such as those manufacturing fans, refrigerators etc. One
of the major determinants of borrower's peak-level and non-peak level credit limits will be their availment
during the corresponding period in the past. Borrower in whose cases there are no pronounced seasonal trends,
may be sanctioned only one limit as peak-level and non-peak level concepts will not be relevant in such cases.
(e) Determination of Quarterly Operative limits
Before the commencement of each quarter, the borrowers will now be required to indicate limits sanctioned for
their requirements of funds during the ensuing quarter. This will be termed as the operative limit for the relevant
quarter. The operative limit indicated by the borrower would virtually set the level of drawing in that quarter
subject to tolerances of 10% either way. Hence forth, excess-utilisation or under- utilisation of the operative
limit, beyond the tolerance level referred to above would be considered as an irregularity in the account. This
will be treated as an indication of defective credit planning by the borrower.
Dialogue with the borrower will be initiated to set right the position in regard to defective credit planning and to
ensure that such instances are avoided in future.
(f) Penalty for delayed or non submission of returns
Non-submission of returns, within the prescribed time limit, will henceforth entail penal of 2% per annum on
the total outstanding for the period of default in the submission of returns. Simultaneously, a notice would be
issued to the borrower stating that if the default persists it would be open to the bank to freeze the account
without further notice to the borrower. lf the default persists despite imposition of penal interest and the bank is
satisfied that deterrent action is warranted, the operations in the account may be frozen on the basis of the notice
issued to the borrower.
(g) Adhoc or temporary limits
The working group has conceded that in exceptional cases, ad-hoc or temporary limits could be sanctioned to
borrowers through demand loan or non-operatable cash credit accounts. On those limits, banks are required to
charge additional 1% interest per annum over the normal rate. However, in certain cases like natural calamities
it would be the discretion of the bank to charge interest of 1% per annum.
(h) Switching over to Second Method of lending
A major recommendation of the working group relates to switching over the borrowers from the first to the
second method of lending. Recognising that in some cases this may not be possible immediately, Reserve Bank
has stipulated that in such cases, the excess borrowings are to be segregated and treated as WCTL (Working
Capital Term Loan), which should be made repayable in half-yearly instalments within a definite period but not
exceeding five years in any case.
(i) Encouragement of Bills system
To encourage bills systems of financing purchase of raw material inventory, the Working Group has
recommended that banks should extend at least 50% of the cash credit limit against raw materials to
manufacturing units, whether in the public or private sector, by way of drawee bills only.
Present Status:
The concept of MPBF was the cornerstone of financing which had emerged as a result of recommendation of
Tandon and Chore. However RBI has now abolished the guidelines for MPBF and advised the banks to draw
the guidelines for credit dispensation. Our bank is still following MPBF system. However the relaxations on
case to cases are being allowed.
NAYAK COMMITTEE REC OMMENDATIONS
To give a comprehensive and straight line method for the assessment of working capital requirement of the
borrowers, RBI constituted a working group under the chairmanship of Sh P.R.Nayak. The study group gave its
recommendations in March 1993. In April, 1993, RBI implemented the recommendations of Nayak Committee
for assessing the credit requirements of village industries, tiny industries and other SSI units . Initially the
recommendations were for SSI units only but now other units have also been covered. Presently units covered
under these guidelines are those having aggregate fund-based working capital credit limits less than Rs.200 lacs
for other than SSI and Rs. 500 lacs for SSI from the banking system.
It has been advised not to apply the norms for inventory and receivables as also the Methods of Lending.
Instead such units be provided working capital limits computed on the basis of a minimum of 20% of their
Projected Annual Turn-Over (PATO) for new as well as existing units. Their working capital requirement be
assessed at a minimum of 25% of their Projected Annual Turn-Over (PATO) assessed on realistic basis for new
as well as existing units. Out of this, at least 4/5th(20% of their PATO) be provided by the bank and the
borrower should contribute 1/5th of this estimated working capital requirement (5% of PATO) as margin money
of working capital.
- In case the margin with the party is more than 5% , PBF may be adjusted accordingly.
- The 20% limit is the minimum. As a temporary relief measure for SME Units, RBI has allowed banks to
finance upto 25% under stimulus package. The same shall be reviewed after 30.6.09. However if the
working capital cycle is longer than 3 months, higher limit may be fixed. If the working capital cycle is
less than 3 months, the limit may be fixed @ 20 % of turnover but actual withdrawal should be allowed
only on the basis of actual D.P. However lower limit can be sanctioned if requested in writing by the
borrower.
LENDING DISCIPLINE - QUARTERLY MONITORING SYSTEM (QMS)
Consequent to operational freedom granted by RBI in regard to submission of statements under QIS/Monthly
Cash Budget System prescribed under CMA, Bank reviewed the same and submission of QIS was replaced with
Quarterly Monitoring System (QMS)
The QMS discipline is to be enforced on all borrowers enjoying working capital limits of Rs.1 crore and over
from the banking system, irrespective of whether they are exporters or otherwise
In case the limits have been sanctioned on the basis of Naik Committtee, QMS forms and CMA data need not
be submitted.
The forms for QMS and time period for submission are as under.
Form- 1 To be submitted within 6 weeks from the close of quarter to which it relates
Form-11 To be submitted within 2 months from the close of Half Year to which it relates.
QMS form I gives us the quarterly data of production and sales and quarterly levels of current assets and
current liabilities.
QMS form II gives us half yearly profitability statement and fund flow statements.
By comparing with the projections as given in CMA, we can see whether the performance is going on as
projected.
QIS I:
QIS I which was earlier discontinued has been reintroduced and is to be submitted in addition to QMS I and
QMS II.
- For all borrowed accounts availing fund based working capital credit limits of Rs.5 crore & above from
our bank, Quarterly Information System (QIS) Form-I may be obtained for fixing up of quarterly
operative limits in addition to the QMS Forms. The QIS Form-I is to be submitted in the week
preceding the commencement of the quarter to which it relates.
- Non adherence to the operative limits will attract penal interest.
COMMITMENT CHARGES
To discourage the borrowers from non-availment of credit already provided to them by banking institutions and
to indirectly help the banks in their Asset Management, RBI has permitted bank to charge penalty on unavailed
portion of sanctioned limit known as a commitment charge. It is applicable to the working capital limits of Rs.5
crore or above and charged @ 1% per annum with a tolerance limit of 15% based upon the limit sanctioned.
The unutilized part of the limit is found out by calculating the average utilization during the quarter. While
calculating the average utilization, overdrawn portion or excess portion is not taken into consideration. If the
average utilization is less than 85% than commitment charges is levied on the entire unavailed position.
Commitment charge is not applicable in case of export unit and sick unit.
PENAL INTEREST
In order to instil a sense of credit discipline among the borrowers, RBI has permitted banks to levy penal intt.
over and above the sanctioned rate of interest in case of non compliance of various terms and conditions
The broad areas of non compliance where bank charges penal interest are:
Default in repayment of loans
Irregularity in cash credit account
Non submission of stock statements and other financial data
Default in adhering to borrowing covenants
Non payment of bills
Excess borrowings arising out of excess current assets
Non submission of information under Quarterly Monitoring System
EXEMPTION FROM PENAL INTEREST
o All advances up to 25000/-
o Sick unit under rehabilitation
o Sick unit remained closed
o Advance against deposits/LIC policy/Govt. securities/Gold & Jewellery where the drawings are
within available value of security
o Account transferred to Protested category
RATE OF PENAL INTEREST
2% above the sanctioned rate where irregularity and default and non-compliance of terms and conditions
as given earlier.
2% above the sanctioned rate where adhoc/temporary limit are sanctioned to borrower.
3% above the sanctioned rate in case of non compliance of terms and conditions in adhoc/temporary
limit
AMOUNT ON WHICH PENAL INTEREST TO BE CHARGED
Amount of default in – instalment /excess drawals or borrowings or amount of irregularities in
account/overdue bill not debited to account.
Total amount of outstanding – for non-submission of stock statement and other financial data/default
adhering to borrowing covenants/non-submission of information under QMS.
APPRAISAL TECHNIQUES FOR RETAIL LOANS
I. EDUCATION LOANS
Till some year’s back higher education and quality education was not affordable to some illustrious students
because of the financial constraints. There was no any alternative but to jump in the job market prematurely.
And this led to untimely end of budding talents and their forceful transformation into to the mediocrity.
Scholarships were there, but those were so less in numbers that only luckier few could avail them. But now the
scene has changed drastically. The boom in the banking sector has led to release of large amount of funds for
education loans
Student loans in India (popularly known as Education loans) have become a popular method of funding
higher education in India with the cost of educational degrees going higher. The spread of self-financing
institutions(which has less to no funding from the government) for higher education in fields of engineering,
medical and management which has higher fees than their government aided counterparts have encouraged the
trend in India. Most large public sector and private sector banks offer educational loans.
Under section 80(e) of the Indian Income tax act, a person can exempt the amount paid against the interest of
the education loan - either for self or for his/her spouse or children - for eight years from the year (s)he starts to
repay the loan or for the duration the loan is in effect, whichever is lesser.
Education loan is becoming popular day by day because of the rising fee structure of higher education. It came
into existence in 1995 started first by SBI bank and after that many banks started offering study loan.
The education loan provided by Punjab National bank is known as Vidyalakshyapurti scheme. The details
regarding its eligibility, processing, documentation etc. are given as follows:-
Concept VIDYALAKSHYAPURTI Scheme is the main scheme and its variant PNB Sarvotam Shiksha scheme stands merged with the main scheme with effect from 20.12.2008
Courses eligible
Studies in IndiaSchool level including. +2, Graduation, Post graduation, Professional courses, Computer courses and Evening courses, other courses leading to diploma /degree approved by UGC, Govt, AICTE, AIBMS, ICMR etc. and Advance diploma in Banking Tech. It includes professional & commercial & pilot training courses in India and abroad. For study in India. Institutes approved by DGCA are included.
Studies AbroadGraduation, PG and Courses offered by CIMA London , CPA in USA
Eligibility Indian National Secured Admission
Secured pass marks in qualifying exam. Branches need not go into technicalities of admission process (selection through management quota etc.) and may consider loan based on admission advice. ( RBD Cir. No. 60/08 dt. 20.12.2008)
More than one loan in a family
In case of more than one loan in a family, the family as a unit is to be taken into account for considering the loan and security taken in relation to total quantum of loan subject to margin and repaying capacity of the parents.
Top up Loans Top up loans may be sanctioned to students for pursuing further studies within overall eligibility limits with appropriate reschedulement of existing loans and required permission by the CH
Age of student There is no restriction with regard to age of student for being eligible for the loan.
Income Criteria
No Income criteria are prescribed for the parents. However amount of loan be decided by judging Income of the parents.
Amount of loan Rs. 10.00 lac in India and 20.00 lac for abroad. CH can exercise higher powers.
Priority Sector Rs. 10.00 lac in India and Rs. 20.00 lac for abroad.
Capital Requirement
Risk Weight as per BASEL-I 100%Risk Weight as per BASEL-II 75%
Margin NIL Up to Rs. 4.00 lac 5% Above Rs. 4.00 lac in India 15% Above Rs. 4.00 lac abroad(Scholarship/assistance may be included in the margin)
Security NIL Up to Rs. 4.00 lac
3rd party guarantee for loans above 4.00 lac upto Rs. 7.5 lac(Exemption from taking guarantee for loan up to 7.50 lakh for students of IIT, IIM, XLRI etc.EM of IP or other Coll. Security for loans above 7.50 lac (should be interpreted as loan amount of Rs. 7.51 lac and above in termsHypothecation of assets if created out of loan amount.Co-obligation of students’ parents as well as assignment of future income of student in loan above Rs. 7.5 lac. For married persons, co-obligator can be spouse or parents or parents-in-law. Grand parents can also become co-obligants.
Security for staff members
Lien on Terminal dues Extension of EM of IP Fresh Mortgage if there is no HL Co-obligation of employee
Penal Interest Up to 25000/- ----NIL , Above 25000/- @ 2% on OVERDUE AMOUNT
Upfront fee NIL 0.50% (Maximum 5000/-) for studies abroad which is eligible for
refund on availment of loan.Documentation Charges
Upto 4.00 lac - Rs. 270/- plus service tax Above 4.00 lac Rs. 450/- plus service tax
Repayment 5 to 7 years with moratorium period equal to Course period + 1 year or 6 months after getting job whichever is earlier. BM is empowered to permit extension in moratorium period up to 2 years as against present provision of max. 1 year in deserving cases under reporting to circle head.
Calculation of interest
Simple interest is to be charged during moratorium period and kept in a separate account. The accrued interest during repayment holiday will be added to Principal for fixing of EMI.
Interest concession
1% interest concession is allowed if it is serviced during holiday period. The concession will be given at start of repayment and EMI will be fixed accordingly.Rebate of 0.5% is allowed to students of IITs, IIMs etc.
Constitutes of loan
Tuition fees, Hostel charges, Exam fees, Library/Lab charges, Books, Equipment, Instruments, Uniform, Building fund, Refundable deposit, Travel expenses & Computers. (Advances for Computers are allowed in Computer/Management courses only.)
Fees re-imbursement
Within 6 months. Circle Head can allow beyond a period of 6 months also on merits.(RBD Cir. No. 12/10 Dt. 16/02/2010)
Documents Documents will be executed both by student and the parent/guardian.
1. Letter of admission and proof of last qualifying exam. 2. Loan application3. Agreement on PNB 1116 if student is minor.4. Agreement on PNB 1117 if student is major.5. Letter of guarantee if loan is above Rs. 4.00 lac.6. EM of IP if loan amount is above Rs. 7.5 lac
Post sanction Follow up
Follow up with the college/university for getting progress report at regular intervals.
Life Insurance by Kotak Mahindra
In terms of guidelines contained in RBD-A cir no. 16/08 dt. 26.3.08, Insurance policy can be obtained to meet the exigencies in case of death of student borrower between age group of 18-33 years. The coverage is between 20000-15 lac. Single premium will be paid. It will vary according to age and total insurance Tenor. The scheme is valid for one year.
Relaxations for students of IIT,IIM, MDI, XLRI, ISB
It has been decided to permit the following relaxations to the students securing admission in IITs/IIMs/MDI Gurgaon/XLRI Jamshedpur and ISB Hyderabad:
Exemption from making parent/guardian as co-borrower. Exemption from taking guarantee for loans up to 7.50 l
Other provisions
CR of the borrower is not required. Brief CR of the guarantor to be prepared.
“No due Certificate” is not to be insisted upon. Application will be rejected by next higher authority.
2nd time loan can be considered by the CH within limits. Capability Certificated may be issued for studies abroad. Education loan to the institutions previously under Sarvotam Shiksha
Scheme can be sanctioned by the branch (other than place of residence of parents) convenient to the borrower depending upon genuineness, accessibility and aspect of recovery.
On-line applications are being accepted for grant of education loan. Loan applications are to be disposed of within 15 days under branch/hub sanction and 21 days under CH and above.
CH has full powers to relax eligibility, margin and security norms. Parents, grandparents, spouse, parents-in-law can be co-obligants. Passport and Visa is required for study abroad.
Disposal of loan applications
It has been decided to curtail the period of disposal of education loan applications to maximum 1 week except cases of CH and above level where the outer limit of disposal will be 2 weeks from the date of receipt of complete application.
II. VEHICLE LOANS
Today, vehicles can be financed using a number of options such as loans, lease, or hire purchase agreement.
Obtaining a vehicle loan is one of the more straightforward ways of financing a two or four wheeler. In this
manner, the vehicle purchased is actually possessed by the bank or lending institution. This means the car or
motorbike is hypothecated. Therefore, though the consumer owns the vehicle, the bank or the lending institution
is actually using it as a security against the loan that the consumer has obtained.
Vehicle loan provided by Punjab National Bank are under two categories know as PNB SARTHI and CAR
Loan & details about its processing, eligibility, margin etc are discussed below:-
PNB SARATHI
Eligibility Individuals with Income proof Students above 18 years with parents as co-borrowers Business concerns Individuals without income proof but residing at the given address
for the last at least 3 years. Individuals with good repayment track without default.
Purpose & Extent
Purchase of Scooter/Motor Cycle/MopedMaximum Rupees. 100000/-.
Margin 5% where salary is disbursed through branch or check-off facility is available.
25% for students where parents are co-borrowers. 30% for business or where there is no income proof. 10% for others.
Income criteria 10000/- pm. Is the minimum criteria. Income of parents be considered in case of students. Income of spouse can be added.
Switch over to new scheme
On flat fee of 2%
Guarantee Generally it is not required. In cases where there is no Income proof, Guarantee of some family member or 3 rd. party
In cases where income of spouse is to be added, Guarantee of spouse can be taken.
Insurance Comprehensive Insurance with bank clause and policy to remain with the bank.
Security Inspection
PNB 551 is required for the Ist time. In case account is regular, PNB 551 is not required thereafter.
In case the account is irregular, Qtrly. Inspection is must.Upfront fee Rs 200/- + Service Tax For students – Nil
Documentation Charges
Rs. 270/- plus service tax
Other Requirements
Driving License is required. Statement of account for the last 3 years is required. Income Tax Proof Salary certificate Income of spouse can be considered if he/she is made guarantor.
CAR LOANConveyance Loan (Public) for Car
Eligibility Individual & Business concerns, Professionals & Agriculturists with 6M transaction records.
Purpose & Extent
Car, Van & Jeep, Multi Utility Vehicles/Sports Utility Vecles
New or Old (not older than 3 years – CH powers)
Individuals 25 times of net monthly salary or Rs. 25 lac whichever is lower for one or more vehicles.
CH may relax the criteria within powers keeping in view the repayment capacity.
Income of spouse can be considered provided he/she stands as additional guarantor
Business Corporate and non-corporate
No Ceiling. One or more vehicle can be purchased. Earning and repaying capacity will be considered.
Agriculturists --do--Margin General 20% - Cost of Insurance and one-
time road tax can be considered as margin.
Govt./PSU employees 15% (Repayment in 84 EMIs)If net income is more than 6 lac Margin can be reduced to 15% by
Sanctioning Authority.Old Vehicles 30%CH may reduce up to 10% in deserving cases.
Repayment Maximum 7 years without any Moratorium period Old Vehicles – 5 years Agriculturists – 14 H/years as per crop pattern CH and above empowered to relax repayment by 12M Maximum age for EMI 65 years relaxable up to 70 years. Carry home pay should not be more than 50% of gross salary Advance cheques equal to no. of installments be obtained.
Rate of Interest The rate is on fixed option with reset clause of 1 year. Rate of interest is linked with tenure of loan. Presently 0.5% extra interest is charged if repayment period is 3 years and above.
Upfront fee 1% of loan subject to maximum 6000/- exclusive of service tax.
Documentation charges
Rs. 270/- (Tie up arrangement Rs.1270/- ) up to Rs. 2.00 lac + ST Rs. 450/- (Tie up arrangement Rs.1700/- ) Above Rs. 2.00 lac + ST
Security Hypothecation of the vehicle RC in joint name of borrower and bank Bill of the vehicle will also be in the joint name.
Guarantee Spouse if employed or Suitable 3rd party guarantee or Collateral Security in shape of IP/liquid security equal to 100% of loan amount.CH and above can waive the guarantee/collateral security.
Insurance Comprehensive Insurance with bank clause and policy to remain with the bank.
Security Inspection
PNB 551 is required for the 1st. time. In case account is regular, PNB 551 is not required thereafter.
In case the account is irregular, Qtrly. Inspection is must.Other Provisions
15% depreciation on St. line method is to be applied in case of Old Car
Driving License is not at all required. Statement of account for the last 6 M. is required. Car loan finance to business concerns for personal use of
executives shall be outside the purview of corporate banking and may be sanctioned by officials under vested powers even in case where existing facilities have been sanctioned by higher authorities in terms of RBD cir. No. 51 dt. 15/09/09.
III. 5.8.3 HOUSING LOANS IV. Housing loans have emerged as an attractive avenue for credit deployment for banks in the recent past.
Industry level statistics reveal that NPAs in this segment is relatively low. Housing loans are fully secured as
they are backed by mortgages of residential properties. Small housing loans up to Rs 10 lakhs can be
classified as priority sector credit and hence help in achieving/ maintaining the mandated priority sector
lending targets. Risk weightage for housing loans is only 50 % , enabling expansion of the credit portfolio
with lesser capital requirement. The prevailing lower interest rates, which have resulted in greater
affordability and the tax concessions offered by the government have made this one of the fastest growing
financial products. Further since the housing loan portfolio typically comprises a large pool of small and
medium sized loans, risk is distributed over a large number of accounts, which is ideal from Risk Management
point of view. Hence growth of quality assets under Housing Finance is one of the major areas of focus for
the bank.
PNB-(Punjab National Bank) Home Loan offers the most consumer friendly home loans and
housing finance schemes at attractive rates. PNB Housing Loans, with an aim to make purchase and
construction of homes a comfortable task, provides fixed as well as floating home loans at different rate of
interest for different tenures. PNB Housing Finance covers 80% of the cost of your home or renovation /
repairing of your home loan up to Rs. 10 Lacs for buying land and up to Rs. 2 Lacs for furnishing can be
availed from PNB Home Loan.
The details of housing loan product of Punjab National Bank
regarding its purpose, eligibility criteria, assessment, processing, documentation, cut back, margin, pre-sanction follow ups, etc. are as
foll1. HOUSING FINANCE (PUBLIC)
Eligibility Individual & Joint Owners
Purpose & Extent
Purchase of Plot Rs.20 lac. However, RM & above may consider Loan upto 50 lac.
Construction of House Need based
Semi -built House/flat from Pvt Builders
Small/Medium branch Rs. 10 lacLarge branch Rs. 20 lacELB/VLBs Rs. 40 lacCH (AGM) Rs. 100 lacCH (DGM) Rs 100 lacGM Rs.150 lac
Repair & Renovation Rs. 20 lac
Cost of furnishing Max. 10% of the loan upto maximum of Rs. 2.00 lac
Pari pasu Charge CH powers up to 20 lac to Govt. Employees
Freehold & Lease hold
The loan can be granted both for freehold and for leasehold property.
In case of Leasehold, loan can be granted on the basis of P/A from original allottee where DDA/PUDA/HUDA permit conversion of leasehold into freehold property.
Otherwise advance is not permitted against plots purchased on Power of Attorney basis.
Capital Requirement
Loan limit up to 30 lac Risk Weight is 50%Loan limit above 30 lac Risk Weight is 75%LTV Ratio more than 75% Risk Weight is 100%
Margin Land/Plot 40%
Construction/repair/addition 25%
Rate of Interest Rate of Interest as per LA Circulars issued from time to time. 0.50 % extra will be charged on H/L for 3rd House. The interest can be fixed or floating Option can be changed from fixed to floating and vice versa with
flat charges of 2% fee on Balance outstanding Fixed Interest rate be reviewed/reset after a block of 5 years in
respect of loans disbursed on or after 1.8.2006.
Concessional Rate of Interest for Defense Employees
Bank has decided to extend concessions to Defense personnel who are raising Housing Loans under bank’s regular Housing Loan scheme for public as under:
25 bps relaxation in interest rates 50 bps relaxation in processing fee
These relaxations are to be made applicable in all new cases where defense personnel avail housing loan either in single name or along with spouse.
(RBD Cir. No. 11/2010 dt. 16.2.2010)
Repayment Maximum 25 years including Moratorium period of 18 months Installment can be fixed up to maximum age of 65 years. Hub
Incharge of Scale-IV and above besides Circle Head can relax the age up to 70 years,
Repayment of loan for repair/renovation/addition/alteration restricted to 10 years including moratorium period of 6M.
All deductions should not exceed 50% of Gross monthly income. However where gross monthly salary is above 50000/-, the deduction can be up to 60% and if gross monthly salary is above 100000/-, the deduction can be up to 70% with the permission of CH. The income of earning spouse and children can be taken into account.
The Income of spouse and earning children can be taken into account provided they are made co-borrowers.
Father/mother can also be made co-borrowers in cases where property is in the single name of his/her son and also clubbing of their income is permitted for determining eligibility criteria.
Minimum 24 advance cheques should be obtained. As and when, 6 cheques remain, fresh lot be obtained. Out of 24, 23 cheques should be of installments and 1 cheque should be of the amount equal to the balance amount.
Graduated EMI
PNB offers benefit of graduated EMI. This means that the customer has the option of choosing EMI that can increase or decrease during repayment period rather than being given a fixed EMI over repayment tenor.
Upfront fee 0.90 % of loan amount + service tax & education cess (10.30%) on loans above 300 crore.Processing fees @ 0.50% of loan amount (max. 20000) +service tax for loans up to 300 crore.
Documentation charges
Rs.1350 + service tax
Security Equitable/Registered Mortgage of Immovable Property Tripartite agreement be executed amongst Housing Board/Dev
Authority/Coop Society/Builder, the borrower and the bank where mortgage cannot be created immediately. In such cases, 3rd party
guarantee is also to be obtained. EM of other IP or pledge of NSC etc. up to 125% of loan amount
if property is being purchased from 1st P/A holder and where there is delay in execution of Tripartite agreement or where the mortgage of property is not possible being an ancestral property (without title deeds) or Lal Dora Land.
Verification of security is required once in 2 years. In case of NPAs accounts, security is to be verified on Half yearly basis.
Guarantee In general, no guarantee is to be asked for. But while preparing RBL score sheet, if score is less than 50%, then 3rd party guarantee can be obtained to raise score of the applicant.
Insurance In case of building at Re-construction cost.
Priority Sector inclusion
Repair & Renovation Rs.1.00 lac (Rural & Semi/Urban)
Rs.2.00 lac (Urban)
Others Rs. 20.00 lac
Other features Loan can be sanctioned by the branch/hub near to the present place of work/posting/residence of the borrower. However, if the property is situated at other place, services of branch/hub located at that center may be availed for verification of Security and NEC/Valuation etc.
Loan can be granted even if property is in the name of wife/parents provided that the owner is made co-borrower.
Loan can be granted for 2nd house in the same city. Loan can be granted for purchase of house for rental purpose. For take over, permission of higher authority is not required
Important conditions
Loan cannot be granted
For construction in Un-authorized colonies If property is to be used for commercial purpose Without approved Map
( In Compliance of Delhi High Court Orders)
Pre-payment charges of 2% be recovered on account being taken over by another bank. In case, the loan is pre-paid out of own sources or the loan is taken over by another bank with in 30 days from date of circular by which either the interest is raised or any important term or condition is changed, there will be no pre-payment charges.
Flat pre-payment charges of 2% be recovered from borrowers who pre-pay without construction on the plot before 5 years.
Powers of concessions in rate of interest/other charges stand withdrawn vide RBD cir no. 52/07 dt. 13.11.07.
In case, the construction of house is not completed within 3 years or in case the plot is sold, penal interest @2% over and above the applicable rate be charged.
Expression of Interest
It is a letter issued by the bank/branch wherein the lender expresses intention to make advance to the intended borrower on the basis of eligibility criteria subject to the fulfillment of terms and conditions.
Grih Raksha Kavach
It is Mortgage Reducing Term Assurance Policy issued in Tie up arrangement with TATA-AIG. There is one-time premium of 2.5% (approx) and that amount can also be financed. The coverage of the scheme is 1-20 years. The sum assured is between Rs.10000 to Rs. 1.00 crore. In case of death of the borrower, receipt from insurance company can be utilized towards adjustment of loan amount as per amortization table. Prior permission of TATA-AIG is required if amount is over Rs. 80.00 lac.
Iffco Tokyo general insurance co.
The coverage for accidental death and permanent total disability (due to accident) along with mandatory insurance “Fire Policy – including earthquake” is offered in tie up arrangement with Iffco Tokyo General Insurance Co. Ltd. To all existing as well as new borrowers.
Earnest Money Deposit Scheme
To meet the requirement of earnest money to apply for plot/flat/house from State Housing Boards and Urban Development authorities.
These authorities undertake to refund or issue allotment letter to the bank subject to eligibility of the bank for proposed loan and future requirement of Housing Loan.
Extent of loan is 90% of EMD or max. Rs 2.00 lac in the shape of Demand Loan
ROI is BPLR – 1.75% Repayment through Refund order/Housing Loan/Bullet Payment. Guarantee clause deleted
OD Facility to existing H/L borrowers
OD facility can be allowed to existing Housing Loan borrowers there is no IR irregularity. Other features of the scheme are as under:
Minimum 50000/- and Maximum Rs. 5.00 lac. Additional limit and present o/s should not exceed 75% of
current market price of the house so as to maintain margin of 25%.
Upfront fees is NIL and documentation charges are Rs. 500/-. Take home salary should not be less than 40% of gross salary. Loaning powers are SB-Nil, MB- Rs.4.00 lac, LB, ELB &
VLB Rs. 5.00 lac. ROI is equal to BPLR After HL is repaid, OD can be continued/ renewed provided the
sanctioning authority is satisfied about repaying capacity of the borrower and Value of security.
OD facility for personal use should not be sanctioned to the borrowers, who have availed loan for plot , construction on which is yet to be completed in terms of RBD cir. no. 43 dt.21/08/09
On review, it has been decided to do away with the condition of minimum 2 year of repayment track record of the borrower for considering OD facility up to 5 lac. However this is subject to compliance of all other terms and conditions such as KYC norms, CIBIL database, takeover guidelines, security norms, maintenance of
margin etc.
This facility is outside the purview of “Hub and Spoke“ model in the accounts of existing HL borrowers.(RBD Cir. No. 64 dt. 19.12.2009)
PNB Flexible Housing Loan Scheme
This is an attractive variant of Housing Loan Scheme offered by the PNB for its customers. Under this scheme, OD facility is made available to the HL borrower. He can deposit his savings and withdraw the same as per his requirement. The features of the scheme are as under:
Eligibility Age of the applicant must be less than 50. Existing HL borrowers can also apply provided their
loan account is regular and no IR irregularity persists.Purpose All purposes as per original scheme except Purchase of
Land / Plot.Extent Term Loan 80%
Overdraft 20%
After lapse of 3 years, enhancement in OD will be allowed equal to reduction in Term Loan and thereafter on yearly basis.
After lapse of 5 years, 20% increase in original limit is allowed in the shape of TL/OD for personal needs.
Market Value of Property should be sufficient to cover the margin of 25%
After attaining age of 55 years, OD facility will be reduced on monthly basis so that whole limit and T/L are adjusted by the end of 65 years.
Maximum OD limit should not exceed 50% of Total limit.
HL can be sanctioned by the branch/hub situated near the workplace/posting/residence.
Security verification can be done by nearby branch.
Rate of Interest as given above in the table in Housing Loan scheme (general)
For Overdraft portion, R/I is equal to BPLR
IV. 5.8.4 Personal Loan For Pensioner & Public
Two types of personal loans are being offered by PNB. Personal loan for pensioner is special category of retail lending
scheme being offered by Punjab National Bank to pensioner. The main intension of this loan is to meet each and every
personal needs including medical expense of senior citizen. Details regarding the same are mentioned below.
Eligibility Pensioners drawing pension from the branch, Family Pensioners,
DPDO Pensioners, Ex-employees
Purpose & Extent
Personal needs
Up to 75 years of age: 1.50 lac (Minimum Rs. 25000/-)
Above 75 years of age: 0.70 lac (Minimum Rs. 25000/-)
Limit calculation
Equivalent to 18 months net pension or Rs. 150000 (for borrowers up to 75 years’ age) and 12 months net pension or Rs 70000 (for borrowers above 75 years’ age) whichever is lower. For defense retirees, the loan equivalent to 20 M net Pension can be granted. Take home Pension should not be less than 50% of monthly pension
Nature DL or TL or OD on monthly reducing DP
Margin NIL
Guarantee Personal guarantee of spouse eligible for family pension or any other family member or 3rd party guarantee.
Upfront fee NIL
Documentation charges
Rs. 270/- plus service tax
Repayment 60 EMIs . 24 EMIs in case age is more than 75 years which can be extended up to 48 months by the sanctioning authority.
Miscellaneous PPO be kept with the loan documents Affidavit from the pensioner that present disbursing branch will
not be changed without bank’s consent. The loan can be availed more than once only after adjustment of
earlier loan
PERSONAL LOANS FOR PUBLICEligibility Only PNB Account holders are eligible. Minimum 6 months’ salary
should be routed in the account or 6 months satisfactory transaction record for non salary saving accounts.
Permanent Defence, CRPF, BSF & ITBP Personnel (Not to be granted to those who are due to retirement within next 24 M.
Confirmed permanent employees of Central/state Govt./PSUs/Reputed Co./Schools/Institutions who fulfill any of the following 2 conditions:
Route of salary through branch Check-off facility Professionally qualified practicing doctors viz. MBBS, BDS
and above having customer relationship with PNB at least for 6 months having annual income of Rs. 4.00 lac and above. Doctors should be tax payers for 3 years and ITRs be kept on record.
Check off It means that the employer undertakes to deduct monthly installment
Facility from the salary and remit the same towards adjustment of the loan till its liquidation and also confirms attachment of terminal dues of the borrower/employee.
Purpose & Extent
Personal needs. Minimum Rs. 50000 & Maximum Rs. 4.00 lac or 20 times net salary whichever is lower depending upon the repaying capacity & Rs. 5.00 lac for those salaried persons who have completed 3 years in the present organization and drawing net monthly salary not less than Rs. 30000/-.
Nature TL or ODSanction and Disbursement
All branches can generate leads for processing at Retail Hubs/CCPCs. However disbursement can be made only by branches having recovery percentage of not less than 90% under Personal Loan segment as at end of previous half year.
Minimum net monthly income
Metro Rs. 15000/- p.m.Urban Rs. 12500/- p.m.SU & Rural areas Rs. 10000/- p.m.Defence personnel and Teachers Rs. 7500/- p.m.
Margin NIL
Repayment TL – 60 EMIs OD- Reducing DP spread over 60 M.Defence Personnel – 36 M.Amount of EMI should not be more than 50% of net monthly income.60 advance cheques (maximum) signed by the borrower along with letter of deposit be obtained. Obtention of advance cheques is applicable where check off facility is not available.
Guarantee Suitable 3rd party guarantee. RM/CM may waiveRBL Sheet PNB Score system will be applicable and the applicant will have to
score at least 50% marks to avail loan. Upfront fee % of loan amount + service tax
NIL for defense personnel.Docm. Charges Rs. 270/- up to Rs. 2.00 lac. Rs. 450/- Above Rs. 2.00 lac + ST
NIL for defense personnel.Other Requirements
In case of Army personnel, a copy of authority letter be sent to Controller of Defense Account (CDAO) Pune so that salary is remitted till liquidation of loan
Statement of account for at least 6 m. be obtained. Affidavit that no other loan from other bank is availed be
obtained. Copy of IT return for previous 3 years be obtained. Form 16 be
taken if loan is granted to employee. A Registered letter be sent to the employer informing about
details of loan raised by the employee.RBD Cir. No. 27/09 dt. 26.5.2009
It is clarified that the branches eligible for disbursement/maintaining the accounts shall obtain blanket permission from CH for disbursement in the next 25 accounts submitting performance of the branch under the portfolio.
The genuineness of salary certificates be independently got verified from HR Deptt. Of the employer of applicant.Hubs should ensure drawing of CIRs from CIBIL Data base for considering request of Personal Loans.
V. 5.8.5 PNB Baghban scheme for senior citizen
PNB is the first Public Sector Bank to come out with a Reverse Mortgage concept based product for senior
citizen titled "PNB Baghban". The product addresses one of the very important requirements of the society in
the fast changing culture of Indian society. The main objective of this scheme is to address the financial needs
of senior citizens owning self occupied property (house), for leading a decent life. The salient features of the
product are given hereunder:
Eligibility Senior citizens owning Self-occupied property. If property in single name, there must be will in favors of spouse and it should be registered. In case of joint property, one of the spouses must be of 60 years and above. The other spouse should be at least 58 years old. If there is no spouse, loan will be made in favor of single.
Purpose & Extent
To lead a decent life Maximum qualifying amount can be Rs. 1.00 crore which will
depend upon realizable value of property after maintaining margin of 20%. The monthly payment will be made to the borrower on the basis of reverse mortgage annuity table.
Margin 20% of realizable value of the property to arrive at the qualifying amount
Income criteria No
Rate of Interest 10.5% with reset clause of 5 years.Disbursement of loan
In the shape of monthly instalments (to be calculated on reverse annuity basis) during loan tenor of 15-20 years for age group of individuals between 60-70 years and 10-15 years for age group of over 70 years or till death of last surviving spouse, whichever is earlier.
For example, if Qualifying amount is Rs. 1.00 lac,
On 10 year tenor of loan, monthly installment will be Rs. 475/-, On 15 year tenor, monthly instalment will be Rs. 230/- and on 20 year tenor, monthly instalment will be Rs. 125/-
The series of monthly instalments would continue after death of first spouse during life time of surviving spouse.
Tenor of loan Age group of 60-70 years 15-20 years
Age group above 70 years 10 –15 years
Insurance Against fire, Earthquake and other calamities at the cost of the borrower
Security EM of IP in favor of the bank. Valuation of property to be got done from approved valuer. Revaluation be also got done once in a span of 5 years.
Upfront fee Amount equal to half month’s loan subject to maximum of Rs. 15000/- + Service Tax @10.30%
Docm. Charges NIL
Repayment The loan becomes due for payment after 6 months from death of both the spouses. In case the loan is not repaid by legal heirs within 6 months from the death, the bank is within its right to sell the property for adjustment of the loan in case the consent of the legal heirs is not received within 6 months from the death of last survivor.
Others Residual life of property should be at least 20 years. Purpose of loan should not be speculation or trading. It should be ensured that the will executed by the borrower is the
last will. Life certificate is to be obtained once in a year in November.
Age of Property
Residual life of property should be at least 20 years. A certificate from architect at the time of first valuation be obtained. Revaluation of property will be done once in 5 years.
Ancestral property as security
Now it has been decided to accept ancestral property provided bank is satisfied that there are no other legal heirs or original title deed is not available. For this, documentary evidence is required. Circle Head will deal such proposals.
TERM LOANS UNDER PNB BAGHBAN SCHEME
A lump sum Term loan can be sanctioned up to Rs. 15.00 lac. The cases can be considered on selective basis by HO only for medical purpose to senior citizens for treatment of self, spouse and dependents.
Amendments in PNB Baghban Scheme
Following two amendments have been carried out in IT Act, 1961. 1. Reverse Mortgage does not tantamount to transfer; therefore there is no Capital Gain Tax. Income tax is levied only at the time of alienation of Mortgaged property by mortgagee for recovery of loan. 2. Stream of payment received by Sr. Citizen would not be treated as Income. Therefore, bank has to obtain the following at the time of application of loan:
Cost and year of acquisition of Capital asset. Cost and year of improvement. PAN No. of all legal heirs. Changes, if any made in the Registered Will.
Conclusion
Credit appraisal is a process of appraising the credit worthiness of loan applicants. The fund of depositors i.e.
general public are mobilised by means of such advances / investments. Thus it is extremely important for lender
bank to assess the risk associated with credit, thereby ensure the security for fund deposited by depositors.
Therefore my analyses regarding credit appraisal procedure of Punjab National Bank are as follows:-
In case of retail lending bank strictly follow it’s circular and fulfils all requirement of necessary
documents required for different types of loan so that bank do not suffer any types of loss.
Bank is very much particular about CIBIL report of borrowers in case of each type of lending.
Bank lending process in case of retail loan is very much fast after compiling with all the criteria of bank.
In case of project financing bank follow lengthy norms to check the feasibility of the project such as:-
I. Firstly personal appraisal of promoter is done by the bank to ensure that promoters are
experienced in the line of business and capable to implement and run the project efficiently.
II. Secondly detail study about the technical aspect is done to find the technical soundness of
project such as proper scrutiny of financial report is done, valuation of property by
government approved valuer is done and view regarding each and every area of project is
done under technical analysis.
III. A detail study relating financial viability of project is done by detail study of cash flow, fund
flow statements and by calculating import ratio which is very much necessary for project
appraisal such as DSCR, DER etc. the main purpose of financial appraisal is insure that
project will ensure sufficient surplus to repay the instalment and interest.
IV. Risk analysis is done by bank to determine the risk associated with the project. This is
mainly done by sensitivity analysis and by PNB credit rating or scoring. With sensitive
analysis feasibility of project is determined under worsened condition. Credit rating or PNB
scoring is done of various parameters such as personal, management, financial etc , thereby
determine credit worthiness of customer.
V. It is on basis of credit risk level, a collateral security to be given by borrower is determined.
This shows that Punjab National Bank has sound credit appraisal system.
BIBLIOGRAPHY
i. PUNJAB NATIONAL BANK ANNUAL REPORT
ii. PNB JOURNALS
iii. BOOKS
MANAGEMENT OF INDIAN FINANCIAL INSTITUTION, SRIVASTAVA R.M & NIGAM DIVYA,
10TH EDITION,2010, HIMALYA PUBLISHING HOUSE, GURGAON MUMBAI
FINANCIA INSTITUTION AND MARKETS, BHOLE L.M, 5TH EDITION,2009, TATA Mc GRAW-
HILLS,7 WEST PATEL NAGAR, NEW DELHI
iv. WEBSITE
www.pnbindia.com
www.rbi.gov.in
www.google.com