Credit Management Rajkot Nagarik Sahakari Bank Ltd[1]. - Rajkot

Project report onCREDIT MANAGEMENT Of RAJKOT NAGARIK SAHAKARI BANK LTD. - RAJKOT PREFACE Banks are regarded as the blood of the nation’s economy without them one cannot imagine economy moving. Therefore banks should be operated very efficiently, cooperative banks although a small part of whole banking system in India, but they are very important not only from economical point of view but also from social point of view as it is more concerned about common people’s welfare and development. Advance is heart and recovery is oxygen for the bank and for the bank to survive it is necessary to give advances and recover the amount at the appropriate time. Through credit management I have tried to cover the various aspects like credit appraisal, NPA management, recovery management, etc. E.g. credit management covers all the areas right form the beginning like inquiry till the loan has been paid up. Though credit management, a very vast topic, I have tried to incorporate to the best of my capacity from all possible aspects in this project. I do hope that institution will appreciate this project. OBJECTIVE OF STUDY Banking is the activity of my interest. I have seen from the annual reports of the various banks and find that most of their income is from the interest getting on the credit given so I choose and hence I studied on credit management. Game of statistics is always attracts me and banking is one the place where we can learn it very well. So I have selected bank and have preferred “credit management” as topic for my project. RESEARCH METHODOLOGY There are many methods, which are well known today for research methodology, out of which one I have chosen is “sampling method”, which is really easier, still producing accurate results. Sampling in laymen’s language, is nothing but selecting pockets or samples representing the whole group and analysis of these samples gives the idea about the respective groups. On the basis of this, prediction is done and full information about group is integrated. Though this is not a first hand method, it gives sufficiently good outcomes if used carefully by experts. It saves the time and energy. The only care should be taken, in order to have great accuracy, is selection of sample should be such that it should represent the whole group and information we get from them should be cent percent reliable. Salient features of my chosen sample The biggest co-operative bank having head office in my vicinity enables me to do my work efficiently. This is the striking feature of my sample. The exclusive schedule bank in Rajkot and hence gets priority over the others. Generally the new bank lacks the experience so it is mandatory to select a sample, which has enormous experience. RNSB has a gigantic experience of successful 50 years, under the lights of which work becomes easier. The other enchanting point is that RNSB have maximum number of shareholder i.e. above 2 lacs. CONTENT Preface Acknowledgement Objective of study Research methodology Content INTRODUCTION Early history of banking Origin of word ‘bank’ Status wise bifurcation of bank Types of bank RNSB - The Small Man’s Big Bank PROJECT Main Fund Inflow (sources of funds) Main fund outflow (funds used) Meaning of credit and credit management Forms of credit/advances Time wise bifurcation of advances Security wise bifurcation of advances Process of credit CREDIT POLICY General eligibility criteria for credit in RNSB Table of interest rate on various advances Scrutiny of credit Types of credit Explanation of all types of credit Data analysis and observation and suggestion CREDIT APPRAISAL Appraisal format Observation and suggestion CREDIT MONITORING, FOLLOW UP AND REVIEW Credit monitoring system in RNSB Follow up actions for credit monitoring in RNSB Observation and suggestion NPA MANAGEMENT Identification of Non Performing Advances Asset classification Classification of Non Performing Advances Provision for NPA Findings (reason for NPA) Suggestions (NPA reduction techniques) RECOVERY Process of recovery Finding/observation LIMITATION OF STUDY BIBLIOGRAPHY INTRODUCTION EARLY HISTORY OF BANKING As early as 2000 B.C., the Babylonians has developed a banking system. There is evidence to show the temples of Babylon were used as banks. After a period of time, there was a spread of irreligion, which soon destroyed the public sense of security in depositing money and valuable in temples. The priests were longer acting as financial 45 agents. The Romans did minute regulations, as to conduct private banking and to create confidence in it. Loan banks were also common in Rome. From these the poor citizens received loans without paying interest, against security of land for 3 or 4 years. During the early periods, although private individuals mostly did the banking business, many countries established public banks either for the purpose of facilitating commerce or to serve the government. However, upon the revival of civilization, growing necessity forced the issued in the middle of the 12th century and banks were established at Venice and Genoa. The Bank of Venice established in 1157 is supposed to be the most ancient bank. Originally, it was not a bank in the modern sense, during simply an office for the transfer of the public debt. Again the origin of modern banking may be traced to the money dealers in Florence, who received money on deposit, and were lenders of money in the 14th century and also in 1349, the business of banking was carried on by drapers of Barcelona. In India, as early as the Vedic Period, banking, in most crude from existed. The books of Manu contain references regarding deposits, pledges, policy of loans, and rate of interest. True, the banking in those days largely mint money lending and they did not know the complicated mechanism of modern banking. This is true not only in the case of India but also of other countries. Although, the business of banking is as old as authentic history, banking institutions have since than changed in character and content very much. They have developed from a few simple operation involving the satisfaction of a few individual wants to the complicated mechanism of modern banking, involving the satisfaction of capital slowly seeking employment and thus providing the very life blood of commerce. THE ORIGIN OF WORD ‘BANK’ The word ‘Bank’ itself derived from the word ‘bancus’ or ‘banque’ that is a French. There were others of the opinion that the word ‘Bank’ is originally derived from the German word ‘back’ meaning joint for which was Italianised into ‘banco’. STATUS WISE BIFURCATION OF BANKS Scheduled Banks. Non-Scheduled Banks. Scheduled Banks In first schedule, Government of India notifies the Primary Banks, which are licensed and whose demand and time liability are not less than 50 crores in 1987. Government of India notifies the Primary banks, which are licensed and whose demand and time liability are not less than 100 crores can only qualify to be included in the second schedule since 1993. A bank becomes scheduled when it fulfils the followings: ‘A’ grade rating from RBI Demand and Time Liability over 100 Crores Satisfy the RBI guidelines related to CRR and SLR As per the norms Priority Sector wise lending Benefits of Being a Scheduled co-operative are described below: RBI would provide Rediscounting facility at nominal rate RBI gives remittance facility at par The demerit of being a scheduled co-operative bank is that the bank will not get 0.5% subsidy from RBI. The conferment of scheduled status on the banks has certain advantages like refinance facility, directly industrial finance from Reserve Bank of India, avail of Reserve Bank of India Remittance facility scheme, accept deposits from local bodies, quasi-government organization, religious, and charitable institutions, guarantees and cheques issued by Banks are accepted by Government Departments. At the same time, it casts greater responsibility on the banks in the maintenance of books of accounts and submission of returns. Non-Scheduled Bank The banks, which are not applicable as per the criteria of Scheduled Banks, are called as a Non-scheduled Banks. These are very small banks. TYPES OF BANKS Regional Rural Bank Nationalize Bank State Bank Group Co-operative Bank Private Bank Foreign Bank RESERVE BANK OF INDIA The Hilton-young commission, appointed in 1926 has recommended the necessity of centrally empowered institution to have effective control over currency and financial transaction in the country. Accordingly, the Government had then passed Reserve Bank of India Act, 1934 and established the Reserve Bank of India with effect from 1st April 1935. The principal aim behind this was to organize proper control over the currency management in the interest of country benefits and to maintain financial stability. With this, the RBI mainly looks after the following important functions: To keep effective control over creation of credits and currency supply To control the Banking transactions of Central and State Governments To act as Central administered Authority of all other Banks in the Country. To organize control over Foreign Currency Transaction To assist for improvement in financial aspects of the country Nationalize Banks The Banking Company Act establishes it in July 1969 by nationalization of 14 major banks of India. The sent percent ownership of the bank is of government of India. State Bank Group The State Bank of India was established under the State Bank of India Act, 1955, the subsidiary banks under the State Bank of India (subsidiary Banks) Act, 1959. The Reserve Bank of India owns the State Bank of India, to a large extent, and rest of the part is some private ownership in the share capital of State Bank of India. The State Bank of India owns the subsidiary Banks. Old Private Banks These banks are registered under Company Act, 1956. Basic difference between cooperative banks and private banks is its aim. Co-operative banks work for its member and private banks work for earn profit. New Private Banks These banks lead the market of Indian banking business in very short period, because of its variety of services and approach to handle customer, also because of long working hours and speed of services. This is also registered under the Company Act, 1956. Foreign Banks Foreign Bank means multi-countries bank. In case of India Foreign Banks are such Banks, which open its branch office in India and their head office is outside of India. Regional Rural Banks (RRB) Regional Rural Banks are added in Indian Banking since October 1975. The Government of India in terms of the provision of the Regional Rural Bank Act 1976 has established these banks. The distinctive feature of Regional Rural Bank is that through it is a separate body corporate with the Commercial Bank, which has sponsored the proposal to establish it. The Central Government, while establishing a Regional Rural Bank at the request of a Commercial Bank, shall specify the local limits within which it shall operate. The Regional Rural Bank may establish its branches or agencies at any place within the notified area. State Bank of Saurashtra sponsors Regional Rural Banks in Saurashtra. Co-operative Banks State Co-operative Banks State Co-operative Bank means the principal Co-operative society in the state. The primary objective of which is the financing other co-operative societies in the state. Central / District Co-operative Banks Central / District co-operative Bank means the principal co-operative society in a district, the primary objective of which is the financing of other co-operative in that particular district. Primary / Urban Co-operative Banks The primary objective of principal business of which the transaction is of banking business and paid up share capital and reserve of which are not less than rupees 100,000 and bye-laws of which do not permit admission of any other co-operative society as a member. RNSB - The Small Man’s Big Bank Rajkot Nagarik Sahakari Bank is a leading Co-Operative Bank in Gujarat State, India. Bank was established on 5th October 1953 With a small Capital Of Rs. 4890 and Membership of 59 persons under the leadership of Late Keshavlal Amrutlal Parekh as a Chairman, and Late Janmashankar Antani as a M.D. Bank has made tremendous & real progress under the leadership of former Chairman Late Shri Arvindbhai Maniar. Bank is celebrating its 50th anniversary (Golden Jubilee) year this year. During past years bank has played vital & leading role for the development of industries, business & Economy of Rajkot City, Development and nursing of Co-operative movement in the Saurashtra region of Gujarat State. Bank was the first co-operative institute to start functioning in the erstwhile state of Saurashtra. “SAHAKAR MAHARSHI” late Shri Vainkunthbhai Metha inaugurated bank. Bank has developed in manifolds with the time. Membership (Share Holder) of bank is mounting towards 2,50,000/-, which is a record by itself & provides an example of how a mass movement can be turned into the instrument for social upliftment. To day Bank has more than 600,000+ deposit accounts with a deposit base of 711+ Crores, And 40000+ Establishments/Individuals enjoy the facility of Rs 485+ Crores of Advances. Since inception the people with foresight & vision, which Includes the names Like Shri Keshubhai Patel, Shri Vajubhai Vala, Shri Shashikant Mehta, Shri Vasantbhai Khokhani, Shri Pravinbhai Maniyar, Shri Shivlalbhai Vekaria etc, guided bank. Being in the service sector, with a vision of current & future trends, Bank started automation & modernization way back in 1987 and by 1995 all the Branches were computerized. Bank is enjoying the SCHEDULE BANK Status since 1989. Recently in year 2001 Bank was registered UNDER MULTI-STATE CO-OPERATIVE SOCIETY ACT. With this Bank has opened a Branch In Mumbai, Economic Capital of India and become MULTISTATE SCHEDULE CO-OPERATIVE BANK. Parameters for Multi-State: NPA level is 15% bellow of total advances. Not penalized for continuous 3 years for SLR and CRR. Customers are the key to success of any commercial organization. The bank has taken up number of projects to improve its customer services as well as facilities during the year. Some of these are listed below: Banks has started its own website www.rsnbindia.com for the benefit of customers. A kiosk has been installed at the Para Bazaar branch for facilitating the customer needs for account balances and status without the help of banks staff. This also ensures secrecy of customer account. Banks has started issuance of free drafts on its own branches for the benefit of customers. Drafts as well as term deposit receipt are now being issued online (immediately) at all branches. Computerized passbook printers have been installed at all branches. Bank has also taken up the project of installing technologically upgraded core banking solution that will network all the branches as well as provide anywhere banking services. This project has already been launched and the work is progressing at a fast pace. Bank has recently started five new credit products for customers: Small business and industrial credit scheme: This scheme covers the business and industries, which are in existence for minimum 3 years. This scheme is for the working capital requirement of business or industry in the form of overdraft. “One guarantor and stock statement once a year” - is specialty of this scheme. Tatkal (On the spot) credit scheme: Purpose of this scheme is to fulfill the current requirement (like business, marriage, medical treatment, education). This is given in the limit of Rs.1 lac against the security of immovable property. This loan is required to be paid in the monthly installments of 12 to 24. Specialty of the scheme is that within 24 hour you can get the loan Scheme for the social responsibilities requirement: This scheme covers the social responsibilities, medical treatment and other occasions. In this scheme loan is sanctioned against security of immovable property in the limit of Rs.5 lac. Maximum loan repayment period is 36 months. Building repairing/renovation loan scheme: Recently bank has increased limit of loan amount from Rs.75000 to Rs.200000 for the Rajkot, Ahmedabad, Surat city and for other branches to Rs.100000. Loan against N.S.C. / K.V.P. / L.I.C. Policy scheme: The loan amount is given in the form of overdraft. PR OJEC T MAIN FUND INFLOW (SOURCES OF FUNDS) Owned deposit Deposits Borrowings Others Owned deposit The owned funds consisting of paid capital of the bank, reserve fund, and other reserves. Deposits It is sum of current deposits, fixed deposits, saving deposits, special saving deposits, NRI deposits, inoperative deposits, etc. It is the main Cash Inflow for any institution. Borrowings The borrowed funds consisting of borrowings from other banks (as per some writer deposits of various types is also part of borrowed funds), debentures offered to public, etc. Others Increase in current liabilities, reduction in debtors, fund from operations like net income, depreciation, and reserves, less payment to creditors, reduction in advances, reduction in inventories, reduction in cash, sold marketable securities, etc. MAIN FUND OUTFLOW (FUNDS USED) CRR (Cash Reserve Ratio) with Reserve Bank of India SLR (Statutory Liquidity Ratio) in Reserve Bank of India approved securities Loanable Fund Others CRR (Cash Reserve Ratio) with Reserve Bank Of India The capacity of credits creation of bank is depending upon their cash flow received. To restrict this credit creation, the reserve bank of India has directed their terms. In case of scheduled banks and sec.18 of banking regulation act are required to maintain the cash reserve ratio *@ 4.75% and non-scheduled bank @ 3% of their demand and time liability amounts separately. The scheduled banks are required to deposit the cash reserve ratio amount with Reserve Bank of India while the non-scheduled banks are required to maintain separate account for this. The Reserve Bank of India is also empowered to raise the cash reserve ratio up to 15% only in respect of scheduled banks. It is maintained reported to RBI every fortnight. *30th April RBI declared new credit policy and as per that RBI reduced CRR with 0.25% Demand and time liability: Time liability is related with time like, fixed deposits Demand liability is related with the demand like, Current deposits, inoperative deposit, and matured fixed deposits SLR (Statutory Liquidity Ratio) The cash flow for regular banking transactions mainly depends upon deposit received in the bank. The reserve bank of India there fore puts some restrictions on utilization of these amounts. The scheduled and non-scheduled banks are required to deposit 25% amount of their demand and time liability amount in the security approved by reserve bank of India. These securities are converted into cash and therefore they are termed as ‘liquid assets’ and 25% amount termed as ‘liquid ratio’. The reserve bank of India is empowered to raise this liquidity ratio from 25% to 40%. It is maintained average fortnight and reported to RBI. Loanable Fund Credit deposit ratio is not more than 70%. Loanable funds means amount of money, which is applicable for lending. Three main factors own fund, deposits, and borrowings decide it. Advances can never be more than loanable fund. Loanable fund is a total of: 75% of own funds 70% of deposits 100% of borrowings Others Purchase of fixed assets, purchase of marketable securities, addition to advances, addition to inventories, payment to creditors, payment of dividend, etc.. Meaning of CREDIT The word ‘credit’ is actually derived from the Latin word ‘Credere’. ‘Credere’ means to have trust or faith. Thus ‘credit’ is directly related with trust. That is why State Ford stated that ‘Credit is nothing more than that of trust’. By this we can say that credit is a tool that is resulted by the complete mutual trust/faith. ‘Credit creation implies a situation when a bank may receive interest simply by permitting customer to overdraw their accounts or by purchasing securities and paying for them its own cheque or bank may pay amount to borrower or directly to seller of goods whom against borrower get amount’. CREDIT MANAGEMENT Credit management means the total process of lending start from inquiry from potential borrower to recover the lending amount from borrower. Whenever my study is concern, credit management in sense of banking sector is the set of activities like Except application, loan appraisal, Shakh posting, monitoring, recovery, NPA management, etc. FORMS OF CREDIT/ADVANCES Loan (term loan) Cash credit and overdrafts Purchase /discounting of bills Bank guarantee Loan/term loan In case of a loan a specified amount is sanctioned by the banker to the customer, who may either draw the amount in case immediately or may like the amount to be credited to his current account. But legally it is presumed that he has withdrawn the amount from the bank and deposited it in his current account. He is required to pay interest on the full amount from the date of sanction. A loan may be repayable in installments or in lump sum. Cash credit Cash credit is the main method of lending in India and accounts for above 70% of total bank credit. Under the system, the banker specifies the limit, called the cash credit limit for each customer, up to which the customer is permitted to borrower against the security of tangible assets or guarantees. The customer withdraws from his cash credit account as and when requires the funds and deposits any amount of money, which he finds surplus with him on any day. The cash credit amount is thus an active and running account to which deposits and withdrawals may be affected frequently. The customer is required to provide tangible assets as security to cover the amount borrowed from the banker. The borrower is charged interest on the actual amount utilized by borrower and for the period actually utilized only. Overdrafts When a current amount holder is permitted by the banker to draw more than what stands to his credit, such an advance is called an overdraft. The banker may take some collateral security or may grant such advance on the personal security of the borrower. The customer is permitted to withdraw the amount as and when he needs it and to repay it by means of deposit in his account as and when it is feasible for him. Interest is charged on the exact amount overdrawn by the customer and for the period of its actual utilization Bills Purchase The Banker credits customer’s account with the amount of the bill after deduction his charges. As the demand bills are repayable on demand and there is no maturity, the banker is entitled to demand their payment immediately on presentation before of drawee. Their practice adopted in the case of demand bills, is known as purchase of the bills. Bills Discount In case of bills discounting, a bank credits the amount of the bill to the drawer’s account before the realization of the bill and thus lends its funds to him after deduction his charges. The bills purchased and bills discounted by a bank are, therefore, shown in its balance sheet as part of loans and advances. In case of a bill maturing after a period of time maximum for 180 days in RNSB, the banker retains the bill for that period and realizes the amount of bill from the drawee on its due date. This practice is called discounting of the bill. Bank Guarantee It is a contract to perform the promise or discharge the liability of a third person in case of his default. In case of guarantee, Bank is taking responsibility to pay the amount to seller if buyer will not pay amount in time. TIME WISE BIFURCATION OF ADVANCES - Short-term Finance - Medium-term Finance - Long-term Finance : Up to 26 months : 26 to 66 months : Above 66 months SECURITY WISE BIFURCATION OF ADVANCES Secured Finance / Advances: Secured Advances are those advances, which provide absolute safety to the Banker by means of a charge, created on the tangible assets of the borrower in favor of the Banker. In such cases, the Banker gets certain rights in the tangible assets over which a charge is created. A Secured Loan or Advance means a loan or advance made on the security of assets, the market value of which is not at any time less than the amount of such loan or advance. Unsecured Finance / Advances: Unsecured Loan or Advance means a loan or advance, which are not secured, this types of advances is not preferable for any banking institutions. PROCESS OF CREDIT Application inward Shakh report Advocate report Branch report Loan report Inspection report Committee report Fulfill conditions Equitable mortgage and equitable extension Make/sign document Open account Insurance posting Record department - filing Inward application A customer seeking an advance is required to submit an appropriate application form. There are different types of application forms for different types of advances available. The information furnished in the application covers, inter alias, the following: name and address of the borrower and his establishment, the details of borrower’s business, the nature and amount of security offered. The application form has to be supported by various ancillary statements like the financial statements and financial projections of the firm. A separate inquiry department is set under the loan department. Here, different types of application forms are available and collect process charge from borrower; application is accepted and entered into computer. Shakh report This is one of the strangest facility of RNSB compare with other co-operative banks in Rajkot district because of its computerization. This facility provides bank to total ‘kundali’ of the borrower related to dealing with bank not only as a borrower but also as partner, as a director also as a guarantor and same detail of the guarantor also and also about all the types of loans, which are already paid up, which are overdue, which are running and also about past performance of particular. Advocate report Bank through its legal department’s staff in two matters prepares advocate report mostly, which are given below: In case of land and building loan Before equitable of immovable property as a security When the bank prepares advocate report, bank charges some amount from borrower. Branch turn over report This report mostly prepare in case of cash credit review/renew, is also known as a branch turn over report. This report presents: Performance of borrower with the branch in previous year Debit-credit transaction of borrower, Submission of stock statement, Payment of interest Last outstanding balance Processing of application/loan report The application is processed by the clerical staff and checked and passed by senior loan officer and monitoring by loan manager. The preliminary involves an examination of the following factors: Ability, integrity, and experience of the borrower in the particular business General prospects of the borrower’s business Purpose of advance Requirement of the borrower and its reasonableness Adequacy of the margin Provision of security Period of payment And prepare the appraisal report for committee approval Inspection report Before presenting appraisal report against the committee, bank sends his field officer/inspection officer to on site inspection. The situation which created by borrower by providing information of his business to bank is it fact or not? After the inspection report, this application is ready for putting against the loan committee of the bank. Inspection varies according to the various loans. For e.g. In case of cash credit he personally visits the business site and verifies the original books of accounts with that of submitted books of accounts. He verifies the real stock with the stock mentioned if any difference is found it is clearly mentioned in the report. In case of housing loan inspection officer visits the place and check whether the building is really in existence or not, whether the construction is as per the statical figure provided to him and plan is as per sanctioned by the municipal corporation. Committee approval and terms and conditions Once the application is duly processed, it is put for sanction to the appropriate authority. Here appropriate authority means various loan committees, standing committee and board of directors. Loan manager is a sanctioning authority only in case of review of cash credit facility. Types of committee and its lending powers are given below: If appropriate authority gives sanction, along with the sanction of advance the bank specifies the terms and conditions applicable to the advance. These usually cover the followings: The amount of loan or maximum limit of the advances The nature of the advances The period for which advance is valid The rate of interest applicable to the advance The primary security to be charged The insurance of the security The detail of collateral security, if any, to be provided The margin to be maintain Other restrictions or obligations on the part of the borrower Name Of Committee 2. Board of directors 3. Standing committee 4. Reconsideration committee 5. Loan committee (Rs.500001 to 1000000) 6. Loan committee (Rs.300001 to 500000) 7. Loan sub-committee/1 (Rs.150001 to 300000) 8. Loan sub-committee/2 (Rs.75001 to 150000) 9. Loan sub-committee/3 (Up to Rs.75000) 10. Loan sub-committee/4 (Up to Rs.5,000) 11. Committee for loan against immovable property/1 (Rs.2,50,001 to 5,00,000) 12. Committee for loan against immovable property/2 (Rs.1,50,001 to 2,50,000) 13. Committee for loan against immovable property/3 (Rs.25,001 to 1,50,000) 14. Committee for loan against immovable property/4 (Up to Rs.25,000) 15. Recovery committee/1 (more than Rs.3,00,000) 16. Recovery committee/2 (Rs.1,50001 to 3,00,000) 17. Recovery committee/3 (Up to Rs.1,50,000) It is common banking practice to incorporate important terms and conditions on a stamped security document to be executed by the borrower. Rate of stamp duties are given follows: Demand promissory note Letter of guarantee *Agreement letter (Letter of lien) Letter of pledge Letter of continuity Agreement letter for Cash credit/Overdraft Up to 5,00,000 Above 5,00,000 : Rs. 110 : Rs. 2/thousand Up to 5,00,000 Above 5,00,000 : Rs. 1 : Rs. 60 : Rs. 50 : Rs. 2/thousand : Rs. 50 : Rs. 50 Maximum limit of stamp duty is Rs. 2,00,000 *Agreement letter is in case of vehicle loan, security loan, bills purchase, bills discounting, guarantee, education loan, etc. Equitable Mortgage And Equitable Extension When the loan is sanctioned with condition that to put the real document as a mortgage in security (prime/collateral), it is must that to make the equitable mortgage of the property. Some time a property which given in mortgage by borrower is already put before the bank in case of other loan as a security at that time equitable mortgage is already done by party so there is no need of equitable mortgage again but the equitable extension is only needed. Equitable mortgage on non-judicial stamp paper Amount of sanctioned loan loan of non-judicial stamp paper for equitable mortgage Up to 15,00,000 Above 15,00,000 1/2% of sanctioned loan 1% of sanctioned loan OR Rs. 1,00,000 (Whichever is less) Make/sign document This application is now in the document department, document department take signature of loanee and guarantors in specimen card and also on the sanction letter to seat beside and verify all the documents. Types of documents are discussed in each type of loan separately. This process is last for borrower, after this loan is sanctioned. No formality is remaining at the borrower side. Open account Now loan is sanctioned, all formalities are completed. So bank is giving your amount of loan either by credited in your account or pay the amount to the party, whose quotation is provided by borrower to bank. Bank opens your account with himself to get the actual transaction between bank and borrower. Insurance posting It is must for loanee to insure the property or equipment, which is hypothecated with the bank against loan as a security. This policy is assigned in favor of bank, which is also required. In case of immovable property or new purchase of machinery, equipment, etc. insurance of same amount and in case of old machinery, goods stock, etc. twice of the price insurance is needed. In case of education loan, the life insurance of student is required. Shakh department is posting it in borrower’s account. Record department – filing Now total process is over and whole documents are need filing for bank record. Record department does this work. Record department file the documents and store it to proper place. C RE DI T P O L IC Y General Eligibility Criteria For Credit In RNSB As per the rules of co-operatives, any one who wants to avail finance has to become a member of the bank. As a shareholder of the bank, he/she have to make compulsory deposit, or the payment of deposit as per rules and regulations of the bank and thereafter, he/she can submit the application for loan. In all the practice with the bank, you are known by bank through your compulsory deposit number. The application will have to be submitted in the prescribed form, wherein all details and particulars will have to be furnished as demanded in the form. He/she has to submit further particulars as may be asked by the bank. The loanee will be advanced loan against the security and he/she has to submit 1 or 2 guarantors, who will be the recognized member and accepted to the bank. The interest will be calculated on month-to-month basis. Taking in view the total amount of loans taken for different purpose by the firm or individual, the interest will be calculated at the same rate on all the advances. It will be necessary to make payment of share deposit or loan deposit at the rate of 2.5% of the sanction in case of secured loan and 5% of sanctioned loan or in case of unsecured loan. The maximum share deposit accepted of Rs.25000 and additional deposit over Rs.25000 will be accepted as loan deposit. The rate of interest on share deposit is 15% and that on loan deposit is 10%. The company, who wants to take loan from bank, has to get its name registered for the said loan purpose with the registrar of companies and has to submit the document of registration charge to the bank. In case of mortgage of immovable property steps are given below: Title clear report Equitable mortgage on non-judicial stamp paper Amount of sanctioned loan loan of non-judicial stamp paper for equitable mortgage Up to 15,00,000 Above 15,00,000 1/2% of sanctioned loan 1% of sanctioned loan OR Rs.1,00,000 (Whichever is less) Some time a property which given in mortgage by borrower is already put before the bank in case of other loan as a security at that time equitable mortgage is already done by party so there is no need of equitable mortgage again but the equitable extension is only needed. In case of immovable property or new purchase of machinery, equipment, etc. insurance of same amount and in case of old machinery, goods stock, etc. twice of the price insurance is needed. In case of education loan, the life insurance of student is required. Margin money means gap between purchase value and bank finance. Bank always does payment directly to the seller. So loanee has to deposit the margin money in the bank. INTEREST RATE ON VARIOUS ADVANCES Interest rate Installment / Rs.1000 32 32 32 23 23 32 50 32 Number of installment 40 40 40 66 66 40 26 40 Particulars Up to 25000(except vehicle loan) Up to 25000 vehicle loan 25001 to 200000 200001 to 1000000 Above 1000000 Surety loan, home appliances Gold loan Land and building (unsecured) up to 25000 Staff surety loan Loan against fixed deposit 12% 14% 14% 15% 16% 16% 14% 16% 16% More than 2% of F.D. 23 66 Till the maturity date of F.D. Building repairing up to 75000 Building purchase, construction 75001 to 200000 200001 to1000000 14% 17 108 14% 15% 17 17 108 108 Scrutiny of credit While scrutinizing an application from the bank takes into consideration-safety, liquidity, purpose profitability, security, and spread of advances. Safety Bank has to see that the prospective borrower is a reliable user of the finance and bank’s money is safe in his hands. Liquidity Bank has to find out that the borrower is quite capable in repaying the finance within reasonable period. Purpose The purpose for the finance should not be illegal. It should be creative, service oriented, development oriented, and like. Banks should check end use of funds. Profitability If the project or the purpose of the finance is not profitable in the hands of the borrower than he will not be in a position of repaying the amount to bank. It should be profitable enough to generate the income to satisfy his needs and bank’s dues. Security The bank has to take into consideration the character, capacity, and capital of the prospective borrower. Bigger advances and cash credit are to be secured with collateral security over and above prime security. Spread of advances For having balanced economy the bank should choose to spread the finance amongst various sectors of the society, so that the risk of incoming bad advances is minimized. Concentration on one type of advances may turn into bad advances if the scheme becomes ineffective due to some natural calamities or government rules or change in taste or demands of the society, by and large. TYPES OF CREDIT Surety Loan Vehicle Loan Security Loan Domestic Appliances Loan Gold Loan Land And Building Loan/Industrial Building Loan Educational Loan F.D. Loan Cash Credit Overdraft Bankable Loan Bills Purchase Bills Discounting Bank Guarantee Staff Loans Staff Surety Loan Staff Housing Loan Staff Vehicle Loan Staff Domestic Appliances Loan Gyan Prakash Yojana EXPLANATION OF ALL TYPER OF CREDIT Surety Loan Purpose Limit Personal use Rs. 5000 to 10000 Rate of interest 16% Period Repayable Security Documents Submit Paper 40 months Equate Monthly installments Rs.32 per thousand Personal Guarantee of two members of the bank Loan Appliances form, Letter of guarantee, DP note, letter of Sanction. In case of service person pay sleep, in case of businessperson last yearly business report. Other terms ½ % of the loan amount if the loan is sanctioned to the tune of Rs. 5000 and 1% of the loan amount is sanctioned to the tune of Rs. 10000 will have to be deposited in the benefit fund. Under the above scheme, if the death of the loanee under surety loan occurs, in the said circumstances, in remaining loan in his account will be credited from this account under his loan account and an amount of Rs. 1000, as Assistance will be paid to the heirs of the loanee immediately from this fund The confirmed government employee can be granted a loan of Rs. 10000 on acceptance letter taken from his employer to the effect that they will deduct the installment from his salary every month regularly and remit the same to Bank. It is not applicable that the surety loan of other co-operative society is in presence. Domestic Appliances Loan Purpose For purchasing consumer durable articles viz. freeze, washing machine, flour mill, T.V. VCD, sewing machine, room heater, room conditioner, etc., Limit Margin Minimum Rs. 5000 Maximum Rs. 20000 40% Rate of interest 16% Period Repayable Security Documents 40 months Equate Monthly installments Rs.32 per thousand Hypothecation of goods, personal guarantee of two members of the bank Loan Appliances form, Letter of guarantee, DP note, Hypothecation of goods/articles purchased, insurance policy Submit Paper In case of service person pay sleep, in case of businessperson last yearly business report, quotation of the item obtained from Authorized Dealer Security Loan (Against Machinery/Furniture & Fixtures/Equipments) Purpose Limit Margin For purchasing NEW/OLD machineries/furniture for business purpose Any limit as per requirement 25% to 40% Rate of interest Up to 25000 12%, 25001 to 200000 14% 200001 to 1000000 15% Above 1000000 16% Period Repayable 40 months up to 200000, 66 months above 200000 Equate Monthly installments Rs.32 up to 200000, In case of more than 200000 Rs.23 per thousand Security The Hypothecation of machinery/furniture purchased as a prime security, as a collateral security (A) Existing old machineries (B) Equitable mortgage of land and building (C) Guarantee of two members of the bank as guarantors Documents Loan Application form, Letter of guarantee, DP note, Hypothecation of machineries old/new, insurance policy, letter of sanction Submit Paper Last three-year business report, Shop Act License, SSI license, Elec. Connection proof, IT Return (in case of new firm project report) If applicant is a Partnership Firm Partnership deed copy, Reg., of firms If applicant is a limited company Resolution for getting loan, Memorandum of association, Articles of association, letter of assurance for registration in Reg. of Companies Other terms The payment of this kind of loan is given to the seller directly by Bank. In case of mortgage of old security the insurance of the double amount of old security and about new security, the insurance of the value of purchase price, is required to the taken out from the insurance company recognized by bank and the said insurance policy is required to be recognized to be assigned in favor of the bank. The immovable property of either loanee of guarantor will have to be assigned as collateral security to the bank. Security Loan (Against Good Stock) Purpose Limit Margin Provide loan against good stock Any limit as per requirement 40% Rate of interest Up to 25000 12%, 25001 to 200000 14%, 200001 to 1000000 15%, Above 1000000 16% Period Repayable 40 months up to 200000, 66 months above 200000 Equate Monthly installments Rs.32 per thousand up to Rs.200000, in case of more than 200000 Rs. 23 per thousand Security The Hypothecation of goods purchased as a prime security, As a Collateral security (A) Equitable mortgage of land and building (B) Guarantee of two members of the bank as guarantors. Documents Loan Appliances form, Letter of guarantee, DP note, Hypothecation of goods, insurance policy, letter of sanction, equitable mortgage of land and building Submit Paper Last three-year business report, Shop Act License, SSI license, Elec. Connection proof, IT Return, Rent receipt If applicant is a Partnership Firm Partnership deed copy, Reg., of firms, If applicant is a limited company Resolution for getting loan, Memorandum of association, Articles of association, letter of assurance for registration in Reg. of Companies Other terms The payment of this kind of loan is given to the loanee by Bank. Insurance is twice of the value of goods price, is required to the taken out from the insurance company recognized by bank and the said insurance policy is required to be recognized in favor of the bank. The immovable property of either loanee of guarantor will have to be assigned as collateral security to the bank. Land And Building / Industrial Building Loan Purpose Limit For purchase or construction or repairing of immovable property Rs. 1000000 or value of the property which ever is less in case of secured loan for housing purchase or construction For industrial purpose as per requirement Rs. 75000 Maximum (in case of secured loan repairing of house property) Rs. 75000 Maximum (land less than 50 yards in case of purchase) Rs. 40000 Maximum (repairing of building and less than 50 yards) Rs. 25000 Maximum (in case of unsecured loan for repairing of house property) Margin 30% (in case of secured loan for repairing of house property) Rate of interest 16% (unsecured loan) and 75001 to 200000 14% and 200001 to 1000000 15 %( secured loan (purchase /construction)) 14% (housing repairing (secured loan)) Period 40 months (unsecured loan) 108 months (secured loan (purchase / construction) / repairing). Repayable Equate Monthly installments Rs.32 (unsecured loan repairing) Rs. 17 (secured loan (purchase/construction/repairing) per thousand. Security Documents Equitable mortgage of property, two guarantor’s guarantee Original Lekh, certified copy of sequential document of the property, loan application form, letter of guarantee, equitable mortgage of property/indemnity Bond, insurance policy, letter of sanction Submit Paper Last three-year business report, shop Act License, IT Return, (In case of new project, project report), approved plan and estimate. If applicant is a partnership Firm Partnership deed Copy, Reg. of firms If applicant is a limited company Resolution for getting loan, Memorandum of association, Articles of association, letter of assurance for registration in Reg. of Companies Other terms Loanee is required to pay the document inspection and advocate fee along with process charge as per the rate time-time decided by the bank. In case of secured loan, when the loan is given for purchase of construction of the immovable property, the full insurance of the value of construction is required to be taken out. In case of collateral of unsecured loan, the insurance of double the value of the sanctioned loan is required to be taken out from the insurance company recognized by the bank. The insurance policy is required to the assigned to the bank. In case of unsecured loan, the applicant has to submit the original document showing the ownership of the immovable property. For this type of loan, no insistence is given for title clearance. But the applicant has to submit Indemnity Bond on stamp paper of 150 whenever the demand of bank and necessary as per the advice of the legal retainer of the bank. The insurance for the value of building will have to be taken over and the insurance policy will have to be assigned to the bank. Construction Level And Amount Passing Slab Chart NO. OF INSTALME NT 1 2 PARTICUL AR UPTO GROUND FLOOR UPTO 1St. FLOOR UPTO 2 ND FLOOR Plinth level Lintel level 20% 20% 20% 20% 10% 20% 20% 10% 10% 10% 20% 3 Slab 30% 10% 10% 4 Plaster, tiles, 20% electric, Plumbing 20% 5 Completion 10% 10% 10% Vehicle Loan Purpose Limit Margin Purchase of new two wheeler/purchase of four wheeler old/new As per demand 25% (in case of new vehicle purchase) OLD KIND OF VEHICLE Truck, Tractor Matador YEAR OLD MODEL 2 years 3-4 years 5 years 6-7 years 8-10 years 11-15 years % OF VALUATION OF VEHICLE PASSED 60% 55% 50% 40% 30% 25% 50% 30% 60% 50% Petrol Motor 10 years 11-15 years Diesel motor 5 years 6-15 years *Valuation by bank recognized valuer Period 40 months up to 200000, 66 months above 200000 Rate of interest 25001 to 200000 14% 200001 to 1000000 15% Above 1000000 16% Repayable Equated monthly installments Rs. 32 up to 200000 Rs. 23 more than 200000 per thousand Security Hypothecation of the vehicle, two guarantor’s guarantee as a collateral security immovable property of loanee or guarantor Documents Copy of registration of vehicle in RTO in particular city, Higher purchase agreement in favor of bank, loan application form, Vehicle dealer’s guarantee letter, DP note, letter of sanction, insurance policy, equitable mortgage or extension of property Submit Paper In case of service person pay sleep, in case of businessperson last yearly business report, IT return, Quotation of vehicle Other terms It is necessary to take full comprehensive insurance for the vehicle, for which the higher purchase agreement is done in favor of the bank. The above insurance will have to be taken from the insurance company recognized by bank and will have assign in favor of the bank. Bank shall make direct payment to the dealer/seller. In case of second hand vehicle, necessary valuation report from a recognized valuer to be submitted to the bank. Gold Loan Purpose Limit Period Personal use Rs. 50000 (in Rajkot city) 20000 (out of Rajkot) 26 months Rate of interest 14% Repayable Equated monthly installments Rs. 50 per thousand. Security Documents Submit Paper Gold silver ornaments or items on Re-pledge Loan application form, DP note In case of service person pay sleep, in case of businessperson last yearly business report Other terms This kind of loan is given on the re-pledge of ornaments or items of gold-silver. This kind of loan is not available to the merchants of gold-silver for the purpose of buying selling. This kind of loan can be given to the member of the bank, but this kind of loan can also be given to the non-member, taking Rs. 5 as admission fee and giving nominal membership for the loan only. The purity of the ornaments or items of Gold, which is given on re-Pledge, should be minimum 21 Carets. For the purpose of this kind of loan the bank shall appoint one or more goldsmiths, who will make valuation of the ornaments or items of gold-silver and the loanee has to accept his decision arrived at on the basis of the kind/weight etc. of gold-silver ornaments or items. Per 11.664 Gram (Per TOLA) Rs. 3000 is Valued & 70 % Valued Amount is Sanctioned as Loan. Bankable Loan Purpose Limit Margin Period To assist the small scale industry Rs 200000 25% to 40% 40 months Rate of interest Up to 25000 12% 25001 to 200000 14% Repayable Security Equated monthly installments of 32 Rs. Per thousand As a collateral security house property of loanee or guarantor or fixed deposits or national saving certificates as a mortgage 70% of sanctioned loan, guarantee of two guarantors Documents Equitable mortgage of property, loan application form, letter of guarantee, DP note, letter of sanction, insurance policy Submit Paper Shop Act License, SSI license, Elec. Connection proof, Rent receipt, project report Other terms This loan is sanctioned on the recommendation of district industrial center after security and taking in view the value of security given against loan and particulars of guarantor. Amount of subsidy given and sanctioned to the application is credit in his loan account. The payment except amount, which is sanctioned against working capital, of this loan is made directly to the party, who has given the quotation. Type of business Trading firm Service sector Manufacturing firm condition of subsidy 7500 or 10% of loan amount whichever is less 10000 of 10% of loan amount whichever is less 20000 or 10% of loan amount whichever is less Over Draft Purpose Limit Margin Period To fulfill the need of working capital of business As per requirement 40% Up to 1 year Rate of interest Up to 25000 12% 25001 to 200000 14% 20001 to 1000000 15% Above 1000000 16% Repayable The customer is permitted to withdraw the amount as and when he needs it and to repay it by means of deposit in his account as and when it is feasible for him Security Hypothecation of goods stock and or equitable mortgage of property guarantee of two guarantors Documents Overdraft application form, letter of guarantee, equitable mortgage of property, DP note, letter of continuity, letter of sanction, insurance policy Submit paper Last three-year business report, rent receipt, IT return, shop act license Cash credit (good stock) Purpose Limit Margin Period To meet the need of working capital business unit As per require 40% 12 month (to be reviewed every year and renewed every three year) Rate of interest Up to Rs. 25000/- 12%, 25001 to 2,00,000 14%, 2,00,001 to 10,00,000 15%, above 10,00,000 16% Repayable The customer is permitted to withdraw the amount as and when he need it and to repay it by means of deposit in his account as and when it is feasible for him Security a) as a prime security hypothecation of goods stock b) As a collateral security machinery, furniture equipment, fixed deposit, national saving certificate, equitable mortgage of immovable property c) Guarantee of two guarantors Document Cash Credit Application Form, Agreement Letter, Equitable Mortgage of Property, Letter Of Sanction, Letter Of Continuity, DP note, hypothecation of goods, Insurance Policy Submit paper Last three year Business Report, Shop Act License, SSI License, electricity connection proof, IT return, rent receipt If applicant is a partnership firm Partnership deed copy, Reg. of firms If applicant is a limited company Resolution for getting loan, memorandum of association, articles of the association, letter of assurance for registration in reg. of companies Other terms Loanee has to submit the stock statement to the bank every month regularly. Loanee has to submit the balance sheet, profit and loss account every year. Loanee has to submit the copy of income tax return or income tax assessment order every year. In the cash credit account facility, the turn over will to be done thrice of the sanctioned facility within 6 month and the same will have to be done five times of the sanctioned facility within one year. The insurance for twice the value of sanctioned cash credit will have to be taken over and the insurance policy will have to be assigned to the bank. In case of cash credit the facility can be availed maintaining the goods stock margin. Sale of goods and amount of recovery cannot be set off, but the same should be credited in the bank and the amount of payment should be made by bank cheque all the business transaction should be made through bank. As per the norms of the reserve bank of India, a borrower cannot operate two cash credit account at a time with two different banks. Education Loan Purpose This kind of loan is given to the brilliant students, who do not further their study because of paucity of finance, with a view to building their career. The bank is giving loan to cooperate and to give assistance to such students for education purpose Limit a) Study in India : Rs. 1,50,000 b) Study in abroad : Rs. 2,00,000 Margin Up to 25,000 : nil 25,001 to 1,50,000 : 15% 25,000 to 2,00,000 : 25% Rate of interest 14% Repayable Security Document Equates monthly installments of Rs. 32 per thousand Equitable mortgage of property, guarantee of two guarantors Loan application form, Equitable Mortgage Of Property, Letter Of Sanction, Letter Of continuity, continuity security letter, DP note, Insurance Policy of student, which is assigned in favor of bank, letter of lien and set off, letter of guarantee, stamp application cum agreement form Submit paper In case of service person pay sleep, in case of businessperson last yearly business report, two photograph of student Other terms Interest is required to be paid every month The loan can be sanctioned keeping in view the loanee’s repaying capacity Compulsory first class in every important examination Loanee is that who has a property on his own name. Student has to join as a co-loanee. The installment of loan will be stated after 6 months of the completion of study Fixed deposit loan Purpose Limit Margin Period To grant loan / overdraft to an individual or a firm against F.D.R. As per requirement 50 % or less Till due date of F.D.R. Rate of interest 2 % more than F.D.R. Security Documents Other terms Duly discharge F.D.R. DP note, duly discharge F.D.R., form of application Lien should be noted in the FDR account and on the back of the F.D.R. duly discharged Bills purchase Purpose Limit Margin To assist the customer for their short-term need of working capital As required by applicant Generally 25 % Rate of interest 18 % per annum Period Charges Documents Actual realization period Table is given DP note, letter of guarantee, letter of continuity, agreement letter Bills Discounting Purpose To assist the customer to provide them working capital against his postdated received bills Limit Margin As per required by applicant Generally 25 % Rate of interest 18 % per annum Period Documents Maximum 180 days Letter of bills discounting undertaking, DP note, letter of guarantee, letter of continuity, agreement letter Charges Other terms Table is given Interest to be covered in advance Collection Of Cheques (O.B.C.) Amount Of Cheques Location Listed Above All Other Location Up to Rs. 5000/- Rs. 10.00 Collecting Banks Commission + Rs.10 Postage Charge From Rs. 5001 to 10000 Rs. 15.00 Collecting Banks Commission + Rs.10 Postage Charge From Rs. 10001 to 1 Lac Rs. 1.50 / 1000 Collecting Banks Commission + Rs.10 Postage Charge For Rs. Above 1 Lac Rs. 1.50 / 1000 Collecting Banks Commission + Rs.10 Postage Charge Collection Of Bills (I.B.C) Amount Of Bill Location Listed Above All Other Location Up to Rs.1000 Rs, 10.00 Collecting Banks Commission + Rs.10 Postage Charge From Rs. 1001 to 5000 Rs. 15.00 Collecting Banks Commission + Rs.10 Postage Charge From Rs. 5001 to 10000 Rs. 25.00 Collecting Banks Commission + Rs.10 Postage Charge From Rs. 10001 to 1 Lac Rs. 3.00 / 1000 Collecting Banks Commission + Rs.15 Postage Charge For Rs. Above 1 Lac Rs, 3.00 / 1000 Collecting Banks Commission + Rs.15 Postage Charge Bank guarantee: 1) Performance guarantee This type of guarantee does not involve financial obligation It involves performance with regard to construction of building, installation of plant and machineries within a given time frame and with agreed specifications Performance relating to supply of materials as per agreed terms and conditions Guarantees may be given to secure advanced payment, in place of security deposit / earnest money deposit / tender money deposit etc. Performance of any other work contract Performance of plant / machinery up to agreed level capacities 2) Financial guarantee These guarantees are given for meeting with financial obligations Purpose Limit Margin To assist the business As required by applicant Cash margin (minimum 25 %) by way of F.D.R. Equitable mortgage (rest of the part) Period Commission Generally 12 months 1% per annum in case of 100% cash margin 2% per annum in other cases Charges Security Documents 0.1% (upfront) F.D.R. duly discharged, equitable mortgage of property Application form, counter guarantee Different types of staff loans Staff surety loan Purpose Limit Period Personal use Rs. 15,000 maximum 66 months Rate of interest 16 % Repayable Security Documents Equated monthly installments of Rs. 23 / thousand Personal guarantee of two staff members of the bank application form, letter of sanction, DP note, letter of guarantee Gyan Prakash Yojana Purpose this kind of loan is given to the staff members for the higher study of their two children Limit a) Study in India : Rs. 3,50,000 b) Study in abroad : Rs. 4,50,000 Margin 25 % Rate of interest Bank rate + 1 % Repayable Security Documents Equates monthly installments of Rs. 32 / thousand Equitable mortgage of property DP note, sanction letter, equitable mortgage charge extension letter, life insurance policy of student, which assigned in favor of bank, term loan agreement, rectification letter Other terms Interest is required to be paid every month The installment of loan will be stated after 6 months of the completion of study Staff vehicle loan Purpose Limit to purchase a new / old two wheeler for personal use Rs. 40,000 Rate of interest 0 % Repayable equated monthly installments Rs. 15 / thousand Security Documents hypothecation of vehicle to be purchased DP note, letter of guarantee, hypothecation of vehicle, insurance policy Staff domestic appliances loan Purpose For purchasing consumer durables articles viz. freeze, washing machine, flourmill, T.V., VCD, room conditioner, etc. Limit Rs. 50,000 Rate of interest for initial 20,000 bank rate for rest amount bench mark rate (current rate) Repayable equated monthly installments of Rs. 20 / thousand for first 20,000 then afterward Rs. 23 / thousand Security Documents hypothecation of vehicle to be purchased DP note, letter of guarantee, hypothecation of vehicle, insurance policy Staff housing loan Purpose Limit To construct / purchase residential building for officers and other upper cadre : Rs. 5,00,000 For clerk For peon and others Period 20 years : Rs. 4,00,000 : Rs. 3,00,000 Rate of interest 6.5 % Repayable Security Documents equated monthly installments of Rs. 7 / thousand equitable mortgage of property, two staff members’ guarantee DP note, letter of guarantee, letter of sanction, insurance policy, equitable mortgage of property Data analysis and observation and suggestions Presence of loan policy In the RSNB, before two year there was not proper policy for loan, but separate circular for each loan. But at present RSNB have its own loan policy and criteria to sensor the loan. Coincidently, RBI also declared in near, each and every bank should have its own loan policy. This is the point, which is striking us the foresightedness of the bank management and also loan manager of that time Mr. Bhatt who prepare present loan policy with the help of the some efficient staff members of the loan department. Revision made on annual basis RSNB prepare its own loan policy just before two year. So in one sense, we can say RSNB revised its loan policy in last two year but it is not revised every year regularly. So I can suggest that to RSNB, for walk with the new era of credit market, bank should try to improve own self in the field of credit management by revising the loan policy time to time by learn from past year’s experience. Loan policy cover Delegation of lending power Method for assessment of working capital Rating of borrowers Loan pricing Delegation of lending power In the past time, RSNB had given delegation of lending power to its selected branch offices but at present RBI hurdle against this. By effect of it, RSNB cancel all the delegation power of its branch offices and burden of the head office gives in written in language of suggestion that what should be the decision? And head office only complete fulfils the legal formality to sanction the loan. However it takes more time for sanctioning loan but by the practical approach bank can solve this difficulty. Method of assessment of working capital In the RSNB, there are three methods for working capital, which is useful to bank for calculating the need of cash credit or short-term loan of firm. This method gives advantage to bank to find out if the demand borrower is fair. Methods of working capital calculation are given below: Capital of borrower, and borrowing from relatives are multiplied by three Difference between current assets and current liabilities multiply by four 20 % of estimated sales Borrower contribution 5% of the turnover in working capital is accepted Above three whichever is less is original working capital demand of the borrower as per the calculation of RSNB. Rating of borrowers RSNB has its own method of credit rating that is beneficial for both the bank and the borrower. Because through this bank should maintain their customer who deal with bank regularly and the borrower is appreciated for their performance. Another side borrower gets benefit through interest rate reduction. This method is given below: Credit rating of loans AAA: Cash credit account In the account, interest is paid regularly; it is paid at the end of every quarter within 10 days. Stock statement is received regularly. Overdraft is paid regularly with its interest. Every document is getting regularly for review and renew of account. Term loans In the account, interest and installments are paid regularly. Notice is not given on account for any reason. Amount sanctioned of loan Interest concession 25,001 to 2,00,000 2,00,001 to 10,00,000 Above 10,00,000 AA: Cash credit account 1% 1% 2% In the account which interest is paid regularly; it is paid at the end of the every quarter maximum 30 days. Stock statement is received regularly Overdraft is paid regularly with its interest. Term loans Maximum two installments are due but at the end of the year i.e. on 31st march, there is no due installment. Amount sanction of loan Interest concession 25,001 to 2,00,000 2,00,001 to 10,00,000 Above 10,00,000 0.5 % 0.5 % 1% Loan pricing RSNB always give more interest on deposit than other bank in Rajkot district to attract the market, effects the loan pricing. So loan rate of RSNB is higher. Though RSNB get customer because of its services, its speedy process, practical approach, and its reliability in market. But here one possibility is also that the payer of higher interest is sometime reason for future loss or burden on bank. So try to get deposit at lower rate to reduce the loan pricing. It is also fact that in this critical situation of co-operative banks, it is very hard to get deposits from the market but if bank management tries to create trust in public, here one more benefit is that the depositor and the borrower is the shareholder of the bank or say owner of the bank. So it is less hard than other types of bank to create trust. Reporting format Reporting format for excess utilization of lending process by branch manager is now not needed, because as per the new guidelines of the RBI, branch of co-operative bank has no power to sanction loan. Identification of sensitive sectors and discounting further lending RSNB is not that much big bank in compare of commercial bank, though it is needed for the bank to watch on the general sensitive sectors means lending in that sector which is risky / dangerous for any financial institutions. For example lending against shares. To find out the special sensitive sector, we should continuously watch on our borrowers. Sometimes in case of co-operative banks, reason of their NPA is lending to particular group or industry. RSNB also keep watch and discouraging further lending. For example builders developers’ cash credit. Monitoring of unduly large exposure to an individual or a group To stop the unduly large exposure to an individual or a group, in RSNB loan staff monitor and draw attention of higher authority. CREDIT A P P R A I SA L Appraisal format PRIMARY INFORMATION Name of the unit Date of establishment of business Type of business Date of starting of dealing with bank Address and telephone no.: Office Structure of unit Proprietorship firm/ partnership firm / private limited / public limited Name of the proprietor /partners / directors with CDN (compulsory deposit number) Godown Factory INFORMATION RELATED TO GUARANTORS Names of guarantors Compulsory deposit number Business Annual income Land building property Information about prevalent loans INFORMATION ABOUT PREVALENT FACILITY PROVIDED BY RSNB Types of facility Amount granted Due date Present balance ABOUT PRESENT CASH CREDIT FACILITY Credit turn over of last year Amount of cash credit Amount of cash credit with overdraft Previous year stock Present stock and date Measurement Credit balance compare with sale To payoff of overdrafts / excess Submission monthly Interest payoff of stock Ideal 1: 1 Regular Performance of party (remarks) statement Regular Regular Regular Equated monthly installments on -----loan Account over due (yes / no) Similarly in stock 10 to 15 % Difference INFORMATION OF COLLATERAL SECURITY IMMOVABLE PROPERTY Name of owner and designation of him Address of property Land in square yard Construction in square feet Estimated price of property (Amount of land is calculated as per the address + Amount of construction is calculated square feet * 300) Other liability on it, mention it MACHINERY/FURNITURE/EQUIPMENT etc. Amount of property SECURITY COVERAGE Estimated value of collateral security Minus other liability on same property Plus other collateral security Total collateral security Amount of demand / prevalent facility *Security coverage: (total collateral security/total facility) * 100 *Accepted measure 50 % THREE YEARS FIGURES FOR COMPARISON Year ending Purchase Sales Net Profit Net worth Stock Debtors Creditors FINANCIAL MEASUREMENT Financial measurement Sales Closing stock Gross profit Net profit Borrowings from relatives Net worth (Capital + reserve – proprietor / partners directors’ debt) Financial measurement Current ratio: (current assets/ current liabilities) Ideal 1.25 / 1 (minimum) More / less (compare with last year) More / less (compare with ideal) Debt equity ratio: (Total debt / *total equity) *Borrowings from relatives are included Ideal 3/1 (maximum) FORMAT OF BALANCE SHEET Capital and liability Current liability Bank loan CC/OD Outstanding expenses Creditors of Goods Others Property and Assets Current assets Stock Debtors Stores Cash on hands Bank balance Prepaid expenses Advances Others Total (A) Medium/long term liability Bank loan Finance corp. loan Other debts Rnsb term loan Borrowing from relatives Others Total (B) Capital/reserve Capital Reserve Profit Other Total(C) General total (A+B+C) Total (B) Proprietor/partner/directors’ debt Others Goodwill Patent Loss of previous years Total(C) General total (A+B+C) Total (A) Fixed assets Land and building Machineries Furniture Vehicle Other investments ASSESSMENT FOR CASH CREDIT Capital + borrowings from relatives * 3 (As per the last year balance sheet) Working capital (current assets – current liabilities) * 4 (As per the last year balance sheet) Estimated sales * 20 % (Current year) Minimum of above three Demand / prevalent facility Maximum permissible finance (Minimum from above two) __________ __________ __________ __________ __________ __________ MACHINERY LOAN APPRAISAL FORMAT Electricity connection INFORMATION ABOUT THE MACHINERY TO BE PURCHASED Supplier’s name Machinery’s name Quantity Price As per margin permissible loan MARGIN OF PERMISSIBLE FINANCE (WORKING UNIT) Margin on amount of demanded loan Working capital as per last balance sheet Estimated reinvestment of the current year profit Current year’s estimated working capital (2+3) Margin of working capital (25 % current asset of last year) Margin for permissible finance (4-5) If (6) is less than (1), how can they bring difference of amount from long term sources is required clarification ESTIMATED PROFIT AND DSCR (Debt Security Coverage Ratio) i. New unit PARTICULARS 1 1. Production capacity 2. Utilization capacity (%) 3. Production 4. Sales 5. Net profit 6. Depreciation 2 YEARS 3 4 5 6 7. Interest on loan 8. Cash flow (5+6+7) 9. Amount of EMI of demanded loan per annum 10. DSCR (8/9) 11. Average DSCR ii. Working capital 1) Profit of current year 2) Depreciation of current year 3) Cash profit of current year (1+2) 4) Amount of EMI of demanded loan per annum 5) DSCR (3/4) Minimum Acceptable Measure for DSCR 1.5 to 2 Sometimes in case of new unit, project report present unrealistic picture of future. So bank should keep it in consideration at the time of calculation of DSCR. Accepted measure for it is 60 %. APPRAISAL OF IMMOVABLE PROPERTY Name of owner and designation of him Address of property Land in square yard Proposed construction in square feet Plan of construction passed by Municipal Corporation Estimated cost of property (Amount of land is calculated as per the address + Amount of construction is calculated square feet * 400) INSPECTION REPORT Goods stock Type of business Reporting after checking of accounting books, vouchers, etc. Insurance of stock and mortgaged property is as norms, isn’t it? Is it proper for sanction? DEPARTMENT NOTE CREDIT DESERVEDNESS OF LOANEE Name of facility Requested amount for credit Permissible finance as per appraisal OTHER CRITERIA Borrowings from relatives are retained in business. Without permission from bank relative cannot withdraw that amount. Immovable property is needed to take as a collateral security. Late/retire partner’s capital is not withdrawn without permission from bank. Current ratio Debt equity ratio Security coverage DSCR OBSERVATION AND FINDINGS AND SUGGESTIONS Format for collection of minimum information about potential borrower It is must for any bank who wants to win market to collect the information about his potential customer. RSNB a bank which eager to increase own market share also collect the information about future borrower. Use of software for credit appraisal Bank has own computer department to develop the software for bank but this now in initial stage. Majority time consume work is done by the computer though appraisal of credit is done by manually. Revision in appraisal format during last two year RSNB prepared its policy before two year and decide proper criteria for sanction the loan. Different appraisal format for different loan segment There is one common format for all loans are not possible because each loan require particular information and calculation. Here in RSNB I find different appraisal format for different segments. That we see in above appraisal format. System of fixation of maximum time for loan sanction and sanction within limit On paper, there is no maximum limit for sanction the loan but generally as per the opinion of officer within ten days loan is sanctioned. Sometimes because of carelessness of the borrower or take time for providing needed documents is reason for delay of sanction the loan. In house expertise for appraisal of hi tech projects Special works always need experts but in RNSB we find lack of the expert for appraisal of hi tech project and it is dangerous pr say risky for any institution. I think RNSB have to recruit expert for appraisal of hi tech projects who has special knowledge about business sector and mastery of project report study and now because of VRS, expert having experience is easily available at low cost. Practice of rating of borrower and loan pricing RNSB give rating to the borrower on the base of their last year dealing with bank. For that RNSB have software, which give rating to the borrower. At the time of appraisal, rating is not given. Compliance of terms and conditions- Promoter’s contribution, collateral securities,etc. Before preparing the loan report, it is keeping in view that all types of requirement are fulfilled. Condition letter is given to customer if customer fulfills all the conditions loan is sanctioned by bank. Computation of customer profitability per borrower Generally I practice, not a single cooperative bank in Rajkot is calculating the customer profitability per borrower. If it is calculated, bank can know which customers are more beneficial for them so bank can give attention to maintain them and can increase profit. Ad – hoc sanction rarely done At present, the various committee of bank considers ad-hoc/additional credit for meeting temporary requirement only after the borrower has fully utilized/exhausted the existing limit. In the ad-hoc sanction, nothing is taken as security so this is risky but the previous dealing of customer with the bank can give the picture of customer. Sanction of loan In the co-operative bank, sanctioning powers are only in the hands of board of directors so sometime loans are sanctioned on the bases of relation, not on the base of the deservedness of customer. I also consider that the cooperative banks are basically meant for the benefit of its members but within the limits of Reserve Bank of India’s guidelines. Slight modification in these rules for well being of members is still allowed. CREDIT M ON I T OR I N G, FO L L O W U P A N D REVIEW CREDIT MONITORING, FOLLOW UP AND REVIEW When we lend, it is essential for us that to keep watch on it till we recover it. This is called credit monitoring in terms of banking. CREDIT MONITORING SYSTEM IN RSNB In the RNSB, there is system for credit monitoring specially account, which is above 10,00,000 rupees is described below: Find out the list of potential NPA accounts above 10,00,000 rupees Statements of potential NPA accounts are submitted to head office from branches Head office monitoring this every three months and prepare report on it. Report is submitted to board of directors. Follow up action for credit monitoring in RNSB Consolidation of data, which comes from the branches and every month, update the data and generate this and use it for follow up Head office directly sends the notice to account holders of such accounts To stop the slippage of the potential NPA accounts, bank organize the committee under authorization of Mr. Bhatt(A.G.M.) and Mr. Vadaliya(A.D.M.) with the help every branch recovery officers, they try to recover. General manager arranges the meeting for that and gives guidelines to the committee member. OBSERVATION FINDINGS AND SUGGESTIONS System of loan portfolio review and monitoring There is system of weekly review and monitoring of loan portfolio in the RNSB, every week a statement is prepare to be acquainted with the present credit deposit ratio, if this ratio is less than 70% for example 65%, it represent that bank can finance up to 5 % at present. Preparation of MIS report for loan portfolio review at board level Every week, present situation of loan portfolio is putting against board of directors. Compliance of prudential guidelines Exposure Ceiling : a) Individual 20% of the total capital fund : b) Group Priority sector lending: Priority : Weaker This is followed by the RNSB Items of priority sectors Advances to individuals for activities allied to agriculture Loans and advances to cottage/small scale industries and equipment /system for development of new and renewable sources of energy. Advances to road and water transport operators for purchase of one vehicle Private retail traders dealing in essential commodities (fair practice shop) Other private retail traders with credit limit not exceeding Rs. 5,00,000 Small business enterprise Professionals and self employed persons Educational loans Housing loans not exceeding Rs. 10,00,000 Consumption loan Items of weaker section Scheduled caste/scheduled tribe Women Others 50% of the total capital fund 60% of the total advances 15% of the total advances Timely renew and review by credit limit Every year RNSB review cash credit accounts and every three years renew that accounts. At the time of review bank only keep in view the turnover of business, account inspection, field inspection, renew insurance, renew shop act license, proof of rent, income tax return or assessment of income tax, turnover with bank. But process of renew of accounts is totally inspection of party. Bank considers last three year’s business progress of the party and deal with bank also. N PA MANAGEMENT How account becomes Non Performing Assets? Term loans If interest or installment of principal remains past due for a period of any two quarters it becomes NPA. Past due means is an amount due under any of the facility but not paid within 30 days after it becomes due. Cash credit and overdrafts If the account remains out of order for a period of any two quarters, it becomes NPA. Out of order means If the out-standing balance remains continuously in excess of the sanctioned limit/drawing power There is no credit continuously for six months or Credit is not enough to cover the interest debited during the same period Bills purchase and discounting If the bills remains over due and unpaid for the period of two quarters during the year it becomes NPA. Other credit facility If any amount to be received remains past due for a period of two quarters during the year, it becomes NPA. Asset classification The primary (urban) co-operative banks should classify their assets into the following broad groups, viz. Performing assets Standard assets Non-performing assets Sub-standard assets Doubtful assets Loss assets Non-performing assets NPAs are loans given by a bank or financial institute where the borrower defaults or delays payments of interest or repayment of principal. Asset here also includes a leased asset. A NPA was defined a credit facility in respect of which interest and/or installment of principal has remained ‘past due’ for a specified period of time. The specified period in a phased manner is as under Year ending 1993 1994 1995 onward From 2004 If interest has remained unpaid, account become NPA 4 quarters 3 quarters 2 quarters 1 quarters Performing assets Which accounts are not in performing are performing assets. Which accounts are regular or cover due installments are less than six is called performing assets. Classification Of Non-Performing Assets After identification of borrowed accounts as NPA the next stage is asset classification Standard assets Standard Assets is one, which does not disclose any problems and which does not carry more than normal risk attached to the business. Such as asset should not be an NPA. Sub-standard assets In case of sub-standard assets, the current net worth of the borrower/guarantors or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such assets will have well defined credit weakness that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. An asset where the terms of the loan agreement regarding interest and principal have been re-negotiated or rescheduled after commencement of production, should be classified a sub standard and should remain in such category for at least 18 months of satisfactory performance under the re-negotiated or rescheduled terms. If interest and installment of loans have been paid regularly as per the terms of re-scheduled. In other words, the classification of an asset should not be upgraded merely as a result of rescheduling, unless there is satisfactory compliance of this condition. Doubtful assets An asset is required to be classified as doubtful, if it has remained in the sub-standard category for 12 months. As in the case of sub-standard assets, rescheduling does not entitle the bank to upgrade the quality of an advance automatically. A loan classified as doubtful thus all the weakness inherent as that classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and importable. Loss assets A loss asset is one where loss has been identified by the bank or internal or external auditors or by the co-operation department or by the Reserve Bank Of India inspection but the amount has not been written off, wholly or partly, in other words, such an asset is considered un-collectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. PROVISION FOR NPA Assets classification Standard assets % Of provision to be made 0.25 % Sub standard assets (On the balance out standing MINUS amount guarantee by ECGC and amount covered by term deposit, NSV, IVP, KVP, SV and LIC policy) 10 % Doubtful assets 1. On liability covered by ECGC 2. On secured liability minus amount covered by term deposit, NSC, IVP, KVP, SV and LIC policy A. Doubtful up to 1 year B. Doubtful for above 1 year but not 3 year C. Doubtful above 3 years 3. On unsecured liability 20 % 30 % 50 % 100 % Nil Loss (On the balance out standing minus amount guaranteed by ECGC) 100 % Provision against NPA is adequate in RNSB, which express the sound condition of the bank. The bad and doubtful debt reserve was strengthened and the net NPA levels have been brought down to zero. Findings for NPA Improper selection of borrowers activities Weak appraisal system for credit proposal industries problem/prospects not locked into Managerial competence of borrower given less consideration Irregularities in deficiencies in documentationUndated Not renewed Assessment of borrower and guarantors net worth on market opinion Lack of review of borrowed accounts Inadequate staff to contact borrowers frequently Lack of proper follow up by banks Failure to take punitive (strict and effective) actions against defaulters Bank’s failure to appreciate the acts of prompt repayers Under financing/non financing in time of projects Mentality and attitude to default willfully Non action/co-operation of government agencies in recovery Effect of agricultural debt relief scheme Inadequate monitoring of court cases and delays in execution Socio-physical pressure by some people/activities Target fulfilling under govt. poverty alleviation programme Lack of income generation due to natural calamities and other uncertainties (Suggestions) NPA reduction techniques: Small NPA loans (loans up to Rs.1 lacs) Repaying capacity can be easily gauged Mobilizing liquid cash for meeting the debt is not difficult Written remedies and repeat personal calls help mostly Legal action is time consuming Influence of other local persons’ contacts helpful NPA-larger than small but medium (above Rs.1 lac and up to 5 lac) Branch team can talk to the borrower and work out the repayment programme Debts can be settled through Lok Adalat Influence of trade professional circles, associates useful Medium size NPA (once Rs.5 lacs and up to Rs. 25 lacs) SWOT analysis and analysis of security will be helpful Branches should take advice of H.O. from time to time Whether to have legal action or to go for compromise Take legal advice Large NPA (over Rs. 25 lacs) Calls for intervention not only by head office staff but also specialists and senior management Legal, technical advice called for Support of state govt. and SFC in selling assets Threat of winding up action would be useful R E C OV E R Y Recovery Recovery management consist of the functions and activities the bank carries out acquire back what the bank has advanced with principal amount as well as interest on the same. So it is recovery of what the bank has advanced to loanee for carrying out their purpose/ objective of taking a loan. PROCESS OF RECOVERY If three installments are outstanding, Notice through branch office Personal visit and meeting If no response Notice through advocate Though no effect Claim through court if party ready, of court settlement otherwise After completion of formalities Bank will get the order of security from court to recover their due. Observation/finding Mission zero NPA One historical event that occurred during the last quarter of the year was that all the staff members of the banks took upon themselves of their own volition the task of recovery and a zero NPA project was launched under the guidance of senior officers of head office and the directors of the bank. During this year RBI had tightened the NPA norms for default from 180 days to 90 days. Despite this tightened norms, the efforts put in by the staff members on their own helped the bank effect substantial recoveries of NPAs during the year and also prevent slippage towards NPAs. One Time Settlement scheme One time settlement scheme is the plan of reserve bank of India to clear the balance sheet and put realistic position of bank against common public. Before this scheme the amount of performing assets was very high in balance sheet of the bank and in real the bank does not earn it. To reduce the NPA through recovery of their maximum possible amount (principal) and other (interest, penalty interest, charges) write off from the bad debt reserve. The accounts, which are not getting benefit of one time settlement Cases of willful default, frauds and malfeasance Loan with tie up arrangement for recovery (e.g. loans avail by salary earners) Loans avail of or guaranteed by directors or by close relatives of directors or by firms/companies/institutions in which the directors are the interested or by exdirectors of respective urban co-operative banks Loans guaranteed by government (including cases where government guarantee has been invoked but not honored by the government) Loans due from government departments/undertakings Loans under government directed programmes LIMITATION OF STUDY Though I have selected the biggest co-operative bank for my study and no doubt here I have learnt a lot, but compared to nationalize bank, its network is small. The procedure of credit appraisal, various interest rates on different schemes, recovery programmes are specific to Rajkot Nagarik Sahakari Bank Ltd. Also credit management is wide topic; I have tried to cover the most related with it. BIBLIOGRAPHY Shekhar K.C. Banking Theory and Practices. New Delhi: Vikas publishing house pvt. Ltd., 1985. Bedi H.L.; Hardikar V.K. Practical Banking Advances. New Delhi: Institute of banking studies, 1975. Rao S.S. Handbook for Editors and Writers.ahmedabad: Ahmedabad Management Association, 1999.