PROJECT REPORT

ON

CORPORATE LENDING AND LENDING PROFILE OF

AXIS BANK LTD, KOLKATA:

AN OVERVIEW AND ANALYSIS

AT

AXIS BANK LIMITED

DALHOUSIE SQUARE BRANCH

Submitted By:- ABHISHEK GUPTA

(08BS-0000108)

Faculty Guide: Company Guide:

Dr. P R BHATTACHARYYA Mrs. MAHUA ROY

ICFAI Business School Deputy Manager

Kolkata AXIS BANK LIMITED

Dalhousie Square Branch

2

PROJECT REPORT

On

CORPORATE LENDING AND LENDING PROFILE OF

AXIS BANK LTD, KOLKATA:

AN OVERVIEW AND ANALYSIS

BY:-

ABHISHEK GUPTA

(08BS0000108)

AT

AXIS BANK LIMITED

DALHOUSIE SQUARE BRANCH

Date of Submission: 15th

MAY, 2009

3

AUTHORIZATION CERTIFICATE

This is to certify that Mr. Abhishek Gupta, Enrolment No. 08BS0000108 has completed his

summer internship at Axis Bank, Dalhousie Square Branch:”Mukti Chambers”, Ground Floor 4,

Clive Row, Kolkata and has submitted this project report entitled “CORPORATE LENDING

AND LENDING PROFILE OF AXIS BANK LTD, KOLKATA: AN OVERVIEW AND

ANALYSIS” towards partial fulfillment of the requirements for the award of the Post Graduate

in Management 2008-2010.

This Report is the result of his own work and to the best of my knowledge no part of it has

earlier comprised in any other report, monograph, dissertation or book. This project was carried

out under my overall supervision.

Date: May 15, 2009

Place: Kolkata

-----------------------------------

Internal Company Guide

4

ACKNOWLEDGEMENTS

“Appreciation can make a day, even change a life. Your willingness to put it into words is all

that is necessary”.

Before I proceed further I wish to spend some time in expressing my gratitude to all those who

have been involved in guiding me and helping me out during my entire internship.

I am grateful to AXIS Bank Limited, Dalhousie Square Branch for giving me the opportunity

to undergo this summer internship. My tenure in Axis Bank Ltd. has been enriching and value

adding experience.

I would like to equivocally thank the Branch Head Mr. Abhijit Ghose, Vice President who gave

me this opportunity to work under the guidance of my company guide Mrs. Mahua Roy,

Deputy Manager who provided constant help and assistance in all possible ways in completing

this project successfully. I am really grateful to get the privilege of working under her which has

been a fruitful experience and added value to my professional career.

I would take this opportunity to express my sincere accolade to my faculty guide, Dr P R

Bhattacharyya for facilitating me at various phases of the project. Despite his demanding

schedule, he bestowed every possible support to me, so as to carry on the project work without

any hindrance.

Finally, I would like to extend my appreciation towards all employees of Axis Bank Ltd,

Dalhousie Square Branch whose supports were indispensable to me in completing the project in

time.

Abhishek Gupta

5

TABLE OF CONTENTS

S.no Particulars Page No.

I Authorization Certificate 3

II Acknowledgments 4

III Abstract 7

IV List of Illustrations 8

Chapter 1: Introduction 9

1.1 Project Description 9

1.1.1 Overview of Banking 9

1.1.1.1 Origin of Bank in India 9

1.1.1.2 Nationalized Banks in India 10

1.1.1.3 Private Banks in India 10

1.1.2 Axis Bank: A Brief Profile 11

1.1.2.1 Company Description 11

1.1.2.2 Profile 12

1.1.3 Corporate Lending 12

1.1.3.1 Classification of Lending 13

1.1.3.2 Types of Corporate Borrowers 15

1.1.3.3 Structure of Credit Department 16

1.1.3.4 Lending Method 17

1.2 Objectives 18

1.3 Methodology 18

1.4 Limitations 19

6

S.no Particulars Page No.

Chapter 2: Credit Appraisal 20

2.1 Policies of Credit Appraisal 20

2.2 Development of Credit Business 21

2.3 Preparation of Credit Proposal 22

2.4 Assessment and Sanctioning 25

2.5 Documentation and Security Creation 37

2.6 Disbursement. Monitoring and Renewal/Review 39

Chapter 3: Analysis 41

3.1 Analysis of Exposure in Different Sectors 41

3.2 Analysis of Profitability 42

3.3 Analysis of Composition on the Basis of Fee Income 43

3.4 Analysis of Ratings of Large & Mid Corporates 44

3.5 Analysis of Ratings of SME 44

3.6 Analysis of Performance 45

Chapter 4: Non Performing Assets (NPAs) 46

4.1 Analysis of Performing and Non Performing Assets 46

4.2 Preventive measures against NPA 47

Chapter 5: Conclusion 49

5.1 Findings 49

5.2 References 50

7

ABSTRACT

Lending money is one of the core activities and the most critical areas of functioning of Banks.

Major portions of Bank‟s funds are deployed by way of loans and advances. Lending business

provides a major part of their total income. Given this, and the fact that the bulk of the funds lent

to Corporate and SME‟s (Small and Medium Enterprises) belong to the depositors and other

creditors, it is necessary that the funds are deployed on a sound and realizable basis and they earn

optimum returns. While lending, Banks also have to take into consideration the wider national

objectives of economic and social development and the regulatory requirements.

The project deals with the credit instruments used by Bank to facilitate Corporate Lending. It

deals with the type of Corporate borrowers and the documents to be submitted by them to avail

such credit. It deals with the credit appraisal done by Bank. It deals with the policies framed by

Bank for such credit appraisal. The project gives an overview what are the requirements of the

Bank in order to qualify for the facility of credit. Its deals with the documentation and creation of

security that is to be done by the corporate borrowers. It also deals with how disbursement,

monitoring and renewal/review are done by the Bank. In brief the project deals about the

Corporate Banking Operations performed by the Bank.

The project also deals with the lending profile of the Dalhousie Square Branch, which gives idea

about the sector, and the segment in which the Branch is mainly doing its business. It provides

details about how much the Branch has lent to a sector and a segment. It a lso provides

information that what purposes of Corporates are fulfilled by the Branch.

The project also deals with the payment pattern of the Corporates. Are they paying on time or

there are some defaulters. The project also deals with Non Performing Assets (NPA) of the

Branch and the measures taken by the Branch against such NPA.

8

LIST OF ILLUSTRATIONS

1. Structure of the Credit Department FIG 1.1

2. Lending Method as followed by Axis Bank FIG 1.2

3. Analysis of Exposure in Different Sectors FIG 1.3

(FUND BASED)

4. Analysis of Exposure in Different Sectors FIG 1.4

(NON FUND BASED)

5. Analysis of Exposure in Different Sectors FIG 1.5

(OVERALL)

6. Analysis of Profitability FIG 1.6

7. Analysis of Composition on the Basis of Fee Income FIG 1.7

8. Analysis of Ratings of Large & Mid Corporates FIG 1.8

9. Analysis of Ratings of SME FIG 1.9

10. Analysis of Performance FIG 2.0

11. Analysis of Performing & Non Performing Assets FIG 2.1

9

CHAPTER 1

INTRODUCTION

1.1 PROJECT DESCRIPTION

1.1.1 OVERVIEW OF BANKING IN INDIA

Banking in India originated in the first decade of 18th century. The first banks were The General

Bank of India, which started in 1786, and Bank of Hindustan, both of which are now defunct.

The oldest bank in existence in India is the State Bank of India, which originated in the “The

Bank of Bengal” in Calcutta in June 1806. This was one of the three presidency banks, the other

two being the Bank of Bombay and the Bank of Madras. The presidency banks were established

under charters from the British East India Company. They merged in 1921 to form the Imperial

Bank of India, which, upon India‟s independence, became the State Bank of India. For many

years the Presidency banks acted as quasi-central banks, as did their successors. The Reserve

Bank of India formally took on the responsibility of regulating the Indian banking sector from

1935. After India‟s independence in 1947, the Reserve Bank was nationalized and given broader

powers. (Wikipedia)

1.1.1.1 ORIGIN OF BANK IN INDIA

With the expansion of trade and commerce, the concept of banking gained importance. The

handling of banking gradually transcended from individuals to groups and later to companies.

With the Industrial Revolution of the 18th and 19th centuries, it attained a more significant place

in the area of lending. Banks in their first primitive beginnings and later in more developed

forms did not enjoy a steady and harmonious growth. Banking emerged and evolved through

various phases adapting itself continuously to meet the increasing needs of trade and commerce.

During the Moghul period, the indigenous bankers played a very important role in lending

money and financing foreign trade and commerce in India. During the British rule, the agency

houses carried on the banking business. The Hindustan Bank was the first bank to be established

in 1779 and later the General Bank of India was established in 1786. In the first half of the 19 th

century the East India Company established three banks; the Bank of Bengal in 1806, the Bank

of Bombay in 1840 and the Bank of Madras in 1843, which were known as “Presidency Banks.”

These three banks were amalgamated in 1920 and a new bank, the Imperial Bank of India was

established on 27th January 1921. With the passing of the State Bank of India Act in 1955 the

undertaking of the Imperial Bank of India was taken over by the newly constituted State Bank of

India. The Reserve Bank, which acts as the Central Bank was created in 1935 by passing of The

10

Reserve Bank of India Act 1934. The Swadeshi movement gave a fillip to Indian joint stock

banking and several of the present leading banks were established around this time. By 1913,

there were 41 Indian banks in the field namely, The Punjab National Bank Ltd., Bank of India

Ltd., Canara Bank Ltd., Indian Bank Ltd., the Bank of Baroda Ltd., the Central Bank of India

Ltd. Etc. (An Overview of Banking, ICMR)

1.1.1.2 NATIONALIZED BANKS IN INDIA

Banking System in India is dominated by nationalized banks. The nationalization of banks in

India took place in 1969 by Mrs. Indira Gandhi the then prime minister. The major objective

behind nationalization was to spread banking infrastructure in rural areas and make available

cheap finance to Indian farmers. Fourteen banks were nationalized in 1969.

Before 1969, State Bank of India (SBI) was the only public sector bank in India. SBI was

nationalized in 1955 under the SBI Act of 1955. The second phase of nationalization of Indian

banks took place in the year 1980. Seven more banks were nationalized with deposits over 200

crores. ( Wikipedia)

List of Public Sector Banks in India is as follows:

➢ Allahabad Bank

➢ Andhra Bank

➢ Bank of Baroda

➢ Bank of India

➢ Central Bank of India

➢ Dena Bank

➢ Indian Overseas Bank

➢ Oriental Bank of Commerce

➢ State Bank of India (SBI)

1.1.1.3 PRIVATE BANKS IN INDIA

All the banks in India were earlier private banks. They were founded in the preindependence era

to cater to the banking needs of the people. But after nationalization of banks in 1969 public

sector banks came to occupy dominant role in the banking structure. Private sector banking in

India received a fillip in 1994 when Reserve Bank of India encouraged setting up of private

banks as part of its policy of liberalization of the Indian Banking Industry. Housing Development

Finance Corporation Limited (HDFC) was amongst the first to receive an „in principle‟ approval

from the Reserve Bank of India (RBI) to set up a bank in the private sector.

11

Private Banks have played a major role in the development of Indian banking industry. They

have made banking more efficient and customer friendly. In the process they have jolted public

sector banks out of complacency and forced them to become more competitive. (Wikipedia)

Major Private Banks in India is:

➢ Axis Bank

➢ Federal Bank

➢ HDFC Bank

➢ ICICI Bank

➢ IDBI Bank

➢ IndusInd Bank

➢ ING Vysya Bank

1.1.2 AXIS BANK: A BREIF PROFILE

1.1.2.1 COMPANY DESCRIPTION

Axis Bank was the first new generation private sector bank to be established in India under the

overall reform programme initiated by the Government of India in 1991, under which nine new

banking licenses were granted. The Bank was promoted by Unit Trust of India, the largest

mutual fund in India, holding 87% of the equity. Life Insurance Corporatio n of India (LIC),

General Insurance Corporation Ltd and its four subsidiaries who were the co-promoters held the

balance 13%. The Bank started its operations in 1994.

Axis Bank‟s first capital raising post inception was in 1998 through a public offering o f primary

shares and in subsequent years through equity allotment to a few other investors like CDC.

Citicorp Banking Corporation, Bahrain, Karur Vysya Bank and Chrys Capital leading to a

dilution in UTI‟s shareholding in the Bank. Further dilution of Promotors‟ shareholding

happened during Q4 ended of 2004, when the Bank raised US$ 239.30 Million of Capital

through a GDR issue. The Bank today is capitalized to the extent of Rs. 358.56 crores with the

public holding (other than promoters) at 57.60%. The Bank‟s Registered Office is at Ahmadabad

and its Central Office is located at Mumbai.

Presently, the Bank has a very wide network of more than 835 branch offices and Extension

Counters. The Bank has a network of over 3595 ATMs providing 24 hrs a day banking

convenience to its customers. This is one of the largest ATM networks in the country. The Bank

has five international offices – branches at Singapore, Hong Kong and Dubai (at the DIFC) and

Representative Offices in Shanghai and Dubai – with focus on corporate lending, trade finance,

syndication, investment banking, risk management and liability businesses.

12

The Bank has strengths in both retail and corporate banking and is committed to adopting the

best industry practices internationally in order to achieve excellence.

The present shareholding pattern is as mentioned below:

(As on 30/06/2008)

Administrator of the Specified Undertaking of the UTI 27.72%

LIC 10.49%

GIIC and four PSU Insurance Companies 5.50%

Non-Promoters‟ Holding 42.32%

Others 13.97%

1.1.2.2 PROFILE

Axis Bank is one of the fastest growing banks in the country and has an extremely competitive

and profitable banking franchise evidenced by:

Comprehensive portfolio of banking services including Corporate Credit, Retail Banking,

Business Banking, Capital Markets, Treasury and International Banking. The Position as on 31st

March 2009 was as under: -

-Balance Sheet Size – Rs 1, 47,722.05 crores

-Total Deposits – Rs 1, 17,374.11 crores

-Net Advances – Rs 81,557 crores

-Investments – Rs 46,330 crores

-Net NPA – 0.35 %

-Capital Adequacy Ratio – 13.69 %

1.1.3 CORPORATE LENDING

Lending is an indispensable aspect of banking, and a banker earns bulk of his income through

lending. Corporate lending is an umbrella term encompassing the products and services that a

commercial bank provides to its corporate customers. Axis Bank has strengths in corporate

banking and is committed to adopting the best industry practices internationally in order to

achieve excellence.

For a business on the growth phase with a wide range of opportunities to explore, timely

availability of credit is an integral ingredient needed to scale new heights. Axis Bank understand

this and endeavor to be not just a bank but also the financing partner, so that the 12orporate can

focus on the business needs whereas the Bank cater their financing needs.

13

1.1.3.1 CLASSIFICATION OF LENDING

Credit facilities can be fund based or non-fund based.

I. Fund Based

The funded limits are those where outlay of the Bank‟s fund is involved. Such limits are

also known as Borrowing limits. Fund Based limits are generally granted by way of

Cash Credit

Bank offer Cash Credit facilities to meet the day-to-day working capital needs. Cash Credit is

provided against the primary security of stock, debtors, other current assets, etc., and/or

collateral security of movable fixed assets, immovable property, personal or corporate

guarantee, etc. Interest is charged not on the sanctioned amount but on the utilized amount.

Working Capital Demand Loans

Bank also provides working capital facilities in the form of Working Capital Demand Loan

instead of cash credit facility. The primary or collateral security will be as mentioned in cash

credit facility. Here also interest is levied on the amount drawn rather than on the amount

utilized.

Export Finance

Bank provides finance for export activities in the form of Pre-Shipment Credit against firm

order or Letter of Credit and Post shipment credit. Credit is available for procuring raw

materials, manufacturing the goods, processing and packaging the goods and shipping the

goods. Finance is provided in Indian or foreign currency depending upon the need of the

borrower.

Term Loans

Given the growth opportunities business may need long-term funds for capex or capacity

expansions or plant modernization and so on. Keeping these requirements in mind Bank

provide term loans upto acceptable tenor with suitable moratorium, if required, and

repayment options structured on the basis of your estimated cash flows. These loans are

primarily secured by a first charge on the fixed assets acquired through the loan amount.

Suitable collateral security is also taken whenever required.

Short Term Loans

There may be occasions where business may need ad hoc or short-term finance for general

corporate purposes, meeting temporary mismatches in working capital or for meeting

contingent expenses. In such situations Bank provides Short Term Loans for tenure upto a

year so as to ensure that your business runs smoothly.

14

Clean Bill Discounting

Bank provides clean bill discounting facilities to fund receivables. Bank discount bills or

receivables from the credit worthy clients of business and provide credit against that to the

business. This facility is provided for a period of 3-6 months depending upon the tenor of the

bill.

LC Backed Bill Discounting

Bank discounts trade bills drawn under Letters of Credit issued by reputed banks to fund

receivables. This facility is provided for a period of 3-6 months depending upon the tenor of

the bill or Letter of Credit.

II. Non – Fund Based

The bank has to meet the commitment made by the borrower fails to honour it. Non–Fund

Based limits are generally granted by ways:

Bank Guarantee

Bank provides Bank Guarantee on behalf of client to various other entities such as

Government, Quasi Government bodies, corporate and so on. Bank provides a range of

guarantee such as Performance guarantee, financial guarantee, EPCG etc. The tenure of Bank

Guarantee range from 1 year to 10 years depending upon the purpose of the guarantee.

Letter of Credit

Letter of Credit is provided to meet trade purchases. These are generally provided for 3-6

months depending upon Trade cycle. Apart from this Bank provides Import Letter of Credit

for importing machinery or capital goods. Such LCs are for tenure ranging from 1-3 years

depending upon the need of the borrower.

Acceptance of Bills

Bank also provides co-acceptance of trade bills depending upon the need of the borrower.

(Company Manual)

The above mentioned points are the classification of lending which are used by the Bank to

provide credit to its customer according to their requirements. This customers or borrowers can

be of different types which are as follows:

15

1.1.3.2 TYPES OF CORPORATE BORROWERS

1) Limited Companies

A limited company may be private or public, incorporated Under the Companies Act, 1956.

It comes into legal existence after the Registrar of Companies issues a Certificate of

Incorporation. Basic documents should be obtained for considering request for advances to

limited companies

Certificate of Incorporation

Certificate of Commencement of Business

Memorandum and Article of Association

Balance Sheets and Profit & Loss Statements

Boards Resolution

2) Partnership Firms

A partnership is a type of business entity in which partners (owners) share with each other

the profits or losses of the business undertaking in which all have invested. Partnerships are

often favored over corporations for taxation purposes, as the partnership structure does not

generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend

tax levied). However, depending on the partnership structure and the jurisdiction in which it

operates, owners of a partnership may be exposed to greater personal liability than they

would as shareholders of a corporation.

3) Proprietary Concerns

A sole proprietorship, or simply proprietorship is a type of business entity which legally has

no separate existence from its owner. Hence, the limitations of liability enjoyed by a

corporation and limited liability partnerships do not apply to sole proprietors. All debts of the

business are debts of the owner. The person who sets up the company has sole responsibility

for the company‟s debts. It is a “sole” proprietorship in the sense that the owner has no

partners. A sole proprietorship essentially refers to a natural person (individual) doing

business in his or her own name and in which there is only one owner. A sole proprietorship

is not a corporation; it does not pay corporate taxes, but rather the person who organized the

business pays personal income taxes on the profits made, making accounting much simpler.

A sole proprietorship does not have to be concerned with double taxation, as a corporate

entity would have to. (Company Manual)

16

1.1.3.3 STRUCTURE OF CREDIT DEPARTMENT

FIG 1.1

1. Large Corporate – Turnover exceeding 500Cr

Aggregate Exposure in the bank exceeding 100Cr

2. Mid Corporate -- Turnover exceeding 125-500Cr

Aggregate Exposure in the bank exceeding 25- 100Cr

3. SME -- Turnover upto 125 Cr

Aggregate Exposure in the bank upto 25 Cr.

CORPORATE CREDIT

ADVANCE

DEPARTMENT

CREDIT

DEPARTMENT

SME, AGRI BUSINESS

AND MICROFINANCE

LARGE

CORPORATE

MID

COPRPORATE

SME

CELL

AGRI

CELL

17

1.1.3.4 LENDING METHOD AS FOLLOWED BY AXIS BANK

DIAGRAMATIC REPRESENTATION

Corporates

Bank

Issue of Credit Application Form

Submission of Form along with Documents

Entry in Credit Application Received and Disposal Register

Initial Scrutiny at Branch

Large Corporate Cell/Mid Corporate Cell/SME Cell

Assessment and Sanctioning

Credit Management Center(Post Sanctioning operations)

Intimation is Given to the Branch

FIG 1.2

18

1.2 OBJECTIVES

BROAD

To understand the Overall Corporate Lending System

SPECIFIC

To understand the Lending facilities offered by Axis Bank Ltd, Dalhousie Square

Branch to the Corporates

To understand the Procedure and Guidelines followed by Bank for Credit

Appraisal

To get an overview of the Banking Operations done to facilitate such Corporate

Lending

To understand the areas Covered and Focused by bank through its Lending

Profile

To get knowledge about the actions taken by Bank against its Non Performing

Assets

1.3 METHODOLOGY

Secondary Data information will be collected from the company database, Websites, journals,

magazines and through unpublished data available with the company.

Secondary Data information is the only method followed because there is little scope of customer

interaction hence any primary research in way of questionnaire, interview, etc. cannot be

conducted.

19

The whole project is based on secondary research where a major portion of the data is extracted

from FY 2008-09 Annual Results and the software Finacle which is used by the bank to carry out

its operations. Company manuals and Company documents (i.e. Sanction Letters, Credit Policy,

etc.) are also taken into the considerations during preparation of the report.

The whole research revolves around Secondary Data information along with the observation of

procedure and day to day working of the department.

1.4 LIMITATIONS OF THE STUDY

Detailed research cannot be conducted due to time constraint.

The scope of the study is limited to Dalhousie Square Branch.

Many documents, information‟s and financial statements which would have aided

us to implement the project better are not available as they are highly confidential

and are not available as per the rules and regulations of the bank.

Many documents, information‟s and financial statements which would have aided

us to implement the project better are not available as a ll the documents are sent

to CMC.

Sanctioning of the proposal does not take place at branch level so I did not have

the opportunity to work on live project.

There is complete reliance on secondary research data.

20

CHAPTER 2

CREDIT APPRAISAL

2.1 POLICIES OF CREDIT APPRAISAL

Central Office develops credit policy of the bank by taking into consideration:

The mission, vision, corporate philosophy and basic business objectives of the Bank.

Shareholders‟ expectations in terms of the Return on Assets (ROA) and Return on

Equity (ROE).

Issues that would influence the long-term strengths and success of the Bank.

Regulatory requirements.

Analysis of economic, social and regulatory environment and their implications on the

banking industry in general and our Bank in particular.

Competitor analysis.

Peculiarities and business potential in various areas of the Bank‟s operation.

Asset-Liability management, including the Bank‟s liquidity requirements.

Capital adequacy.

Principles, policies and strategies of risk-management.

Profitability goals.

Analysis and review of existing performance.

(Company Manual)

21

2.2 DEVELOPMENT OF CREDIT BUSINESS

1) Identifying prospective Customers

Business development is a process of marketing bank

services to the existing and potential customers. With lending, it involves identifying

new credit customers, understanding and even anticipating their current and future needs,

soliciting their banking business, maintaining relationships and cross-selling other

services.

2) Area of Operation/Jurisdiction

Area of operation of a branch is the area which it can

service effectively and cost efficiently. This includes undertaking various pre-post

sanction inspection, obtaining financial information, other data and market reports,

follow-up with customers for payments of installments, interest etc. Given this, the area

of operation of bank would not exceed its jurisdiction which would normally be up to the

area more conveniently located near it than any other branch of our bank undertaking

similar business.

3) Discussing Credit Facilities

As far as possible, the discussion/interview with the

prospective customer should be conducted by the Branch Head along with the credit

incharge and concerned relationship officer. The discussion/interview with the customer

should be held in a congenial atmosphere, generally within the Bank‟s premises or in the

borrower‟s premises. Points to be covered in a discussion/interview

I. Business/activities of the customer.

II. Brief details about the proposed project.

III. Customer‟s experience in the business/profession/project.

IV. Competition in line (including demand and supply) and how customer would

overcome it.

V. Extent and nature of finance/facilities required from the bank.

VI. Customer‟s own contribution in the business. Other sources of funds.

VII. Provision/plans to met contingencies, including cost escalation.

VIII. Securities, including collateral securities offered.

IX. Present bankers. Detailed of facilities availed. Main terms and conditions of

sanction. Reasons for changing the bankers.

22

X. Customer‟s willingness to agree to the Bank‟s term and conditions including in

particular margin requirements, interest and other charges and security

stipulations.

XI. Names, addresses and contact number of referees ( generally from the same

business activity).

XII. Any other relevant aspect.

After the discussion if the customer is willing to agree to the Bank‟s term and condition

appropriate Credit Application Form of the Bank may be provided to the prospective customers

and the customer should be guided for the proper completion of the form and furnishing the

required details.

Credit Application Form submitted by the customer should be checked to ensure that:

It is in proper form.

All the applicable items are properly filled-in, with appropriate remarks made

against applicable items.

It is signed by the borrowers and guarantors, wherever applicable.

All the relevant details and necessary enclosures like statements, reports,

certificates, balance sheets, assessment orders, forms etc., are enclosed.

Any discrepancy or deficiency should be immediately brought to the notice of the

customer.

All Credit Application Forms received must be promptly entered into the Credit Application

Received and Disposal Register. A quick scrutiny of the form submitted by the customer may

be carried out by reviewing the papers and financial particulars submitted by them. If the initial

scrutiny are found to be in order should be processed further. A Credit Proposal/Appraisal Note

in appropriate format must be prepared for considering the requests for a fresh advance or

renewal/review of the existing advance/facility. (Company Manual)

2.3 PREPARATION OF CREDIT PROPOSAL

Guidelines for preparing credit proposal form are as follows:

1. Proposal Number

2. Date

3. Branch

4. New/Renewal, Reduction/Enhancement

5. Present and Proposed Facilities

6. Name of the Company

23

7. Constitution

8. Date of Incorporation

9. Group Affiliation, if any and Other Group Companies

10. Line of Activities

11. Registered Office

12. Corporate Office

13. Work Located At

14. Board of Directors

15. Capital Structure and Share Holding Pattern

16. Share Price Movement

17. Present Banking Arrangement

18. Indebtedness to AXIS Bank

19. Banker‟s Reference and Rating by Credit Agency

20. Credit Risk Rating and Asset Classification

21. Brief Background of the Company

22. Management

23. Product Profile, Installed Capacities and Infrastructure Facilities

24. Major Competitors and Market Share

25. Industry Profile and Prospects

26. Future Plans

27. Performance and Financial Indicators

Net Sales

Other Income

Operating Profit after Interest

Net Profit before Tax

Net Profit after Tax

Paid-up Capital

Tangible Net-Worth

Ratios

Profitability Ratios

Turn Over Ratios

Liquidity Ratios

Leverage Ratios

28. Comments on Financial Position

29. Assessment of Limit

Term Loans and DPG

Debit Service Coverage Ratio (DSCR)

Internal Rate of Return

Break Even Point (BEP)

Sensitivity Analysis

24

Format for Critical Project Information

Working Capital-Fund Based

Working Capital-Non Fund Based

30. Limits Proposed

31. Rate of Interest

32. Concessional Facility, if any

33. Security-Principal and Collateral and Guarantees

34. Risk Perception/Analysis

Political

Regulatory

Finance

Currency

Marketing

Manufacturing

Promoters

Cyclicity

Technology

Input Profile

User Profile

35. Documentation

36. Conduct and Value of Account

37. Litigations

38. Audit Observations and their Rectifications

39. Comments on Stock/Site Inspection

40. Observation of Consortium Meetings

41. Compliance with Statutory Obligations

42. RBI/ECGC Defaulter Lists

43. Conformity with the RBI/Bank‟s Norms

44. Recommendations

45. Signatures

Assessment of the enterprise is done after the preparation of Credit proposal. This assessment is

done to ensure that whether the organization is sound enough to repay the credit for which it has

approached to the Bank. This entails a very careful and pragmatic analysis of critical factors,

which determine the success of any venture. (Company Manual)

25

2.4ASSESSMENT AND SANCTIONING

Assessment starts with Credit Investigation which starts from the time bank officials starts

getting the lead for the prospective credit clients. It basically involves collection of data‟s about

the client through various mediums. After collection of data (both financial and non financial

data) trying to understand them and apply the same in credit sanctioning decision.

Broadly a credit analyst has to look into the following four factors in depth:

1. MANAGEMENT>>>PERSON/PROMOTER>>>MANAGERIAL COMPETENCE

2. PRODUCTION>>>>>PRODUCT>>>>>>>>>>>>TECHNICAL FEALSIBILITY

3. MARKET>>>>>>>>>PROSPECT>>>>>>>>>>>>COMMERCIAL VIABILITY

4. FINANCE>>>>>>>>>REPAYEMENT>>>>>>>>>FINANCIAL VIABILITY

MANAGERIAL COMPETENCE

The first thing that an analyst looks into is the competence of the management i.e. how efficient

is the management. This information is collected by the official who interacted with the

management. Basically the official looks into that what is the background of the management,

experience of the management, composition and quality of the directors in the management and

lastly the integrity and honesty of the management. This is done because only efficient

management can generate good ventures. Hence knowing the competence of management is an

vital part that is to be taken care by the credit analyst

TECHNICAL FEASIBILITY

Technical feasibility implies what technical background the organization has. This is of utmost

important because if the organization is not technically strong it cannot generate good business.

Under technical feasibility the analyst takes into consideration the technology used i.e. whether

the organization is having latest technology or old ones, the size of the firm i.e. whether the firm

is taking advantage by operating at optimum size, location which gives idea that whether the firm

is having advantage of procuring factors of production at lowest cost, etc.

COMMERCIAL VIABILITY

Another important factor that an analyst looks into is the commercial viability. Demand forecast,

consumer preference, pricing policies, packaging and transportation, after sales service,

competition, sales promotion programmes , import substitute, export potential are some of the

points covered by the analyst under this factor.

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FINANCIAL VIABILITY

Assessment of financial viability is of utmost important because it helps the Bank to know the

ability of the firm to repay debt i.e. credit worthiness of the firm. The analyst makes the

following analysis to understand the financial viability.

BALANCE SHEET ANALYSIS

Balance Sheet and Profit & Loss Account are the key financial statements of a

company/firm/organization. The main objective of analysis of Balance Sheet and Profit & Loss Account is to clearly find out the present solvency and probability of continuing solvency and trend of fortunes of the business enterprise.

Balance Sheet is grouped under two major heads- Liabilities and Assets. Liabilities are what

business owes to other. Assets are economic resources which are owned by the business. LIABILITIES

Liabilities should be classified into three major parts, Current Liabilities, Term Liabilities-which

are outside borrowings or debts and Net Worth-representing investment of the owners in the business.

CURRENT LIABILITIES

Current Liabilities are those liabilities which are payable within one year from the Balance Sheet date. They usually comprise the following:

1. Short term borrowings from banks including bills purchased and discounted.

2. Short term borrowing from others. 3. Sundry Creditors

4. Advance payments from customers/deposits from dealers. 5. Provision for Taxation. 6. Dividend payable.

7. Other statutory liabilities(due within 1 year) 8. Deposits/term loan, deferred payment and lease rentals/installments due in one

year. 9. Debentures due within one year. 10. Other Current liabilities (accrued expenses of wages, interest, etc., contingencies,

unclaimed dividend).

TERM LIABILITIES Term Liabilities are those, which are not due for payment within a year from the Balance Sheet

date. The liabilities are normally of the following nature: 1. Debentures (not due within one year)

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2. Preference shares (redeemable after one year but within 3 years) 3. Term Loans/Deferred Payment Credit, Lease rentals Outstanding (excluding

installments payable within one year) 4. Deposits (excluding those repayable within one year).

5. Quasi Equity (loans from directors/relatives/associates). 6. Other term liabilities (sinking fund etc).

CAPITAL AND RESERVE/NET WORTH

Capital and Reserves represent the investment of owners in the concern and indicate intrinsic financial strength of the company. These includes preference (not redeemable within the next three years) and ordinary share capital (aggregate of capital and credit balance in drawing

account incase of proprietary and partnership concerns), capita l and free reserves and surplus in profit and loss account.

TOTAL LIABILITIES

The figure of total liabilities should be tallied with Total Liabilities figures of the Balance Sheets provided by the firm.

ASSETS

For the purpose of the Bank‟s analysis, the Assets are classified into Current Assets, Fixed Assets, Other Non-Current Assets and Intangible Assets.

CURRENT ASSETS

Current Assets are such assets, which are reasonably expected to be realized in cash or sold or consumed or turned over within a period of 12 months. Current Assets are classified under

various categories/sub-heads. Classifications of Current Assets are as follows: 1. Cash and Bank Balance 2. Investments

3. Receivables 4. Inventory

5. Advances to Suppliers of Raw Material 6. Advance Payment of tax

FIXED ASSETS/ NET BLOCK

Fixed assets comprise items not intended for conversion into cash during the normal operations of an enterprise. They cover the cost or appraised value of Land and depreciated book value of Buildings, Machinery, Tools, Equipments, Furniture and Fixtures etc.

OTHER NON-CURRENT ASSETS

Items under this head include:

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1. Investments/Loans to subsidiaries/associates (non-trade investments) 2. Other Investments (not marketable).

3. Overdue book debts (generally those more than six months old) 4. Deferred Receivables (maturity exceeding one year)

5. Others- fixed deposits with Government Departments, loans to directors/employees/partners, advances (machinery suppliers),machinery stores, tools etc.

INTANGIBLE ASSETS

Intangible Assets are those, which are not realizable and have no tangible value. They include Preliminary and Pre-operative Expenses, Goodwill/Patents, Directors/Partners/Proprietors

Borrowings (which may represent money permanently withdrawn from the business), Commission on underwriting of shares, bad & Doubtful Debts not provided for, etc.

TOTAL ASSETS

Figures of Total Assets should be tallied with Total Liabilities figures of the respective years.

PROFIT & LOSS ACCOUNT ANALYSIS

Whereas the Balance Sheet presents a Company‟s Accounts as on a particular date, the Profit and

Loss Account shows the income and expenditure for the given period, usually one year. The Profit and Loss Account is commonly divided into three sections, Trading and Manufacturing

Account, General Profit and Loss Account and Appropriation Account. SALES

Gross sales are inclusive of excise duty and returns. Net sales are exclusive of excise duty and

returns. Apart from Gross Sales Net Sales due note should be taken of Manufacturing and Trading Sales, as well as Domestic and Export Sales, wherever necessary.

COST OF SALES

Cost of sales consists of Cost of Production plus opening stock minus closing stock GROSS PROFIT

Gross Profit is Sales minus Cost of Sales

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses includes: I. Selling Expenses

II. General and Administrative Expenses III. Partners‟ Salary ( if any)

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IV. Other Expenses

TOTAL COST OF SALES

Total cost of sales is cost of sales plus selling and administrative expenses OPERATING PROFIT

Operating profit (PBIT) is Gross Profit less Selling and Administrative Expenses i.e. Sales minus

Total Cost of Sales. OTHER NON OPERATING INCOME

Other Income generally consists of:

I. Returns on Investments. II. Interest on banks‟ and other deposits

III. Recovery of doubtful debts, bad investment etc.

IV. Tax and other refunds V. Profit on sale of old stocks/machinery etc.

INTEREST TO BANK

INTEREST TO OTHERS

OPERATING PROFIT AFTER INTEREST Operating profit less interest

NON-OPERATING EXPENSES

It includes the followings

I. Provision for bad and doubtful debts

II. Legal expenses for recovery of dues III. Underwriting and other legal expenses

IV. Write-off of goodwill, preliminary and pre-operative expenses NET OF OTHER NON-OPERATING EXPENSES

Non operating Income minus Non operating expenses

NET PROFIT BEFORE TAX

Operating income plus/minus Net Non-operating Income/Expenses

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PROVISION FOR TAXATION

Amount of provision for taxation

NET PROFIT/LOSS (PAT) Operating profit plus/minus net non operating income/expenses less provision for taxation

KEY FINANCIAL PARAMETERS

The following ratios should be worked out from the figures of actual of last two years, estimates for the current year and projections for the next year.

TOTAL ASSETS (TANGIBLE)

Total Assets (tangible) is arrived by deducting Intangible Assets from the Total Assets. TOTAL OUTSIDE LIABILITIES

Total Outside Liabilities is arrived by deducting Capital and Reserves/Net Worth from the Total

Liabilities. TANGIBLE NET WORTH

Tangible Net Worth is arrived by deducting the Intangible Assets from the Net Worth.

NET WORKING CAPITAL

Net Working Capital represents the excess of Current Assets over Current Liabilities (NWC = CA-CL). For the successful operation of a business, Current Assets should be more than the Current Liabilities. It ensures continuous liquidity (current assets are prone to price fluctuations

and should therefore, have an in-built margin to absorb changes) and owner‟s stake in the current business operations. In other words, the Long-Term funds should finance a part of the Current

Assets. NET WORTH

Tangible Net worth is made up of Paid–up Capital plus Reserves minus Intangible Assets. It

consists of following items; Ordinary (or equity) Share Capital / Partner‟s Capital / Proprietor‟s Capital. Preference Capital (redeemable after 3 years)

Share Premium Account. Capital Reserves.

Revenue Reserves. Non-refundable Cash Subsidy (State/Central Government). Profit and Loss Account Surplus.

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Credit balances in Proprietor‟s drawing account.

QUASI EQUITY

Deposits/ loans from directors/Relatives/Associates form an important source of finance for many concerns. Generally, an undertaking is obtained by the Bank‟s consent during the currency of the Bank‟s advances. Therefore, while calculating the Debt Equity Ratio, such loans/deposits

are treated as Quasi Equity and included in the Net Worth of the business.

OWNED FUNDS Total Owned Funds compromise of Net Worth plus Quasi Equity. Total Owned Funds less

Loans to Subsidiaries and Associates constitute Net Owned Funds.

INVENTORY HOLDING Analysis of inventory holdings on balance sheet dates provide insight into holding of various

items of inventory as well as the creditors and debtors over a period of time . i. Raw Materials (Month‟s Consumption)

Calculation of this ratio is as follows:

Raw Material Level Raw Material Ratio = ____________________________ * 12

Consumption

This ratio gives average holding of Raw Materials by the concern in “Months”.

ii. Goods in Process (Months Cost of production)

Calculation of this ratio is as follows :

Goods in Process Level

Goods in Process = ____________________________ * 12 Cost of Production

This ratio gives average holding of goods in process by the concern in “Months”

iii. Finished goods (Month‟s Cost of sales)

Calculation of this ratio is as follows:

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Finished Goods Level Finished Goods Ratio=_____________________________________ * 12

Cost of Goods Sold (i.e. cost of sales)

This ratio gives average holding of Finished Goods in “Months”.

iv. Receivable to Sales (Months‟ sales)

Receivable Outstanding Receivables Ratio = _______________________________________ * 12

Gross Sales

This ratio provides collection period or the length of credit allowed in months. Whenever the period of credit is lengthened, it could be a sign that the products of the firm are not being sold as before. Reasons for increase in ratio should be probed, vis-

à-vis the industry trend

v. Sundry Creditors to Purchase (Months‟ Purchase) The ratio is also called Creditors Ratio.

Calculation of this ratio is as follows:

Creditors Level Creditors Ratio = _________________________________________ * 12

Purchases

This ratio provides period of credit received in months. A significant reduction in the period would be sign of suppliers losing confidence in the Company. On the other

hand, significant increase would be due to the Company not being able to pay the creditors on time. Major variations in the ratio should, therefore, be probed, vis-à-vis

the industry trends.

PROFITABILITY RATIOS

It indicates the financial health and earning capacity of the company. If a profit ratio is quite low,

the business may be considered risky. 1. OPERATING PROFIT /SALES (%)

Ratio of Profit before Interest and Tax (PBIT) to Net Sales, in percentage terms, indicates the

average profit margin on sales of the concern. Ratio of Profit before Depreciation, Interest and Tax to Sales (PBDIT) may also be worked out to ascertain the impact of depreciation on profit.

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2. NET PROFIT /SALES (%)

Ratio of Net profit to sales indicates the actual net profit margin in percentage terms.

3. INTEREST TO SALES (%) This ratio gives the ratio of Interest paid on borrowed funds to Sales in percentage terms.

4. EPS (in Rs)

Earnings Per Shares (EPS) is worked out by dividing Net Profit (PAT) by numbers of equity shares. Preference dividends, if any, should be deducted from Net Profit (PAT). This indicates

the net profit/earnings of each share.

5. RETURN ON NET WORTH (%) This ratio is arrived at by dividing the Net profits (PAT) by Tangible Net Worth in percentage

terms.

6. RETURN ON NET WORKING CAPITAL (%) This ratio is arrived at by dividing the Net Profit (PAT) by the Net Working Capital in

percentage terms.

7. RETAINED PROFIT /NET PROFIT (%) It is Net Profit (PAT) less Dividend paid. The ratio is worked out by dividing the Retained profit

the net Profit in percentage terms.

TURNOVER RATIOS 1. Sales to Net Fixed Assets and Sales to Gross Fixed Assets This ratio is worked out by dividing Net sales by Net Block and Net Sales by Gross Block. An increase in the ratios will indicate that greater sales have been obtained without increasing investments in fixed assets. If a fixed asset is acquired and remains idle, these ratios may record a fall. It may however, be remembered that a company cannot adjust its fixed assets for short term market fluctuations.

2. Sales to Raw Material and Sales to Inventory It is worked out by dividing Gross sales by Raw Materials while Sales to Inventory is calculated by dividing Gross Sales by the Total Inventory. These ratios indicate whether raw materials/inventory has been efficiently used or not. A high ratio of turnover on raw materials and inventory is generally a desirable trend. The lower ratio is a negative indicator and the reasons should be probed into.

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3. Sales to Receivables

The ratio indicates how many times the Debtors have turned over vis-à-vis the Sales made.

The ratio may be calculated separately for domestic and export receivables. These are calculated as follows.

Gross Domestic Sales Receivables Turnover (Domestic) = _____________________________

Receivables * (Other than Deferred & Exports)

Gross Export Sales Receivables Turnover (Export) = _______________________________

Export Receivables*

*Including Bills Purchased and Discounted by Banks.

4. Accounts payable Turnover

It can be calculated as follows: Purchases

Accounts Payable Turnover = __________________________ Sundry creditors – Trade

The ratio indicates how many times the trade creditors are disposed off vis-à-vis the purchase

made. A significant increase in the ratio could be a sign of suppliers losing confidence in the company. On the other hand, significant reduction could be due to the company not being able to pay creditors on time. Major variations in the ratio should, therefore, be probed.

LIQUIDITY RATIOS

1.CURENT RATIO

It is calculated by dividing the Current Assets by Current Liabilities. It is regarded as an `index of a company‟s liquidity. The ratio measures the ability of business to meet its Current Liabilities.

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2.Net Working Capital to Current Liabilities and Net Working Capital to Current Assets.

These ratios are obtained by dividing Net Working Capital by Current Liabilities and Current Assets respectively. They indicate the margin of availability of margin for working capital from

long-term sources.

LEVERAGE RATIOS

1. Total Outside Liabilities to Tangible Net Worth

This ratio also called as debt Equity Ratio, measures the balance between the total Current and

Term Liabilities to Net Owned Funds. A borrower with a high proportion of owned funds to outside borrowings should be preferred as it provides a good safety margin.

2. Total Term Liabilities to Tangible Net Worth

This is the ratio of Outside Borrowing to Own Funds, on the assumption that Current Liabilities are financed from Current Assets.

3.Short-Term Liabilities to Total Outside liabilities

This ratio is arrived at by dividing Current Liabilities by Total Outside Liabilities. It reveals the component of Short Term Liabilities out of the Total Outside Liabilities.

4.Debt Service Coverage Ratio (DSCR)

Debt Service Coverage Ratio (DSCR), is calculated as follows:

Net Profit after Tax + Depreciation + Interest on Term Loan DSCR= _____________________________________________________

Interest on Term Loan+ Principal Repayment Installment

The ratio provides the measure of the ability of the project to service the repayment of its entire long term debt. The ratio is valuable as it indicates the margin of safety which exists for the

Bank.

GROWTH RATIOS

Growth ratios give percentage increase of the respective parameters over the previous year. The following ratios are worked out in this regard

I. Net Sales Growth (%) II. Net Profit Growth (%)

III. Net Worth Growth (%)

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FUNDS FLOW STATEMENT

A compilation of sources and uses of funds called Funds Flow Statement can provide significant

information on the management‟s ability in using the funds in the operations of the b usiness in an efficient manner and getting adequate return on the investment made. The statement also helps to diagnose if the funds are not used properly so that quick remedial or corrective steps can

be taken.

The statement consists of two major parts: i. Recording the changes that have taken place in the assets and liabilities.

ii. Identifying the sources and uses of funds and regrouping them under the appropriate heads.

A critical examination of Fund Flow Statement should normally get us satisfactory explanations for questions like the following:

a) Whether the funds are used effectively?

b) Whether the funds raised from short term sources are used for meeting long term assets or long term obligations?

c) Is there undue build up of fixed assets? d) How the increase in the working capital is financed? e) What is the portion of increase in owned funds and borrowed funds to the proportion of

increase in working capital? f) Whether the surplus in long term sources is out of equity, long term borrowings or

profits? g) Whether the funds are deployed in non-business assets, and how far they are justified? h) How the profits are apportioned?

i) How the dividends are paid?

SANCTIONING

After the assessment is done the Bank comes to know the creditworthiness of the customer. On

the basis of these assessments the Bank sanctions a Limit to the customer according to its credit

worthiness. One thing is also important to be mentioned is that the Bank sanction credit to the

customer only if the Bank is completely satisfied with the documents and assessment.

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2.5 DOCUMENTATION AND CREATION OF SECURITY

DOCUMENTATION

Security documents establish the precise relationship between the Bank and the borrower and

form the main basis for the Bank‟s legal recourse in court of Law in case of borrower fails to

repay the advance. Axis Bank maintains two types of documents

Service Documents- This documents gives information about the services provided by

the Bank to the customer like sanction limit, type of facility, renewal/review date, etc.

Security Documents- These documents gives information about the security kept by the

customer with the Bank. It provides detail information about the security kept by the customer.

The Bank has standard format of documents drafted by the legal Cell for each facility and the

Bank maintains the documents accordingly.

(Company Manual)

CREATION OF SECURITY

1. Pledge of Goods

Pledge is “bailment of goods as a security for payment of a debt or for performance of a

promise”. In an advance against pledge of goods, the goods are given in exclusive possession

of the bank or its approved clearing agents and remain in the custody and charge of the bank,

until the debt is discharged. On repayment of the advance, the bank is required to return or

deliver goods according to the borrower‟s instructions.

2. Hypothecation of Goods

In case of advances against hypothecation of goods, although the goods are charged to the

bank, since the custody and control of goods remain with the borrower, more than ordinary

care has to be exercised. Advances should be additionally secured by way of equitable/legal

mortgages of fixed assets of the borrowers/guarantors or other collateral security, wherever

necessary. The amount advanced must bear a reasonable proportion to the borrowers

resources and be commensurate with their scale of operation.

3. Hypothecation of Plant & Machinery

A suitable nameplate indicating that the machinery is hypothecated to Axis Bank Ltd., should

be securely fastened to the machinery or the Bank‟s name painted on the machinery.

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4. Hypothecation of Book Debts/Receivables

Book debts constitute one of the components of the working capital. Advances against book

debts should not normally be considered in isolation but as part of working capital

requirements. The terms of sanction usually stipulate the age of the book debts against which

drawings may be allowed. Usually, the Bank does not advance against book debts that are

more than six months old. All the book debts of the borrower irrespective of their age (and

not only the book debts against which the Bank has granted advance) should be charged to

the Bank.

5. Mortgage:

Mortgage of land and building, residential properties etc. of borrowers /guarantors are

obtained by banks either as primary security or as collateral security to secure their advances.

6. Lien:

Lien is the right of the creditor to retain property (which is in his/her possession) belonging

to another, until a debt due from the latter is paid. A “Particular lien” is the right to retain

goods in respect of which the debt was created. A “General Lien” is a right of retainer not

only for a debt incurred for particular goods but for the general balance due. The banker‟s

lien is a general lien .It is an implied pledge, which gives him not only the right to retain the

goods and securities for the general balance due, but also gives him the right of sale upon

default after reasonable notice is given without intervention of the court.

7. Set-off:

In set-off, a creditor is entitled to take into account a debt owing to him/her by debtor while

settling mutual accounts. Though it is a statutory right, in practice, a letter is obtained from

the borrower which gives banker specific right of set-off. For the purpose of set-off, all

branches of a bank are considered as one unit. A banker has right of set-off only under the

following circumstances:

The different accounts of the customer are in the same right.

The debt against which set-off is sought owing and accruing due and not contingent.

The debts are for sums certain i.e. for known amounts.

The right of set-off has to be exercised by giving notice, unless the customer is in breach of

contract or is guilty of fraud.

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8. Assignment:

An assignment is the transfer by one person to another of a right, property or debt (existing or

future). For a banker, the usual subject of assignment is an actionable claim. In practice, in

cases where security is created by way of assignment, the debtor of the borrower should be

promptly advised about the assignment by latter in the bank‟s favour.

9. Negative Lien:

A negative lien on fixed assets and sometimes on liquid assets may be taken as an additional

collateral security. In such cases a bank obtains a specific undertaking from the borrower to

the effect that the borrower will neither create any encumbrance on specified assets nor sell

them off without the prior permission of the bank so long as the advance continues. Such an

undertaking is known as “Negative Lien”, which is binding on the borrower. It however, by

itself does not confer any right on the bank to proceed against the asset.

10. Third Party Guarantees:

Guarantee by the directors, third parties etc. are also often obtained for securing advances.

(Wikipedia)

2.6 DISBURSEMENT, MONITORING AND RENEWAL/REVIEW

DISBURSEMENT

Disbursement of any advance (credit facility) should be effected only after:

a) Sanction of facility by the appropriate authority.

b) Proper execution of security documents by borrower/guarantor and their checking

and verification.

c) Compliance of all terms of sanction including creation and registration of charge

over securities, where applicable.

d) Completion of account opening formalities, where applicable.

Disbursement of advance should be carried out after complying with all terms and

conditions of sanction. (Company Manual)

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MONITORING

Proper monitoring is the next important step after sanction and disbursement of credit

facilities. A sound monitoring system serves as a back-up mechanism for testing various

assumptions made at the time of assessment of credit needs of the borrowers. It also

enables the Bank to evaluate the performance of the assisted unit and its financial health,

to anticipate and foresee problems and prospects and to identify danger signals with a

view to initiate timely and appropriate corrective measures.

The monitoring should be on a regular basis for all accounts. They include the following

activities:

I. Periodic stock statement should be obtained from the customer and must be

scrutinized thoroughly.

II. Statement of book debt should be obtained at regular intervals as per periodicity

(monthly/quarterly) mentioned in the relative Credit Proposal and in stipulated

terms of sanction. The statement should be scrutinized thoroughly.

III. Scrutiny of Financial Statements/Returns and Other Information.

IV. Monitoring operations in the Account

V. Periodic inspections of the security charged by the Bank.

(Company Manual)

RENEWAL/REVIEW

All credit facilities, other than ad-hoc guarantees/letter of credit, are required to be

renewed annually. The correct terminology is Review in case of Term Loans and

Renewal in case of other facilities repayable on Demand. The “Annual Renewal/Review”

exercise gives the Bank an opportunity mainly to assess:

I. The performance of the borrower‟s business activity.

II. How well and efficiently the borrowed funds were utilized.

III. The position of the Bank‟s security.

IV. The borrower‟s position with regard to plough back of profits.

V. Whether the limits are appropriate.

VI. Whether the operations of the borrower reveal any signs of incipient sickness and

if so, what corrective steps can be taken

It may thus be observed that timely annual renewal is an important step in the follow-up,

supervision and administration of credit. (Company Manual)

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CHAPTER 3

ANALYSIS

3.1 ANALYSIS OF EXPOSURE IN DIFFERENT SECTORS

FIG 1.3

FIG 1.4

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FIG 1.5

The above three pie charts shows exposure of the Bank in particular sectors. Fig 1.3 shows

Financial Companies are the sector where the Bank has maximum exposure in terms of Fund

Based Services and Fig 1.4 shows Infrastructure is the sector where the Bank has maximum

exposure in term of Non Fund Based Services. Fig 1.5 shows that Infrastructure is the sector

where the Bank has maximum exposure on the overall basis. Hence the Bank has maximum

exposure in Infrastructure Sector on overall basis. All the above figures in the pie charts (Fig 1.3,

Fig 1.4 & Fig 1.5) are in crores. (Annual Result FY 2008-09)

3.2 ANALYSIS OF PROFITABILITY

FIG 1.6

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The diagram Fig 1.6 shows the Profitability of the Bank. The diagram depicts the sustained

growth of Robust Core Revnues. Net Profit increased by 69% yoy, Core Operating Profit

increased by 70% yoy, Operating Revnue increased by 50% yoy and Core operating Revnue

increased by 50% yoy. (Annual Result FY 2008-09)

3.3 ANALYSIS OF COMPOSITION ON THE BASIS OF FEE INCOME

FIG 1.7

The above diagram shows the composition of Fee Income. The above diagram reflects that Fees

have grown strongly in all business Large & Mid Corporates by 78% yoy, Treasury by 65% yoy,

Agri & Sme Banking by 64% yoy, Business Banking 46% yoy, Capital Markets 160% yoy and

Retail Banking by 39% yoy. (Annual Result FY 2008-09)

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3.4 ANALYSIS OF RATINGS OF LARGE & MID CORPORATES

FIG 1.8

The above diagram shows distribution of ratings of Large and Mid Corporates. The above

diagram also reflects that 81% of corporate advances have rating of least „A‟ as at March‟09.

(Annual Result FY 2008-09)

3.5 ANALYSIS OF RATINGS OF SME

FIG 1.9

The above diagram shows distribution of ratings of SME. The above diagram reflects that 77%

of SME advances have rating of at least „SME3‟ as on March‟09 as against 72% as at end

March‟08. (Annual Result FY 2008-09)

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3.6 ANALYSIS OF PERFORMANCE

PARTICULARS Q4 FY09

NET PROFIT 61% yoy 69%yoy

NET INTEREST INCOME 25%yoy 43%yoy

FEE INCOME 42%yoy 64%yoy

OPERATING REVNUES 36%yoy 50%yoy

OPERATING PROFIT 58%yoy 67%yoy

NET INTEREST MARGIN 3.37%yoy 3.33%yoy

COST OF FUNDS 6.64%yoy 6.50%yoy

FIG 2.0

The above figure shows the performance highlights of FY 09 of the Bank. The Bank has made

recommendable increase in Net Profit, Net Interest Income, Fee Income, Operating Revnues and

Operating Profit. The Bank has able to curve down Net Interest Margin and Cost of Funds.

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CHAPTER 4

NON PERFORMING ASSETS (NPAs)

Non Performing Advances means an account of borrower, which has been classified by a

bank or financial institution as sub-standard, doubtful or loss asset, in accordance with

the directions or guidelines relating to asset classification issued by the Reserve Bank of

India. (Wikipedia)

4.1 ANALYSIS OF PERFORMING AND NON PERFORMING ASSETS

FIG 2.1

The above pie chart reflects that the Net NPAs of FY09 is 0.35%. This fiscal year FY09 the Bank has the Net NPA of 0.35% and Performing Assets stands to 99.65%. Previous fiscal year

that is FY08 the Net NPAs is 0.36%. Hence this fiscal year the Bank has made recommendable improvement in bringing down the overall NPAs.

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4.2 PREVENTIVE MEASURES AGAINST NPA

IMPROVEMENT IN APPRAISAL SKILLS

One of the preventive measures that can be taken place is improvement in the appraisal skills. At the time when appraisal is done it is noticed that many times proper appraisal is not done like proper ascertainment of cost of assets, proper evaluation of financials of the firm, etc. hence

improvement and regular up gradation is required in the appraisal system so that no such defaults take place.

EFFECTIVE MONITORING

One of the needs of today‟s banking is effective monitoring of customer account. It is found that business people has a tendency of opening multiple companies and routing there transaction

through that companies. So in the eyes of Bank the account is having multiple transactions whereas the same fund is rotated by that individual and ultimately lies with him. So one measure taken by bank is to monitor the accounts of the customer on regular basis and if such signals are

identified take appropriate actions.

EXIST STRATEGY This is a measure taken by bank where the Bank exists the account by transferring the account to

another Bank. Basically the Bank has an idea about the performance of the account hence to get rid of such account the Bank provides a satisfied certificate to the Bank to whom the account is

getting transfer. The bank to which the account is getting transfer is approached by the customer only and the customer only influences the Bank to get the account transferred.

DECLARATION AS DEFAULTER/ WILFUL DEFAULTER

This is an effective measures the Banks are adapting when an accounts turn to be NPA. RBI has issued certain stringent norms according to which the banks classify the account and submits to the RBI. A list is made and circulated to all Banks. As a result a defaulter cannot approach to

another Bank and if he undertakes such steps then action can be taken against the defaulter.

HOLDING ON OPERATIONS Many times it is seen that an account turns to be an NPA due to some exte rnal forces. It is

beyond the reach of the customer. For e.g. any natural calamity, economic slowdown hitting some particular sectors, etc. Hence the customer can be a victim of such reasons. In such case the

Bank intimates the customer that this is the limit under which you have to operate and a certain time is allocated within which the customer has to settle the debt.

RESTRUCTURING OF THE ACCOUNT

Restructuring of an account can take place in two ways:

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Sole Restructuring- This is done for the customers who have taken the entire credit from a single bank. In such case the Bank do the restructuring of the account whereby they come to a

consensus that by what way the account can be restructured so that it can perform well and shifts to the Standard category.

Corporate Debt Restructuring- This is done for account which has more than one banker i.e. in case of multiple or consortium banking. CDR is basically headed by MDs and CEOs of

big Banks and FIs where each individual case is judged on its merit and a consensus is arrived that what is to be done with that account.

After this restructuring a Debtor and Creditor agreement is signed where the parties cannot violate the measures decided by both the parties in the agreement

COMPROMISE

When the Bank finds that nothing can be done with the account and if legal action taken which will be a time consuming process the Bank compromises with the account holder where the Bank

suffers a loss

LEGAL ACTION This is the last measure taken by Bank when nothing can be done with the account. The bank

files a legal suit against the customer.

SARFAESI ACT SARFAESI act is one of the act passed keeping in view the Banking sector. This act was passed

in 2002 and was amended in 2004. This act declares that if the Bank has immovable property as security the bank can take over without the intervention of court/tribunal. The Bank has to

approached to the District Magistrate who issues a letter to the borrower that either you pay off your debt or your property will be taken over.

SALE OF ASSETS

Basically many companies have came up which buys the bad assets at a heavy discount i.e. 25% to 30% of the value. The Banks discharges of the account to the purchasing company who deals with that account and it on them how to realize the debt.

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CHAPTER 5

CONCLUSIONS

5.1 FINDINGS

The bank has maximum exposure in Financial Companies in terms of Fund Based

Services and in Infrastructure sector in terms of Non Fund Based Services.

The Bank has maximum exposure in Infrastructure sector on overall basis.

Net Profit increased by 69% yoy, Core Operating Profit increased by 70% yoy, Operating

Revnue increased by 50% yoy and Core operating Revnue increased by 50% yoy.

Fees have grown strongly in all business Large & mid Corporates by 78% yoy, Treasury

by 65% yoy, Agri & SME Banking by 64% yoy, Business Banking 46% yoy, Capital

Markets 160% yoy and Retail Banking by 39% yoy.

81% of corporate advances have rating of least „A‟ as at March‟09.

77% of SME advances have rating at least „SME3‟ as on March‟09 as against 72% as at

end March‟08.

Net NPAs at the year-end FY 09 is 0.35%

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5.2 REFERENCES

Axis Bank Credit Policy 2008-09.

Axis Bank Manual of Instruction on Corporate Banking.

Credit Management, January 2006, ICFAI University Press.

An Overview of Banking, September 2006, ICFAI University Press.

Pandey I M, 2007, Financial Management, 9th Edition, Vikash Publishing House

Pvt Ltd.

Khan M Y & Jain P K, 2007, Financial Management, 5th Edition, Tata McGraw

Hill Publishing Company Ltd.

www.emeraldinsight.com

www.axisbank.com

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