Credit Management & Npa of Co-operative Bank Ltd.

7/29/2019 Credit Management & Npa of Co-operative Bank Ltd.

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PROJECT REPORT ON

CREDIT MANAGEMENT & NPA OF

RAJKOT DISTRICT

CO-OPERATIVE BANK LTD.

(RDC BANK)

A PROJECT REPORT SUBBMITTED IN PARTIAL FULFILLMENT OF THE

M.B.A. DEGREE

PROJECT GUIDE

Mr. P. S. TALAVIYA, STATISTICS OFFICER,

RDC BANK LTD.

SUBMITTED BY

DHAMSANIA VISHAL (ROLL NO. )

S.K.PATEL INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES

GANDHINAGAR, INDIA

JULY 2005



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RAJKOT DISTRICT CO-OPEARTIVE BANK (H.O.)



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Preface

The banking activities play a crucial role in overall economic

development, in case of developing country. This now progresses rapidly along

with its various activities.

I represent to you SHRI RAJKOT DISTRICT CO-OPERATIVE

BANK a joint venture sector enterprise promoted by the Gujarat state co-

operative bank.

The Rajkot District Co-Operative Bank provided me the golden

opportunity for me to enrich my knowledge by comparing theoretical knowledge

with practical knowledge, and also helped me to understand how important it isto important aspect of any study. It helps to students to observe and analysis real

life practical with the help of theoretical knowledge. Project report is a part of

study in the curriculum to know the practical aspect of activities in banking. It

provides opportunity to work with people and interact with them.

It was a privilege for me to work in such a reputed bank like RDC bank,

RAJKOT. This has given me an opportunity to work in truly professional

environment where teamwork scores over individual efforts. This study was

undertaken during the project work for the period of June-July 2006, as partialfulfillment of MBA programme ofGUJARAT UNIVERSITY.

DATE :-

VISHAL DHAMSANIA



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We learn in Management is Manage + Men + T (Time, Task, etc.). I agree

with this statement & wish to include that it would have been not possible to

complete this project with out help and support of many people. I am thankful to

all of them.

First and foremost I am thankful to Mr. M. B. Ladani, Additional Deputy

Manager and my Project Guide Mr. P. S. Talaviya, RDC Bank for giving me

this valuable opportunity to have our Summer Project at the well-known Co-

Operative Bank, RAJKOT DISTRICT CO-OPERATIVE BANK LTD. I thank

them to take keen interest in my work, and guide me throughout the project.

I would like to take this opportunity to thank my college, S. K. PATEL

INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES,

GANDHINAGAR, for giving me this tremendous opportunity to work in the

banking industry for the real-time project.

It is with a deep sense of gratitude that I would like to acknowledge our

DirectorProf. S Chinnam Reddy and all Faulty members who have been kind

enough to me in regard to completion of the project.

I would like to acknowledge with thanks the resource full service and

support rendered by Librarian and Lab assistant at SKPIMCS.

It would be an incomplete acknowledgement if I dont remember my

Parents. This report would not have become a reality without blessing of my

Parents who constantly inspired me, supported me, and contributed their

precious knowledge toward my project. I sincerely extend my gratitude to them

for their inspiration and prayer.

Last but not the least I thank to almighty GOD who gave an opportunity to

me to work on this project with the co-operation of others and I have reached

this milestone successfully. I am also thankful to my seniors, my classmates and

other friends who helped me in getting through this project work, smoothly.

Special thanks to those who inspired me to go for this project, and also to those

who think Why This & Why Not This!



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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.



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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 laymens 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. RDCB has a gigantic experience

of successful 50 years, under the lights of which work becomes easier.

The other enchanting point is that RDCB have maximum number of

shareholder.



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CONTENT

Executive Summery

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

RDCB - The Small Mans 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



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CREDIT POLICY

General eligibility criteria for credit in RDCB

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 RDCB

Follow up actions for credit monitoring in RDCB

Observation and suggestion

NPA MANAGEMENT

Identification of Non Performing Advances

Asset classification

Classification of Non Performing Advances



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Provision for NPA

Findings (reason for NPA)

Suggestions (NPA reduction techniques)

RECOVERY

Process of recovery

Finding/observation

LIMITATION OF STUDY

BIBLIOGRAPHY



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EXECUTIVE SUMMARY

Name of the Student : Dhamsania Vishal Chhaganlal

Name of the Institution : SKPIMS, GANDHINAGAR

Name of the Project Guide : Mr. P.S. Talaviya

Name of the Organization : Rajkot District Co-operative Bank

Purpose of project : Study of Indian Banking performance in

credit policy & non performing assets

Objectives : To study the Indian Co-operative

banking sector

To study the different aspects of thefinancing in India.

To study and analyze different

instruments for credit management.

To study the procedure of Credit

Rating in India

Steps taken which are in best

interest of the Bank.

Methodology : The project is a blend of the primary as

well as the secondary data. The data

were from the Banks past record,

various websites, publications and other

projects.

Conclusion : The project has been completed

successfully and the objectives were

met.



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INTRODUCTIONINTRODUCTION



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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 14 th

century and also in 1349, the business of banking was carried on by drapers of

Barcelona.



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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.



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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



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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



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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

co-operative 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



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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



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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.



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RDCB - The Small Mans Big Bank

SHRI RAJKOT DISTRICT CO-OPERATIVE BANK LTD., RAJKOT

H I G H L I G H T S

(AS ON 31-03-2006)

1) Bank was registered in 1959 and have commenced working in 1960.

2) Bank is holding business License No. RPCD-AHM-55-C dt. 14/911994.

3) Bank is having 127 branches in the district.

4) Bank having 65 its own Branch building including head office.

5) 72 branches having its own Safe Deposit Lockers facilities (including

H.O.)

6) Bank is having 770 employees as on dt. 31/03/2006 (118 in Head Office +

625 in branches).

7) 101 branches including H.O. are Computerized and remaining will be

covered within quarter to 100% computerization.

8) Since last 31 years, bank is obtaining Audit Class A.

9) The total deposit is Rs. 677.68 crores, which consists 57.03% law cost

deposit.

10) Bank is having share capital of Rs.2135.01 lakhs, Reserve fund and other

funds Rs.9735 lakhs, working capital Rs. 9391 lakhs.

11) Total investment is Rs. 20,670 lakhs. (with building, furniture &

computer).

12) Bank has obtained loans of Rs. 11,906.90 lakhs.



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13) Total advances outstanding are Rs. 674 Crore.

14) Bank is earning profit since its beginning. As on 31st march, 2006 after

providing enough provision, the Net Profit was of Rs. 1065 lakhs.

15) Bank is paying maximum dividend according to the provision of the Act,

since last 14 years.

16) As on 31st March, 2006 the cost of management was 2.28% (average).

17) As on 31-3-06, financial margin of the bank is 3.61% and net margin is

1.47% level (average).

18) Capital risk adequacy ratio as on 31st March, 2006 is 12.80%.

19) Since last 12 years, Bank is receiving first prize from the GSCB for the

best recovery performance. As on 30th June, 2006 recovery was 99.87%.

20) Rate of interest on deposits are between 4% to 7%.

21) Maximum Short Term Agriculture Loan issued during the year 2005-06

was Rs. 64,714.48 lakhs at the rate of interest from 7.5% to 10.5% as perGovernment of Indias doubling criteria.

22) Out of 585 non-subordinate staff, 231 employees are trained as on date

31/3/2006.

23) As on year ending 2006, the Non-performing Assets were Rs.1881.77

lakhs, thus gross NPA is 2.79% and net NPA is 0.53% of total assets.

24) As per prudential norms bank has made the provision of Rs.2886.30 lakhs

against the requirement of Rs. 2363.50 lakhs for loan outstanding of

Rs.67,397.13 lakhs.

25) On 31st March, 2005 the total number of an affiliate borrowing PACS are

436 out of these 412 are profit making.

26) Each societies having its own godown facilities and having independentwell qualified secretaries.



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27) Average work load Per Staff during the year 2005-05 was Rs. 181.21

lakhs.

28) There are 440 PACS affiliated with the Bank. Out of 440 PACS, 3 are

overdue as on 31-3-2006.

29)



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PROJECTPROJECT



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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.

OthersIncrease 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.



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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 depositsDemand 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



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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..



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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.



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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. Thecash 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



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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 customers 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 drawers

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 RDCB, the bankerretains 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



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the amount to seller if buyer will not pay amount in time.



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TIME WISE BIFURCATION OF ADVANCES

- Short-term Finance : Up to 26 months

- Medium-term Finance : 26 to 66 months

- Long-term Finance : Above 66 months

SECURITY WISE BIFURCATION OF ADVANCES

Secured Finance / Advances:

Secured Advances are those advances, which provide absolute safety to theBanker 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.



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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 borrowers business, the nature and amount of security offered. Theapplication 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.



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Shakh report

This is one of the strangest facility of RDCB compare with other co-operativebanks 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 departments 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



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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 borrowers 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



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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



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Name Of Committee

1. Board of directors

2. Standing committee

3. Reconsideration committee

4. Loan committee (Rs.500001 to 1000000)

5. Loan committee (Rs.300001 to 500000)

6. Loan sub-committee/1 (Rs.150001 to 300000)

7. Loan sub-committee/2 (Rs.75001 to 150000)

8. Loan sub-committee/3 (Up to Rs.75000)

9. Loan sub-committee/4 (Up to Rs.5,000)

10.Committee for loan against immovable property/1 (Rs.2,50,001 to

5,00,000)

11.Committee for loan against immovable property/2 (Rs.1,50,001 to

2,50,000)

12.Committee for loan against immovable property/3 (Rs.25,001 to

1,50,000)

13.Committee for loan against immovable property/4 (Up to

Rs.25,000)

14.Recovery committee/1 (more than Rs.3,00,000)

15.Recovery committee/2 (Rs.1,50001 to 3,00,000)

16.Recovery committee/3 (Up to Rs.1,50,000)


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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 : Rs. 1

Letter of guarantee : Rs. 60

*Agreement letter Up to 5,00,000 : Rs. 50

(Letter of lien) Above 5,00,000 : Rs. 2/thousand

Letter of pledge : Rs. 50

Letter of continuity : Rs. 50

Agreement letter for Cash credit/Overdraft

Up to 5,00,000 : Rs. 110

Above 5,00,000 : Rs. 2/thousand

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



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Up to 15,00,000 1/2% of sanctioned loan

Above 15,00,000 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 ofmachinery, 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 borrowers account.

Record department filing



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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.



41/106

CREDIT POLICYCREDIT POLICY



42/106

General Eligibility Criteria For Credit In RDCB

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%.



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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 1/2% of sanctioned loan

Above 15,00,000 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.



44/106



45/106


Particulars Interest

rate

Installmen

t / Rs.1000

Number of

installmen

t

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

Building repairing up to 75000

Building purchase,

construction

75001 to 200000

200001 to1000000

12%

14%

14%

15%

16%

16%

14%

16%

16%

More than

2% of F.D.

14%

14%

15%

32

32

32

23

23

32

50

32

23

17

17

17

40

40

40

66

66

40

26

40

66

Till the

maturity

date of

F.D.

108

108

108


46/106

INTEREST RATE ON VARIOUS ADVANCES

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

banks 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

banks dues.

Security



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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 orgovernment rules or change in taste or demands of the society, by and large.



48/106

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



49/106

EXPLANATION OF ALL TYPER OF CREDIT

Surety Loan

Purpose Personal use

Limit Rs. 5000 to 10000

Rate of interest 16%

Period 40 months

Repayable Equate Monthly installments Rs.32 per thousand

Security Personal Guarantee of two members of the bank

Documents Loan Appliances form, Letter of guarantee, DP note, letter of

Sanction.

Submit Paper In case of service person pay sleep, in case of businessperson last

yearly business report.

Other terms

% 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.



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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 Minimum Rs. 5000 Maximum Rs. 20000

Margin 40%


Period 40 months

Repayable Equate Monthly installments Rs.32 per thousand

Security Hypothecation of goods, personal guarantee of two members of

the bank

Documents 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 For purchasing NEW/OLD machineries/furniture for business

purpose

Limit Any limit as per requirement

Margin 25% to 40%

Rate of interest Up to 25000 12%,

25001 to 200000 14%

200001 to 1000000 15%

Above 1000000 16%

Period 40 months up to 200000, 66 months above 200000



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Repayable 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 andthe 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 Provide loan against good stock



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Limit Any limit as per requirement

Margin 40%

Rate of interest Up to 25000 12%,

25001 to 200000 14%,

200001 to 1000000 15%,

Above 1000000 16%


Repayable 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,


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.



53/106

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 For purchase or construction or repairing of immovable property

Limit 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 Equitable mortgage of property, two guarantors guarantee



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Documents 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


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, noinsistence 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.



55/106

Construction Level And Amount Passing Slab Chart

NO. OF

INSTALM

ENT

PARTICU

LAR

UPTO

GROUND

FLOOR

UPTO

1St.

FLOOR

UPTO 2 ND

FLOOR

1 Plinth level 20% 20% 20%

2 Lintel level 20% 20%

10%

20%

10%

3 Slab 30% 10%

10%

10%

10%

4 Plaster,

tiles,

electric,

Plumbing

20% 20% 20%

5 Completion 10% 10% 10%

Vehicle Loan

Purpose Purchase of new two wheeler/purchase of four wheeler old/new

Limit As per demand

Margin 25% (in case of new vehicle purchase)

OLD KIND OF

VEHICLE

YEAR OLD

MODEL

% OF VALUATION OF

VEHICLE PASSED

Truck, Tractor 2 years 60%

Matador 3-4 years

5 years

6-7 years

8-10 years11-15 years

55%

50%

40%

30%25%



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Petrol Motor 10 years

11-15 years

50%

30%

Diesel motor 5 years

6-15 years

60%

50%

*Valuation by bank recognized valuer


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 guarantors 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 dealers

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.



57/106

Gold Loan


Limit Rs. 50000 (in Rajkot city) 20000 (out of Rajkot)

Period 26 months


Repayable Equated monthly installments Rs. 50 per thousand.

Security Gold silver ornaments or items on Re-pledge

Documents Loan application form, DP note

Submit Paper 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-silverand 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



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Purpose To assist the small scale industry

Limit Rs 200000

Margin 25% to 40%

Period 40 months

Rate of interest Up to 25000 12%

25001 to 200000 14%

Repayable Equated monthly installments of 32 Rs. Per thousand

Security 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 thisloan is made directly to the party, who has given the quotation.

Type of business condition of subsidy

Trading firm 7500 or 10% of loan amount whichever is less

Service sector 10000 of 10% of loan amount whichever is less

Manufacturing firm 20000 or 10% of loan amount whichever is less



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Over Draft

Purpose To fulfill the need of working capital of business

Limit As per requirement

Margin 40%

Period 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 To meet the need of working capital business unit

Limit As per require

Margin 40%

Period 12 month (to be reviewed every year and renewed every

three year)



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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


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.



61/106

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 purposeLimit 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%


Repayable Equates monthly installments of Rs. 32 per thousand



62/106

Security Equitable mortgage of property, guarantee of two guarantors

Document 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 loanees 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 To grant loan / overdraft to an individual or a firm against F.D.R.

Limit As per requirement

Margin 50 % or less

Period Till due date of F.D.R.

Rate of interest 2 % more than F.D.R.

Security Duly discharge F.D.R.

Documents DP note, duly discharge F.D.R., form of application

Other terms Lien should be noted in the FDR account and on the back of the

F.D.R. duly discharged

Bills purchase



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Purpose To assist the customer for their short-term need of working capital

Limit As required by applicant

Margin Generally 25 %

Rate of interest 18 % per annum

Period Actual realization period

Charges Table is given

Documents DP note, letter of guarantee, letter of continuity, agreement letter

Bills Discounting

Purpose To assist the customer to provide them working capital against

his post- dated received bills

Limit As per required by applicant

Margin Generally 25 %

Rate of interest 18 % per annum

Period Maximum 180 days

Documents Letter of bills discounting undertaking, DP note, letter of

guarantee, letter of continuity, agreement letter

Charges Table is given

Other terms 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



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Postage Charge

From Rs. 10001 to 1

Lac

Rs. 1.50 / 1000 Collecting Banks

Commission + Rs.10

Postage ChargeFor 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

AboveAll 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 guaranteeThis type of guarantee does not involve financial obligation



65/106

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 To assist the business

Limit As required by applicant

Margin Cash margin (minimum 25 %) by way of F.D.R.

Equitable mortgage (rest of the part)

Period Generally 12 months

Commission 1% per annum in case of 100% cash margin

2% per annum in other cases

Charges 0.1% (upfront)

Security F.D.R. duly discharged, equitable mortgage of property

Documents Application form, counter guarantee



66/106

Different types of staff loans

Staff surety loan


Limit Rs. 15,000 maximum

Period 66 months

Rate of interest 16 %

Repayable Equated monthly installments of Rs. 23 / thousand

Security Personal guarantee of two staff members of the bank

Documents 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 Equates monthly installments of Rs. 32 / thousand

Security Equitable mortgage of property

Documents DP note, sanction letter, equitable mortgage charge extension

letter, life insurance policy of student, which assigned in favor ofbank, 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 to purchase a new / old two wheeler for personal use



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Limit Rs. 40,000

Rate of interest 0 %

Repayable equated monthly installments Rs. 15 / thousand

Security hypothecation of vehicle to be purchased

Documents 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 hypothecation of vehicle to be purchased

Documents DP note, letter of guarantee, hypothecation of vehicle, insurance

policy

Staff housing loan

Purpose To construct / purchase residential building

Limit for officers and other upper cadre : Rs. 5,00,000

For clerk : Rs. 4,00,000

For peon and others : Rs. 3,00,000

Period 20 years

Rate of interest 6.5 %

Repayable equated monthly installments of Rs. 7 / thousand

Security equitable mortgage of property, two staff members guarantee



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Documents DP note, letter of guarantee, letter of sanction, insurance policy,

equitable mortgage of property



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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 years experience.

Loan policy cover

Delegation of lending power

Method for assessment of working capital

Rating of borrowers

Loan pricing



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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 threeDifference 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:



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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.

AA:


Amount of loan

sanctioned

Interest concession

25,001 to 2,00,000 1 %

2,00,001 to 10,00,000 1 %

Above 10,00,000 2 %


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Cash credit account

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 31 st march,

there is no due installment.

Amount of loan

sanction

Interest concession

25,001 to 2,00,000 0.5 %

2,00,001 to

10,00,000

0.5 %

Above 10,00,000 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.



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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.



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CREDIT APPRAISALCREDIT APPRAISAL



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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 Godown Factory

Structure of unit

Proprietorship firm/ partnership firm / private limited / public limited

Name of the proprietor /partners / directors with CDN (compulsory deposit

number)

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



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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 Ideal Performance of party (remarks)

Credit balance compare with

saleTo payoff of overdrafts /

excess

Submission of stock statement

monthly

Interest payoff

Equated monthly installmentson loan

Account over due (yes / no)

Similarly in stock

1: 1

RegularRegular

Regular

Regular

------

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



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(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 propert

Credit Management & Npa of Co-operative Bank Ltd.

Documents

Transcript of Credit Management & Npa of Co-operative Bank Ltd.