Finance project on banks

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GOKAK URBAN C0-OPERATIVE CREDIT BANK LTD DECLARATION This is to state that the project report named “STUDY ON LOAN TO SMES AND RETAILS IN GOKAK URBAN CO-OPERATIVE CREDIT BANK LTD GOKAKis an independent work carried out by me under the guidance and supervision of my project guide (mentor) Prof:RAJESH.K towards the partial fulfillment of the award of MBA degree from Karnataka University Dharwad. This project was fully prepared by my own effort and has not been published elsewhere until now. I also declare that this project report has not been submitted to any other university or for award of any degree or diploma/university or institute . Place : GOKAK NAGENDRA.C.BASETTI Page 1

Transcript of Finance project on banks

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GOKAK URBAN C0-OPERATIVE CREDIT BANK LTD

DECLARATION

This is to state that the project report named “STUDY ON LOAN TO SMES AND RETAILS IN GOKAK

URBAN CO-OPERATIVE CREDIT BANK LTD GOKAK” is an independent work carried out by me under the guidance and supervision of my project guide (mentor) Prof:RAJESH.K towards the partial fulfillment of the award of MBA degree from Karnataka University Dharwad.

This project was fully prepared by my own effort and has not been published elsewhere

until now.

I also declare that this project report has not been submitted to any other university or for

award of any degree or diploma/university or institute .

Place : GOKAK NAGENDRA.C.BASETTI

Date :

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ACKNOWLEDGEMENT

The successful completion of any task would be incomplete without mentioning &

thanking god & the people who have helped me to complete it and been a constant support

of encouragement.

First and foremost I would like to express my sincere thanks to my parents who have

been always a moral support in my life and motivated me to acquire my aim successfully.

I express my sincere gratitude to prof: Prashant.C. Director

of I E M S Tarihal Hubli, for his constant support and encouragement in carrying out this

summer in-plant project.

At the very outset I would like to thank Mr. S. S.PATIL , (GANERAL Manager) of ‘GOKAK

URBAN CO-OPERATIVE CREDIT ’ BANK LTD , who constantly guided me and inspired me in

completion of this project. I express my heartful thanks to all the staff members of the Bank

for supporting me in completing my project.

I would remain indebted to Prof: CHAITANYA K (FINANCE ) and for their able guidance &

constant support.

I also dedicate my sincere thanks to all Teaching and Non-Teaching Staff Members for

their help.

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Finally, I would like to thank all my Friends and each & every one who directly or

indirectly have helped me in making my project successfully.

CONTENTS

Chapters INDEX PAGE NO

Executive summary 04

Chapter 1 Introduction

Introduction about the topic

Objective of the study

Limitation of the study

5-7

Chapter 2 Organization/company profile 8-26

Chapter 3 Methodology

Study area

Type of research

Sampling Methods

Type of data used in study

Statistical tools used to analyzed the data

27-36

Chapter 4 Analysis and interpretation 37-52

Chapter 5 Findings and suggestions of the study

Findings of the study

Suggestions

Conclusion

Bibliography 58

Annexure 59-64

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Executive summary

This is project specially is focused on the financial aspects, i.e. Loans to SMEs & retail at

Urban Co-operative credit bank ltd Gokak. The main objective of the study is to know the

Loans provided by the Bank and the procedure followed by the bank with the assistance &

the help of the Bank & the Manager.

Gokak Urban Co-Operative Credit Bank Ltd is well known for its personalized service &

has made rapid strides in the zeal of customer service in tune with changing banking scenario.

The objective of bank was primarily to extend financial assistance to the local weavers who

were crippled by a crisis in the handloom industry through mobilizing small savings from the

community.

The bank is meeting varied personal credit requirements of different classes of people

through the various loan schemes under personal banking. The information has been obtained

from the bank’s annual reports, direct interaction with the bank manager & bank website. The

scope mainly restricted to bank records.

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CHAPTER-I

INTRODUCTION

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Introduction;

Finance is the “lifeblood of Business” this is unique statement does not confront to a

particular type of industry. It is applicable to each type of industry. This signifies the

importance of finance.

A loan is an important financial tool to know the inner view of bank performance.

This helps in knowing the effectiveness of the bank ability to grow & expand.

By this study we also come to know how bank will sanction the loan & advances i.e. we

came to know that procccudre fallowed bank to sanction loans main important point s that to

sanction loans banks required adequate financial by conducting study inside organization

we also come to know how banks will grant funds to corp. as well loans and advances(credit

facility ) to members of the needs I.e. for sanctioning the loans and advances .

Now Gokak urban co-operative credit bank ltd is one of the banking businesses in city it

has sanction loans and advances more than 18 corers as you know co-operative banks are the

back bone of the country

Need for the study:

To gain the knowledge about the Loans in the Gokak urban co-operative credit bank

ltd with reference to Gokak branch & procedure for providing the loans,

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Topic of the study:

“LOANS TO SMEs AND RETAILS IN URBAN CO-OPERATIVE CREDIT BANK

LTD GOKAK”

Objectives of the study:

The following are the some of the important objectives of the study

1) To study about loan offered to the SMEs by the banks.

2) To analyze government’s support in obtaining credit facilities.

3) To study about financial problems of SMEs regarding loan. .

4) To determine the trend of providing loans to SMEs on year by year basis.

5) To analyze retail loan with specific reference to Vehicle loan.

Limitations of the study:

The study is restricted to the Gokak Urban Co- Operative credit Bank ltd., only.

The study is mainly based on the secondary data provided by the bank.

The study is based only on loans.

The study is based on the data given by the officials and reports of the bank. The

confidentiality of some facts and figures is a limitation.

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CHAPTER-II

ORGANIZATION PROFILE

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OVERVIEW OF BANKS IN INDIA

Meaning of banks:

A banking company in India has been defined in the banking companies Act 1949 as

“One which transacts the business of banking which means the accepting of the purpose of

sending or investment of deposits of money from the public repayable on demand or

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

Indian Banking Sector

Banking in India has its origin as early as the Vedic period. It is believed that the

transaction from money leading to banking must have occurred even before Manu, the great

Hindu Jurist, who has devoted a section of his work to deposits and advances and laid down

rules relating to rates of interest. During the Mogul period, the indigenous bankers played a

very important role in leading money and financing foreign trade and commerce. During the

days of the East India Company, it was turn of the agency houses to carry on the banking

business. The General Bank of India was The first Joint Stock Bank to be established in

year1786. The others, which followed, were the Bank of Hindustan and the Bengal Bank.

The Bank of Hindustan is reported to have continued till 1906 while the other two failed

in meantime .in the first half of 19th century the East India Company established three Banks;

the Bank of Bengal in 1809, the Bank of Bombay in 1840, the Bank of Madras in 1843.

These three Banks are also known as presidency Banks, were independent and functioned

well. These three Banks were amalgamated in 1920 and a new Bank, the imperial Bank of

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

1955 the undertaking of imperial Bank India was taken over by newly constituted State Bank

of India. The Reserve Bank, which is central Bank, was created in 1935 by passing Reserve

Bank India an Act 1934.

In the wake of the Swedishi Movement, a number of Banks with Indian management

were established in the country namely, 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.

On July 19, 1969, fourteen major Banks of the country were nationalized and in 15th April

1980, six more commercial private sector banks were also taken over by the government.

Indian Banking may be distinguished into:

Private Sector Banks

1. Foreign Banks in India

2. Scheduled Co-Operative Banks

3. Non-scheduled Banks Public Sector Banks

4. State Bank of India and its associate banks called the State Bank group

5. 20 nationalized banks

6. Regional Rural Banks mainly sponsored by private Sector

CO-OPERATIVE SECTOR

1. State Co-Operative Banks

2. Central Co-Operative Banks

3. Primary Agriculture Credit Societies

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4. Land Development Banks

5. Urban Co-Operative Banks

6. Primary Agriculture Development Banks

7. Primary Land Development Banks

8. State Land Development Banks

DEVELOPMENT BANKS

1. Industrial Finance Corporation Of India (IFCI)

2. National Bank for Agriculture and Rural Development (NABARD)

3. Export Import Bank Of India (EXIM)

4. National Housing Bank

5. Industrial Credit and Investment Corporation Of India (ICICI)

6. Industrial Investment Bank Of India (IIBI)

7. Industrial Development Bank Of India (IDBI)

8. Small Industries development Bank Of India (SIDBI)

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Brief history of the G okak co-opera tive credit bank Ltd.,

The Gokak Urban Co-operative Credit Bank Limited, Gokak was registered as

an Urban Co-operative Credit Society on 15th February 1906, under the Co-operative

Societies Act 1904, the bank registered through banking regulation act and license given by

reserve bank of India. mainly through the efforts of the local leaders namely , M/ S. N. M

Ghodgeri, Shri. R.G. Kasturi, Shri. S.S.Patil and Shri. G.S. Kalynshetti etc. with a modest

capital of Rs. 540/- and deposit of Rs. 2001/- and with an area of operation of 5 miles round

about Gokak town. The face value of each share was intentionally kept at Rs. 1/- each in

order to enable even the poorest man to become a member of the Society

It rapidly progressed and in 1924 it was converted into an urban bank with a share which

was then raised to Rs.10/-.with this humble beginning the bank started its promising career. It

was fostered and nurtured by the paternal care of its promoters. The successive members of

the Managing committee by unstinted devotion and business acumen have all contributed

their best to the growth and expansion of this institution. The working capital of the Bank as

on 31-3-2005 was Rs.2399.93 lack

The Authorized share capital of a Bank is Rs.150 Lack while the paid up share capital of

a Regular member as on 31-3-2005 is Rs.79.45 Lack and Associate member is Rs.3.44 Lack.

The total deposits as on 31-3-2005 amount to Rs.1988.96 lack bank loan amounts Rs nil and

the total advance amount to Rs 966.14 lack.

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The bank has been all along distributing a part of its profit for charitable purpose .The

bank has magnificent building with a tower clock for public utility is standing before us now.

Bank made for social welfare.

Branches of Gokak Urban Co-Operative Credit Bank ltd;

GOKAK MARKET YARD BRANCH

GOKAK BADAVANE BRANCH

OTHER CO – OPARETIVE SOCITYS

MAHILA PATHIN SANG

Urban co-operative banks in Karnataka state

Total banks 302

No of branches 560

No of mahila banks 28

No of mahila banks branch 14

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MEANING OF CO-OPERATION AND CO-OPERATIVES;

The co-operation means working together for some common purpose. The basic principle

of co-operation is each for all and all for each. The meaning for co-operation is different from

thinker to thinker. A co-operative is an autonomous association of persons united voluntarily

to meet their common, economic, social, cultural needs. And aspiration through jointly

owned and democratically controlled enterprises, offices, functioning is based on

decentralized decisions making principles. In tradition its aim is economic, social and moral

development of its members.

Co-operatives are the voluntary and democratic associations of human beings organized

on the principles of equality for the attainment of the satisfaction of their common economic

needs concerned with economic welfare.

PRINCIPLES OF CO-OPERATIVES:

The foundation of any co-operative activity is based on certain principles. These

principles are the guiding force behind the development of the co-operative movement

throughout the world. These principles are as follows:

1) Voluntary and open membership:

Co-operatives are voluntary organizations open for all persons to use their services and

willing to accept the responsibilities of membership without genders, social, political and

religious discrimination. Universal character of membership must be maintained, provided

the member fulfill all the qualification and always act in the interest of the bank and other co-

members.

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2) Democratic management and equality of voting rights:

A co-operative bank is democratic in its management. All members are treated equal and

exercised through the principle of “one man one vote”. A principle of democracy

representatives is accountable to the membership.

3) Self help through mutual help:

The co-operative bank strives on the principle of mutual fund help. It is an association of

financially weaker sections of the society, the financially weaker persons cannot achieve their

aims single handedly, and they need mutual helps.

4) Concern for community:

Co-operative works for the sustainable development of the community through policies

which do the members approve, the co-operatives must quit to the local needs and

environment.

5) Autonomy and independence:

Co-operatives are autonomous and self help organizations controlled by members. if they

enter into agreement with other organizations including government or raise capital from

external sources, they do so on terms that ensure democratic control by their members and

maintain their co-operative economy.

6)Education training and information to members:

Co-operative provides education, training and information to their members, elected

representatives, managers and employees, so that they can contribute effectively to the

development at their co-operative

Sl.No. Rochdale

principals

Raiffesion principals Schulze- delitzch principal

1 Voluntary and

open membership

Self help without exclusion

of state help. Provided

Self help with exclusion of any

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cooperative independence is

preserved

outside help. Privet or public

2 Democratic

control one

member .one vote

Limited area Large territory of operation

3 Division of the

surplus in

proportion to

patronage.

Allocation of entire surplus

to individual reserve.

Division of the surplus in

proportion to operation.

4 Limited interest

on operation.

Membership without

subscription of share.

High interest on share to

attract large subscription of

share.

5 Political

&religious

neutrality.

Unlimited liability of

members.

Limited liability.

(originally un-limited)

6 Cash trading. Limitation of the business to

members only.

Business specialization.

7 Promotion of

education.

Voluntary work by board

members.

Allocation of 10% of the

surplus to reserves.

PRINCIPLES OF URBAN CO OPERATIVE BANKS

AIMS AND OBJECTIVES OF THE URBAN CO-OPERATIVE BANK LIMITED

1) To encourage thrift help and co-operation among the members, associate members,

nominal members and depositors of the bank.

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2) To provide required finance to priority sectors like agriculture, cottage industries and

small scale industries.

3) To borrow funds from members and non members and to be utilized for granting loans to

members and non members for useful purposes.

4) To act as an agent for the joint purposes of domestic and other requirement of the

members and non members.

5) To arrange for the safe custody of valuables and documents.

6) To carry out instructions for periodic or collections, remittance etc of the members and

non members.

7) To prepare and finance projects to improve the economic conditions of the members

particularly those belonging to weaker sections of the society.

8) To extend financial and technical assistance to the unemployed to start their industry /

profession.

Organization chart

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ADMINISTRATIVE BODY

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ADDMINSTRETIVE BODY

GENERAL BODY

BORD OF DIRECTAR

PRESIDENT

VICE PESIDENT

EXECUTIVE BODY

GENERAL MANAGER

ASSISTANCE MANAGER

SALES OFFICER

ACCOUNTANT

ASSISTNT ACCOUNTANT

SENIOR ASSISTANT

MEMBERS OF THE URBAN CO-OPERETIVE CREDIT BANK

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S/No Name Of The Directors Category Of Director

1 Shri. SURESH . G. SOLAPURMAT PRESIDENT

2 Shri. S.T.HAGARGI VICE PRESIDENT

3 Shri. C.B. TARLI DIRECTOR

4 Shri. C. C.HALTHAGI DIRECTOR

5 Shri. J.M.MUNVVLI DIRECTOR

6 Shri. Dr . Y P KAMOJI DIRECTOR

7 Shri. D.C.BIDARI DIRECTOR

8 Shri. M.D.CHUNMARI DIRECTOR

9 Shri. S.B.ANKLI DIRECTOR

10 Smt. S.V.GODGERI DIRECTOR

11 Shri. S.S.PATIL GENERAL MANAGER

12 Shri. O.B.YLGATI ASSI MANAGER

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NOMINAL MEMBERSHIP:

Not with standing anything contained in any other bye-laws any person who is above the age

18 and who is competent to contract residing in the jurisdiction of the bank who is not the

member of any other co-operative credit society or bank, may be admitted as a nominal

subject to the following conditions

I. He shall pay an admission fee of Rs. 50 = 00

II. He should be credit worthy.

III. He shall not have right to vote or to participate in the management of the bank or in the

distribution of its profits or liabilities, except the liability against him, as a borrower or surety

or both in the event of its winding up except that such member may attend the general body

meeting of the bank with prior permission of the board by its resolution.

IV. He shall be eligible for the following types of loans.

a) Personal loan

b) Mortgage loans

c) Loan against deposits and government securities

d) Loan against government & guarantee

e) Loan for house construction / purchase / mortgage / purchase of plots

f) Loan against pledge of goods or immovable property of his own.

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Process of the credit investigation

A ) INTERVIEW with the applicant borrower the bank officials should hold

discussions with the prospective borrowers to elicit information on the activities

presently undertaken, details about the proposed project , marketing arrangement for

the products manufactured, sources of margin money to be provided and tie- up

arrangements therefore . The Discussion with the borrower and the feedback received

from him should help the bank informing an opinion as to whether proposal can be

considered.

B) VISIT TO THE BORROWER” S SITE THE BANK OFFICIALS SHOULD

visit the borrower‘s place of business / manufacturing activities to find out the

existence of the unit and the activities undertaken by him . During the visit, the

primary / collateral security offered should be checked for their acceptability. The

visit should also help in knowing about the manufacturing process of the unit. The

bank officials should also interact with the key persons of the business organization

and other employees to collect useful information.

C) MARKET INFORMATION confidential opinion on the applicant borrower

should be gathered by making discreet enquiries from persons connected with similar

lines of business. Enquiries may alas be made with the buyers of products and

suppliers raw materials, etc about the applicant borrower “s reputation and to

ascertain the quality of products as also prompt payment to suppliers.

In the case of existing borrowers too; the bank should collect market intelligence on

their activities / performance through press reports / other banks / credit rating

agencies.

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In the case of small borrowers; the bank should satisfy itself where the borrower

resides / undertakes activity within the area of operation of the bank further; his

residential / business premises should be got confirmed through ration cards; tax paid

receipts and license for carrying on business; etc. discreet enquiries should be made

from local residents and license for carrying on business; etc. discreet enquiries

should be made from local residents and nearly establishment about the financial

standing / refutation of the borrower,

D) CONFIDENTAIOL OPINION FROM THE EXISITING BANKER

The bank should invariably obtain a CONFIDENTAIOL OPINION FROM THE EXISITING

BANKERs besides, full details regarding credit facilities sanctioned, conduct of account,

should be collected . one of the means of verifying the satisfactory conduct of the account is

to examine the statement of accounts of the applicant borrower with the existing borrower..

E) Industry / business prospects

The bank should collect the essential detail, relating to the present position of the industry in

which the applicant borrower is engaged in or proposed to undertake, market environment,

major competitors and position of the applicant borrower in the industry.

F) FINANCIAL STATEMENTS

The bank should obtain audited financial statement of the applicant borrower ass also income

tax / wealth tax returns/ assessment orders, these documents would give details such as

growth in sales profitability net worth position, term liabilities, cash accruals, ability to repay

term loan commitments, etc . the notes appended to the financial statements buy the auditors

would also throw light on accounting practices , detail of contingent liabilities of disputed

regarding of income tax ./ sales tax excise dues and its possible impact overall financial. The

information collected on the various aspects outlined above should facilities to bank to come

to conclusion on whether to accept the credit proposal or not.

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PREPARATION OF CREDIT INVETIGATION REPORT

Based on the information gathered on the various aspects mentioned in the preceding

paragraphs the bank officials should preparer report on the credit investigation. The report

should contain specific comment on character capacity and credit worthiness of the borrower.

The investigation report should be submitted along with the credit proposal.

APPRAISAL / EVALUATION OF CREDIT PROPOSAL

The next stage of pre-sanction process after the bank has satisfied itself about the

character, integrity financial states , etc. through credit investigation, is appraisal /

evaluation of the credit proposal. The credit investigation provides comfort to the

bank to take up evaluation / appraisal process.

Appraisal / evaluation process involves collection of required information from the

applicant borrower and thereafter valuating the various details furnished by him. the

information is generally required to be collected from the borrower realist to

constitution nature of business/ industry activates undertaken proposed to be

background of the promoters experience in their lines of business ,propose of credit

financial statements for past 3 to 5 years to assess the net worth , performance of the

borrower , profitability , etc .

Collection of require data from the borrower

For the purpose of collecting required data / information, the bank should prescribed

a comprehensive loan application form . along with the loan application form , the

bank should obtain net worth borrower guarantors , income tax/ sales tax/ wealth tax

returns / assessment orders , financial statements , governments approvals details of

collateral securities offered etc.

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In the case of project financing, project feasibility report along with

the projected profitability / cash flow statement should be collected.

The information suggested above is only illustration but not exhaustive and the bank should

be required information depending upon the nature of the proposal under the consideration.

It would be desirable to collect the all essential details in one lot instead piecemeal

submission to obviate delay in appraisal / evaluation and sanction of the proposal. The

general expectation f present day customer high and bank should be speed up the appraisal of

the sanction of the credit proposal. The evaluation of various parameters relating to the credit

proposal.

Constitution of the borrowers;

The bank should ascertain hype constitution of the applicant borrower and satisfy about the

legal competence to undertake the business activity, power to raise loan and offer securities

for loan and assume liability arising there form. the legal e.g. partnership agreement and

memorandum of and article of association of joint stock company, etc. through which

business entity has come into begin should be examined ensure that these document contains

specific clauses to contain the purpose for which the loan can be raised from bank.

FORMAT FOR SUBMISSION OF CREDIT PROPOSAL TO LOAN

COMMITTEE/BOARD

In order to enable the sanctioning authority to take proper decision on a credit proposal,

the head office of the bank should prepare a detailed not outlining the strengthens and

weakness of the proposal. The ceo based on various factors such as borrower’s nature of

business, financial standings, business prospectors, profitability, repaying capacity, etc make

should specific recommendation to loan committee / board. A format of the note for

submission of proposal.

SANCTION OF CREDIT PROPOSALS

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AFTER securing the approval form of loan committee/board, the bank should convey the

sanction of credit facility to the borrower. In the later conveying the sanction of credit

facility, the bank should specifically indicate, the nature of facility (cash credit, overdraft,

letter of credit, bank guarantee, etc.)

Facility wise limits and the total amount of credit limits, particulars of primary collateral

security, none of guaranty margin in respect of each facility, commission on letter of credit

and bank guarantee. Etc the consent of borrower should also be obtained to the terms and

conditions of sanction. Method

By this study we also come to know how bank will sanction the loan & advances I.e. we

came to know that procccudre fallowed bank to sanction loans main important point s that to

sanction loans banks required adequate financial by conducting study inside organization we

also come to know how banks will grant funds to crop as well loans and advances(credit

facility ) to members of the needs I.e. for sanctioning the loans and advances .

Now Gokak urban co-operative credit bank ltd is one of the banking businesses in city it has

sanction loans and advance more than 18 corers. As we know co-operative banks are the back

bone of the country

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This table showing share members and share capital of the Gokak urban co-operative

bank ltd

Source; Official Records of Gokak Urban Co-Operative Bank Ltd. Gokak

YEAR Share Capital

2006-2007 98,39,060.00

2007-2008 1,10,12,190.00

2008-2009 1,20,89,160.00

2009-2010 1,32,69,100.00

2010-2011 1,67,55,770.00

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Interpretation;

The Graph shows that there has been an increase in the share capital from the year 2006-07 to

2010-11 financial year. In 2006-07 the share capital was Rs 98,39,060 then it increased to Rs

11012190 in 2007-08,it was Rs 12089160 in 2008-09, Rs 13269100 in 2009-10 and finally it

was Rs 16755770 in the financial year 2010-11.

CHAPTER-III

METHODOLOGY

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Study Area; THE GOKAK URBAN

CO-OPERATIVE CREDIT BANK LTD

AND SMEs AROUND GOKAK.

Data collection method;

The present study collect the data from both sources;

a) Primary data

b) Secondary data

Primary data:

Primary data’s are the data collected through the primary sources. These are original in

nature and collected by the researcher personally. The present study collects the primary

information from the following sources;

Discussion with the manager and officers of the bank to get general

information about the bank and its activities:

Having face to face discussions with the bank officials.

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By taking guidance from bank guide and departmental guide.

By interviewing respondents.

Secondary data:

Secondary data’s are the data collected by the researcher from the officials records of the

organizations. The present study collects the secondary data from the following sources.

Collection of data through bank annual reports,

Bank manuals and other relevant documents.

Collection of data through the literature provided by the bank.

Research Measuring Tools:

The following are the research measuring tools used for data collection are:

1. Personal interview.

2. Secondary sources.

1. Personal Interview:

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In this, discussions more held directly with managers and officials to get the clear cut

information about the topic and data to be collected for the purpose of analysis.

2. Secondary Sources:

Annual company reports, Balance Sheets, Profit and Loss account are used to collect the data.

Types of Data Used;

a. Primary data: For this study primary data (the first hand information)

was collected from the direct interaction with senior bank manager as well

as from the respondents.

b. Secondary data: The data, which was collected through

Karnataka State urban co-operative bank news

News papers

Economic times &Articles

Books related to banking sector.

Statistical Tools used to analyze the Data.

The data have been presented in the tables as well as graph in order to enable as to understand

them in accordance with the objective.

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Concepts of the Loans ;

LOANS;

Introduction:

Something lent for temporary use. Or A sum of money lent at interest. Money advanced

to a borrower, to be repaid at a later date, usually with interest. Legally, a loan is a contract

between a buyer (the borrower) and a seller (the lender), enforceable under the Uniform

Commercial Code in most states. The terms and conditions for repayment of a loan, including

the finance charge or interest rate, are specified in a loan agreement. A loan may be payable

on demand (a Demand Loan), in equal monthly installments (an Installment Loan), or they

may be good until further notice or due at maturity (a Time Loan).

When a lender gives money or property to a borrower, and the borrower agrees to return the

property or repay the borrowed money, along with interest, at a predetermined date in the

future is known as loan.

Bank loans are normally classified by:

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(1) Commercial & Industrial Loans to business organizations;

(2) Interbank loans, which are mostly Federal Funds transactions, from one bank to another;

(3) Loan Participations or loans to a single borrower shared by several banks;

(4) Real estate loans, which may be subdivided into construction loans and Mortgage loans;

(5) Loans to consumers, such as auto loans and other forms of consumer installment cre

Introduction;

Lending is the very crux & centre of banking & credit administration which

encompasses the areas like pre- sanction appraisal, credit decision making, documentation,

post sanction follow up & recovery. The banking industry in India, though modeled on

British banking system for historical reasons, has undergone thorough change over the period

from conservative oriented approach to social banking.

The money lent by the bank should come back with interest within the time

stipulated .The banker has to judge the borrower’s capacity on the basis of his background,

purpose, security, repaying capacity etc.

Loan system;

Under the loan system, credit is given for a definite purpose and for a predetermined

period. Normally these loans are repayable in installments. Funds are required for single non-

repetitive transactions and are withdrawn only once. If the borrower needs funds again or

wants renewal of existing loans, a fresh request is made to the bank. Is at liberty to grant or

refuse such a request depending upon his own cash resource, credit worthiness of borrower

and credit policy of the central bank .

Principles of sound lending

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The conventional & established principles of sound lending may be summarized

as follows :

1. The lending must conform to the requirement of national policy.

2. There should not be diversion of bank finance to anti-social, less productive,

unproductive or unapproved purposes.

3. The borrowing must be right for the borrower & be of real help in his financial

problem.

4. The lending must be right for the bank keeping the following points in view

a. It covers social objectives.

b. The money lent can, if necessary, be recovered on demand.

c. It is profitable in the context of the bank’s over all position & carries

flexible rates of interest & concessions.

d. Any security relied on is of adequate value, legally perfect & readily

realizable by the bank.

5. Short term advances with production orientation are to be encouraged.

6. Long term advances are to be discouraged except where

IDBI/NABARD/EXIM Bank refinance is available.

7. Advances to priority/ weaker sectors such as the following should be preferred

a. Small scale industries / village & cottage industries.

b. Transport operators

c. Exports

d. Agriculture

e. Small trader

f. Education

g. Professionals & self employ

PROCEDURE FOR ISSUING LOANS

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1. Approach to the bank manager.

2. Filling the application form.

a. Branches are required to use the appropriate application form & ensure

that the borrowers fill in the form accurately.

b. They are to be signed by authorized signatories of the borrower firm/

company with date.

c. Every form has been introduced to serve a purpose. Hence it is of

utmost importance that relevant particulars/ information in the appropriate

form’s follow & that due care is exercised while filling up the forms.

According to the nature / purpose of advance, it is necessary to incorporate the

d. No column shall be kept blank.

3. The particulars in the property statement should be verified by the Branch Manager

with original documents & they should certify that the statement is correct.

4 . Branch Manager should call for from the applicants the originals of Income Tax,

Sales tax, Agriculture Income tax & Wealth tax assessment orders, with 2 copies of each

order, verify the copies with the originals & certify the copies to that effect. One copy

each

4. Certified shall be sent to Head office & the other retained in the file of the

concerned borrower.

5. Gathering credit information.

An appraisal for an advance begins with the gathering of adequate background

knowledge about borrower’s character & credit worthiness.

6. Appraisal report

Branches should prepare a detailed appraisal report which shall cover the

following aspects :

1) Purpose of advance

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2) Mode of repayment with special reference to capacity of the

borrower

3) Source of repayment

4) Performance of the business / industry

5) techno economic aspects of the present proposal

6) Financial position of the borrower

7) Brief resume of past transactions if he is an existing client

8) Borrowing from banks, institution

9) Securities offered / sharing of securities

10) The business potentiality such as deposit.

7. Sanction at the branch level

If the proposal falls under his sanctioning power, he will sanction the facility by an

order on the proposal.

8. Forwarding of proposals to higher authorities for sanction:

10. Sanctioning the loan amount to the applicant.

A Brief profile of SMEs in India

Importance of SMEs

Small and medium-sized enterprises (SMEs) are the backbone of all economies

and are a key source of economic growth, dynamism and flexibility in advanced

industrialized countries, as well as in emerging and developing economies. SMEs

constitute the dominant form of business organization, accounting for over 95%

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and up to 99% of enterprises depending on the country. They are responsible for

between 60-70% net job creations in Developing countries. Small businesses are

particularly important for bringing innovative products or techniques to the market.

Microsoft may be a software giant today, but it started off in typical SME fashion,

as a dream developed by a young student with the help of family and friends. Only

when Bill Gates and his colleagues had a saleable product were they able to take it

to the marketplace and look for investment from more traditional sources

SMEs are vital for economic growth and development in both industrialized and

developing countries, by playing a key role in creating new jobs. Financing is

necessary to help them set up and expand their operations, develop new products,

and invest in new staff or production facilities. Many small businesses start out as

an idea from one or two people, who invest their own money and probably turn to

family and friends for financial help in return for a share in the business. But if

they are successful, there comes a time for all developing SMEs when they need

new investment to expand or innovate further. That is where they often run into

problems, because they find it much harder than larger businesses to obtain

financing from banks, capital markets or other suppliers of credit.

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CHAPTER IV

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Analysis & Interpretation

ANALYSIS (SMEs)

Q.1) Which type of loan have you taken from the bank?

a) Godown loan b) Stock in trade loan

c) Hypothecation loan d) Others specify ______________

type of loan

Frequency

Percent

Valid Percent

Cumulative Percent

VAL ID

Godown loan 1 12.5 12.5 12.5

hypothecation loan 5 62.5 62.5 75.0

"others" 2 25.0 25.0 100.0

Total 8 100.0 100.0

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INTERPRETATION: From the above graph, it can be seen that 62.5% of people have taken hypothecation loan,25% have taken other loans(working capital),and 12.5% have taken godown loans.Q.2) How much loan have you taken from the bank.

a) Less than 1 lakh b) 1-3 lakh

c) 3-5 lakh d) 5 lakh and more

amount of loan

Frequency Percent

Valid Percent

Cumulative Percent

Valid "3-5 lakh" 1 12.5 12.5 12.5

"5 lakh and above"

7 87.5 87.5 100.0

Total 8 100.0 100.0

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Interpretation:

From the above chart,we can say that 87.5% of SMEs have taken loan 5 lakhs and above and 12.5% of SMEs have taken 3-5 lakh loan from the bank.

Q.3) The rate of interest levied on the loan.

a) 8-10% b) 11-13%

c) 14-16% e) other specify __________

interest on loan

Frequency Percent

Valid Percent

Cumulative Percent

Valid "11-13%"

7 87.5 87.5 87.5

"14-16%"

1 12.5 12.5 100.0

Total 8 100.0 100.0

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INTERPRETATION

From this graph we can see that 87.5% of smes have interest rates ranging from 11-13% and 12.5% of smes 14-16% on their loans.

Q.4) The time taken to process the application.

a) Less than 15 days b) 15-30 days

c) 30-45 days d) More than 45 days

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processing time of appln

Frequency Percent

Valid Percent

Cumulative Percent

Valid less than 15 days

2 25.0 25.0 25.0

15-30 days 1 12.5 12.5 37.5

"30-45 days" 3 37.5 37.5 75.0

more than 45 days

2 25.0 25.0 100.0

Total 8 100.0 100.0

Interpretation Fom the graph we can say that 37.5% of SMEs have their loan approved in 30-45 days,25% each SMEs had their loan approved in less than 15 days and more than 45 days.

Q.5) Periodicity of the loan taken

a) Short term (1-3 yrs) b) Medium term (3-5 yrs)

c) Long term (above 5 yrs)

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periodicity of loan

Frequency Percent

Valid Percent

Cumulative Percent

Valid "short term(1-3 yrs)" 1 12.5 12.5 12.5

"medium term(3-5 yrs)"

3 37.5 37.5 50.0

"long term(above 5 yrs)"

4 50.0 50.0 100.0

Total 8 100.0 100.0

INTERPRETATION: In this case about 50% 0f SMEs have taken long term loan,37.5% of SMEs have medium term loans and 12.5% have short term loans.

Q.6) What is your opinion about sanction and disbursement of loan

a) Rigid b) Flexible

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opinion about sanction and disbursement of loan

Frequency Percent Valid PercentCumulative

Percent

Valid "flexible"8 100.0 100.0 100.0

INTERPRETATION

From the graph it is clear that bank are flexible towards their SMEs.

Q.7) The level of satisfaction with the bank.

a) Highly satisfied b) Satisfied

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c) Dissatisfactory d) Highly dissatisfactory

level of satisfaction with the bank

Frequency Percent Valid PercentCumulative

Percent

Valid "highly satisfied"2 25.0 25.0 25.0

"satisfied" 6 75.0 75.0 100.0

Total 8 100.0 100.0

INTERPRETATION : This graph says that 75% of SMEs are satisfied with their

bank,25% of SMEs are highly satisfied with their banks.Analysis(retail)

Q.1) Gender of the respondent.

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a) Male b) Female

Gender

Frequency Percent Valid PercentCumulative

Percent

Valid "male" 44 88.0 88.0 88.0

"female" 6 12.0 12.0 100.0

Total 50 100.0 100.0

INTERPRETATION: From the above graph it can be seen that 88% of people are males and 12% of them are females.

Q.2) Which kind of vehicle do you own?

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a) Hero Honda b) Bajaj

c) TVS d) others specify

kind of two-wheeler

Frequency Percent Valid PercentCumulative

Percent

Valid "HERO HONDA"20 40.0 40.0 40.0

"BAJAJ" 11 22.0 22.0 62.0

"TVS" 12 24.0 24.0 86.0

"OTHERS " 7 14.0 14.0 100.0

Total 50 100.0 100.0

INTERPRETATION:

The above graph reveals that 40% of people have Hero Honda bike,24% of people

have TVS bikes, 22% of people have BAJAJ bikes whereas 14% people have other bikes.

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Q.3) What is percentage of loan have you taken?

a) 50% - 75% b) 25% - 50%

c) Up to 25%

percentage of loan taken

Frequency Percent Valid PercentCumulative

Percent

Valid "50-75%"33 66.0 66.0 66.0

"25-50%" 17 34.0 34.0 100.0

Total 50 100.0 100.0

INTERPRETATION The above graph reveals that 66% of people have taken 50-75% of vehicle loan amount,34% of people have taken 25-75% of vehicle loan amount.

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Q.4) How much loan have you taken from the bank?

a) l0000 b) 20000

c) 30000 d) 30000 and more

loan amount taken

Frequency Percent Valid PercentCumulative

Percent

Valid "10000" 2 4.0 4.0 4.0

"20000" 7 14.0 14.0 18.0

"30000" 20 40.0 40.0 58.0

"30000 and more"

21 42.0 42.0 100.0

Total 50 100.0 100.0

INTERPRETATION: In this case,42% people have taken RS 30000 loan,40 % people have taken RS30000 loan,14% have taken RS 20000 whereas2% people have taken RS10000.

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Q.5) The rate of interest levied on the loan.

a) 8-10% b) 11-13%

c) 14-16% d) other specify___________

rate of interest

Frequency Percent Valid PercentCumulative

Percent

Valid "8-10%" 1 2.0 2.0 2.0

"11-13%" 19 38.0 38.0 40.0

"14-16%" 30 60.0 60.0 100.0

Total 50 100.0 100.0

INTERPRETATION:

The above graph says that, 60% people have14-16% interest rates,38%

people have11-13% and 2 % people have 8-10% interest rates on their two-wheeler loans.

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Q.6) The time taken to process the application

a) Less than 15 days b) 15-30 days

c) 30-45 days d) More than 45 days

process time for appln

Frequency Percent

Valid Percent

Cumulative Percent

Valid "Less than 15 days"

34 68.0 68.0 68.0

"15-30 days" 11 22.0 22.0 90.0

"30-45 days" 5 10.0 10.0 100.0

Total 50 100.0 100.0

INTERPRETATION:

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From the above pie-chart, it can be found that 68% people got loan in less than 15 days,22% in 15-30days and 10% in 30-45 days.

Q.7) The level of satisfaction with the bank

a) Highly satisfied b) Satisfied

c) Dissatisfactory d) Highly dissatisfactory

level of satisfaction with the the bank

Frequency Percent

Valid Percent

Cumulative Percent

Valid "highly satisfactory"

6 12.0 12.0 12.0

"satisfied" 41 82.0 82.0 94.0

"dissatisfied" 3 6.0 6.0 100.0

Total 50 100.0 100.0

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INTERPRETATION: From the above graph we can see that 82% of people are satisfied with the bank,12% are highly satisfied whereas 6% are dissatisfied with the bank.

Q.8) What is your opinion about sanction and disbursement of loan?

a) Rigid b) Flexible

sanction and disbursement of loan

Frequency Percent Valid PercentCumulative

Percent

Valid "rigid" 12 24.0 24.0 24.0

"flexible" 38 76.0 76.0 100.0

Total 50 100.0 100.0

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INTERPRETATION: The above graph reveals that bank is flexible with 76% of people whereas bank is rigid with 24% of people.

ANALYSIS OF LOANS TO SMES ON YEAR BY YEAR BASIS

YEAR LOANS TO SMEs(RS)

2006-07 8,37,16,702

2007-08 7,09,83,765

2008-09 8,69,48,387

2009-10 10,40,21,322

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2010-11 11,51,07,190

INTERPRETATION:

From the above graph it is found that, loans to smes in 2006-07 were RS 83716702 but in 2007-08 it was decreased to RS 70983765.After that it picked pace in the coming years. Loans to smes inccreased to RS 86948387 and then to RS 104021322 in financial year 2009-10.Finally it was RS 115107190 in the financial year 2010-11.

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Chapter v

Findings, suggestions & conclusion

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FINDINGS(SMEs)

1) It was found that most of the SMEs have taken hypothecation loans.

2) It was also found that most of the SMEs have taken loan of RS 5 lakh and more.

3) It was also seen that SMEs have taken loan at interest rates of 11- 13%.

4) It was observed that 37.5% of SMEs have their loan approved in 30- 45 days.

5) Most of the banks are flexible towards SMEs.

6) We can also see that most of the SMEs are satisfied with their bank.

FINDINGS(RETAIL)

1) It was found that most of the people have purchased hero Honda two wheeler bike.

2) It was also seen that 66% of people have taken 50-75% of vehicles amount as loan.

3) 42% of people have taken loan RS 50000 and more I.e. majority

4) It was also found that 60% of people fetched 14-16% interest rates on their loans.

5) Most of the people are satisfied with their bank.

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Suggestions

1) Loan amount should be raised for all type of loans. Based on the customer credibility they should enhance loan limit.

2) There should be concession in interest rates offered to SMEs. Looking at other banks interest rate they should try to reduce to encash the business.

3) Loan approvals should be made faster as much as possible.

4) There should be some packages for SMEs .It should be given in when they are in financial trouble.

5) Looking at other bank’s interest rate on vehicle loan, they should try to lower the rate.

6) Percentage of loan given to the retails should be increased from the present levels.

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Conclusion

The conclusion so drawn from the study will be useful to the organization to give better

service to the customers and by considering the suggestion minimizing the procedure for

issuing the loans to attract more borrowers .The study was helpful to me also to know about

various loans .

Income of the bank over the years has been steadily increasing .It is a healthy sign of the

bank progress. There is an increase in lending to SMEs and retails.

From the project study it can be concluded that in order to keep Customer’s satisfaction & to

maintain a good relations with customers lower interest may be charged looking into the

spread & providing some of the schemes in Loans.

India has the second fastest growing automobile industry in the world. So there is scope

for growth in the loans to retail industry. There has been a good growth in SMEs so there is a

good possibility of increasing the lending amount to the SMEs.

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BIBILOGRAPHY

REFERENCE BOOKS

CO-OPERATIVE BANKING IN INDIA

(NAKKIRAN.S)

THEROY HISTORY AND PRACTICE OF CO-OPERATIVE BANK

(R.D.BEDI)

URBAN CO-OPRERATIVE BANKS

(DR: MALATI ANAGOL)

ANNUAL REPORTS

MAGAZINE

KARNATAKA STATE URBAN CO-OPERATIVE BANK NEWS

INDIAN CO-OPERATIVE REVIEW.

ECONOMIC TIMES &ARTICLES

BOOKS RELATED TO BANKING SECTOR.

INDIAN BANKER PUBLISHED BY INDIAN BANKS

ASSOCIATION

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ANNEXTURES

QUESTIONNAIRES (FOR SMEs)

Dear sir/madam,

I am pleased to introduce myself as MBA student of KES’s IEMS B-SCHOOL, Tarihal Hubli as a part of curriculum I am conducting a survey on “study of loans to the SMEs & Retail” which would be of great help in conducting my project work for the academic purpose only and information gathered would be kept confidential.

Your inputs and suggestions are valuable for us.

Please tick the appropriate one [√ ]

Personal details

1) Name: _______________________

Place: _______________________

Industry name:_________________

Mobile no :___________________

2) Which type of loan have you taken from the bank?

a) Godown loan b) Stock in trade loan

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c) Hypothecation loan d) others specify __________

3) How much loan have you taken from the bank.

a) Less than 1 lakh b) 1-3 lakh

c) 3-5 lakh d) 5 lakh and more

4) The rate of interest levied on the loan.

a) 8-10% b) 11-13%

c) 14-16% e) other specify __________

5) The time taken to process the application.

a) Less than 15 days b) 15-30 days

c) 30-45 days d) More than 45 days

6) Periodicity of the loan taken

a) Short term (1-3 yrs) b) Medium term (3-5 yrs)

c) Long term (above 5 yrs)

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7) What is your opinion about sanction and disbursement of loan

a) Rigid b) Flexible

8) The level of satisfaction with the bank.

a) Highly satisfied b) Satisfied

c) Dissatisfactory d) Highly dissatisfactory

9) Your opinion and suggestions for the improvement in giving loans to

SMEs _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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QUESTIONNAIRES (FOR RETAILS)

Dear sir/madam,

I am pleased to introduce myself as MBA student of KES’s IEMS B-SCHOOL, Tarihal Hubli. As a part of curriculum I am conducting a survey on “study of loans to the SMEs & Retail” which would be of great help in conducting my project work for the academic purpose only and information gathered would be kept confidential.

Your inputs and views are important for us.

Please tick the appropriate one [√]

Personal details

1) Name: _______________________ Age: __________

Place: _______________________ Gender: Male Female

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Mobile No: ___________________

2) Which kind of vehicle do you own?

a) Hero Honda b) Bajaj

c) TVS d) others specify_______________

3) What is percentage of loan have you taken?

a) 50% - 75% b) 25% - 50%

c) Up to 25%

3) How much loan have you taken from the bank?

a) l0000 b) 20000

c) 30000 d) 30000 and more

4) The rate of interest levied on the loan.

a) 8-10% b) 11-13%

c) 14-16% d) other specify___________

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5) The time taken to process the application

a) Less than 15 days b) 15-30 days

c) 30-45 days d) More than 45 days

6) The level of satisfaction with the bank

a) Highly satisfied b) Satisfied

c) Dissatisfactory d) Highly dissatisfactory

7) What is your opinion about sanction and disbursement of loan?

a) Rigid b) Flexible

8) Your opinion and suggestions for the improvement in giving loans to retailers

___________________________________________________________________

___________________________________________________________________________

___________________________________________________________________________

___________________________________________________________________________

_______________________

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