SANCTION OF AGRICULTURE LOAN

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SANCTION OF AGRICULTURE LOAN

  1. 1. A TPP REPORT ON ‘SANCTION OF AGRICULTURAL LOANS’ ‘STATE BANK OF INDIA, UKLANA MANDI, HISAR BRANCH CODE 002499 FOR FULFILING THE REQIREMENT OF THE AWARD OF DEGREE OF MBA 5 YEAR Subject: TPP (MBA-883) Under the Supervision of Mr. N.B. GAIKWAD SUBMITTED TO:- SUBMITTED BY :- The Director ASHISH SONI 9TH SEMSTER ROLL NO. 35 Registration no. (09-UD-705) INSTISTUTE OF MANAGEMENT STUDIES KURUKSHETRA UNIVERSITY,KURUKSHETRA (September 2013)
  2. 2. PREFACE This project report has been prepared as per the requirement of the syllabus ofMBA course structure under which the students are the required to undertake project. It was a first-hand experience for us as that we were exposed to the professional Set-up and were facing the market, which was really a great experience. During project period, I had very touching experiences. When business is involved, experiences counts a lot, as we know, experience are an instrument, which leads towards success. Now I take this opportunity to present the project report and sincerely hope that it will be as much knowledge enhancing to the readers as it was to use during the fieldwork and the compilation of the report. ASHISH SONI
  3. 3. ACKNOWLEDGEMENT Gratitude is the hardest of emotions to express and often one does not find adequate words to convey that entire one feels. Perhaps it is natural to every human being that when you are really thankful and sincerely want to express you gratitude towards someone, just you run out of words; in spiteof healthy vocab. First of all I would like to thanks Dr. M.K. JAIN (Director, Institute Of Management Studies, KUKwho gave me opportunity for training by making a part of the esteem organization. I express my sincere deep gratitude to MrN.B. GAIKWAD (FIELD OFFICER) under whose guidance I could achieve my project completion and contributing their skills and creativity, which made my report appealing and attractive. Besides, I would like to thanks My family members for their constant cooperation and help. In the absence of above mentioned people, this project would not have been in the present style. ASHISH SONI
  4. 4. DECLARATION I hereby declare that this project titled “To study about agriculture loan (Pre & Post sanction & schemes)‖ is my own work done underSBI, BRANCH UKLANA MANDI as a part of my winter training. This work is originally done by me and I have not replicated it from any other source. Though I have taken few references which have been mentioned in the bibliography. ASHISH SONI
  5. 5. CONTENTS Chapter No. Title of the Chapter Page No. 1.Introduction of banking sector 7-11 A) Bank B)History C) Economic function D)Entry regulation 2.Introduction of State Bank of India 12-18 A) History B) Organisation Structure C) Vision D) Mission E) Products and services 3.Assignment taking during training19-48 -Operational SECTOR A) Agricultural sector a) Agri. pre-sanction -Assessment and Sanction -appraisal process b) Agriculture Credit schemes B) Agri. postsanction a) Sanction of credit facilities
  6. 6. b) Documentation4 c) Control report d) Inspection e) Recovery of bank dues f) Insurance C) Findings 4. SWOT analysis,Suggestion & Conclusion 49-52 References 53
  7. 7. CHAPTER: I INTRODUCTIONTO BANKING SECTOR A) Bank A bank is license by a government. Its primary activity is to lend money. Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United States banks are prohibited from owning nonfinancial companies. In Japan, banks are usually the nexus of a cross-shareholding entity known as the zaibatsu. In France, banc assurance is prevalent, as most banks offer insurance services (and now real estate services) to their clients. The level of government regulation of the banking industry varies widely, with counties such as Iceland, the United Kingdom and the United States having relatively light regulation of the banking sector, and countries such as China having relatively heavier regulation (including stricter regulations regarding the level of reserves). B) History Banks have influenced economies and politics for centuries. Historically, the primary purpose of a bank was to provide loans to trading companies. Banks provided funds to allow businesses to purchase inventory, and collected those funds back with interest when the goods were sold. For centuries, the banking industry only dealt with businesses, not consumers. Banking services have expanded to include services directed at individuals, and risks in these much smaller transactions are pooled. C) Economic functions:- The economic functions of banks include: 1. Issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or cash.
  8. 8. 2. Netting and settlement of payments – banks act as both collection and paying agents for customers, participating in interbank clearing andsettlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them. 3. Credit intermediation – banks borrow and lend back-to-back on their own account as middle men. 4. Credit quality improvement – banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. 5. Maturity transformation – banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals). D) Entry regulation Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate. Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order—although money lending, by itself, is generally not included in the definition. Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the Financial Services Authority licenses banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank. Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank licence requirements,and therefore regulated under separate rules. The requirements for the issue of a bank licence vary between jurisdictionsbut typically include: 1. Minimum capital
  9. 9. 2. Minimum capital ratio 'Fit and Proper' requirements for the bank's controllers, owners, directors,and/or senior officers. The requirements for the issue of a bank licence vary between jurisdictions but typically include: 3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior officers. 4. Approval of the bank's 5. Business plan as being sufficiently prudent. The economic functions of banks include: 6. Issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or cash. 7. Netting and settlement of payments – banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them. 8. Credit intermediation – banks borrow and lend back-to-back on their own account as middle men. 9. Credit quality improvement – banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position. 10. Maturity transformation :-Banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintaining reserves of cash, investing in marketable securities
  10. 10. that can be readily converted to cash if needed, and raisingreplacement funding as needed from various sources (e.g. wholesale cash markets and securities markets). Banking law is based on a contractual analysis of the relationship between the bank (defined above) and the Customer:-defined as any entity for which the bank agrees to conduct an account. The law implies rights and obligations into this relationship as follows: 11. The bank agrees to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account. 12. The banks have a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship. 13. The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank. 14. The bank must not disclose details of transactions through the customer's account—unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it. 15. The banks must not close a customer's account without reasonable notice, since cheques are outstanding in the ordinary course of business for several days. These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship. Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate. Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order— although money lending, by itself, is generally not included in the definition. Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the Financial Services Authority licences banks, and some
  11. 11. commercial banks(such as the Bank of Scotland) issue their own banknotes in addition tothose issued by the Bank of England, the UK government's central bank. Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank licence requirements, and therefore regulated under separate rules. E) Major competitor Some of the major competitors for SBI in the banking sector are ICICI Bank, HDFC Bank, Axis Bank, Bank of India, Punjab National Bank and Bank of Baroda. However in terms of average market share, SBI is by far the largest player in the market.
  12. 12. CHAPTER 2 2. INTRODUCTION OF STATE BANK OF INDIA State Bank of India (SBI) is a multinational banking and financial services company based in India. It is a government-owned corporation with its headquarters in Mumbai, Maharashtra. As of December 2012, it had assets of US$501 billion and 15,003 branches, including 157 foreign offices, making it the largest banking and financial services company in India by assets. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of Madras merged into the other two presidency banks—Bank of Calcutta and Bank of Bombay—to form the Imperial Bank of India, which in turn became the State Bank of India. Government of India nationalised the Imperial Bank of India in 1955, with Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the government took over the stake held by the Reserve Bank of India. SBI was ranked 285th in the Fortune Global 500 rankings of the world's biggest corporations for the year 2012. SBI provides a range of banking products through its network of branches in India and overseas, including products aimed at non-resident Indians (NRIs). SBI has 14 regional hubs and 57 Zonal Offices that are located at important cities throughout the country. SBI is a regional banking behemoth and has 20% market share in deposits and loans among Indian commercial banks. The State Bank of India was named the 29th most reputed company in the world according to Forbes 2012 rankings.and was the only bank featured in the "top 10 brands of India" list in an annual survey conducted by Brand Finance and The Economic Times in 2012.
  13. 13. A) History Seal of Imperial Bank of India The roots of the State Bank of India lie in the first decade of 19th century, when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of Bengal was one of three Presidency banks, the other two being the Bank of Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated as joint stock companies and were the result of the royal charters. These three banks received the exclusive right to issue paper currency till 1861 when with the Paper Currency Act, the right was taken over by the Government of India. The Presidency banks amalgamated on 27 January 1921, and the re-organised banking entity took as its name Imperial Bank of India. The Imperial Bank of India remained a joint stock company but without Government participation. The All India Rural Credit Survey Committee proposed the takeover of theImperial Bank of India, and integrating with it, the former state-owned or state associate banks. Subsequently, an Act was passed in the Parliament of India in May 1955. As a result, the State Bank of India (SBI) was established on 1 July 1955. This resulted in making the State Bank of India more powerful, because as much as a quarter of the resources of the Indian banking system were controlled directly by the State. Later on, the State Bank of India (Subsidiary Banks) Act was passed in 1959. The State Bank of India emerged as a pacesetter, with its operations carried out by the 480 offices comprising branches, sub offices and three Local Head Offices,inherited from the
  14. 14. Imperial Bank. Instead of serving as mere repositories of the community's savings and lending to creditworthy parties, the State Bank of India catered to the needs of the customers, by banking purposefully. State Bank of India (SBI) (LSE: SBID) is the largest bank in India. The bank traces its ancestry back through the Imperial Bank of India to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. The Government of India nationalised the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the Government took over the stake held by the Reserve Bank of India. Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India, which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 1 July 1955, the Imperial Bank of India became the State Bank of India. The government of India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the country's banking regulatory authority. In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which made eight state banks associates of SBI. A process of consolidation began on 13 September 2008, when the State Bank of Saurashtra merged with SBI. SBI has acquired local banks in rescues. The first was the Bank of Behar (est. 1911), which SBI acquired in 1969, together with its 28 branches. The next year SBI acquired National Bank of Lahore (est. 1942), which had 24 branches. Five years later, in 1975, SBI acquired KrishnaramBaldeo Bank, which had been established in 1916 in Gwalior State, under the patronage of Maharaja MadhoRaoScindia. The bank had been the DukanPichadi, a small moneylender, owned by the Maharaja. The new banks first manager was Jall N. Broacha, a Parsi. In 1985, SBI acquired the Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank of Travancore, already had an extensive network in Kerala. The State Bank of India and all its associate banks are identified by the same blue keyhole logo. The State Bank of India word mark usually has one standard typeface, but also utilises other typefaces.
  15. 15. B)Organisational Structure Reserve Bank of India is the regulating body for the Indian Banking Industry. It is a mixture of Public sector, Private sector, Co-operative banks and foreign banks. The private sector banks are further spilt into old banks and new banks. Scheduled Banks Scheduled Commercial Banks Public Sector Banks Private Sector Banks Foreign Banks Regional Rural Banks Nationalized banks SBI & its Associates Old private sector Banks New private sector Banks Scheduled Co-operative Banks Scheduled urban cooperative Bank Scheduled State co- operative Banks
  16. 16.  Current Board of Directors As on 14 January 2013, there are fifteen members in the SBI board of directors: PratipChaudhuri (Chairman) Hemant G. Contractor (Managing Director) Arundhati Bhattacharya (Managing Director & Chief Financial Officer) A. Krishna Kumar (Managing Director) S. Visvanathan (Managing Director) S. Venkatachalam (Director) D. Sundaram (Director) Thomas Mathew (Director) S.K. Mukherjee (Officer Employee Director) Rajiv Kumar (Director) JyotiBhushanMohapatra (Workmen Employee Director) Deepak Amin (Director) HarichandraBahadur Singh (Director)  MISSION, VISION AND VALUES C) MISSION STATEMENT: To retain the Bank‘s position as premiere IndianFinancial Service Group, with world class standards and significant global committed to excellence in customer, shareholder and employee satisfaction and to play a leading role in expanding and diversifying financial service sectors while containing emphasis on its development banking rule. D) VISION STATEMENT: Premier Indian Financial Service Group with prospective world-class Standards of efficiency and professionalism and institutional values. Retain its position in the country as pioneers in Development banking. Maximize the shareholders‘ value through high-sustained earnings per Share.
  17. 17. An institution with cultural mutual care and commitment, satisfying and Good work environment and continues learning opportunities.  VALUES: Excellence in customer service Profit orientation Belonging commitment to Bank Fairness in all dealings and relations Risk taking and innovative Team playing Learning and renewal Integrity Transparency and Discipline in policies and systems. E) PRODUCTS AND SERVICES:  PRODUCTS: State Bank Of India renders varieties of services to customers through the following products: Personal Loan Product: SBI Term Deposits SBI Recurring Deposits SBI Housing Loan SBI Car Loan SBI Educational Loan SBI Personal Loan SBI Loan For Pensioners Loan Against Mortgage Of Property
  18. 18. Loan Against Shares & Debentures Rent Plus Scheme Medi-Plus Scheme  SERVICES: DOMESTIC TREASURY SBI VISHWA YATRA FOREIGN TRAVEL CARD BROKING SERVICES REVISED SERVICE CHARGES ATM SERVICES INTERNET BANKING E-PAY E-RAIL RBIEFT SAFE DEPOSIT LOCKER GIFT CHEQUES  Other SBI service points SBI has 27,000+ ATMs (25,000th ATM was inaugurated by the then Chairman of State Bank Shri O.P. Bhatt on 31 March 2011, the day of his retirement); and SBI group (including associate banks) has about 45,000 ATMs. SBI has become the first bank to install an ATM at Drass in the Jammu & Kashmir Kargil region. This was the Bank's 27,032nd ATM on 27 July 2012.
  19. 19. CHAPTER-3 3. ASSIGNMENT TAKING DURING TRAINING  OPERATIONAL SECTOR  AGRICULTURAL SECTOR I. Pre-sanction II. Post-sanction 1. PRE SANCTION CREDIT PROCESS a. WHY AGRICULTURE LOAN?  To provide focused attention to the banking requirement of the agriculture sector.  To help in making agriculture a commercial proposition.  To fill credit gaps and make fund available at the right time, in adequate quantity.  To help in increasing agriculture production and income.  To aim at integrated development of agriculture. b. List some of the agriculture activities for which SBI offers agriculture loans.  Crop Production  Buying farm machinery  Construction of Cold Storage and godawns  Transportation of Crop from the field to the marketLand development
  20. 20. 1.1 TYPES OF AGRICULTURE CREDIT SCHEME CROP LOAN/ KISAN CREDIT CARD KISAN GOLD CARD PRODUCE MARKETING LOAN LAND PURCHASE SCHEME GENERAL CREDIT CARD LOAN GRAMIN BHANDARAN AGRICULTURE GOLD LOAN MINOR IRRIGATION SCHEMES SBI KRISHAK UTHAN YOJNA FINANCE TO HORRICULTURE A.PRODUCTION CREDIT a) Kisan Credit Card Scheme (KCC) i. Purpose :To extend adequate and timely support to farmers for their short term credit needs. ii. Who are eligible for the loan :Farmers with excellent repayment record for 2 years. New farmers with sizeabledeposits with our branches for 3 to 4 years are also eligible. iii. Borrowers with good trackrecord in other Banks are alsoeligible :Farmers who have defaulted in repayment but have liquidated the outstandings arealso eligible. TYPES OF AGRICULUTRE CREDIT SCHEMES PRODUCTION CREDIT INVESTMENT CREDIT
  21. 21. iv. Loan Amount:Loan amount is decided based on the cropping pattern, ancillary and contingencyneeds of the farmer for the full year. 90 % of the cost of cultivation (Scale of Finance) is given as loan per acre. 100 % of the cost is available as loan up to Rs.50, 000/- and 85 % of the cost is available as loan above Rs. 1, 00,000/- Loan Amount: Security to be furnished up to Rs. 50,000:Hypothecation of crops. Above Rs. 50,000 and up to Rs.1, 00,0001. Hypothecation of crops 2. Mortgage of lands or Third party guarantee Above Rs.1, 00,000: 1. Hypothecation of crops 2. Mortgage of lands or Third party guarantee For tobacco, Sugarcane and1. Hypothecation of crops other crops under tie-up2. a. Hypothecation of crops arrangement with boards/b. Mortgage of lands or Third party guarantee factories/ companies i. Up to Rs. 1 Lac ii. Above one lac v. How do you repay:It is a revolving cash credit limit with any number of withdrawals and repayments. vi. How to apply for this loan:You may contact our nearest branch for the application or even talk to themarketing officers visiting your village and produce the landdocuments.Loan amount is decided based on the cropping pattern, ancillary and contingencyneeds of the farmer for the full year. 90 % of the cost of cultivation (Scale ofFinance) is given as loan per acre. 100 % of the cost is available as loan upto Rs.50,000/- and 85 % of the cost is available as loan above Rs. 1,00,000/-
  22. 22. vii. Documents you need to provide:Land records to ascertain cultivation rights. Average under different cropsSources of other borrowings eg. Co-operative Societies and Banks. viii. Disbursement of the loan : As per the cultivation requirements of the crop the loan amount is disbursed in cashand kind (for fertilizers, pesticides etc) b) PRODUCE MARKETING LOAN i. PURPOSE : To meet short term credit requirement to adjust/repay the outstanding crop Loan/KCC limit availed by farmers from the bank and to procure better price by storing farm produce and selling it at favourable price within a specified period. ii. ELIGIBILITY : Loan will be available only to those farmers who have availed themselves of crop loan/KCC facility/composite cash credit limit from our Bank only for raising the concerned crops in that season which should not be overdue for repayment. iii. NATURE & EXTENT OF FACILITY:Short term loan. Maximum up to Rs.5 lakh. The loan would be twice the amount of crop loan taken by farmer or 75 per cent of the value of the produce calculated at the Government announced procurement prices, whichever islower. iv. REPAYMENT OF LOAN :Produce (Marketing) Loan shall be repaid within a maximum period of twelve months from the date of its disbursement. c) GENERAL CREDIT CARD LOAN i. Purpose The scheme is to provide hassle-free credit to our customers based on the assessment of cash flow without insistence on security, purpose or end-use of the credit. ii. Who are eligible for the loan? Eligibility: i. All our existing customers with the branch having satisfactorily conducted deposit accounts including no frills deposit accounts in our books; say, for the last 6 months, or so, and / or loan accounts classified as standard assets will be eligible for availing
  23. 23. loan under the scheme. ii. GCC facility should, however, not be extended to the KCC borrowers. iii. Loan amount Maximum Rs 25000 / iv. Security: Nil v. How to repay the loan Account will be in the nature of cash credit. The outstanding amount in the GCC should be cleared in full when the applicant is fluid with cash which may be at yearly/ half yearly / quarterly / monthly intervals based on the occupation of the applicant / his family. In case the entire amount is not repaid a minimum of 20 % of the amount due along with upto date interest debited should at least be repaid. vi. How to apply for this loan you may contact our nearest branch or talk to the marketing officers visiting your village. d) AGRICULTURE GOLD LOAN i. Purpose Bank extends hassle free finance to farmers / agriculturists against Gold Ornaments / gold wares to increase their liquidity to meet crop production expenses, Investment expenses related to agriculture and / or allied agricultural activities. ii. Eligibility Any person engaged in agriculture or allied activities as well as persons engaged in activities permitted to be classified under agriculture. iii. Quantum of Loan Upto 70% of the value of the ornaments .Value will be as advised by the bank to the branches periodically. iv. Security Pledge of gold ornaments. v. How do you repay Credit / Overdraft: Like KCC, it is a running account for a period of 3 years. vi. Demand Loan / Term Loan :The repayment period of the loan should be fixed so as to coincide with the harvesting and marketing season / generation of income from the activity, allowing 2 to 3 months time after harvesting to market the produce and realize the proceeds. However, the total period will not generally exceed one year
  24. 24. from the disbursement of the loan in the case of short-term loan / production credit and 36 months in other cases. vii. How to apply for this loan Contact your nearest Branch engaged in Agricultural advance. e) KRISHAK UTHAAN YOJNA i. Purpose This scheme is to provide short term production and consumption credit to meet Genuine requirements of tenant farmers, share croppers and oral lessees who do not have recorded land records and where there is no written undertaking/ document available to substantiate raising of crops by the tenant farmer/ share cropper/oral lessee. It will help increase their income from agriculture production activities. ii. Who are eligible? Landless labourers, share croppers, tenant farmers, oral lessees, (also covering oral tenants & small farmers) having no recorded land records are eligible .They should have a permanent residential address proof & have been residing at the lace for at least past 2 years. • Migratory tillers are not eligible under the scheme. iii. Loan amount Maximum of Rs 50000/ .out of which maximum consumption credit will be Rs 10000/ iv. What documents you need to provide (1) Proof of residence (2) Proof of identity (3) Affidavit in the prescribed format, duly notarized v. Security: Nil vi. How do you repay: You should route the sale proceeds through the cash credit account vii. How to apply for this loan You may contact our nearest branch or even talk to the marketing officers visiting your village.
  25. 25. b)INVESTMENT CREDIT a) KISAN GOLD CARD i. Purpose:To sanction hassle free term loans to farmers having excellent repayment record. Investment credit for which term loans are ordinarily sanctioned are covered. Consumption loan to meet domestic expenses like children‘s education, marriage, medical expenses etc.are also be included to the extent of 20 % of limit. ii. Who are eligible for Term Loans: Farmers with excellent repayment record for at least past 2 years. New farmers with sizeable deposits with our branches for 3 to 4 years. Good borrowers with other Banks. Farmers who have defaulted in repayment but have liquidated theout standings. Farmers who have closed accounts without any default in the last three years but are not our current borrowers. i. Loan Amount : Loan amount is fixed on the basis of 5 times annual farm income or 50% of the value of the land mortgaged as collateral security minus term loan out standings whichever is more subject to a maximum of Rs.5 lacs. ii. Documents you need to provide:Land records other than that is already given to the Bank viz. likerecord of rights / encumbrance if required. iii. Security Amount of Loan Security to be FurnishedHypothecation of assets financed A). Where movable assets are not created (eg. Dug wells,development of land etc.)a) Personal Guarantee a) Up to Rs. 10,000/- b)b)i. Personal Guarantee Above Rs.10,000/-ii Mortgage of land B). Where movable assetsi. Hypothecation of assets financed are created (pump set,ii. Mortgage of lands or Third party Pipeline etc.)guarantee. a) Hypothecation of the assets created a) up to Rs.50,000/- b) i. Hypothecation of the assets created ii. Mortgage of land / other property or third party guarantee.
  26. 26. b) Above Rs.50, 000/- to Rs. 1 lac c) i. Hypothecation of the assets created c) Above Rs. 1 lacii. Mortgage of land or other property i. How do you Repay : Repayment of loan will be in quarterly/half yearly / yearly instalments depending on the harvest of the crops or the liquidity created by the agriculture activity undertaken. ii. How to apply for this loan :You may contact our nearest branch for the application or even talk tothe marketing officers visiting your village and produce the landdocuments. b) Land Purchase Scheme i. Purpose:Loan to small and marginal farmers / landless labourers for purchase of agricultural land. ii. Eligibility:Small/marginal farmers, tenants, share-croppers owning less than 5 acres ofunirrigated / 2.5 acres irrigated land in their own name and landless agriculturallabourers, with record of prompt repayment of loans, are eligible to avail this loan.Own land before and after purchase should not exceed 5 acres unirrigated / 2.5acres irrigated land. iii. Loan Amount:Maximum loan amount under the scheme will be Rs.5 lac. Credit facilities for development of land, irrigation facilities and for cultivation of crops will also beavailable. A farmer will be required to contribute minimum 15 percent of total costas margin from his own resources. iv. Security:Land to be purchased with Bank finance will be mortgaged as security. No othersecurity will be insisted upon. v. Rate of Interest:As applicable to Agricultural Term Loans. vi. How do you Repay:Repayment of loan will be half yearly / yearly installments depending on the harvest of the crops or the liquidity created by the agriculture activity undertaken over a period of 10 years. Adequate gestation period will be allowed for development of land.
  27. 27. vii. How to apply for this loan :You may contact our nearest branch for the application or even talk to the marketing officers visiting your village and produce the land documents. c) GRAMIN BHANDARAN YOJNA i. Purpose This scheme is for creating scientific storage capacity in the rural areas for storing farm produce ,thereby prevent distress sale of produce by the farmers after harvest ,by promoting pledge financing and marketing credit. ii. Who are eligible for the loan? 1. Individuals / Farmers. Quality cum inputs testing laboratories. 2. Proprietary and partnership terms.. 3. Co-operatives, Agro-processing co-operative societies. 4. Companies. 5. Corporations, Agro-Industrial corporations. 6. Agricultural Produce Marketing Committees.. 7. Group of Farmers/Growers. 8. NGOs 9. Agro-Processing Corporations.. 10. Self Help Groups. 11. Marketing Boards etc. The godown can be constructed / located in any area outside the limits of a Municipal Corporation area. Rural godowns located in Food Parks promoted by Ministry of Food Processing Industries are also eligible. iii. Loan amount Depending on the project cost. Maximum Project cost will be Rs 1500/ to 2000/ per tonne capacity for construction and Rs 500/ per tonne for renovation NABARD is providing back end subsidy for the projects financed by the Banks ,depending on the location and capacity of the godowns Bank will financeupto 80 % of the Project cost iv. Security: Mortgage /charge of Land and godown v. How do you repay: The loan should be repaid in 11 years, with a grace period of one year. Subsidy will be credited as the final instalments .
  28. 28. vi. How to apply for this loan? You may contact our nearest branch or even talk to the marketing officers visiting your village. d) Minor Irrigation Schemes i. Purpose :Credit for creating irrigation facilities from underground / surface water sources All structures and equipment‘s connected with it are also financed. Loans cover various activities like digging of new wells (open/bore wells), deepening of existing wells (traditional/in well bore), energisation of wells (oil engine/electrical pump set), laying of pipe lines, installing drip/sprinkler irrigation system and lift irrigation system. ii. Who are eligible for Term Loans :All farmers having a known source of water which can be exploited for irrigation purpose. iii. Amount of Loan:Security to be furnished A). Where movable assets are not created(eg. Dug wells,development of land etc. a) UptoRs. 10,000/-a) Personal Guarantee b) Above Rs.10,000/-b)i. Personal Guarantee ii Mortgage of land B). Where movable assets are created (pumpset, pipeline etc.) a) Upto Rs.50,000/-a) Hypothecation of the asset created b) Above Rs.50,000/- to Rs.b) i. Hypothecation of the assets created 1 lacii. Mortgage of land or third party guarantee c) Above Rs. 1 lacc) i. Hypothecation of the assets created ii. Mortgage of land iv. How do you Repay :Repayment of loan will be in quarterly/half yearly / yearly instalments depending on the harvest of the crops or the liquidity created by the agriculture activity undertaken.
  29. 29. v. Loan amount :UptoRs. 50,000/- 100 % of the cost of the asset / project cost is provided as loan.AboveRs. 50,000/- upto 85 % of the cost of the asset / project is provided as loan. vi. Documents you need to provide :An estimate for civil works to be undertaken and quotation for the assets to be purchased have to be submitted. Land records to ascertain the title to the property, Geologist certificate and feasibility certificate from the electricity board should also be submitted where relevant. e) Finance to Horticulture i. Purpose : Loans for development of fruit orchards like mango, chikoo, Guava, Grapes, pomegranate, apple, lechee etc., as well as short term fruit crops (banana, pineapple etc.), flowers in open and green houses (roses, carnation, chrysanthemums, jasmine etc.) and vegetable crops (potato, tomato, brinjal, gourds, peas etc.) are financed. ii. Who are eligible for Term Loans :All farmers having cultivable lands. iii. Loan Amount :UptoRs. 50,000/- 100 % of the cost of the asset / project cost is provided as loan. Above Rs. 50,000/- upto 85 % of the cost of the asset / project is given as loan. For short term loans the loans are given under our crop loan / Kisan Credit Card scheme and the terms applicable under these scheme are applicable for these loans. Other requirements for long term loans are given below. iv. Documents you need to provide: For orchard development you need to submit the following: i) Water and soil test report. ii) A feasibility certificate from the local horticulture department. iii) Land records. iv) Quotation / estimates for the costs to be incurred. v) If the project is large then a project report .
  30. 30. i. Disbursement of loan :Generally disbursements are made directly to the suppliers as per the schedule set in your proposal. ii. Security Amount of Loan: Security to be Furnished a) UptoRs. 50,000/Hypothecation of assets created b) Above Rs. 50,000/- to Rs. 1i) Hypothecation of assets created lacii. Mortgage of land or third party guarantee c) Above Rs. 1 laci. Hypothecation of the assets created ii. Mortgage of land i. How do you Repay : The loan repayment starts after the completion of the gestation period varying from 4 to 7 years for different crops. Repayment commences from the time the crop gives economic yield and is linked to the income generation of each crop every year and varies between 7 years to 12 years. ii. How to apply for this loan : You may contact our nearest branch for the application or even talk to the marketing officers visiting your village and produce the land documents. 1.1PRE SANCTIONASSESSMENT AND SANCTION a) Assessment – Indicative List of Activities Once the appraisal of a proposal is done, the proposal is sent for assessment. Following is a list of activities to be carried out while assessing a proposal: Review the draft proposal together with the back-up details/ notes, and the Borrower‘s application, financial statements and other reports/ documents Examined by the Appraiser. Interact with the Borrower and the Appraiser. Carry out the pre-sanction visit to the applicant company and their project/ factory site. Peruse the financial analysis (Balance Sheet/ Operating Statement/ Ratio Analysis/
  31. 31. Funds Flow Statement/ Working Capital Assessment/ Project Cost and Sources/ Break-Even Analysis/ Debt Service/ Security Cover etc.) to see if this is prima facie in order. If any deficiencies are seen, arrange with the Appraiser for the analysis on the correct lines. Examine critically the following aspects of the proposed exposure: Bank‘s Lending Policy and other guidelines issued by the Bank RBI Guidelines Background of promoters/ senior management Inter-firm comparison Technology in use in the Company Market conditions Projected performance of the Borrower vis-à-vis past estimates and performance Viability of the project Strengths and Weaknessesof the borrower entity. Proposed structure of facilities Adequacy/ correctness of limits/ sub-limits, margins, moratorium and repayment schedule Adequacy of proposed security cover Credit Risk Rating Pricing and other charges and concessions, if any, proposed for the facilities Risk factors of the proposal and steps proposed to mitigate the risk Deviations proposed from the norms of the Bank and justifications therefor Arrange with the Appraiser to draw up the proposal in the final form. Recommendation for sanction: Recapitulate briefly the conclusions of the appraisal and state whether the proposal is economically viable. Recount briefly the value of the Company‘s/ Group‘s connections State whether, all considered, the proposal is a fair banking risk. Finally, give recommendations for grant of the requisite FB and NFB creditfacilities.
  32. 32. b) Sanction – Indicative List of Activities After the assessment of the proposal, in case the proposal is found suitable, the proposal issanctioned. A list of activities followed while sanctioning a proposal is given below: Peruse the proposal to see if the report prima facie presents the proposal in a comprehensive manner as required. If any critical information is not provided in the proposal, remit it back to the Assessor for supply of the required data/ clarifications. Examine critically the following aspects of the proposed exposure in the light of the o corresponding instructions in force: Bank‘s lending policy and other relevant guidelines RBI Guidelines Borrower‘s status in the industry Industry prospects Experience of the Bank with other units in similar industry Overall strength of the Borrower Projected level of operations Risk factors critical to the exposure and adequacy of safeguards proposed thereagainst Value of the existing connection with the Borrower Credit Risk Rating Security, pricing, charges and concessions proposed for the exposure and covenants stipulated vis-à-vis the risk perception c) Sanction Accord sanction of the proposal on the terms proposed or by stipulating modified or additional conditions/ safeguards OR Defer decision on the proposal and return it for additional data/ clarifications OR Reject the proposal, if it is not acceptable, setting out the reasons for that.
  33. 33. d)General Guidelines for Pre-Sanction Process Functional Responsibilities Wherever two functionaries are assigned, the functions relating to a single stage (for example Appraisal), they will carry out all the functions relating to this stage either Individually or jointly. Following are the functional responsibilities: The senior functionary will decide the requirement in this regard. o Each of them will carry the responsibility for discharging the functions with due diligence. o Wherever a functionary or an Officer at a Controlling Office is assigned the task of additional assessment‘, such functionary/ Officer will carry out all the functionsrequired for assessment, either individually or jointly with the functionaries at the Branch as required. o The functionary/ Officer at the Controlling Office will decide the requirement in this regard. o The additional assessment functions will not ordinarily require for each case a presanction visit and/ or interaction with the Appraiser/ Borrower. o However, if they are considered necessary, they will also be performed as part of additional assessment. o At the appraisal stage, the Appraiser will then review the proposal (including background papers) in full form, i.e. complete in all respects as a draft. o The Assessor will then review the proposal and if he finds that additional information/ comments or modified comments are to be furnished, he will arrange with the Appraiser for such addition/ modification to be incorporated in the draft proposal. o An integrated final proposal will thereafter be submitted. o In cases where material changes in a proposal/ report are made by the Assessor, the Appraiser may, if he so desires, place on record a copy of the draft proposal/ report for later reference.
  34. 34. o When an Official who is to carry out additional assessment finds that the proposal received is to be re-drafted, the Official will prepare a fresh proposal and submit it to the next authority. The proposal received from the Assessor will be held only as part of the record. o In respect of proposals which require sanction separately of different facilities (e.g., FB and NFB) by authorities at different levels, the highest level authority in the sanction trail will sanction all the facilities recommended in the proposal or as advised from time to time in the ‗Scheme of Delegation of Financial Powers‘. o The three stages involved in Pre-sanction Credit Process (PCP) will generally be handled by three different functionaries. e) Administrative Clearance While exercising financial powers vested in them, the Bank‘s officials may have to seek prior administrative clearance (AC) from higher authorities as laid down by Credit Policy and Planning Department (CPPD) from time to time. The system of AC affords an opportunity for prioritization of the banking business from a macro perspective. However, a credit decision on any proposal has to be viewed from the overall merits of each case and not merely on the basis of the AC. The AC accorded by Circle Credit Committee (CCC)/ Central Office Credit Committee (COCC) is valid for 8 weeks. In case the credit proposal is not submitted to the appropriate Sanctioning Authority (SA) within this period, a fresh AC will have to be obtained. The credit facilities should be released only after the appropriate authority sanctions the relative facilities. However, in cases where there is an urgent need for release of credit facilities in anticipation of sanction, the CCC should accord prior clearance to the release of credit facilities, in respect of advances that fall within the CCC sanctioning powers. In case release of credit facilities in anticipation of sanction is sought in respect of advances requiring sanction by ECCB, the proposal has to be accorded prior AC by the Chairman. Regular credit proposals and rehabilitation proposals for sanction by/ recommendations of the CCC should be prepared in conformity with the terms of AC given for the proposal and submitted within the validity of the AC. Any deviation in the proposal should be clearlyhighlighted.Where there is no deviation, a certificate to this effect should be incorporated in theproposal.
  35. 35. f) Concurrent Borrowing Before sanctioning any credit limit, the Branch should ensure that the applicant is not enjoying similar or other credit facilities with other banks. Normally, multiple borrowing/ multiple facilities to the same Borrower from two or more banks should not be allowed. In case the applicant is found to have any credit facility from any other bank or financial institution (FI), detailed information should be called from the concerned bank/ FI. Along with the loan application, the applicant should submit a declaration regarding the existing credit arrangements. He should also furnish an undertaking that stocks will not be hypothecated to any other bank without prior approval of the Bank. Such multiple borrowings by persons, without the Bank‘s written consent, should be viewed as financial indiscipline.In case it is subsequently found that the Borrower had made a false statement in regard toconcurrent borrowings, the advances will be recalled forthwith. As far as possible, Borrowershould be advised to restrict their borrowings to one Bank only. Applicants seeking credit facilities of Rs. 25 lacs or above, should furnish information, in the loan application, about all pending litigations, which have been initiated by another financer including banks against applicants, their partners, directors, etc. for recovery of dues. Similarly, in the loan proposals, this information should also be furnished in the appraisal submitted for sanction of credit limits of Rs. 25 lacs and above under ‗Other Details‘, along with information on RBI Defaulters List/ ECGC Caution List. g) Sanction within Financial Powers Sanctioning Authority should ensure that the sanction is within the powers delegated to him and that the sanction is reported to a higher authority as required in the ‗Scheme of Delegation of Financial Powers.‘ The Controlling Offices should diligently scrutinize the Control Returns. If they notice any unusual feature, they should initiate suitable follow-up action to rectify the position with a view to protecting the Bank‘s interest.Non-submission of Control Returns in time should be viewed seriously. Necessary stepsshould be initiated to obtain the pending returns in future. h) Prescription of Terms and ConditionsAs a measure of effective follow-up, the Bank stipulates a number of compulsory covenants and optional covenants in respect of all advances.
  36. 36. The covenants relate to: · The right of examination of Borrower‘s books and inspection of factories either by the Bank‘s officers or by experts/ Management Consultants of the Bank‘s choice. The restriction with regard to change in capital structure, scheme of amalgamation/reconstruction, scheme of expansion or addition to FA, investment by way of sharecapital/ loans/ advances/ deposits in other concerns, borrowing arrangements withother banks and FIs, guarantee obligations and declaration of dividends. The restriction with regard to (a) Repayment of deposits from friends and relativesof promoters/ directors without Bank‘s prior permission, and (b) Payment of intereston those deposits. The covenants also relate to: The restriction with regard to transfer of controlling interest in the Company ordrastic change in the Company‘s management set-up without Bank‘s priorpermission. Borrower‘s consent permitting banks/ FIs to share or publish information about theBorrower‘s account in case of default. The optional covenants relate to nomination of the Bank‘s representatives on theCompany‘s Board, ceiling in regard to dividend declaration, withdrawal of money byprincipal shareholders/ Directors, minimum NWC, insurance cover for standingcharges and loss of profit arising from stoppage of production, informing the Bankabout the happening of any significant event likely to have an effect on the workingof the Company or its subsidiaries: Standard Covenants Negative Covenants Letter from Promoters Credit facilities to Companies whose Directors figure in RBI‘s List ofDefaulters. Apart from the usual Terms and Conditions of sanction of credit as contained in theStandard covenants of the Bank‘s loan documents, depending on the degree of financial discipline required to be imposed in respect of individual cases, reasonable additional conditions as are considered desirable may be prescribed. However, officials are requiredto ensure that while
  37. 37. recommending or sanctioning a loan, onerous Terms and Conditions which are difficult for the Borrower to fulfil are not stipulated in the first place. The question of stipulating special covenants in any particular case should be fully discussed with concerned Borrower, explaining the implications thereof so as to avoid the necessity for modifying them subsequently. All such special covenants to be stipulated in individual cases should be indicated in the Appraisal Memorandum highlighting therationale behind their stipulation. If the risk element is high, the credit worthiness of theproposal may be reviewed afresh. In order to enable the Bank‘s operating functionaries ensure meticulous and timely compliance of all the Terms and Conditions governing loans/ advances, such Terms and Conditions should be clearly spelt out as indicated below: a. The standard Terms and Conditions pertaining to the limit of the loan/ advance (e.g. b. Security, margin, interest, insurance, etc.) should be mentioned in one particularsection of the proposal. Whenever, some of the conditions are proposed to befulfilled after disbursement of a facility, this should be so spelt out (e.g. EM ofimmovable property by way of collateral after release of limits). c. Other proposal specific T&C stipulated by the Appraising/ Assessing officials shouldbe recapitulated and listed separately at the end of the proposal segregating thepre- and post-disbursement conditions clearly. d. Any additional T&C stipulated by the Controllers or the Sanctioning Authority shouldbe specified in the Sanction Letter to the Branch as pre- or post- disbursementconditions in clear terms. e. Other observations, not specified as conditions, recorded by the Controllers/ SA willbe advised to the Branch in the letter as guidelines to the Branch on the conduct ofthe advance sanctioned. f. While conveying sanction of loans/ advances to Borrowers, Branches should writein detail all the T&C in clear terms by segregating the pre- disbursementconditionsfrom the post-disbursement conditions and the time stipulations, if any, forcompliance for the same. g. i) Monitoring Disposal of Credit Proposals
  38. 38. For monitoring disposal of credit proposals within the time frame stipulated by the Bank, Branches should adopt the following procedure: Loan applications received from Units should be acknowledged by Branchesimmediately on receipt of the application and entered in the ‗Loan ApplicationReceived and Disposal Register‘; with care being taken to ensure that a segmentwiseserial number is generated. After receipt of the loan application, an indicative checklist of data/ papers, etc. tobe furnished to the Bank may be given to the applicants. The credit appraisal officers may ask, as far as possible, all relevant information inone instalment and avoid piecemeal queries at various stages. Every meeting/ interface with the applicants should be used to emphasise the needfor submission of complete particulars/ data to facilitate quick and timely disposal ofloan proposals. The BM/ MoD should verify this register at periodic intervals. Date and status of disposal of applications by way of sanction/ rejection (if rejected,reasons therefor) should be recorded in the register. Controllers should scrutinize this register during their visits to the Branches. Each Branch will submit to its Controllers a monthly status report on pending loanapplications, indicating the reasons for the delay. Statement of pending proposals at LHO. Branches should not indulge in any act such as verbal promise or issue of anyconsent letter to sanction loans pending formal sanction etc., which may give falsehopes to the prospective borrowers. A Date Chart must accompany every proposal. It should be the responsibility of theSA to ensure that this chart is completed at all levels. If credit facilities applied for are wholly or partially rejected, the reasons for thatshould be briefly mentioned in the ‗Loan Applications Received and DisposalRegister‘. In order to ensure that there is no delay in the disbursement of sanctioned facilitiesand also to avoid any need to change the collateral security after obtainingsanction, a preliminary scrutiny of the documents relating to the property should becarried out at the Branch to ensure that the title is clear.
  39. 39. j) Pre-Sanction Process in Present Environment  Existing Accounts at Branch For an existing account at a Branch:  Obtain request letter from the Unit/ Borrowers.  Compile Feedback Report, various Inspection and Audit Reports and Branchcomments thereon and Comments on Corporate Governance in case of Corporateaccounts.  Submit the value of accounts, viz., Interest, Exchange, Commission, Forex Salesand Purchases, utilisation percentage of loans, comments on pro-rata share (forboth current and previous year), credit and debit summations, number of LCsissued/ devolved, number of BGs issued/ invoked, etc. in the Feedback Report.  Forward Unit‘s request letter along with the Feedback Report, comments on I and AReports, CMA Data and last 3 years Audited Financials to Credit Processing Cell(CPC)/ Small Enterprises Credit Cell (SECC) within 3 days. k) Areas of Responsibilities at Branch Following are the responsibilities taken up at the Branch to carry out the pre-sanction process:  Customer identification, completion of Know Your Customer (KYC) formalities inrespect of new customers.  Compilation of Opinion Reports (on the Borrower as well as on the Guarantors).  Obtaining Opinion Reports from other banks/ FIs in respect of new customers andAssociate Concerns of the Unit.  Compilation of Group Profile.  Inspection of the collateral and assessment of value thereof. 1) Areas of Responsibilities at CPC/SECC Following are the responsibilities taken up at the CPC/SECC to carry out the pre-sanction process: Appraisal, Assessment and Recommendations in respect of proposals comingunder their purview.
  40. 40. Presentation of proposal to CCC-II and above/ Zonal Office Credit Committee(ZCC) for sanction/ approval. ·Advising of sanction/ approval to the Branch and the Unit. Submission of Control Reports in respect of sanctions obtained by CPC/ SECC. In case of proposals not considered acceptable, the CPC/ SECC will advise the Branch/Unit accordingly after obtaining approval from the competent authority. 1.2 The Appraisal Process Overview to Appraisal As the name indicates, Appraisal is a process that determines the value of the proposal Submitted by a Borrower for credit. The Appraisal process consists of the following stages: a. Preliminary Appraisal b. Detailed Appraisal c. Present relationship with the Bank d. Credit Risk Rating e. Opinion Reports f. Structure of facilities and Terms of Sanction g. Review of the proposal h. Proposal for sanction i. Assistance to Assessment a) Preliminary Appraisal In case the Branch finds the proposal acceptable, it will call for a fully comprehensive application in the prescribed proforma from the applicant. In addition a copy of the proposal/ project report, covering specific credit requirement of the Company and other essential data/ information is required. The other essential data include the following: oOrganizational set-up with a list of Board of Directors oDemand and supply projections along with a copy of the market survey report oCurrent practices for the particular product/ service oEstimates of sales, Cost of Production and Profitability
  41. 41. oProjected Profit and Loss Account and Balance Sheet for the operating years during the currency of the Bank assistance o If the request includes project financing, Branch should obtain additionally (i) Appraisal report from FIs in case they have done appraisal; (ii) NOC from term lenders if already financed by them and (iii) Report from Merchant Bankers in case capital market is being accessed, wherever necessary. In addition in respect of existing concerns, particulars regarding the history of the concern, its past performance, present financial position, etc. should also be evaluated. This data/ information should be supplemented by the following supporting documents: o Audited Profit and Loss Account and Balance Sheet for the past 3 years o Details of existing borrowing agreements, if any o Credit information reports from the existing bankers on the applicant company o Financial statements and borrowing relationship of Associate/ Group companies The evaluation of all the aspects discussed till now constitutes the Preliminary Appraisal stage. After the Preliminary Appraisal stage, the next stage is Detailed Appraisal. b) Detailed Appraisal After a pre-sanction inspection of the project site or factory in the case of existing units, the Branch may take up the Detailed Appraisal exercise using the appropriate format. The following aspects should be evaluated in Detailed Appraisal stage: o The viability of a project should be examined to ascertain that the company would have the ability to service its loan and interest obligations out of cash accruals from the business. o While appraising a project or a loan proposal, nothing should be taken for granted. o All the data/ information should be checked and wherever possible counter checked through inter-firm and inter-industry comparisons. o Summarise the conclusions of the financial analysis carried out on the basis of the Company‘s Audited Financials for the last 3 years. o The method of depreciation followed by the company – SLM, WDV Method or any other method and whether the Company has changed the method of depreciation in the past and, if so, the reason thereof o Whether the Company has revalued any of its FA any time in the past and the present status of the Revaluation Reserve, if any, created for the purpose
  42. 42. o Record of major defaults, if any, in repayment in the past and history of past sickness, if any. o The position regarding the Company‘s tax assessment – whether the provisionsmade in the Balance Sheets are adequate to take care of the Company‘s tax liabilities. o The nature and purpose of Contingent Liabilities, together with comments thereon o Pending suits by or against the Company and their financial implications o Qualified/ adverse remarks, if any, made by the Statutory Auditors on the Company‘s accounts c) Present Relationship with the Bank Credit facilities now granted a. Conduct of the existing account b. Utilisation of limits – FB and NFB c. Occurrence of irregularities, if any d. Frequency of irregularities, i.e. number of times and total number of days the account was irregular during the last 12 months e. Repayment of term commitments f. Compliance with requirements regarding submission of Stock Statements, FFR Reports, renewal data, etc. g. Stock turnover, realisation of book debts h. Value of account with break-up of income earned i. Pro-rata share of non-fund and Forex business j. Concessions extended and value thereof d) Credit Risk Rating The Bank has introduced a Credit Risk Assessment (CRA) system for an effective administration of the Bank‘s exposure to Credit Risk. All C&I loans and Commercial Advance Accounts of above Rs. 25 lacs in respect of SSI and Agricultural advances are covered by the revised system of CRA introduced w.e.f. 1st April 2004. The CRA forfinancing Trade Advances and for NBFCs is as per the earlier instructions and modificationsare expected shortly,CRA is central to the credit appraisal process. Assets, which are classified as Standard.
  43. 43. Assets –Performing Assets – only, are to be risk rated. Major parameters that are considered for appraising the risk associated with a loan are categorised into Financial, Business, Industry and Management risks. All these categories of risks are rated separately. In order to arrive at the overall risk rating, the factors duly weighted are aggregated and calibrated on a score of 100, to arrive at a single point indicator of risk associated with the credit decision. The credit risk rating is drawn up for: a. Working Capital b. Term Finance The overall score for risk rating is rated on an 8-point scale and the ratings are given as SB 1 to SB 8 for Working Capital Advances and SB TL 1 to SB TL 8 for Term Loans. e) Opinion report The following terms and conditions (T&C) for exposures proposed – facility wise and overall, should be fixed well in advance: i. Limit for each facility/sub-facility Sub-limits for inventory and receivables within the overall assessed fund based Working Capital credit limits are fixed for operational convenience. In cases where large build up of any item of inventory or receivables is required and the reasons are acceptable, sub-limits should be fixed in a flexible manner. In case of borrowers with credit rating SB 1 and SB 2, if the borrower desires, no sub-limits are fixed. Within the overall assessed credit limits, branches should fix separate limits for financing inland credit sales. In respect of borrowers enjoying credit limits of Rs. 5 crores and above from the Banking system, minimum of 25% of the finance for inland credit sales as Bill Purchase limits should be stipulated. To determine the quantum of finance for inland credit sales, the aggregate credit limits will comprise of all types of credit facilities extended for financing inland credit sales such as cash credit/ sub-limit against book debts, bills purchased/ discounted limits, overdrafts/ cash credit limit/ sub-limit against Government supply bills, as may have been made available within the overall Bank finance limitssanctioned. ii. SecurityCredit provided by Banks creates assets, which are called Primary Assets or Securities. Any additional security provided is commonly known as Collateral Security. Collateral securities could be in the form of tangible collateral securities
  44. 44. such as liquid collaterals or mortgage of immovable properties or intangible collaterals such as Third Party Guarantee. The bank officials verify the securities offered by the borrower before they are accepted for covering the credit facilities and are stipulated as a part of the recommendation of the loan and as the terms and conditions of sanction. iii. Margin The margin stipulations as per the extant guidelines that are also dependent on the nature of the current assets offered as primary security are stipulated as a part of the terms and conditions. The bands of the margin are stipulated by the Bank within which, depending on the risk perception of the primary security being offered such as Raw Materials, Stocks in process, Finished Goods and Receivables, margins are fixed by the recommending authorities for approval of the sanctioning authorities. f) Structure of Facilities and Terms and Conditions of Sanction The rate of interest will be generally based on the Credit Risk rating. In specific cases, however, rate of interest can be fine tuned depending on the value of connections/ potential for business development and profits and other strategic reasons. The necessary recommendations for seeking concessionary rates of interest should form a part of the Credit Proposal and put up to the appropriate authorities for necessary approval / sanction. In case of loans up to Rs. 2 lacs, RBI regulates interest rates. i. Rate of Commission Depending on the value of connections, potential for business development and profits and other strategic reasons, these rates are recommended as a part of the credit proposal for approval of the appropriate sanctioning authorities. ii. Concessional Facilities and Value of the Credit- As per the recommendations and the approvals obtained from the sanctioning authorities, the terms and conditions would stipulate the concessions offered. iii. Repayment TermsIn respect of term loans sanctioned, the instalments of the term loans and the moratorium or start up period, which are permitted for the repayment of the loan, are stipulated.
  45. 45. iv. ECGC Cover In respect of units which have been sanctioned, export packing credit, which includes Pre- shipment facilities and Post-Shipment facilities, the facilities are covered under the ECGC Guarantees / Policies as per extant guidelines. v. Other Standard Covenants Apart from the usual terms and conditions of sanction of credit facilities, as contained in the standard covenants of the Bank's loan documents, depending on the degree of financialdiscipline required to be imposed, reasonable additional conditions are considered necessary, in view of more than the normal risk perception of the loan proposal. However, while recommending or sanctioning a loan, onerous terms and conditions that are difficult for the borrowers to fulfil should not be stipulated. Special covenants in any particular case should be discussed with the concerned borrowers, explaining the implications, so as to avoid the necessity for modifying them subsequently. These covenants should be indicated in the Appraisal Memorandum highlighting the rationale behind the stipulation. g) Review of the Proposal The review of the proposal should cover: o Strengths and weaknesses of the exposure proposed o Risk factors and steps proposed to mitigate them o Deviations proposed from usual norms of the Bank and the related reasons The draft proposal is put up to the assessing officer who gives a macro look to the proposal and suggests various changes and inputs. Thus the gaps in the proposal, if any, arecovered so that the final proposal in the required format of submission to the sanctioning authorities is prepared. h) Proposal for SanctionPrepare a final proposal, incorporating the changes proposed by the assessing officials, in prescribed format with required back-up details and with recommendation for sanction. i) Assistance to Assessment
  46. 46. In order to help Assessor, interact with the Assessor, provide additional inputs arising from the assessment, incorporate these and required modifications in the draft proposal. Finally, generate an integrated final proposal for sanction. 2.POST SANCTION a. SANCTION OF CREDIT FACILITIES Preparation of proposal in prescribed format with back-up details and with recommendation for sanction The competent authority will exercise the discretionary powers as delegated by respective circle. The sanctioning authority to accord sanction of credit facilities on terms proposed or by stipulating modified or additional condition/safeguards. The sanction shall be reported for control to the next higher authority for review, as required. b. DOCUMENTATION Following are the documents used under agriculture credit:  Hypothecation agreement  Deed of guarantee  Deed of mortgage  Letter to the borrower demanding repayment of crop loans  Supplemental hypothecation agreement  Supplemental deed of guarantee  Deed of extension of mortgage to cover the aggregate limit  Deed of mortgage by the guarantor  Revival letter for mortgage c. CONTROL REPORTS  Control report to be submitted in duplicate  One copy shall be received by bank with comments of controlling authority.  Attend the observation and submit reply to controlling authority.
  47. 47. d. POWER EXERCISED BY FO/ MOD  Control report to their controlling authority i.e. branch manager.  Simple listing to controller at month end e. INSPECTIONS  Before making field visits to villages, field officials should jot down the account-wise particulars e.g. ,total outstanding, over dues, last date of credit and amount credited, interest applied in respect of each borrower in relative folio of the village-wise inspection register.  Field visits and inspection would be so arranged that the bank official is able to contact the borrowers a few days before the amount/ instalment is due.  The field staff should draw up their tour programme wellin advance and properly plan to maximize effectiveness by extensive coverage of the financed villages.  In case of produce marketing loans against stock stored in farmer‘s farm house, stocks should be inspected at monthly intervals for loans above Rs.25000/- and once in two month in other cases.  When produce is stored in a warehouse, periodical inspection of the goods covered by the warehouse receipt is not necessary.  However, the branch manager should periodically obtain from the warehouse man , a certificate in respect of the condition of goods covered by the warehouse receipts and pledged to bank. f. RECOVERY OF BANK DUES  In case of wilful defaults by a borrower, initiation of recovery proceedings may be started without loss of time.  As farmers would have cash surplus during specified periods of the years, timeliness of follow-up is crucial to recovery of agricultural dues.  Efforts for recovery should commence well in advance of the due dates.  The demand notices should be prepared in duplicate, original to be dispatched to the borrower by ordinary post and other copy to be retained as office copy.
  48. 48. g. INSURANCE  Except where the bank has agreed to dispense with insurance, fixed assets and stocks under pledge/ hypothecation to bank must be kept insured for full market value with an insurance company (private or public sector) or at least to the extent of bank‘s interest / lien noted therein.  Insurance of agricultural machinery / equipment, cattle, silkworm, honeybee, poultry etc. is essential.  The policies must stand in the joint names of the borrower and the bank. However insurance cover of vehicles/ tractor/ trailer/ power tiller should be taken only in the name of the borrowers and Bank‘s interest/ lien noted therein.  National Agriculture insurance Scheme is implemented for providing insurance coverage to all farmers including share croppers and tenant farmers growing notified crop in notified area.  The scheme for crop insurance is available to farmers as well as non- loanee farmers irrespective of the size of holding. Findings:-  State bank of India is strictly following the guidelines of RBI on Project Financing.  Sanctioning for the projects is approved by RASMECC (Retailed Assets Small and Medium Enterprises Credit Cell).  The bank finances the projects only through term loans.  Interest rates are fixed depending upon the projects which is known as State Bank advance rate.  When the clients fail to pay the interest, 3 months from the due date the term loan granted will be treated as Non-Performing Assets.  If the interest is due further 3 more months then it will be treated as doubtful assets and interest rates becomes zero.  Again for further 3 months it goes as loss assets and the bank write off the account.
  49. 49. CHAPTER-4 SWOT ANALYSIS Strengths Brand Name:-SBI Bank has earned a reputation in the market over the period of time(Beingthe oldest bank in India tracing history back to 1806).  Market Leader:- SBI is ranked at 285th in 2012 Fortune Global 500 list. With an asset base of $501 billion and its reach, it is a regional banking behemoth. Wide Distribution Network: Excellent penetration in the country with more than branches more than 15003 branches of associate banks (subsidiaries).  Diversified Portfolio SBI Bank has all the products under its belt, which help it to extend the relationship with existing customer‘s Bank has umbrella of products to offer their customers, if once customer has relationship with the bank. SomeProducts, which SBI Bank is offering are: Retail Banking Business Banking Merchant Establishment Services (EDC Machine) Personal loans & Car loans Insurance Housing Loans  Government Owned:- Government owns 60% stake in SBI. This gives SBI an edge over private banks in terms of customer security.  Low Transition Costs-SBI offers very low transition costs which attracts small customers.  SBI is the largest bank in India in terms of market share, revenue and assets. Weakness  Lack of proper technology driven services when compared to private banks.  Employees show reluctance to solve issues quickly due to higher job security and customers‘ waiting period is long when compared to private banks.  The bank spends a huge amount on its rented buildings.  SBI has the largest number of employees in banking sector; hence the bank spends a considerable amount of its income in employee‘s salary compensation.
  50. 50.  In spite of modernization, the bank still carries the perception of traditional bank to new age customers.  SBI fails to attract salary accounts of corporate and many government sector employees salary accounts are also shifted to private bank for ease of operations unlike before. Opportunities  SBI‘s merger with five more banks namely State Bank of Hyderabad, State bank of Patiala, State bank of Bikaner and Jaipur, State of bank of Travancore and State bank of Mysore are in approval stage.  Mergers will result in expansion of market share to defend its number one position.  SBI is planning to expand and invest in international operations due to good inflow of money from Asian Market.  Since the bank is yet to modernize few of its banking operations, there is a better scope of using advanced technologies and software to improve customer relations.  Young and talented pool of graduates and B schools are in rise to open new horizon to so called ―old government bank‖. Threats  Net profit of the year has decline13.6 per cent drop in net profit to Rs 3,241 crore in the fiscal first quarter compared with Rs 3,752 crore a year ago.  This shows the reduction in market share to its close competitor ICICI.  Other private banks like HDFC, AXIS bank etc.  FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI as people tend to switch to foreign banks for better facilities and technologies in banking service.  Other government banks like PNB, Andhra, Allahabad bank and Indian bank are showing.  Customer prefer to switch to private banks and financial service providers for loans and mortgages, as SBI involves stringent verification procedures and take long time for processing.
  51. 51. SUGGESTION Banks has to grant the loans for the establishment of business at a moderate rate of interest. Because of this, the people can repay the loan amount to bank regularly and promptly. Bank should not issue entire amount of loan to agriculture sector at a time, it should release the loan in instalments. If the climatic conditions are good then they have to release remaining amount. SBI has to reduce the Interest Rate. SBI has to entertain indirect sectors of agriculture so that it can have more number of borrowers for the Bank. CONCLUSION: The project undertaken has helped a lot in gaining knowledge of the PRE-SANCTION & POST SANCTION AGRICULTURE LAND’ in Nationalized Bank with special reference to State Bank Of India. Pre-sanction and Post sanction in the agriculture land of the Bank has become very vital in the smooth operation of the banking activities. Agriculture credit scheme of the Bank provides the growth of agriculture sector (a) whether to provide by the agriloan (b) how much credit to extend. The Project work has certainly enriched the knowledge about the effective management of ―Agriculture loan‖ and ―Different agriculture credit schemes‖ in banking sector. ―Pre & post sanction of land‖ and ―agri. Credit schemes‖ is a vast subject and it is very difficult to cover all the aspects within a short period. However, every effort has been made to cover most of the important aspects, which have a direct bearing on improving the financial performance of Banking Industry
  52. 52. To sum up, it would not be out of way to mention here that the State Bank Of India has given special inputs on ―Agriculture loan‖ and ―Credit Risk Management‖. In pursuance of the instructions and guidelines issued by the Reserve Bank of India, the State bank Of India is granting and expanding credit to all sectors. The concerted efforts put in by the Management and Staff of State Bank of India has helped the Bank in achieving remarkable progress in almost all the important parameters. The Bank is marching ahead in the direction of achieving the Number-1 position in the Banking Industry.
  53. 53. REFERNCES BOOKS REFERRED: 1. M.Y.Khan and P.K.Jain, Management Accounting (Third Edition), Tata McGraw Hill. 2. M.Y.Khan and P.K.Jain, Financial Management (Fourth Edition), Tata McGraw Hill. 3. D.M.Mittal, Money, Banking, International Trade and Public Finance (Eleventh Edition), Himalaya Publishing House. WEB SITES 1. www.sbi.co.in 2. www.icicidirect.com 3. www.rbi.org 4. www.indiainfoline.com 5. www.google.com BANKS INTERNAL RECOREDS: 1. Annual Reports of State bank Of India (20011-20014) 2. State bank Of India Manuals 3. Circulars sent to all Branches, Regional Offices and all the Departments of Corporate Offices.

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