INTRODUCTION Meaning of Loans and Advances The term "loan" refers to the amount borrowed by one person from another. The amount is in the nature of loan and refers to the sum paid to the borrower. Thus, from the view point of borrower, it is borrowing and from the view point of bank. it is lending. Loan may be regarded as credit. granted where the money is disbursed and its recovery is made on a later date. It is a debt for the borrower. While granting loans, credit is given for a definite purpose and for a predetermined period. Interest is charged on the loan agreed rate and intervals of payment. Advance on the other hand, is a credit facility granted by the bank. Banks grant advances largely for short-term purposes
UTILITY OF LOANS AND ADVANCES (a)Loans and advances can be arranged from banks in keeping with the flexibility in business operations. Traders may borrow money for day to day financial needs availing of the facility of cash credit, bank overdraft and discounting of bills. The amount raised as loan may be repaid within a short period to suit the convenience of the borrower. Thus business may be run efficiently with borrowed funds from banks for financing its working capital requirements. (b) Loans and advances are utilized for making payment of current liabilities, wage and salaries of employees, and also the tax liability of business. (c) Loans and advances from banks are found to be economical for traders and businessmen, because banks charge a reasonable rate of interest on such loans/advances
DEMAND LOAN A Demand Loan is a loan which is repayable on demand by the bank. In other words it is repayable at short-notice. The entire amount of demand loan is disbursed at one time and the borrower has to pay interest on it. The borrower can repay the loan either in lump sum (one time) or as agreed with the bank . For example, if it is so agreed the amount of loan may be repaid in suitable installments. Such loans are normally granted by banks against security. The security may include materials or goods in stock, shares of companies or any other asset. Demand loans are raised normally for working capital purpose like purchase of raw materials, making payment of short-term liabilities.
Term loan medium and long term loans are called term loans. Term loans are granted for more than a year and payment of such loans is spread over a longer period. Term loan is required for the purpose of starting a new business activity renovation, modernization, expansion of existing units, purchase of their land for setting up a factory, construction, of factory building or purchase of other immovable assets. These loans are generally secured against the mortgage of land, plant and machinery, building and the like.
NATURE AND SECURITY: To ensure the safety of funds lent, the first and most important factor considered by a bank is the capacity of borrowers to repay the amount of Loan, the Bank therefore, realize primarily on the character capacity, and financial soundness of the borrowers. But the Bank can hardly afford to take any risk in this regard and hinds it also has the security of tangible assets owned by the borrower. In case the borrower fails to repay the loan, the bank can recover the amount by attaching the assets.
TWO CATEGORIES OF LOAN Thus from the view point of security of loans, we can divide the loans into two categories: A)secured, (B) unsecured.
TWO CATEGORIES OF LOANUNSECURED SECURED Unsecured loans are those loans Secured loans are those which which are not covered by the are granted against the security security of tangible assets. Such of tangible assets, like stock in trade and immovable property. loans are granted to Thus, while granting loan firms/institutions against the against the security of some personal security of assets, a charge is created over the owner, manager or director. the assets of the borrower in favor of the bank. This enables the bank to recover the dues from the customer out of the sale proceeds of the assets in case the borrower fails to repay the loan.
Procedure for granting loans and advances: (i) Filling up of loan application form (ii) Submission of form along with documents (iii) Sanctioning of loan (iv) Executing the Agreement (v) Arrangement of Security for Loan
SCOPE OF THE STUDY: The purpose of preparation of the report is to focus on the lending function of banks with specific reference to Indian overseas bank with specific reference to ashoknagar branch The about different types of advances that are financed by the banks and their classification into fund and non-fund based advances. It also helps us to study the risk involved in sanctioning of advances to a borrower. This makes us to analyze the credit worthiness of the prospective borrower and estimate the net worth of the assets owned by him, which assists the bank to ascertain the amount that can be sanctioned to the borrower. To study the securities that can be used against lending and the calculation of equated monthly installments.
OBJECTIVE OF THE STUDY PRIMARY OBJECTIVE To study different types of the loans and advances made by IOB with specific reference to ashoknagar branch To make suggestions on the basis of the analysis. To study in detail the various types of loans and advances offered by IOB with specific reference to ashoknagar branch.
SECONDARY OBJECTIVE To study the process involved in sanctioning loans and advances to a customer. To assess the bank’s contribution towards fulfilling the requirements of the borrower. To assess the satisfaction level of the borrower’s in terms of their being benefited by the timely financial accommodation by the IOB with specific reference to ashoknagar branch .
INDUSTRIAL PROFILE BANKING INDUSTRY Banks are the financial backbone of any country’s economy. Without a sound banking system a country cannot have a healthy economy. A bank is a financial institution which deals with money and credit. It accepts deposits from individuals, firms and companies t a lower rate of interest and gives it at a higher rate of interest to those who needs them. The difference between the terms at which it borrows and which it lends forms the source of profit, thus bank being a profit earning institute.
INDIAN OVERSEAS BANK Indian Overseas Bank Established in 1937, Indian overseas Bank (IOB) is a leading bank based in Chennai, India. IOB had the distinction of simultaneously commencing operating in three branches at karaikudi, Chennai and Yangon (Myanmar). Since IOB aimed to encourage overseas banking foreign exchange operations, it soon opened its branches in Penang and Singapore. Today, Indian Overseas Bank boasts of a vast domain in banking sector with over 1400 domestic branches and 6 branches overseas. IOB was the first bank to venture into consumer credit, as it introduced the popular Personal Loan scheme
NEED FOR THE STUDY To identify the role of the IOB bank is providing assistance to the borrower. To assess the financial benefits derived by borrower with regards to the term loan. To suggest strategies for improving return on investment towards the profitability of the bank through term Loan To assess the borrower Loyalty towards the IOB bank.
LIMITATION The following are the limitation faced The personal details of the borrower have not been revealed as per the norms of the bank. The secondary data collected includes details published through magazines journals and websites. It also includes data collected and observed during the daily functioning of the branch. This branch deals only with certain types of loans and advances. Certain loans like Agriculture, Insurance etc have not been covered under this branch.
RESEARCH DESIGN It is the arrangement of conditions for collection and analysis of data in manner that aims to combine relevance to the research purpose with economy in procedure. It is a master plan specifying the methods and procedure for collecting and analysis is made on this primary data and secondary data collected for this project study. It is based on the descriptive research techniques employing survey method and the analysis is made on the both primary and secondary data collected for this project study.
TYPE OF STUDY Descriptive research includes survey and fact finding enquiries of different kinds. The major purpose of descriptive research is description of state of affairs, as it exits at present ; the methods of research utilized in descriptive research are survey of all kinds including comparative method. The advantage of descriptive research is that they provide a quick ,inexpensive , efficient and accurate means of assessing information about the population.
METHODS LF DATA COLLECTION Secondary data The secondary data was collected through company profile, journals and internet. Through secondary data was collected through company profile, Journals and internet. Through Secondary data basic information about the organization was known. Primary data The primary data are those that are collected fresh and thus happen to be original in character; these are several methods of collecting primary data Interview method Questionnaire method
SAMPLE SIZE Sample size was arrived at 50 after discussion with Company guide College guide and also taking into consideration the time constraint. By dividing the time available for the project.
tool used Tools used Percentage analysis Tables and charts Percentage analysis In case of multiple choice questions the response were categorized based on the nature and percentage is calculated for each category. To find the percentage of responses in each category the number of response for each category is used. The percentage is calculated by dividing the number of responses by the total number of respondents. Percentage =number of respondents /Total number of respondents *100
Data analysis For making the analysis the study include both primary and secondary data . Based on the information available , data will be analyzed and suggestions will be recommanded.
FINDINGDS From the study that it is found that the interest rate charged on loans (term loans) has been showing constant increasing trend and the bank gains more profit through the interest charged on loans and cash credit. Among the total advances, the term loan contributes lions share throughout the period.. Jewel loan is applicable to note that the bank is helping the middle by granting loan against jewellary at a very reasonable interest and loais sanctioning by the bank keeps on increasing from55% in the year 2008 to 122% in the year 2011 which shows the growth of the bank and that is more needy benefited by the bank The present NPA(Non performing assest) of the branch is Rs 49 lakhs which is only 0.84% of total advances..
FINDINGDS The total profit earned by the bank keep on increasing from the year from 46.84 in the year to 130.98 in the year 2011 to which shows that the income of the bank by way of interest on loans and advances and by the way of commission increased year after year. Most of the people lack knowledge about credit facilities. About 34% of the respondents have availed loan from IOB bank for the expansion of business. 24% of the respondents are associated with the bank for the period of 9-15 years. Many customers are very satisfied by the service provided by the bank
SUGESSIONS Any changes in the interest rate must be informed to the customers. Before sanctioning any loan the bank must clearly explains to its borrowers the consequence for any non repayment. Monitoring progress and strict adherence to payment schedule by the borrowers so as to ensure reasonable NPA (non performing assets). As a result of personnel survey conducted it was found that most of the customers are in favor of higher amount of limits at lower rate on interest. Just like Life Insurance of Corporation (LIC) IOB may also follow dual Interest rate system on housing loan.
CONCLUSION: Loans are to be processed faster by extending faster and efficient customer oriented service. They should educate customers about credit facilities in the bank. This will create greater confidence among the interested parties which will help them to choose the most suitable scheme. The IOB Ashok nagar branch is able to enjoy appreciable return from loan segment by winning the appreciation of the customers.
This research will be useful to the bank to understand itscustomer’s position of awareness of its loans and advancesamong customers