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Credit Appraisal System for SME

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Presentation of my project on "CREDIT APPRAISAL SYSTEM FOR SME SECTOR IN UCO BANK"

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Credit Appraisal System for SME

  1. 1. “CREDIT APPRAISAL SYSTEM FOR SME SECTOR” BY – RISHAV SARKAR
  2. 2. Banking Industry in India a) STRENGTHS 1. Greater securities of Funds 2. Banking network 3. Large Customer Base 4. Low Cost of Capital b) WEAKNESS 1.Basel Committee 2. Powerful Unions 3. Priority Sector Lending 4. High Non-Performing Assets c) OPPORTUNITIES 1. Universal Banking 2. Differential Interest Rates 3. High Household Savings 4. Untapped Foreign Markets 5. Internet Banking d) THREATS 1. NBFCs, Capital Markets and Mutual funds 2. Changes in the Government Policy 3. Inflation 4. Recession Facts : Regulatory Board – RBI Largest market share – State Bank of India Booming Sector – Retail Banking
  3. 3. RBI Development Financial institutions IFCI SIDBI NABARD IRBI NHB EXIM Bank ICICI IDBI Banks Commercial Banks private Sector Banks Nationalized Banks SBI Groups Public Sector Banks Foreign BanksIndian Banks Land Development Banks Cooperative Banks Rural Banks CLASSIFICATION OF BANKING INDUSTRY IN INDIA
  4. 4. CREDIT APPRAISAL Character (integrity/ willingness) Capacity (ability/ financial soundness) Collateral (backing/ fall back/ security) Capital (strength/funds availability) Conditions (environment/ framework)“an investigation/assessment done by the banks before providing any Loans & advances/project finance & also checks the commercial, financial & technical viability of the project proposed its funding pattern & further checks the primary & collateral security cover available for recovery of such funds” 5C’s
  5. 5. Receipt of application from applicant Receipt of documents (Balance sheet, KYC papers, Different govt. registration no.) Pre-sanction visit by bank officers Check for RBI defaulters list, willful defaulters list, CIBIL data, ECGC, Title clearance reports of the properties to be obtained Valuation reports of properties to be obtained from empanelled valuer Preparation of financial data Proposal preparation Assessment of proposal Sanction/approval of proposal by appropriate sanctioning authority Documentations, agreements, mortgages Disbursement of Loan Post sanction activities such as receiving stock statements, review of accounts, renew of accounts, etc. (On regular basis) CREDIT APPRAISAL PROCESS
  6. 6. Company Profile Industry Banking, Financial services Founded 6 January 1943 Headquarters Kolkata, West Bengal, India Area served Worldwide Key people Arun Kaul(Chairman and Managing Director) Products Consumer banking, corporate banking, finance and insurance, investment banking, mortgage loans, private banking, wealth management
  7. 7. SME PRODUCTS OFFERED BY UCO Laghu Udyami Credit Card Artisan Credit Card Prime Minister Employment Generation Programme (PMEGP) Swarozgar Credit Card Scheme UCO Mahila Pragati Dhara Scheme for financing Handloom Weavers Group (HWG) Scheme for providing finance to the Rice Shellers UCO Commercial Vehicle UCO Trader UCO Udyog Mitra UCO Doctor
  8. 8. OBJECTIVE OF THE STUDY To study the basic fundamentals of banking industry. To study entire loan system for SME sector in India To study credit appraisal methods. To understand the commercial, financial and technical viability of the proposed proposal and its funding pattern. To know on what criteria the bank appraise the loan to the business. To understand the different financial tools required for credit appraisal “statements describing what the project is trying to achieve & the effect or change that the project is supposed to cause.”
  9. 9. RESEARCH METHODOLOGY PROBLEM STATEMENT • To study the Credit Appraisal System in SME sector at UCO Bank. • To understand on what criteria, the bank approves a loan RESEARCH DESIGN • The research is analytical in nature DATA COLLECTION • Secondary Data SAMPLE • Case study SAMPLING METHOD • Convenient Sampling SAMPLE SIZE • Case Studies (2) “procedure for collecting data to be analyzed”
  10. 10. FINANCIAL TOOLS ON WHICH DATA ANALYSIS IS CONDUCTED CAPITAL BUDGETING TECHNIQUES Internal rate of return. Profitability index Net present value Average rate of return Payback period method RATIO ANALYSIS Net profit ratio Operating profit ratio Gross profit ratio Debt equity ratio Proprietary ratio Quick ratio Current ratio WORKING CAPITAL ANALYSIS. Working Capital Assessment. RISK ANALYSIS Promoters risk Operational risk Market risk OTHER PARAMETERS Sales Net Operating Cash Flow TOL / TNW Net Profit margin “techniques used to decipher information”
  11. 11. FINDINGS CASE STUDY – 1 The financial tools shows a positive sign on the financial position of the company and the company is expected to continue the same in the future. Hence it is suggested to accept the Proposal CASE STUDY – 2 The overall projected performance and financial position of the unit are satisfactory and the project can be accepted
  12. 12. SUGGESTIONS AND RECOMMENDATIONS ADOPTING 4C APPROACH IMPROVING RATING MECHANISMS IMPROVING PERSONNEL SKILLS DEVELOPING RELATIONSHIPS DATA AUTHENTICATION CUSTOMIZING PRODUCTS INNOVATING DELIVERY PLATFORMS REVISING CREDIT POLICY PERIODICALLY MODERATE RATE OF INTEREST SPECIAL MEASURES FOR AGRICULTURAL SECTOR
  13. 13. CONCLUSIONS Usually, it is seen that credit appraisal is basically done on the basis of fundamental soundness. But, after different types of case studies, it can be concluded that credit appraisal system is not only looking for financial wealth. Other strong parameters also play an important role in analyzing credit worthiness of the firm/company. In all, the viability of the project from every aspect is analyzed, as well as type of business, industry, promoters, past records, experience, projected data and estimates, goals, long term plans also plays crucial role in increasing chances of getting project approved for loan. Credit Appraisal should be based upon  Financial performance  Business performance  Industry outlook  Quality of management  Conduct of account

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