The document discusses credit appraisal in the banking sector. Credit appraisal is the process used by banks to evaluate a loan applicant's creditworthiness before providing a loan. It involves investigating the applicant's financial condition, repayment capacity, collateral, and other factors. Banks consider the 3Cs - character, capacity, and collateral. The credit appraisal process at State Bank of India involves preliminary assessment, documentation, sanctioning/approval, disbursement, and post-sanction monitoring. SBI has quantitative and qualitative standards for credit appraisal and uses a rating scale to assess risk levels of borrowers.

1. CREDIT APPRAISAL IN BANKING SECTOR

14. RATING SCALES FOR GIVING LOANS S. No. Borrower Rating Range of scores Risk level Comfort Level 1 SB1 94-100 Virtually Zero risk Virtually Absolute safety 2 SB2 90-93 Lowest Risk Highest safety 3 SB3 86-89 Lower Risk Higher safety 4 SB4 81-85 Low Risk High safety 5 SB5 76-80 Moderate Risk with Adequate Cushion Adequate safety 6 SB6 70-75 Moderate Risk Moderate Safety 7 SB7 64-69 8 SB8 57-63 Average risk Above Safety Threshold 9 SB9 50-56 10 SB10 45-49 Acceptable Risk (Risk Tolerance Threshold) Safety Threshold

15. RATING SCALES FOR GIVING LOANS Banks has introduced New Rating Scales for borrower for giving loans. Rating is given on the basis of scores out of 100. Bank gives loans to the borrower as per their rating like SBI gives loans to the borrower up to SB8 rating as it has average risk till SB8 rating. From SB9 rating the risk increases. So banks does not give loans after SB8 rating. 11 SB11 40-44 Borderline risk Inadequate safety 12 SB12 35-39 High Risk Low safety 13 SB13 30-34 Higher risk Lower safety 14 SB14 25-29 Substantial risk Lowest safety 15 SB15 <24 Pre-Default Risk (extremely Vulnerable to default) Nil 16 SB16 - Default Grade

21. Deviations in Loan Policy/ Scheme FGHFG Parameters Min/Max level as per Scheme Company's level as on 31/03/2008 Liquidity Min. 1.33 1.42 TOL/TNW Max. 3.00 12.80* DSCR Min. 2.00 2.002 Promoters contribution (under tie-up) Min. 10 % 18.86% profits in the last two years Min. Rs.3.00 lacs with rising trend Actual profit Rs. 1.20 lacs for year 2006-07 and Rs.2.90 lacs for year 2007-08*

26. Deviations in Loan Policy Parameters Indicative Min/Max level as per loan policy Company's level as on 31.03.2009 @ Company's level as on 31.03.2010 Liquidity Min. 1.33 1.34 1.52 TOL/TNW TOL/Adj. TNW Max. 3.00 4.11 2.64 2.50 1.80 Average gross DSCR (TL) Min. 1.75 2.54 2.54 Debt / equity Max. 2:1 2.01:1 1.03:1

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