This document appears to be a summer training project report submitted for a Post Graduate Diploma in Management program. The report focuses on credit appraisal for business loans. It includes an executive summary that provides an overview of factors considered in credit appraisal like credit history and financial guarantees. It also discusses the importance of credit for banks and associated risks. The report aims to understand various technical aspects of appraising loans to business units and projects, including assessing working capital and term loans. It will also cover non-performing assets and debt restructuring.

1. Project Title
“CREDIT APPRAISAL FOR BUSINESS LOANS”
Summer Training Project Report submitted in partial fulfillment of the requirements for
the
Diploma of
Post Graduate Diploma in Management (Financial Services)
At
Jaipuria Institute of Management, Lucknow
Supervisor: By:
Dr. Reena Agrawal Paritosh Kumar Singh
JL13FS35

2. 2
TO WHOMSOEVER IT MAY CONCERN
This is to certify that the Summer Project Study Report, Titled “CREDIT APPRAISAL FOR
BUSINESS LOANS” submitted by Mr. Paritosh Kumar Singh as partial fulfillment of
requirement of the two year PGDM (FS) (2013-2015) is a bonafide work carried out by the
student at our Institute.
This Summer Project Study is his original work and has not been submitted to any other
University/Institute.
Dr. Reena Agrawal Dr. Sushma Vishnani
Project Supervisor Program Director- PGDM (FS)
Date: 30/07/2014
Place: Lucknow

3. 3

4. 4
DECLARATION BY THE STUDENT
I Paritosh Kumar Singh student of PGDM (FS) batch (2013-2015) declare that the project
entitled “CREDIT APPRAISAL FOR BUSINESS LOANS” is my own work conducted under
the supervision of Yashaswita Pant as a partial fulfillment of Summer Internship Program for the
course of PGDM submitted to Vijay Bank and Jaipuria Institute of Management, Lucknow
I further declare that to the best of my knowledge the project does not contain any part of any
work which has been submitted for any other project either in this institute or in any other
without proper citation.
Place: Lucknow
Date: 30/07/2014 Signature of the Candidate

5. 5
ACKNOWLEDGEMENT
I would like to express my deepest appreciation to Jaipuria Institute of Management Lucknow
which provided me the possibility to complete this internship report. A special gratitude I give
to my project mentor, Mrs. Yashaswita Pant, Senior Manager, Vijaya Bank, Hazrathganj,
Lucknow whose contribution in stimulating suggestions and encouragement helped me to
coordinate my project especially in writing this report.
Furthermore I would also like to acknowledge with much appreciation the crucial role of Mr.
Subrat K. Swan, Assistant General Manager, Vijaya Bank, Hazrathganj, Lucknow who guided
me a lot during my stay in the bank and helped me in learning a lot of things every day. I would
also like to thank the staff of Vijaya Bank, Hazrathganj, Lucknow, who gave the permission to
use all required equipments and the necessary materials to complete my project on CREDIT
APPRAISAL FOR BUSINESS LOANS.
Last but not least, I would like to thank my faculty head of the project, Prof. Dr. Reena Agrawal
who invested her full effort in guiding me in achieving the goal. I have to appreciate the
guidance given by other faculty members as well who guided me in the completion of my project
report.

6. 6
EXECUTIVE SUMMARY
This project focuses on “Credit Appraisal” done by the banking organizations in India. The
banking sector is one of the most rapidly growing areas in the financial sector. As an economy
grows over the years, banking sector intensifies and broadens its reach. The banking sector is
scalping new heights it is expanding enormously. A bank with an efficient credit appraisal and
loan recovery system will be able to survive in this highly competitive industry. Such banks have
good management control and also inherent strengths in terms of a highly motivated staff, which
are further enhanced by a regulatory and supervisory system.
As the growth in advances is largely determined by the economic and business environment,
banks will be able to push their credit portfolio aggressively, especially when the economy is
booming. Also, as such banks have a diversified credit portfolio it would act as a cushion during
economic downturns.
Although creditors usually consider a number of factors in deciding whether to grant credit, most
creditors rely heavily on borrower’s credit history. Building a good credit history is important.
Banks and other lenders will give credit and charge interest on the amount that is borrowed.
While issuing financial guarantees, branches should satisfy themselves that customers would be
in the position to reimburse the Bank in case the Bank is required to make the payment under the
guarantee.
Credit is the core activity of the banks & important source of their earnings which go to pay
interest to depositors, salaries to employees & dividend to shareholders. Credit & risk go hand in
hand. Bank’s main function is to lend funds/ provide finance but it appears that norms are taken
as guidelines not as a decision making. A banker’s task is to indentify/assess the risk
factors/parameters & manage/mitigate them on continuous basis.
This project is aimed at understanding the various factors and technicalities while appraising
loan to a business unit or project. The study of the project also focuses on non-performing assets
and how the restructuring of the debt is done for one time settlement of the deb

7. 7
Table of Contents
Chapter 1.......................................................................................................................................................9
INDUSTRY OVERVIEW .............................................................................................................................10
Indian Banking Sector Outlook ...........................................................................................................10
PROBLEM STATEMENT............................................................................................................................13
METHODOLOGY ......................................................................................................................................14
Chapter 2.....................................................................................................................................................16
DETAILS OF THE ORGANIZATION ................................................................................................................16
Board of Directors...............................................................................................................................17
PRODUCTS / SERVICES AND PROCESSES/ FACILITIES..............................................................................19
ORGANIZATION STRUCTURE...................................................................................................................21
HR Practices ............................................................................................................................................23
COMPETITION ANALYSIS.........................................................................................................................25
ORGANIZATION BUSINESS PROFILE........................................................................................................31
SWOT ANALYSIS OF COMPANY...............................................................................................................33
PEST FRAMEWORK ANALYSIS OF COMPANY..........................................................................................36
MICHAEL PORTER’S FIVE FORCES MODEL- INDUSTRY ANALYSIS ...........................................................38

8. 8
Chapter 3.....................................................................................................................................................41
DESCRIPTION OF THE TASK.....................................................................................................................42
Working Capital Assessment...............................................................................................................42
Assessment Of Term Loans.................................................................................................................42
Chapter 4.....................................................................................................................................................53
LEARNING OUTCOMES................................................................................................................................53
Learning From Working Capital Assessment ..........................................................................................54
Learning From Term Loan Assessment...................................................................................................54
Chapter 5.....................................................................................................................................................56
RECOMMENDATIONS .................................................................................................................................56
Chapter 6.....................................................................................................................................................59
CONCLUDING REMARKS .............................................................................................................................59
LIMITATIONS OF THE PROJECT ...............................................................................................................60
CONCLUSION...........................................................................................................................................60
REFERENCES................................................................................................................................................62

9. 9
Chapter 1
INTRODUCTION

10. 10
INDUSTRY OVERVIEW
Background Of Banking Industry
Although some form of banking, mainly of the money-lending type, has been in existence in
India since ancient times, it was only over a century ago that proper banking began. The first
bank in India, though conservative, was established in 1786. From 1786 till today, the journey of
Indian Banking System can be segregated into three distinct phases. They are as mentioned
below:
• Early phase from 1786 to 1969 of Indian Banks
• Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms
• New phase of Indian Banking System with the advent of Indian Financial & Banking Sector
Reforms after 1991
The banking industry has moved gradually from a regulated environment to a deregulated market
economy. The market developments kindled by liberalization and globalization have resulted in
changes in the intermediation role of banks. The pace of transformation has been more
significant in recent times with technology acting as a catalyst. While the banking system has
done fairly well in adjusting to the new market dynamics, greater challenges lie ahead.
Indian Banking Sector Outlook
Over the past couple of years, the Indian banking sector has displayed a high level of resiliency
in the face of high domestic inflation, rupee depreciation and fiscal uncertainty in the US and
Europe. In order to stimulate the economy and support the growth of banking sector, the Reserve
Bank of India (RBI) adopted severe policy measures such as increasing the key monetary policy
rates such as repo and reverse repo and tightening provisioning requirements. Amidst this
economic scenario, the key challenge for the Indian banking system continues in improving their
operational efficiency and implement prudent risk management practices. Some of the key trends
expected to emerge in the near future are new government in the centre looking to focus on

11. 11
development in every sector which will increase the credit demand and it will provide banks
with an opportunity to lend.
RBI’s Policy For Interest Rate
Inflation continued to remain sticky and much above the RBI's comfort zone through-out the
year. High interest rates, subdued industrial production and domestic consumption impacted the
growth of the Indian economy which slowed down from 8.4% in FY11 to 4.3% during FY13.
In a recent RBI monetary policy interest rates are not being dropped because RBI and
government is looking to bring down inflation which will delay credit demand by industries.
However, in order to support the flow of funds to the productive sectors of the economy and ease
the liquidity crunch in the banking system the RBI has cut the CRR and SLR. During coming
months dispute in Iraq is expected to settle down which will bring crude prices down and good
monsoon will bring food inflation down after which RBI may ease interest rates to support
growth.
Asset Quality Will Need To Be Closely Monitored
During recent years NPA’s of bank increases sharply because of slowdown in economy demand
decreased which affects businesses of the firm as a result they were not able to repay their loan.
Apart from increase in NPAs, the weakening asset quality trend was also apparent from the
significant increase in restructured assets. Restructured standard advances of the SCBs, recorded
a y-o-y growth of around 58.5% and the ratio of restructured standard advances to gross
advances also increased from about 3.5% in to 4.7%. However strict measures were taken by
banks and RBI to control the growing NPA’s which have resulted in decreased NPA in all the
banks. Now once again economy is ready to come back on track as a result of which NPA’s will
reduce further as more and more firms projects will get clear because of development oriented
government in the centre.

12. 12
More Impetus On Fee Based And Non-Interest Income Services
Traditionally, banks have derived limited income from fee based services such as wealth
management, credit card services, treasury services, investment banking and advisory services.
However, as the economy was on slow track for recent years and the demand for credit is slowed
banks are struggling to keep their margins intact. Also, with changing times, consumer needs
have changed with various avenues of investment available. This is likely to increase banks
focus on offering fee based services as the earnings from such services are more stable than
interest bearing products and it also helps in mitigating risk via diversification of products and
services. Moreover banks also focused on reducing expenses by increasing internet banking and
mobile banking services.
Financial Inclusion To Play A Key Role In The Near Future
As per census 2011, huge section of Indian population is still unbanked. The overall percentage
of households availing banking services in India stood at around 59% as on 2013, which means
still near about 40% of total households, lacks access to formal banking services. This is largely
driven by rural areas and/or low income group (LIG) population, due to their financial illiteracy,
low level of income and savings, lack of collateral and absence of verifiable credit history.
Thus, in recent years, the RBI and government have increased its focus on providing formal
banking/financial services to the huge unbanked population. It is encouraging banks to develop
low cost products and services designed to suit the requirements of this group of population.
RBI has undertaken several policy initiatives to promote financial inclusion, such as encouraging
opening of no-frills accounts, engaging intermediaries to provide financial and banking services.
In the course of action, there has been increase in number of no-frill accounts. RBI also advised
banks to allocate minimum 25% of the total new branches in unbanked rural areas during a year.
In the process, the number of banking outlets in villages with population above 2,000 and less
than 2,000 also witnessed a CAGR of 73.5% and 55.7% .Further, in India there are several
micro-finance institutions (MFIs) and self-help groups (SHGs) which lend credit to the LIG. This
is expected to play a significant role in achieving financial inclusion by extending' credit to the

13. 13
LIG. This was the reason that one micro-finance institution Bandhan Micro finance got
banking license as it will provide banking facility to large section of rural areas.
Banks Expansion In Overseas Market
In order to sustain the business growth amid highly competitive market and slowing Indian
economy, banks are likely to expand in the overseas market. They will try to tap emerging
opportunities by expanding into newer markets such as Africa, former Soviet region and other
South East Asian countries, in which India has maintained good trade relations. They can set up
captive operations or expand through inorganic means by undergoing M&A with banks in
foreign countries. However, high capital cost for setting up foreign operations can act a deterrent
in the way of expansion.
Competition Set To Intensify
Recently RBI has granted banking license to two private NBFC’s. Thus, with the entry of new
players in the market, competition among banks will increase. This is expected to benefit the
consumers in the long-run as with increased competition banks will adopt fresh strategies to
retain and attract customers and protect their market share. For instance, increasingly banks are
tying up with insurance companies to sell insurance products. In this business model, both bank
and insurance companies share the commission.
Moreover banks have tied with various infrastructure companies and builders to finance their
apartments at attractive rates. Same thing is being done in auto sector.
PROBLEM STATEMENT
To study the Credit Appraisal System in retail and SME sector, at Vijaya Bank, Lucknow,
Rationale Of The Problem
Before offering credit to an organization, its financial health must be analyzed. Credit should be
disbursed only after ascertaining satisfactory financial performance. Based on the financial

14. 14
health of an organization, banks assign credit ratings. These credit ratings are used to fix the
interest rate and quantum of installment.
METHODOLOGY
a) Objective
The main objectives of the project are as follows:-
 To study & understand the concept of credit (Loan) appraisal in bank.
 To study the credit appraisal process in the bank.
 To study the various loans that are offered by the bank
 To understand the challenges related to credit appraisal.
 To study the credit recovery process.
 To study the management of Non Performing Assets.
 To analyze the banks entire credit policy.
 To find out the shortcomings in the bank’s Credit appraisal process & provide the ideal
solutions for the same.
Thus, the overall objective of this project is to understand the current credit appraisal system
used in banks. The Credit Appraisal system has been analyzed as per the different credit
facilities provided by the bank. The detailed explanation about the techniques and process
has been discussed in detail in the further chapters.
b) Research Design
To carry out my project I have used the descriptive research & analytical research.
Descriptive Research includes survey and fact finding enquiries of different kinds.
Analytical Research attempts to explain why and how. The researcher attempts to analyze the
situation and make critical evaluation.

15. 15
c) Data Collection
Secondary Data:
The data collected through following sources:-
 Bank rule book
 Cases by bank for study
 Referring to information provided by CIBIL, Income Tax files, Registrar of Companies (Ministry of
Corporate Affairs), and Auditor reports
LIMITATIONS OF THE STUDY
 Due to the constraint limited study on the project has been done
 Access to data (Credit Appraisal data in detail is not available)
 As the credit appraisal is one of the crucial areas for any bank, some of the technicalities
are not revealed which may cause destruction to the information.

16. 16
Chapter 2
DETAILS OF THE ORGANIZATION

17. 17
INTRODUCTION OF ORGANIZATION
Vijaya Bank was founded on 23rd October 1931 by late Shri A.B.Shetty and other enterprising
farmers in Mangalore, Karnataka. The objective of the founders was essentially to promote
banking habit, thrift and entrepreneurship among the farming community of Dakshina Kannada
district in Karnataka State. The bank became a scheduled bank in 1958.
Vijaya Bank steadily grew into a large All India bank, with nine smaller banks merging with it
during the 1963-68. The credit for this merger as well as growth goes to late Shri M.Sunder Ram
Shetty, who was then the Chief Executive of the bank. The bank was nationalized on 15th April
1980. The bank has built a network of 1512 branches, 48 Extension Counters and 1528 ATMs,
that span all 28 states and 4 union territories in the country.
Each branch provides effective and efficient services and significantly contributes to the growth
of the individual, and the nation.
Board of Directors
Shri.V Kannan
Chairman & Managing
Director
Shri. K. Ramadas
Shenoy
Executive Director
Shri. B.S. Rama Rao
Executive Director
Smt. Suma Varma
RBI Nominee Director
Shri V K Chopra
Govt. Nominee
Director
Shri. P.
Vaidyanathan
Shareholder Director
Smt. Bharati Rao
Shareholder Director
Shri. Ashok Gupta
Non Official
Director
Shri. H. Harish Ballal
Officer-Employee
Director

18. 18
General Managers at the Head Office
Shri. P.Mylsamy Shri. Narayana Shetty
H
Shri Udaya Kumar
Shri. Nageshwara Rao.
Y
Shri. A.C.Swain Shri. Jayaram Shetty
Shri Jayanth Pai T Smt. Nirmala Sridhar Shri B. Shashidhar
Hegde
General Managers at Regional Offices
Shri. Rajeev A S
Regional Office, Bangalore –
(North)
Shri. Murali
Ramaswami,
Regional Office,
Mumbai
Shri. Harideesh
Kumar B
Regional Office,
Delhi
THE ORGANIZATION
Vijaya Bank today is a PAN India Institution, serving diverse sectors of the society. The bank
has built a network of 1512 branches, 48 Extension Counters and 1528 ATMs, that span all 28
states and 4 union territories in the country. The Bank has the highest number of branches in its
home state Karnataka.
Vijaya Bank offers a bouquet of innovative and attractive products and services to the customers.
Vijaya Bank also incorporated the latest technology to provide the best services to our
customers. The Bank offers several technology products, such as, ATMs, cash deposit machines,
Debit and Credit cards, internet banking, Mobile Banking, Phone Banking, Funds transfer
through RTGS and NEFT etc. All Branches / offices are under RTGS / NEFT. The Bank also
Shri Atanu Kumar Das
Regional Office, Lucknow
Smt.Kusuma BM
Regional Office Mangalore

19. 19
offers RuPay cards to its customers. The driving force behind Vijaya Bank's every initiative
has been its 12000 strong dedicated workforce.
PRODUCTS / SERVICES AND PROCESSES/ FACILITIES
Loans & Advances
Various types of loans schemes are:
 Retail Lending Schemes
 Government Sponsored Schemes
 Special Schemes for Woman
 Debt Waiver & Relief Beneficiaries
 Online Retail Loans
 Facilities to Minority Communities
 Finance for Flour, Rice & Dal Mills
 Advances to Agriculture SSIs & Others
 Non Fund Based Facilities
 Loans Against Securities
Card Services
The major card services are:
 Domestic Cards
 Verified by VISA
 Global Cards
 Debit Cards
 New Offers
 V Care U Policy
Merchant Banking Services
The major Merchant Banking Activities are:

20. 20
 Debenture Trustee Services
 Banker to Issue
 ASBA facility for IPOs, FPOs and Rights Issues
 Demat Services
 Cash Management Services
Money Transfer Services
Various types of money transfer schemes are:
 Western Union Money Transfer
 Money Gram
 Xpress Money
 Remit2India
Savings and Deposits Services
The major savings and Deposits schemes are:
 Saving Account
 Current Account
 Term Deposit
Remit & Collect Service
The major remit and collect services are:
 FOREX Remittances
 Inland Remittances
 Electronic Remittance Services
 Inward Outward Collection Instruments
NRI services
Major NRI services are:
 International Banking
 FOREX branches

21. 21
 FOREX market information
 Treasury services
Various Value Added Services Are Also Being Offered By Vijaya Bank
 Temple Donation
 Mobile/DTH recharge
 Ticket booking for Airways, railways and movie
 Bill paying facility
 Online shopping facility
Free Buzz Service
The bank has launched free buzz service to the customers of the bank. The free buzz is a service
where by customers can receive the latest account balance and the details of last 7 transactions
by making a miss call through registered mobile number.
ORGANIZATION STRUCTURE
Today, living up to the ideals of the visionaries of the bank, the management includes dedicated
professionals, who bring with them a considerable amount of expertise and experience in the
banking industry.
The Bank has a three tier Organization structure.
 Head Office
 Regional Office
 Branches.
The Head office hosts various functional departments that are instrumental in policy
formulations and monitoring of performances of the regions and branches.

22. 22
Organizational Structure of Head Office
Head Office has various functional departments that are instrumental in policy formulation and
monitoring the performance of regions.
Organizational Structure of Regional Offices
The Bank has set up 24 Regional Offices to exercise immediate supervision and control over the
branches under their jurisdiction. These Regional Offices report to different functional
departments at the Head Office.
All Regional Offices are headed by experienced Executives in the Senior/Top Management
Grade. Further, as the extended wings of the Central Inspection Department, the Bank has set up
11 Regional Inspectorates and 14 Retail Asset Centralized Processing cells.
In addition to the branches, there are 12 service branches, which handle the work relating to
collection of instruments drawn on branches in these centers and clearing functions. For better
cash management the bank has set up 22 currency chests.
The bank is fully functional on the CBS platform and has also implemented a suite of
applications, integrated with the CBS solution. The bank has deployed state of the art
HEAD OFFICE
REGIONAL OFFICE
BRANCHES

23. 23
technologies and industries best IT practices and implemented comprehensive IT security
policies and procedures, an ISO 27001 certified organization, to meet customer’s aspirations.
The bank is steadily expanding geographically to cater banking services to all sections of the
society meeting the social obligation. The bank has its vast presence in rural/semi-urban areas
and a lead participant in financial inclusion to rope in the remotest population in country’s
growth mission.
HR Practices
The human Resources function is instrumental in creating and developing human capital in
alignment with the Bank’s vision. Talent management with particular focus on grooming future
leaders, learning and development and employee engagement have been the key focus areas in
the Bank’s HR objectives.
The bank has built a learning infrastructure to ensure availability of skilled and empowered
workforce.
Training
The training in the bank has been strengthened by providing additional competent manpower.
The courses have been redesigned keeping in mind the essential inputs required for the
employees to effectively handle the present and future assignments and to perform their duties
and responsibilities effectively in the highly competitive tech-based customer-driven banking
environment. The bank is also imparting training to its employees through some reputed external
training institutions in certain specialized areas like Credit, FOREX, Treasury Management, Risk
Management, HR, Marketing, etc.
OBC Employees Welfare Association has been formed in our bank and an executive in the rank
of general manager has been designated as Chief Liaison Officer for OBC employees. Further
quarterly meetings are being held between representatives of SC/ST and OBC employee’s
welfare associations and the management representatives. Relationship between the Bank and

24. 24
SC/ST/OBC employees association continues to be cordial. The bank is arranging pre-
recruitment/ pre-promotion training for SC’s / ST’s/ OBC regularly.
Further the bank has designated one General Manager as Chief Liaison Officer to attend to the
grievances of OBC and Minority Community Employees. Bank is complying with all the policy
guidelines laid down by the Government of India pertaining to reservation of posts for SC/ST
employees, OBC and Minority employees including persons with disability.
Staff Relation
The pro-active and humanistic approach undertaken by the Bank has yielded positive results and
the Bank is showing progressive growth consistently with the collective efforts of the
management and employees of the Bank. The climate is positive and the same is echoed in the
form of exponential growth of the Bank during the financial year ending March 2014. The
industrial relations in the Bank have been cordial and harmonious. There was no agitation or
unrest during the year by the employees relating to issues pertaining to our Bank. The
consultative committee meetings and negotiating committee meetings are held with the
representatives of the recognized unions at regular intervals to sort out the grievances of the
employees and settle the disputes, if any, amicably and the said meetings are attended by the top
executives of the Bank.
The bank has established Vijaya Bank Self Employment Training Institutes (VIBSETIs) in
Mandya and Haveri of Karnataka state and in Indore of Madhya Pradesh. The institutes have
conducting various vocational training/skill up gradation/awareness programs and Product
development workshops etc.
The Bank seeks regular feedback from employees on the policies and practices to ensure that it is
in consonance with employee empowerment. Incidentally, the focus area for the Bank’s
performance management system is Ownership, Continuous Process and Humane Touch which
are driven by strengthening the culture of performance feedback (both formal and informal). In
addition to performance, the personal development plan of an employee includes a feedback on
behavioral competencies for growth.

25. 25
COMPETITION ANALYSIS
There is being very stiff competition in the Indian Banking Industry because many national and
private banks are there in the market offering almost the same products. Like interest rate on
saving account is almost same for every public sector bank and same thing is there for loan
interest which is almost same for every categories for every bank. Vijaya Bank differentiates
itself by offering various types of loan schemes and catering the needs of the customers in a
different way by providing them better facility in the branch like solving their queries quickly
and easing the process of loan sanctioning. Vijaya bank is choosing the location of its branches
very carefully to capture more and more opportunity.
INDUSTRY ANALYSIS
Introduction
India is one of the top 10 economies globally, with vast potential for the banking sector to grow.
The last decade witnessed a tremendous upsurge in transactions through ATMs, and Internet and
mobile banking. In 2014, the country’s Rs 81 trillion (US$ 1.34 trillion) banking industry is set
for a greater change. Two new banks have already received licenses from the government.
Furthermore, the Reserve Bank of India’s (RBI) new norms will provide incentives to banks to
spot potential bad loans and take corrective steps that will curb the practices of rogue borrowers.
The Indian government’s role in expanding the banking industry has been significant. Through
the Financial Inclusion Plan (FY 10–13), banking connectivity in the country increased more
than three-fold to 211,234 villages in 2013 from 67,694 at the beginning of the plan.
Banks are also looking at new ways to attract customers. In September, 2013, ICICI bank
leveraged the popularity of the social platform, and launched its Facebook banking service,
Pockets. The service enables customers to transfer funds and pay bills from within the website.

26. 26
Market Size
The revenue of Indian banks increased four-fold from US$ 11.8 billion to US$ 46.9 billion
during the period 2001–2010. In the same period, the profit after tax increased from US$ 1.4
billion to US$ 12 billion.
In 2012–13, Indian banks had 170 overseas branches (163 in 2011–12) while foreign banks had
316 branches in India (309 in 2011–12).
Credit to housing sector grew at a compound annual growth rate (CAGR) of 11.1 per cent during
the period FY 2008–13. Total banking sector credit is expected to grow at a CAGR of 18.1 per
cent (in terms of INR) to touch US$ 2.4 trillion by 2017.
Recent Developments
Infrastructure Development Finance Company (IDFC) and Bandhan Financial Services Pvt Ltd
have been chosen among a field of 25 banks by the RBI to set up banks. ‘In-principle’ approval
has been given to the banks, which are both non-banking finance companies. While Mumbai-
based IDFC is categorized as an infrastructure finance company, Kolkata-based Bandhan is a
microfinance establishment.
Bandhan covers 5.5 million customers, nearly all of them women whose loans average Rs
10,000. The bank seeks to continue catering to a rural and unbanked customer base from its
current branch network. "Why go after the same person and ask him to get another account?
Why not just go after those who do not have any bank accounts," said Mr. Chandra Shekhar
Ghosh, the bank’s Managing Director.
Banks and housing finance companies (HFCs) together enjoyed a 20 per cent growth in home
loans in FY 2013–14, according to Mr. RV Verma, Chairman and Managing Director, National
Housing Bank. Home loans disbursed by banks and HFCs collectively grew by Rs 1.60 trillion
(US$ 26.59 billion) in FY 2013–14 to reach Rs 9.60 trillion (US$ 159.58 billion) at the end of
the fiscal. “We expect the growth (in home loans) to continue. There is every reason to believe
that,” said Mr. Verma.
Jammu and Kashmir (J&K) Bank is looking at opportunities to increase its presence outside the
country. The bank is likely to establish branches in London and Dubai to strengthen its
relationships with current customers who have business interests in Europe and West Asia. “We

27. 27
have a number of business relationships in these countries and it makes sense for us to have
a presence there,” said Mr. Mushtaq Ahmad, Chairman and Chief Executive Officer, J&K Bank.
Indian banks operating abroad enjoyed a higher credit growth in comparison to foreign banks
operating in India, as per an RBI survey on international trade in banking services for 2012–13.
According to the survey, growth of credit extended by Indian banks’ branches operating overseas
grew by 31.7 per cent to Rs 585,570 crore (US$ 97.36 billion); credit extended by foreign banks
based in India increased 27.5 per cent to touch Rs 307,700 crore ($51.15 billion).
Strong growth in agriculture and services sectors as well as the personal loans segment has
helped push bank credit growth during the period April–November, 2013 to 7.2 per cent,
compared to 6.6 per cent during the same period of 2012, according to a report by credit rating
agency CARE Ratings. During the period, loans to the agriculture sector grew by 5.2 per cent
compared to 2.3 per cent in 2012. "Higher growth in credit to agriculture may be attributed to the
expected better kharif crop which has been announced by the Ministry of Agriculture," according
to the report.
ICICI Bank is looking at different ways to maximize the digital opportunity for growth. The
bank is doubling the number of cities it covers with 'tablet banking' and offering its customers
services such as video conferencing, so they can talk to the money managers from the comfort of
their homes. "The idea is thinking ahead of your customer. Not just what they may want today
but what could they want tomorrow," said Mr. Rajiv Sabharwal, Executive Director, ICICI.
Bank of India (BOI) launched its card-less cash withdrawal facility in March 2014. Under this
service, a BOI customer can transfer money to anyone, using the bank’s ATMs or through
Internet banking. The sender has to provide the beneficiary’s mobile number, a sender code, and
the amount through internet banking or text message. The beneficiary, after receiving a code
from the bank can visit any BOI ATM with instant money transfer facility and withdraw the
money within a fortnight of the transfer.
Simple steps such as memorizing one's PIN, lowering credit limits on cards, using virtual cards
and deactivating transactional services connected to a mobile number could bring down bank
frauds, says experts. Regular changing of the password can also save an account from attacks. “If
there is a change in the email or phone number, it should be immediately updated with the bank,"
said a cyber-crime investigation specialist.

28. 28
Government Initiatives
The RBI has issued extra guidelines for banks giving gold metal loans (GMLs). To safeguard
against fraud, the central bank has asked lenders to check the credit worthiness of borrowers;
collateral securities against the loan; and trade cycle of the manufacturing activity, before
sanctioning the loans. "Lack of proper monitoring mechanism and not ensuring end use of GML
has resulted in certain instances of frauds/misuse related to GML by certain unscrupulous
jewelers," stated the RBI in a notification.
The Cabinet Committee on Economic Affairs (CCEA) has given the green signal to a proposal to
increase foreign holding in Axis Bank from 49 per cent to 62 per cent. The move could bring in
overseas investment of nearly Rs 7,250 crore (US$ 1.20 billion) into the country. The CCEA nod
is dependent on FIIs’ holding capped at 49 per cent.
Growth Ahead
India’s banking sector has the potential to become the fifth largest banking sector globally by
2020 and the third largest by 2025. The industry has witnessed discernable development, with
deposits growing at a CAGR of 21.2 per cent (in terms of INR) in the period FY 06–13; in FY 13
total deposits stood at US$ 1,274.3 billion.
Today, banks are turning their focus to servicing clients. Banks in the country, including those in
the public sector, are emphasising on enhancing their technology infrastructure, in order to
improve customer experience and gain a competitive edge. The popularity of internet and mobile
banking is higher than ever before, with Customer Relationship Management (CRM) and data
warehousing expected to drive the next wave of technology in banks. Indian banks are also
progressively adopting an integrated approach to risk management. Most banks already have in
place the framework for asset–liability match, credit and derivatives risk management.

29. 29
Growth in credit off-take
During FY06-13, credit off-take expanded at a CAGR of 22.8 per cent to US$ 991 billion
Figure 1: Growth in credit
Growth in deposits
Deposits have grown at a CAGR of 21.2 per cent during FY06-13; in FY13 total deposits stood
at US$ 1,274.3 billion
Figure 2: Growth in deposit

30. 30
Growth of ATMs
ATMs in India have increased to 126,950 in 2013
Figure 3: Growth of ATM's
Market share of bank groups by deposits
Share of private sector banks in India in total deposits have increased to 18.8 per cent in FY13
from 17.1 per cent in FY05
Figure 4: Market share of bank groups by deposit
Source for above stats: [ http://www.ibef.org/industry/banking-india.aspx]

31. 31
ORGANIZATION BUSINESS PROFILE
Retail Banking
The Bank aims to increase its share in the financial services sector by continuing to build a
strong retail franchise. The segment continues to be one of the key drivers of the Bank’s growth
strategy, encompassing a wide range of products delivered through multiple channels to
customers. The Bank offers a complete suite of products across deposits, loans, investment
solutions, payments and cards and is committed to developing long-term relationships with its
customers by providing high-quality services. The Bank pursues an effective customer
segmentation strategy, the success of which is reflected by annual growth rate. During the year
bank’s saving deposit grows from 15132 crores to 16977 crores. The Bank has also maintained
its approach in increasing the proportion of Retail Term Deposits. On the 31st March 2013, retail
term deposits grew to Rs. 101097 crores which is 81% of total term deposit. Likewise, the Bank
continued to focus on increasing its share of retail loans in total advances as they are highly
secured by collaterals so chance of default is less during weak economic growth.
To Indians living and working overseas, the Bank offers a complete suite of banking and
investment products under its NRI Services. The Bank has branches authorized to issue Portfolio
Investment Scheme (PIS) permissions to NRIs/PIOs who wish to trade in the Indian secondary
markets through registered stock brokers on recognized stock exchanges. To support the
business, the Bank has launched a 24x7 integrated helpdesk for NRI customers with the facility
of toll-free numbers from key geographies. The Bank also offers products in the area of retail
FOREX and remittances, including travel currency cards, inward and outward wire transfers,
traveler’s cheques and foreign currency notes, remittance facilities through online portals as well
as through collaboration with correspondent banks, exchange houses and money transfer
operators. Additionally, the Bank also launched a multi-currency card specifically aimed at
corporate and business travelers.

32. 32
Business Banking
Business Banking offers transactional banking services, leveraging upon the Bank’s network and
technology. Its initiatives focus on procurement of low-cost funds by offering a range of current
account products and cash management solutions across all business segments covering
corporate, institutions, central and state government ministries and undertakings as well as small
and retail business customers. Product offerings of this business segment aim at providing
customized transactional banking solutions to fulfill customer’s business requirement. Cross-sell
of transactional banking products, product innovation and a customer-centric approach have
succeeded in growing current account balances and realization of transaction banking fees. In the
cash management services (CMS) business, the Bank focuses on offering customized service to
its customer to cater to specific corporate requirements and improve the existing product line to
offer enhanced features to customers. The Bank is also focusing on host-to-host integration for
both collections and payments, such as IT integration between corporate and the Bank for
seamless transactions and information flow.
The Bank has been acting as an agency bank for transacting government business to various
central government ministries, departments, state governments and union territories. In addition,
the Bank provides collection and payment services to central government ministries/departments
and state governments and union territories.
Corporate Credit
In the backdrop of a subdued macro-economic environment, capital expenditure by corporate
remained lackluster during the year. Loans for working capital and the drawdown on committed
sanctions in existing projects under implementation contributed to the growth in corporate credit
during the year. The Bank’s infrastructure business includes project and bid advisory services,
project lending, debt syndication, project structuring and due diligence, securitization and
structured finance. The Bank has introduced a relationship model, focusing on cross-selling a
wide range of products to corporate. Fee-based business through loan syndication, trade finance
and treasury business continued to grow. The Bank’s sectoral approach to credit continued to
achieve greater efficiency with increased attention on identifying sector-specific opportunities.
Portfolio composition is being continuously monitored by tracking industry, group and company-

33. 33
specific exposure limits. The internal and external rating of the credit facilities of customers
is undertaken and monitored on ongoing basis with the entire lending portfolio of the Bank being
internally rated.
Agriculture Loan
The Bank has identified agricultural lending as an area of potential growth and offers a diverse
range of lending solutions to the farming clientele and other stakeholders in the agriculture value
chain. Activity and geography specific products and product variants were introduced to
effectively reach out to the various value-chain participants and to meet their credit requirements.
In order to provide a strategic focus to agricultural lending, the Bank has adopted a cluster-
centric approach for agricultural lending in areas where the Bank believes agriculture is intensive
and where a potential market exists. The Bank allies with reputed corporates in agro based
industries to provide value to the farmers. The Bank will continue to increase its reach in rural
and semi-urban areas by increasing the number of agriculture clusters and ABCs as per
requirement and bring more and more branches under agriculture lending.
The Bank also supports the weaker sections of society through its lending to Micro Finance
Institutions (MFIs). To improve credit delivery to the target customers through smart use of
technology.
SWOT ANALYSIS OF COMPANY
STRENGTHS WEAKNESS
 An old reputed government bank
 Relationship with the customers
 Very diversified portfolio of products
 Financial growth
 A very narrow count of branches in
other regions of the country except
the southern part i.e. low penetration
 Very low promotion and advertising
 Low market share in all parts of the
country except the southern region
 Increasing non-performing assets
(NPA)

34. 34
 Lack of product differentiation
OPPORTUNITY THREAT
 Penetrating in the untapped rural
markets
 Joining hands with some modern high
tech banks to increase the customer
base
 Insurance sector
 Branchless banking
 Global Banking
 Shift of customers to other banks as
per their priority
 Threat from other banks with high
market share to erode their customer
base
 Unorganized money lending market
 Customer dissatisfaction
 Rise of monopolistic structures
Strength
Various types of products designed to cater the needs of different sections like loan for vehicle,
jewelry, restaurant, medical practitioners, equipment, rice mill, etc. so it will increase the loan to
retail and SME sector as whole loan sanctioning and disbursement process becomes easier. Loan
to retail and SME sector is safe in comparison to big enterprises as chance of default is less with
retail and SME sector during weak economy but loan to big enterprises might becomes NPA
(Non-Performing Asset) as weak economy will have direct impact on demand which in turn will
impact big enterprises business.
Another strength of Vijaya Bank is their emphasis on customer as their skilled, qualified and
trained employees always give priority to their customer as they try to resolve their problem as
soon as possible which makes customer satisfied and satisfied customer is a key of success for
any business in today’s highly competitive world.
Weakness
Major weakness for Vijaya Bank or any Public Sector Bank is that there major shareholding of
the government because of which PSB’s are forced to provide loans to some corporate or fund
some of their project where some of the government ministers have their interest and despite of

35. 35
full chance of being that loan NPA those PSB’s have to sanction that loan. Another big issue
because of major government holding is of governance as in some cases higher level authorities
are themselves not so caring about the growth of the organization and in some cases if higher
level authorities are dedicated towards growth then employees lack dedication as somewhere
they don’t care about the banks overall loss or gain so according to me this is the biggest
weakness for any organization if their employees are not thinking about organizations growth.
Decision taking authority is not so clear because of which of which taking any new decision and
implementing it takes too much of time as a result Vijaya Bank stays behind some private bank
in competition. An expense on promotion specially in northern part of country is not much there
by Vijaya Bank because of which it is not able to compete with the other banks.
Opportunity
With the new government in the centre which is looking to focus more on development in every
sector is a good opportunity for whole banking industry as they will get chance to provide credit
to the various industries in order to fund their projects and moreover as economy will grow
demand for houses, vehicles and other costlier things will increase so in bank’s loan portfolio
percentage of retail loan will increase. Another opportunity for Vijaya bank is large untapped
northern India market as they are quite active in South India but not very active in Northern India
so if they will promote their brand Vijaya aggressively in this part of the country then they will
be able to increase their customers with a good margin as many villages of Northern India is still
not availing banking facility so Vijaya Bank can cash in this opportunity as they have got a tag of
government bank which is enough for the bank to gain trust of the customer . Vijaya Bank can
also go for global banking in future. By allowing foreign investment they can import new and
latest technologies to serve their customer better. There is a lot of potential in insurance sector so
bank can look for an expansion in that way.
Threat
Biggest threat for the Vijaya Bank are there competitors like State Bank of India and ICICI Bank
as they are also looking for financial inclusion with a massive promotion strategy and they are
targeting each and every section of the society and being a big brand in the banking industry they
will not allow Vijaya Bank to grow very easily. Moreover because of such an intense

36. 36
competition in the banking industry the interest spread is getting narrowed which is cutting
down the profit margin.
PEST FRAMEWORK ANALYSIS OF COMPANY
POLITICAL
 Government is responsible for
protecting the public interest.
 Political stability affects business
decision.
 Consumer protection.
 Regulations of business activities.
ECONOMIC
 Competitor activity.
 Competition for resources.
 Savings.
 Unemployment numbers.
SOCIAL
 Work life balance.
 Trends in consumer behaviours.
 Leisure.
 Lifestyle.
TECHNOLOGY
 Technological arrange is speeding up.
 Technology develops now products
(internet).
 Improved communication.
 Internet business.
Political
As of now political situation in the country is stable as current government in the centre is being
selected with full majority by the people of the country. Now government is focusing more on
development so previous projects are being brought back on track and some new projects are
being sanctioned which will allow banks to recover some of their NPA’s and they will get
opportunity to provide new loan for the projects. New government in the centre is looking to

37. 37
create business friendly environment which will ease the way of doing business in the
country which will we good for banking sector also. Moreover this new government is focusing
on financial inclusion also that’s why they are looking to offer overdraft of up to Rs 5000 per
account so that each and every people who don’t have any access to bank account can open
account and avail the banking service so that their saving can grow properly as it will help to our
economy as percentage of untapped rural market for banking sector is very large.
Economic
Currently economy is trying to come out of the weak zone as it has been in that weak zone for
past so many years sentiments are good as foreign investors are ready to invest in the country
because of development oriented government but there are few economic issues like inflation
being on higher side is stopping RBI to decrease interest rates as both RBI and government is
looking to control inflation as for people welfare and once inflation will be under control up to
the satisfaction level of RBI and government than in the next monetary policy RBI may go for
rate cuts. After rate cuts there will be huge demand for loans from the corporate sector as they
are looking for expansion which will be ultimately good for banking sector.
Social
Vijaya Bank is being affected by the circumstances of the society in which they are in use. By
the side of this Vijaya Bank tries harder to make sure that each society is given the same chances
to take the benefit of the resources given by the organization. The company adheres to having
good name and relations in the society that belong to secure that everything will be customary
and under control.
Technological
In today’s world technology is changing faster than any other thing because of so many
inventions taking place almost every day and today total work of banks are dependent on
software called Finacle which manages all the works because of which all the branches across
the country are interconnected with each other and it has made a banking experience a very rich
experience. So as any new innovation takes place in technology related to bank each bank needs
to adopt it very quickly as these new innovations enhance customers experience and it has

38. 38
became a tool to compete in this highly competitive world. Like now a day’s every bank has
started installing cash deposit, coin vending machine, cheque deposit machine, passbook printing
machine, internet banking, mobile banking, etc. So Vijaya bank has also started giving its
customers all the new technology based services to enhance their banking experience.
MICHAEL PORTER’S FIVE FORCES MODEL- INDUSTRY ANALYSIS
Threat Of New Entry
Threat of new entry in banking industry is very low as there are very strict rules and regulations
set for banking license by RBI and it’s not easy for any organization to get banking license very
easily as it can seen that after 10 years two new banking licenses are being issued and for that too
there were many applicants but only two of them were granted the banking license which shows
that how difficult it is for any organization to get new banking license. Along with strict banking
license norms to open bank one needs a very skilled manpower and opening branches all over the
country to compete with other banks involves a huge capital investment which is not possible for
any small organization. So Vijaya Bank is safe from any new entrant as entry is not so easy in
this industry but there are few foreign players interested in India to expand their business by their
subsidiary so this could be threat for Vijaya Bank.
Supplier Power
For banks suppliers are its customers parking their money with the bank in order to earn some
interest income. Though this industry is strictly controlled by RBI as it fixes the interest rates
according to the current economic condition but then too if suppliers which park their money
with bank will stop saving in bank account then it will cause great problem for banks. As instead
of saving in banks customers will start putting their money in money and capital market directly
so in this way investors will get return on their money and firms will get money for business
expansion which will reduce the importance of banks. So we can say that somewhere for banking
industry supplier power is high as suppliers have got other alternatives to invest their money.

39. 39
Buyers Power
For banking industry buyers are the individuals and the firms taking loan though once again this
industry is strictly controlled by the RBI in terms of the interest rates that banks cannot do
anything by themselves and moreover that because of stiff competition in this industry the
interest spread is getting reduced day by day which in turn is affecting the net interest income
earned by the banks which is one of the main source of income for banks. Borrower may default
also from paying the loan which further reduces the buying power of the banks. So we can say
that in terms of buying the power remains once again in the other set of customers of the bank
which are the borrowers borrowing money from bank.
Competitive Rivalry
This is one industry where competition is really very tough as products offered by the all the
banks are almost same and interest rates because of RBI’s regulation cannot be changed. For
Vijaya Bank competition is really tough as there are public sector banks with more branches than
Vijaya Bank and many private sector banks offering much more interest on saving account and
offering better service than Vijaya Bank. Moreover strategy of each bank is almost same so in
terms of competition they have low power once again as suppliers and buyers have high power
so they will go somewhere else. Barriers to exit this industry is very high because of strict rules
and regulations set by RBI and in case of Vijaya Bank is almost negligible as major shareholding
is by government of India.
Threat of Substitution
Threat of substitute is not very high for Vijaya Bank as it has got one major advantage which is
major government shareholding in this bank which creates a trust for depositors. But they there
are substitutes available in the form of NBFC’s (Non-Banking Financial Corporation) which
offer housing loans, insurance, mutual funds and various other fixed income securities which is
eating market share of the banks and creating a tough competition for banks. Moreover NBFC’s
there is being a discussion of allowing Indian Post Offices to start banking services and because
they have very wide reach all over the country so they might be the biggest substitute for the

40. 40
banks in near future. Switching cost for customers is not very high if they have all the
account opening documents with them which increase the substitution threat more for banks.
CONCLUSION
As Porter’s five force model was just to check that whether the industry is suitable to enter or
not. So in case of banking industry as we have seen above that all the parameters were not in
favor of banks because of strict rules and regulations set by RBI and very tough competition in
this industry. So it is unfavorable for the new firms to enter in this industry especially during the
time of weak economy.
Figure 4: Porter's Five Forces Model

41. 41
Chapter 3
THE PROBLEM ON HAND

42. 42
DESCRIPTION OF THE TASK
Working Capital Assessment
Working capital is the capital required for day to day operation of a business unit. Thus working
capital required (WCR) is dependent on
i. The volume of activity (i.e. Production and Sales)
ii. The activity carried on that is manufacturing process, product and the materials.
The purpose of assessing the WC requirement of the industry is to determine how the total
requirements of funds will be met. The two sources for meeting these requirements are the long
term borrowings and the short-term borrowings from banks.
Assessment Of Term Loans
Term Loans are generally granted to finance capital expenditure, i.e. for acquisition of land,
building and plant and machinery, required for setting up a new industrial undertaking or
expansion/diversification of an existing one and also for acquisition of movable fixed assets.
Term Loans are also given for modernization, renovation, etc. to improve the product quality or
increase the productivity and profitability.
The basic difference between short-term facilities and term loans is that short-term facilities are
granted to meet the gap in the working capital and are intended to be liquidated by realization of
assets, whereas term loans are given for acquisition of fixed assets and have to be liquidated
from the surplus cash generated out of earnings. They are not intended to be paid out of the sale
of the fixed assets given as security for the loan. This makes it necessary to adopt a different
approach in examining the application of the borrowers for term credits.

43. 43
DETAILED ANALYSIS OF THE TASK
Various methods for assessment of Working Capital
1. Operating cycle method:
The time between cash outlay and cash realization by sale of finished goods and realization of
sundry debtors is known as length of operating cycle.
Factors affecting operating cycle are:
 Time taken to acquire raw materials and average period for which they are in store.
 Time taken in production of goods.
 Time taken to collect receivables from debtors.
It is clear that operating cycle can be reduced by efficient and better management. The operating
cycle concept enables to assess working capital need of each enterprise keeping in view the
characteristics of the industry it is engaged in and its scale of operations. Operating cycle is an
important management tool in decision –making.
Traditional method of assessment of working capital requirement
The operating cycle concept serves to identify the areas requiring improvement for the purpose
of control and performance review. But, bank requires a more detailed analysis to assess the
various components of working capital requirement that is, finance for stocks, bills etc.
Raw material: Any industrial unit has to necessarily stock a minimum quantum of materials
used in its production to ensure uninterrupted production. Factors, which affect or influence the
funds requirement for holding raw material, are:
i. Average consumption of raw materials.
ii. Their availability – locally or form places outside, easy availability / scarcity,
number of sources of supply
iii. Time taken to procure raw materials (procurement time or lead time)
iv. Imported or indigenous.

44. 44
v. Minimum quantity supplied by the market (Minimum Order Quantity
(MOQ)).
vi. Cost of holding stocks (e.g. insurance, storage, interest)
vii. Criticality of the item.
viii. Transport and other charges (Economic Order Quantity (EOQ)).
ix. Availability on credit or against advance payment in cash.
x. Seasonality of the materials.
Stock in process: Stock in process is a raw material under production after which final product
will be produced. During this period funds are blocked. Such funds blocked in SIP depend on:
i. The processing time
ii. Number of products handled at a time in the process
iii. Average quantities of each product, processed at each time (batch quantity)
iv. The process technology
v. Number of shifts.
Finished goods: All products manufactured by an industry are not sold immediately. It will be
necessary to stock certain amount of goods pending sale. This stock depends on:
i. Whether the manufacture is against firm order or against anticipated order
ii. Supply terms
iii. Minimum quantity that can be dispatched
iv. Transport availability and transport cost
v. Pre-dispatch inspection
vi. Seasonality of goods
vii. Variation in demand
viii. Peak level/ low level of operations
ix. Marketing arrangement- e.g. direct sale to consumers or through dealers/
wholesalers.

45. 45
Sundry debtors (receivables): Sales are being done on three conditions:
 On advance payment
 On cash
 On credit
Firm grants trade credit because it expects this investment to be profitable as it will increase sales
by attracting new customers and retaining existing customers. The extent of credit given by the
industry normally depends upon:
 Trade practices
 Market conditions
 Credit of the customer
The period from the time of sale to receipt of funds will have to be reckoned for the purpose of
quantifying the funds blocked in sundry debtors. Even though the amount of sundry debtors
according to the unit’s books will be on the basis of Sale Price, the actual amount blocked will be
only the cost of production of the materials against which credit has been extended- the
difference being the unit’s profit margin- (which the firm does not obviously have to spend). The
working capital requirement against Sundry Debtors will therefore be computed on the basis of
cost of production (whereas the permissible bank finance will be computed on basis of sale value
since profit margin varies from product to product and buyer to buyer and cannot be uniformly
segregated from the sale value).
The working capital requirement is expressed as so many months’ cost of production.
Expenses
It is customary in assessing the working capital requirement of industries, to provide for 1
month’s expenses also.
While computing the working capital requirements of a unit, it will be necessary to take into
account 2 other factors,
i. Is the credit received on purchases- trade credit is a normal practice in trading
circles. The period of such credit received varies from place to place, material to

46. 46
material and person to person. The amount of credit received on purchases
reduces the working capital funds required by the unit.
ii. Industries often receive advance against orders placed for their products. The
buyers, in certain cases, have to necessarily give advance to producers e.g. custom
made machinery. Such funds are used for the working capital of an industry. It
can be thus summarized as follows:
Raw materials Months requirement Rs. A
Stock-in-process Months (cost of Production) Rs. B
Finished Goods Months cost of Production required to be stocked Rs. C
Sundry Debtors Months cost of Production (o/s credits) Rs. D
Expenses One month(normally) Rs. E
Total Current Assets A+B+C+D+E
Credit received on Purchases
(months’ Purchase value)
Rs. F
Advance payment on order
received
Rs. G
WORKING CAPITAL REQUIRED (H) = (A+B+C+D+E)- (F+G)
Various Methods For Assessment Of Term Loan
Market Analysis
Market analysis of the product being developed by the firm is necessary in order to determine the
market demand and potential of the product. Critical analysis is required regarding size of the
market for the product(s) both local and export, based on the present and expected future demand
in relation to supply position of similar products and availability of the other substitutes as also

47. 47
consumer preferences, practices, attitudes, requirements etc. Competition from imported
goods, Government Import Policy and Import duty structure also need to be evaluated.
Technical Analysis
Before granting term loans technical analysis should be done. This involves following factors:
Location and Site
Location and site should be selected after assessing various factors such as factors of production,
markets, government policies, etc. It should be such that overall cost can be minimized and
power, water, transport, communication should be adequately available there. Future expansion
should be kept in mind.
Raw Material
Availability of raw material on time is very important for any firm in order to utilize full capacity
of plant and earn profit margin. So following factors should be kept in mind for raw materials
like future expected price, its availability on time, transportation charge, government policies
regarding regulation of supply and price should be examined in detail.
Plant & Machinery, Plant Capacity and Manufacturing Process
Plant and machinery should be selected keeping few things in mind like its cost, capacity
required to be produced, principal inputs, installation cost and it should be according to
government norms and policy. The technology used should be latest and cost effective so that
overall cost of per unit is kept low. It is also to be ensured that arrangements are made for
inspection at intermediate/final stages of production for ensuring quality of goods on successful
commencement of production and completion, wherever required. Production should be such
that it facilitates optimum utilization and ensures future expansion/ debottlenecking, as and when
required.

48. 48
Financial Analysis
The aspects which need to be analyzed under this head should include cost of project, means of
financing, cost of production, break-even analysis, financial statements as also profitability/funds
flow projections, financial ratios, sensitivity analysis which are discussed as under:
Break-Even Analysis
Analyzing break -even point of a business enterprise will help in knowing the level of output and
sales at which business enterprise will be in a situation of neither profit nor loss. Firms start
earning profit when they start operating above break-even point and on the other hand they incur
loss if they operate below break-even point.
Break-even can be calculated in the following way:
Fixed cost includes all those costs which remain same up to certain level of production while
variable cost varies in proportion with the volume of production.
Break-even analysis help in taking decisions related to selling price of a product as it help in
understanding the impact of important cost factors such as power, raw material, labor, etc.
Fund-Flow Statement
A critical analysis of fund flow statement shows various sources from where fund is being
generated and how it is being used. It is derived by comparing balance sheets of two successive
years on some specified dates and finding the net changes in the various items appearing in the
balance sheet.
Projected Fund Flow Statement help in answering following queries:
Break-even point
(Volume or Units)
Total Fixed Cost / (Sales price per unit - Variable Cost per unit)
Break-even point
(Sales in rupees)
(Total Fixed Cost x Sales) / (Sales - Variable Costs)

49. 49
 How much funds will be generated by internal operations/external sources?
 How the funds during the period are proposed to be deployed?
 Is the business likely to face liquidity problems?
Financial Ratios
Ratio analysis is an excellent method for determining the overall financial condition of the firm.
While analyzing the financial aspects of project, it would be advisable to analyze the important
financial ratios over a period of time as it may tell us a lot about a firm's liquidity position,
managements' stake in the business, capacity to service the debts etc.
The financial ratios which are considered important are discussed as under:
 Debt To Equity Ratio
 Debt Service Coverage Ratio
 Tangible Net Worth To Total Outstanding Liability Ratio
 Profit To Sales Ratio
 Sales To Tangible Asset Ratio
 Current Ratio

50. 50
Ratio Formula Remarks
1
Debt-Equity
Ratio
Debt (Term Liabilities)
Equity
(Where, Equity = Share capital,
free reserves, premium on shares,
, etc. after adjusting loss balance)
There cannot be a rigid rule to a satisfactory debt-
equity ratio, lower the ratio higher is the degree of
protection enjoyed by the creditors. But it is always
desirable that owners have a substantial stake in the
project. Other features like quality of management
should be kept in view while agreeing to a less
favorable ratio. In financing highly capital
intensive projects like infrastructure, cement, etc.
the ratio could be considered at a higher level.
2
Debt-
Service
Coverage
Ratio
Net operating income
Total debt service
This ratio of 1.5 to 2 is considered reasonable by
bank as it indicates that firm has enough liquidity
to repay its loan interest.
3
TOL / TNW
Ratio
Tangible Net Worth
(Paid up Capital +
Reserves and Surplus -
Intangible Assets)
Total outside Liabilities
(Total Liability - Net
Worth)
This ratio gives a view of borrower's capital
structure. If the ratio shows a decreasing trend, it
indicates that the borrower is relying more on his
own funds and less on outside funds and vice
versa.
4
Profit-Sales
Ratio
Operating Profit (Before
Taxes excluding Income
from other Sources)
This ratio gives the margin available after meeting
cost of manufacturing. It provides a yardstick to
measure the efficiency of production and margin

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Sales on sales price i.e. the pricing structure
5
Sales-
Tangible
Assets Ratio
Sales
Total Assets - Intangible
Assets
This ratio tells us how best the assets are being
used. A rising trend of the ratio tells that borrower
has been making efficient utilization of his assets.
However, caution needs to be exercised when fixed
assets are old and depreciated, as in such cases the
ratio tends to be high because the value of the
denominator of the ratio is very low.
6
Current
Ratio
Current Assets
Current Liabilities
Higher the ratio greater the short term liquidity.
This ratio is indicative of short term financial
position of a business enterprise. It provides
margin as well as it is measure of the business
enterprise to pay-off the current liabilities as they
mature and its capacity to withstand sudden
reverses by the strength of its liquid position. Ratio
analysis gives indications; to be made with
reference to overall tendencies and parameters in
relation to the project.
7
Output
Investment
Ratio
Sales
Total capital employed
(in fixed & current
assets)
This ratio is indicative of the efficiency with which
the total capital is turned over as compared to other
units in similar lines.

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Sensitivity Analysis
While preparing and appraising projects certain assumptions are made in respect of certain
critical/sensitive variables like selling price/cost price per unit of production, product-mix, plant
capacity utilization, sales etc. which are assigned a `VALUE' after estimating the range of
variation of such variables. The `VALUE' so assumed and taken into consideration for arriving
at the profitability projections is the `MOST LIKELY VALUE'. Sensitivity Analysis is a
systematic approach to reduce the uncertainties caused by such assumptions made. The
Sensitivity Analysis helps in arriving at profitability of the project wherein critical or sensitive
elements are identified which are assigned different values and the values assigned are both
optimistic and pessimistic such as increasing or reducing the sale price/sale volume, increasing
or reducing the cost of inputs etc. and then the project viability is ascertained. The critical
variables can then be thoroughly examined by generally selecting the pessimistic options so as to
make possible improvements in the project and make it operational on viable lines even in the
adverse circumstances.
MANAGEMENT & ORGANIZATION ANALYSIS
Appraisal of project would not be complete till it throws enough light on the person(s) behind the
project i.e. management and organization of the unit. It is seen that some projects may fail not
because these are not viable but because of the ineffectiveness of the management and the
organization in controlling various functions like production, marketing, finance, personnel, etc.
The appraisal report should highlight the strengths and weaknesses of the management by
commenting on the background, qualifications, experience, and capability of the promoter, key
management personnel, and effectiveness of the internal control systems, relation with labor,
working conditions, wage structure, and the other assigned essential functions. In case the
promoter(s) have interest, in other concerns as Proprietor or Partner or Director, the appraisal
report should also comment on their performance in such concerns. Further, the management and
the organization should be conducive to the size and type of business. In case it is not so, it
should be ensured that professional managers are inducted to strengthen the organization.

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Chapter 4
LEARNING OUTCOMES

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Learning From Working Capital Assessment
 Availability of raw materials should be monitored like who are the suppliers and what is
the lead time.
 Time taken in processing raw materials and technology used for processing.
 One thing needs to looked is that firm is manufacturing for some order or for anticipated
order.
 Peak level and low level of operation should be taken care.
 Variation in demand should be noticed.
 Important thing to be looked is that firm is making sale on advance basis or cash or credit
basis.
 It should be checked that firm is getting any credit from their suppliers or not and if yes
then for what time.
 All the expenses incurred by the firm should be checked.
 Cash conversion cycle should be calculated.
Learning From Term Loan Assessment
Loans are the most important assets in a bank’s portfolio, sound credit analysis is the key to
making high-quality loans and managing credit risk. As very few firms have the resources to
operate their businesses on a cash basis. Credit analysis is an integral and essential part of loan
process which was the main part of my project.
Industry Risks Government regulations and policies, availability of infrastructure facilities,
Industry Rating, Industry Scenario & Outlook, Technology Up gradation,
availability of inputs, product obsolescence, etc.
Business Risks Operating efficiency, competition faced from the units engaged in similar
products, demand and supply position, cost of labor, cost of raw material
and other inputs, pricing of product, surplus available, marketing, etc.

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Management Risks Background, integrity and market standing/ reputation of promoters,
organizational set up and management hierarchy, expertise/competence of
persons holding key position in the organization, delegation and
decentralization of authority, achievement of targets, track record in
execution of project, debt repayment, industry relations etc.
Financial Risks Financial strength/standing of the promoters, reliability and reasonableness
of projections, past financial performance, reliability of operational data and
financial ratios, adequacy of provisioning for bad debts, qualifying remarks
of auditors/inspectors etc.
Breakeven point should be calculated.
Debt Equity ratio should be checked in order to ensure that firm don’t have
taken too much debt in past.
Liquidity should be checked to make sure that they will be able to pay their
interest on time.
Return on asset and Asset turnover should be checked to make sure that
firm is operating efficiently or not.

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Chapter 5
RECOMMENDATIONS

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Recommendations and suggestions
The following are the recommendations and suggestions after the completion of the study:
 Before providing any advances to corporate sector bank must be sure of the purpose for
which loan is being taken and it should be mandatory to disclose the purpose for the
corporate sector.
 Bank must make sure that how that purpose is going to generate cash flow for that
company by analyzing the demand side of their product and if cash flow generated by the
company is not going to be sufficient with respect to the loan amount and its interest then
loan should not be provided.
 Bank should always consider few things one of them is technology that is being used. If
bank is providing any advances to any manufacturing unit, and technology that is being
used that is being used by that manufacturing unit is going to be obsolete in one or two
years, then it will become difficult for the company to return the borrowed amount with
interest as sell of product will decrease and operating cost may increase.
 The bank must not rely on software or information provided by the client, the bank
should dig in for other sources in order to draw a real picture for the company.
 The bank must bring more transparency in appraisal of the project; there should be
explanation for a appraisal of the project that was sanctioned by higher authority.
 Banks concerned should continuously monitor loans to identify accounts that have
potential to become non-performing.
 Another thing that should be taken care is period of cash conversion cycle. Lesser the
cash conversion cycle suggests more quickly the inventory is being converted into goods.
More quickly the receivable is being converted into cash. Lesser cash conversion cycle
suggest efficient management of inventory and bank can take it as a good sign before
extending any credit, and it increases the chance for bank to get back it advances with
interest.

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 Bank should analysis the past performance of the company their sales trend and
performance in comparison to competitors by going through their financial statement
carefully.
 Bank should also make sure that company haven’t taken too much of debt in the past as
loan might be used to repay that debt so this will block the bank’s money as it will not be
used by company in some productive work.
 Bank should timely verify that whether company is using the advances properly for the
specified work, or there is any diversion of fund. Because if any company diverse the
borrowed fund to other place or involves it in other activity then it may affect the proper
running of business for the purpose of which advances had been taken .and it may act
hindrance for the bank in getting back it advances with interest.
 Bank should also be concerned about how much is the cash sale or credit sale of
company’s product. Higher cash sales reflect that company is in better position in market
and more cash sales increases liquidity of company. In similar way more credit sales may
affect the performance of company as sometime it may not get its receivable on proper
time which can affect its operational activity.
 In case of retail loan bank must verify each and every document very carefully like salary
slip, address proof, Identity proof and guarantor’s detail as people make false documents
to take loan and after that they default to repay the loan then it becomes very difficult for
bank to recover that loan.
 To capture market share in the country the bank should focus more on advertising to
increase awareness amongst the public about the services and product it offers.
 The bank should conduct few campaigns to gain some popularity in the north India.

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Chapter 6
CONCLUDING REMARKS

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LIMITATIONS OF THE PROJECT
 The prominent limitation of the study was lack of time, due to time constraint some
aspects of the study were not studied in detail.
 The unavailability of data is a big limitation for the report because bank does not allow
accessing their confidential data.
 My study was limited only in one branch because of which I didn’t get that much
exposure.
 Branch where I was doing my internship was one of the busiest branches of Vijaya Bank
in Lucknow because of which my mentor was not being able to tell each and every aspect
of the credit appraisal process.
 I was not being involved in the most of the loan processes so I got chance to work on
only one auto loan project.
CONCLUSION
Providing credit is the most important function of the bank as this is the basic reason for the
existence of the bank and by credit creation bank helps in running of the whole economy.
On the other hand there is a chance that borrowers might default and thus turning the loans into
NPA which affect the bank’s profitability. So credit appraisal need arises to analysis the credit
worthiness of the customer.
The credit appraisal process revolves around three critical aspects:
 Evaluation of creditworthiness and acceptability of the applicant
 Assessment of overall bankability of the proposal, need based loan quantum, as per the
laid down norms, as an enabling aspect of well informed credit decision
 Choice of appropriate style of credit, security structure, pricing and borrower specific
additional covenants, terms and conditions covering both pre-post disbursal aspects
It needs to be recognized that, all credit proposals in all forms of lending attract normal credit
and antecedent risk. However, what is essential is an objective appraisal and evaluation of the

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proposal, keeping in view the overall bankability, business prospects and applicant
connection with a judicious mix of prudence and prevailing lending norms.

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REFERENCES
 http://www.ftkmc.com/banking.html
 http://www.equitymaster.com/research-it/sector-info/bank/Banking-Sector-Analysis-
Report.asp
 http://www.isesec.com/Admin/Research/1659808644_Indian%20Banking%20Industry.p
df
 http://www.ibef.org/industry/banking-india.aspx
 http://www.vijayabank.com/
 http://www.thehindubusinessline.in/
 http://www.studymode.com/
 Vijaya Bank Annual Report 2013-1014