CHAPTER-1 INTRODUCTION 1.

1 Introduction about the sector:BANKING Banking, the business of providing financial services to consumers and business. The basic services a bank provides are checking accounts, savings accounts and time deposits that can be used to save money for future use; loans that consumers and businesses can use to purchase goods and services; and basic cash management services such as check cashing and foreign currency exchange. TYPES Four types of banks specialize in offering these basic banking services: 1) Commercial banks, 2) Savings and loan associations, 3) Savings banks, and 4) Credit unions. A broader definition of a bank is any financial institution that receives, collects, Transfers, pays, exchanges, lends, invests, or safeguards money for its customers. This broader definition includes many other financial institutions that are not usually thought of as banks. These institutions include finance companies, investment companies, investment banks, insurance companies, pension funds, security brokers and dealers, mortgage companies, and real estate investment trusts.

PURPOSE Banking services serve two primary purposes. First, by supplying customers with the basic mediums-of-exchange (cash, checking accounts, and credit cards), Second, by accepting money deposits from savers and then lending the money to borrowers, banks encourage the flow of money to productive use and investments. This in turn allows the economy to grow. Enabling the flow of money from savers to investors is called financial intermediation, and it is extremely important to a free market economy.

1.2 Industry Profile:a. Origin and Development of industry:Banking in India Banking in India originated in the first decade of 18th century. The General Bank of India came into existence in 1786. This was followed by Bank of Hindustan. Both these banks are now defunct. The oldest bank in existence in India is the State Bank of India being established as "The Bank of Bengal" in Calcutta in June 1806. A couple of decades later, foreign banks like Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time, Calcutta was the most active trading port, mainly due to the trade of the British Empire, and due to which banking activity took roots there and prospered. The first fully Indian owned bank was the Allahabad Bank, which was established in 1865. By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded under private ownership. The Reserve 2

Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. The banking in India was controlled and dominated by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank of Madras - which later on merged to form the Imperial Bank of India, and Imperial Bank of India, upon India's independence, was renamed the State Bank of India. The presidency banks were like the central banks and discharged most of the functions of central banks. They were established under charters from the British East India Company. The exchange banks, mostly owned by the Europeans, concentrated on financing of foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency banks, and the exchange banks. There was potential for many new banks as the economy was growing. Under these circumstances, many Indians came forward to set up banks, and many banks were set up at that time, and a number of them set up around that time continued to survive and prosper even now like Bank of India and Corporation Bank, Indian Bank, Bank of Baroda, and Canara Bank.

b. Growth and Present Status of the Industry:By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquition and Transfer of Undertaking) Bill, and it received the presidential approval on 9th August, 1969. A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated reason for the nationalisation was to give the government more control of credit delivery. With the second dose of nationalisation, the GOI controlled around 91% of the banking business of India. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

c. Future of the Industry:A healthy banking system is essential for any economy striving to achieve good growth and yet remain stable in an increasingly global business environment. The Indian banking system, with one of the largest banking networks in the world, has witnessed a series of reforms over the past few years like the deregulation of interest rates, dilution of the government stake in public sector banks (PSBs), and the increased participation of private sector banks. The growth of the retail financial services sector has been a key development on the market front. Indian banks (both public and private) have not only been keen to tap the domestic market but also to compete in the global market place. New foreign banks have been equally keen to gain a foothold in the Indian market. The momentum in credit growth has been maintained during 2005-06 due to two factors: The corporate sector has stepped up its demand for credit to fund its expansion plans; there has also been a growth in retail banking. However, even as the opportunities increase, there are some issues and challenges that Indian banks will have to contend with if they are to emerge successful in the medium to long term. This report discusses these issues and challenges -- both intrinsic and external, such as Consolidation Consolidation, which has been on the counter over the last year or so, is likely to gather momentum in the coming years. Post April 2009, when the restrictions on operations of foreign banks will go, the banking landscape is expected to change dramatically. Foreign banks, which currently account for 5% of total deposits and 8% of total advances, are devising new business models to 5

capture the Indian market. Their full-fledged entry is expected to transform the business of banking in many ways, which would be reflected in terms of greater breadth of products, depth in delivery channels and efficiency in operations. Thus Indian banks have less than three years to consolidate their position. Despite the stiff resistance from certain segments, consolidation holds the key to future growth. This view is underpinned by the following: Owing to greater scale and size, consolidation can help save costs and improve operational efficiency. Banks will also have to explore different avenues for raising capital to meet norms under Basel-II Owing to the diversified operations and credit profiles of merging banks, consolidation is likely to serve as a risk-mitigation exercise as much as a growth engine. Though there is no confirmation yet, speculative signals arising from the market point to the prospect of consolidation involving banks such as Union Bank of India, Bank of India, Bank of Baroda, Dena Bank, State Bank of Patiala, and Punjab and Sind Bank. Further, the case for merger between stronger banks has also gained ground a clear deviation from the past when only weak banks were thrust on stronger banks. There is a case being made for mergers between banks with a distinct geographical presence coming together to leverage their respective strengths.

CHAPTER-2 PROFILE OF THE ORGANIZATION 2.1 Origin of the Organization:-

Dena Bank was founded on 26th May, 1938 by the family of Devkaran Nanjee under the name Devkaran Nanjee Banking Company Ltd. It became a Public Ltd. Company in December 1939 and later the name was changed to Dena Bank Ltd. In July 1969 Dena Bank Ltd. along with 13 other major banks was nationalized and is now a Public Sector Bank constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. Under the provisions of the Banking Regulations Act 1949, in addition to the business of banking, the Bank can undertake other business as specified in Section 6 of the Banking Regulations Act, 1949.

Milestones One among six Public Sector Banks selected by the World Bank for sanctioning a loan of Rs.72.3 crores for augmentation of Tier-II Capital under Financial Sector Developmental project in the year 1995. One among the few Banks to receive the World Bank loan for technological upgradation and training. Launched a Bond Issue of Rs.92.13 crores in November 1996. Maiden Public Issue of Rs.180 Crores in November 1996. Introduced Tele banking facility of selected metropolitan centers. Dena Bank has been the first Bank to introduce: Minor Savings Scheme. Credit card in rural India known as "DENA KRISHI SAKH PATRA" (DKSP). Drive-in ATM counter of Juhu, Mumbai. Smart card at selected branches in Mumbai. Customer rating system for rating the Bank Services.

2.2 Growth and Development of the Organization:To evolve and position the bank as a world class, progressive, cost-effective and customer friendly institution providing comprehensive financial and related services: integrating frontiers of technology and serving various segment of society especially the weaker section of the society: committed to excellence in serving the public and also excelling in the corporate values. Corporate excellence emanate from good corporate governance exercised by adopting standard of transparency, accountability, professionalism, social

responsiveness, and ethical business practices with this in view, the has been making efforts for adopting the best practices. The bank commitment towards corporate governance is to bestow greater transparency and openness in the management and to ensure best performance by staff at all the levels to maximize the operational efficiency. Adopting the corporate governance as a work ethos, the bank is committed to enhancing the stakeholders value.

2.3 Present Status of Organization:Dena bank might just be another case of bank in trouble. Going by the recent observations of the accounting department of the bank itself, the banks capital adequacy ratio (CAR) and profitability in serious doubts. An analysis of the financial position of the bank for the year 2002-03, by the accounts department of dena bank, copy of which is in the possession of Indian Express, showed that the banks CAR stood at 9.33% would go down as low as 9

6.02% as per the latest RBI guidelines. In simple terms, a low CAR implies that the bank would be trouble there is a run on it since it has overexposed itself. Further, miscellaneous income, which also accounted for the increase in profits, went up by Rs. 32.92 crore to Rs. 86.06 crore for the year 2002-03. However, the review showed that Rs. 19.50 crore of the miscellaneous income was due to transfer of old credits over five years lying with the bank in suspense receipts/ unclaimed credits. Another element of doubts in the results is the fact that the bank had reversed an amount of Rs. 18.40 crore to the balance sheet as disputed tax liability. This was based on the expert opinions received by bank on tax consultants and also on a high court decision in the case of American Express Bank. The above three aspects are taken together accounted for Rs. 83.40 crore of profit.

2.4 Functional Departments of the Organization:Dena Bank deals with the following functional departments:

1. Personal

In the Dena Bank Personal Banking section, the organization offer its services with a personal touch by reaching out to all in various manners, one of 10

them is through offering a basket of our Deposit Schemes which delivers a strong return on all your personal savings and our Loan Schemes which provides the required financial assistance in your times of need.

2. Corporate

Corporate Finance Dena Bank provides financial assistance to the business entities engaged in various activities of manufacturing, trading and service. The Financial assistance is provided for setting up new projects, acquiring assets and also for meeting day to day working capital requirements of the constituents. These assistances are termed as Long Term Finance & Short Term Finance respectively.

Term Finance Term Loan/Finance covers funds required for acquiring means of production such as land, building and plant and machinery etc. These could be for setting up new projects or expanding the present activities. Term finance is generally given for a longer period and is repayable in installments over the period with or 11

without Moratorium. The period and the installments are determined based on the repayment capacity of the project / borrower.

Working Capital Finance Working Capital Finance (WCF) is extended for carrying out normal trading/ manufacturing activities.The working capital finance is provided for a relatively shorter period generally for a period of 1 year and renewed on yearly basis considering the performance of the borrower. The WCF is considered only after project nearing completion and after full tie up of term loan requirement. The Working Capital limits of the borrower are assessed by adopting various methods such as Projected Turnover Method (Nayak Committee

Recommendation), Permissible Bank Finance Method, Cash Budget Method etc. depending upon the aggregate working capital limit required / enjoyed from the banking system, nature of activity, production cycle etc. Working Capital finance is in the form of pre-sale and post-sale limits. In Pre Sale Finance the advance is granted for acquiring Inventory for production / processing or Trading purpose while the Post-Sale Finance is extended against the receivables. Dena Bank encourages Post-sale finance in the form of purchase/discounting of bills etc. Pre Sales Finance : 1. Cash Credit Hypothecation / Pledge against Stocks 2. Packing Credit Hypothecation / Pledgeagainst Stocks 3. Clean Packing Credit Limit 4. Trust Receipts 12

5. Working Capital Loan (Demand / Term) Post Sales Finance : 1. Bills discounting / purchase Inland / Foreign 2. Cash Credit Hypothecation against Book Debts 3. Advances against Export Incentives 4. Purchase of Cheques/Demand Draft Non Fund Based Credit Assistance The Business units also require Credit Assistance for procurement of Goods, where the funds are not involved.Such facilities are available against the assured commitments / guarantee from the Lending Institutions. Dena Bank is extending such Non Fund Based assistance to the eligible units in the form of : 1. Issuance of Guarantee of various types like Performance, Financial, Bid Bond, Tender Deposit / Earnest Money etc. and 2. Issuance of Letter of Credit 3. Deferred Payment Guarantee

Export Credit Bank extends credit to Exporters at Competitive rates, at both Pre-shipment and Post-shipment stages. Recently, Bank has introduced Gold Card Scheme which provides cheaper export credits to the eligible borrowers. Selected Clients engaged in exports are also suitably rewarded in the form of Export Credit Denominated in Foreign Currency viz. PCFC (Pre Shipment) / REBA (Post Shipment Credit).

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Specific Schemes The Bank has devised specific schemes for the following Sectors : 1. Educational Institutions, 2. Builders & Developers, 3. Hospitals, 4. Hotels & Restaurants & 5. Entertainment Industry.

3. NRI Desk

With over 1100 branches spread across the country, Dena Bank is your ideal banking partner if you are a Non-Resident Indian. All transactions by NRIs in Indian Banks are governed by RBI Rules and Regulations . 4. Priority & SME

14

These are the sectors where Dena Bank has taken special care to ensure instant sanctions and approvals for all applicants.

Priority Sector Schemes: 1. Dena Rural Internet Kiosk Scheme 2. Dena Shakti Scheme 3. Dena Laghu Udyami Card Scheme 4. Dena Rural Artisan Credit Card Scheme 5. Dena Swarozgar Credit Card Scheme 5. Dena Billpay:-

AutoPay Just give us your bill details, specify your bank account and we will pay your bill for you every month from that account. You can specify an upper limit and bills above this limit will be paid only on your specific instructions. PhonePay Get a SMS alert when bill is due and issue payment instructions in accordance. 15

Internet If you have access to the internet, you can view and pay your bills online at www.denabank.com. You will receive new bill notifications, due date reminders and payment confirmations via email. 6. Dena ATM Services

Dena Bank always stands in forefront in understanding it customers need. Dena Bank Debit cum ATM Card offers you an easy and convenient way to do all your transactions and that too within a fraction of seconds. Presently we have more than 380 ATMs all across India. Dena Debit cum ATM Card is your Bank Account in your pocket. Get your Dena Bank Debit cum ATM Card today and avail round the clock uninterrupted service. Below is the simple procedure to use this facility: 1. Contact your Branch. 2. If you dont have Saving or Current Account, first open your account. 3. Get the Debit/ATM Card Application form from the Branch, fill it up and submit it to your Branch. 4. Within 10 days, you will receive your Debit cum ATM Card along with PIN (Personal Identification Number) and Debit cum ATM Card Booklet.

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5. Activate your card immediately by withdrawing cash from from Dena Bank ATM. After that you can use your card on POS Terminal ( Merchant Establishments)

7. Other Services:Dena Bank, your trusted family bank, now is proud to offer a range of sophisticated banking services by way of Any-branch banking, Multi City cheque, Dena ATM's, Dena Cards, online remittance, Internet Banking, Mobile banking, Tele banking, Online utility Bill Payment, Value added Service through ATM, Kiosks, loans and many more. With over 1100 branches across the country, we are always ready to serve our customers, and to offer them the best of the technology-enabled banking products and services.

2.5 Organization Structure and Organization Chart:Organization Structure:HEAD OFFICE

REGIONAL OFFICE

17

BRANCHES

Executive cards of the organization. They are Executive Director, General Manager (GM), Deputy General Managers (DGM), assistant General Managers (AGM), Chief Managers (CM), Managers and other officers are in the hierarchy at the head office level functioning in various Departments. The regional Managers heads the Regional Officers who are assisted by other down in the hierarchy. The Branch is headed by AGM\CM\ Senior Managers\Managers depending upon the size of the Branch activities and rendering of satisfactory customer service. The bank has a very good system of delegating power to the different functionaries in the hierarchy to facilitate speedy decision- making process even up to the branch Level.

Organization Chart:As mentioned above, the organization chart for a regional office is different from organization charts of a Head Office as well as Branches. The organization chart for the regional office where the training has taken place consists of 18

various

designations

and

responsibilities.

The

various

designations and the persons responsible for that designations responsibilities are described as under through the charts.

A. C. Katial (DGM)

S.J. Majumdar (AGM)

Devi Singh Channokar (Chief Manager)

G.D. Sinha (Senior Manager)

Hakeem Alam (Manager)

Deepika Kansal (Officer)

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2.6 Product and Service Profile of the Organization Competitors:-

State Bank Of India:The Bank is actively involved since 1973 in non-profit activity called Community Services Banking. All our branches and administrative offices throughout the country sponsor and participate in large number of welfare activities and social causes. Our business is more than banking because we touch the lives of people anywhere in many ways. Our commitment to nation-building is complete & comprehensive.

Punjab National Bank:Established in 1895 at Lahore, undivided India, Punjab National Bank (PNB) has the distinction of being the first Indian bank to have been started solely with Indian capital.The bank was nationalised in July 1969 along with 13 other banks. From its modest beginning, the bank has grown in size and stature to become a front-line banking institution in India at present. A professionally managed bank with a successful track record of over 110 years. Largest branch network in India - 4525 Offices including 432 Extension Counters spread throughout the country. Strategic business area covers the large Indo-Gangetic belt and the metropolitan centres. Ranked as 248th biggest bank in the world by Bankers Almanac , London. 20

 Strong correspondent banking relationships with more than 217 international banks of the world. More than 50 renowned international banks maintain their Rupee Accounts with PNB. Well equipped dealing rooms; 20 different foreign currency accounts are maintained at major centres all over the globe.

Bank of India:-

Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from Mumbai. The Bank was under private ownership and control till July 1969 when it was nationalised along with 13 other banks. Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid growth over the years and blossomed into a mighty institution with a strong national presence and sizable international operations. In business volume, the Bank occupies a premier position among the nationalised banks. The Bank has 3021 branches in India spread over all states/ union territories including 136 specialised branches. These branches are controlled through 48 Zonal Offices . There are 28 branches/ offices (including three representative offices) abroad.

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The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions Placement in February 2008. . Total number of shareholders as on 31/03/2009 is 2,35589. While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront of introducing various innovative services and systems. Business has been conducted with the successful blend of traditional values and ethics and the most modern infrastructure. The Bank has been the first among the nationalised banks to establish a fully computerised branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. The Bank is also a Founder Member of SWIFT in India. It pioneered the introduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio.

Bank of baroda:-

Bank of Baroda believes in the strength and integrity of relationships built with its customers like you. With over 101 years of experience in the banking industry and a wide network of over 3000 branches all over the country, it has always been active in extending financial support and adapting to customers changing needs. Its Deposit Products, Retail Loans, Credit Cards and Debit Cards help the customers with their growing financial needs. With facilities like Lockers it ensure that customers valuables are safe with it. Its countrywide branches offer the customers convenience and ease in operating them account wherever they are. Its 24-hour ATMs enable them to withdraw cash, check their account 22

balance and request for a new cheque book even after banking hours.

Faster technology for better service:Baroda Internet Banking / Baroda Mobile Banking, its latest Internet and Mobile banking initiatives enable them to operate their account just as they would in any of its branches. The customers can through the Internet check their balance, request for chequebooks and print account details. Choose from its various products and services, that the bank sincerely feel will put a smile on customers face; an investment it would like to bank on forever.

Different Bank Parameters:Name of the Bank SBI PNB Bank Of India Bank Of Baroda Last Price 2,266.45 917.45 387.50 499.50 Market Cap. (Rs. Cr.) 143,892.43 28,927.43 20,350.54 18,195.11 Net Interest Income 63,788.43 19,326.16 16,347.36 15,091.58 Net Profit 9,121.24 3,090.88 3,007.35 2,227.20 Total Assts 964,432.08 246,918.62 225,501.75 227,406.73

Table No- 1

2.7 Market Profile Of The Organization:Dena Bank is an India-based company which is engaged in treasury, corporate/wholesale banking, retail banking, and other banking operations. The deposit schemes offered by the Company include Premium Savings Account Scheme, Premium Current Account Scheme, Dena Savifix Deposit Scheme, Dena Freedom Deposit Scheme, Dena Samruddhi Deposit Scheme, Dena 23

Fixed Deposit Scheme, Dena Senior Citizen Scheme, Dena Recurring Deposit Scheme, Dena Loan Linked Recurring Deposit Scheme, Dena Minor Savings Scheme, and Dena Alpa Bachat Khata. It offers services, such as any branch banking, multi city cheque, automated teller machines (ATMs), Dena Cards, online remittance, Internet banking, mobile banking, telebanking, online utility bill payment, and value-added service. During the fiscal year ended March 31, 2009, the total number of branches comprised of 1184.

Dena Bank. The Company's principal activity is to provide commercial banking and other related services. The Company also provides in merchant banking, asset management and other related services. The company's banking products and services are provided through 1184 branches offices, 387 ATMs all over India. The Company operates only in India. The Company's principal activity is to provide commercial banking and other related services. The Company also provides in merchant banking, asset management and other related services. The company's banking products and services are provided through 1184 branches offices, 387 ATMs all over India. The Company operates only in India.

Dena Bank- Key Data:Ticker: Exchanges: 532121 BOM Country: Major Industry: Sub Industry: 38,783,302,000 (Year Ending Jan 2010). Indian Rupees INDIA Financial Commercial Banks

2009 Sales

Employees:

9,883

Currency:

Market Cap:

25,340,829,720

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Fiscal Yr Ends: Share Type:

March Ordinary

Shares Outstanding: Closely Held Shares:

286,823,200 146,820,000

Table No- 2

CHAPTER-3 DISCUSSIONS ON TRAINING 3.1 Students Work Profile:The summer training was held in the Regional

office of Dena Bank. The work profile at the office was based on the loans and advances given to small and median enterprises (SME). Hence the whole work was based on the Pre-sanction formalities of credit given to a particular enterprise. The responsibilities handled at the office were started from reading the companys project file (sent by the company to whom the loan is to be sanctioned) and continued till the loan is sanctioned by the responsible authority according to the limit to be sanctioned. The loan is sanctioned by keeping in mind the various instructions and conditions.

General Instructions on Loans and Advances: Efficient management of loans and advances portfolio has assumed greater significance as it is the largest asset of the bank having direct impact on its profitability. In the wake of the continued tightening of norms of income recognition, asset classification and provisioning, increased competition and emergence of new types of risks in the 25

financial sector, it has become imperative that the credit functions are strengthened. RBI has also been emphasizing banks to evolve suitable guidelines for effective management and control of risk credits. With a view to ensure a healthy loan portfolio, our bank has taken various steps to bring its policies and procedures in line with the changing scenario which also aim at effective management & dispersal of credit risks, strengthening of pre-sanction appraisals and post-

sanction monitoring systems. Further, bank has been continuously endeavoring to strengthen the organizational set up by opening Specialized Branches to meet the credit requirements of specific types of borrowers, imparting intensive credit management training to staff and deployment of the trained staff at branches/offices having potential for credit growth. Bank has laid down detailed guidelines to be followed while considering credit proposals, some of the important ones are listed as under: 1. All loan facilities be considered after obtaining loan applications from the borrower and compilation of Confidential Report on him and guarantors. The borrowers should have the desired background, experience to run their business successfully. 2. Project for which the finance has been granted should be technically feasible and economically viable i.e. it should be able to generate enough surplus as to service the debts within a reasonable period of time.

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3. Cost of the project and means of financing the same should be properly assessed and tied up. Both under-financing and overfinancing can have an adverse impact on the successful implementation of the project. 4. Borrowers should be financially sound, enjoy good market reputation and must have their stake in the business i.e. they should possess adequate liquid resources to contribute to the margin requirement. 5. Loan should be sanctioned by the competent sanctioning authority as per the delegating loaning powers and should be disbursed only after execution of all the required documents.

6. Projects financed must be closely monitored during implementation stage to avoid time and cost overruns and thereafter till the adjustments of the banks loan.

Bank extends loan facilities by way of fund based facilities and/or non fund based facilities. The fund based facilities are usually allowed by way of term loans, cash credit, bills discounted/purchased, demand loans, overdrafts etc. Further, the bank also provides non fund facilities by way of issuance of guarantees, deferred payment guarantees, bills acceptance facility under various schemes. The foregoing list contains the usual types of facilities undertaken by the bank. In case loan application is received for any particular facility which is not specifically mentioned above, the same should be forward to

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controlling offices for considerations, provided the same can be transacted within the overall policy of the bank. The usual types of facilities sanctioned by the bank to the borrowers, as also other aspects like Project appraisal, Post-sanction follow up, Management of NPAs, Documentation, and Limitation etc. are discussed later. These are the briefly explanations hereunder:

TERM LOANS:-

Term loans are sanctioned for acquisition of

fixed assets like land, building, plant, machinery, office equipments, furniture/fixture etc. for purchase of transport vehicles and other vehicles, for purchase of agriculture equipments, machinery and other movable assets, under various schemes of agriculture advances introduced from time to time for purchase of house, consumer durables, under special schemes. The term loan would be a loan, which is not a demand loan and is repayable in terms i.e. in installments irrespective of period or security cover. Term loans are normally granted for periods varying from 3-7 years and in the exceptional cases beyond 7 years. Term loans for infrastructure projects can be allowed even with a longer repayment period.

CASH CREDIT ADVANCES:- Cash credit account is a drawing

account against credit granted by the bank and is operated in exactly the same way as a current account on which an overdraft has been sanctioned. The various types of securities against which the cash credits are allowed are pledge/hypothecation of goods or produce, 28

pledge of documents of title to goods, mortgage of immovable property, book debts, trust securities etc. in cash credit accounts the borrower is allowed to draw on account within the prescribed limit, as and when required.

PACKING CREDIT:- Packing credit is an advance given to an

exporter who holds a code number assigned to him by the Directorate General Of Foreign Trade (DGFT), for financing the purchase,

processing, manufacturing or packing of goods prior to shipment, on the basis of letter of credit opened in his favor on in favor of some other person by an overseas buyer or a confirmed order for the export of goods from India or any other evidence of an order for export from India having been placed on the exporter or some other persons, unless lodgment of export orders or letter of credit with the bank has been waived.

LETTER OF CREDIT:- Letter of credit is issued by the bank at

the request of its customers on favour of a third party informing him that the Bank undertakes to accept the bills drawn on its customers upto the amount stated in the LC, subjected to the fulfillment of the conditions stipulated therein. Therefore, when bank issues LC, it assumes responsibility to pay its beneficiary on production of bills drawn in accordance with terms and conditions of LC.

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GUARANTEES:-

Guarantees is a contract to

perform the promise or discharge the liability of third person in case of his default. In the ordinary course of business, banks often issues guarantees on behalf of its customers in favour of third parties. When bank issues such a guarantee, it assumes a responsibility to pay the beneficiary, in the event of a default made by the customers.

NON PERFORMING ASSETS (NPAs):- NPAs act as drag on

banks profitability and need urgent attention at all levels. The action points and strategies for reducing NPAs has to be two pronged (i) recovery/ reduction in existing NPA accounts and (ii) checking slippage of fresh accounts from performing (Standards) to NPA category. The

action points may vary depending upon the area, nature of activity and intention of borrower etc.

3.2 Description of Live Experiences:Training in Credit Department (SME) of the bank is very much informative. I felt glad when first time I got a companys project file. My senior handover it to me to read it carefully and analyze it. After reading the file, I started completing the Pre-sanctioned formalities of making a credit proposal for that company. The proposal was to be made on the banks specific format. I handled my responsibilities carefully and made the proposal as my knowledge and perceptions according to the project file. I transferred the data to my senior. He read the proposal and made necessary corrections in it. Then he again gave 30

me the proposal to come to know about the mistakes. I analyzed the proposal made by my senior sincerely and wrote down the doubts in a diary. I learnt a lot from this first experience. After this I got about 5-6 proposals in my whole training and learning period and completed the training with a great expertise and knowledge.

CHAPTER-4 STUDY OF SELECTED RESEACH PROBLEMS 4.1 Statement of Research Problem:DENA Bank is powering its way through a market that is still to unleash its true potential, as barely two percent of the population has been penetrated so far! It is not surprising that the bank is not in the mood to take its hands off the throttle. At Dena Bank, our goal is to satisfy the customers in every way whatever a customer wants. The goal is to help the customers in every step of the way in making their world a better place to live in. Besides its will is to provide a high quality service to all of its customers, Dena Bank takes a stand as a socially responsible enterprise respectful to its environment and respectful of the important issues. Dena bank has been strongly committed not only to 31

environmental conservation programmes but also expresses the increasingly inseparable balance between the economic concerns and the environmental and social issues faced by a business. A bank must not grow at the expense of mankind and man's future but rather must serve mankind.

4.2 Statement of Research Objectives:The project was done with the objective to study effective management of Loans and Advances. As the Loans and Advances portfolio is the largest asset of the bank having direct impact on its profitability. With a view to ensure a healthy loan portfolio, my study is concerned to ensure various steps to bring the policies and procedures in line with changing scenario which also aim at

effective management and dispersal of credit risks, strengthening of presanction appraisals and post sanction monitoring system. The objective is to study the various types of facilities appraised by the bank to the borrower such as Term Loan, Cash Credit Limit, Packing Credit Limit, Bank Guarantee etc. After this the objective is to learn about the whole procedure adopted by the bank to sanction a loan, such as Documentation, Credit Risk Management, CIBIL Report, Mortgages- Immovable properties, Pricing of Credit (Interest Rates) and Credit Rating System etc.

4.3 Research Design and Methodology:-

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The research process or methodology is the approach to the entire study it is the master plan. It is the blueprint for achieving your objectives, one of which is the production of the dissertation. The Process 1. Formulating a research problem 2. Conceptualizing a research design 3. Constructing an instrument for data collection 4. Selecting a sample 5. Writing a research proposal 6. Collecting the data 7. Processing the data 8. Writing a research report.

This is the simple way to perform the functions of research design and methodology. But in the premises of the bank, no such research has been taken place. The whole research has been done on the credit appraisal procedures on the banks specific format.

4.4 Analysis of Data:DENA BANK, SME CELL, REGIONAL OFFICE, NEW DELHI PROPOSAL NO.: RO/NDR/SME/12/2009 Date: 12.10.2009 Proposal Proposal Complete received at Branch received at RO Proposal received at HO Date :08.10.09 Date 23.10.09 Date

33

FOR APPROVAL- GENERAL MANAGER GIST OF THE PROPOSAL: Proposal for : a. Renewal of Rs.250.00 lacs of existing CCH (Stocks-cum-Book Debts) limit

b. Renewal of existing Negotiation of Bills under LC limit of Rs. 150.00 lacs. c. Renewal of existing Performance/Financial/Bid Bond Guarantee limit of Rs. 350.00 lacs.

1. PROFILE Name of borrower

M/s Paragon Cable India. 29, Rajasthan Udhyog Nagar, G T Karnal Road, New Delhi-110033 Tel- 011- 27691333, 27692333

Address Fax- 011-27691129 (Regd. Office E-mail: pci@vsnl.net, mail@elektron.com

Branch: Wazirpur Established on Dealing with us since Group: 05.03.1991 1991 No.

Region: New Delhi Whether appearing in Standard B List Willful Defaulter List No No

Line of Activity

Manufacturing, Trading and J ob Work of Defaulter / CIBIL List Electric Wires & Power Cables 34

No

Key Key Person Person/Promoter Promoter Multiple / Consorti Sole um Leader Bank Our share: FB - % N.A.
[Rs. In Lakhs]

Sh. Vikas Nagpal Sh. Vikas Nagpal

EXISTING PROPOSED Asset Classification

Asset Category as per CMC Gui delines

Standard P1

Standard P1

400.00

D2K Codes & Description Insulated Wires & Cables Electrical.

NFB- %

350.00

Activity

8010

STLTLPriority BSR Code: Risk Weightage Cr Credit Risk Rating

Nil Nil No

Sector Special Category

15

SME

Basel II Code: 100% BBB Provisioning: Risk Grade as per ABS Dt 31.03.2009 0.25%
Best BPLR+ 0 .75%

3. NAMES OF PARTNERS & NET WORTH Sr. Name Net Worth

1 2 Shri Vikas Nagpal Smt Anjana Nagpal 486.76 151.88

(Rs. in Lacs)

As on
31.03.09 31.03.09

Basis
Audited B/S Audited B/S

Whether Proprietor / Partner/ Director / Guarantor has any relationship with any Director or Senior Official (Scale IV & above) of the Bank. If so give details (Refer to Guidelines) 4. Major Shareholders: N.A. (Since it is Partnership A/c)

No

35

5. BRIEF HISTORY OF SANCTIONS INCLUDING REVIEWS AND ADHOCS DURING THE PAST TWELVE MONTHS. Sanctions Dt. Gist Renewal of existing limits by GM(Credit) 08.05.2008 6. PRESENT PROPOSAL: Renewal of the existing limits, as under : (Rs in lacs)
Facility Existing
Outstanding DRAWING Irregular/ Proposed as on 22-10- POWER Overdue 2009 amount Variation

Limit

Margin (%) 250.00

Limit

Margin (%)

a) 1

Fund Based
CCH(Stock cum Book Debts) 250.00 Stock-25% 135.82 Book Debts-40% 250.00 Stock-25% Nil Book Debts-40%

2.

Negotiation of Bills under L/C

150.00

0.00 135.82

150.00

150.00

Nil

Total b) Non - Fund Base d Bank Guarantee Total c) d) e) Forward cover

400.00

400.00

400.00

Nil

350.00

Per-10%, Fin/BidBond25%

47.10

350.00

350.00

Per-10%, Fin/BidBond25%

Nil

350.00 Nil

47.10 Nil 182.92 Nil 182.92

350.00 Nil 750.00 Nil 750.00

350.00 Nil 750.00 Nil 750.00

Nil Nil Nil Nil Nil

Grand 750.00 Total (a+b+c) Investment Exposure Nil

TOTAL EXPOSURE 750.00

II. SECURITY / DOCUMENTATION:Prime security Nature Proposed

Hyp. of Stock and Book Debts

(Rs. in lacs) Value

Basis

Rs.312.36.00(Inventory) Stock Statement as of Aug.2009

36

Rs.195.98 (Receivables)

Book Debt Statement as of Aug 2009.

Collateral Security Nature of Security

Type Value of Charge

Basis / Source

Whether eligible under CRM (Basel II Norms)

1. Equitable Mortgage of Land and Building at plot No. 11, Sector-6, IMT Maneshar, HSIDC, Gurgoan, Haryana adme asuring 4050 Sq Mtr in the name of Shri Vikas Nagpal partner of M/s Paragon Cable India.

Equilate ral Mortgag e

The market value of the property is Rs. 653.46 lacs whereas the Distress value @80% is Rs.522.78 lacs

2.Hypothecation Hypothe of Plant and Machinery, cation Furniture & Fixture and other equipments existing as well to be acquired in future. Aggregate Collateral Security

Rs. lacs

Valuation No Report by our Panel Valuer, M/s Accurate Valuers dated 23.03. 09. Search Report by our Panel Advocate, Shri Vineet Sharma dated 09th April 2009 states that the subject property is unencumbered and marketable. 21.74 WDV as per No Audited B/S as of 31. 03.09

Rs. 544.52 lacs

i) Percentage coverage of collateral security: 1 Total value of Collateral Security 2 Of which our share 3 Total limits proposed from our Bank 4 Collateral coverage ii) Reasons in case of dilution of security coverage:

Rs. 544.52 Lakhs Rs. 544.52 Lakhs Rs. 750.00 Lakhs 72.06%

Collateral Coverage at the time of last renewal was 77.20%. Reason for dilution of security coverage is that Market value of property (collateral) was considered whereas distress sale value of property is considered in the present case. In case Market value is considered in the present case, collateral coverage would be 90.03% c) Date of creation of Charge: N.A. since partnership firm.

37

d) Date of subsequent modification of charge: N.A. e) Date of vetting of documents by legal officer /Panel Advocate:18-072008 f) Name of Guarantors & their net worth (Rs. in lakh) Name Relationship Net Worth As of Shri Vikas Nagpal 486.76 Partner 31.03.09 Smt Anjana Nagpal 151.88 Partner 31.03.09 Shri D L Nagpal 1000.00 Guarantor 26.11.07 Shri Prem Nagpal 300 Guarantor 26.11.07

Basis Audited B/S Audited B/S Annexure CC Annexure CC

* Branch to obtain and keep on record C.A. certified Personal Balance Sheet/ Net Worth Statement of the guarantors as of 31-03-2009 and ensure there is no significant decline in Net Worth of the individual persons vis-a vis last sanction.

III. CREDIT RATING & Pricing: Pricing Credit Rating Score Based on ABS [ March 09] Applicable interest rate as per Credit Rating Interest rate presently Charged and Proposed Concession if any Interest Rate charged by Lead Bank Commission on NFB Limits Processing Charges

Existing A BPLR+0.50% BPLR+0.75% N.A. N.A. As per norms

Proposed BBB BPLR+0.75% BPLR+0.75% N.A.

1.25% of the sanctioned limit.

Factors contributing to the up gradation / slippage in credit rating:

Major factor contributing to decline in credit rating is due to decline in collateral coverage on account of factors already discussed in the note.

Justification for proposing lower rate of interest/concession in charges/ process fees: N.A. IV.Permissions for Deviations, Issue of NOCsetc & Concessions in service charges

No Existing Proposed 1 N.A., since no concessions/deviations are proposed.

38

9. Ratifications required for actions, exceeding permitted etc. beyond discretionary powers: N.A.

10. COMPANY PROFILE (in brief) (DETAILS OF MANAGEMENT, PRODUCTS MANUFACTURED, USER INDUSTRIES & COMPANYS MAJOR CUSTOMERS) M/s Paragon Cable India a Partnership Firm, established in 1991, is engaged in manufacturing, trading and job work of electric wires and power cables.

Managing Partner Shri Vikas Nagpal is having good experience of 15 years in the line of business. The Firm is selling its product to various State Electricity Boards ,Power Corporations and various Central Govt. Departments. Further, the Firm also sells its major products to private organization/ institutions viz Reliance Group,Tata Group,IVRCL, AREVA. The firm is enjoying credit facilities with our Bank since January 1991. The conduct of the account is satisfactory.

11. INDUSTRY SCENARIO I Industry Categorisation Demand and supply situation of the product present and projected (source of information) Major players & their market share

Insulated Wires and Cables. Demand for the product is satisfactory. There are various manufacturers in this line but the company is known for it s products. Rs. 2729.47 lacs

Banks exposure in this industry

NPA position f. Cyclical trends Govt. policies Whether the product is an import substitute, if so, what is the landed cost of import and what is the production cost 39

Rs. 6.91 lacs i.e. 0.25% of the aggregate exposure There are no cyclical trends affecting the industry. The policy of Govt. is favourable. N.A.

of the indigenous manufacture Availability of raw materials, labour, infrastructural advantages What are internal & external advantages of the borrower/technology used What are the weaknesses What are the relative opportunities m. What are the threats

Any other information

Raw material, labour etc. easily available at the site. The company is using latest technology. Market uncertainties. The firm is looking for Govt. order & better opportunities. Chinese imports of cheaper quality goods, market uncertainties and fluctuations. Nil

12. PRODUCTION CAPACITY Production Capacity Installed Utilised % Utilisation

Existing 2000 KM 1000KM 50%

Proposed 2000KM 1000KM 50%

13. MARKET CAP: N.A. (Since it is a partnership account.) 14. FINANCIAL INDICATORS [Rs in lakhs] Audited Audited Estimate Projection As on 31.03.08 31.03.09 31.03.10 31.03.11 i. Capital 342.35 343.15 380.00 425.00 ii. Reserves & Surplus 0.00 0.00 0.00 0.00 iii. Intangible Assets 0.00 0.00 0.00 0.00 Tangible Net worth 342.35 343.15 380.00 425.00 Net Working Capital 227.92 234.43 320.00 374.00 Current Ratio 1.44 1.39 1.58 1.62 Gross Block Net Block 143.48 167.03 154.00 145.00 Net Sales 2947.04 3347.76 2900.00 3200.00 - of which exports PBDIT 123.69 158.35 147.00 144.00 Gross Profit - PBDT 78.52 116.71 112.00 114.00 Net Profit / Loss PAT 63.91 101.91 77.00 80.00 Depreciation 6.37 9.19 10.00 9.00 Cash Accruals 70.28 111.10 87.00 89.00 40

PBDIT/ Gross Sales Gross Profit Margin Net Profit Margin TDER (TOL/TNW) Interest Coverage Ratio Current Assets to Turnover Ratio

0.04 2.66 2.17 1.90 2.56 4.37

0.05 0.05 3.49 3.04 2.18 3.67 4.25

3.86 2.66 1.79 3.49 3.89

0.05 3.56 2.50 1.72 3.97 3.79

Comments on financial performance:

Sales : The existing Fund Based limit of Rs 400.00 and Non-Fund Based Limit of Rs 250.00 lacs was earlier assessed on an estimated Sales Turnover of Rs 2850.00 during FY

2007-08 against which the actual achievement is Rs 2947.04 lacs i.e. achievement index of 103.40%. Sales registered 15.52% during FY 2007-08 over the previous financial year, while the growth registered during FY 2008-09 is 13.60%. The borrower has now estimated and projected a sales turnover of Rs 2900.00 lacs and Rs 3200.00 lacs during FY 2009-10 and FY 2010-11 respectively. The borrower has attributed lower raw material as consequently lower finished good prices as the main reason for lower sales projections during FY 2009-10. The global financial crisis leading to depressed market conditions also partly contributed to the lower sales projections. During the first half of the current financial year i.e. Sept09, the borrower has achieved a sales turnover of Rs 1075.00 lacs. The same translates into annualized turnover of Rs 2150.00 lacs i.e. 74.14% vis--vis target. However, based on orders on hand and improving market sentiments, the borrower is optimistic of achieving the estimated/projected sales turnover. In fact, the borrower has a track record of surpassing the projections. In view of the above, the estimated and projected sales turnover is considered realistic and achievable and is hence accepted by us. Capital/Net Worth : The Capital/Net Worth of the borrower stood at Rs 343.15 lacs as of 31.03.09 and shows increasing trend over the years due to induction of capital/plough-back of profits in business. Unsecured Loans : As per existing terms of sanction, Unsecured Loans were stipulated to be maintained at the level of Rs 51.00 lacs against which the level of Unsecured Loans stood at Rs

41

87.75 lacs as of 31.03.09. The same is estimated and projected to be maintained at the level of Rs 80.00 lacs during FY 2009-10 and FY 2010-11. Branch should obtain and keep on record an undertaking from the borrower to the effect that level of unsecured loans would be maintained at least at the level of Rs 80.00 lacs during the currency of bank finance and would not be withdrawn without the express consent of the Bank. The Unsecured Loans would also remain subordinated to Bank Finance. Profitability : Gross Profit and Net Profit Margin registered increase to 3.49% and 3.04% respectively.during the FY 2008-09 over the previous financial year.

Gist of Financial indicator of the Firm as of 30-09-2009 is as under-

Sales Capital Unsecured loan Fixed Assets Net Profit

(Rs. In lacs) 1075.00 362.00 82.00 162.00 36.00

: No such

Auditors remarks and Management replies qualifications/remarks.

Current performance trends: Estimated sales turnover for the year Achievement till September 2009 Pro-rata achievement INTER-FIRM COMPARISON (PEER GROUP)

Rs in lacs 2,900.00 1075.00 74.13%

N.A. (Since the proposed credit exposure is less that Rs 5000.00 lacs )

16. ASSESSMENT OF WORKING CAPITAL REQUIREMENTS A. Projection of sales as per last CMA DATA for the year ended 3103.09- Rs.2850.00 lacs Actual sales for the year ended 31.03.09__Rs.3347.76 lacs Last Year Current Following Actual as Year Year per audited Estimates Projections Balance Regular Peak Level Sheet Year ending 42

Net Sales Total Current Assets Less Current Liabilities (other than Bank borrowing for working capital) Working Capital Gap Minimum Stipulated margin 25% of current assets/projected NWC (whichever is higher) Max. Permissible Bank Finance Total Existing Working Capital limits Excess borrowing, if any, to be converted into Working Capital Term Loan

3347.76 843.15 369.47 473.68 210.79 239.40 239.40 Nil

2900.00 870.00 300.00 570.00 217.50 250.00 250.00 Nil

3200.00 974.00 350.00 624.00 243.50 250.00 25.00 Nil

B INVENTORY AND RECEIVABLE LEVELS:

Inventory Last Actual accepted 31.3.2009 Level Raw Materials Work in Progress Finished Goods Receivables - Domestic - Export Stores & Spares Creditors 1.24 325.13 1.33 1.68 467.53 1.88 1.22 320.45 1.27 Mths Value Estimate 31.3.2010 Mths Value

(Rs in lakh)
Projection 31.3.2011 Mths Value

290.00 455.00

1.27 1.97

320.00 525.00

284.00

1.39

333.00

C. COMMENTS ON ASSESSMENT OF WORKING CAPITAL WITH JUSTIFICATION

The existing Fund Based limit of Rs 400.00 and Non-Fund Based Limit of Rs 250.00 lacs was earlier assessed on an estimated Sales Turnover of Rs 2850.00 during FY 2007-08 against which the actual achievement is Rs 2947.04 lacs i.e. achievement index of 103.40%. Sales registered 15.52% during FY 2007-08 over the previous financial year, while the growth registered during FY 2008-09 is 13.60%. The borrower has now estimated and projected a sales turnover of Rs 2900.00 lacs and Rs 3200.00 lacs during FY 2009-10 and FY 2010-11 respectively. The borrower has attributed lower raw material as consequently lower finished good prices as the main reason for lower sales projections during FY 2009-10. The global financial crisis leading to depressed market conditions also partly contributed to the lower sales projections. During the first half of the current financial year i.e. Sept09, the borrower has achieved a sales turnover of Rs 1075.00 lacs. The same translates into annualized turnover of

43

Rs 2150.00 lacs i.e. 74.14% vis--vis target. However, based on orders on hand and improving market sentiments, the borrower is optimistic of achieving the estimated/projected sales turnover. In fact, the borrower has a track record of surpassing the projections. In view of the above, the estimated and projected sales turnover is considered realistic and achievable and is hence accepted by us. The borrower has now estimated holding levels as under : S.N. Particulars Months

Amount (Rs in lacs) 290.00 455.00 284.00

1. 2. 3.

Finished Goods Receivables Creditors

1.27 1.88 1.33

The holding levels as above are in tune with the actual holding levels of FY 2008-09 and are considered need-based and reasonable. Hence, the same is accepted by us. Based on the accepted levels of inventory and receivables as above, the Drawing Power is calculated as under : Particulars Months Amount Margin D.P. (Rs in lacs) 290.00 284.00 6.00 455.00 (Rs in lacs) 4.50 273.00 277.50

Finished Goods Less : Sundry Creditors Paid Stocks Receivables Total

1.27 1.33 1.88

25% 40%

The borrower has requested for renewal of the existing CCH limit of Rs 250.00 lacs and the same has been recommended by the Branch. As per assessment of limits under Modified MPBF Method, the permissible limit of Rs 250.00 lacs. The requisite D.P. is also available, as per the aforesaid table. In view of the above, we recommend for renewal of the existing CCH (Stocks-cumBook Debts) limit of Rs 250.00 lacs. Renewal of Negotiation of Bills under L/C Limit : The borrower is presently enjoying Bills Negotiation (under L/C) limit of Rs 150.00 lacs, outside the overall MPBF, which it has requested for continuation. Branch has informed that no Bills have being negotiated under the aforesaid limit during FY 200809. However, looking to contingent requirement and based on the borrowers request, Branch has recommended for renewal of the Bills Negotiation under L/C limit of Rs 150.00 lacs. We endorse the Branch recommendation.

44

17. ASSESSMENT OF TERM LOAN/ DEFERRED PAYMENT GUARANTEE: N.A. A. LETTER OF CREDIT: N.A. B. BANK GUARANTEE Purpose of the Limit b. Nature & amount of limit sanctioned Outstanding as on 30-09-2009 Whether the existing limit is proposed to be continued, if so, justification

Participation in Bidding Process for Tenders Performance/ Financial /Bid Bond Guarantee limits of Rs. 350.00 lacs.

Rs 47.10 lacs
The Borrower is required to furnish Bank Guarantee for participation in Tenders. The borrower has requested for the Renewal of the existing B.G. limit.

In view of the above & since there has been no instances of invocation of B.G. in the past, we recommend for the renewal of existing B.G. limit of Rs. 350.00 lacs.

Name of the beneficiary / ies in whose favour guarantees to be issued Nature of the guarantee limit required i.e. performance/ financial/ Bid Bond etc. Assessment and justification for the limit proposed

Various beneficiaries such as Reliance, Tata Group, IVRCL, AREVA,etc Performance/Financial/Bid Bond Guarantee

No. of BG s issued during FY 2008-09 Amount of Bank Guarantees (Rs in lacs) Instances of invocation of BG,if any

10 47.10 No

In view of the above and based on Branch recommendation, we recommend for renewal of existing Bank Guarantee Limit of Rs 350.00 lacs.

Margin proposed

10% on Performance Bank Guarantee 25% on Financial Bank Guarantee

[HO, vide its sanction note no. DCC/SME/267/2009 dated 29.07.2009 by General Manager, has sanctioned with the margin of 15% to only specific institute NSIC in the form of Financial/Other Guarantee and the same is proposed to be continued].

Security 45

Extension of charge over the stock, receivables and fixed assets of the borrower.

ECGC cover for export performance guarantees Asset coverage for NonFund Based limits

N.A.
Net Fixed Assets as of 31-03-09- Rs. 167.03 lacs. B.G. limit Asset coverage:47.72% - Rs. 350.00 lacs

Views/comments on the conduct of the account A. Comments on utilisation of both fund and Non fund based limits Whether stock statements are submitted every month. Yes
If not submitted regularly mention the date of last stock statement Whether operations are within sanctioned limits Whether limits are utilised optimally /satisfactorily Frequency of inspection of stocks. Date of the last inspection and irregularity/adverse features, if any observed and steps taken to set right the same. Insurance cover - Whether securities adequately insured and in force Yes, as reported by the Branch. Branch to ensure that the securities charged to the Bank (both Prime and Collateral) are adequately and comprehensively insured (with Bank Clause) and copy of the Policy should be kept on Branch record.

Yes Yes

Whether terms and conditions of previous sanction Yes, as reported by Branch have been complied with, if not, specify time frame to complete (with explanation) & permission obtained from competent authority Whether certificate from Pollution Control Board has N.A. been obtained. Whether the borrower is facing any litigation No. from banks /FIs/creditors/ Govt. Deptt./ 46

Statutory bodies etc., if so, state in brief. In case of consortium advance, whether our N.A. bank is getting proportionate share of business Additional / temporary limits sanctioned subsequent to N.A. the last regular sanction and whether same is liquidated on due date or not Outstanding N.A. amount of unhedged Foreign Currency Exposures

B. Income Value of account

Value of account (Deposits) Process Fee recovered Interest earned Exchange income Commission earned

(Rs. in Lakh) Last year Current year

18.82 nil 0.82

11.20 Nil 2.56

Income from Third party products / insurance

Others (Lead Bank Fee, Commitment fee, Penal Interest, Syndication fee) Total 19.64
Turnover in Foreign Exchange Business Deposits placed (Owner Directors/ partners or Family Members, Relatives & Friends) - Current - Savings - Term Deposits

13.76

a. Adverse features affecting credit decision and action proposed (including non compliance to terms and conditions of sanction and present position) Sr No Pending Matters Present position Nil Steps taken / Remarks

b. MAJOR INSPECTION / AUDIT IRREGULARITIES POINTED OUT IN THE LAST INSPECTION REPORT Credit Audit Report dated 05-02-2009 : 47

S.N 1.

Observations in Credit Audit Report Certificate of Documentation and compliance of terms and conditions of sanction not submitted

Branch reply Scrutiny of Documents carried out by Shri Kalim Ur Rehman (Banks Panel Advocate) on 18.07.08. Compliance of terms and conditions have been submitted. Latest Stock Inspection Report dated No major/adverse observations. FFR is being obtained/scrutinized and forwarded to Regional Office. Valuation done on 23-03-2009 Insurance taken from 17-3-2009 Credit Rating based on the Audited B/S as of 31.03.09 is being carried out with the present proposal. The borrower has obtained Credit Rating from SMERA (SMERA C3) on 05.12.08. However, in terms of BASEL-II guidelines, the borrower has been advised to obtain External Credit Rating from any of the approved Rating Agencies i.e. CRISL, CARE, ICRA, FITCH.. received on 30-4-2009

2. 3. 4. 5. 6.

7.

Unit inspected but report not prepared. Give the date of report preparation and report any adverse observations if any Observations in FFR to be analyzed and reported to Regional Office Valuation of Collateral not done once in two years as per guidelines Inadequate Insurance of Stocks and insurance expired on 14/3/2009 Half- yearly review of Credit rating not done as per extant guidelines. Branch to do credit rating exercise on the basis of Audited Balance Sheet for the year 2007-08. Branch to get the External Credit rating done, inform the status of External Credit rating

8.

Branch to ensure ostentation of CA Certified Book Debts Statement age-wise and ensure periodical inspection

Stock Inspection Report dated 24-10-2008 from M/s D.P. Gupta & Co. Charted Accountant.
Auditor Remarks Branch Reply 1. Hypothecation agreement for collateral security for Plant and Machinery , furniture and fixtures and other equipments existing as well as to be acquired in future is not obtained by the branch. Insurance of the same has also not been taken. 2. Audited B/s of the march, 2008 was not Audited B/S as of 31-03-2008 and31-03available for verification 2009 has been obtained and kept on Branch Record. 3. Details of Collateral Security of property Details of Collateral Security of property at at Manesar is not recorded in Title Deed Manesar is recorded in Title Deed Register. Register. 4. Banks name plate showing stock Banks name plate showing stock hypothecated with Dena Bank not hypothecated with Dena Bank is now displayed being displayed. 5. Vetting of latest documents has not Vetting of latest documents has been been done.( Documents vetted 05-06- done. 2008)

48

6. One Bank guarantee of Rs. 2.69 lacs issued on behalf of the party has expired on 13-07-2008. 7. FFR-I & FFR-II has not been obtained FFR-I & FFR-II is now being obtained and by the branch from the Firm scrutinized by the branch and submitted to Regional Office has not been obtained by the branch from the Firm

c. Directors name figuring in RBI/ Wilful Defaulters / CIBIL / SAL ECGC list and comments thereon. Impact on taking exposure where names are appearing in the defaulters list: NIL

d.

Position of statutory dues and incentives receivables:Branch is advised to obtain and keep in record the Statutory Due Certificate from the borrower duly certified by the C.A. of latest date and Branch Manager should ensure that there are no Statutory overdues.

Provident Fund, ESI and Superannuation contribution paid upto Wages and salaries paid upto Sales Tax paid upto Service Tax paid upto Income Tax Assessment completed upto and for the year ending # Advance Tax paid for the year ending Excise duty paid upto Municipal Tax, Octroi etc. Incentives from the Government and other agencies Disputes not acknowledged as debts Contingent Liabilities (Likely to turn into Liabilities) Reconciliation of Debtors/ creditors

CA certificate to be obtained and kept on record

# wherever borrowers encounter tax disputes, searches, raids by tax authorities, details along with proceedings and present status should be reported.

e. Group dealings/experience & desirability of further exposure:

f. RISK ASSESSMENT Risk 1.Industry/Activity Risk

Risk Factor There are large numbers of manufacturers both in the organized as well as unorganized sector and the

Risk Mitigation On account of growing economy and infrastructure development, the demand is likely t o absorb the supply on account

49

expansion in their capacity of capacit could lead to recession/oversupply. y increase. 2.Borrower/Borrower The firm may face competition Risk from the unorganized sector in the regular cable products. 3.Security Risk The firm will be able to withstand the competition on the basis of quality and business experience.

The product is prone to theft and The firm to take comprehensive fire. insurance, with Bank clause, to cover such type of risk. Nil

4. Other Risk

20. Compliance oF RBI / Bank Loan Policy guidelines Deviation if any with justification The proposal is as per RBI / Banks Loan Policy guidelines.

21. MODIFICATION IN EXISTING TERMS OF SANCTION IF ANY:N.A. 22. VIEWS/RECOMMENDATIONS OF THE CREDIT COMMITTEE:
N.A. since it is a renewal proposal.

23. DISCRETIONARY POWER FOR SANCTION AND FOR APPROVAL OF DEVIATION, IF ANY: The proposal falls within the overall discretionary powers of GM (Credit). 24. RECOMMENDATION: Branch has recommended for renewal of existing fund based limit of Rs. 400.00 lacs and Non fund based limit of Rs. 350.00 lacs as per existing terms and conditions. 25. REGIONAL OFFICE RECOMMENDATION: It is an existing SME client of the branch. SME sector is presently one of the thrust areas of finance of the Bank. The Borrower is dealing with us since 1991 and the overall track record is satisfactory. The partners have experience of more than 15 years in the line of business. The borrower is having profit making track record. Collateral base of the exposure is 72.60%, which may be considered satisfactory. The limits are justified under Modified MPBF method. 50

 limits.

Branch has recommended for renewal of the existing

PUT UP FOR APPROVAL.

Officer SME Manager SME Sr. Manager SME AGM SME DGM SME

ANNEXURE 'A' Ref No. NDR/ICFD/SS/ 01 Date : 23-10-2009 Name of the unit/borrower : M/s Paragaon Cable India 1) Nature of arrangement : Cash Credit Hypothecation (Stock-cum-Book Debts) 2) Limit : Rs. 250.00 lacs [Rupees Two Hundred & Fifty LacsRenewal of existing limit 3) Margin 4) Interest : 25% (Against stock of raw material and finished goods) 33.33%(Against work in progress) : BPLR+0.75%-0.50% (concession in terms of H.O. circular no. 282/06/2008-09 dated 18.12.08) i.e. at present 12.75% p.a. presently, subject to change in BPLR from time to time. The concessional interest of 0.50% is at the sole discretion of the Bank and may be withdrawn at any point without notice.

TERMS AND CONDITIONS:1. Our usual documents to be executed by the firm and all the partners/proprietor in their personal capacity. In the case of limits companies, documents are to be executed under the common seal of the company backed by proper resolution. 2. Our advance to be guaranteed by the partners Viz. Shri Vikas Nagpal and Smt. Anjana Nagpal in their personal capacity alongwith Shri D.L.Nagpaland, and Shri Prem Nagpal 3. All the assets charged to the Bank to be fully insured against fire, theft, burglary, SRCC, breakdown of machinery with bank clause. 4. The unit/company to submit stock statement and monthly selected operational data (MSOD) every month. 5. The unit/company to submit QIS/FFR statement regularly. 6. Our advance is restricted to manufacturing/trading activities.

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7. Interest/Commisison rates are subject to revision as per RBI/HO guidelines or as decided by consortium. 8. Process fee and Supervision Charges to be recovered as per HO guidelines. 9. Branch to ensure that there are no inter-firm transfer of funds except for genuine sales transactions. 10. Bank will have a right to examine all the times firm's/company's books of accounts, assets etc. and have the company's workings and operations examined from time to time by the officers of the bank/or technical experts and/or management consultancy and fees to be borne by the firm/company. 11. Bank may charge penal rate of interest over and above the rate applicable under the following circumstances:a) delay in submission of stock statement, MSOD, QIS statement. b) delay in submission of renewal papers. 12. Guidelines issued by HO/RA from time to time are to be strictly adhered to. 13. The borrower be informed of the terms and conditions of sanction and confirmation be obtained to the effect thereof in writing. 14. Date of reconsideration - one year after sanction. the

_____________________________________________________________________ SENIOR MANAGER

4.5 Summery of Findings:From the above analysis, it is found how a credit limit has been appraised to a borrower. Starting from the loan application from the borrower till the disbursement of the loan and after it the close monitoring till the adjustment of the banks loan. The procedure which is to be followed to sanction a loan in an SME department is somewhat lengthy process, but it is the best method to sanction a loan as it goes as a parallel to the safe side of the bank as in case of the borrowers default or inability to repay the loan.

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CHAPTER-5 SUMMERY AND CONCLUSIONS 5.1 Summery of Learning Experience:The summery just states that it was a great experience to join a Nationalized Bank for training and learning things. I learnt a lot in the Credit Department (SME) of Dena Bank. Here I worked on many appraisals, which are beyond the scope of this project. The new day in the premises of the bank was started with a new project report in the hands. After reading carefully the whole project report, I had to make proposals on a format of crediting appraisal of the bank. Various proposals were look after by me. After making the proposals, I handed over all the work done to my senior. He used to make necessary corrections in the work done and hence it was an opportunity for me to learn more and more. Even for more learning, my senior gave me an opportunity to attend a Credit Committee-Meeting held by other persons of the bank to clear the doubts about a particular proposal. Hence the whole experience of working in such a place was amazing. I leant here to a great extant about the whole procedures to sanction a limit to the different different borrowers. 53

5.2 Conclusions and Recommendations:Conclusions:The project gives the detailed knowledge of the whole process of sanction a limit which Dena Bank performs. Starting from the loan application from the borrower and compilation of Confidential Reports on him and the guarantor, the process continues till the disbursement of loan and after it the close monitoring till the adjustments of Banks Loan. The project was an attempt to understand and perform the work in the credit transaction and the credit appraisal which I had included in this project is just an example of it. I had worked on many such appraisals, which are beyond the scope of this project. Hence the whole experience of working in such a Nationalized Bank was amazing. I found lots of things to learn and understand here. Hence to conclude, I just state that it was a great job done in a Nationalized Bank with the experienced employees.

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Recommendations:The bank is well doing in its field and having good reputation in Domestic as well as International Market. There are some of the recommendations that I would like to suggest to the Bank: These are: The head office, regional office and the branches should work on EDI (Electronic Data Interchange), since transaction of letters between these offices is still manual which lead to repetition of work as well as wastage of time. Dena Bank is too conservative in its dealing and hence people are attracted towards private sector banks. Thus an Aggressive Marketing is recommended to the Bank. Dena bank should also appoint Customer Relation Officer so as to solve various problems of customers which will help in retaining the customers. There is also lack in the initiation of officers. The officers should take initiative to work with new changes.

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APPENDIX A) Credit Rating:Definition of Credit Risk:- Credit Risk is the risk of default by borrower due to inability or unwillingness to repay his debts in accordance with the agreed terms and conditions. Need for Credit Risk Management: The liberalization of the Indian Economy has brought about sweeping changes in the economic environment. Changes in the economic environment have induced new anticipated and unforeseen risks in lending. The assessment of these risks is essential to facilitate prudent credit decisions. The terms and conditions of loans and advances sanctioned to borrowers determine the profit that accrues to the bank from that loan. If the terms are decided without proper assessment of the credit risk, the bank might be charging low interest rates from poor quality customers thereby sustaining losses due to default and charging high rates from 56

good quality customers thereby driving them away to other banks.

Credit Risk Rating:- Credit risk rating is a rating assigned to borrowers, based on an analysis of their ability and willingness to repay the debt taken from the bank. This rating is assigned on a scale, which generally have 6-8 levels. Companies falling in the same credit risk category have similar probability of default. Better the rating, lower is the probability of default. The probability of default increases in an exponential manner as the credit risk rating deteriorates.

Uses of Credit Risk Rating: Whether to lend to a borrower or not:- The credit risk rating of a borrower determines the appetite of the bank in determining exposure level. A bank would be willing to lend to highly rated borrowers but would not like to exposure to borrowers with very poor credit rating. Pricing:- The risk premium to be charged to a borrower should be determined by its credit risk rating. Borrowers with poor credit rating should be priced high and vice-versa. Risk Mitigates:- The extent of collateral security required and need to step up margin requirement are linked to credit risk rating of a borrower. The higher the risk category, the greater should be the value of collateral and margins.

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Assessment of Credit Risk Rating:Credit risk rating tools involve analysis of a company on various parameters such as financials, industry characteristics, business performance, management quality etc. different scales can be used and the above parameters can be combined with the appropriate weightages to arrive at a final score. The credibility of credit risk rating to a large extent depends on the skills of the persons using the rating tools and his integrity in using the model equitable for all concerns.

B) Summery Definitions of Ratios:1. Current Ratio:Current Assets Current Liability Current Assets= cash and bank balances+ investment in Government securities+ sundry debtors+ bills discounted+ inventories+ loans and advances+ advance payment of tax+ pre-paid expenses+ other current assets. Current Liabilities= short term bank borrowings+ commercial paper+ loan from corporate bodies+ bills discounted+ sundry creditors+ unmatured financial charges+ advance against work in progress+ other current liabilities. 2. Debt Equity Ratio:Debt Equity Debt= total borrowings+ preference capital- short term bank borrowingcommercial paper- loans from corporate bodies. Equity= Tangible net worth.

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3. Interest Coverage Ratio:EBIDT Total Interest EBIDT (Earning before interest, depreciation and tax) = profit before depreciation, interest and tax+ extra ordinary expenses- extra ordinary income. Total Interest= Gross interest+ interest capitalized.

List of Tables

S. No. 1. 2.

Table No. 1. 2.

Table Title Different bank Parameters Dena Bank- Key Data

Page No. 23 24

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BIBLIOGRAPHY Various internal circulations issued by bank from time to time. Various sites such as www.denabankindia.com www.sebi.gov.in www.moneycontrol.com www.pnbindia.com www.bobindia.com

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