SUMMER INTERNSHIP PRESENTATION- 2014

CREDIT RISK
MANAGEMENT AT
PNB
Presented By:Nikhil Satija
A50050213001

ABOUT THE BANK

Established in 1895 in Anarkali Bazaar at Lahore.
Lala Lajpat Rai was one of the first customers
of the bank.
It was the first bank that was started with the
Indian capital.
Nationalized in July 1969.
Has over 4525 offices including 432 extension counters
in India.
Corporate office of bank at New Delhi.
UK, Nepal, Bhutan, Kazakhstan, China, Shanghai etc
PNB was ranked as 248th biggest bank in the world by
Bankers Almanac, London.

OBJECTIVES

VISION AND
To understand the process of credit appraisal
applied by the bank
to provide loan to the corporate
VISION
MISSION

"To be a Leading Global Bank with Pan India

To understandand
various
types ofarisks
involved inbrand
footprints
become
household
providing
in
the loan
Indo-Gangetic Plains providing
entire range of financial products and
services under one roof".

To find out ways to mitigate these risks.

MISSION

To analyzefor
thethe
credit
worthiness of the clients
"Banking
unbanked".
To analyze the Non Performing Assets in Bank and
various reasons that leads an account to become an
NPA.

ORGANIZATION STRUCTURE
HEAD OFFICE
7- BHAIKAJI CAMA PLACE,
NEW DELHI -66

CIRCLE OFFICES (67)

BRANCHES (5675)

RESEARCH METHODOLOGY
Sources of information:
PRIMARY SOURCES
Meetings and discussion with
the Chief Manager and the Senior Manager of Credit Department.
SECONDARY SOURCES:
Internal Circulars of the bank
Websites
Database at PNB
Referring to information provided by CIBIL, Income Tax files,
Registrar of Companies and Auditor reports.

CREDIT APPRAISAL SYSTEM

IN
PUNJAB NATIONAL BANK

CREDIT

Credit is the trust which allows one party to provide resources to

another party where that second party does not reimburse the
first party immediately, but instead arranges either to repay or
return those resources at a later date.
BANK CREDIT
The borrowing capacity provided
to an individual by the banking system,
in the form of credit or a loan is known
as a bank credit.

LOANS
FUND BASED
WORKING CAPITAL
RETAIL LOAN

NON-FUND BASED

CREDIT APPRAISAL
Its means an investigation/assessment done by the
bank prior before providing any loans &
advances/project finance & also checks the
commercial, financial & technical viability of the
project proposed.
Proper evaluation of the customer is preferred
which measures the financial condition & ability
to repay back the loan in future.

CREDIT APPRAISAL (Contd.)

Credit appraisal is the process of appraising the credit
worthiness of the loan applicant.
Factors like: Age
Income
Number of dependents
Nature of employment
Continuity of employment
Repayment capacity
Previous loans, etc. are taken into account while
appraising the credit worthiness of a person.

CREDIT APPRAISAL PROCESS

Receipt of application from applicant
Receipt of documents
(Balance sheet, KYC papers, MOA, AOA, and Properties documents)
Pre-sanction visit by bank officers
Check for RBI defaulters list, willful defaulters list, CIBIL data, etc.
Title clearance reports of the properties to be obtained from empanelled
advocates
Valuation reports of the properties to be obtained from empanelled
valuer/ engineers

CREDIT APPRAISAL PROCESS (Contd.)

Preparation of financial data
Proposal preparation
Assessment of proposal
Sanction/approval of proposal by appropriate sanctioning authority
Documentations, agreements, mortgages
Disbursement of loan
Post sanction activities such as receiving stock statements, review of
accounts, renew of accounts, etc.

CREDIT APPRAISAL (Contd.)

CREDIT INFORMATION OF THE BORROWING
COMPANY
Banks and Financial Institutions
Bank References
Credit Rating Agencies
Published Books
Company Financial Reports
Press Reports
Personal Visit
Factory Visit

CREDIT APPRAISAL (Contd.)

CREDIT INFORMATION TO BE
SUBMITTED BY THE BORROWING
COMPANY

Basic background information on the company

Copy of certificate of registration of firm
Memorandum and Articles of Association
Required facility
Management
Details of the Security to be pledged
Key industry dynamics
Present Relation with the Bank

CREDIT ANALYSIS
Market Analysis
Technical Analysis
Management &
Organization Analysis
Financial Analysis

CREDIT ANALYSIS (Contd..)

MARKET ANALYSIS
Market Demand and Potential for each product item and its
variants/substitutes.
Critical Analysis regarding Size of the Market.
Influence of Government policies like Government Import Policy
and Import duty structure also need to be evaluated.
TECHNICAL ANALYSIS
Location and Size
Raw Material
Plant & Machinery,
Plant Capacity and
Manufacturing Process.

CREDIT ANALYSIS (Contd..)

MANAGEMEMENT & ORGANIZATION ANALYSIS
Strengths and Weaknesses of the Management by commenting on the
background, qualifications, experience, and capability of the Promoter.
FINANCIAL ANALYSIS
Cost of Project & Means of Financing
Profitability Statement
Break-Even Analysis
Fund-Flow Statement
Balance Sheet Projections
Internal Rate of Return
Sensitivity Analysis
Financial Ratios
Debt-Equity Ratio
Debt-Service Coverage Ratio
Current Ratio
Output Investment Ratio

POST-SANCTION FOLLOW UP
To keep a watch on the project during implementation stage so
that there are no time & cost overruns.
To ensure that is no diversion of funds.
To monitor operations in the account particularly cash credit
facilities which indicate health of the account.
To obtain market report on the borrower, to gather information
like reputation/financial standing etc.
To ensure that the unit's management and organizational set-up
is effective.
To detect signals and symptoms of sickness or deterioration
taking place in conduct/performance of the account.

Case Study:The proposal falls under the powers of ED on account of total exposure of Rs. 55.00
crores
Name of the Borrower:
M/s. SANYA HOSPITALITY PRIVATE LIMITED ( SHPL)
GIST OF THE PROPOSAL
Sanction of Term Loan of Rs. 55.00 crores

Purpose

Acquisition

Construction of hotel
Cost of Project

279.95

Total Debt

165.00

Promoters contribution

114.95

Proposed TL (our share)

55.00

DER

1.44:1

Repayment Period

96 months

Door to door tenor

108 months

SWOT ANALYSIS:Strengths:Location of a hotel is of prime importance. As the proposed hotel of SHPL is located very
close to the IT Hub in Gurgaon, it can easily attract business tourists both domestic and
foreign.
Creation of high-end facilities in the hotel like well-equipped rooms, specialty restaurants,
health club, modern business center facilities etc. will be an added advantage.
The presence of the banquet and the hotel in the same complex can boost the occupancy
level of the hotel.
The hotel is located just 9 kms from the airport.
Weaknesses:The promoters do not have any experience of running a hotel. The hotel will be operated by
Marriott Courtyard with which a management agreement has been signed.
A number of new hotels are being planned in Gurgaon. Since most of the hotels are being
planned in the 5 star category & SHPL plans to open a 4 star hotel which will be more
competitive price wise with almost equal service & facilities.

SWOT ANALYSIS:Opportunities:Steady growth rate in international tourists arrivals in the National Capital Region is
expected to continue in the future thereby increasing demand for rooms.
Falling domestic airfares and introduction of low cost carriers will also increase tourist
arrivals in Gurgaon / New Delhi
Gurgaon is expected to strengthen its position in the IT and ITES sector. It is also expected
that the city will attract the sunrise industries such as automobile and biotech industry.
The Commonwealth Games in 2010 will be attracting a number of foreign tourists in the
National Capital Region.
Threats:Lack of appropriate long term infrastructure development plan can slow down the
commercial development in Gurgaon.
IT majors are planning accommodation facilities in its existing campus so as to overcome
the non availability of hotel rooms and reduce the travelling time of their business travelers
and such capacity creation can seriously affect the demand from eminent corporate.

LIMITATIONS OF THE STUDY

Access to data.
Limited study on project due to time factor.
As the credit appraisal is one of the crucial areas for
any bank, some of the technicalities are not revealed.

FINDINGS
Risk is the center most part of the analysis and
basis for the decision of the bank.
All the analysis is being done to generate a
grade, which represents the intensity of risk,
that helps in determining the condition of the
corporate applying for loan.
The whole process of credit appraisal helps in
providing a suitable measure to minimize the
risk due to non repayment of loan to the bank.