CO-OPERATIVE BANKING & ITS CREDIT APPRAISAL MECHANISM

1. SUMMER PROJECT CO-OPERATIVE BANKING & ITS CREDIT APPRAISAL MECHANISM Presented By : ChandniDevani

2. Objective of Study: 1. To understand the Indian Co-operative banking industry. 2. To understand the concept & Mechanism of credit appraisal & various services rendered by Abhyudaya Co-op Bank Ltd. 3. The project emphasis on understanding the procedure and process used by Abhyudaya Co-operative Bank Ltd. to assess the credit worthiness of the borrower. 4. The study in the form of cases deal with calculations of MPBF (Maximum Permissible Bank Finance), along with going through the borrower’s information, general information of the proposal, past record of borrower and details of security mortgaged. 5. To suggest the steps to be taken to increase the efficiency of Abhyudaya Co-op Bank Ltd. regarding Credit Appraisal.

3. INDIAN BANKING STRUCTURE

4. CO-OPERATIVE BANKING A Co-operative Bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Registered under the Co-operative Societies Act They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. MAIN FEATURES As per B.R. Act 1949 co-operative bank cannot undertake trading activities. A co-operative bank is prohibited from holding any immovable property Except for own use Co-operative bank cannot carry on business of banking in india unless Minimum paid up share capital and reserves is less than rupees one lakh.

5. TYPES OF LOANS & ADVANCES 1.Personal Loan 2.Gold Loan 3.Rent Securitization Loan 4.Mortgage Loan 5.Hosing Loan 6.Educatin Loan 7.Vehicle Loan 8.Group Loan 9.Project Loan 10.Loan Against NSC/RBI Bonds/LIC/KVP)

6. Process of lending in Co-op Banks Begins with Membership: • In co-op banks the borrowers must be the members (shareholders) of the bank • There are 2 types of members • 1. Nominal members • 2. Regular members What is credit appraisal? Credit Appraisal is the process by which a lender appraises the technical feasibility, economic viability and bankability including creditworthiness of the prospective borrower. Components of Credit Appraisal Process/ Mechanism We can tabulate all the conditions under three parameters.

7. PARAMETER COMPONENTS & HOW BANK ASSES YOUR CREDITWORTHINESS THROUGH IT

8. Economic Parameters

9. Bankability Parameters

10. Credit Appraisal Process

11. Case study Loan Type : Housing Loan Applicant : Mrs. PrachiGhaisas Co-Applicant : Mr. UdayGhaisas Amt Applied:40,00,000 Installment:180 1. Details of Applicant & Co-Applicant is collected:

12. 2.Details of Applicant’s family members is collected. • 3.Account Details: 4. Details of Loans & Advances availed from other bank/financial institution/credit societies: 5. Securities:A. Prime (Purchase of flat/house) mortgage of immovable property:

13. 6. Details of projected cost/Budget: Purchase of Flat(Total amt) : 70 lakh Advance paid : 30.50 lakh Amt applied : 40 lakh Balance in Account : 10,000 Deficit : Nil • 7. Guarantee: 2 Sureties • 8. Check list of Documents • 9. Declaration cum Undertaking by Mortgagers. • 10. List of Documents – • Agreement for Sale • Stampduty paid receipt • Registration receipt • Valuation receipt • 11.Housing Loan Agreement

14. 12.Undertaking: I Mrs. PrachiGhaisas the borrower will repay 180 EMIs of Rs. 44300/- @10.5%(floating) on daily reducing balance Purpose : Purchase of Flat 13. Scrutiny by branch: Full details of applicant,co-applicant,surety 1 & 2. • Calculation of EMI factor: Installment Asked: 180 months Max Permissible: 180 months Rate of Interest : 10.5% (ROI) EMI factor 100000 on basis of installment period Rs.1105/-

15. Calculation of Repayment capacity: Repayment Capacity = 293635-52650 * 166902 - 15000 (Net salary) (other loan) (Take home salary) • 14. Cost of Project:

16. A)Applied : 40.00lakh B)% :90 lakh (as per value construction) C)Eligible as per repayment capacity : 59083/1105*100000 = 53.47 lakh D) Loan Amount Eligibility (Lower of A/B/C of above) = Rs. 40.00 lakh 15.Visit report: 16. Documents Checked: 1. Rent income deposit letter 2. No share certificate issued by society 3. No maintainence received by Society 4. CIBIL report explanation letter 5. Salary confirmation letter 6. Rent agreement 7. Employer Bond 17. Western Zonal office Remark: 1. Co-applicant is employed with sahara one & is head-distribution (motion pictures) since march 2008 & draws net salary 178695 in month of oct 2010. Salary credited to Axis bank. 2. The applicant is employed with the firm Navami enterprise as manager & is earning net salary 14800 credited to HDFC 3. Applicant and co- applicant has given there 3 flats at kandivali (e) and goregaon (w) on leave & licence & is earning monthly rent Rs.47500 (agreement submitted) 4. Has availed 2 housing loans and 2 vehicle loans (Repayment is regular)

17. FINDINGS SWOT ANALYSIS OF Abhyudaya Co-op Bank Credit Appraisal:

18. RECOMMENDATION • IN EVERY BRANCH ONE STAFF ALLOWTMENT FOR DOING CALLING WORK • SYSTEM UPGRADATION • BOOKLET OF AGREEMENT/SECURITY DOCUMENTS

19. CONCLUSION & LEARNING • Credit appraisal is done to check the commercial, financial & technical viability of the project proposed its funding pattern. • A banker’s task is to identify/assess the risk factors/parameters & manage/mitigate them on continuous basis. • I worked in loan Department & understood the meaning of Customer service. • One thing I got is Though all banks are different entities, they all are under one roof that is RBI. • To be a good manager you need to have good interaction with others & show involvement in their difficulties. Hence one should always be open to new ideas to experience the innovation.