Professional Documents
Culture Documents
EXECUTIVE SUMMARY
Credit management is the management of the credit portfolio of banks and financial
institutions.
Credit management is no longer a rule-of-thumb game .In a highly competitive and
deregulated environment, banks and financial institutions have to evolve better
systems and procedures to manage the credit needs of highly demanding customers,
particularly in the corporate and retail sectors. The developments of the past decade
have totally changed the perspective of management of credit .Credit management of
canara bank:-
Capital adequacy norms
Risk management including asset-liability management
Exposure norms
Risk pricing policy and credit risk rating
Asset classification, income recognition and provisioning norms
Appraisal, credit-decision making and loan review mechanism
Hence a study is done to evaluate the credit management at canara bank. They are
various parameters, techniques and strategies to evaluate the credit management of
any bank.
The principles of lending, which include the aforesaid parameters, form part of bank-
specific loan policies. With progressive computerization of front-office and back-
office and net working of bank branches, software programmes are being introduced
and developed for risk management are based on various models suggested by the
canara bank.
To study the pattern and procedures followed in canara bank regarding credit
management, and to indicate the performance of credit management a research was
taken up and various techniques are used to solve various problem areas in the area of
credit management.
1. INTRODUCTION
In the present scenario service sector plays an important role in the country.
Among service sector banking industry is one. Banking is one of the classical
economic functions and plays a vital role in economic development.
India has a well developed banking system. Most of the banks in India were
founded by Indian entrepreneurs and visionaries in the pre-independence era to
provide financial assistance to traders, agriculturists and budding Indian industries.
Indian banks have played a significant role in the development of Indian economy by
inculcating the habit of saving in Indians and by lending finance to Indian Industry.
The governments policy for Indian bank since 1969 has paid rich dividends
with the nationalisation of 14 major private banks of India. Not long ago, an account
holder had to wait for hours at the bank counters for getting a draft or for withdrawing
his own money.
Today he has a choice. Gone are days when the most efficient banks transferred
money from one branch to other in two days. Now money transaction to any corner of
the country within a few minutes is possible by the advent of technology.
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 phase. They are as mentioned bellow.
New phase of Indian Banking system with advent of Indian Financial and
Banking sector reforms after 1991.
Phase 1
The General Bank of India was set up in the year 1786. Next was come Bank
of Hindustan and Bengal Bank. The East India Company established Bank of Bengal
(1809). Bank of Bombay (1840) and Bank of Madras (1843) as independent units and
called it Presidency Banks. These three banks were amalgamated in 1920 and
Imperial Bank of India was established which started as private share holders banks
mostly Europeans Shareholders.
In 1865 Allahabad Bank was established and first time exclusively Indians,
Punjab national Bank Ltd, was set up in 1894 with head quarters at Lahore. Between
1906 and 1913, Bank of India central, Bank of India, Bank of Borada, Canara Bank,
Indian Bank of Mysore were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and bank also experienced periodic
failures between 1913 and 1948. There were approximately 1100 Banks, mostly small
to streamline the functioning and activities of commercial Banks. The Government of
India came up with the banking companies Act, 1949 which was later changed to
Banking Regulation Act 2949 as per amending Act of 1965 (Act No.23 of 1965).
Reserve Bank of India was vested with extensive powers for the supervision of
banking in India as the Central Banking Authority.
During those days public has lesser confidence in the Banks. As aftermath deposit
mobilisation was slow. A breast of it the savings bank facility provided by the postal
department was comparatively safer. Moreover, funds were largely given to traders.
Phase 2
Government took major steps in this Indian Banking sector Reform after
independence. In 1955, it nationalised Imperial Bank of India with extensive Banking
facilities on a large scale especially in rural and semi-urban areas. It formed
State Bank of India to act as the principal agent of RBI and to handle Banking
transactions of the Union and state Governments all over the country.
The following are the steps taken by the Government of India to regulate Banking
Institutions in the country.
After the nationalisation of Banks, the branches of the public sector bank India
rose to approximately 800% in deposits and advances took a huge jump by 11,000%.
Phase3
This phase has introduced many more product and facilities in the Banking
sector in its reforms measure. In 1991, under the chairmanship of M. Narasimhann a
committee was set up by his name which worked for the liberalization of banking
practices.
The country is flooded with foreign Banks and their ATM stations. Efforts are being
put to give satisfactory service customers. Phone Banking and Net Banking is
introduced. The entire system became more convenient and swift. Time is given more
importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered from
any crisis triggered by any external macroeconomics shock as other East Asian
countries suffered. This is all due to a flexible exchange rate regime, the foreign
reserves are high, the capital account is not yet fully convertible, and banks and their
customer have limited foreign exchange exposure.
Canara Bank was founded in 1906 by Sri, Ammembal Subba Rao Pai. The
bank was initially named as Canara Bank Hindu Permanent Fund. It blossomed in to a
limited company in 1910 and was renamed as Canara Bank Ltd, in 1969 the bank was
nationalised and thereafter came to be known as Canara Bank.
Today Canara Bank is one of the premier Banks in the country with a network
of 2,578 branches spread all over the country. The Bank has many distinctions to its
name. It was the first Bank to be conferred FICCI award for contribution to rural
development Canara Bank was the first among Banks to launch networked ATMs and
obtain ISO certification.
Canara Bank has covered a niche for itself in providing IT based services with 100%
computerization of the branches .The Bank provides a wide array of services, such as
Networked ATMs Anywhere banking, Tele Banking, remote access terminals, internet
and mobile Banking, debit card etc. For the year 2004-05 Canara Bank clocked the
highest net profit (Rs1110 crore) among nationalized Banks, with significant
improvement in capital adequacy ratio (12.78%) and asset quality (net NPA ration of
1.88%).My sore Canara Bank Regional Office (CBROM) was upgraded from
Regional Office on April1998. The functions of Circle Office have been laid down by
the Bank. However, on account of changing times, a review of these functions has
been made, rather than replicating existing ones. Sections at Regional Offices will
look for policy support from Head Office. All operational and administrative work
relation to their functions shall be handled by the respective sections within the policy
parameters set out by Head Office. Mysore Canara Bank Regional Office has a
network of 111 level Branches scattered over 4 districts. Which Mysore, Mandy, C.H
nagar, Hassan. In addition to these 5 currencies chest are functioning in all four
districts catered to the cash requirements of these branches.
Canara Bank groups principal activities are to provide a full range of Banking
and other financial services through 2,578 Branch Offices in India and Abroad. The
service includes accepting deposits, commercial and institutional credit, treasury,
investment, risk management and other related financial services. It operates through
two segments. Banking operations consist of corporate Banking. Retail Banking,
personal and commercial Banking, Cash management services, Deposits and other
allied services. Treasury operations consist of dealing in SLR and Non-SLR securities
and Money Market operation.
"A good bank is not only the financial heart of the community,
but also one with an obligation of helping in every possible manner to improve the
economic conditions of the common people" - A. Subba Rao Pai.
CORPORATE VISION:
To emerge as a world class Bank with best Practices in realms of asset portfolio,
Customer orientation, product innovation, Profitability and enhanced value to
stake holders.
CORPORATE MISSION:
CORPORATE OBJECTIVES:
Efficiency
Organisational Effectiveness.
Customer Centric
Hi-tech Banking
DEPOSIT SCHEMES:
1. SAVING DEPOSIT
2. CURRENT DEPOSITS
3. FIXED DEPOSIT
4. KAMADHENU DEPOSIT
6. CANFLEXI DEPOSIT
7. ASHRAYA DEPOSIT
This scheme is available to all individuals. Who have completed the age of 60
years and above, in single or joint names.
8. RECURRING DEPOSIT
It is monthly deposit minimum to Bank Rs. 50/- per month. Interest will be
compounded every quarter.
This Savings Account scheme is available to every common man. Its initial
deposits Rs. 25/- Account can be maintained even with zero balance. Here Bank has
not restriction on number of credits, and Bank will give free ATM-cum-Debit Card
facility.
It is a safe way to solid returns. A term deposit scheme under the Fixed
Deposit and Kamadhenu streams of the Bank. The benefit of Deduction is get from
income upto Rs. 1 lakh under sec.80C of the INCOME TAX Act1961, for individuals
only.
11.CANRELAX
PRODUCT/SERVICE PROFILE
Home Improvement loan is available to who already own homes. Loan will be
giving to house hold furniture items, air conditioners, wardrobes, kitchen cabins etc.
Loan is available along with a housing loan or even independently.
Can Mobile vehicle loan is available to purchase any vehicle. It may be new
vehicle or a used vehicle. Repayment period is given to four wheelers up to 84 months
and two wheelers upto 60 months.
4. CANARA TECH
5. CANARA TRAVEL
6. CANARA RENT
CANRENT loan is available to who are owners of the property to meet their
business and personal needs.
7. CANARA MAHILA
This is an exclusive loan scheme for women who are working and non working
persons are able to get loan and fulfil their personal financial needs.
8. DOCTORS CHOICE
Doctors choice loan scheme is to fulfil the Doctor working capital and term
loan requirements. Loan is available only to qualified registered medical practitioners.
CANSITE loan is available to who are individuals aged upto 55 years of age at
the time availing the loan. Those people must have above 1 lakh annual income or
more eligible.
This loan scheme is to meet the genuine personal needs of teaching or non
teaching staff of schools or colleges.
This loan scheme is available to pensioners for drawing their pension through
Canara Bank branches. Loans are for meeting medical expenses and other genuine
personals needs.
This Loan scheme is available to Traders, Whole sale and Retail business,
Business Enterprises, Commission Agents, Service sector, Professionals and self
employed persons. It is fulfil the working capital of business.
16. CANCASH
CANCASH will get when we need it without selling our blue chip portfolios,
to meet the investments/domestic/personal needs (not to be utilized for speculative
purposes) quantum upto Rs. 5 lakhs.
17.SWARNA LOAN
Educational loan is available to who are needy and meritorious students for
pursuing higher education in India and Abroad, and fulfil for payment of fees to
school/college and for purchase of books, hostel fees, examination fees etc.
NRI SERVICES:
a) NRE Accounts: This is term deposit scheme. Here customers are able to
get saving, current and term deposits scheme in Indian rupees.
2. REMITTANCE FACILITIES
NRIs are permitted to avail all types of retail rupee loan, international Credit
Card facility with the Bank, housing loan, financial services etc.
OTHER SERVICES:
1. DEPOSITORY SERVICES
This is the best way of holding Securities in electronic form. Purchase and sale
of securities can be through the account with very reasonable charges.
Lockers are available at select branches where Safe Deposit vaults are
installed. Bank lets on hire safe deposit lockers to individuals (singly or jointly),
Firms, Companies, Association or Clubs, Trustees on nominal rent.
Canara Bank has National Electronic Fund Transfer system at minimum charges.
5. INSURANCE
Canara Bank has Life and Non life Insurance products also.
6. SAVINGS SURAKSHA
Group insurance has been availed to who are deposit account holders of
Saving Bank Accounts and Term deposit accounts.
7. CAN-MEDICLAIM
Canara Bank is the corporate agents for selling the Mutual fund products of
Canbank Mutual Fund and HDFC Mutual Fund.
Canara Bank has been giving services to customer through Online Banking in
real-time basis. It is catered to both Retail and Corporate Customers. Online give
more facilities like Online transfer of funds to own accounts or from third party
accounts, Opening of Term deposits, Loan account repayments, Initiation of standing
instructions, Online stop payment instructions etc.
Once customer have an account with any of Canara Bank designated branches
customer can operate it from any other designated branches, with AWB customers
have a host of facilities to make banking with banker pleasure.
Total 423 Canara Bank authorised branches across the country are handling
Direct Tax collections i.e., Corporate tax, Income Tax Wealth Tax, Fringe Benefit tax
etc.
These services are aimed at caring for the personal needs of the customer and
enhancing customer satisfaction. Courtesy and impartially, secrecy, safety and
security are available from Canara Bank.
The Bank acts as Trustees for public, charitable religious and other trusts. It
also act as trustees of a settlement, Trustees of a minors legacy, custodian trustee of
properties held under Trusts of any description like pension, provident and gratuity
fund.
19. ATTORNESHIP
Once customer have an account with any of Canara Bank designated branches
customer can operate it from any other designated branches, with AWB customers
have a host of facilities to make banking with banker pleasure.
21. ATTORNESHIP
Canara Bank has been introduced several deposit products during Financial
Year 2007. Can Tax saver, a term deposit scheme, was introduced under the
Kamadhenu and fixed deposit mode with tax benefit under Section 80C. CanChamp-
an exclusive SB deposit product was launched for aspiring children upto the age of 12
years for inculcating the habit pf savings, as well as making them eligible for
education loans. A term deposit scheme, namely, Canara Centenary Deposit was
also introduced during the year, offering attractive rate of interest for the depositors.
During the year, the bank also launched a SB-Gold deposit scheme, targeting the HNI
clients.
In the sphere of new loan products, the Bank introduced Kisan Tatkal for
enabling farmers to meet emergent requirements and Kissan Mitra scheme for
funding tenant farmers. Gramin vikas Vahini, a vehicle for inclusive growth in rural
areas was also introduced during the year, to promote SME sector, the Bank launched
SME Gold Card and a Term Loan Scheme for reimbursement of their capital
expenditure.
Mysore Canara Bank Regional Office was upgraded from Regional Office in
April 1998. The functions of Regional Office have been laid down by the Bank.
However, on account of changing times, a review of these functions has been made,
rather than replicating existing ones. Sections at Circle Offices will look for policy
support from Head Office.
OWNERSHIP PATTERN
The Canara Bank is Mainly Public company minority of the shares which
were held by the general public, the remaining portion which will invests in the hands
of Government of India. Canara Bank shares are listed at Bangalore, Mumbai and
National stock exchanges. Ownership pattern is shown below;
COMPETITORS INFORMATION
There are many competitors in Mysore District viz., Nationalised Banks are
State Bank of India, Allahabad Bank, Bank of India, Punjab National Bank, Vijaya
Bank, Corporation Bank and Syndicate Bank. Private Banks are ICICI Bank, HDFC
Bank, UTI Bank, ING Vysya Bank. Co-operative Banks are HDCC Bank and
KSCARD Bank. These are all Banks offered similar product.
State Bank of Mysore is leading under deposits with Rs.400.94 crore which is
followed by Canara Bank with Rs. 302.94 crore.
Bank 7.45%. Share of these five Banks under total deposits is 70.23%. Majority of the
Banks have shown negative growth.
ACHIEVEMENT/AWARDS
CBROM has achieved many targets apart from their strategic plan.
The primary activities are accepting deposits and lending loans and advances.
Accepting deposits by way of savings, Current account, fixed Deposit and Recurring
Deposits. The collected money will be safeguarded according to regulation of the
RBI.
The Circle will report to Head Office in respect of both functional and administrative
matters. The Circle shall handle credit proposals upto the delegated powers and also
handle other general administration and staff matters (including disciplinary matters)
as the existing Circles are doing now. The branches have been provided with adequate
operational flexibility and credit sanctioning powers by the policies/guidelines spelt
out by Head Office.
The circle is fixes with targets by the Head Office in all business
parameters.And in term the circle has fixed the target to the branches under its
The service units like accounts section and currency chests attached to their
base branches and would continue to function under the same circle as the base
branch circle will report of both functional and administrative matters. Circle shall
handle credit proposal up to the delegated powers and also handle other general
administration and staff matter (including disciplinary matters). With this the bank
will be broadly moving into a three-tier system of administration of operation.
The Mysore Canara Bank circle has good scope for lending to agriculture
sector and improves Micro Finance. The District under the circle has large number of
self help group and they will avail substantial credit. Then out of 4 districts 3 districts
are having substantial cultivation.
The coffee price is firming up and improving with this Circle can increase exposure to
coffee. Mysore city has a special economic zone. Few big industries have already set
up their units. Here more units are likely to come up within few years. As the
infrastructure is improving and this will help to circle increasing Business
substantially.
3.1 INTRIDUCTION
The total requirement of working capital is met partly by the credit that the
suppliers of goods and services {i.e. trade credit} extend to the firm. The remaining
part is to be produced by the firm out of its own internal sources or short-term
borrowings from banks.
Banks are the main institutional sources of working capital finance in India.
After trade credit, bank credit is the most important source of financing working
capital requirements of forms in India. The fact that bank finance is the most
commonly negotiated source of working capital finance motivated my interest to
undertake this study.
1. The role of credit management in finding up the financial status of the banks.
2. Analyzing, classification, recognition and provisions of income and assets
brought into action.
3. To know about the different kinds of credit facilities.
4. To understand the concept of credit policies in banks.
5. To understand the concept of credit management under working capital.
6. Analyzing the reasons for credit management and its profitability in banks.
7. To know about what precautions to be taken at the time of granting advances.
3.4 METHODOLOGY
The project has been successfully completed with the use of various sources of
information which has been bifurcated as primary source and secondary source.
The primary source is drawn up from the bank where the study has been done
by preparing questionnaires, face to face, discussion with the concerned people of the
bank, by the ideas received from them.
The secondary sources were collected from various periodicals i.e. journals,
manuals, circulars, reports, brochure and annual reports provided by the bank. Apart
from them the books, several websites of the bank and financial institutions was made
use for the study.
LOCATION OF STUDY
DURATION OF STUDY
The research was conducted for 6 weeks from March 2009 to April 2009.
The data was collected through secondary source which was mainly.
Financial statements of CANARA BANK i.e. balance sheet and profit and
loss account.
Annual reports.
Journals.
3.7 LIMITATIONS
The uttermost limitation which minimized the theoretical issues of the report
is that there are no prescribed study materials or text book regarding the topic,
as it is a recent concept.
Therefore I was bound to manage with some test books, circulars, manuals,
articles, brochures and annual reports of the bank only.
Specific information had to be omitted because they were meant for
confidential purpose.
4. CREDIT MANAGEMENT
4.1 INTRODUCTION
Banks deal with public funds as they accept deposits from those who have surplus and
lend them to the needy in the form of Advances. Depositors have to be paid interest.
To meet the interest cost and the overheads (expenditure), a bank has to earn income
in the form of interest on money lent and fee for other services rendered. Banks
cannot just keep the money received as idle deposits. The same has to be lent to such
persons who are in a position to service the loans on time. if there is any laxity in the
selection of borrowers or at the time of disbursement of the loan of follow up of the
money advanced, the probability of the account becoming non-performing is greater.
Hence, credit management gains vital importance in the functioning of any bank.
As seen earlier, the objective of credit management is to ensure that the fund
lent are repaid without default on the due dates. To ensure this, the selection of client
becomes very important.
From olden times, even a businessman who wanted to take a decision on
whether to sell goods on credit to a new prospect, used to follow 3 Cs of Lending
viz., character, capacity and capital. These parameters hold good in case of bank too.
Over a period of time, three more Cs have been added i.e collateral. Conditions and
credit record. Thus, the banker has to evaluate any prospect on the basis of thee 6 Cs.
1. Character:
The client should possess good character. We all know character is a very difficult
thing to judge and not easily measurable. Character of person can be found out by
taking to the person his friends, business partners. Most important trait of any
gentleman a is character. Perhaps because of this the old saying was three if
character is lost every thing it lost one of the important traits to judge character of
a person is his sincerity in meeting commitments and honesty in all his deals we
believe that the most important requirement for granting facility to a customer is
his Integrity. A person with high integrity will not report to dubious means and
will be committed to doing the business for which finance has been sanctioned.
Even if he were to foresee any financial difficulties in the future which would
affect his commitments to the bank, he would come in advance and keep the bank
appraised of the same. Therefore, in cases wheel the integrity of the client is
beyond doubt, the chances of the accounts becoming NPA are very remote. Only
in the event of unexpected changes in the market conditions which are beyond the
control of the client, the account may become non-performing.
2. Capacity:
Even though a prospective client may be very honest and his character is very
good, he may not be a good businessman if he does not possess the required skills
for doing the job. He should have the entrepreneurial abilities like knowledge of
the business process, the suppliers, market for the product, undertaking risk,
strategies to beat the competitors, etc. the unit that he is going to start should run
profitably and also generate sufficient cash flows.
3. Capital :
The commitment of any person to any Endeavour he undertakes would come only
when he has his share of money invested in the business. This is called capital or
owners stake. If the client did not invest any amount and the entire amount is
financed by the bank, the chances of the firm not being run professionally are
there. It is because of this reason; bankers always insist that the client has to bring
some portion of the total investment, which is technically termed Margin.
Bankers always finance only the gap between the total funds required for a project
and the funds already brought in by the borrower subject of course to the
minimum level that the borrowers is expected to contribute.
4. Collateral:
where the risk perception is not high. In priority sector loans banks do end money
without taking any collateral security.
How much collateral should be taken (as a % of loan granted)? For this question,
we will not be in a position to give a definite answer. It varies from case to case
depending upon the risk perception of the bank. Banks do not give undue
importance to collaterals. Purpose of the loan receives greater importance while
assessing a loan proposal.
5. Conditions:
Conditions refers to the political stability of the country, the demand for the
product, the industry prospects, availability of raw materials, infrastructure
facilities etc.
6. Credit record:
What is the past record of the client regarding payments due for loans taken from
the same bank or other banks, credit card defaults etc. the availability of
information form the new agency CIBIL (Credit Information Bureau of India Ltd)
would help in knowing the credit record of the proponent
4. Spread: We are all familiar with the old saying Dont put all your eggs in
one baskets. This applies to a banker also. The banker cannot affords to grant
his entire advances to one particular individual or one type of industry. If he
does so, the future performance of the bank would depend entirely on the
success / failure of that particular individual or the industry.
Banks in their Credit policy detail the cap (maximum amount of exposure) on the
exposure to various industries based on the past experience and the present
exposure. Even RBI has prescribed maximum exposure levels for financing of
individuals and a group. As per the current guidelines, maximum exposure, per
individual, is restricted to 15% of the capital funds of the bank and 40% for a
Group. As a measure to encourage financing infrastructure projects, the exposure
limits have been kept a little high i.e., 20% for individuals and 50% for the group,
for such projects. These guidelines themselves ensure that the banks do not
concentrate their lending to a few individuals or one or two groups. The spread of
advance among various industries is desirable since recession or depression of any
particular industry would not adversely affect the position of the bank.
b) Geographical spread:
Banks also follow the practice of not concentrating their lending to one particular
geographical location, even though they might have financed to various industries
in that locality. Geographical spread helps at times of some calamities occurring in
a particular area not very badly affecting the performance of the bank. For
example, the earthquake in the Bhuj and satara areas or the Tsunami in coastal
Tamil Nadu have not affected any Bank adversely since the banks had followed
this sound principle of geographical spread.
5. Purpose: The loan granted should be for an approved purpose and should be
for a productive activity. Banks do not grant loans for activities which promote
anti-national interest or for speculative/gambling purpose. The purpose of the
loan should be for a business which is legally permissible and economically
feasible i.e. capable of generating surplus out of its activity. Feasibility is also
termed s viability of the proposal/project. As seen earlier, a Banker expects the
borrower to repay the dues form his business income and in tune with this
only, he gives importance to the viability of the project that he is going to
finance.
This aspect gains lot of importance in this modern cut-throat competitive age
where banks, in order to entire customers from other banks, are charging interest rates
that do not even cover the cost of funds. As part of the credit proposal of any client,
the details of the interest income and other income expected from the client have to be
estimated and all concessions/waivers requested by a client have to be brought in at
one place. The CBA (cost benefit analysis) should ultimately result in justifying the
Bank to finance the client generating sufficient profits.
Prospecting
(1)
Credit Credit
Monitori Investigati
ng (6) on (2)
CREDI
T
CYCLE
Credit
Credit proposal
disburseme (3)
nt (5) Credit
Approval
(4)
2. Credit investigation: This is the most important stage in the credit cycle. If
the selection of client is good, half the battle is won in the entire credit process.
Here, a through study is conducted about the prospect his business, his dealings
with suppliers and customers, existing bankers. The relationship manage should
be very tactful in gathering information about a client since it is a very delicate
issue and if the client feels hurt at any stage, the chances of not getting the
customer to banks fold would be high. Most of the information should be
collected in discreet fashion. The relationship manage should acquire the skills to
collect information from the client in the course of a conversation and not by
filling any structured format. It should be ensured that the proponents name is not
appearing in RBI/ECGC/ Banks own defaulters / specific approval list of ECGC
(Export Credit and Guarantee Corporation).
Normal contents of the credit investigation report are name of he client, credit
facilities sought, existing bankers and borrowings, if any, opinion from the customers
and suppliers of the client, unit visit observations, any ratings from credit rating
agencies etc.
2. Industry in which the client is doing business and the competition for the
product of the client.
3. Arrangements for supply of raw materials, etc. any long term arrangement
exists (supply chain management), dependence on one supplier? (Risk is high)
4. Customers for the product is there wide customer base or only one or two
customers (Risk grater if one or two customers).
7. Conduct of Account Application only for customers who are already having
borrowing / other accounts with the bank. Promptness in servicing of loan
instalments and interest, average balance maintained in the current account,
other deposits with the bank, cross sell opportunities utilized (insurance /
mutual fund sold) etc.
Based on the above, the client will be rated. Rating varies form bank to bank (on a
5 point scale or 10 point scale). The customer rated 1 is excellent and as the rating
goes up 2,3,4 etc. the risk of the bank increases. Bank might make a policy that only a
customer upto a specific rating say 4-5 is acceptable.
The client risk rating exercise has to be done not only for a new client but also on
every review/renewal of facilities of an existing customer (at least annually).
Advantages of Client risk rating:
3. Credit Proposal: Once the banker is satisfied about the genuineness of the
client and the client risk rating is acceptable to the bank, the proposal is put up
for approval of the facilities. Irrespective of whether the limits to be approved are
within the branch powers or higher authorities, the proposal should be completed
in all respects with same commitment. We have found that in those cases where
the facilities are to be approved within branch, the quality of the proposal is very
poor with many important data fields left blank.
Each bank has its own structured formats (templates) to be used for various
facilities. The complexity of the formats increases with the increase in the banks
exposure. A clear understanding of the various items to b e filled in different columns
by the desk officer /RM will go a long way in preparing quality proposal. Developing
the skills of officers working in credit department in the preparation of proposals
becomes very important.
The following are the important things which are normally covered
in the proposal:
(a) Basic Information: Here, the name of the firm, Proprietor / Partners/
Guarantors / Directors of the company, address and contact details, share
holing pattern, share market data, ratings if any, and the facilities sought, find
a place. The data provided here are mostly of a static nature
What is the credit period allowed on the sales made (whether in turn
with the practices prevalent in that trade), etc.
In the end, it should be verified whether the parameters under the bank
credit policy are complied with.
the anticipated risks and at the same time be helpful to the borrower in
augmenting his financial needs.
6. Credit monitoring:
2. In on the other hand short-term gains are the priority of the bank, the credit
culture is likely to be earnings driven. The credit policy will then be focused
on maximizing earnings regardless or risk.
3. A bank concerned primarily about market share would adopt a size and
volume drier culture adopting policies that primarily promote market share
and loan growth.
4. If there are no clear priorities the culture will be unfocused. The policies will
most likely be ambiguous without a definite emphasis on any value or belief.
Loans constitute the most important assets of a bank. Therefore the policies, which
govern the dispensation of loans, should aim to promote both quality of loans and
earnings from the loan portfolio. Absence of a sound credit policy can be disastrous.
American banking history witnessed several credit induced bank disasters in the
1980s. Continental, sea first and Texan Banks were examples of such disasters. The
far eastern crisis of the 1990s and most recently the crisis experienced by some of the
banks in our country, which were forced to be merged with other banks, were also the
result of credit induced problems.
The common factors that crippled these banks were aggression in lending,
failure to diversify, risky practices and inadequate supervision. Usually these are the
outcomes of a credit culture created by poorly articulated or badly implemented credit
policy.
Having seen how important credit policy is, let us now look at what a good
credit policy aims to achieve.
and improve market share. Hence one of the objectives of the credit policy
should be to promote the desired level of growth in the volume of loans and
advances.
(c) Asset quality; The third most important objective of the policy pyramid is
the quality of the loans dispensed. Without quality the earnings will be
compromised. Bad loans not only stop earning interest, they also require
provisions, which eat into profits. So the credit policy should aim to create and
maintain quality assets.
It is easy to see that these three objectives can be sometimes conflicting with each
other if pursued singly. For instance concentrating only on volumes could lead to poor
quality assets and bring down earnings. On the
(2) Corporate goals: Besides adhering to the guidelines and rules prescribed
by RBI and government, the credit policy also lays down the road map
necessary for achieving the business goals of the bank in the area of credit.
A banks credit policy satisfies the requirements set out in RBIs various
circulars and manuals by touching upon the following aspects;
The standards that are to be used in assessing the various requirement of credit
such as working capital, term loan, guarantees and letters of credit are referred to
in the credit policy. The basic financial parameters and ratios to be satisfied by
borrowers are also spelt out in the policy.
Most banks place restrictions on what should be the maximum size of a credit
facility, in line with the guidelines of RBI. This is linked to the capital of the
borrowing entity and that of the bank. The purpose of such ceilings is to ensure
that the failure of any large credits does not affect the bank seriously.
The collateral securities to be obtained for loans, their valuation and the
methodology for reviewing loans and advances are spelt out in the credit policy.
The criteria based on which interest rates and other charges are to be determined
for credit facilities are described in the credit policy. The methods used for
monitoring credit risk and evaluating its impact are described in the credit policy.
Lending must conform to policies of government, RBI and Bank. Credit policy of
the bank therefore lists out restrictions and prohibitions on specific types of
sanction. Industries manufacturing ozone-depleting substances, for instance,
cannot be financed by a bank. So credit managers should frequently refer to this
negative list and satisfy themselves that the borrower does not fall in any of the
prohibited categories.
Sector specific guidelines are given in the credit policy, which contain Dos and
Donts based on the current position of statutory and regulatory guidelines.
Financing of sensitive sectors like Real Estate, Capital markets and NBFCs are
good examples of sector specific loan policies where there are regulatory
guidelines / restrictions on financing.
The policy document is usually issued for a period 1-2 years. As part of the
banks business strategy for this short term period, the credit policy of a bank
usually identifies the focus areas to higher flow of credit. This identification in
done based on the prevalent macro economic trends; the regulatory stance and
banks own experience/ core competence in various sectors.
Retail for instance became a focus area for banks after the interest rate deregulation
and the slow down in corporate borrowings. SMEs, Agriculture and Micro Finance
are today perceived to be major business opportunities. This is attributable to the
policy emphasis on these sectors by the government. Therefore a credit manager
should refer to the policy every now and then to check whether the new businesses
being canvassed by him are in line with the business priorities of the bank. Similarly
high risk and low priority sectors identified by the bank are also listed in the credit
policy document.
and authorities vested with powers to give such permission are detailed in the policy
document. However while recommending deviations from the credit policy the credit
manager should assess the impact of the deviation sought on the risk profile of the
credit facility and furnish detailed justification for his recommendation in the
appraisal note.
The Banking Regulation Act empowers the Reserve Bank to control the
pattern, direction and extent of bank credit. The specific authority is vested under
section 21 of the Act. Sub-section (1) of section 2 stipulates that where necessary or
expedient in public interest or in the interest of depositors or banking policy, the
Reserve Bank may determine the policy in relation to advances to be followed by
banks generally or by any bank in particular, and when the banking policy is so
determined, all bank in particular and when the banking policy is so determined, all
banks or the bank concerned, as the case may be, shall be bound to follow the policy
so determined. sub-section (2) of the section further stipulat4es that the powers vested
in the Reserve Bank include the powers to issue directions either generally to all
banks or to a bank in particular as to:
1. To facilitate flow of adequate volume of bank credit to the various sectors with
specific reference to the weaker sectors.
2. To keep a control on inflationary pressures by ensuring restraint on credit
expansion and proper end-use of bank credit.
The three major instruments of credit control available with the Reserve Bank are the
Bank Rate, Open Market Operations and Variable Reserve Requirements or Rations.
The first two instruments can be operated by the Reserve Bank under the Reserve
Bank of India Act. Of the two variable reserve ratios, the Cash Reserve Ratio (CRR)
is subject to the Reserve Bank of India Act, while the Statutory Liquidity Ratio (SLR)
is covered under the Banking Regulation Act:
Section 49 of the Reserve Bank Act defines the Bank Rate as the standard rate at
which the Reserve Bank is prepared to buy or to rediscount bills of exchange or other
commercial paper eligible for purchase under the Act. Currently, the Bank Rate is 6
per cent per annum.
The Bank Rate is the rate at which the banks borrow from the Reserve Bank. When
the RBI desires to reduce liquidity in the monetary system, it uses Reserve Repo /
Repo (repurchases of securities. RBI accepts funds from bank sat affixed rate for one
day in one day repos or for 14 days in 14-day repos against the collateral of
government securities or gilts from the RBI)
As a tool through which banks can sell-buy / buy sell (sell today buy back tomorrow
etc.) securities at rates fixed by the central bank, under the window of Liquidity
Adjustment Facility (LAF). Internationally, the term Repo is used for central bank
operations that inject liquidity in the system, whereas the term Reverse Repo issued
for absorption of liquidity. It has been decided by the RBI that this international usage
of Repo and Reverse Repo terms should be adopted but from a future date to be
notified later in consultation with market participants giving them adequate time for
system changes.
The revised LAF scheme, announced recently, will be operational zed through (i)7-
day fixed rate repo conducted daily and (ii) over might fixed rate reverse repo
conducted daily, on week days. However, in order to achieve smooth transition to the
revised Scheme, the existing over might variable rate repo auction facility with the
existing features would also be available to eligible market participants till April 2,
2004. Thereafter, the over might rep auction will be discontinued and only the 7-
dayrepor auction will be available. Further, in order to enable market participants to
meet their prior commitments based on their existing operations, the 14-day repo,
conducted on a fortnightly interval, would also continue with the existing features.
The 14-day repo will, however, be phased out is due course.
In order to provide for any requirement arising out of unexpected temporary shortages
of funds and to help in stabilizing ovemight interest rates in an environment of
asymmetric distribution of liquidity, overmight reverse repo under LAF will be on a
fixed rate auction basis.
The repo rate will be fixed by the Reserve Bank from time to time. Considering the
present situation, the rate for the 7-day repo has been retained at 4.50 per cent per
annum. The reverse repo rate will continue to be linked to the repo rate. However, the
spread between the repo rate and the reverse repo rate is reduced by 50 basis points
from 200 basis points to 150 basis points with effect from March 29, 2004.
Accordingly, the reverse repo rate from that date will be 6.00 per cent per annum. In
future, as and when reserve bank changes the repo rate, the reverse repo rate will
normally change to 150 basis points over the repo rate.
A credit portfolio is built one loan at a time. Loans are the building blocks that go
into creating a portfolio. The credit policy l like a faithful gatekeeper helps in
checking whether every now loan that is added satisfies the pre-defined standards
of credit laid down by the bank, thereby ensuring quality of new loans assets.
It helps in diversification by setting sector wise and individual facility wise limits
on the amount of credit extended.
Through the use of credit risk rating framework borrows with risk scores can be
offered a lower price while lower grade borrowers can be charged more.
The credit policy is thus a potent tool for managing credit risks and for
accomplishing the business goals of a bank. It is at one go both a strategic vision
document and an operational manual for managing credit. The credit policy
document of the bank should therefore be a constant source of reference to the
banker who aspires to excel in credit management.
In line with the international practices and as per the recommendations made
by the Narsimham committee, the introduced, in a phased manner prudential
normal for income recognition, Asset classification and provisioning Norms Fro
the Loan assets of the Banks so as to mover towards greater consistency and
transparency in the published accounts. The objective of the policy is to recognize
income based on recovery rather than on accrual basis. Similarly, the classification
of assets of banks has to be done on the basis of objective criteria which would
ensure a uniform and consistent application of norms. Also, the provisioning
should be made on the basis of the classification of assets based on the period for
which the asset has remained non performing and the availability of security and
the realizable value thereof.
Asset Classification
Standard Asset:
The loan account is operated as per the sanction terms and conditions. The interest
/ or instalments are serviced regularly by the borrower. It does not carry more than
the normal risk attached to the business.
If interest is in default for 90 days or, if principal instalment in default for 90 days.
The entire term loan outstanding inclusive of unpaid instalments should be treated
as NPA.
If the account remains out of order for 90 days. Out of order means.
If bills remain overdue and unpaid for 90 days. Banks cannot take overdue interest
to income unless realized. Even if one bill of a borrower is overdue for 90days,
the entire liability is to treated as NPA.
When a particular facility offered to a buyer becomes a NPA, then all other
credit facilities to the borrowers will be treated as NPAs.
The interest that is recovered partially on the NPAs will be taken into the
income account.
When a credit facility qualifies for the first time as NPA, then all the interest,
commission, fees etc., that remain as arrears during the previous year which have
still not been realized, will have to be provided for during the current year.
Security / net worth of borrower/ guarantor will not be considered while
qualifying an account as NPA.
Advances that are fully secured against term deposits, National Savings
Certificates, Indira vikas Patras, Kisan Vikas Patras and surrender value of life
insurance policies need not be treated as NPAs.
In the case of advances guaranteed by Central / state governments, such
advances will not be classified as NPAs until the time the guarantee is invoked
and the government repudiates. The asset will remain as standard asset. However,
for income recognition purpose, interest will be taken into account only if
realized.
Doubtful Asset:
Asset which has remained NPT for a period exceeding 12 months and realization of
dues in full in highly improbable.
Rescheduling of loan accounts does not entitle the bank to upgrade the
Doubtful account into sub-standard or standard Asset.
Loss Asset:
A Loan account will be classified as Loss Asset if;
NPA not supported by any security or DICGC/ECGC cover,
PROVISIONING NORMS
Based on the asset clarification of loan accounts, banks have to make the
provisioning. Amount and percentage of provisioning to be made is decided by RBI
from time to time. The provisioning will be made as on the date of balance sheet (i.e.
31st March of the respective year) and on the balance outstanding in the loan account.
The present provisioning norms are as follows;
Asset Percentage of
provision
Agriculture & SME sectors 0.25%
Housing loans above Rs. 20 lakhs 1%
Personal loans (including credit 2%
card loans),
security available.
100% of the extent to which the advance is not covered by the realizable value
of the security to which the bank has a valid recourse and the realizable value
is estimated on realistic basis.
With regard to the secured portion, provision is made on the following basis,
at the rates ranging from 20% to 100% of the secured portion depending upon
the period for which the loan asset has remained doubtful asset.
for a facility whose tenor (period of repayment) is more. While RBI classifies a
facility as Term loan if its repayment period 3 years or more, many banks classify any
loan for more than years as Term Loan. Normally these loans are extended for 3-7
years, for acquisition of capital assets or setting up of new units or expansion of
existing capacity, etc. the repayment comes from the revenue generated from the
usage of the asset in the course of the business of the unit. Sometimes, banks do grant
term loans to augment the working capital requirements of a unit.
Banks extend Credit facilities in the form of fund based and Non-fund based facilities.
Further, they are classified as Term loan (project financing) and working capital
facilities.
The loans are sanctioned both for productive purposes to business and non
productive purposes personal loans, consumer loans, housing loans, vehicle loans,
etc. the term loans sanctioned for productive purposes are for capital investments like
purchase of plant and machinery, vehicles, furniture and fixtures etc.
In a loan account, the entire loan amount is disbursed to the borrower in a single
amount. Rate of interest is charged on fixed interest basis/floating interest basis. In the
fixed interest basis the same rate of interest is charged throughout the period of loan.
Floating rate of interest means, as and when there is change in the link rate (say PLR
of a bank) the rate of interest will change. Interest will be charged on the balance
outstanding (i.e., daily reducing balance method or balance outstanding at the
beginning of the month/quarter).
The term loans have a repayment period of say 3 years and above normally up to 8
years.
The loans are secured by primary security assets purchased are charged to
banks (hypothecation/mortgage, etc). collateral securities in the form of additional
pledge/mortgage of assets and guarantees by 3rd parties are also insisted, where the
loan amount is very high.
Types of
Facilities
Cash credit
Bills finance
Bank Guarantees
Overdrafts
An overdraft is a fluctuating account wherein the balance some times may be
in credit and at other times in debit. Overdraft facility is allowed as a running account
(current account). Many drawings and repayments are allowed in the account.
Drawings are normally made by the drawer by issuing cheques. The security is an
overdraft account may be either personal or tangible security insurance policies, fixed
deposits receipts, shares and debentures, book debts, etc.
Cash Credits
A cash credit is a drawing account against credit granted by the bank and is
operated in the same as a overdraft account. The bank will sanction limit based on the
working capital cycle of the business and the borrower has to operate within the limit
so fixed. The balance outstanding in the account should be within the liit or drawing
power. The drawing power means the value of securities less margin stipulated by the
bank. The borrower can save interest by reducing the debit balance whenever he is in
a position to do so. The borrower will provide securities as stipulated from time to
time. cash credit are generally allowed against pledge or hypothecation of goods.
BILLS FINANCE
Bills finance is a post sale credit facility granted to borrowers. Otherwise
borrowers (i.e. sellers of the goods, who supply the goods on credit basis will have to
wait for a specified period say 3 months) this would help the borrower to increase
his business, as his working capital cycle is reduced. As the bank directly recovers the
money advanced from the buyer of goods. Bills finance is also known as self
liquidating finance.
Bills are further classified as Sight bills and usance bills. Sight bills have to
be paid by the purchaser of goods immediately sights bills are purchased.
Usance bills are payable by the purchaser of goods after a specified period of
time (say 3 months, etc). usance bills are discounted. In the case of usance bills, bank
will deduct the discount amount (say 20 ro 25%) and pay the balance to the borrower
and pay the discount amount on realization of the bill.
The Non funds based facilities: The working capital facilities can be sanctioned as
non-fund based facilities. Generally, the borrower has to pay cash and buy goods from
the seller. In that case, banks grant cash credit / overdraft facility. However, sellers
may sell the goods on credit basis (say 1 month or 2 months credit) to the buyer
(borrower). As a security, sellers insist for bank guarantee or ask the borrower to open
a letter of credit, so that the seller is assured of payment from the buyers (borrowers )
bank in other words, instead of disbursing loan for buying goods, bank will issue a
guarantee or open a letter of credit.
BANK GUARANTEES
Banks issue guarantee on behalf of customers in favour of third parties
undertaking to pay the guaranteed sum of money to the third parties (beneficiary) in
the event of the (his) customer failing to perform the agreed obligations. Guarantees
are classified as financial guarantee and performance guarantee. Performance.
5. WORKING CAPITAL
5.1 INTRODUCTION
1. Capital Structure
2. Capital Budgeting
3. Working Capital Management
Working capital is the funds required by a unit for its day-to-day working. In the
course of business which deals only in trading there is need for purchase of goods
meant for sale, payment of wages to workers employed, rend, lighting, locking up of
money in credit sales etc. in the case of manufacturing unit, money required for
purchase etc. in the case of a manufacturing unit, money required for purchase of raw
materials (RM), payment of wages / salaries, overheads like rent lighting money
locked up in raw material stock, work in process (WIP), finished goods (FG) held
constitute working capital requirement.
The composition of assets and the amount of funds invested in the Working
Capital keep changing from day-to-day. Hence, working capital is also known as
Fluctuating capital.
Some people use the term Circulating Capital to describe Working Capital
because the working capital keeps circulating around the fixed capital of the business.
If there is no circulation of funds or the speed of circulation is not normal, the
working of the firm would be affected. Working capital is like blood circulation in our
body. if there is no circulation of blood, we know we would almost be dead or if some
clot in the blood happens in one part of the body, then that part becomes numb and not
in a position to use. Similarly, if there is insufficient working capital in an
organization, the activity of the firm gets affected and in worst cases it chokes the
firm and might be the cause for the closure of the unit.
Gross working capital refers to the total of all current assets. It is also known
as circulating capital, because the current assets are rotating in their nature.
Net working capital can be positive or negative. A positive net working capital
will arise when current assets exceed current liabilities. A negative net working capital
occurs when current liabilities are in excess of current assets.
Fluctuating working capital is the extra working capital, needed to support the
changing production and sales activities. It is the capital required in addition to the
working capital.
The working capital required by a concern can be financed from internal as well
as external sources. The various sources of working capital are:
Retained Earnings
Issue of shares
Bank borrowings
Trade credit
RETAINED EARNINGS:
Net profits of the concern or the cash inflow from the operations constitute a
potential permanent source of working capital, as it does not burden the business with
external obligations.
ISSUE OF SHARES:
Funds raised from the sale of shares may be a potential permanent source of
working capital funds into the net profit. The share issue may not add to the interest
burden like the borrowings from bank but they mean a demand for divided and
sharing the ownership in the business with new investors.
BANK BORROWINGS:
The most widely used source of working capital is the bank loan taken
against the hypothecation or pledge of inventory or mortgage of fixed assets. Loans
against hypothecation of inventory may be called as short term but for all practical
purposes they are permanent.
Bank finance is the most commonly negotiated source of the working capital
finance. It can be availed in the form of overdraft, cash credit, purchase/ discount of
bills and loan. Each companys working capital need is determined as per the norms.
These norms are based on the recommendation of the Tendon Committee and later on,
chose committee. The policy is to require firms to finance more and more of their
capital needs from sources and other than banks. Banks are the largest providers of
working capital to firms.
TRADE CREDIT:
The bank for assessment of working capital commonly uses the following methods;
1. Operating cycle method - For working capital limits up to Rs.25, 000
2. Usual or Traditional Method - For working capital limits Rs. 10 lakhs.
3. Tendon and Chose committee norms - i.e., maximum permissible bank finance
method - for working capital above Rs.10 lakhs.
4) Turnover method - for working capital limits: up to Rs. 400 lakhs.
5) Cash budget method.
6) Projected balance sheet method.
7) Operating cycle method.
Projection:
The RBI had been trying particularly from the mid sixties onwards, to bring a
measure of discipline among industrial borrowers and to redirect credit to the priority
sectors of the economy. From time to time, the RBI has been issuing guidelines and
directives to the banking sector toward this end.
The credit authorization scheme (CAS) introduced in 1965, was one of the
oldest amongst regulatory measures introduced by the RBI for monitoring bank credit.
The RBI withdrew the CAS on 10-10-1988. The role of RBI thereafter took the form
of post sanction scrutiny of proposals in respect of term loans and working capital
limits beyond stipulated limits. The RBI has renamed the scheme as Credit
Monitoring Arrangement.
The salient features of the reused scheme in relation capital limits are
as under
1. The banks should consider proposals for sanctions within the broad framework
of guidelines issued by RBI from time to time.
Where norms relating to inventory / receivables had been laid down by RBI credit
limits had to be determined according to such norms.Banks could sanction ad-hoc
limits to borrowers for temporary periods not exceeding 3 months. Such ad-hoc
sanction to borrowers enjoying working capital beyond Rs. 10 cores should be
reported to RBI in case where ad-hoc limits are needed for period should be
reappraised.
d) Assisted unit may approach the bank for meeting its existing working
capital requirements for additional working capital requirements at any
time during the currency of the loan.
c) Higher liquid surplus: Since the bank finance is only intended to support
need based requirements of borrowers, if the available net working capital is
more than 5% of the turnover, the former should be reckoned for assessing the
extent of bank finance.
1. Current Ratio
Current assets
Current Ratio =
Current Liability
Table-1
Showing the current Ratio of the CANARA BANK
Graph-1
Showing the current Ratio of the CANARA BANK
Analysis:
The above ratio shows that there was constant growth in current ratio in 2006 and
2007 was 1.02 and it was slightly declined in 2008,that is 1.00.It indicates that the
bank having sufficient cash to meet its current liabilities and the bank is using its
current assets efficiently and profitably. So over all ratios of current assets and current
liabilities is satisfactory.
Debt
Debt Equity Ratio =
Equity
Table-2
Showing the Debt-Equity Ratio of the CANARA BANK
Graph-2
Showing the Debt-Equity Ratio of the CANARA BANK
Analysis:
The above chart shows that there is a debt e.g., Ratio in 2006 is 53.41% it was
increased to 56.48% and in 2008 it is 102.00% it shows that in each year e.g., capital
is same but debt capital is increasing generally 2/3 ratio is good for any capital
structure. Thus in first 2 year debt is not more thus the bank is not given any interest
on debt and in that period for e.g., share holders are got benefited and in third year
2008 .The debt e.g. ratio is 102.00% it is not a good capital structure the bank is need
to pay heavy interest an debt thus the bank is need to reduce the debt capital and wise
it is very it is very much burden in future.
Fixed assets
Fixed assets to net worth ratio =
Share holder fund
Table-3
Showing the Fixed Assets to Net worth Ratio of the CANARA BANK
Graph-3
Showing the Fixed Assets to Net worth Ratio of the CANARA BANK
Analysis:
By observing the above ratios the fixed assets to net worth ratio is increasing per year
that is in 2006 it is 11.97% it was increased to 14.75% and in 2008 it is 26.36. It
shows that at what extent the e.g. share capital is contributing to net worth, higher the
ratio better is the net worth.
Table-4
Showing the Return on Share Holders Investments Ratio of the
CANARA BANK
Graph-4
Showing the c Return on Share Holders Investments Ratio of the
CANARA BANK
Analysis:
The ratio is continuously increasing it is in 2006 id 5.73% and it was increased to
6.01% and 6.92% in 2008. Higher the ratio the shareholder will get more benefit and
higher the return on investment to share holders.
5. Equity Ratio
Table-5
Showing the Equity Ratio of the CANARA BANK
Graph-5
Showing the Equity Ratio of the CANARA BANK
Analysis:
This ratio shows that at what % the share holders fund included in total asset lesser
the ratio better is for the shareholders in this ratio the equity ratio is 0.002% in 2006
and was decreased to 0.018% and in 2008 it is 0.0013% it is better for the company
and also for the shareholders finally the ratio of the bank is satisfactory.
6. Solvency Ratio
Solvency Ratio=
Total assets
Table-6
Showing the solvency Ratio of the CANARA BANK
TABLE 6
Showing the solvency Ratio of the CANARA BANK
Analysis:
The ratio indicators the part of total liabilities on total assets lesser the ratio better for
the bank because the obligation of paying liabilities is less. In this ratio the solvency
ratio in 2006 is 0.13% and was decreased to0.10 in 2007 and in 2008 it is again 0.13%
thus solvency ratio is satisfactory for doing the bank transactions.
Table-7
Showing the Earning per Share Ratio of the CANARA BANK
Graph-7
Showing the Earning per share Ratio of the CANARA BANK
Analysis:
The ratio of earning per share in 2006 was 0.07% and was decreased to 0.078% it is
again increased to 0.09% in 2008. The higher ratio better for the share holders and it
is also better for the bank. When bank incurring loss because no obligation of paying
ratio on equity-shares.
Table-8
Showing the Return on Gross Capital employed Ratio of the
CANARA BANK
Graph-8
Analysis:
The ratio indicates percentage of profit for the capital employed higher the ratio
better for the bank. The ratio is 1.20% in 2006 and was decreased 1.10% and 0.92% in
2007 and 2008 respectively. The ratio is decreased every year. It is not satisfactory for
the bank.
Table-9
Showing the Return on Net Capital employed Ratio of the CANARA
BANK
Graph-9
Analysis:
The ratio is decreasing every year. It is not satisfactory for the bank. The ratio is
1.43% in 2006 and was decreased to 1.25% and 1.07% in 2007and 2008 respectively
higher the ratio higher the profit and benefit to bank.
Findings:
1. During the study to be observed that CANARA BANK has functioning effectively
and one of the lending commercial bank in India.
2. From the year 2003-07 there was a continuous increase in profit in CANARA
BANK.
3. Sanction of loans and advances are increasing in every year.
4. Major part of loans are going out in the form of SME Loans, Retail loans and
Housing loans.
5. The major part of its income is in the form of interest from investments and loans
and advances.
6. The total banking transaction are fully computerized, ISO 9001 Single window
operations
7. The Bank follows and complies with all the RBI guidelines in granting various
types of advances. The Bank not only caters to the need of the priority sector
borrower and also to the Trade, Industry and commerce but also provides various
types of loans to students, professionals and to self employed people.
8. The bank is giving a lot of emphasis on providing excellent customer services.
9. DER of the Bank was increasing from last 3 previous years. The ratio was rising
from 56.48 to 102.00 in the year 2005-06 to 2006-07.
10. Solvency ratio was increasing from 0.10 to 0.13 in the year 2005-06 to 2006-2007.
11 W.C.A was increasing from year to year. Its advances use to give more to the small
scale industries and agricultural sectors, for that its W .C.A is more.
12. Earnings per share of the company was increasing from 0.078 to 0.09 in the year
2005-06 to 2006-07. Because of its net profit was a key on increasing from last 3
years.
Recommendations:
CONCLUSIONS/APPRISAL:
Canara bank was established by sir Ammembal subba rao pai.in a remote village of
the south
canara with a vision to reach the common and poor man with banking facilities. It
has grown to one of the premier banks of India and catching speed to achieve the top
slot. The bank is well established and managed by dynamic and rich experienced
personalities.
The bank has traveled a long way since the journey from 1906. the bank has
completed more than 100 years after the establishment and has earned enormous
name in the modern society in India. It has earned a name in the economic
development of our nation. The bank has strived hard to reach the rural mas and under
privileged community of our nation. The bank has much prospects to grow still better
and to compete with global market. The bank has well knit and dedicated to staff
under the experienced leadership for further growth ,progress, development and
performance in the coming years.
With the planned lending and calculated assessment we can conclude that the
working capital advance to different segments of the economy particularly to SME
sector and agricultural sector the bank has taken all necessary steps to expand its
lending to priority sector and thus evolved varies new products. The banks lending to
retail sector will get boost by vigorous marketing dully introducing young and
efficient marketing executives. The bank has evolved various result yielding methods
for recovery of Naps. the bank has also introduced latest technology like ATM, Tele
banking, Electronic fund transfer, Internet banking etc. which are gaining popularly
among its customers.
With the above canara bank will certainly become number one bank in India. soon.
SUPPLIMENTARY PAGES
BIBLIOGRAPHY
Books Referred:
Edition: 2008.
McGraw Hills.
Other sources:
Bank Broachers
Annual reports
Bank websites
Journals