Description
The corporate banking as an important division of the commercial banking and also to study the credit appraisal models supporting the increased activities of corporate lending by banks.
Research Methodology on Corporate
Banking
STATEMENT OF PROBLEM:
To study the emergence and evolution of the corporate banking as an important division of
the commercial banking and also to study the credit appraisal models supporting the
increased activities of corporate lending by banks.
In today’s global Banking arena, Corporate Bankers are facing a string of unprecedented and
sweeping challenges in the areas like Treasury Management, Trade inance, !isk
Management, Compliance Management, "lectronic Trading and #erivatives Markets.
Compounding this are the mounting comple$ities from ongoing regulatory changes,
decreasing margins and fierce competition
NEED FOR STUDY:
%ver the period of time, with the tremendous increase in the growth pattern of industrial
development, the need for the corporate loans have increased more than ever. &o, the
increasing trend urges the banks and financial institutions to focus on corporate banking as a
separate division. &o, the researchers have preferred to study the concept of corporate
banking and all the operational aspects attached to it in the entire process.
OBJECTIVE OF THE STUDY:
• To study the banking industry, as a whole with the help of various analysis including
&'%T analysis, ("&T analysis and (orter’s ive orce analysis.
• To ac)uire basic knowledge about the corporate lending in India and its relevance
with respect to banks.
*
• To analy+e the credit risk models of both public bank and private bank and bring out
its comparative picture on the basis of various parameters.
• To study credit risk management strategies of bank.
RESEARCH DESIGN:
, research design is the arrangement of the condition for collection and analysis of data.
,ctually it is the blueprint of the research pro-ect. The research type is descriptive research.
The main ob-ective of this design is search primary and secondary data.
The research primarily focuses on the secondary sources and first hand information through
focus group interviews.
DATA COLLECTION:
,s the research type is descriptive, the method of data collection was informal.
SOURCES:
The relevant information were collected from both primary and secondary sources like follow
up with bank managers web search, newspaper articles
TOOLS:
ocus group interviews with the managers of banks.
BENEFICIARIES:
For the ban!:
It will give them the in depth review of the various aspects involved in the corporate banking
with emphasis on the credit risk management.
For the "or#orate!:
.
The report shows the comparative study of the credit appraisal and sanctioning procedure
involved in the credit lending by banks as well as financial institutions. &econdly, they will
also get the relevance of the corporate lending by the banks and its various relevant aspects.
For the $ana%e$ent !t&'ent!:
The report studies the entire banking industry from various aspects using different analytical
tools. &econdly, it introduces into the world of credit lending and its trend in India. Moreover,
it also shows the operational procedures involved in the corporate lending with emphasis on
risk modeling and credit risk management.
LIMITATIONS OF THE STUDY:
The scope of the report is mainly depends on the information e$tracted from secondary
sources and the information given by the managers of banks. &o, lack of the availability of
the first hand information may act as a limitation to the pro-ect report.
/
CHAPTER: 1
AN OVERVIE( ON BAN)ING INDUSTRY
In recent years, the banking industry around the world has been undergoing a rapid
transformation. In India also, the wave of deregulation of early *001s has created heightened
competition and greater risk for banks and other financial intermediaries. The cross2border
flows and entry of new players and products have forced banks to ad-ust the product2mi$ and
undertake rapid changes in their processes and operations to remain competitive. The
deepening of technology has facilitated better tracking and fulfillment of commitments,
multiple delivery channels for customers and faster resolution of miscoordinations.
3nlike in the past, the banks today are market driven and market responsive. The top concern
in the mind of every bank4s C"% is increasing or at least maintaining the market share in
every line of business against the backdrop of heightened competition. 'ith the entry of new
players and multiple channels, customers 5both corporate and retail6 have become more
discerning and less 7loyal7 to banks. This makes it imperative that banks provide best
possible products and services to ensure customer satisfaction. To address the challenge of
retention of customers, there have been active efforts in the banking circles to switch over to
customer2centric business model. The success of such a model depends upon the approach
adopted by banks with respect to customer data management and customer relationship
management.
%ver the years, Indian banks have e$panded to cover a large geographic 8 functional area to
meet the developmental needs. They have been managing a world of information about
customers 2 their profiles, location, etc. They have a close relationship with their customers
and a good knowledge of their needs, re)uirements and cash positions. Though this offers
them a uni)ue advantage, they face a fundamental problem.
#uring the period of planned economic development, the bank products were bought in India
and not sold. 'hat our banks, especially those in the public sector lack are the marketing
attitude. Marketing is a customer2oriented operation. 'hat is needed is the effort on their part
9
to improve their service image and e$ploit their large customer information base effectively
to communicate product availability. ,chieving customer focus re)uires leveraging e$isting
customer information to gain a deeper insight into the relationship a customer has with the
institution, and improving customer service2related processes so that the services are )uick,
error free and convenient for the customers.
urthermore, banks need to have very strong in2house research and market intelligence units
in order to face the future challenges of competition, especially customer retention.
Marketing is a )uestion of demand 5customers6 and supply 5financial products 8 services,
customer services through various delivery channels6. Both demand and supply have to be
understood in the conte$t of geographic locations and competitor analysis to undertake
focused marketing 5advertising6 efforts. ocusing on region2specific campaigns rather than
national media campaigns would be a better strategy for a diverse country like India.
Customer2centricity also implies increasing investment in technology. Throughout much of
the last decade, banks world2over have re2engineered their organi+ations to improve
efficiency and move customers to lower cost, automated channels, such as ,TMs and online
banking.
,s is proved by the e$perience, banks are now reali+ing that one of their best assets for
building profitable customer relationships especially in a developing country like India is the
branch2branches are in fact a key channel for customer retention and profit growth in rural
and semi2urban set up.
wever, to ma$imi+e the value of this resource, our banks need to
transform their branches from transaction processing centers into customer2centric service
centers. This transformation would help them achieve bottom line business benefits by
retaining the most profitable customers. Branches could also be used to inform and educate
customers about other, more efficient channels, to advise on and sell new financial
instruments like consumer loans, insurance products, mutual fund products, etc.
There is a growing reali+ation among Indian banks that it no longer pays to have a
7transaction2based7 operating model. There are active efforts to develop a relationship2
oriented model of operations focusing on customer2centric services. The biggest challenge
our banks face today is to establish customer intimacy without which all other efforts towards
operational e$cellence are meaningless. The banks need to ensure through their services that
the customers come back to them. This is because a ma-or chunk of income for most of the
banks comes from e$isting customers, rather than from new customers.
;
Customer relationship management 5C!M6 solutions, if implemented and integrated
correctly, can help significantly in improving customer satisfaction levels. #ata warehousing
can help in providing better transaction e$periences for customers over different transaction
channels. This is because data warehousing helps bring all the transactions coming from
different channels under the same roof. #ata mining helps banks analyse and measure
customer transaction patterns and behaviour. This can help a lot in improving service levels.
It must be noted, however, that customer2centric banking also involves many risks. The
banking industry world over is being thrust into a wild new world of privacy controversy. The
banks need to set up serious governance systems for privacy risk management. It must be
remembered that customer privacy issues threaten to compromise the use of information
technology which is at the very center of e2commerce and customer relationship management
2 two areas which are crucial for banks4 future.
The critical issue for banks is that they will not be able to safeguard customer privacy
completely without undermining the most e$citing innovations in banking. These innovations
promise huge benefits, both for customers and providers. But to capture them, financial
services companies and their customers will have to make some critical tradeoffs. 'hen the
stakes are so high, nothing can be left to chance, which is why banks must immediately begin
developing comprehensive approaches to the privacy issue.
The customer centric business models based on the applications of information technology
are sustainable only if the banks protect client confidentiality in the process 2 which is the
basic foundation of banking business.
<
*+* EVOLUTION OF BAN)ING IN INDIA
Banking in India has its origin as early as the =edic period. It is believed that the transition
from money lending to banking must have occurred even before Manu, the great :indu
>urist, who has devoted a section of his work to deposits and advances and laid down rules
relating to rates of interest. #uring the Mogul period, the indigenous bankers played a very
important role in lending money and financing foreign trade and commerce. #uring the days
of the "ast India Company, it was the turn of the agency houses to carry on the banking
business.
The ?eneral Bank of India was the first >oint &tock Bank to be established in the year *@A<.
The others which followed were the Bank of :industan and the Bengal Bank. The Bank of
:industan is reported to have continued till *01< while the other two failed in the meantime.
In the first half of the *0
th
century the "ast India Company established three banksB the Bank
of Bengal in *A10, the Bank of Bombay in *A91 and the Bank of Madras in *A9/. These three
banks also known as (residency Banks were independent units and functioned well. These
three banks were amalgamated in *0.1 and a new bank, the Imperial Bank of India was
established on .@
th
>anuary *0.*. 'ith the passing of the &tate Bank of India ,ct in *0;; the
undertaking of the Imperial Bank of India was taken over by the newly constituted &tate
Bank of India.
The !eserve Bank which is the Central Bank was created in *0/; by passing !eserve Bank
of India ,ct *0/9. In the wake of the &wadeshi Movement, a number of banks with Indian
management were established in the country namely, (un-ab Cational Bank Dtd, Bank of
India Dtd, Canara Bank Dtd, Indian Bank Dtd, the Bank of Baroda Dtd, the Central Bank of
India Dtd. %n >uly *0, *0<0, *9 ma-or banks of the country were nationali+ed and in *;
th
,pril *0A1 si$ more commercial private sector banks were also taken over by the
government.
The Indian banking can be broadly categori+ed into nationali+ed 5government owned6,
private banks and speciali+ed banking institutions. The !eserve Bank of India acts a
centrali+ed body monitoring any discrepancies and shortcoming in the system. &ince the
nationali+ation of banks in *0<0, the public sector banks or the nationali+ed banks have
@
ac)uired a place of prominence and has since then seen tremendous progress. The need to
become highly customer focused has forced the slow2moving public sector banks to adopt a
fast track approach. The unleashing of products and services through the net has galvani+ed
players at all levels of the banking and financial institutions market grid to look anew at their
e$isting portfolio offering.
Conservative banking practices allowed Indian banks to be insulated partially from the ,sian
currency crisis. Indian banks are now )uoting a higher valuation when compared to banks in
other ,sian countries 5vi+.ng Eong, &ingapore, (hilippines etc.6 that have ma-or problems
linked to huge Con (erforming ,ssets 5C(,s6 and payment defaults. Co2operative banks are
nimble footed in approach and armed with efficient branch networks focus primarily on the
Fhigh revenue’ niche retail segments.
The Indian banking has finally worked up to the competitive dynamics of the Fnew’ Indian
market and is addressing the relevant issues to take on the multifarious challenges of
globali+ation. It has come a long way from being a sleepy business institution to a highly
proactive and dynamic entity. Banks that employ IT solutions are perceived to be Ffuturistic’
and proactive players capable of meeting the multifarious re)uirements of the large customers
base. (rivate banks have been fast on the uptake and are reorienting their strategies using the
internet as a medium The Internet has emerged as the new and challenging frontier of
marketing with the conventional physical world tenets being -ust as applicable like in any
other marketing medium.
This transformation has been largely brought about by the large dose of liberali+ation and
economic reforms that allowed banks to e$plore new business opportunities rather than
generating revenues from conventional streams 5i.e. borrowing and lending6.
The banking in India is highly fragmented with /1 banking units contributing to almost ;1G
of deposits and <1G of advances. Indian nationali+ed banks 5banks owned by the
government6 continue to be the ma-or lenders in the economy due to their sheer si+e and
penetrative networks which assures them high deposit mobili+ation. The Indian banking can
be broadly categori+ed into nationali+ed, private banks and speciali+ed banking institutions.
A
The !eserve Bank of India acts as a centrali+ed body monitoring any discrepancies and
shortcoming in the system. It is the foremost monitoring body in the Indian financial sector.
The nationali+ed banks 5i.e. government2owned banks6 continue to dominate the Indian
banking arena. Industry estimates indicate that out of .@9 commercial banks operating in
India, ../ banks are in the public sector and ;* are in the private sector. The private sector
bank grid also includes .9 foreign banks that have started their operations here. 3nder the
ambit of the nationali+ed banks come the speciali+ed banking institutions. These co2
operatives, rural banks focus on areas of agriculture, rural development etc., unlike
commercial banks these co2operative banks do not lend on the basis of a prime lending rate.
They also have various ta$ sops because of their holding pattern and lending structure and
hence have lower overheads. This enables them to give a marginally higher percentage on
savings deposits. Many of these cooperative banks diversified into speciali+ed areas
5catering to the vast retail audience6 like car finance, housing loans, truck finance etc. in
order to keep pace with their public sector and private counterparts, the co2operative banks
too have invested heavily in information technology to offer high2end computeri+ed banking
services to its clients.
Complementing the roles of the nationali+ed and private banks are the speciali+ed financial
institutions or Con Banking inancial Institutions 5CBCs6. 'ith their focused portfolio of
products and services, these Con Banking inancial Institutions act as an important catalyst
in contributing to the overall growth of the financial services sector. CBCs offer loans for
working capital re)uirements, facilitate mergers and ac)uisitions, I(% finance, etc. apart from
financial consultancy services. Trends are now changing as banks 5both public and private6
have now started focusing on CBC domains like long and medium2term finance, working
cap re)uirements, I(% financing etc. to meet the multifarious needs of the business
community.
0
*+, STRUCTURE OF BAN)ING INDUSTRY:
Banking system plays an important role in a country’s economy. It promotes growth and
development of the country. Indian money market comprises organi+ed and the unorgani+ed
institutions. The organi+ed and unorgani+ed institutions in the Indian banking system serve a
source of short term credit to agriculture, industry, trade and commerce.
In the Indian banking structure the !eserve Bank of India is the central bank. It regulates,
direct and controls the banking and financial institutions in the country. There are three high
banking institutions, namely, !BI, C,B,!# and "HIM Bank. There are separate financial
institutions catering to the needs of different sectors of the economy. #evelopment Banks,
Investment Banks, Co2operative Banks, Dand #evelopment Banks, Commercial Banks in
public and private sectors, C,B,!#, !!Bs, "HIM Bank, etc. The indigenous bankers and
moneylenders dominate unorgani+ed sector.
The In'-an ban-n% !tr&"t&re "an be !een .ro$ the "hart !ho/n &n'er:
*1
A#e0 Ban-n% In!t-t&t-on
RBI IDBI NABARD E1IM Ban SIDBI NHB
IRBI
Ban-n% In!t-t&t-on!
Co$$er"-a2 Re%-ona2 R&ra2 Co3 o#erat-4e Lan' De4e2o#$ent
De4e2o#$ent
Ban! Ban! Ban! Ban!
Ban
P&b2-" Pr-4ate Fore-%n PAC5! CCB5! SCB5! PLD5! SLDB
Se"tor Se"tor e0"han%e
Ban! Ban Ban!
A22 In'-a
State
Le4e2
Le4e2
SBI an' Nat-ona2-!e'
S&b!-'-ar-e! Ban!
IDBI ICICI SIDBI
SFC5!
SIDC
Fore-%n In'-an Non 6 S"he'&2e
Ban S"he'&2e' Ban Ban
**
The chart reveals that there are several ape$ banking institutions working at the national
level. !BI is the highest banking authority regulating, directing and controlling all the
banking and financial institutions in the country. There are development banks, namely I#BI,
&I#BI, ICICI at the national level and &tate inancial Corporations and &tate Industrial
#evelopment Corporations which have been set2up.
There are .0 public sector banks. Co2operative banks have three tier system. ,t the village
level there is (rimary ,griculture Co2operative &ociety5(,Cs6, at the district level there is
Central Co2operative Bank and at the state level there is &tate Co2operative Bank. Co2
operative banks provide short term and medium loans to the agriculture sector. Dand
#evelopment Banks provide long term agriculture credit. It comprises (rimary Dand
#evelopment Bank5(D#B6 at ht district level and &tate Dand #evelopment Bank5&D#B6 at
the state level. !!Bs provide loans and advances to the rural poor and C,B,!# is an ape$
body regulating, directing and controlling the financial and banking institutions providing
finance for the agriculture and rural development.
TYPES OF BAN)S
Modern age is the age of speciali+ation with the changing situation worldwide, bank
functions have also undergone a ma-or change. "conomic conditions and financial needs of a
country are different than those of other countries throughout the world. &ome financial
institutions deal in accepting deposits and making loans and advances to different sectors of
the economy. &ome institution makes loans and advances for medium and short term, while
others are meant for long term advances. &ome are financing industrial sector and foreign
trade while others are advancing loans to agriculture sector.
In broader sense of the term banks may be classified into following categoriesI
• Central Bank
• Commercial Banks
• #evelopment Banks
*.
• Investment Banks
• Co2operative Banks
• oreign "$change Banks
• &avings Banks
• "$port2Import Bank
• &peciali+ed Cational Banks
• Indigenous Bankers
• International inancial Institutions
*/
*+7 GRO(TH OF BAN)ING SECTOR
8DECADE (ISE9
Pre3L-bera2-:at-on: The growth of the Banking &ector in the pre liberali+ation period can be
analy+ed as under.
*;<*3=>:
This was the decade immediately following the Cationali+ation of *9 commercial banks. ,lso
the banking sector grew at the fastest pace in this decade.
*+ A!!et!:
The assets of the sector grew at .*.;A G C,?!
*
. They increased from !&.A..;.bn to
!s.;A..//bn. This kind of growth was achieved due to massive increase in the number of
branches resulting in a spurt in deposit mobili+ation.
,+ De#o!-t!:
The deposits grew from !s.<9.@0bn to !s.9/0.A@bn. at a C,?! .*.** G. The growth was
higher in later part of the decade. This growth rate would have been higher had the current
accounts grown at a rate higher than *A G. This indicates people’s preference for using bank
as place to keep their savings. The bank was not used as a place to keep money to be used for
transaction motive. This is further clarified by the poor ratio of average current deposits to
total deposits at ./.9; G.
7+ A'4an"e!:
The advances grew at *0..< G C,?! from !s.9<.A;bn to !s..@..<@bn. ,lso the growth was
higher in the later part of the decade. Thus the advances grew at a pace slower than the
deposits due to decreasing credit deposit ratio, which reduced from @../1 G in *0@1 to <*.00
G in *0A1.
*
*9
?+ Net /orth:
The Cet worth increased from !s.*.*<bn to !s.;.//bn at a C,?! of *<.9A G.
The Capital of the banks remained flat throughout the decade growing at -ust A.;9 G and also
the growth came in the later part of the decade. The capital increased form [email protected] to
!s.*.1@bn.
wever, the !eserves grew at a healthy pace of .1 G C,?! from !s.<01mn to !s.9..@bn.
Thus the banks in this decade did not raise capital and funded their growth from internal
accruals. This resulted in a wide gap between !eserves and Capital indicating the banks’
hunger for Capital.
*;=*3;>:
*+ A!!et!:
The growth of the sector was significantly subdued since the last decade. The assets grew at
-ust *<./1 G C,?! compared to .*.;A G in the previous decade. The total assets increased
from !s.;A..//bn to !s..</<.0/bn.
,+ De#o!-t!:
#eposits increased from !s.9/0.A<bn to !s.*A.1.9<bn at a C,?! of *;..< G. The current
accounts remained the usual laggards in terms of growth growing at -ust *..<@ G C,?!. The
term and saving deposits grew at a slightly faster pace of *<.*@ G and *;.; G C,?!.
7+ A'4an"e!:
,dvances grew at a C,?! of *<.@0 G from !s..@..<@bn to !s.*[email protected];bn. This is due to the
fact that the banks have stepped up their credit2deposit ratio from <. G to @1.@9 G. This
indicates higher investment than saving in the economy.
?+ Net /orth:
The Cet worth increased from !s.;.//bn to !s.9@.*bn. Thus the net worth grew at a
whopping .9.// G C,?!.
*;
The capital hungry banks went on capital raising spree in the latter half of the decade. Thus
the capital grew at a C,?! of /9.;/ G. In absolute terms, the capital soared from !s.*.1<bn
at the beginning of the decade to !s..1.@/bn at the end of the decade.
The !eserves however grew at more or less constant pace of *0.0@ G C,?! throughout the
decade.
,t the end of the decade the Capital had kept pace with the !eserves and the gap between
them had significantly narrowed down.
Po!t3L-bera2-:at-on: The growth of this sector after *00* can be represented as under.
*;;*3,>>>:
*+ A!!et!:
The rate of the sector further slowed down during this decade. The assets grew at a C,?! of
*;..9 G from !s..</<.0/bn to !s.***1/.<Abn. The growth rate however, was greater in the
later part of the decade indicating future prospects of increase in growth.
,+ De#o!-t!:
The deposits grew from !s.*A.1.9@bn to !s.011/.1<bn at a C,?! of *<.<0 G. There was a
spurt in the last /29 years of the decade indicating improving trend. In this decade however,
the savings accounts were the laggards in terms of growth at */./9 G C,?!. The term
deposits grew at *A./A G and current deposits grew at *;../ G. This reversal of trend in
growth rates shows that the people are increasingly using banks to deposit money to be used
for transaction motive.
7+ A'4an"e!:
The advances increased from !s.*[email protected];bn to !s.99/9.<0bn at a C,?! of *..9< G. The
lower growth in advances is due to the decline in credit2deposit ratio from @1.@9 G in *001 to
90..< G. This shows there was a marked decline in investment in this decade with savings
e$ceeding investment.
?+ Net /orth:
The Cet worth grew at a feverish pace of /<.<1 G C,?!, the highest in last three decades.
This was mainly because the !BI opened the Banking sector to (rivate sector. ,s many as 0
Cew (rivate &ector Banks started their operations in this period. They brought a lot of capital
*<
in the period *00/20;.wever in the later half of the decade, capital growth was virtually
nil.
The !eserves grew at /@.;9 G C,?! from !s..<./<bn !s.9/A./9bn.wever, contrary to
Capital the !eserves recorded e$ceptional growth in the later half of the decade due to
improving profits of private as well as public sector banks.wever the gap between
reserves and capital is once again widening.
*@
*+? FUTURE LANDSCAPE OF INDIAN BAN)ING
Diberali+ation and de2regulation process started in *00*20. has made a sea change in the
banking system. rom a totally regulated environment, we have gradually moved into a
market driven competitive system. %ur move towards global benchmarks has been, by and
large, calibrated and regulator driven. The pace of changes gained momentum in the last few
years. ?lobali+ation would gain greater speed in the coming years particularly on account of
e$pected opening up of financial services under 'T%. our trends change the banking
industry world over, vi+. *6 Consolidation of players through mergers and ac)uisitions, .6
?lobalisation of operations, /6 #evelopment of new technology and 96 3niversalisation of
banking. 'ith technology acting as a catalyst, we e$pect to see great changes in the banking
scene in the coming years. The Committee has attempted to visuali+e the financial world ;2*1
years from now. The picture that emerged is somewhat as discussed below. It entails
emergence of an integrated and diversified financial system. The move towards universal
banking has already begun. This will gather further momentum bringing non2banking
financial institutions also, into an integrated financial system.
The traditional banking functions would give way to a system geared to meet all the financial
needs of the customer. 'e could see emergence of highly varied financial products, which are
tailored to meet specific needs of the customers in the retail as well as corporate segments.
The advent of new technologies could see the emergence of new financial players doing
financial intermediation. or e$ample, we could see utility service providers offering say, bill
payment services or supermarkets or retailers doing basic lending operations. The
conventional definition of banking might undergo changes.
The competitive environment in the banking sector is likely to result in individual players
working out differentiated strategies based on their strengths and market niches. or e$ample,
some players might emerge as specialists in mortgage products, credit cards etc. whereas
some could choose to concentrate on particular segments of business system, while
outsourcing all other functions. &ome other banks may concentrate on &M" segments or
high net worth individuals by providing specially tailored services beyond traditional banking
*A
offerings to satisfy the needs of customers they understand better than a more generalist
competitor.
International trade is an area where India’s presence is e$pected to show appreciable increase.
'ith the growth in IT sector and other IT "nabled &ervices, there is tremendous potential for
business opportunities. Eeeping in view the ?#( growth forecast under India =ision .1.1,
Indian e$ports can be e$pected to grow at a sustainable rate of *;G per annum in the period
ending with .1*1. This again will offer enormous scope to Banks in India to increase their
fore$ business and international presence. ?lobali+ation would provide opportunities for
Indian corporate entities to e$pand their business in other countries. Banks in India wanting
to increase their international presence could naturally be e$pected to follow these corporates
and other trade flows in and out of India.
!etail lending will receive greater focus. Banks would compete with one another to provide
full range of financial services to this segment. Banks would use multiple delivery channels
to suit the re)uirements and tastes of customers. 'hile some customers might value
relationship banking 5conventional branch banking6, others might prefer convenience banking
5e2banking6.
%ne of the concerns is )uality of bank lending. Most significant challenge before banks is
the maintenance of rigorous credit standards, especially in an environment of increased
competition for new and e$isting clients. "$perience has shown us that the worst loans are
often made in the best of times. Compensation through trading gains is not going to support
the banks forever. Darge2scale efforts are needed to upgrade skills in credit risk measuring,
controlling and monitoring as also revamp operating procedures. Credit evaluation may have
to shift from cash flow based analysis to Jborrower account behaviourK, so that the state of
readiness of Indian banks for Basle II regime improves. Corporate lending is already
undergoing changes. The emphasis in future would be towards more of fee based services
rather than lending operations. Banks will compete with each other to provide value added
services to their customers.
&tructure and ownership pattern would undergo changes. There would be greater presence of
international players in the Indian financial system. &imilarly, some of the Indian banks
*0
would become global players. ?overnment is taking steps to reduce its holdings in (ublic
sector banks to //G.wever the indications are that their (&B character may still be
retained.
Mergers and ac)uisitions would gather momentum as managements will strive to meet the
e$pectations of stakeholders. This could see the emergence of 92; world class Indian Banks.
,s Banks seek niche areas, we could see emergence of some national banks of global scale
and a number of regional players.
Corporate governance in banks and financial institutions would assume greater importance in
the coming years and this will be reflected in the composition of the Boards of Banks.
Concept of social lending would undergo a change. !ather than being seen as directed
lending such lending would be business driven. 'ith &M" sector e$pected to play a greater
role in the economy, Banks will give greater overall focus in this area. Changes could be
e$pected in the delivery channels used for lending to small borrowers and agriculturalists and
unorgani+ed sectors 5micro credit6. 3se of intermediaries or franchise agents could emerge as
means to reduce transaction costs.
Technology as an enabler is separately discussed in the report. It would not be out of place,
however, to state that most of the changes in the landscape of financial sector discussed
above would be technology driven. In the ultimate analysis, successful institutions will be
those which continue to leverage the advancements in technology in re2engineering processes
and delivery modes and offering state2of2the2art products and services providing complete
financial solutions for different types of customers.
:uman !esources #evelopment would be another key factor defining the characteristics of a
successful banking institution. "mploying and retaining skilled workers and specialists, re2
training the e$isting workforce and promoting a culture of continuous learning would be a
challenge for the banking institutions.
.1
*+@ BAN)ING INDUSTRY REFORMS AND VISION ,>*>
AA 4-!-on -! not a #roBe"t re#ort or a #2an tar%et+ It -! an art-"&2at-on o. the 'e!-re' en'
re!&2t! -n broa'er ter$!C 3 A+P+J+Ab'&2 )a2a$
=ision is of an integrated banking and finance system catering to all financial intermediation
re)uirements of customers. &trong market players will strive to uncover markets and
provide all services, combining innovation, )uality, personal touch and fle$ibility in
delivery. The growing e$pectations of the customers are the catalyst for our vision.
The customer would continue to be the centre2point of our business strategy. In short,
you lose touch with the customer, and you lose everything.
It is e$pected that the Indian banking and finance system will be globally competitive. or
this the market players will have to be financially strong and operationally efficient.
Capital would be a key factor in building a successful institution. The banking and
finance system will improve competitiveness through a process of consolidation,
either through mergers and ac)uisitions through strategic alliances.
Technology would be the key to the competitiveness of banking and finance system. Indian
players will keep pace with global leaders in the use of banking technology. In such a
scenario, on2line accessibility will be available to the customers from any part of the
globeB F,nywhere’ and F,nytime’ banking will be reali+ed truly and fully. ,t the
same time Fbrick and mortar’ banking will co2e$ist with Fon2line’ banking to cater to
the specific needs of different customers.
Indian Banking system has played a crucial role in the socio2economic development of the
country. The system is e$pected to continue to be sensitive to the growth and development
needs of all the segments of the society. The banking system that will evolve will be
transparent in its dealings and adopt global best practices in accounting and disclosures
driven by the motto of value enhancement for all stakeholders.
inancial &ector !eforms set in motion in *00* have greatly changed the face of Indian
Banking+ The banking industry has moved gradually from a regulated environment to a
.*
deregulated market economy. The market developments kindled by liberali+ation and
globali+ation have resulted in changes in the intermediation role of banks. The pace of
transformation has been more significant in recent times with technology acting as a catalyst.
'hile the banking system has done fairly well in ad-usting to the new market dynamics,
greater challenges lie ahead. inancial sector would be opened up for greater international
competition under 'T%. Banks will have to gear up to meet stringent prudential capital
ade)uacy norms under Basel II. In addition to 'T% and Basel II, the ree Trade ,greements
5T,s6 such as with &ingapore, may have an impact on the shape of the banking industry.
Banks will also have to cope with challenges posed by technological innovations in banking.
Banks need to prepare for the changes. In this conte$t the need for drawing up a !oad Map to
the future assumes relevance. The idea of setting up a Committee to prepare a =ision for the
Indian Banking industry came up in IB,, in this background.
Managing Committee of Indian Banks’ ,ssociation constituted a Committee under the
Chairmanship of &hri & C ?upta, Chairman 8 Managing #irector, Indian %verseas Bank to
prepare a =ision !eport for the Indian Banking Industry. The composition of the Committee
is given at the end of the report.
The Committee held its first meeting on ./
rd
>une .11/ at Mumbai. (rior to the meeting the
members were re)uested to give their thoughts on the future landscape of the banking
industry. , discussion paper based on the responses received from members was circulated
along with a )uestionnaire eliciting views of members on some of the specific issues
concerning anticipated changes in the banking environment. In the meeting, which served as
a brainstorming session, members gave their =ision of the future. , second meeting of the
Committee was held at Chennai on @
th
,ugust .11/ to have further discussions on the
common views, which emerged in the first meeting, and also to e$amine fresh areas to be
covered in the study.
..
The =ision &tatement prepared by the Committee is based on common thinking that
crystalli+ed at the meetings. In the Chennai meeting it was decided to form a smaller
group from among the members to draft the report of the Committee. The group met
thrice to finali+e the draft report. The report was adopted in the final meeting of the
Committee held at Mumbai.
'hen we talk about the future, it is necessary to have a time hori+on in mind. The
Committee felt, it would be rather difficult to visuali+e the landscape of banking industry
say, .1 years hence due to the dynamic environment. 'hile ?overnment of India
brought out India =ision .1.1, the Committee is of the view that the pace of changes
taking place in the banking industry and in the field of Information Technology would
render any attempt to visuali+e the banking scenario in .1.1, inconceivable. The entire
financial services sector may undergo a dramatic transformation. It was, therefore, felt
that we should set our goals for the near future say, for ;2*1 years hence and
appropriately call this e$ercise JBan-n% In'&!trD 6 V-!-on ,>*>K. The three main
aspects focused in the banking vision includes product innovation, process re2engineering
and technology.
PRODUCT INNOVATION AND PROCESS RE3ENGINEERING
'ith increased competition in the banking Industry, the net interest margin of banks has
come down over the last one decade. Diberali+ation with ?lobali+ation will see the
spreads narrowing further to *2*.;G as in the case of banks operating in developed
countries. Banks will look for fee2based income to fill the gap in interest income. (roduct
innovations and process re2engineering will be the order of the day. The changes will be
motivated by the desire to meet the customer re)uirements and to reduce the cost and
improve the efficiency of service. ,ll banks will therefore go for re-uvenating their
costing and pricing to segregate profitable and non2profitable business. &ervice charges
will be decided taking into account the costing and what the traffic can bear. rom the
./
earlier re4en&e E "o!t F #ro.-t e)uation i.e., customers are charged to cover the costs
incurred and the profits e$pected, most banks have already moved into the #ro.-t
Ere4en&e 3 "o!t e)uation. This has been reflected in the fact that with cost of services
staying nearly e)ual across banks, the banks with better cost control are able to achieve
higher profits whereas the banks with high overheads due to under2utilisation of
resources, un2remunerative branch network etc., either incurred losses or made profits not
commensurate with the capital employed. The new paradigm in the coming years will be
"o!t E re4en&e 3 #ro.-t.
,s banks strive to provide value added services to customers, the market will see the
emergence of strong investment and merchant banking entities. (roduct innovation and
creating brand e)uity for speciali+ed products will decide the market share and volumes.
Cew products on the liabilities side such as fore$ linked deposits, investment2linked
deposits, etc. are likely to be introduced, as investors with varied risk profiles will look
for better yields. There will be more and more of tie2ups between banks, corporate
clients and their retail outlets to share a common platform to shore up revenue through
increased volumes.
.9
Banks will increasingly act as risk managers to corporate and other entities by offering a
variety of risk management products like options, swaps and other aspects of financial
management in a multi currency scenario. Banks will play an active role in the
development of derivative products and will offer a variety of hedge products to the
corporate sector and other investors. or e$ample, #erivatives in emerging futures
market for commodities would be an area offering opportunities for banks. ,s the
integration of markets takes place internationally, sophistication in trading and
speciali+ed e$changes for commodities will e$pand. ,s these changes take place, banking
will play a ma-or role in providing financial support to such e$changes, facilitating
settlement systems and enabling wider participation.
Bancassurance is catching up and Banks L inancial Institutions have started entering
insurance business. rom mere offering of insurance products through network of bank
branches, the business is likely to e$pand through self2designed insurance products after
necessary legislative changes. This could lead to a spurt in fee2based income of the
banks.
&imilarly, Banks will look analytically into various processes and practices as these e$ist
today and may make appropriate changes therein to cut costs and delays. %utsourcing
and adoption of B(%s will become more and more relevant, especially when Banks go in
for larger volumes of retail business.wever, by increasing outsourcing of operations
through service providers, banks are making themselves vulnerable to problems faced by
these providers. Banks should therefore outsource only those functions that are not
strategic to banks’ business. or instance, in the wake of implementation of 01 days’
delin)uency norms for classification of assets, some banks may think of engaging
e$ternal agencies for recovery of their dues and in C(, management.
.;
Banks will take on competition in the front end and seek co2operation in the back end, as
in the case of networking of ,TMs. This type of "o3o#et-t-on will become the order of
the day as Banks seek to enlarge their customer base and at the same time to reali+e cost
reduction and greater efficiency.
TECHNOLOGY IN BAN)ING
Technology will bring fundamental shift in the functioning of banks. It would not only
help them bring improvements in their internal functioning but also enable them to
provide better customer service. Technology will break all boundaries and encourage
cross border banking business. Banks would have to undertake e$tensive Business
(rocess !e2"ngineering and tackle issues like a6 how best to deliver products and
services to customers b6 designing an appropriate organi+ational model to fully capture
the benefits of technology and business process changes brought about. c6 how to e$ploit
technology for deriving economies of scale and how to create cost efficiencies, and d6
how to create a customer 2 centric operation model.
"ntry of ,TMs has changed the profile of front offices in bank branches. Customers no
longer need to visit branches for their day to day banking transactions like cash deposits,
withdrawals, che)ue collection, balance en)uiry etc. "2banking and Internet banking
have opened new avenues in Jconvenience bankingK. Internet banking has also led to
reduction in transaction costs for banks to about a tenth of branch banking.
Technology solutions would make flow of information much faster, more accurate and
enable )uicker analysis of data received. This would make the decision making process
faster and more efficient. or the Banks, this would also enable development of appraisal
and monitoring tools which would make credit management much more effective. The
result would be a definite reduction in transaction costs, the benefits of which would be
shared between banks and customers.
.<
'hile application of technology would help banks reduce their operating costs in the
long run, the initial investments would be si+eable. 'ith greater use of technology
solutions, we e$pect IT spending of Indian banking system to go up significantly.
%ne area where the banking system can reduce the investment costs in technology
applications is by sharing of facilities. 'e are already seeing banks coming together to
share ,TM Cetworks. &imilarly, in the coming years, we e$pect to see banks and Is
coming together to share facilities in the area of payment and settlement, back office
processing, data warehousing, etc. 'hile dealing with technology, banks will have to
deal with attendant operational risks. This would be a critical area the Bank management
will have to deal with in future.
(ayment and &ettlement system is the backbone of any financial market place.
The present (ayment and &ettlement systems such as &tructured inancial Messaging
&ystem 5&M&6, Centralised unds Management &ystem 5CM&6, Centrali+ed unds
Transfer &ystem 5CT&6 and !eal Time ?ross &ettlement &ystem 5!T?&6 will undergo
further fine2tuning to meet international standards. Ceedless to add, necessary security
checks and controls will have to be in place. In this regard, Institutions such as I#!BT
will have a greater role to play.
.@
CHAPTER: 2
STRATEGIC ANALYSIS OF BAN)ING INDUSTRY
,+* PORTER5S FIVE FORCE ANALYSIS:
(rof. Michael (orter’s competitive forces Model applies to each and every company as
well as industry. This model with regards to the Banking Industry is presented belowI
.A
• R-4a2rD a$on% e0-!t-n% .-r$!
5.6
Potent-a2 Entrant! is
high as #evelopment
inancial Institutions
as well as (rivate and
foreign banks have
entered in a big way.
5*6
R-4a2rD a$on%
E0-!t-n% F-r$! has
increased with
liberali+ation. Cew
products and improved
customer services is
the focus.
596
Bar%a-n-n% Po/er o.
B&Der! is high as
corporate can raise
funds easily due to
high competition.
5;6
Or%an-:-n% Po/er o.
the S&##2-er is high.
'ith new financial
instruments they are
asking higher return
on investment.
5/6
Threat .ro$
S&b!t-t&te is high due
to competition from
CBCs 8 Insurance
companies as they
offer a higher rate of
interest than banks.
.0
'ith the process of liberali+ation, competition among the e$isting banks has increased.
"ach bank is coming up with new products to attract the customers and tailor made loans
are provided. The )uality of services provided by banks has improved drastically.
• Potent-a2 Entrant!
(reviously the #evelopment inancial Institutions mainly provided pro-ect finance and
development activities. But they have now entered into retail banking which has resulted
into stiff competition among the e$isting players
• Threat! .ro$ S&b!t-t&te!
Banks face threats from Con2Banking inancial Companies. CBCs offer a higher rate of
interest.
• Bar%a-n-n% Po/er o. B&Der!
Corporates can raise their funds through primary market or by issue of ?#!s, CCBs. ,s
a result they have a higher bargaining power. "ven in the case of personal finance, the
buyers have a higher bargaining power. This is mainly because of competition.
• Bar%a-n-n% #o/er o. S&##2-er!
'ith the advent of new financial instruments providing a higher rate of returns to the
investors, the investments in deposits is not growing in a phased manner. The suppliers
demand a higher return for the investments.
• O4era22 Ana2D!-!
The key issue is that how can banks leverage their strengths to have a better future. &ince
the availability of funds is more and deployment of funds is less, banks should evolve
new products and services to the customers. There should be rational thinking in
sanctioning loans, which will bring down the C(,s. ,s there is e$pected revival in the
Indian economy banks have a ma-or role to play. unding corporate at a low cost of
capital is a ma-or re)uisite.
/1
,+, S(OT ANALYSIS:
The banking sector is often taken as a pro$y for the economy as a whole. The
performance of bank should therefore, reflect JTrends in the Indian "conomyK. #ue to
the reforms in the financial sector, banking industry has changed drastically with the
opportunities to the work with, new accounting standards new entrants and information
technology. The deregulation of the interest rate, participation of banks in pro-ect
financing has changed in the environment of banks.
The performance of banking industry is done through &'%T ,nalysis. It mainly helps to
know the &trengths and 'eakness of the industry and to improve will be known through
converting the opportunities into strengths. It also helps for the competitive environment
among the banks.
STRENGTHS
*+ Greater !e"&r-t-e! o. F&n'!
Compared to other investment options banks since its inception has been a better avenue
in terms of securities. #ue to satisfactory implementation of !BI’s prudential norms
banks have won public confidence over several years.
,+ Ban-n% net/or
,fter nationali+ation, banks have e$panded their branches in the country, which has
helped banks build large networks in the rural and urban areas. (rivate banks allowed to
operate but they mainly concentrate in metropolis.
/*
7+ Lar%e C&!to$er Ba!e
This is mainly attributed to the large network of the banking system. #epositors in rural
areas prefer banks because of the failure of the CBCs
.
?+ Lo/ Co!t o. Ca#-ta2
Corporate prefers borrowing money from banks because of low cost of capital. Middle
income people who want money for personal financing can look to banks as they offer at
very low rates of interests. Consumer credit forms the ma-or source of financing by banks
(EA)NESSES
*+ Ba!e2 Co$$-ttee
The banks need to comply with the norms of Basel committee but before that it is
challenge for banks to implement the Basel committee standard, which are of
international standard.
,+ Po/er.&2 Un-on!
Cationali+ation of Banks had a positive outcome in helping the Indian "conomy as a
whole. But this has also proved detrimental in the form of strong unions, which have a
ma-or influence in decision making. They are against automation.
7+ Pr-or-tD Se"tor Len'-n%
To uplift the society, priority sector lending was brought in during nationali+ation. This is
good for the economy but banks have failed to manage the asset )uality and their
intensions were more towards fulfilling government norms. ,s a result lending was done
for non2productive purposes.
?+ H-%h Non3Per.or$-n% A!!et!
/.
Con2(erforming ,ssets 5C(,s6 have become a matter of concern in the banking industry.
This is because of change in the ,ccounting &tandards 5(rudential Corms6. Cet C(,s
increased to large e$tent of the total advances, which has to be reduced to meet the
international standards.
OPPORTUNITIES
*+ Un-4er!a2 Ban-n%
Banks have moved along the value chain to provide their customers more products and
services. or e$ampleI 2 &BI is into &BI home finance, &BI Capital Markets, &BI Bonds
etc.
,+ D-..erent-a2 Intere!t Rate!
,s !BI control over bank reduces, they will have greater fle$ibility to fi$ their own
interest rates which depends on the profitability of the banks.
7+ H-%h Ho&!eho2' Sa4-n%!
usehold savings have been increasing drastically. Investment in financial assets has
also increased. Banks should use this opportunity for raising funds.
?+ O4er!ea! Maret!
Banks should tap the overseas market, as the cost of capital is very low.
@+ Internet Ban-n%
The advances in information technology have made banking easier. Business transactions
can effectively carried out through internet banking.
//
THREATS
*+ NBFC!G Ca#-ta2 Maret! an' M&t&a2 .&n'!
There is a huge investment of household savings. The investments in CBCs deposits,
Capital Market Instruments and Mutual unds are increasing. Cormally these instruments
offer better returns to investors.
,+ Chan%e -n the Go4ern$ent Po2-"D
The change in the government policy has proved to be a threat to the banking sector.
7+ In.2at-on
The interest rates go down with a fall in inflation. Thus, the investors will shift his
investments to other profitable sectors.
?+ Re"e!!-on
#ue to the recession in the business cycle the economy functions poorly and this has
proved to be a threat to the banking sector. The market oriented economy and
globali+ation has resulted into competition for market share. The spread in the banking
sector is very narrow. To meet the competition the banks have to grow at a faster rate and
reduce the overheads. They can introduce new products and develop the e$isting services.
/9
,+7+ PEST ANALYSIS
POLITICALH LEGAL ENVIROMENT
?overnment and !BI policies affect the banking sector. &ometimes looking into the
political advantage of a particular party, the ?overnment declares some measures to their
benefits like waiver of short2term agricultural loans, to attract the farmer’s votes. By
doing so the profits of the bank get affected. =arious banks in the cooperative sector are
open and run by the politicians. They e$ploit these banks for their benefits. &ometimes
the government appoints various chairmen of the banks.
=arious policies are framed by the !BI looking at the present situation of the country for
better control over the banks
ECONOMICAL ENVIROMENT
Banking is as old as authentic history and the modern commercial banking are
traceable to ancient times. In India, banking has e$isted in one form or the other from
time to time. The present era in banking may be taken to have commenced with
establishment of bank of Bengal in *A10 under the government charter and with
government participation in share capital. ,llahabad bank was started in the year *A<;
and (un-ab national bank in *A0;, and thus, others followed
"very year !BI declares its < monthly policy and accordingly the various
measures and rates are implemented which has an impact on the banking sector. ,lso the
/;
3nion budget affects the banking sector to boost the economy by giving certain
concessions or facilities. If in the Budget savings are encouraged, then more deposits will
be attracted towards the banks and in turn they can lend more money to the agricultural
sector and industrial sector, therefore, booming the economy. If the #I limits are
rela$ed, then more #I are brought in India through banking channels.
SOCIAL ENVIROMENT
Before nationali+ation of the banks, their control was in the hands of the private
parties and only big business houses and the effluent sections of the society were getting
benefits of banking in India. In *0<0 government nationali+ed *9 banks. To adopt the
social development in the banking sector it was necessary for speedy economic progress,
consistent with social -ustice, in democratic political system, which is free from
domination of law, and in which opportunities are open to all. ,ccordingly, keeping in
mind both the national and social ob-ectives, bankers were given direction to help
economically weaker section of the society and also provide need2based finance to all the
sectors of the economy with fle$ible and liberal attitude. Cow the banks provide various
types of loans to farmers, working women, professionals, and traders. They also provide
education loan to the students and housing loans, consumer loans, etc.
Banks having big clients or big companies have to provide services like
personali+ed banking to their clients because these customers do not believe in running
about and waiting in )ueues for getting their work done. The bankers also have to provide
these customers with special provisions and at times with benefits like food and parties.
But the banks do not mind incurring these costs because of the kind of business these
clients bring for the bank.
Banks have changed the culture of human life in India and have made life much
easier for the people.
/<
TECHNOLOGICAL ENVIROMENT
Technology plays a very important role in bank’s internal control mechanisms as
well as services offered by them. It has in fact given new dimensions to the banks as well
as services that they cater to and the banks are enthusiastically adopting new
technological innovations for devising new products and services.
The latest developments in terms of technology in computer and
telecommunication have encouraged the bankers to change the concept of branch banking
to anywhere banking. The use of ,TM and Internet banking has allowed Fanytime,
anywhere banking’ facilities. ,utomatic voice recorders now answer simple )ueries,
currency accounting machines makes the -ob easier and self2service counters are now
encouraged. Credit card facility has encouraged an era of cashless society. Today
MasterCard and =isa card are the two most popular cards used world over. The banks
have now started issuing smartcards or debit cards to be used for making payments.
These are also called as electronic purse. &ome of the banks have also started home
banking through telecommunication facilities and computer technology by using
terminals installed at customers home and they can make the balance in)uiry, get the
statement of accounts, give instructions for fund transfers, etc. Through "C& we can
receive the dividends and interest directly to our account avoiding the delay or chance of
loosing the post.
Today banks are also using &M& and Internet as ma-or tool of promotions and
giving great utility to its customers. or e$ample &M& functions through simple te$t
messages sent from your mobile. The messages are then recogni+ed by the bank to
provide you with the re)uired information.
,ll these technological changes have forced the bankers to adopt customer2based
approach instead of product2based approach.
/@
CHAPTER: 3
CORPORATE BAN)ING: AN OVERVIE(
7+* INTRODUCTION:
,ccording to ,merican author and humorist Mark TwainI K, banker is a fellow who
lends his umbrella when the sun is shining and wants it back the minute it begins to rain.K
Many troubled businesses seeding credit in recent years might agree with Mr. Twain.
Indeed securing the large amounts of credit that many businesses re)uire can be a
complicated and challenging task loan re)uests. Moreover, business loans, often called
commercial and industrial loans, rank among the most important assets that commercial
banks and their closest competitors hold.
Corporate finance is an area of finance dealing with financial decisions business
enterprises make and the tools and analysis used to make these decisions. The primary
goal of corporate finance is to ma$imi+e corporate value
M*N
while managing the firm4s
financial risks. ,lthough it is in principle different from managerial finance which studies
the financial decisions of all firms, rather than corporations alone, the main concepts in
the study of corporate finance are applicable to the financial problems of all kinds of
firms.
The discipline can be divided into long2term and short2term decisions and techni)ues.
Capital investment decisions are long2term choices about which pro-ects receive
investment, whether to finance that investment with e)uity or debt, and when or whether
/A
to pay dividends to shareholders. %n the other hand, the short term decisions can be
grouped under the heading 7'orking capital management7. This sub-ect deals with the
short2term balance of current assets and current liabilitiesB the focus here is on managing
cash, inventories, and short2term borrowing and lending 5such as the terms on credit
e$tended to customers6.
The terms corporate finance and corporate financier are also associated with investment
banking. The typical role of an investment bank is to evaluate the company4s financial
needs and raise the appropriate type of capital that best fits those needs.
Corporate banking is a part of commercial banking but the part that average depositor
with deposits account never sees. It is a division of commercial banking which e$tends
the financial support to the corporate for helping them achieve their organi+ational goals
and ob-ectives. 'hile banks hold money and mortgages, lend money, e$tend or open up a
line of credit for the average depositors, it is business that needs ma-or financial services
to build plant, erect buildings, make structural improvements on old ones and start new
business ventures. This is one of the most competitive, risky and financially lucrative
areas of doing business in today’s world.
Commercial loans were the earliest form of lending banks did in their move than .111
year old history. Dater in the .1
th
century finance companies, insurance firms, and thrift
institutions entered the business lending field. Today loan officers skilled in evaluating
the credit of businesses are usually among the most e$perienced and highest paid people
in the financial services field, along with security underwriters.
,s a part of commercial banking, corporate banking is focused on analy+ing and
assessing the risk of the business, establishing the creditworthiness of the business and
trying to predict the likelihood of success or failure of business endeavour. These are the
professionals who help decide what business initiatives will be taken and when, whether
or not to e$pand the e$isting businesses, help develop new markets so that new clients
can be found and help develop new products for e2commerce, the internet and the
international markets.
/0
Corporate Banking represents the wide range of banking and financial services provided
to domestic and international operations of large local corporate and local operations of
multinationals corporations. &ervices include access to commercial banking products,
including working capital facilities such as domestic and international trade operations
and funding, channel financing, and overdrafts, as well as domestic and international
payments, IC! term loans 5including e$ternal commercial borrowings in foreign
currency6, letters of guarantee etc.
The Investment Banking and Markets division of various bank brings together the
advisory and financing, e)uity securities, asset management, treasury and capital markets,
and private e)uity activities to complete the CIBM structure and provide a complete
range of financial products to our clients. Increasingly, "C, financing is being
considered by customers and we work closely with our pro-ect e$port finance teams, both
onshore and offshore, to provide structured solutions.
The Corporate Bank in India was ranked .nd overall in the .119 ?reenwich &urvey.
This portfolio is largely spread within 0 sector teams divided as under I
• Consumer Brands
• Industrials
• "nergy and 3tilities
• Telecommunications
• ,utomotive
• :ealthcare
• Transport and Dogistics
• Metals and Mining
• Media
91
7+, STRUCTURE OF CREDIT LENDING 8CORPORATE9 IN
INDIA:
Banks, finance companies, and competing business lenders grant many different types of
commercial loans. ,mong the most widely used forms of business credit are the
followingI
SHORT3TERM BUSINESS LOANS:
? &elf2li)uidating inventory loans
? 'orking capital loans
? Interim construction financing
? &ecurity dealer financing
? !etailer and e)uipment financing
? ,sset2based loans 5accounts receivable financing, factoring, and inventory
financing6
? &yndicated loans
LONG3TERM BUSINESS LOANS:
? Term loans to support the purchase of e)uipment, rolling stock, and structures
? !evolving credit financing
? (ro-ect loans
? Doans to support ac)uisitions of others business firms
9*
SHORT3TERM LOANS TO BUSINESS FIRMS:
Se2.3L-I&-'at-n% In4entorD Loan!
:istorically, commercial banks have been the leaders in e$tending short term credit to
businesses. These loans were used to finance the purchase of inventory, raw materials or
finished goods to sell. In this case the term of the loan begins when cash in needed to
purchase inventory and ends when cash is available in the firm’s account to write the
lender a check for the balance of its loan.
(or-n% Ca#-ta2 Loan!
'orking capital loans provide businesses with short run credit, lasting from few days to
about one year. 'orking capital loans are most often used to fund the purchase of
inventories in order to put goods on shelves or to purchase raw materialsB thus, they come
closest to the traditional self2li)uidating loan described previously.
re)uently, the working capital loan is designed to cover seasonal peaks in the business
customer’s production levels and credit needs. Cormally, working capital loans are
secured by accounts receivable or by pledges of inventory and carry a floating interest
rate on the amounts actually borrowed against the approved credit line. , commitment
fee is charged on the unused portion of the credit line and sometimes on the entire
amount of funds made available.
Inter-$ Con!tr&"t-on F-nan"-n%
9.
, popular form of secured short term lending is the interim construction loan, used to
support the construction of homes, apartments, office buildings, shopping centers, and
other permanent structures. The finance is used while the construction is going on but
once the construction phase is over, this short term loan usually is paid off with a longer
term mortgage loan issued by another lender, such as insurance company of pension fund.
!ecently, some commercial banks have issued Fminipermanent’ loans, providing funding
for construction and the early operation of a pro-ect for as long as five to seven years.
Reta-2er an' EI&-#$ent F-nan"-n%
Banks support installment purchases of automobiles, appliances, furniture, business
e)uipment, and other durable goods by financing the receivables that dealers selling these
goods take on when they write installment contracts to cover customer purchases. In turn,
these contracts are reviewed by banks and other lending institutions with whom the
dealers have established credit relationships. If they meet acceptable credit standards, the
contracts are purchased by lenders at an interest rate that varies with the risk level of each
borrower, the )uality of collateral pledged, and the term of each loan.
A!!et3Ba!e' F-nan"-n%
,n increasing portion of short2term lending by banks and other lenders in recent years
has consisted of asset based loans, credit secured by the shorter term assets of a firm that
are e$pected to roll over into cash in the future. Eey business assets used for many of
these loans are accounts receivables and inventories of raw materials or finished goods.
The lender commits funs against a specific percentage of the book value of outstanding
credit accounts or against inventory.
In most loans collaterali+ed by accounts receivable and inventory, the borrowing firm
retains title to the assets pledged, but sometimes title is passed to the lender, which then
assumes the risk that some of those assets will not pay out as e$pected. The most
common e$ample of this arrangement is .a"tor-n%, where the bank actually takes on the
9/
responsibility of collecting the accounts receivable of one of its business customers. It
typically assesses a higher discount rate and lends a smaller fraction of the book value of
the customer’s accounts receivable because the lender incurs both additional e$pense and
additional risk with a factored loan.
SDn'-"ate' Loan
, type of large corporate loan that is increasingly used today is the syndicated loan. This
is typically a loan or loan package e$tended to a corporation by a group of banks and
other institutional lenders. These loans may be JdrawnK by the borrowing company, with
the funds used to support business operations or commercial e$pansion, or JundrawnK,
serving as lines of credit to back a security issue or other venture. Banks engage in
syndicated loans both to spread the heavy risk e$posures of these large loans, often
involving hundreds of lakhs or crore of rupees in credit for each loan, and to earn fee
income.
99
LONG3TERM LOANS TO BUSINESS FIRMS:
Ter$ B&!-ne!! Loan!
Term loans are designed to fund long and medium term business investments, such as the
purchase of e)uipment or the construction of physical facilities, covering a period longer
than one year. 3sually the borrowing firm applies for a lump sum loan based on the
budgeted cost of its proposed pro-ect and then pledges to repay the loan in a series of
installments.
Term loans normally are secured by fi$ed assets e.g. (lant and ")uipment owned by the
borrower and may carry either a fi$ed or a floating interest rate. That rate is normally
higher than on shorter term business loans due to the lender’s greater risk e$posure from
such loans.
Re4o24-n% Cre'-t F-nan"-n%
, revolving credit line allows a business customer to borrow up to a pre specified limit,
repay all or a portion of the borrowing, and re borrows as necessary until the credit line
matures. %ne of the most fle$ible of all the forms of business loans, revolving credit is
often granted without specific collateral to secure the loan and may be short term or caver
a period as long as three, four, or five years. This form of business financing is
particularly popular when the customer is highly uncertain about the timing of future cash
flows or about the e$act magnitude of the future borrowings needs.
Doan commitments are usually of two types namely,
*. ormal Doan Commitment, and
9;
.. Confirmed Credit Dine.
ormal Doan Commitment is a contractual promise to lend to a customer up to a
ma$imum amount of money at a set interest rate or rate markup over the prevailing base
loan rate. 'hereas, Confirmed Credit Dine is a looser form of loan commitment where
the banks indicate its approval of customer’s re)uest for credit in an emergency, though
the prices of such a credit line may not be set in advance and the customer may have little
intention to draw upon the credit line.
Lon%3Ter$ ProBe"t Loan!
The most risky of all business loans are pro-ect loans, credit to finance the construction of
fi$ed assets designed to generate a flow of revenue in future periods. (rominent e$amples
include oil refineries, pipelines, mines, power plants and harbor facilities. (ro-ect loans
are usually granted to several companies -ointly sponsoring a large pro-ect.
(ro-ect loans may be granted on a recourse basis, in which the lender can recover funds
from the sponsoring companies if the pro-ect does not pay out as planned. ,t the other
end, loan may be e$tended on a non recourse basis, in which no sponsor guaranteesB the
pro-ect stands or falls on its own merits. Many such loans re)uire that the pro-ectFs
sponsors pledge enough of their own capital to see the pro-ect through to completion.
9<
? Ter$ Loan H De.erre' PaD$ent G&arantee!
• In case of term loans and deferred payment guarantees, the pro-ect report is
obtained from the customer, who may have been compiled in2house or by a
firm or consultantsL merchant bankers.
• Term loan is provided to support capital e$penditures for setting up new
ventures as also for e$pansion, renovation etc.
• The technical feasibility and economic viability is vetted by the Bank and
wherever it is felt necessary.
• Banks normally e$pects at least .1G contribution of (romoter’s contribution.
But the promoter contribution may vary largely in mega pro-ects. Therefore,
there cannot be a definitive benchmark.
• The sanctioning authority will have the necessary discretion to permit
deviations.
9@
7+7 EMERGENCE OF CORPORATE BAN)ING IN INDIA
The bank lending has e$panded in a number of emerging market economies, especially in
,sia and Datin ,merica, in recent years. Bank credit to the private sector, in real terms,
was rising at a high rate. &everal factors have contributed to the significant rise in bank
lending in emerging economies such as strong growth, e$cess li)uidity in banking
systems reflecting easier global and domestic monetary conditions, and substantial bank
restructuring. The recent surge in bank lending has been associated with important
changes on the asset side of banksO balance sheet. irst, credit to the business sector 2
historically the most important component of banksO assets P has been weak, while the
share of the household sector has increased sharply in several countries. &econd, banksO
investments in ?overnment securities increased sharply until .11921;. ,s a result,
commercial banks continue to hold a very large part of their domestic assets in the form
of ?overnment securities 2 a process that seems to have begun in the mid2*001s.
There has been a sharp pick up in bank credit in India in recent years. The rate of growth
in bank credit which touched a low of *9.9 per cent in .11.21/, accelerated to more than
/1.1 per cent in .11921;, the rate which was maintained in .11;21<. The upturn in the
growth rate of bank credit can be attributed to several factors. %ne, macroeconomic
performance of the economy turned robust with ?#( growth rates hovering between @.;
per cent and A.; per cent during the last few years. Two, the hardening of sovereign yields
from the second half of .11/219 forced banks to read-ust their assets portfolio by shifting
from investments to advances. 'hile the share of gross advances in total assets of
commercial banks grew from 9;.1 per cent to ;9.@ per cent that of investments declined
from 9*.< per cent to /..* per cent in the last few years.
9A
wever, the credit growth has been broad2based making banks less vulnerable to credit
concentration risk. The declining trend of priority sector loans in .11*21. in the credit
book of banks was due to prudential write offs and compromise settlements of a large
number of small accounts which was reversed from .11.21/ on the strength of a spurt in
the housing loan portfolio of banks. "ven though credit to industry and other sectors have
also picked up, their share in total loans has declined marginally. !etail loans, which
witnessed a growth of over 91.1 per cent in .11921; and again in .11;21<, have been the
prime driver of the credit growth in recent years. !etail loans as a percentage of gross
advances increased from ...1 per cent in March .119 to .;.; per cent in March .11<.
The cyclical uptrend in the economy along with the concomitant recovery in the business
climate brings with it improved abilities of the debtors to service loans, thereby greatly
improving banks asset )uality. #espite the sharp rise in credit growth in recent years, not
only the proportional levels of gross non2performing loans 5C(Ds6 have declined, but the
absolute levels of gross C(Ds declined significantly. &everal factors have contributed to
the marked improvement in the Indian banksO asset )uality. %ne, banks have gradually
improved their risk management practices and introduced more vigorous systems and
scoring models for identifying credit risks. Two, a favourable macroeconomic
environment in recent years has also meant that many entities and units of traditionally
problematic industries are now performing better. Three, diversification of credit base
with increased focus on retail loans, which generally have low delin)uency rates, has also
contributed to the more favourable credit risk profile. our, several institutional measures
have been put in place to recover the C(,s. These include #ebt !ecovery Tribunals
5#!Ts6, Lok Adalats 5peopleOs courts6, ,sset !econstruction Companies 5,!Cs6 and
corporate debt restructuring mechanism 5C#!M6. In particular, the &ecuritisation and
!econstruction of inancial ,ssets and "nforcement of &ecurity Interest 5&,!,"&I6
,ct, .11. for enforcement of security interest without intervention of the courts has
provided more negotiating power to the banks for resolving bad debts.
90
;1
Se"tora2 De#2oD$ent o. Gro!! Ban Cre'-t
#uring .11A210 total deployment of gross bank credit increased to !s.*.A@,;*; crores
from !s.*,<0.;/< crores in .11A21@
Con2food bank credit increased sharply during .11;21<. The credit growth was broad
based. Credit to services 5including personal loans and other services6 increased by ;..A
per cent in .11;21<, accounting for ;A./ per cent of incremental non2food gross bank
credit 5C?BC6. (ersonal loans increased sharply in recent years mainly on account of
housing loans. !eal estate loans more than doubled. %ther personal loans such as credit
card outstanding and education loans also recorded sharp increases of ;0./ per cent and
0<.; per cent, respectively.
Pr-or-tD Se"tor A'4an"e!
Credit to the priority sector decreased to /9.* per cent in the previous year against /0.; in
.11A. In terms of revised guidelines on lending to priority sector , broad category of
advances under priority sector include agriculture, micro and small enterprises, retail
trade, micro2credit, education and housing.
The agriculture and housing sectors were the ma-or beneficiaries, which together
accounted for more than two2third of incremental priority sector lending. Credit to small
scale industries also accelerate. &everal favourable policy initiatives undertaken by the
Central ?overnment and the !eserve Bank including, inter alia, the policy package for
stepping up of credit to small and medium enterprises 5&M"s6 announced on ,ugust *1,
.11;, have had a positive impact. ,t the individual bank2level, all the nationalised banks,
and all but two of the &tate Bank group 5&tate Bank of India and &tate Bank of (atiala6
were able to meet the priority sector target of 91 per cent of CBC.wever, only ten
(&Bs 5,llahabad Bank, ,ndhra Bank, Bank of India, Indian Bank, Indian %verseas
Bank, (un-ab Cational Bank, &yndicate Bank, &tate Bank of Bikaner and >aipur, &tate
Bank of Indore and &tate Bank of &aurashtra6 were able to achieve the subtargets for
agriculture, while the sub2target for weaker sections was met by eight (&Bs 5,llahabad
;*
Bank, ,ndhra Bank, Bank of India, Indian Bank, Indian %verseas Bank, (un-ab Cational
Bank, &yndicate Bank and &tate Bank of (atiala6.
Dending to the priority sector by foreign banks constituted /9.< per cent of net bank
credit as on the last reporting riday of March .11<, which was well above the stipulated
target of /. per cent. The share of e$port credit in total netbank credit at *0.9 per cent
was significantly above the prescribed sub2target of *..1 per cent. oreign banks,
however, fell a little short of the sub2target of *1.1 per cent in respect of lending to &&Is.
S#e"-a2 A%r-"&2t&ra2 Cre'-t P2an!
The !eserve Bank had advised public sector banks to prepare &pecial ,gricultural Credit
(lans 5&,C(6 on an annual basis in *009. The &,C( mechanism for private sector banks
was made applicable from .11;21<, as recommended by the ,dvisory Committee on
low of Credit to ,griculture and !elated ,ctivities from the Banking &ystem
5ChairmanI(rof. =.&. =yas6 and announced in the Mid2term !eview of ,nnual (olicy for
.11921;. (ublic sector banks were advised to make efforts to increase their disbursements
to small and marginal farmers to 91.1 per cent of their direct advances under &,C( by
March .11@. The disbursement to agriculture under &,C( by public sector banks
aggregated !s.09,.@A crore during .11;21<, which was much above the target of
!s.A;,1.9 crore and the disbursement of !s.<;,.*A crore during .11921;. The
disbursement by private sector banks during .11;21< at !s./*,**0 crore was above the
target of !s..9,... crore. /..* (ublic sector banks were advised to earmark ;.1 per cent
of their net bank credit to women. ,t end2March .11<, aggregate credit to women by
public sector banks stood at ;./@ per cent of their net bank credit with .. banks achieving
the target. , consortium of select public sector banks was formed, with the &tate Bank of
India as the leader of the consortium, to provide credit to the Khadi and =illage Industries
Commission 5E=IC6. These loans are provided at *.; per cent below the average prime
lending rates of five ma-or banks in the consortium. ,n amount of !s./.. crore was
outstanding at end2>uly .11< out of !s.@/A crore disbursed by the consortium under the
scheme.
;.
M-"ro3.-nan"e
The !eserve Bank has been making consistent efforts to strengthen credit delivery,
improve customer service and encourage banks to provide banking services to all
segments of the population. #espite considerable e$pansion of the banking system in
India, large segments of the country’s population do not have access to banking services.
"$panding the outreach of banking services has, therefore, been a ma-or thrust area of the
policy of the ?overnment of India and the !eserve Bank in recent years.
The self2help group 5&:?62bank linkage programme has emerged as the ma-or micro2
finance programme in the country and is being implemented by commercial banks, !!Bs
and co2operative banks. ,s on March /*, .11A /.< million &:?s had outstanding bank
loans of !s.*@,111 crore, an increase of .; per cent over March /*, .11@ in respect of
number of &:?s credit linked. #uring .11@21A, banks financed *.. million &:?s for
!s.A,A90 crore. ,s at end2March .11A, &:?s had ; million savings accounts with banks
for !s./,@A; crore.
Reta-2 Cre'-t
Continuing the strong growth in recent years, retail advances increased by 91.0 per cent
to !s./,@;,@/0 crore in .11@21A, which was significantly higher than the overall credit
growth of /*.1 per cent. ,s a result, their share in total loans and advances increased
during the year. ,uto loans e$perienced the highest growth, followed by credit card
receivables, other personal loans 5comprising loans mainly to professionals and for
educational purposes6 and housing finance. Doans for consumer durables increased by
*@./ per cent as against the decline of /0.* per cent in the previous year.
Ma-or steps earlier taken by the !eserve Bank of India were somewhat more oriented
towards price stability and the related monitory instruments like the bank rate, reverse
repo rate, repo rate and C!! were ad-usted to rein in the price instability. Caturally, the
priority was inflation control for overall growth of the economy and we must
;/
congratulate the !BI for a wonderful -ob done. The inflation today is at a moderate level
and in line with a developed economy.'ith these steps taken by !BI, the latest scenario
is that the non2food credit growth got moderated, agricultural and service sector credit
went up but the retail credit growth actually took a beating due to northbound interest
rates.
&uch positive impact on inflation helped the economy for price stability and we feel what
is important for India now is to ensure that there is sufficient focus on growth of the
economy along with price stability.
Len'-n% to the Sen!-t-4e Se"tor!
Dending by &CBs to the sensitive sectors 5capital market, real estate and commodities6
increased sharply during .11;21< mainly on account of a sharp increase in e$posure to
the real estate market. Total e$posure of &CBs to the sensitive sectors consituted *A.0 per
cent of aggregate bank loans and advances 5comprising *@.. per cent to real estate, *.;
per cent to the capital market and 1./ per cent to the commodities sector6. #uring .11A2
.110 total lending to sensitive sector increased by *0.* percent in capital market.
,mong bank groups, new private sector banks had the highest e$posure to the sensitive
sectors 5measured as percentage to total loans and advances of banks6 mainly due to the
increase in e$posure to the real estate market, followed by foreign banks, old private
sector banks and public sector banks.
;9
MEASURES BY SIDBI
&I#BI has developed a Credit ,ppraisal 8 !ating Tool 5C,!T6 as well as a !isk
,ssessment Model 5!,M6 and a comprehensive rating model for risk assessment of
proposals for &M"s. The banks may consider to take advantage of these models as
appropriate and reduce their transaction costs.
.
(ublic &ector Banks are advised to follow a transparent rating system with cost of credit
being linked to the credit rating of the enterprise.
&I#BI in association with Credit Information Bureau 5India6 Dtd. 5CIBID6 e$pedited
setting up a credit rating agency.
&I#BI in association with Indian Banks’ ,ssociation 5IB,6 would collect and pool
common data on risk in each identified cluster and develop an IT2enabled application,
appraisal and monitoring system for small 5including tiny6 enterprises. This would help
reduce transaction cost as well as improve credit flow to small 5including tiny6 enterprises
in the clusters.
The Cational &mall Industries Corporation has introduced a Credit !ating &cheme for
encouraging &&I units to get themselves credit rated by reputed credit rating agencies.
(ublic &ector Banks will be advised to consider these ratings appropriately and as per
availability, and structure their rates suitably.
;;
ROADMAP BY RBI
The !eserve Bank of India 5!BI6 has worked out the roadmap for the Indian banks to
graduate from the simpler approaches of the Basel II framework to more advanced ones.
Basel II is the second among Basel ,ccords, which are primarily, recommendations on
banking laws and regulations issued by the Basel committee on banking supervision.
It sets up rigorous risk and capital management re)uirements aimed at ensuring that a
bank holds capital reserves appropriate to the risk it e$poses itself to through its lending
and investment practices.
&ince March .11A, foreign banks operating in India and Indian banks having presence
outside the country have migrated to simpler approaches under Basel II framework. %ther
commercial banks are re)uired to migrate to these norms by March /*, .110.
These include standardised approach for credit risk which arising from default by
borrowers, basic indicator approach for operational risk 5arising from day to operations of
the banks such robbery or power failure6 and standardised duration approach for market
risk 5arising from fluctuations in interest rate and share prices6 which affects the
investment and market portfolio of the banks.
In the framework, the !BI had earlier specified the date by which banks may file
application for approvals and the the likely date by which approvals can be obtained from
the central bank.
'hile banks have the discretion to adopt the advanced approaches, they need to seek
prior approval.
3nder market risk, banks may apply to !BI for graduating to more advanced method of
internal models approach 5IM,6 by ,pril *, .1*1 and then, !BI may approve it by March
/*, .1**. IM, sets out a framework for applying capital charges to the market risks 5both
on balance sheet and off2balance sheet6 incurred by banks by an internal model. The
;<
current standardised duration approach specifies a specific average duration of the banks
at large, which the banks follow and make it a basis for applying capital charges to only
open positions.
&imilarly, for operational risk, banks may graduate to standardised approach by ,pril *,
.1*1 and !BI can approve the plan by &eptember /1, .1*1. ,fter that, they can graduate
to advanced measurement approach for operational risk by ,pril *, .1** and get !BI
approval by March /*, .1*/.
'hile advanced measurement approach 5,M,6 sets the framework for banks to develop
their own empirical model to )uantify re)uired capital for operational risk, it can be used
after they get regulatory clearances.
3nder the standardised approach, a bank4s activities are divided into eight business linesI
corporate finance, trading and sales, retail banking, commercial banking , payment and
settlement, agency services, asset management and retail brokerage. 'ithin each business
line, gross income is a broad indicator for the scale of business operations and so, the
scale of operational risk e$posure within each of these business lines. The capital charge
for each business line is calculated by multiplying gross income by a factor .
Currently, banks are using the basic indicator approach as per which they must hold
capital for operational risk e)ual to the average over the previous three years of a fi$ed
percentage of positive annual gross income.
or credit risk, banks can use internal ratings2based approach which allows them to
develop their own model to estimate the probability of default for individual clients or
groups of clients. Currently, banks use standardised approach where they are re)uired to
use ratings from e$ternal credit rating agencies to )uantify the re)uired capital for credit
risk.
;@
CHAPTER: 4
CRM STRATEGIES FOR CORPORATE BAN)ING
?+* RAROC
!isk2,d-usted !eturn on Capital PP !,!%CPP is a measure of the e$pected return on
"conomic Capital over the life of an investment. This prospective measure of risk2
ad-usted profitability allows for apples2to2apples comparison of activities across risk
types of business.
!,!%C helps senior management ma$imi+e shareholder value by addressing strategic
business )uestions such asI
•w much capital is needed to support the company’s enterprise2wide risksQ
• Is the company over or under capitali+edQ
• ,re individual business units creating or destroying shareholder valueQ
'hat opportunities for growth or diversification e$ist within the companyQ
•w should the economics of the business be managed within regulatory and
rating agency capital constraintsQ
• 'hat is an optimal strategy for reinsuranceQ
!,!%C allows for both relative comparisons between business units and absolute
comparisons to shareholders’ minimum re)uired return on risk, or hurdle rate. , business
line is value2neutral if its !,!%C is e)ual to the hurdle rate. It creates value if its
!,!%C is higher than the hurdle rate and destroys value if it is lower.
;A
COMPUTATION
!,!%C is computed by dividing risk2ad-usted net income by the total amount of
economic capital assigned based on the risk calculation. !,!%C allocates a capital
charge to a transaction or a line of business at an amount e)ual to the ma$imum e$pected
loss 5at a 00G confidence level6 over one year on an after2ta$ basis. The higher the
volatility of the returns, the more capital is allocated. The higher capital allocation means
that the transaction has to generate cash flows large enough to offset the volatility of
returns, which results from the credit risk, market risk, and other risks taken. The
!,!%C process estimates the asset value that may prevail in the worst2case scenario and
then e)uates the capital cushion to be provided for the potential loss.
!,!%C is an improvement over the traditional approach in that it allows one to compare
two businesses with different risk 5volatility of returns6 profiles. , transaction may give a
higher return but at a higher risk. 3sing a hurdle rate 5e$pected rate of return6, a lender
can also use the !,!%C principle to set the target pricing on a relationship or a
transaction. ,lthough not all assets have market price distribution, !,!%C is a first step
toward e$amining an institution4s entire balance sheet on a mark2to2market basis 2 if only
to understand the risk2return trade2offs that have been made.
(hat -! RAROC J
Revenues
Expenses
Expected Losses
+ Return on
economic capital
+ transfer values /
prices
Capital required for
Credit Risk
Market Risk
Operational Risk
Risk Adjusted
Return
Risk Adjusted
Capital or Economic
Capital
RAROC
What is RAROC
!he concept of RAROC "Risk adjusted Return on Capital# is at the heart
of $nte%rated Risk Mana%ement&
;0
?+, RATING BASED METHODS:
Banks should have a comprehensive risk scoring / rating system that serves as a single point
indicator of diverse risk factors of a counterparty and for taking credit decisions in a
consistent manner. To facilitate this, a substantial degree of standardization is required in
ratings across borrowers. The risk rating system should be designed to reveal the overall risk
of lending, critical input for setting pricing and non-price terms of loans as also present
meaningful information for review and management of loan portfolio. The risk rating, in
short, should reflect the underlying credit risk of the loan book. The rating exercise should
also facilitate the credit granting authorities some comfort in its knowledge of loan quality at
any moment of time.
The risk rating system should be drawn up in a structured manner, incorporating, inter
alia, financial analysis, projections and sensitivity, industrial and management risks. The
banks may use any number of financial ratios and operational parameters and collaterals as
also qualitative aspects of management and industry characteristics that have bearings on the
creditworthiness of borrowers. Banks can also weigh the ratios on the basis of the years to
which they represent for giving importance to near term developments. Within the rating
framework, banks can also prescribe certain level of standards or critical parameters, beyond
which no proposals should be entertained. Banks may also consider separate rating
framework for large corporate / small borrowers, traders, etc. that exhibit varying nature and
degree of risk. Forex exposures assumed by corporates who have no natural hedges have
significantly altered the risk profile of banks. Banks should, therefore, factor the unhedged
market risk exposures of borrowers also in the rating framework. The overall score for risk is
to be placed on a numerical scale ranging between 1-6, 1-8, etc. on the basis of credit quality.
For each numerical category, a quantitative definition of the borrower, the loan’s underlying
quality, and an analytic representation of the underlying financials of the borrower should be
presented. Further, as a prudent risk management policy, each bank should prescribe the
minimum rating below which no exposures would be undertaken. Any flexibility in the
minimum standards and conditions for relaxation and authority therefore should be clearly
articulated in the Loan Policy.
<1
The credit risk assessment exercise should be repeated biannually (or even at shorter
intervals for low quality customers) and should be delinked invariably from the regular
renewal exercise. The updating of the credit ratings should be undertaken normally at
quarterly intervals or at least at half-yearly intervals, in order to gauge the quality of the
portfolio at periodic intervals. Variations in the ratings of borrowers over time indicate
changes in credit quality and expected loan losses from the credit portfolio. Thus, if the rating
system is to be meaningful, the credit quality reports should signal changes in expected loan
losses. In order to ensure the consistency and accuracy of internal ratings, the responsibility
for setting or confirming such ratings should vest with the Loan Review function and
examined by an independent Loan Review Group. The banks should undertake
comprehensive study on migration (upward – lower to higher and downward – higher to
lower) of borrowers in the ratings to add accuracy in expected loan loss calculations.
Va2&e At R-!
The VaR method is employed to assess potential loss that could crystalise on trading
position or portfolio due to variations in market interest rates and prices, using a given
confidence level, usually 95% to 99%, within a defined period of time. The VaR method
should incorporate the market factors against which the market value of the trading position
is exposed. The top management should put in place bank-wide VaR exposure limits to the
trading portfolio (including forex and gold positions, derivative products, etc.) which is then
disaggregated across different desks and departments. The loss making tolerance level should
also be stipulated to ensure that potential impact on earnings is managed within acceptable
limits. The potential loss in Present Value Basis Points should be matched by the Middle
Office on a daily basis vis-à-vis the prudential limits set by the Board. The advantage of
using VaR is that it is comparable across products, desks and Departments and it can be
validated through ‘back testing’. However, VaR models require the use of extensive
historical data to estimate future volatility. VaR model also may not give good results in
extreme volatile conditions or outlier events and stress test has to be employed to
complement VaR. The stress tests provide management a view on the potential impact of
large size market movements and also attempt to estimate the size of potential losses due to
<*
stress events, which occur in the ’tails’ of the loss distribution. Banks may also undertake
scenario analysis with specific possible stress situations (recently experienced in some
countries) by linking hypothetical, simultaneous and related changes in multiple risk factors
present in the trading portfolio to determine the impact of moves on the rest of the portfolio.
VaR models could also be modified to reflect liquidity risk differences observed across assets
over time. International banks are now estimating Liquidity adjusted Value at Risk (LaVaR)
by assuming variable time horizons based on position size and relative turnover. In an
environment where VaR is difficult to estimate for lack of data, non-statistical concepts such
as stop loss and gross/net positions can be used.
<.
</
?+7 INSPECTION METHODOLGY
The supervision of commercial banks and financial institutions is vested in the !eserve
Bank in terms of the provisions of the Banking !egulation ,ct, *090 and the !eserve
Bank of India ,ct, *0/9. This task is carried out by the #epartment of Banking
&upervision 5#B&6 under the guidance of the B&. The basic ob-ective of supervision of
banks is to assess the solvency, li)uidity and operational health of banks. The onsite
inspection of banks referred to as ,nnual inancial Inspection 5,I6 is conducted
annually 5e$cept in the case of &tate Bank of India in which case it is done once in two
years6. or this purpose, the unit of inspection is the :ead %ffice 5:%6 of the bank. ,
team of Inspecting %fficers from the !eserve Bank led by the (rincipal Inspecting
%fficer 5(I%6 visits the bank and conducts the inspection based on the internationally
adopted C,M"D 5Capital ,de)uacy, ,sset Ruality, Management, "arnings, Di)uidity6
model, modified as C,M"D& 5& for &ystems and Control6 to suit the needs of the Indian
banking system. The focus of the ,I in recent years has been on supervisory issues
relating to securitisation, business continuity plan, disclosure re)uirements and
compliance with other e$isting guidelines. In order to have an overall perspective, units
of the bank throughout the country are also taken up for inspection either by the same
team inspecting the :% or by additional teams from the !egional %ffices 5!%6 of the
!eserve Bank. These units could be treasury operations, specialised branches and
controlling offices in general, where there may be concerns relating mainly to frauds,
C(,s and e$posure to sensitive sectors. Ma-or findings of these other unit inspections are
incorporated in the !eport. The timeframe for carrying out the inspection of the corporate
:% of the bank is two to three months. The inspection report is generally finalised
within four months. %n completion of the inspection, the !% of the !eserve Bank,
under whose -urisdiction the :% of the bank is situated, issues the inspection report to the
bank for perusal, corrective action and compliance. urther, a detailed discussion on the
findings of the inspection and the road ahead is conducted by the !eserve Bank with the
C"%LCM# and other senior functionaries of the bank and a monitorable action plan is
decided andLor supervisory action is taken, wherever warranted. The findings recorded in
the inspection report along with the responses of the C"%LCM# of the bank are placed
<9
before the B&. Based on the findings of the inspection and other inputs, a supervisory
rating is assigned to the bank. "fforts are afoot to move to a risk based supervision 5!B&6
approach, which envisages the monitoring of banks by allocating supervisory resources
and focusing supervisory attention depending on the risk profile of each institution.
The process involves continuous monitoring and evaluation of the appropriateness of the
risk management system in the supervised institution in relation to its business strategy
and e$posures, with a view to assessing its riskiness.
<;
?+? RIS) MANAGEMENT IN BAN)S
!isk is inherent in any commercial activity and banking is no e$ception to this rule.
!ising global competition, increasing deregulation, introduction of innovative products
and delivery channels have pushed risk management to the forefront of today’s financial
landscape. Ab-2-tD to %a&%e the r-!! an' tae a##ro#r-ate #o!-t-on /-22 be the eD to
!&""e!!+ It "an be !a-' that risk takers ill s!r"i"e# e$$ecti"e risk %anagers ill
prosper and risk a"erse are likely to perish+ In the regulated banking environment,
banks had to primarily deal with credit or default risk. ,s we move into a perfect market
economy, we have to deal with a whole range of market related risks like e$change risks,
interest rate risk, etc. %perational risk, which had always e$isted in the system, would
become more pronounced in the coming days as we have technology as a new factor in
today’s banking. Traditional risk management techni)ues become obsolete with the
growth of derivatives and off2balance sheet operations, coupled with diversifications.
The e$pansion in "2banking will lead to continuous vigilance and revisions of
regulations.
Building up a proper risk management structure would be crucial for the banks in the
future. Banks would find the need to develop technology based risk management tools.
The comple$ mathematical models programmed into risk engines would provide the
foundation of limit management, risk analysis, computation of risk2ad-usted return on
capital and active management of banks’ risk portfolio. Measurement of risk e$posure is
essential for implementing hedging strategies.
3nder Basel II accord, capital allocation will be based on the risk inherent in the asset.
The implementation of Basel II accord will also strengthen the regulatory review process
and, with passage of time, the review process will be more and more sophisticated.
Besides regulatory re)uirements, capital allocation would also be determined by the
market forces. "$ternal users of financial information will demand better inputs to
make investment decisions. More detailed and more fre)uent reporting of risk positions
to banks’ shareholders will be the order of the day. There will be an increase in the
<<
growth of consulting services such as data providers, risk advisory bureaus and risk
reviewers. These reviews will be intended to provide comfort to the bank managements
and regulators as to the soundness of internal risk management systems.
!isk management functions will be fully centrali+ed and independent from the business
profit centres. The risk management process will be fully integrated into the business
process. !isk return will be assessed for new business opportunities and incorporated
into the designs of the new products. ,ll risks P credit, market and operational and so on
will be combined, reported and managed on an integrated basis. The demand for !isk
,d-usted !eturns on Capital 5!,!%C6 based performance measures will increase.
!,!%C will be used to drive pricing, performance measurement, portfolio management
and capital management.
!isk management has to trickle down from the Corporate %ffice to branches or operating
units. ,s the audit and supervision shifts to a risk based approach rather than transaction
orientation, the risk awareness levels of line functionaries also will have to increase.
Technology related risks will be another area where the operating staff will have to be
more vigilant in the coming days.
Banks will also have to deal with issues relating to !eputational !isk as they will need to
maintain a high degree of public confidence for raising capital and other resources. !isks
to reputation could arise on account of operational lapses, opa)ueness in operations and
shortcomings in services. &ystems and internal controls would be crucial to ensure that
this risk is managed well.
The legal environment is likely to be more comple$ in the years to come. Innovative
financial products implemented on computers, new risk management software, user
interfaces etc., may become patentable. or some banks, this could offer the potential for
reali+ing commercial gains through licensing.
<@
,dvances in risk management 5risk measurement6 will lead to transformation in capital
and balance sheet management. #ynamic economic capital management will be a
powerful competitive weapon. The challenge will be to put all these capabilities together
to create, sustain and ma$imise shareholders’ wealth. The bank of the future has to be a
total2risk2enabled enterprise, which addresses the concerns of various stakeholders’
effectively.
!isk management is an area the banks can gain by cooperation and sharing of e$perience
among themselves. Common facilities could be considered for development of risk
measurement and mitigation tools and also for training of staff at various levels.
Ceedless to add, with the establishment of best risk management systems and
implementation of prudential norms of accounting and asset classification, the )uality of
assets in commercial banks will improve on the one hand and at the same time, there will
be ade)uate cover through provisioning for impaired loans. ,s a result, the C(, levels
are e$pected to come down significantly.
<A
CHAPTER: &
AN OVERVIE( OF PUNJAB NATIONAL BAN) LTD
@+* PNB PROFILE
'ith over /A million satisfied customers and 9<<A offices, (CB has continued to
retain its leadership position among the nationali+ed banks. The bank en-oys
strong fundamentals, large franchise value and good brand image. Besides being
ranked as one of India4s top service brands, (CB has remained fully committed to
its guiding principles of sound and prudent banking. ,part from offering banking
products, the bank has also entered the credit card 8 debit card businessB bullion
businessB life and non2life insurance businessB ?old coins 8 asset management
business, etc.
&ince its humble beginning in *A0; with the distinction of being the first Indian
bank to have been started with Indian capital, (CB has achieved significant
growth in business which at the end of March .110 amounted to !s /,<9,9</
crore. Today, with assets of more than !s .,9<,011 crore, (CB is ranked as the
/rd largest bank in the country 5after &BI and ICICI Bank6 and has the .nd largest
network of branches 59<<A including ./A e$tension counters and / overseas
offices6.#uring the S .11A210, with /0G share of low cost deposits, the bank
achieved a net profit of !s /,10* crore, maintaining its number %C" position
amongst nationali+ed banks. Bank has a strong capital base with capital ade)uacy
ratio as per Basel II at *9.1/G with Tier I and Tier II capital ratio at A.0AG and
;.1;G respectively as on March’10. ,s on March’10, the Bank has the ?ross and
Cet C(, ratio of only *.@@G and 1.*@G respectively. #uring the S .11A210, its’
ratio of priority sector credit to ad-usted net bank credit at 9*.;/G 8 agriculture
credit to ad-usted net bank credit at *[email protected] was also higher than the respective
national goals of 91G 8 *AG.
<0
(CB has always looked at technology as a key facilitator to provide better
customer service and ensured that its FIT strategy’ follows the FBusiness strategy’
so as to arrive at JBest itK. The bank has made rapid strides in this direction.
,longwith the achievement of *11G branch computeri+ation, one of the ma-or
achievements of the Bank is covering all the branches of the Bank under Core
Banking &olution 5CB&6, thus covering *11G of it’s business and providing
F,nytime ,nywhere’ banking facility to all customers including customers of
more than .111 rural branches. The bank has also been offering Internet banking
services to the customers of CB& branches like booking of tickets, payment of
bills of utilities, purchase of airline tickets etc.Towards developing a cost effective
alternative channels of delivery, the bank with more than .*;1 ,TMs has the
largest ,TM network amongst Cationalised Banks.
'ith the help of advanced technology, the Bank has been a frontrunner in the
industry so far as the initiatives for inancial Inclusion is concerned. 'ith it’s
policy of inclusive growth in the Indo2?angetic belt, the Bank’s mission is
JBanking for 3nbankedK. The Bank has launched a drive for biometric smart card
based technology enabled inancial Inclusion with the help of Business
CorrespondentsLBusiness acilitators 5BCLB6 so as to reach out to the last mile
customer. The BCLB will address the outreach issue while technology will
provide cost effective and transparent services. The Bank has started several
innovative initiatives for marginal groups like rickshaw pullers, vegetable
vendors, diary farmers, construction workers, etc. The Bank has already achieved
*11G financial inclusion in .*,91A villages.
Backed by strong domestic performance, the bank is planning to reali+e its global
aspirations. In order to increase its international presence, the Bank continues its
selective foray in international markets with presence inngkong, #ubai,
Ea+akhstan, 3E, &hanghai, &ingapore, Eabul and Corway. , second branch in
@1
ngkong at Eowloon was opened in the first week of ,pril’10. Bank is also in
the process of establishing its presence in China, Bhutan, #IC #ubai, Canada
and &ingapore. The bank also has a -oint venture with "verest Bank Dtd. 5"BD6,
Cepal. 3nder the long term vision, Bank proposes to start its operation in i-i
Island, ,ustralia and Indonesia. Bank continues with its goal to become a
household brand with global e$pertise.
,mongst Top *111 Banks in the 'orld, FThe Banker’ listed (CB at .;1th place.
urther, (CB is at the **<<th position among 9A Indian firms making it to a list of
the world’s biggest companies compiled by the 3& maga+ine Forbes’.
Cew #elhi, >an ;I The #elhi2based (un-ab Cational Bank 5(CB6 has received the
necessary approvals for patenting its rating model 22 (CB Trac 22 for its entire
category of lending. The loans with e$posure of above !s .1 lakh have been rated
individually, while loans with e$posure under !s .1 lakh have been rated
segment2wise on portfolio basis as per the terms of Basel II accord. This means
that the bank would be able to do credit ratings on its own for its lendings.
In terms of rating, (CB already has data for default rates for the last five years.
7The results of the e$ercise are e$tremely satisfactory,7 BM Mittal, chief general
manager, (CB, said, when contacted.
The default rates and migration matri$ are comparable to that of leading credit
international rating agencies such as &tandard 8 (oor4s, Moody4s, itch and with
international benchmarks. The default rates are also within the limits given in
Basel2II. Mittal added that the bank is fully e)uipped to implement the stringent
norms. 7Though the deadline for the Basel II norms implementation has been
e$tended by !eserve Bank of India, (CB is ready to come up with the parallel
run,7 he added.
@*
F-nan"-a2 Per.or$an"e:
(un-ab Cational Bank continues to maintain its frontline position in the Indian banking
industry. In particular, the bank has retained its C3MB"! %C" position among the
nationali+ed banks in terms of number of branches, #eposit, ,dvances, total Business,
operating and net profit in the year .11A210. The impressive operational and financial
performance has been brought about by Bank’s focus on customer based business with
thrust on &M", ,griculture, more inclusive approach to bankingB better asset liability
managementB improved margin management, thrust on recovery and increased efficiency
in core operations of the Bank.
The performance highlights of the bank in terms of business and profit are shown belowI
T!espective figure for the corresponding financial year
(arameters Mar41@ Mar41A Mar410 C,?!
%perating (rofitT /<*@ 911< ;@99 .<.1.
Cet (rofitT *;91 .190 /10* 9*.<@
#eposit */0A<1 *<<9;@ .10@<1 ...9@
,dvance 0<;0@ **0;1. *;9@1/ .<.;;
Total Business ./<9;< .A;0;0 /<99</ .9.*;
5!s.Crores6
ORGANIKATIONAL STRUCTURE OF
@.
PUNJAB NATIONAL BAN)
Hea' O..-"e
C-r"2e O..-"e!
8@=9
Bran"he! 8?,L<9
@+, CORPORATE BAN)ING AT PNB
(CB has introduced a new scheme for property owners having their property situated in
MetroL3rbanL &emi 3rbanLrural centres and who have let out such properties.
@/
E2-%-b-2-tD
(roperty %wners having their properties situated in metro, urban, semi2urban and rural
areas who have leased out such properties to the followingI
5i6 (ublic &ector 3ndertakings L ?ovt. L &emi L &tate ?ovt. 8 reputed
corporates, Banks, inancial Institutions, Insurance Companies and
Multinational Companies.
5ii6 !eputed private schoolsLcolleges 5approved byLaffiliated to &tate
BoardL3niversityL ,ICT"L any other govt. body6.
5iii6 !eputed private hospitalsL nursing homes.
Nat&re M E0tent o. 2oan
Re$a-n-n% #er-o' o. the 2ea!e N&ant&$ o. Loan
8Ma0-$&$ &#to .o22o/-n% Oa%e o. the
@9
.&t&re 2ea!e renta2! re"e-4ab2e .or
&ne0#-re' #er-o' o. 2ea!e9
3pto / years A1
Beyond / years 8 upto ; years @1
Beyond ; years 8 3pto @ years <;
Beyond @ years 8 3pto *1 years ;;
TBranches while financing under the scheme should ensure that the T#&, wherever
applicable have been taken into account.
Se"&r-tD
,ssignment of lease rentals.
")uitable mortgage of the leased property or any other immovable propertyI2
• In case of loans having repayment period upto ; years, the amount of loan should
not e$ceed the value of the property mortgaged.
• In case of loans having repayment period beyond ; years, the amount of loan
should not e$ceed @;G of the value of the property mortgaged.
In "a!e o. Co$#anD 3 Per!ona2 G&arantee o. #ro$oter '-re"tor!.
? !ate of interest
@;
? !epayment
Ma$imum *.1 monthly installments or remaining period of lease whichever is
less.
? (rocessing ee
1.@1G of the loan amount U &ervice Ta$ 8 "ducation Cess
? #ocumentation Charges
!s..@1L2 upto !s.. Dac U &ervice Ta$ 8 "ducation Cess
!s.9;1L2 over !s.. Dac U &ervice Ta$ 8 "ducation Cess
? "$im inance
Ser4-"e! o..ere' to E0#orter!
? (re2shipment finance in foreign currency and Indian rupees
? (ost2shipment finance in foreign currency and Indian rupees
? :andling e$port bills on collection basis
? %utward remittances for purposes as permitted under "$change Control
guidelines
? Inward remittances including advance payments
? Ruoting of competitive rates for transactions
? Maintenance of "$change "arners oreign Currency 5""C6 accounts
@<
? ,ssistance in obtaining credit reports on overseas parties
? orfeiting for medium term e$port receivables
Ser4-"e! o..ere' to I$#orter!
? "stablishment of Import Detters of Credit covering import into India and handling
of bills under Detter of Credit
? :andling of import bills on collection basis
? !emittance of advance payment against imports
? %ffering utilisation of (CC 5 pre2shipment credit in foreign currency6 for
imports
? Credit reports on overseas suppliers
"$change "arners oreign Currency 5""C6 #eposits &cheme
The "$change "arners oreign Currency 5""C6 #eposits &cheme was started by !BI in
the year *00. with the introduction of Diberalised "$change !ate Management &ystem.
3nder this scheme, the recipient of inward remittances, e$porters and other eligible
bodies are allowed to keep a portion of their inward remittances L e$port proceeds in
foreign currency with the banks in India which can later be utilised for permissible
purposes.
@@
(CB sets up connectivity with the Customs #eptt. for the benefit of e$portersLimportersI
To provide efficient service to our importerLe$porter clients, (CB has set up connectivity
with the Customs #epartment to facilitate payment of custom duty and receipt of duty
draw back by the importerLe$porter clients through the electronic media. 3nder this
system of "lectronic #ata Interchange 5"#I6, Custom ,uthorities process the shipping
bills and also effect on line payment of duty draw back for e$porters. urther, they
undertake processing of Bill of "ntry and deposit of custom duty for imports. This is a
pilot pro-ect in the country successfully implemented at Indira ?andhi International
,irport, Customuse branch of (CB. This has now been replicated at (CB4s e$tension
counters at Inland Container #epot, Tughlakabad, #elhi and (atpar ?an-, #elhi.
LOANS TO MANUFACTURING INDUSTRIES
To set up &&I units, for purchase of fi$ed assets and meeting working
capital needs.
@A
(3!(%&"
• or ac)uisition of fi$ed assets 5plant, machinery, land, building,
tools, etc.6.
• or working capital re)uirements within the ceiling limits of !s /
lakh L !s ; lakh as the case may be.
"DI?IBIDITS %! IC,CCIC? &&I
Technically )ualified entrepreneurs and L or those having ade)uate technical
practical e$perience in a particular field of technology.
M,!?IC
or Term Doan
5i6 3pto !s . lakh Cil
5ii6 ,bove !s . lakh 3pto !s / lakh *1G
5iii6 ,bove !s / lakh 3pto !s 9 lakh *;G
5iv6 ,bove !s 9 lakh 3pto !s ; lakh .1G
,M%3CT % D%,C
Ma$imum !s / lakh in case of individuals and !s ; lakh in case of
partnership firms or -oint stock companies. 5In case of ancillary unit or
industry with -oint financing of & L Bank higher assistance of !s ; lakh for
individual and !s *1 lakh for groups6.
!"(,SM"CT
; to @ years for term loan including moratorium period.
C%DD,T"!,D &"C3!ITS
Co collateral security for loans upto !s ; lakh. or loans in e$cess of !s ;
lakh and upto !s .; lakh no collateral security re)uired, if the unit is having
good track record 8 financial position. In other cases collateral security or
third party guarantee is asked only in cases where primary security is
inade)uate or for other valid reasons and not as a matter of routine.
D%C,TI%C % (!%>"CT
(referably the unit should be set up in an industrial estate where there is
provision for suitable accommodation with the re)uisite facilities such as
water, power, transport and communication. (ro-ect set up in industrial
areas, +ones or sites specifically declared as undeveloped by the &tate
@0
?overnment, concerned agencies L departments will be considered.
The re)uired accommodation should, as far as possible, be ac)uired on
rental or hire2purchase basis. This will ensure that the investment in fi$ed
assets is made for purchase of the re)uired machinery and e)uipment,
thereby enabling the entrepreneurs to make the best use of our financial
assistance.
CHAPTER: '
AN OVERVIE( OF ICICI BAN) LTD
L+* ICICI PROFILE
ICICI Bank is India4s second2largest bank with total assets of about !s. * trillion and a
network of about ;91 branches and offices and over *,111 ,TMs. ICICI Bank offers a
wide range of banking products and financial services to corporate and retail customers
through a variety of delivery channels and through its speciali+ed subsidiaries and
affiliates in the areas of investment banking, life and non2Banking , venture capital, asset
management and information technology. ICICI Bank4s e)uity shares are listed in India
on stock e$changes at Chennai, Mu+affarnagar, Eolkata and =adodara, the &tock
"$change, Mumbai and the Cational &tock "$change of India Dimited and its ,merican
#epositary !eceipts 5,#!s6 are listed on the Cew Sork &tock "$change 5CS&"6.
A1
ICICI Bank was originally promoted in *009 by ICICI Dimited, an Indian financial
institution, and was its wholly owned subsidiary. ICICI4s shareholding in ICICI Bank was
reduced to 9<G through a public offering of shares in India in fiscal *00A, an e)uity
offering in the form of ,#!s listed on the CS&" in fiscal .111, ICICI Bank4s ac)uisition
of Bank of Madura Dimited in an all2stock amalgamation in fiscal .11*, and secondary
market sales by ICICI to institutional investors in fiscal .11* and fiscal .11.. ICICI was
formed in *0;; at the initiative of the 'orld Bank, the ?overnment of India and
representatives of Indian industry. The principal ob-ective was to create a development
financial institution for providing medium2term and long2term pro-ect financing to Indian
businesses. In the *001s, ICICI transformed its business from a development financial
institution offering only pro-ect finance to a diversified financial services group offering a
wide variety of products and services, both directly and through a number of subsidiaries
and affiliates like ICICI Bank. In *000, ICICI become the first Indian company and the
first bank or financial institution from non2>apan ,sia to be listed on the CS&".
,fter consideration of various corporate structuring alternatives in the conte$t of the
emerging competitive scenario in the Indian banking industry, and the move towards
universal banking, the managements of ICICI and ICICI Bank formed the view that the
merger of ICICI with ICICI Bank would be the optimal strategic alternative for both
entities, and would create the optimal legal structure for the ICICI group4s universal
banking strategy. The merger would enhance value for ICICI shareholders through the
merged entity4s access to low2cost deposits, greater opportunities for earning fee2based
income and the ability to participate in the payments system and provide transaction2
banking services. The merger would enhance value for ICICI Bank shareholders through
a large capital base and scale of operations, seamless access to ICICI4s strong corporate
relationships built up over five decades, entry into new business segments, higher market
share in various business segments, particularly fee2based services, and access to the vast
talent pool of ICICI and its subsidiaries. In %ctober .11*, the Boards of #irectors of
ICICI and ICICI Bank approved the merger of ICICI and two of its wholly owned retail
A*
finances subsidiaries, ICICI (ersonal inancial &ervices Dimited and ICICI Capital
&ervices Dimited, with ICICI Bank. The merger was approved by shareholders of ICICI
and ICICI Bank in >anuary .11., by the :igh Court of ?u-arat at ,hmedabad in March
.11., and by the :igh Court of >udicature at Mumbai and the !eserve Bank of India in
,pril .11.. Conse)uent to the merger, the ICICI group4s financing and banking
operations, both wholesale and retail, have been integrated in a single entity.
L+, CORPORATE BAN)ING AT ICICI BAN)
E!"ro/ A""o&nt
,t ICICI Bank, we e$tend the trust you have in us by providing you with escrow services
for safe custody of assets or for revenue streams. These services are customised to meet
your needs. &ome of the escrow services offered are in relation to the followingI
• (ro-ect financing
• #ebt repayments
• &ale purchase transactions
• Mergers and ac)uisitions
Feat&re!
• &pecialised and dedicated services
• !isk reduction in new relationships
A.
• &ecurity towards contingencies
• Mandatory in certain transactions
Bene.-t!
• &implified documentation
• Customised transaction structure
• %nline tracking of your escrow account
F-0e' De#o!-t
Corporates can invest their surplus funds in fi$ed deposits for a wide range of tenures.
The minimum deposit amount is !s.*1,111. %ther features of the account areI
unding through a debit to the operative accountLche)ue for clearing
'hile interest is compounded )uarterly, payment of interest is )uarterly, monthly or on
maturity
Interest payouts can be through credit to your account or through banker4s che)ue
Bene.-t!
• 'ide range of tenures
• Choice of investment plans
• (artial withdrawal permitted
• ,vailability of auto2renewal facility
Str&"t&re' F-nan"e
In the &tructured inance space, our approach is totally client2centric. 'e believe that
every problem is uni)ue and therefore we endeavour to develop and offer the widest
range of solutions tailored to address specific re)uirements of each client. &ervices
offered areI
A/
• Str&"t&re' .-nan"e .or Cor#orate "2-ent!
The &tructured inance ?roup aims to enable its corporate clients access funds through
cost efficient structures. The group4s strength lies in its e$perience and e$pertise in
providing tailor2made solutions after understanding the client4s re)uirements.
To deliver these customi+ed structures, it leverages on ICICI Bank4s global presence,
industry e$pertise, large underwriting capability and comprehensive product suite. &trong
capabilities in end2to2end solutions and timely e$ecution have enabled ICICI Bank to
become one of the leading arrangers and underwriters of structured finance transactions.
The &tructured inance ?roup provides an array of services to its clients includingI
• ,c)uisition finance
• ,sset2backed finance
• !eceivables purchase
• &ubordinated debt
• Convertibles L :ybrid instruments
• Con2recourse structures
In4e!t$ent o##ort&n-t-e! -n !e"&r-t-:e' 'ebt -n!tr&$ent!
'e offer a plethora of investment opportunities in !e"&r-t-!e' 'ebt -n!tr&$ent! 8SDI!9
involving both Pa!!3Thro&%h and PaD3Thro&%h structures whichI
• offer a premium in yield to corporate debt instruments having similar risk profiles
• are customi+able to meet both )uantum and tenor re)uirements of the investors
• have well2diversified risk profiles
• could be customi+ed 5using different levels of credit protection6 to meet the
specific risk appetites of the investors
• could be offered as collateral by the investors at a later date for additional
leveraging
A9
or clients desirous of growth through the inorganic route, we can structure solutions
around sale of specific asset category5ies6 as per the clients4 needs.
urther, we could also structure solutions for clients desirous of getting involved in
market making or investing at specific points in time through structuring of appropriate
(ut %ptions.
Se"&r-t-:at-on M !tr&"t&re' .-nan"e a'4-!orD !o2&t-on!
'e help structure !e22-n% or b&D-n% o. a!!et #ort.o2-o! 5in whole or in part6 for clients
through securitisation or otherwise, thereby effectively limiting their e$posures to future
risks arising out of such asset pools. 'e can even offer to buy such identified asset pools
from clients if the commercials suit the Bank4s risk2return appetite.
Being involved in more than *11 securitisation transactions till date, we can provide
advice to clients for !tr&"t&r-n% !e"&r-t-!at-on tran!a"t-on efficiently. 'e have the
distinction of structuring and placing some of the largest securitisation transactions in the
Indian market including the !o2-tarD transaction which e0"ee'e' USD *+>> b-22-on in
si+e.
Traditionally Corporate borrowing has been on the basis of strength or weakness of
balance sheet, with the credit )uality of the borrower being the single most important
factor. But of late the borrowings are being closely linked to the value of the asset or the
revenue earning capability of the asset. This could be achieved by means of appropriate
A;
structuring wherein customi+ed borrowing propositions could be evolved for different
business.
, few e$amples of such structured financing could entail evolving solutions around
dealer financing, vendor financing, transporter financing, brand financing, "$port 8
(acking Credit 5"(C6 contract financing, investment monetisation, etc.
Deveraging on our rich e$perience and wide reach in the Indian debt markets, we can
provide arran%-n% !er4-"e! for clients interested in securitising their assets.
Being a &"BI registered Category 2 I merchant banker, we can provide &n'er/r-t-n%
!er4-"e! for securitisation transactions originated by clients.
'e can also provide #rote"t-on to the "2-ent .ro$ -ntere!t rate H "&rren"D r-!! for
their structured finance e$posures through interest rate swaps, currency swaps and
associated derivatives.
'e can also #ro4-'e #rote"t-on to the "2-ent .ro$ "re'-t r-!! for their structured
finance e$posures by tailoring suitable credit protection offerings.
'e can also participate in $aret $a-n% or investing at specific points in time through
structuring of appropriate P&t O#t-on!.
Dea2er .-nan"-n%
#ealers of large corporates can be provided finance which can be either with a limited
recourse 5on a first loss basis6 to the corporate or based on the creditworthiness of the
dealer and its relationship with the manufacturer. Bill discounting L 'eb2based financing
withLwithout recourse, Cash credit L #emand loan facilities, inancing for auto dealers,
could be some of the e$amples in this space.
A<
Ven'or .-nan"-n%
=endor financing can be structured as a direct line of credit to the vendors specifically to
be used for supplies to the company or as a revolving line for discounting bills raised by
the vendors on the company. The former can be integrated into the Internet banking
model of ICICI Bank and a web2based vendor financing structure can be created. The
web2based structure would offer the company the convenience of operating the credit line
of the vendors for making payments through the net immediately after accepting goods.
=endor financing programs can be set up for specific vendors recommended by the
company. Through the widespread branch network of ICICI Bank, the program can
include vendors at multiple locations.
Tran!#orter .-nan"-n%
This is a product designed to finance the truck operators who are dedicated transport
service providers to a company. The truck operators are typically small players and hence
have limited sources for raising funds. It is likely that the vehicles used by them have
been financed at a high cost which they would indirectly be passed on to the company in
the form of increased freight rates. , financing facility could be set up for the truck
operators with some support from the corporates they serve, which could be used for
refinancing their e$isting vehicles or could be used for e$pansion of their fleet in line
with the company4s growth re)uirements.
Bran' .-nan"-n%
Borrowings could be structured against security of specific brand5s6 or a sale and lease
back of the brand5s6. Borrowers could even be financed to fund purchase of a brand. In
the first option, the brand would be mortgaged in the name of the lender and only in the
event of default of the loan would the brand be transferred to the lender. The lender could
alternatively purchase the brand from the borrowing company and lease L license it out to
the same entity. ,fter e$piry of the lease L license period the brand could either revert to
the company or be sold to someone else. In the second option, the loan could be given to
A@
the company e$clusively for purchasing the brandLs which would then be mortgaged in
the name of the lender.
In4e!t$ent $onet-:at-on
This is a product designed to cater to the re)uirement of the business groups to streamline
the cross2holdings within their own group companies. , Trust could be set up to ac)uire
the intra2group cross holdings from the various companies in the group at current market
prices. To fund this, the Trust would issue (ass2through Certificates 5(TCs6 to the lender.
The take2out could be through a put option provided by the identified holding company
of the group wherein the lender could sell the (TCs to the put option provider at a pre2
determined price on a fi$ed date. The deal could be secured through a pledge of shares.
ProBe"t F-nan"e Gro&#
ICICI Bank (ro-ect inance ?roup 5(?6 has developed comprehensive domain
e$pertise and knowledge in the infrastructure 8 manufacturing sector, having ensured
timely financial closure of several big ticket pro-ects. (? has unmatched capabilities of
discovering, creating and structuring pro-ect finance transactions.
Gro&# !tr&"t&re
(? is the J%ne &top &hopK fulfilling the funding re)uirements of ?reenfield 8
Brownfield pro-ects in infrastructure 8 manufacturing sector. It comprises of three sub2
groups as followsI
• Infrastructure inance ?roup 5I?6I I? caters to the funding re)uirement in the
infrastructure sector like (ower, Telecom, !oads, (orts, ,irports, !ailways and
3rban infrastructure.
• Manufacturing (ro-ects group 5M(?6I M(? caters to the funding re)uirement in
the manufacturing sector like %il 8 ?as, &teel, ,luminium, Cement, ,uto, and
Mining
AA
• Infrastructure ")uity ?roup 5I"?6I I"? is engaged in providing e)uity support to
pro-ects in various established as well as upcoming sectors.
The pro-ect finance team of ICICI Bank has developed substantial insight in the
dynamics and trends in the infrastructure sector, having assisted the ?overnment of India
in formulating policies relating to various segments of the infrastructure sector. The
uni)ue insight and understanding thus derived from the e$ercise has not only enabled
ICICI Bank to provide optimum solutions to its clients, but has also provided ICICI Bank
with an appropriate decision support for strategic measures, going forward.
Ser4-"e o..er-n%!
(? provide a wide range of services including the followingI
• !upee term loans
• oreign currency term loans
• "$ternal Commercial Borrowings
• &ubordinated debt and me++anine financing
• "$port Credit ,gency backed funding
• Con fund based facilities like Detter of Credit, Bank ?uarantee, &upplier’s Credit,
Buyer’s Credit etc.
• ")uity funding
Te"hno2o%D F-nan"e
The Technology inance ?roup 5T?6 of ICICI Bank implements various programmes
for international agencies such as 'orld Bank and 3&,I#. The programmes currently
running are designed to help the industry and institutions undertake collaborative !8#
and technology development pro-ects. These programmes focus on the following sectorsI
• BiotechnologyL :ealthcare
A0
• "lectrical
• "lectronics 8 communication
• "nergy
• "nvironment
• Materials
• ManufacturingL Control technologies
• inancialL &ecurity services
The core group handling these programmes assists pro-ects, which introduce new
concepts, products, and processes that will have a positive impact on the industry and
help in improving competitiveness and operational efficiencies.
The programmes being implemented areI
Te"hno2o%D De4e2o#$ent an' Co$$er"-a2-:at-on 8TDC9 #ro%ra$$e
The ob-ective of this programme is to facilitate technology development,
commercialisation and strengthen Indo23& technology collaboration. Till date, the
Technology inance ?roup has assisted .0 pro-ects. (rivate sector companies which
would like to commerciali+e innovative concepts, products and processes in the areas of
energy, environment 8 healthcare are eligible for concessional !upee Term Doans up to a
ma$imum of ;1G of the pro-ect cost. The repayment is structured as per pro-ect and
programme re)uirements.
G&-'e2-ne! .or F-nan"-a2 A!!-!tan"e
01
The pro-ect is evaluated in terms of innovative content, likely impact on industry and
Indo23& linkages. The company is re)uested to submit a pro-ect profile covering the
following informationI
• Brief particulars of the company
• (ro-ect title
• #escription of e$isting facilities
• Current development activities
• (roposed commercialisation pro-ect
• Innovative content of the pro-ect in terms of comparison with current methods and
aim of pro-ect in )uantitative terms
• Ma-or stepsL activities involved in proposed ""L"&C%L#&M pro-ect
• Brief on product L processes to be developed
• Brief particulars of the work already carried out
• #etails on Indo23& technology collaboration 5if any6
• Cost of pro-ect with breakup and proposed means of financing
• &chedule of implementation
• Business plan for commercialisation
• #etails on market si+e, demandLsupply drivers, etc.
The programme is currently under renewal
The ob-ective of this programme is to stimulate technology development through private
investment in !8# and strengthen industry 8 technology institution 5TI6 collaboration.
The companies eligible for availing these facilities should be from the private sector
undertaking !8# in collaboration with TI.
Fo22o/-n% are the e2-%-b2e !e"tor!
• BiotechnologyL :ealthcare
• "lectrical
• "lectronics 8 communication
• "nergy
• "nvironment
0*
• Materials
• ManufacturingL Control technologies
• inancialL &ecurity services
The facilities include concessional !upee Term Doans of up to ;1G of the eligible pro-ect
cost. The repayment is structured as per pro-ect and programme re)uirements. Till date
the &(!",# has assisted *.1 pro-ects.
?uidelines for inancial ,ssistanceI To avail the facilities, the companies are re)uested to
submit a pro-ect profile covering the following informationI
• (ro-ect title
• Brief particulars of the company
• #escription of e$isting facilities
• Current !8# activities
• (roposed !8# pro-ect
• Collaborating technology institution
• Brief on product L processes to be developed
• Innovative content of the pro-ect in terms of comparison with current practice and
aim of pro-ect in )uantitative terms
• Ma-or steps L activities involved in proposed !8#
• Break2up of activities to be taken up by the company and by the Technology
Institution
• Brief particulars of the work already carried out
• Cost of pro-ect with breakup and proposed means of financing
• &chedule of implementation
• Business plan for commercialisation
• #etails on market si+e, demandLsupply drivers, etc.
The pro-ect is evaluated in terms of
• Innovative content 8 likely impact
• Contribution from the technology institution
0.
• Commercial potential.
DOCUMENTS
(lease return the form along with the following documents
*. irmLCompany profile
.. Dist of ; ma-or suppliers and customers including contact person and contact no
/. Constitution documents
9. ,udited financial statements of last / years along with IT return and ta$ audit report
and schedules and notes to accounts
;. Bank statement of the last < months
<. IT (,C card of concern 5entity6 and all (romoters L #irectors L (artners
@. (rovisional Balance &heet and (LD aLc of ...............2................... as certified by
proprietor L partner L director
(ro-ected Balance &heet and (LD aLc of ....,...........2................... as certified by proprietor L
partner L director
A. (roprietor4s L (artner4sL#irectors personal IT! and Balance &heet of last * year 2 C,
certifiedLsigned by individual
0. Current performance 5 (LD 8 Balance &heet 6 from ,pril ........................,.... to till date
*1. =,T assessment order or sales ta$ registration certificate or shop 8 establishment or
=,T return
or Dimited Co.
**. Datest list of #irectors
*.. orm noI /. and shareholding pattern or annual return
or (artnership
*/. !egistration certificate in case of partnershipLapplication for registration
(roperty papers 5for loan against collaterals6
*9. Title deed
*;. Completion certificate 8 occupancy certificate
*<. Ta$ receipts 8 sanction plan
0/
,dditional documents for loan against credit card securitisation
*@. C, certified last *. months credit card sales of Master 8 =isa only 5e$cluding
#inners 8 ,me$6
If applicable
*A. Doan no of ICICI Bank loans 5if any6
*0. Datest * year audited financials of sister concern 5If any6
.1. ,greement with principal 5if any6 2 ,pplicable to distributorsLsole selling
agentsLfranchisee etc.
.*. "$isting Banks sanctions letter 5if applicable6.
... ,ny other document as re)uired and deemed fit.
CHAPTER: (
AN OVERVIE( OF BLISS PHARMA LTD
<+* PHARMA INDUSTRY
The Indian pharmaceutical industry is a success story providing employment for millions
and ensuring that essential drugs at affordable prices are available to the vast population
of this sub-continent.”
R-"har' Ger!ter
09
The In'-an Phar$a"e&t-"a2 In'&!trD today is in the front rank of India’s science2based
industries with wide ranging capabilities in the comple$ field of drug manufacture and
technology. , highly organi+ed sector, the Indian (harma Industry is estimated to be
worth V 9.; billion, growing at about A to 0 percent annually. It ranks very high in the
third world, in terms of technology, )uality and range of medicines manufactured. rom
simple headache pills to sophisticated antibiotics and comple$ cardiac compounds,
almost every type of medicine is now made indigenously.
(laying a key role in promoting and sustaining development in the vital field of
medicines, In'-an Phar$a In'&!trD boasts of )uality producers and many units
approved by regulatory authorities in 3&, and 3E. International companies associated
with this sector have stimulated, assisted and spearheaded this dynamic development in
the past ;/ years and helped to put India on the pharmaceutical map of the world.
The Indian (harmaceutical sector is highly fragmented with more than .1,111 registered
units. It has e$panded drastically in the last two decades. The leading .;1 pharmaceutical
companies control @1G of the market with market leader holding nearly @G of the market
share. It is an e$tremely fragmented market with severe price competition.
The pharmaceutical industry in India meets around @1G of the country4s demand for bulk
drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules,
orals and in-ectibles. There are about .;1 large units and about A111 &mall &cale 3nits,
which form the core of the pharmaceutical industry in India 5including ; Central (ublic
&ector 3nits6. These units produce the complete range of pharmaceutical formulations,
i.e., medicines ready for consumption by patients and about /;1 bulk drugs, i.e.,
chemicals having therapeutic value and used for production of pharmaceutical
formulations.
ollowing the de2licensing of the pharmaceutical industry, industrial licensing for most of
the drugs and pharmaceutical products has been done away with. Manufacturers are free
to produce any drug duly approved by the #rug Control ,uthority. Technologically
0;
strong and totally self2reliant, the pharmaceutical industry in India has low costs of
production, low !8# costs, innovative scientific manpower, strength of national
laboratories and an increasing balance of trade. The (harmaceutical Industry, with its rich
scientific talents and research capabilities, supported by Intellectual (roperty (rotection
regime is well set to take on the international market.
<+, CASE FACTS
<+,+*+ COMPANY PROFILE
B2-!! G4! Phar$a L-$-te' was incorporated on **th #ecember, *0A9 as (ublic Dimited
Company. It is listed on Bombay and #elhi &tock "$change. The Manufacturing (lant is
located at (alghar 5appro$imately 01 kms from Bombay6 in an industrial area which is
well developed with all infra2structural facilities. The plant is *.; kms. from (alghar
!ailway &tation on the 'estern !ailway. The company4s most uni)ue product is 4Today4
0<
=aginal Contraceptive, a safe female contraceptive aimed at furthering planned
parenthood and is also an established method for preventing conception
Bliss ?vs (harma Dimited was incorporated on **
th
#ecember, *0A9 as (ublic Dimited
Company. It is listed on Bombay and #elhi &tock "$change. The Manufacturing (lant is
located at (alghar 5appro$imately 01 kms from Bombay6 in an industrial area which is
well developed with all infra2structural facilities. The plant is *.; kms. from (alghar
!ailway &tation on the 'estern !ailway. The company4s most uni)ue product is 4Today4
=aginal Contraceptive, a safe female contraceptive aimed at furthering planned
parenthood and is also an established method for preventing conception.
Bliss ?vs (harma Dimited has the most modern plant to manufacture emale
Contraceptives, &oft (essaries and &uppositories. Its most popular product is 4Today4
=aginal Contraceptive pessaries containing Cono$ynol 0. Bliss also manufactures to 3.&.
specification vaginal pessaries of Clotrima+ole 8 (ovidone Iodine in addition to ,nal
&uppositories for treatment of (iles.
BDI&& complies with all norms laid down by ood 8 #rug ,dministration for
manufacture of its products and maintains high International ?M( standards.
BDI&& also manufactures wide range of (essary ormulations, &uppository
ormulations, Calcium (reparation, (rotein (owders, Iron (reparation, ,ntibiotics,
,nalgesic 8 ,ntipyretics, !espiratory, ,nti2inflammatory, #ermatological (reparations,
,nti2#iarrhoeal products.
<+,+,+ LOCATION
It is a sophisticated automatic plant situated at (alghar 5appro$. 01 kms away from
Mumbai City6 in an Industrial area which is well2developed with all Infra2structural
facilities. This site is around *.; kms away from (alghar !ailway &tation on the 'estern
!ailway and is well2connected by !oad and !ail to most parts of the country, including
Mumbai.
The plant aims to be as the most modern and one of its kinds in Indian sub2continent, to
manufacture suppositories. Complete overhaul and annual maintenance has kept the plant
in e$cellent condition and fully operational with minimum down time. &pares and
0@
consumables are maintained at proper levels to prevent unnecessary delays and the
company has made efforts to employ a )ualified Maintenance "ngineer since production
should not be hampered in any way.
<+,+7+ A(ARDS AND ACCOLADES
Bliss ?=& (harma receives award from (harme$il
In recognition of commendable performance in e$ports of pharmaceuticals Bliss ?=&
(harma has announced that the company has received an ,ward from (harme$cil,
%utstanding "$port (erformance ,ward in the recognition of commendable performance
in the e$ports of pharmaceuticals in the category of &mall &cale Industries for the year
.11A2.110.
<+,+?+ PRODUCTS
Ant-$a2ar-a2
A2a0-n G4-ther P3A2a0-n
G!&nate Lonart
Ana2 S&##o!-tor-e!
Re"to2 Poro0-"a$ Para.en
Vo$-t-n S2-#-:e$ Ano$e0
Pro"h2o#era:-ne Con2a0 1ta"D
Me2o0-"a$ Re"t"-n G2D"er-n
0A
Va%-na2 Pe!!ar-e!
I$a2e G4%D2 Ter"ona2e
Va%-' G4%D2 3 N C2-n'e$D"-n
Po4-' H Ge4-' B2-!!.a!t H GDnan.ort )2o4-na2
M-"o2e B2-!!no0 H (e22%Dna0
E"o2e Va%--t
Genera2
Lo.na" Co$-t K-n4-te
F&nba"t3A A"e"2o.ena" G&'a#et
G4.2&" C2a$o0-n Gba"t-n
91
<+7 FINANCIAL DATA
B,D,CC" &:""T ,& ,T /*&T M,!C: .110
5!s. In crores6
Balance sheet
Mar ' 09 Mar ' 08
Sources of funds
Owner's fund
Equity share capital 10.1 !."#
Share application $oney % %
&reference share capital % %
'eser(es ) surplus 8*.+ ##."
,oan funds
Secured loans +."1 1+.+
-nsecured loans % %
.otal 99.9 *".1
00
-ses of funds
/i0ed assets
1ross 2loc3 ".# +1.
,ess 4 re(aluation reser(e % %
,ess 4 accu$ulated depreciation 10.1* !.!
5et 2loc3 +".! 1".*
Capital wor3%in%pro6ress 0.1 0.0"
7n(est$ents % %
5et current assets
Current assets8 loans )
ad(ances
10+.#! 9+.*#
,ess 4 current lia2ilities )
pro(isions
+*.1+ .9
.otal net current assets *#."" #9.*
Miscellaneous e0penses not
written
% %
.otal 99.9 *".1
*11
&rofit loss account
Mar ' 09 Mar ' 08
7nco$e
Operatin6 inco$e 1+.9! 10+."
E0penses
Material consu$ed !9.8" "".#9
Manufacturin6 e0penses +." +.09
&ersonnel e0penses +.!" +
Sellin6 e0penses !.*1 ".#8
9d$instrati(e e0penses 1+.0 *.#
E0penses capitalised % %
Cost of sales 9.!# !0.!+
Operatin6 profit 9.1 "1.**
Other recurrin6 inco$e 0.19 0.09
9d:usted &B;7. 9."9 "1.8!
/inancial e0penses +.+! 1.8
;epreciation .#9 +.9
Other write offs % %
9d:usted &B. .!" *.##
.a0 char6es +.** 1.+*
9d:usted &9. 0.8* !.+8
5on recurrin6 ite$s !.*1 %1.1!
*1*
Other non cash ad:ust$ents %0.0 0.98
'eported net profit *.## !.09
Earni6s 2efore appropriation *.1" 9.01
Equity di(idend 1.## 0.!#
&reference di(idend % %
;i(idend ta0 0.+! 0.11
'etained earnin6s *1. 8.+#
CHAPTER: )
Ca!e !t&'D ana2D!-!
=+*+ ICICI RATING MODEL
ICICI Bank’s corporate banking strategy is based on providing customi+ed financial
solutions to clients, tailored to meet their specific re)uirements. The corporate banking
strategy focuses on careful management of credit risk and ade)uate return on risk capital
through risk2based pricing and proactive portfolio management, rapid growth in fee2
based services and e$tensive use of technology to deliver high levels of customer
satisfaction in a cost effective manner.
F-nan"-a2 #er.or$an"e
anufacturing Ma$. &core Co.&core
(arameter !ange &core 'eight
TurnoverLtotal
income
WX @;1 mn ; 9G ; .1 .1
;;1 to @;1 mn 9
911 to ;;1 mn /
.;1 to 911 mn .
*11 to .;1 mn *
Y*11 mn 1
Turnover ?rowth WX*;G ; .G ; *1 *1
*.G to *;G 9
*1.
0G to *.G /
<G to 0G .
/G to <G *
Y/G 1
%perating margin
5(B#ITLT%IG6
WX*AG ; ;G ; .; .;
*<G to *AG 9
*/G to *<G /
*1G to */G .
<G to *1G *
Y<G 1
Interest coverage
ratio
WX; times ; .G ; *1 *1
9 to ; times 9
/ to 9 times /
. to / times .
*.; to . times *
Y*.; times 1
Total debt to net
cash accruals
YX9 ; 9G ; .1 .1
9 to < 9
< to @ /
@ to A .
A to *1 *
W*1 1
#ebtors collection
period
YX<1 days ; /G . *; <
<1 to 01 9
01 to *.1 /
*.1 to *;1 .
*;1 to *A1 *
W*A1 days 1
Cetworth WX.11 mn ; .G ; *1 *1
*;1 to .11 mn 9
*11 to *;1 mn /
;1 to *11 mn .
/1 to ;1 mn *
Y/1 mn 1
T%DLTC' YX* ; ;G * .; ;
* to *..; 9
*..; to *.; /
*.; to *.@; .
*.@; to ..; *
W..; 1
Current ratio WX*.@; times ; 9G ; .1 .1
*.// to *.@; 9
*..; to *.// /
*1/
*.*; to *..; .
* to *.*; *
Y* 1
Inventory to
turnover ratio
YX/1 days ; .G 1 *1 1
/1 to 9; 9
9; to <1 /
<1 to @; .
@; to 01 *
W01 days 1
Co. of years
(rofitable
More than *1
years
; <G / /1 *A
Minimum *1
years
9
Minimum A
years
/
Minimum ;
years
.
Minimum .
years
*
Dess than .
years
1
(,T 5G6 WX<G ; .G ; *1 *1
;G to <G 9
9G to ;G /
/G to 9G .
.G to /G *
Y.G 1
Total 9*G 9< .1; *;9
B&!-ne!! !e%$ent an' $aret #o!-t-on
(arameter !ange &core 'eight Ma$.
&core
Co,4s
&core
Industry (ositive ; <G
*19
5Classification given in
,nne$ure 6
Moderately
positive
9
&table / / 5crisil
site6
/1 *A
Moderately
negative
*
Cegative 1
Contracts in hand L
confirmed ordersL
assured off take
WX91G of last
year4s turnover
; ;G / .; *;
/1G to 91G of
last year4s
turnover
9
.1G to /1G of
last year4s
turnover
/
*1G to .1G of
last year4s
turnover
.
1G to *1G of
last year4s
turnover
*
Co contracts L
confirmed
orders
1
Bargaining power :igh ; ;G .; *;
Moderate / /
Dow *
Cil 1
(roduct range 'ide ; 9G .1 *;
Ciche / /
Dimited *
&ingle 1
Co. of large customers
contributing to W;G of
turnover6
; ; /G / *; 0
9 9
/ /
. .
* *
1 1
Dength of association
with large customers
WX ; years ; /G ; *; *;
/ to ; years 9
. to / years /
*1;
* to . years .
< months to *
year
*
Y < months 1
G of turnover from
large customers
/1G to ;1G of
turnover
; /G
between .1G to
/1G or ;1G to
<1G
9 9 *; *.
between *;G to
.1G or <1G to
@1G
/
between *1Gto
*;G or @1G to
A1G
.
between ;Gto
*1G or A1G to
01G
*
Y;G or W01G 1
Total .0G .9 *9; 00
Parameter Range Scor
e
Weigh
t
Max
score
Cos.scor
e
Business vintage (years) 0 – 10 3
' (' ('
*1<
Persona! net"orth o# $romoters
(Rs. in mn)
0 – %0 3
Constitution o# the entity Pu&!ic !imite'
com$any
% 3
' (' ('
Private !imite'
com$any
(
Registere'
$artnershi$ )rm
3
*nregistere'
$artnershi$
)rm+,*-
.
So!e $ro$rietorshi$
concern
1
/ra'e re#erence+ Mar0et
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1
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**1
=+,+ PNB CREDIT RATING MODEL
Bank has developed online comprehensive risk rating system that serves as a single point
indicator of diverse risk factors of counter2party and for taking credit decisions in a
consistent manner. The risk rating system is drawn up in a structured manner,
incorporating different factors such as borrower’s specific characteristics, industry
specific characteristics etc. Bank is also undertaking periodic validation e$ercise of its
rating models and also conducting migration and default rate analysis to test robustness
of its rating models.
5a$e of 2orrower 4 Bliss &har$a ,td
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1rade 999 99 9 BB B C D
CREDIT RIS) RATING A
=+7+ COMPARATIVE ANALYSIS
? ICICI model is divided into five parameters vi+ (romotersL management, business
and market position, financial performance, transaction history and collateral and
**@
each parameter is divided in various sub parameters while (CB model is divided
in four parameters vi+ financials, businessLindustry, management, conduct of
account and each parameter is relatively divided in less number of sub parameters
compared to ICICI bank
? Collateral securities are not considered by (CB whereas these parameters are
included in ICICI model. (CB bank should consider collateral securities of a
company while evaluating and rating company as collateral securities are
important to -udge company’s soundness.
? Transaction history of a company is considered by ICICI in detail as compared to
(CB model. ICICI bank considers various sub parameters under transaction
history like che)ue bouncing, DC devolvement and utili+ation of fund based limits
that are lacking in (CB bank.
? ICICI bank focuses on company’s relationship with customer in detail as it is
important to measure stability of a company and demand of its products and
services in market whereas (CB does not consider company’s relations with
customer.
? (ersonal networth of promoters and their fle$ibility is considered by ICICI bank
whereas (CB bank does not consider.
? ICICI model gives weightage along with score whereas in (CB model only scores
are given to each parameter. In ICICI credit rating model separate score and
weightage is given to all sub parameters along with parameters
? Bliss pharma scores @@.A and category 2 B as per ICICI model whereas it scores
<<.<@ and category 2 , as per (CB model
**A
? In case if total e$posure of an individual borrower e$ceeds ma$imum e$posure
according to scorecard special approval is needed as per ICICI model whereas
there is no such limit in (CB model
**0
CHAPTER *
;+* RECOMMENDATIONS TO PNB
? (CB bank should consider personal net worth of promoters, promoters financial
fle$ibility and their payment records with other banks, financial institutions,
creditors and non financial institutions while rating a company to evaluate
efficiency of a company and its repayment abilities.
? (CB bank should conduct in depth study of a company vi+ it should consider
customers of a company and transaction history in detail to -udge its stability in
market.
? ,s (CB bank ignores weightage of each parameters, scores loses its relevance.
Bank should consider weightage for each parameter along with each sub
parameter.
? (CB bank should include ma$imum e$posure limit in its credit rating model to be
very specific and clear.
*.1
;+, RECOMMENDATIONS TO COMPANY
? Bliss pharma should reduce its inventory turnover ratio for effective utili+ation of
resources.
? It should reduce debtor’s collection period for smooth running of business cycle
and working capital cycle.
? Company should increase its trade reference to increase its brand image.
? The company should increase its ratio between total outstanding liabilities and
total net worth to avail more credit from banks at easier terms. or this purpose it
has to increase its networth and reduce its outstanding liabilities.
*.*
CHAPTER 1+
CONCLUSION
? #uring my pro-ect I reali+ed that a credit analyst must own multi2disciplinary
talents like financial, technical as well as legal know2how about corporate lending
and credit rating model for the purpose of lending loan
? , study of both private bank and public bank enhanced my knowledge and I
gained a great learning e$perience
? #uring the study I learnt how the theoretical financial analysis aspects are used in
practice during the term loan finance assessment
? The credit appraisal for term loan finance system has been devised in a systematic
way. There are clear guidelines on how the credit analyst or lending officer has to
analy+e a loan proposal
? Credit ,ppraisal Model of both (CB and ICICI bank are based on sound
principles of lending
? Method of lending of both banks is different.
? Compared to (CB model, ICICI model is complicated as ICICI considers more
aspects and in detail compared to (CB.
? Both banks follow inventory and receivable norms as suggested by !BI.
*..
BIBLIOGRAPHY
(EB LIN)S:
www.rbi.com
www.icicibank.com
www.crisil.com
www.pnb.com
www.moneycontrol.com
www.icicidirect.com
LITERATURE SURVEY
• "conomics times
*./
doc_170066625.doc
The corporate banking as an important division of the commercial banking and also to study the credit appraisal models supporting the increased activities of corporate lending by banks.
Research Methodology on Corporate
Banking
STATEMENT OF PROBLEM:
To study the emergence and evolution of the corporate banking as an important division of
the commercial banking and also to study the credit appraisal models supporting the
increased activities of corporate lending by banks.
In today’s global Banking arena, Corporate Bankers are facing a string of unprecedented and
sweeping challenges in the areas like Treasury Management, Trade inance, !isk
Management, Compliance Management, "lectronic Trading and #erivatives Markets.
Compounding this are the mounting comple$ities from ongoing regulatory changes,
decreasing margins and fierce competition
NEED FOR STUDY:
%ver the period of time, with the tremendous increase in the growth pattern of industrial
development, the need for the corporate loans have increased more than ever. &o, the
increasing trend urges the banks and financial institutions to focus on corporate banking as a
separate division. &o, the researchers have preferred to study the concept of corporate
banking and all the operational aspects attached to it in the entire process.
OBJECTIVE OF THE STUDY:
• To study the banking industry, as a whole with the help of various analysis including
&'%T analysis, ("&T analysis and (orter’s ive orce analysis.
• To ac)uire basic knowledge about the corporate lending in India and its relevance
with respect to banks.
*
• To analy+e the credit risk models of both public bank and private bank and bring out
its comparative picture on the basis of various parameters.
• To study credit risk management strategies of bank.
RESEARCH DESIGN:
, research design is the arrangement of the condition for collection and analysis of data.
,ctually it is the blueprint of the research pro-ect. The research type is descriptive research.
The main ob-ective of this design is search primary and secondary data.
The research primarily focuses on the secondary sources and first hand information through
focus group interviews.
DATA COLLECTION:
,s the research type is descriptive, the method of data collection was informal.
SOURCES:
The relevant information were collected from both primary and secondary sources like follow
up with bank managers web search, newspaper articles
TOOLS:
ocus group interviews with the managers of banks.
BENEFICIARIES:
For the ban!:
It will give them the in depth review of the various aspects involved in the corporate banking
with emphasis on the credit risk management.
For the "or#orate!:
.
The report shows the comparative study of the credit appraisal and sanctioning procedure
involved in the credit lending by banks as well as financial institutions. &econdly, they will
also get the relevance of the corporate lending by the banks and its various relevant aspects.
For the $ana%e$ent !t&'ent!:
The report studies the entire banking industry from various aspects using different analytical
tools. &econdly, it introduces into the world of credit lending and its trend in India. Moreover,
it also shows the operational procedures involved in the corporate lending with emphasis on
risk modeling and credit risk management.
LIMITATIONS OF THE STUDY:
The scope of the report is mainly depends on the information e$tracted from secondary
sources and the information given by the managers of banks. &o, lack of the availability of
the first hand information may act as a limitation to the pro-ect report.
/
CHAPTER: 1
AN OVERVIE( ON BAN)ING INDUSTRY
In recent years, the banking industry around the world has been undergoing a rapid
transformation. In India also, the wave of deregulation of early *001s has created heightened
competition and greater risk for banks and other financial intermediaries. The cross2border
flows and entry of new players and products have forced banks to ad-ust the product2mi$ and
undertake rapid changes in their processes and operations to remain competitive. The
deepening of technology has facilitated better tracking and fulfillment of commitments,
multiple delivery channels for customers and faster resolution of miscoordinations.
3nlike in the past, the banks today are market driven and market responsive. The top concern
in the mind of every bank4s C"% is increasing or at least maintaining the market share in
every line of business against the backdrop of heightened competition. 'ith the entry of new
players and multiple channels, customers 5both corporate and retail6 have become more
discerning and less 7loyal7 to banks. This makes it imperative that banks provide best
possible products and services to ensure customer satisfaction. To address the challenge of
retention of customers, there have been active efforts in the banking circles to switch over to
customer2centric business model. The success of such a model depends upon the approach
adopted by banks with respect to customer data management and customer relationship
management.
%ver the years, Indian banks have e$panded to cover a large geographic 8 functional area to
meet the developmental needs. They have been managing a world of information about
customers 2 their profiles, location, etc. They have a close relationship with their customers
and a good knowledge of their needs, re)uirements and cash positions. Though this offers
them a uni)ue advantage, they face a fundamental problem.
#uring the period of planned economic development, the bank products were bought in India
and not sold. 'hat our banks, especially those in the public sector lack are the marketing
attitude. Marketing is a customer2oriented operation. 'hat is needed is the effort on their part
9
to improve their service image and e$ploit their large customer information base effectively
to communicate product availability. ,chieving customer focus re)uires leveraging e$isting
customer information to gain a deeper insight into the relationship a customer has with the
institution, and improving customer service2related processes so that the services are )uick,
error free and convenient for the customers.
urthermore, banks need to have very strong in2house research and market intelligence units
in order to face the future challenges of competition, especially customer retention.
Marketing is a )uestion of demand 5customers6 and supply 5financial products 8 services,
customer services through various delivery channels6. Both demand and supply have to be
understood in the conte$t of geographic locations and competitor analysis to undertake
focused marketing 5advertising6 efforts. ocusing on region2specific campaigns rather than
national media campaigns would be a better strategy for a diverse country like India.
Customer2centricity also implies increasing investment in technology. Throughout much of
the last decade, banks world2over have re2engineered their organi+ations to improve
efficiency and move customers to lower cost, automated channels, such as ,TMs and online
banking.
,s is proved by the e$perience, banks are now reali+ing that one of their best assets for
building profitable customer relationships especially in a developing country like India is the
branch2branches are in fact a key channel for customer retention and profit growth in rural
and semi2urban set up.
wever, to ma$imi+e the value of this resource, our banks need totransform their branches from transaction processing centers into customer2centric service
centers. This transformation would help them achieve bottom line business benefits by
retaining the most profitable customers. Branches could also be used to inform and educate
customers about other, more efficient channels, to advise on and sell new financial
instruments like consumer loans, insurance products, mutual fund products, etc.
There is a growing reali+ation among Indian banks that it no longer pays to have a
7transaction2based7 operating model. There are active efforts to develop a relationship2
oriented model of operations focusing on customer2centric services. The biggest challenge
our banks face today is to establish customer intimacy without which all other efforts towards
operational e$cellence are meaningless. The banks need to ensure through their services that
the customers come back to them. This is because a ma-or chunk of income for most of the
banks comes from e$isting customers, rather than from new customers.
;
Customer relationship management 5C!M6 solutions, if implemented and integrated
correctly, can help significantly in improving customer satisfaction levels. #ata warehousing
can help in providing better transaction e$periences for customers over different transaction
channels. This is because data warehousing helps bring all the transactions coming from
different channels under the same roof. #ata mining helps banks analyse and measure
customer transaction patterns and behaviour. This can help a lot in improving service levels.
It must be noted, however, that customer2centric banking also involves many risks. The
banking industry world over is being thrust into a wild new world of privacy controversy. The
banks need to set up serious governance systems for privacy risk management. It must be
remembered that customer privacy issues threaten to compromise the use of information
technology which is at the very center of e2commerce and customer relationship management
2 two areas which are crucial for banks4 future.
The critical issue for banks is that they will not be able to safeguard customer privacy
completely without undermining the most e$citing innovations in banking. These innovations
promise huge benefits, both for customers and providers. But to capture them, financial
services companies and their customers will have to make some critical tradeoffs. 'hen the
stakes are so high, nothing can be left to chance, which is why banks must immediately begin
developing comprehensive approaches to the privacy issue.
The customer centric business models based on the applications of information technology
are sustainable only if the banks protect client confidentiality in the process 2 which is the
basic foundation of banking business.
<
*+* EVOLUTION OF BAN)ING IN INDIA
Banking in India has its origin as early as the =edic period. It is believed that the transition
from money lending to banking must have occurred even before Manu, the great :indu
>urist, who has devoted a section of his work to deposits and advances and laid down rules
relating to rates of interest. #uring the Mogul period, the indigenous bankers played a very
important role in lending money and financing foreign trade and commerce. #uring the days
of the "ast India Company, it was the turn of the agency houses to carry on the banking
business.
The ?eneral Bank of India was the first >oint &tock Bank to be established in the year *@A<.
The others which followed were the Bank of :industan and the Bengal Bank. The Bank of
:industan is reported to have continued till *01< while the other two failed in the meantime.
In the first half of the *0
th
century the "ast India Company established three banksB the Bank
of Bengal in *A10, the Bank of Bombay in *A91 and the Bank of Madras in *A9/. These three
banks also known as (residency Banks were independent units and functioned well. These
three banks were amalgamated in *0.1 and a new bank, the Imperial Bank of India was
established on .@
th
>anuary *0.*. 'ith the passing of the &tate Bank of India ,ct in *0;; the
undertaking of the Imperial Bank of India was taken over by the newly constituted &tate
Bank of India.
The !eserve Bank which is the Central Bank was created in *0/; by passing !eserve Bank
of India ,ct *0/9. In the wake of the &wadeshi Movement, a number of banks with Indian
management were established in the country namely, (un-ab Cational Bank Dtd, Bank of
India Dtd, Canara Bank Dtd, Indian Bank Dtd, the Bank of Baroda Dtd, the Central Bank of
India Dtd. %n >uly *0, *0<0, *9 ma-or banks of the country were nationali+ed and in *;
th
,pril *0A1 si$ more commercial private sector banks were also taken over by the
government.
The Indian banking can be broadly categori+ed into nationali+ed 5government owned6,
private banks and speciali+ed banking institutions. The !eserve Bank of India acts a
centrali+ed body monitoring any discrepancies and shortcoming in the system. &ince the
nationali+ation of banks in *0<0, the public sector banks or the nationali+ed banks have
@
ac)uired a place of prominence and has since then seen tremendous progress. The need to
become highly customer focused has forced the slow2moving public sector banks to adopt a
fast track approach. The unleashing of products and services through the net has galvani+ed
players at all levels of the banking and financial institutions market grid to look anew at their
e$isting portfolio offering.
Conservative banking practices allowed Indian banks to be insulated partially from the ,sian
currency crisis. Indian banks are now )uoting a higher valuation when compared to banks in
other ,sian countries 5vi+.
ng Eong, &ingapore, (hilippines etc.6 that have ma-or problemslinked to huge Con (erforming ,ssets 5C(,s6 and payment defaults. Co2operative banks are
nimble footed in approach and armed with efficient branch networks focus primarily on the
Fhigh revenue’ niche retail segments.
The Indian banking has finally worked up to the competitive dynamics of the Fnew’ Indian
market and is addressing the relevant issues to take on the multifarious challenges of
globali+ation. It has come a long way from being a sleepy business institution to a highly
proactive and dynamic entity. Banks that employ IT solutions are perceived to be Ffuturistic’
and proactive players capable of meeting the multifarious re)uirements of the large customers
base. (rivate banks have been fast on the uptake and are reorienting their strategies using the
internet as a medium The Internet has emerged as the new and challenging frontier of
marketing with the conventional physical world tenets being -ust as applicable like in any
other marketing medium.
This transformation has been largely brought about by the large dose of liberali+ation and
economic reforms that allowed banks to e$plore new business opportunities rather than
generating revenues from conventional streams 5i.e. borrowing and lending6.
The banking in India is highly fragmented with /1 banking units contributing to almost ;1G
of deposits and <1G of advances. Indian nationali+ed banks 5banks owned by the
government6 continue to be the ma-or lenders in the economy due to their sheer si+e and
penetrative networks which assures them high deposit mobili+ation. The Indian banking can
be broadly categori+ed into nationali+ed, private banks and speciali+ed banking institutions.
A
The !eserve Bank of India acts as a centrali+ed body monitoring any discrepancies and
shortcoming in the system. It is the foremost monitoring body in the Indian financial sector.
The nationali+ed banks 5i.e. government2owned banks6 continue to dominate the Indian
banking arena. Industry estimates indicate that out of .@9 commercial banks operating in
India, ../ banks are in the public sector and ;* are in the private sector. The private sector
bank grid also includes .9 foreign banks that have started their operations here. 3nder the
ambit of the nationali+ed banks come the speciali+ed banking institutions. These co2
operatives, rural banks focus on areas of agriculture, rural development etc., unlike
commercial banks these co2operative banks do not lend on the basis of a prime lending rate.
They also have various ta$ sops because of their holding pattern and lending structure and
hence have lower overheads. This enables them to give a marginally higher percentage on
savings deposits. Many of these cooperative banks diversified into speciali+ed areas
5catering to the vast retail audience6 like car finance, housing loans, truck finance etc. in
order to keep pace with their public sector and private counterparts, the co2operative banks
too have invested heavily in information technology to offer high2end computeri+ed banking
services to its clients.
Complementing the roles of the nationali+ed and private banks are the speciali+ed financial
institutions or Con Banking inancial Institutions 5CBCs6. 'ith their focused portfolio of
products and services, these Con Banking inancial Institutions act as an important catalyst
in contributing to the overall growth of the financial services sector. CBCs offer loans for
working capital re)uirements, facilitate mergers and ac)uisitions, I(% finance, etc. apart from
financial consultancy services. Trends are now changing as banks 5both public and private6
have now started focusing on CBC domains like long and medium2term finance, working
cap re)uirements, I(% financing etc. to meet the multifarious needs of the business
community.
0
*+, STRUCTURE OF BAN)ING INDUSTRY:
Banking system plays an important role in a country’s economy. It promotes growth and
development of the country. Indian money market comprises organi+ed and the unorgani+ed
institutions. The organi+ed and unorgani+ed institutions in the Indian banking system serve a
source of short term credit to agriculture, industry, trade and commerce.
In the Indian banking structure the !eserve Bank of India is the central bank. It regulates,
direct and controls the banking and financial institutions in the country. There are three high
banking institutions, namely, !BI, C,B,!# and "HIM Bank. There are separate financial
institutions catering to the needs of different sectors of the economy. #evelopment Banks,
Investment Banks, Co2operative Banks, Dand #evelopment Banks, Commercial Banks in
public and private sectors, C,B,!#, !!Bs, "HIM Bank, etc. The indigenous bankers and
moneylenders dominate unorgani+ed sector.
The In'-an ban-n% !tr&"t&re "an be !een .ro$ the "hart !ho/n &n'er:
*1
A#e0 Ban-n% In!t-t&t-on
RBI IDBI NABARD E1IM Ban SIDBI NHB
IRBI
Ban-n% In!t-t&t-on!
Co$$er"-a2 Re%-ona2 R&ra2 Co3 o#erat-4e Lan' De4e2o#$ent
De4e2o#$ent
Ban! Ban! Ban! Ban!
Ban
P&b2-" Pr-4ate Fore-%n PAC5! CCB5! SCB5! PLD5! SLDB
Se"tor Se"tor e0"han%e
Ban! Ban Ban!
A22 In'-a
State
Le4e2
Le4e2
SBI an' Nat-ona2-!e'
S&b!-'-ar-e! Ban!
IDBI ICICI SIDBI
SFC5!
SIDC
Fore-%n In'-an Non 6 S"he'&2e
Ban S"he'&2e' Ban Ban
**
The chart reveals that there are several ape$ banking institutions working at the national
level. !BI is the highest banking authority regulating, directing and controlling all the
banking and financial institutions in the country. There are development banks, namely I#BI,
&I#BI, ICICI at the national level and &tate inancial Corporations and &tate Industrial
#evelopment Corporations which have been set2up.
There are .0 public sector banks. Co2operative banks have three tier system. ,t the village
level there is (rimary ,griculture Co2operative &ociety5(,Cs6, at the district level there is
Central Co2operative Bank and at the state level there is &tate Co2operative Bank. Co2
operative banks provide short term and medium loans to the agriculture sector. Dand
#evelopment Banks provide long term agriculture credit. It comprises (rimary Dand
#evelopment Bank5(D#B6 at ht district level and &tate Dand #evelopment Bank5&D#B6 at
the state level. !!Bs provide loans and advances to the rural poor and C,B,!# is an ape$
body regulating, directing and controlling the financial and banking institutions providing
finance for the agriculture and rural development.
TYPES OF BAN)S
Modern age is the age of speciali+ation with the changing situation worldwide, bank
functions have also undergone a ma-or change. "conomic conditions and financial needs of a
country are different than those of other countries throughout the world. &ome financial
institutions deal in accepting deposits and making loans and advances to different sectors of
the economy. &ome institution makes loans and advances for medium and short term, while
others are meant for long term advances. &ome are financing industrial sector and foreign
trade while others are advancing loans to agriculture sector.
In broader sense of the term banks may be classified into following categoriesI
• Central Bank
• Commercial Banks
• #evelopment Banks
*.
• Investment Banks
• Co2operative Banks
• oreign "$change Banks
• &avings Banks
• "$port2Import Bank
• &peciali+ed Cational Banks
• Indigenous Bankers
• International inancial Institutions
*/
*+7 GRO(TH OF BAN)ING SECTOR
8DECADE (ISE9
Pre3L-bera2-:at-on: The growth of the Banking &ector in the pre liberali+ation period can be
analy+ed as under.
*;<*3=>:
This was the decade immediately following the Cationali+ation of *9 commercial banks. ,lso
the banking sector grew at the fastest pace in this decade.
*+ A!!et!:
The assets of the sector grew at .*.;A G C,?!
*
. They increased from !&.A..;.bn to
!s.;A..//bn. This kind of growth was achieved due to massive increase in the number of
branches resulting in a spurt in deposit mobili+ation.
,+ De#o!-t!:
The deposits grew from !s.<9.@0bn to !s.9/0.A@bn. at a C,?! .*.** G. The growth was
higher in later part of the decade. This growth rate would have been higher had the current
accounts grown at a rate higher than *A G. This indicates people’s preference for using bank
as place to keep their savings. The bank was not used as a place to keep money to be used for
transaction motive. This is further clarified by the poor ratio of average current deposits to
total deposits at ./.9; G.
7+ A'4an"e!:
The advances grew at *0..< G C,?! from !s.9<.A;bn to !s..@..<@bn. ,lso the growth was
higher in the later part of the decade. Thus the advances grew at a pace slower than the
deposits due to decreasing credit deposit ratio, which reduced from @../1 G in *0@1 to <*.00
G in *0A1.
*
*9
?+ Net /orth:
The Cet worth increased from !s.*.*<bn to !s.;.//bn at a C,?! of *<.9A G.
The Capital of the banks remained flat throughout the decade growing at -ust A.;9 G and also
the growth came in the later part of the decade. The capital increased form [email protected] to
!s.*.1@bn.
wever, the !eserves grew at a healthy pace of .1 G C,?! from !s.<01mn to !s.9..@bn.Thus the banks in this decade did not raise capital and funded their growth from internal
accruals. This resulted in a wide gap between !eserves and Capital indicating the banks’
hunger for Capital.
*;=*3;>:
*+ A!!et!:
The growth of the sector was significantly subdued since the last decade. The assets grew at
-ust *<./1 G C,?! compared to .*.;A G in the previous decade. The total assets increased
from !s.;A..//bn to !s..</<.0/bn.
,+ De#o!-t!:
#eposits increased from !s.9/0.A<bn to !s.*A.1.9<bn at a C,?! of *;..< G. The current
accounts remained the usual laggards in terms of growth growing at -ust *..<@ G C,?!. The
term and saving deposits grew at a slightly faster pace of *<.*@ G and *;.; G C,?!.
7+ A'4an"e!:
,dvances grew at a C,?! of *<.@0 G from !s..@..<@bn to !s.*[email protected];bn. This is due to the
fact that the banks have stepped up their credit2deposit ratio from <. G to @1.@9 G. This
indicates higher investment than saving in the economy.
?+ Net /orth:
The Cet worth increased from !s.;.//bn to !s.9@.*bn. Thus the net worth grew at a
whopping .9.// G C,?!.
*;
The capital hungry banks went on capital raising spree in the latter half of the decade. Thus
the capital grew at a C,?! of /9.;/ G. In absolute terms, the capital soared from !s.*.1<bn
at the beginning of the decade to !s..1.@/bn at the end of the decade.
The !eserves however grew at more or less constant pace of *0.0@ G C,?! throughout the
decade.
,t the end of the decade the Capital had kept pace with the !eserves and the gap between
them had significantly narrowed down.
Po!t3L-bera2-:at-on: The growth of this sector after *00* can be represented as under.
*;;*3,>>>:
*+ A!!et!:
The rate of the sector further slowed down during this decade. The assets grew at a C,?! of
*;..9 G from !s..</<.0/bn to !s.***1/.<Abn. The growth rate however, was greater in the
later part of the decade indicating future prospects of increase in growth.
,+ De#o!-t!:
The deposits grew from !s.*A.1.9@bn to !s.011/.1<bn at a C,?! of *<.<0 G. There was a
spurt in the last /29 years of the decade indicating improving trend. In this decade however,
the savings accounts were the laggards in terms of growth at */./9 G C,?!. The term
deposits grew at *A./A G and current deposits grew at *;../ G. This reversal of trend in
growth rates shows that the people are increasingly using banks to deposit money to be used
for transaction motive.
7+ A'4an"e!:
The advances increased from !s.*[email protected];bn to !s.99/9.<0bn at a C,?! of *..9< G. The
lower growth in advances is due to the decline in credit2deposit ratio from @1.@9 G in *001 to
90..< G. This shows there was a marked decline in investment in this decade with savings
e$ceeding investment.
?+ Net /orth:
The Cet worth grew at a feverish pace of /<.<1 G C,?!, the highest in last three decades.
This was mainly because the !BI opened the Banking sector to (rivate sector. ,s many as 0
Cew (rivate &ector Banks started their operations in this period. They brought a lot of capital
*<
in the period *00/20;.
wever in the later half of the decade, capital growth was virtuallynil.
The !eserves grew at /@.;9 G C,?! from !s..<./<bn !s.9/A./9bn.
wever, contrary toCapital the !eserves recorded e$ceptional growth in the later half of the decade due to
improving profits of private as well as public sector banks.
wever the gap betweenreserves and capital is once again widening.
*@
*+? FUTURE LANDSCAPE OF INDIAN BAN)ING
Diberali+ation and de2regulation process started in *00*20. has made a sea change in the
banking system. rom a totally regulated environment, we have gradually moved into a
market driven competitive system. %ur move towards global benchmarks has been, by and
large, calibrated and regulator driven. The pace of changes gained momentum in the last few
years. ?lobali+ation would gain greater speed in the coming years particularly on account of
e$pected opening up of financial services under 'T%. our trends change the banking
industry world over, vi+. *6 Consolidation of players through mergers and ac)uisitions, .6
?lobalisation of operations, /6 #evelopment of new technology and 96 3niversalisation of
banking. 'ith technology acting as a catalyst, we e$pect to see great changes in the banking
scene in the coming years. The Committee has attempted to visuali+e the financial world ;2*1
years from now. The picture that emerged is somewhat as discussed below. It entails
emergence of an integrated and diversified financial system. The move towards universal
banking has already begun. This will gather further momentum bringing non2banking
financial institutions also, into an integrated financial system.
The traditional banking functions would give way to a system geared to meet all the financial
needs of the customer. 'e could see emergence of highly varied financial products, which are
tailored to meet specific needs of the customers in the retail as well as corporate segments.
The advent of new technologies could see the emergence of new financial players doing
financial intermediation. or e$ample, we could see utility service providers offering say, bill
payment services or supermarkets or retailers doing basic lending operations. The
conventional definition of banking might undergo changes.
The competitive environment in the banking sector is likely to result in individual players
working out differentiated strategies based on their strengths and market niches. or e$ample,
some players might emerge as specialists in mortgage products, credit cards etc. whereas
some could choose to concentrate on particular segments of business system, while
outsourcing all other functions. &ome other banks may concentrate on &M" segments or
high net worth individuals by providing specially tailored services beyond traditional banking
*A
offerings to satisfy the needs of customers they understand better than a more generalist
competitor.
International trade is an area where India’s presence is e$pected to show appreciable increase.
'ith the growth in IT sector and other IT "nabled &ervices, there is tremendous potential for
business opportunities. Eeeping in view the ?#( growth forecast under India =ision .1.1,
Indian e$ports can be e$pected to grow at a sustainable rate of *;G per annum in the period
ending with .1*1. This again will offer enormous scope to Banks in India to increase their
fore$ business and international presence. ?lobali+ation would provide opportunities for
Indian corporate entities to e$pand their business in other countries. Banks in India wanting
to increase their international presence could naturally be e$pected to follow these corporates
and other trade flows in and out of India.
!etail lending will receive greater focus. Banks would compete with one another to provide
full range of financial services to this segment. Banks would use multiple delivery channels
to suit the re)uirements and tastes of customers. 'hile some customers might value
relationship banking 5conventional branch banking6, others might prefer convenience banking
5e2banking6.
%ne of the concerns is )uality of bank lending. Most significant challenge before banks is
the maintenance of rigorous credit standards, especially in an environment of increased
competition for new and e$isting clients. "$perience has shown us that the worst loans are
often made in the best of times. Compensation through trading gains is not going to support
the banks forever. Darge2scale efforts are needed to upgrade skills in credit risk measuring,
controlling and monitoring as also revamp operating procedures. Credit evaluation may have
to shift from cash flow based analysis to Jborrower account behaviourK, so that the state of
readiness of Indian banks for Basle II regime improves. Corporate lending is already
undergoing changes. The emphasis in future would be towards more of fee based services
rather than lending operations. Banks will compete with each other to provide value added
services to their customers.
&tructure and ownership pattern would undergo changes. There would be greater presence of
international players in the Indian financial system. &imilarly, some of the Indian banks
*0
would become global players. ?overnment is taking steps to reduce its holdings in (ublic
sector banks to //G.
wever the indications are that their (&B character may still beretained.
Mergers and ac)uisitions would gather momentum as managements will strive to meet the
e$pectations of stakeholders. This could see the emergence of 92; world class Indian Banks.
,s Banks seek niche areas, we could see emergence of some national banks of global scale
and a number of regional players.
Corporate governance in banks and financial institutions would assume greater importance in
the coming years and this will be reflected in the composition of the Boards of Banks.
Concept of social lending would undergo a change. !ather than being seen as directed
lending such lending would be business driven. 'ith &M" sector e$pected to play a greater
role in the economy, Banks will give greater overall focus in this area. Changes could be
e$pected in the delivery channels used for lending to small borrowers and agriculturalists and
unorgani+ed sectors 5micro credit6. 3se of intermediaries or franchise agents could emerge as
means to reduce transaction costs.
Technology as an enabler is separately discussed in the report. It would not be out of place,
however, to state that most of the changes in the landscape of financial sector discussed
above would be technology driven. In the ultimate analysis, successful institutions will be
those which continue to leverage the advancements in technology in re2engineering processes
and delivery modes and offering state2of2the2art products and services providing complete
financial solutions for different types of customers.
:uman !esources #evelopment would be another key factor defining the characteristics of a
successful banking institution. "mploying and retaining skilled workers and specialists, re2
training the e$isting workforce and promoting a culture of continuous learning would be a
challenge for the banking institutions.
.1
*+@ BAN)ING INDUSTRY REFORMS AND VISION ,>*>
AA 4-!-on -! not a #roBe"t re#ort or a #2an tar%et+ It -! an art-"&2at-on o. the 'e!-re' en'
re!&2t! -n broa'er ter$!C 3 A+P+J+Ab'&2 )a2a$
=ision is of an integrated banking and finance system catering to all financial intermediation
re)uirements of customers. &trong market players will strive to uncover markets and
provide all services, combining innovation, )uality, personal touch and fle$ibility in
delivery. The growing e$pectations of the customers are the catalyst for our vision.
The customer would continue to be the centre2point of our business strategy. In short,
you lose touch with the customer, and you lose everything.
It is e$pected that the Indian banking and finance system will be globally competitive. or
this the market players will have to be financially strong and operationally efficient.
Capital would be a key factor in building a successful institution. The banking and
finance system will improve competitiveness through a process of consolidation,
either through mergers and ac)uisitions through strategic alliances.
Technology would be the key to the competitiveness of banking and finance system. Indian
players will keep pace with global leaders in the use of banking technology. In such a
scenario, on2line accessibility will be available to the customers from any part of the
globeB F,nywhere’ and F,nytime’ banking will be reali+ed truly and fully. ,t the
same time Fbrick and mortar’ banking will co2e$ist with Fon2line’ banking to cater to
the specific needs of different customers.
Indian Banking system has played a crucial role in the socio2economic development of the
country. The system is e$pected to continue to be sensitive to the growth and development
needs of all the segments of the society. The banking system that will evolve will be
transparent in its dealings and adopt global best practices in accounting and disclosures
driven by the motto of value enhancement for all stakeholders.
inancial &ector !eforms set in motion in *00* have greatly changed the face of Indian
Banking+ The banking industry has moved gradually from a regulated environment to a
.*
deregulated market economy. The market developments kindled by liberali+ation and
globali+ation have resulted in changes in the intermediation role of banks. The pace of
transformation has been more significant in recent times with technology acting as a catalyst.
'hile the banking system has done fairly well in ad-usting to the new market dynamics,
greater challenges lie ahead. inancial sector would be opened up for greater international
competition under 'T%. Banks will have to gear up to meet stringent prudential capital
ade)uacy norms under Basel II. In addition to 'T% and Basel II, the ree Trade ,greements
5T,s6 such as with &ingapore, may have an impact on the shape of the banking industry.
Banks will also have to cope with challenges posed by technological innovations in banking.
Banks need to prepare for the changes. In this conte$t the need for drawing up a !oad Map to
the future assumes relevance. The idea of setting up a Committee to prepare a =ision for the
Indian Banking industry came up in IB,, in this background.
Managing Committee of Indian Banks’ ,ssociation constituted a Committee under the
Chairmanship of &hri & C ?upta, Chairman 8 Managing #irector, Indian %verseas Bank to
prepare a =ision !eport for the Indian Banking Industry. The composition of the Committee
is given at the end of the report.
The Committee held its first meeting on ./
rd
>une .11/ at Mumbai. (rior to the meeting the
members were re)uested to give their thoughts on the future landscape of the banking
industry. , discussion paper based on the responses received from members was circulated
along with a )uestionnaire eliciting views of members on some of the specific issues
concerning anticipated changes in the banking environment. In the meeting, which served as
a brainstorming session, members gave their =ision of the future. , second meeting of the
Committee was held at Chennai on @
th
,ugust .11/ to have further discussions on the
common views, which emerged in the first meeting, and also to e$amine fresh areas to be
covered in the study.
..
The =ision &tatement prepared by the Committee is based on common thinking that
crystalli+ed at the meetings. In the Chennai meeting it was decided to form a smaller
group from among the members to draft the report of the Committee. The group met
thrice to finali+e the draft report. The report was adopted in the final meeting of the
Committee held at Mumbai.
'hen we talk about the future, it is necessary to have a time hori+on in mind. The
Committee felt, it would be rather difficult to visuali+e the landscape of banking industry
say, .1 years hence due to the dynamic environment. 'hile ?overnment of India
brought out India =ision .1.1, the Committee is of the view that the pace of changes
taking place in the banking industry and in the field of Information Technology would
render any attempt to visuali+e the banking scenario in .1.1, inconceivable. The entire
financial services sector may undergo a dramatic transformation. It was, therefore, felt
that we should set our goals for the near future say, for ;2*1 years hence and
appropriately call this e$ercise JBan-n% In'&!trD 6 V-!-on ,>*>K. The three main
aspects focused in the banking vision includes product innovation, process re2engineering
and technology.
PRODUCT INNOVATION AND PROCESS RE3ENGINEERING
'ith increased competition in the banking Industry, the net interest margin of banks has
come down over the last one decade. Diberali+ation with ?lobali+ation will see the
spreads narrowing further to *2*.;G as in the case of banks operating in developed
countries. Banks will look for fee2based income to fill the gap in interest income. (roduct
innovations and process re2engineering will be the order of the day. The changes will be
motivated by the desire to meet the customer re)uirements and to reduce the cost and
improve the efficiency of service. ,ll banks will therefore go for re-uvenating their
costing and pricing to segregate profitable and non2profitable business. &ervice charges
will be decided taking into account the costing and what the traffic can bear. rom the
./
earlier re4en&e E "o!t F #ro.-t e)uation i.e., customers are charged to cover the costs
incurred and the profits e$pected, most banks have already moved into the #ro.-t
Ere4en&e 3 "o!t e)uation. This has been reflected in the fact that with cost of services
staying nearly e)ual across banks, the banks with better cost control are able to achieve
higher profits whereas the banks with high overheads due to under2utilisation of
resources, un2remunerative branch network etc., either incurred losses or made profits not
commensurate with the capital employed. The new paradigm in the coming years will be
"o!t E re4en&e 3 #ro.-t.
,s banks strive to provide value added services to customers, the market will see the
emergence of strong investment and merchant banking entities. (roduct innovation and
creating brand e)uity for speciali+ed products will decide the market share and volumes.
Cew products on the liabilities side such as fore$ linked deposits, investment2linked
deposits, etc. are likely to be introduced, as investors with varied risk profiles will look
for better yields. There will be more and more of tie2ups between banks, corporate
clients and their retail outlets to share a common platform to shore up revenue through
increased volumes.
.9
Banks will increasingly act as risk managers to corporate and other entities by offering a
variety of risk management products like options, swaps and other aspects of financial
management in a multi currency scenario. Banks will play an active role in the
development of derivative products and will offer a variety of hedge products to the
corporate sector and other investors. or e$ample, #erivatives in emerging futures
market for commodities would be an area offering opportunities for banks. ,s the
integration of markets takes place internationally, sophistication in trading and
speciali+ed e$changes for commodities will e$pand. ,s these changes take place, banking
will play a ma-or role in providing financial support to such e$changes, facilitating
settlement systems and enabling wider participation.
Bancassurance is catching up and Banks L inancial Institutions have started entering
insurance business. rom mere offering of insurance products through network of bank
branches, the business is likely to e$pand through self2designed insurance products after
necessary legislative changes. This could lead to a spurt in fee2based income of the
banks.
&imilarly, Banks will look analytically into various processes and practices as these e$ist
today and may make appropriate changes therein to cut costs and delays. %utsourcing
and adoption of B(%s will become more and more relevant, especially when Banks go in
for larger volumes of retail business.
wever, by increasing outsourcing of operationsthrough service providers, banks are making themselves vulnerable to problems faced by
these providers. Banks should therefore outsource only those functions that are not
strategic to banks’ business. or instance, in the wake of implementation of 01 days’
delin)uency norms for classification of assets, some banks may think of engaging
e$ternal agencies for recovery of their dues and in C(, management.
.;
Banks will take on competition in the front end and seek co2operation in the back end, as
in the case of networking of ,TMs. This type of "o3o#et-t-on will become the order of
the day as Banks seek to enlarge their customer base and at the same time to reali+e cost
reduction and greater efficiency.
TECHNOLOGY IN BAN)ING
Technology will bring fundamental shift in the functioning of banks. It would not only
help them bring improvements in their internal functioning but also enable them to
provide better customer service. Technology will break all boundaries and encourage
cross border banking business. Banks would have to undertake e$tensive Business
(rocess !e2"ngineering and tackle issues like a6 how best to deliver products and
services to customers b6 designing an appropriate organi+ational model to fully capture
the benefits of technology and business process changes brought about. c6 how to e$ploit
technology for deriving economies of scale and how to create cost efficiencies, and d6
how to create a customer 2 centric operation model.
"ntry of ,TMs has changed the profile of front offices in bank branches. Customers no
longer need to visit branches for their day to day banking transactions like cash deposits,
withdrawals, che)ue collection, balance en)uiry etc. "2banking and Internet banking
have opened new avenues in Jconvenience bankingK. Internet banking has also led to
reduction in transaction costs for banks to about a tenth of branch banking.
Technology solutions would make flow of information much faster, more accurate and
enable )uicker analysis of data received. This would make the decision making process
faster and more efficient. or the Banks, this would also enable development of appraisal
and monitoring tools which would make credit management much more effective. The
result would be a definite reduction in transaction costs, the benefits of which would be
shared between banks and customers.
.<
'hile application of technology would help banks reduce their operating costs in the
long run, the initial investments would be si+eable. 'ith greater use of technology
solutions, we e$pect IT spending of Indian banking system to go up significantly.
%ne area where the banking system can reduce the investment costs in technology
applications is by sharing of facilities. 'e are already seeing banks coming together to
share ,TM Cetworks. &imilarly, in the coming years, we e$pect to see banks and Is
coming together to share facilities in the area of payment and settlement, back office
processing, data warehousing, etc. 'hile dealing with technology, banks will have to
deal with attendant operational risks. This would be a critical area the Bank management
will have to deal with in future.
(ayment and &ettlement system is the backbone of any financial market place.
The present (ayment and &ettlement systems such as &tructured inancial Messaging
&ystem 5&M&6, Centralised unds Management &ystem 5CM&6, Centrali+ed unds
Transfer &ystem 5CT&6 and !eal Time ?ross &ettlement &ystem 5!T?&6 will undergo
further fine2tuning to meet international standards. Ceedless to add, necessary security
checks and controls will have to be in place. In this regard, Institutions such as I#!BT
will have a greater role to play.
.@
CHAPTER: 2
STRATEGIC ANALYSIS OF BAN)ING INDUSTRY
,+* PORTER5S FIVE FORCE ANALYSIS:
(rof. Michael (orter’s competitive forces Model applies to each and every company as
well as industry. This model with regards to the Banking Industry is presented belowI
.A
• R-4a2rD a$on% e0-!t-n% .-r$!
5.6
Potent-a2 Entrant! is
high as #evelopment
inancial Institutions
as well as (rivate and
foreign banks have
entered in a big way.
5*6
R-4a2rD a$on%
E0-!t-n% F-r$! has
increased with
liberali+ation. Cew
products and improved
customer services is
the focus.
596
Bar%a-n-n% Po/er o.
B&Der! is high as
corporate can raise
funds easily due to
high competition.
5;6
Or%an-:-n% Po/er o.
the S&##2-er is high.
'ith new financial
instruments they are
asking higher return
on investment.
5/6
Threat .ro$
S&b!t-t&te is high due
to competition from
CBCs 8 Insurance
companies as they
offer a higher rate of
interest than banks.
.0
'ith the process of liberali+ation, competition among the e$isting banks has increased.
"ach bank is coming up with new products to attract the customers and tailor made loans
are provided. The )uality of services provided by banks has improved drastically.
• Potent-a2 Entrant!
(reviously the #evelopment inancial Institutions mainly provided pro-ect finance and
development activities. But they have now entered into retail banking which has resulted
into stiff competition among the e$isting players
• Threat! .ro$ S&b!t-t&te!
Banks face threats from Con2Banking inancial Companies. CBCs offer a higher rate of
interest.
• Bar%a-n-n% Po/er o. B&Der!
Corporates can raise their funds through primary market or by issue of ?#!s, CCBs. ,s
a result they have a higher bargaining power. "ven in the case of personal finance, the
buyers have a higher bargaining power. This is mainly because of competition.
• Bar%a-n-n% #o/er o. S&##2-er!
'ith the advent of new financial instruments providing a higher rate of returns to the
investors, the investments in deposits is not growing in a phased manner. The suppliers
demand a higher return for the investments.
• O4era22 Ana2D!-!
The key issue is that how can banks leverage their strengths to have a better future. &ince
the availability of funds is more and deployment of funds is less, banks should evolve
new products and services to the customers. There should be rational thinking in
sanctioning loans, which will bring down the C(,s. ,s there is e$pected revival in the
Indian economy banks have a ma-or role to play. unding corporate at a low cost of
capital is a ma-or re)uisite.
/1
,+, S(OT ANALYSIS:
The banking sector is often taken as a pro$y for the economy as a whole. The
performance of bank should therefore, reflect JTrends in the Indian "conomyK. #ue to
the reforms in the financial sector, banking industry has changed drastically with the
opportunities to the work with, new accounting standards new entrants and information
technology. The deregulation of the interest rate, participation of banks in pro-ect
financing has changed in the environment of banks.
The performance of banking industry is done through &'%T ,nalysis. It mainly helps to
know the &trengths and 'eakness of the industry and to improve will be known through
converting the opportunities into strengths. It also helps for the competitive environment
among the banks.
STRENGTHS
*+ Greater !e"&r-t-e! o. F&n'!
Compared to other investment options banks since its inception has been a better avenue
in terms of securities. #ue to satisfactory implementation of !BI’s prudential norms
banks have won public confidence over several years.
,+ Ban-n% net/or
,fter nationali+ation, banks have e$panded their branches in the country, which has
helped banks build large networks in the rural and urban areas. (rivate banks allowed to
operate but they mainly concentrate in metropolis.
/*
7+ Lar%e C&!to$er Ba!e
This is mainly attributed to the large network of the banking system. #epositors in rural
areas prefer banks because of the failure of the CBCs
.
?+ Lo/ Co!t o. Ca#-ta2
Corporate prefers borrowing money from banks because of low cost of capital. Middle
income people who want money for personal financing can look to banks as they offer at
very low rates of interests. Consumer credit forms the ma-or source of financing by banks
(EA)NESSES
*+ Ba!e2 Co$$-ttee
The banks need to comply with the norms of Basel committee but before that it is
challenge for banks to implement the Basel committee standard, which are of
international standard.
,+ Po/er.&2 Un-on!
Cationali+ation of Banks had a positive outcome in helping the Indian "conomy as a
whole. But this has also proved detrimental in the form of strong unions, which have a
ma-or influence in decision making. They are against automation.
7+ Pr-or-tD Se"tor Len'-n%
To uplift the society, priority sector lending was brought in during nationali+ation. This is
good for the economy but banks have failed to manage the asset )uality and their
intensions were more towards fulfilling government norms. ,s a result lending was done
for non2productive purposes.
?+ H-%h Non3Per.or$-n% A!!et!
/.
Con2(erforming ,ssets 5C(,s6 have become a matter of concern in the banking industry.
This is because of change in the ,ccounting &tandards 5(rudential Corms6. Cet C(,s
increased to large e$tent of the total advances, which has to be reduced to meet the
international standards.
OPPORTUNITIES
*+ Un-4er!a2 Ban-n%
Banks have moved along the value chain to provide their customers more products and
services. or e$ampleI 2 &BI is into &BI home finance, &BI Capital Markets, &BI Bonds
etc.
,+ D-..erent-a2 Intere!t Rate!
,s !BI control over bank reduces, they will have greater fle$ibility to fi$ their own
interest rates which depends on the profitability of the banks.
7+ H-%h Ho&!eho2' Sa4-n%!
usehold savings have been increasing drastically. Investment in financial assets hasalso increased. Banks should use this opportunity for raising funds.
?+ O4er!ea! Maret!
Banks should tap the overseas market, as the cost of capital is very low.
@+ Internet Ban-n%
The advances in information technology have made banking easier. Business transactions
can effectively carried out through internet banking.
//
THREATS
*+ NBFC!G Ca#-ta2 Maret! an' M&t&a2 .&n'!
There is a huge investment of household savings. The investments in CBCs deposits,
Capital Market Instruments and Mutual unds are increasing. Cormally these instruments
offer better returns to investors.
,+ Chan%e -n the Go4ern$ent Po2-"D
The change in the government policy has proved to be a threat to the banking sector.
7+ In.2at-on
The interest rates go down with a fall in inflation. Thus, the investors will shift his
investments to other profitable sectors.
?+ Re"e!!-on
#ue to the recession in the business cycle the economy functions poorly and this has
proved to be a threat to the banking sector. The market oriented economy and
globali+ation has resulted into competition for market share. The spread in the banking
sector is very narrow. To meet the competition the banks have to grow at a faster rate and
reduce the overheads. They can introduce new products and develop the e$isting services.
/9
,+7+ PEST ANALYSIS
POLITICALH LEGAL ENVIROMENT
?overnment and !BI policies affect the banking sector. &ometimes looking into the
political advantage of a particular party, the ?overnment declares some measures to their
benefits like waiver of short2term agricultural loans, to attract the farmer’s votes. By
doing so the profits of the bank get affected. =arious banks in the cooperative sector are
open and run by the politicians. They e$ploit these banks for their benefits. &ometimes
the government appoints various chairmen of the banks.
=arious policies are framed by the !BI looking at the present situation of the country for
better control over the banks
ECONOMICAL ENVIROMENT
Banking is as old as authentic history and the modern commercial banking are
traceable to ancient times. In India, banking has e$isted in one form or the other from
time to time. The present era in banking may be taken to have commenced with
establishment of bank of Bengal in *A10 under the government charter and with
government participation in share capital. ,llahabad bank was started in the year *A<;
and (un-ab national bank in *A0;, and thus, others followed
"very year !BI declares its < monthly policy and accordingly the various
measures and rates are implemented which has an impact on the banking sector. ,lso the
/;
3nion budget affects the banking sector to boost the economy by giving certain
concessions or facilities. If in the Budget savings are encouraged, then more deposits will
be attracted towards the banks and in turn they can lend more money to the agricultural
sector and industrial sector, therefore, booming the economy. If the #I limits are
rela$ed, then more #I are brought in India through banking channels.
SOCIAL ENVIROMENT
Before nationali+ation of the banks, their control was in the hands of the private
parties and only big business houses and the effluent sections of the society were getting
benefits of banking in India. In *0<0 government nationali+ed *9 banks. To adopt the
social development in the banking sector it was necessary for speedy economic progress,
consistent with social -ustice, in democratic political system, which is free from
domination of law, and in which opportunities are open to all. ,ccordingly, keeping in
mind both the national and social ob-ectives, bankers were given direction to help
economically weaker section of the society and also provide need2based finance to all the
sectors of the economy with fle$ible and liberal attitude. Cow the banks provide various
types of loans to farmers, working women, professionals, and traders. They also provide
education loan to the students and housing loans, consumer loans, etc.
Banks having big clients or big companies have to provide services like
personali+ed banking to their clients because these customers do not believe in running
about and waiting in )ueues for getting their work done. The bankers also have to provide
these customers with special provisions and at times with benefits like food and parties.
But the banks do not mind incurring these costs because of the kind of business these
clients bring for the bank.
Banks have changed the culture of human life in India and have made life much
easier for the people.
/<
TECHNOLOGICAL ENVIROMENT
Technology plays a very important role in bank’s internal control mechanisms as
well as services offered by them. It has in fact given new dimensions to the banks as well
as services that they cater to and the banks are enthusiastically adopting new
technological innovations for devising new products and services.
The latest developments in terms of technology in computer and
telecommunication have encouraged the bankers to change the concept of branch banking
to anywhere banking. The use of ,TM and Internet banking has allowed Fanytime,
anywhere banking’ facilities. ,utomatic voice recorders now answer simple )ueries,
currency accounting machines makes the -ob easier and self2service counters are now
encouraged. Credit card facility has encouraged an era of cashless society. Today
MasterCard and =isa card are the two most popular cards used world over. The banks
have now started issuing smartcards or debit cards to be used for making payments.
These are also called as electronic purse. &ome of the banks have also started home
banking through telecommunication facilities and computer technology by using
terminals installed at customers home and they can make the balance in)uiry, get the
statement of accounts, give instructions for fund transfers, etc. Through "C& we can
receive the dividends and interest directly to our account avoiding the delay or chance of
loosing the post.
Today banks are also using &M& and Internet as ma-or tool of promotions and
giving great utility to its customers. or e$ample &M& functions through simple te$t
messages sent from your mobile. The messages are then recogni+ed by the bank to
provide you with the re)uired information.
,ll these technological changes have forced the bankers to adopt customer2based
approach instead of product2based approach.
/@
CHAPTER: 3
CORPORATE BAN)ING: AN OVERVIE(
7+* INTRODUCTION:
,ccording to ,merican author and humorist Mark TwainI K, banker is a fellow who
lends his umbrella when the sun is shining and wants it back the minute it begins to rain.K
Many troubled businesses seeding credit in recent years might agree with Mr. Twain.
Indeed securing the large amounts of credit that many businesses re)uire can be a
complicated and challenging task loan re)uests. Moreover, business loans, often called
commercial and industrial loans, rank among the most important assets that commercial
banks and their closest competitors hold.
Corporate finance is an area of finance dealing with financial decisions business
enterprises make and the tools and analysis used to make these decisions. The primary
goal of corporate finance is to ma$imi+e corporate value
M*N
while managing the firm4s
financial risks. ,lthough it is in principle different from managerial finance which studies
the financial decisions of all firms, rather than corporations alone, the main concepts in
the study of corporate finance are applicable to the financial problems of all kinds of
firms.
The discipline can be divided into long2term and short2term decisions and techni)ues.
Capital investment decisions are long2term choices about which pro-ects receive
investment, whether to finance that investment with e)uity or debt, and when or whether
/A
to pay dividends to shareholders. %n the other hand, the short term decisions can be
grouped under the heading 7'orking capital management7. This sub-ect deals with the
short2term balance of current assets and current liabilitiesB the focus here is on managing
cash, inventories, and short2term borrowing and lending 5such as the terms on credit
e$tended to customers6.
The terms corporate finance and corporate financier are also associated with investment
banking. The typical role of an investment bank is to evaluate the company4s financial
needs and raise the appropriate type of capital that best fits those needs.
Corporate banking is a part of commercial banking but the part that average depositor
with deposits account never sees. It is a division of commercial banking which e$tends
the financial support to the corporate for helping them achieve their organi+ational goals
and ob-ectives. 'hile banks hold money and mortgages, lend money, e$tend or open up a
line of credit for the average depositors, it is business that needs ma-or financial services
to build plant, erect buildings, make structural improvements on old ones and start new
business ventures. This is one of the most competitive, risky and financially lucrative
areas of doing business in today’s world.
Commercial loans were the earliest form of lending banks did in their move than .111
year old history. Dater in the .1
th
century finance companies, insurance firms, and thrift
institutions entered the business lending field. Today loan officers skilled in evaluating
the credit of businesses are usually among the most e$perienced and highest paid people
in the financial services field, along with security underwriters.
,s a part of commercial banking, corporate banking is focused on analy+ing and
assessing the risk of the business, establishing the creditworthiness of the business and
trying to predict the likelihood of success or failure of business endeavour. These are the
professionals who help decide what business initiatives will be taken and when, whether
or not to e$pand the e$isting businesses, help develop new markets so that new clients
can be found and help develop new products for e2commerce, the internet and the
international markets.
/0
Corporate Banking represents the wide range of banking and financial services provided
to domestic and international operations of large local corporate and local operations of
multinationals corporations. &ervices include access to commercial banking products,
including working capital facilities such as domestic and international trade operations
and funding, channel financing, and overdrafts, as well as domestic and international
payments, IC! term loans 5including e$ternal commercial borrowings in foreign
currency6, letters of guarantee etc.
The Investment Banking and Markets division of various bank brings together the
advisory and financing, e)uity securities, asset management, treasury and capital markets,
and private e)uity activities to complete the CIBM structure and provide a complete
range of financial products to our clients. Increasingly, "C, financing is being
considered by customers and we work closely with our pro-ect e$port finance teams, both
onshore and offshore, to provide structured solutions.
The Corporate Bank in India was ranked .nd overall in the .119 ?reenwich &urvey.
This portfolio is largely spread within 0 sector teams divided as under I
• Consumer Brands
• Industrials
• "nergy and 3tilities
• Telecommunications
• ,utomotive
• :ealthcare
• Transport and Dogistics
• Metals and Mining
• Media
91
7+, STRUCTURE OF CREDIT LENDING 8CORPORATE9 IN
INDIA:
Banks, finance companies, and competing business lenders grant many different types of
commercial loans. ,mong the most widely used forms of business credit are the
followingI
SHORT3TERM BUSINESS LOANS:
? &elf2li)uidating inventory loans
? 'orking capital loans
? Interim construction financing
? &ecurity dealer financing
? !etailer and e)uipment financing
? ,sset2based loans 5accounts receivable financing, factoring, and inventory
financing6
? &yndicated loans
LONG3TERM BUSINESS LOANS:
? Term loans to support the purchase of e)uipment, rolling stock, and structures
? !evolving credit financing
? (ro-ect loans
? Doans to support ac)uisitions of others business firms
9*
SHORT3TERM LOANS TO BUSINESS FIRMS:
Se2.3L-I&-'at-n% In4entorD Loan!
:istorically, commercial banks have been the leaders in e$tending short term credit to
businesses. These loans were used to finance the purchase of inventory, raw materials or
finished goods to sell. In this case the term of the loan begins when cash in needed to
purchase inventory and ends when cash is available in the firm’s account to write the
lender a check for the balance of its loan.
(or-n% Ca#-ta2 Loan!
'orking capital loans provide businesses with short run credit, lasting from few days to
about one year. 'orking capital loans are most often used to fund the purchase of
inventories in order to put goods on shelves or to purchase raw materialsB thus, they come
closest to the traditional self2li)uidating loan described previously.
re)uently, the working capital loan is designed to cover seasonal peaks in the business
customer’s production levels and credit needs. Cormally, working capital loans are
secured by accounts receivable or by pledges of inventory and carry a floating interest
rate on the amounts actually borrowed against the approved credit line. , commitment
fee is charged on the unused portion of the credit line and sometimes on the entire
amount of funds made available.
Inter-$ Con!tr&"t-on F-nan"-n%
9.
, popular form of secured short term lending is the interim construction loan, used to
support the construction of homes, apartments, office buildings, shopping centers, and
other permanent structures. The finance is used while the construction is going on but
once the construction phase is over, this short term loan usually is paid off with a longer
term mortgage loan issued by another lender, such as insurance company of pension fund.
!ecently, some commercial banks have issued Fminipermanent’ loans, providing funding
for construction and the early operation of a pro-ect for as long as five to seven years.
Reta-2er an' EI&-#$ent F-nan"-n%
Banks support installment purchases of automobiles, appliances, furniture, business
e)uipment, and other durable goods by financing the receivables that dealers selling these
goods take on when they write installment contracts to cover customer purchases. In turn,
these contracts are reviewed by banks and other lending institutions with whom the
dealers have established credit relationships. If they meet acceptable credit standards, the
contracts are purchased by lenders at an interest rate that varies with the risk level of each
borrower, the )uality of collateral pledged, and the term of each loan.
A!!et3Ba!e' F-nan"-n%
,n increasing portion of short2term lending by banks and other lenders in recent years
has consisted of asset based loans, credit secured by the shorter term assets of a firm that
are e$pected to roll over into cash in the future. Eey business assets used for many of
these loans are accounts receivables and inventories of raw materials or finished goods.
The lender commits funs against a specific percentage of the book value of outstanding
credit accounts or against inventory.
In most loans collaterali+ed by accounts receivable and inventory, the borrowing firm
retains title to the assets pledged, but sometimes title is passed to the lender, which then
assumes the risk that some of those assets will not pay out as e$pected. The most
common e$ample of this arrangement is .a"tor-n%, where the bank actually takes on the
9/
responsibility of collecting the accounts receivable of one of its business customers. It
typically assesses a higher discount rate and lends a smaller fraction of the book value of
the customer’s accounts receivable because the lender incurs both additional e$pense and
additional risk with a factored loan.
SDn'-"ate' Loan
, type of large corporate loan that is increasingly used today is the syndicated loan. This
is typically a loan or loan package e$tended to a corporation by a group of banks and
other institutional lenders. These loans may be JdrawnK by the borrowing company, with
the funds used to support business operations or commercial e$pansion, or JundrawnK,
serving as lines of credit to back a security issue or other venture. Banks engage in
syndicated loans both to spread the heavy risk e$posures of these large loans, often
involving hundreds of lakhs or crore of rupees in credit for each loan, and to earn fee
income.
99
LONG3TERM LOANS TO BUSINESS FIRMS:
Ter$ B&!-ne!! Loan!
Term loans are designed to fund long and medium term business investments, such as the
purchase of e)uipment or the construction of physical facilities, covering a period longer
than one year. 3sually the borrowing firm applies for a lump sum loan based on the
budgeted cost of its proposed pro-ect and then pledges to repay the loan in a series of
installments.
Term loans normally are secured by fi$ed assets e.g. (lant and ")uipment owned by the
borrower and may carry either a fi$ed or a floating interest rate. That rate is normally
higher than on shorter term business loans due to the lender’s greater risk e$posure from
such loans.
Re4o24-n% Cre'-t F-nan"-n%
, revolving credit line allows a business customer to borrow up to a pre specified limit,
repay all or a portion of the borrowing, and re borrows as necessary until the credit line
matures. %ne of the most fle$ible of all the forms of business loans, revolving credit is
often granted without specific collateral to secure the loan and may be short term or caver
a period as long as three, four, or five years. This form of business financing is
particularly popular when the customer is highly uncertain about the timing of future cash
flows or about the e$act magnitude of the future borrowings needs.
Doan commitments are usually of two types namely,
*. ormal Doan Commitment, and
9;
.. Confirmed Credit Dine.
ormal Doan Commitment is a contractual promise to lend to a customer up to a
ma$imum amount of money at a set interest rate or rate markup over the prevailing base
loan rate. 'hereas, Confirmed Credit Dine is a looser form of loan commitment where
the banks indicate its approval of customer’s re)uest for credit in an emergency, though
the prices of such a credit line may not be set in advance and the customer may have little
intention to draw upon the credit line.
Lon%3Ter$ ProBe"t Loan!
The most risky of all business loans are pro-ect loans, credit to finance the construction of
fi$ed assets designed to generate a flow of revenue in future periods. (rominent e$amples
include oil refineries, pipelines, mines, power plants and harbor facilities. (ro-ect loans
are usually granted to several companies -ointly sponsoring a large pro-ect.
(ro-ect loans may be granted on a recourse basis, in which the lender can recover funds
from the sponsoring companies if the pro-ect does not pay out as planned. ,t the other
end, loan may be e$tended on a non recourse basis, in which no sponsor guaranteesB the
pro-ect stands or falls on its own merits. Many such loans re)uire that the pro-ectFs
sponsors pledge enough of their own capital to see the pro-ect through to completion.
9<
? Ter$ Loan H De.erre' PaD$ent G&arantee!
• In case of term loans and deferred payment guarantees, the pro-ect report is
obtained from the customer, who may have been compiled in2house or by a
firm or consultantsL merchant bankers.
• Term loan is provided to support capital e$penditures for setting up new
ventures as also for e$pansion, renovation etc.
• The technical feasibility and economic viability is vetted by the Bank and
wherever it is felt necessary.
• Banks normally e$pects at least .1G contribution of (romoter’s contribution.
But the promoter contribution may vary largely in mega pro-ects. Therefore,
there cannot be a definitive benchmark.
• The sanctioning authority will have the necessary discretion to permit
deviations.
9@
7+7 EMERGENCE OF CORPORATE BAN)ING IN INDIA
The bank lending has e$panded in a number of emerging market economies, especially in
,sia and Datin ,merica, in recent years. Bank credit to the private sector, in real terms,
was rising at a high rate. &everal factors have contributed to the significant rise in bank
lending in emerging economies such as strong growth, e$cess li)uidity in banking
systems reflecting easier global and domestic monetary conditions, and substantial bank
restructuring. The recent surge in bank lending has been associated with important
changes on the asset side of banksO balance sheet. irst, credit to the business sector 2
historically the most important component of banksO assets P has been weak, while the
share of the household sector has increased sharply in several countries. &econd, banksO
investments in ?overnment securities increased sharply until .11921;. ,s a result,
commercial banks continue to hold a very large part of their domestic assets in the form
of ?overnment securities 2 a process that seems to have begun in the mid2*001s.
There has been a sharp pick up in bank credit in India in recent years. The rate of growth
in bank credit which touched a low of *9.9 per cent in .11.21/, accelerated to more than
/1.1 per cent in .11921;, the rate which was maintained in .11;21<. The upturn in the
growth rate of bank credit can be attributed to several factors. %ne, macroeconomic
performance of the economy turned robust with ?#( growth rates hovering between @.;
per cent and A.; per cent during the last few years. Two, the hardening of sovereign yields
from the second half of .11/219 forced banks to read-ust their assets portfolio by shifting
from investments to advances. 'hile the share of gross advances in total assets of
commercial banks grew from 9;.1 per cent to ;9.@ per cent that of investments declined
from 9*.< per cent to /..* per cent in the last few years.
9A
wever, the credit growth has been broad2based making banks less vulnerable to creditconcentration risk. The declining trend of priority sector loans in .11*21. in the credit
book of banks was due to prudential write offs and compromise settlements of a large
number of small accounts which was reversed from .11.21/ on the strength of a spurt in
the housing loan portfolio of banks. "ven though credit to industry and other sectors have
also picked up, their share in total loans has declined marginally. !etail loans, which
witnessed a growth of over 91.1 per cent in .11921; and again in .11;21<, have been the
prime driver of the credit growth in recent years. !etail loans as a percentage of gross
advances increased from ...1 per cent in March .119 to .;.; per cent in March .11<.
The cyclical uptrend in the economy along with the concomitant recovery in the business
climate brings with it improved abilities of the debtors to service loans, thereby greatly
improving banks asset )uality. #espite the sharp rise in credit growth in recent years, not
only the proportional levels of gross non2performing loans 5C(Ds6 have declined, but the
absolute levels of gross C(Ds declined significantly. &everal factors have contributed to
the marked improvement in the Indian banksO asset )uality. %ne, banks have gradually
improved their risk management practices and introduced more vigorous systems and
scoring models for identifying credit risks. Two, a favourable macroeconomic
environment in recent years has also meant that many entities and units of traditionally
problematic industries are now performing better. Three, diversification of credit base
with increased focus on retail loans, which generally have low delin)uency rates, has also
contributed to the more favourable credit risk profile. our, several institutional measures
have been put in place to recover the C(,s. These include #ebt !ecovery Tribunals
5#!Ts6, Lok Adalats 5peopleOs courts6, ,sset !econstruction Companies 5,!Cs6 and
corporate debt restructuring mechanism 5C#!M6. In particular, the &ecuritisation and
!econstruction of inancial ,ssets and "nforcement of &ecurity Interest 5&,!,"&I6
,ct, .11. for enforcement of security interest without intervention of the courts has
provided more negotiating power to the banks for resolving bad debts.
90
;1
Se"tora2 De#2oD$ent o. Gro!! Ban Cre'-t
#uring .11A210 total deployment of gross bank credit increased to !s.*.A@,;*; crores
from !s.*,<0.;/< crores in .11A21@
Con2food bank credit increased sharply during .11;21<. The credit growth was broad
based. Credit to services 5including personal loans and other services6 increased by ;..A
per cent in .11;21<, accounting for ;A./ per cent of incremental non2food gross bank
credit 5C?BC6. (ersonal loans increased sharply in recent years mainly on account of
housing loans. !eal estate loans more than doubled. %ther personal loans such as credit
card outstanding and education loans also recorded sharp increases of ;0./ per cent and
0<.; per cent, respectively.
Pr-or-tD Se"tor A'4an"e!
Credit to the priority sector decreased to /9.* per cent in the previous year against /0.; in
.11A. In terms of revised guidelines on lending to priority sector , broad category of
advances under priority sector include agriculture, micro and small enterprises, retail
trade, micro2credit, education and housing.
The agriculture and housing sectors were the ma-or beneficiaries, which together
accounted for more than two2third of incremental priority sector lending. Credit to small
scale industries also accelerate. &everal favourable policy initiatives undertaken by the
Central ?overnment and the !eserve Bank including, inter alia, the policy package for
stepping up of credit to small and medium enterprises 5&M"s6 announced on ,ugust *1,
.11;, have had a positive impact. ,t the individual bank2level, all the nationalised banks,
and all but two of the &tate Bank group 5&tate Bank of India and &tate Bank of (atiala6
were able to meet the priority sector target of 91 per cent of CBC.
wever, only ten(&Bs 5,llahabad Bank, ,ndhra Bank, Bank of India, Indian Bank, Indian %verseas
Bank, (un-ab Cational Bank, &yndicate Bank, &tate Bank of Bikaner and >aipur, &tate
Bank of Indore and &tate Bank of &aurashtra6 were able to achieve the subtargets for
agriculture, while the sub2target for weaker sections was met by eight (&Bs 5,llahabad
;*
Bank, ,ndhra Bank, Bank of India, Indian Bank, Indian %verseas Bank, (un-ab Cational
Bank, &yndicate Bank and &tate Bank of (atiala6.
Dending to the priority sector by foreign banks constituted /9.< per cent of net bank
credit as on the last reporting riday of March .11<, which was well above the stipulated
target of /. per cent. The share of e$port credit in total netbank credit at *0.9 per cent
was significantly above the prescribed sub2target of *..1 per cent. oreign banks,
however, fell a little short of the sub2target of *1.1 per cent in respect of lending to &&Is.
S#e"-a2 A%r-"&2t&ra2 Cre'-t P2an!
The !eserve Bank had advised public sector banks to prepare &pecial ,gricultural Credit
(lans 5&,C(6 on an annual basis in *009. The &,C( mechanism for private sector banks
was made applicable from .11;21<, as recommended by the ,dvisory Committee on
low of Credit to ,griculture and !elated ,ctivities from the Banking &ystem
5ChairmanI(rof. =.&. =yas6 and announced in the Mid2term !eview of ,nnual (olicy for
.11921;. (ublic sector banks were advised to make efforts to increase their disbursements
to small and marginal farmers to 91.1 per cent of their direct advances under &,C( by
March .11@. The disbursement to agriculture under &,C( by public sector banks
aggregated !s.09,.@A crore during .11;21<, which was much above the target of
!s.A;,1.9 crore and the disbursement of !s.<;,.*A crore during .11921;. The
disbursement by private sector banks during .11;21< at !s./*,**0 crore was above the
target of !s..9,... crore. /..* (ublic sector banks were advised to earmark ;.1 per cent
of their net bank credit to women. ,t end2March .11<, aggregate credit to women by
public sector banks stood at ;./@ per cent of their net bank credit with .. banks achieving
the target. , consortium of select public sector banks was formed, with the &tate Bank of
India as the leader of the consortium, to provide credit to the Khadi and =illage Industries
Commission 5E=IC6. These loans are provided at *.; per cent below the average prime
lending rates of five ma-or banks in the consortium. ,n amount of !s./.. crore was
outstanding at end2>uly .11< out of !s.@/A crore disbursed by the consortium under the
scheme.
;.
M-"ro3.-nan"e
The !eserve Bank has been making consistent efforts to strengthen credit delivery,
improve customer service and encourage banks to provide banking services to all
segments of the population. #espite considerable e$pansion of the banking system in
India, large segments of the country’s population do not have access to banking services.
"$panding the outreach of banking services has, therefore, been a ma-or thrust area of the
policy of the ?overnment of India and the !eserve Bank in recent years.
The self2help group 5&:?62bank linkage programme has emerged as the ma-or micro2
finance programme in the country and is being implemented by commercial banks, !!Bs
and co2operative banks. ,s on March /*, .11A /.< million &:?s had outstanding bank
loans of !s.*@,111 crore, an increase of .; per cent over March /*, .11@ in respect of
number of &:?s credit linked. #uring .11@21A, banks financed *.. million &:?s for
!s.A,A90 crore. ,s at end2March .11A, &:?s had ; million savings accounts with banks
for !s./,@A; crore.
Reta-2 Cre'-t
Continuing the strong growth in recent years, retail advances increased by 91.0 per cent
to !s./,@;,@/0 crore in .11@21A, which was significantly higher than the overall credit
growth of /*.1 per cent. ,s a result, their share in total loans and advances increased
during the year. ,uto loans e$perienced the highest growth, followed by credit card
receivables, other personal loans 5comprising loans mainly to professionals and for
educational purposes6 and housing finance. Doans for consumer durables increased by
*@./ per cent as against the decline of /0.* per cent in the previous year.
Ma-or steps earlier taken by the !eserve Bank of India were somewhat more oriented
towards price stability and the related monitory instruments like the bank rate, reverse
repo rate, repo rate and C!! were ad-usted to rein in the price instability. Caturally, the
priority was inflation control for overall growth of the economy and we must
;/
congratulate the !BI for a wonderful -ob done. The inflation today is at a moderate level
and in line with a developed economy.'ith these steps taken by !BI, the latest scenario
is that the non2food credit growth got moderated, agricultural and service sector credit
went up but the retail credit growth actually took a beating due to northbound interest
rates.
&uch positive impact on inflation helped the economy for price stability and we feel what
is important for India now is to ensure that there is sufficient focus on growth of the
economy along with price stability.
Len'-n% to the Sen!-t-4e Se"tor!
Dending by &CBs to the sensitive sectors 5capital market, real estate and commodities6
increased sharply during .11;21< mainly on account of a sharp increase in e$posure to
the real estate market. Total e$posure of &CBs to the sensitive sectors consituted *A.0 per
cent of aggregate bank loans and advances 5comprising *@.. per cent to real estate, *.;
per cent to the capital market and 1./ per cent to the commodities sector6. #uring .11A2
.110 total lending to sensitive sector increased by *0.* percent in capital market.
,mong bank groups, new private sector banks had the highest e$posure to the sensitive
sectors 5measured as percentage to total loans and advances of banks6 mainly due to the
increase in e$posure to the real estate market, followed by foreign banks, old private
sector banks and public sector banks.
;9
MEASURES BY SIDBI
&I#BI has developed a Credit ,ppraisal 8 !ating Tool 5C,!T6 as well as a !isk
,ssessment Model 5!,M6 and a comprehensive rating model for risk assessment of
proposals for &M"s. The banks may consider to take advantage of these models as
appropriate and reduce their transaction costs.
.
(ublic &ector Banks are advised to follow a transparent rating system with cost of credit
being linked to the credit rating of the enterprise.
&I#BI in association with Credit Information Bureau 5India6 Dtd. 5CIBID6 e$pedited
setting up a credit rating agency.
&I#BI in association with Indian Banks’ ,ssociation 5IB,6 would collect and pool
common data on risk in each identified cluster and develop an IT2enabled application,
appraisal and monitoring system for small 5including tiny6 enterprises. This would help
reduce transaction cost as well as improve credit flow to small 5including tiny6 enterprises
in the clusters.
The Cational &mall Industries Corporation has introduced a Credit !ating &cheme for
encouraging &&I units to get themselves credit rated by reputed credit rating agencies.
(ublic &ector Banks will be advised to consider these ratings appropriately and as per
availability, and structure their rates suitably.
;;
ROADMAP BY RBI
The !eserve Bank of India 5!BI6 has worked out the roadmap for the Indian banks to
graduate from the simpler approaches of the Basel II framework to more advanced ones.
Basel II is the second among Basel ,ccords, which are primarily, recommendations on
banking laws and regulations issued by the Basel committee on banking supervision.
It sets up rigorous risk and capital management re)uirements aimed at ensuring that a
bank holds capital reserves appropriate to the risk it e$poses itself to through its lending
and investment practices.
&ince March .11A, foreign banks operating in India and Indian banks having presence
outside the country have migrated to simpler approaches under Basel II framework. %ther
commercial banks are re)uired to migrate to these norms by March /*, .110.
These include standardised approach for credit risk which arising from default by
borrowers, basic indicator approach for operational risk 5arising from day to operations of
the banks such robbery or power failure6 and standardised duration approach for market
risk 5arising from fluctuations in interest rate and share prices6 which affects the
investment and market portfolio of the banks.
In the framework, the !BI had earlier specified the date by which banks may file
application for approvals and the the likely date by which approvals can be obtained from
the central bank.
'hile banks have the discretion to adopt the advanced approaches, they need to seek
prior approval.
3nder market risk, banks may apply to !BI for graduating to more advanced method of
internal models approach 5IM,6 by ,pril *, .1*1 and then, !BI may approve it by March
/*, .1**. IM, sets out a framework for applying capital charges to the market risks 5both
on balance sheet and off2balance sheet6 incurred by banks by an internal model. The
;<
current standardised duration approach specifies a specific average duration of the banks
at large, which the banks follow and make it a basis for applying capital charges to only
open positions.
&imilarly, for operational risk, banks may graduate to standardised approach by ,pril *,
.1*1 and !BI can approve the plan by &eptember /1, .1*1. ,fter that, they can graduate
to advanced measurement approach for operational risk by ,pril *, .1** and get !BI
approval by March /*, .1*/.
'hile advanced measurement approach 5,M,6 sets the framework for banks to develop
their own empirical model to )uantify re)uired capital for operational risk, it can be used
after they get regulatory clearances.
3nder the standardised approach, a bank4s activities are divided into eight business linesI
corporate finance, trading and sales, retail banking, commercial banking , payment and
settlement, agency services, asset management and retail brokerage. 'ithin each business
line, gross income is a broad indicator for the scale of business operations and so, the
scale of operational risk e$posure within each of these business lines. The capital charge
for each business line is calculated by multiplying gross income by a factor .
Currently, banks are using the basic indicator approach as per which they must hold
capital for operational risk e)ual to the average over the previous three years of a fi$ed
percentage of positive annual gross income.
or credit risk, banks can use internal ratings2based approach which allows them to
develop their own model to estimate the probability of default for individual clients or
groups of clients. Currently, banks use standardised approach where they are re)uired to
use ratings from e$ternal credit rating agencies to )uantify the re)uired capital for credit
risk.
;@
CHAPTER: 4
CRM STRATEGIES FOR CORPORATE BAN)ING
?+* RAROC
!isk2,d-usted !eturn on Capital PP !,!%CPP is a measure of the e$pected return on
"conomic Capital over the life of an investment. This prospective measure of risk2
ad-usted profitability allows for apples2to2apples comparison of activities across risk
types of business.
!,!%C helps senior management ma$imi+e shareholder value by addressing strategic
business )uestions such asI
•
w much capital is needed to support the company’s enterprise2wide risksQ• Is the company over or under capitali+edQ
• ,re individual business units creating or destroying shareholder valueQ
'hat opportunities for growth or diversification e$ist within the companyQ
•
w should the economics of the business be managed within regulatory andrating agency capital constraintsQ
• 'hat is an optimal strategy for reinsuranceQ
!,!%C allows for both relative comparisons between business units and absolute
comparisons to shareholders’ minimum re)uired return on risk, or hurdle rate. , business
line is value2neutral if its !,!%C is e)ual to the hurdle rate. It creates value if its
!,!%C is higher than the hurdle rate and destroys value if it is lower.
;A
COMPUTATION
!,!%C is computed by dividing risk2ad-usted net income by the total amount of
economic capital assigned based on the risk calculation. !,!%C allocates a capital
charge to a transaction or a line of business at an amount e)ual to the ma$imum e$pected
loss 5at a 00G confidence level6 over one year on an after2ta$ basis. The higher the
volatility of the returns, the more capital is allocated. The higher capital allocation means
that the transaction has to generate cash flows large enough to offset the volatility of
returns, which results from the credit risk, market risk, and other risks taken. The
!,!%C process estimates the asset value that may prevail in the worst2case scenario and
then e)uates the capital cushion to be provided for the potential loss.
!,!%C is an improvement over the traditional approach in that it allows one to compare
two businesses with different risk 5volatility of returns6 profiles. , transaction may give a
higher return but at a higher risk. 3sing a hurdle rate 5e$pected rate of return6, a lender
can also use the !,!%C principle to set the target pricing on a relationship or a
transaction. ,lthough not all assets have market price distribution, !,!%C is a first step
toward e$amining an institution4s entire balance sheet on a mark2to2market basis 2 if only
to understand the risk2return trade2offs that have been made.
(hat -! RAROC J
Revenues
Expenses
Expected Losses
+ Return on
economic capital
+ transfer values /
prices
Capital required for
Credit Risk
Market Risk
Operational Risk
Risk Adjusted
Return
Risk Adjusted
Capital or Economic
Capital
RAROC
What is RAROC
!he concept of RAROC "Risk adjusted Return on Capital# is at the heart
of $nte%rated Risk Mana%ement&
;0
?+, RATING BASED METHODS:
Banks should have a comprehensive risk scoring / rating system that serves as a single point
indicator of diverse risk factors of a counterparty and for taking credit decisions in a
consistent manner. To facilitate this, a substantial degree of standardization is required in
ratings across borrowers. The risk rating system should be designed to reveal the overall risk
of lending, critical input for setting pricing and non-price terms of loans as also present
meaningful information for review and management of loan portfolio. The risk rating, in
short, should reflect the underlying credit risk of the loan book. The rating exercise should
also facilitate the credit granting authorities some comfort in its knowledge of loan quality at
any moment of time.
The risk rating system should be drawn up in a structured manner, incorporating, inter
alia, financial analysis, projections and sensitivity, industrial and management risks. The
banks may use any number of financial ratios and operational parameters and collaterals as
also qualitative aspects of management and industry characteristics that have bearings on the
creditworthiness of borrowers. Banks can also weigh the ratios on the basis of the years to
which they represent for giving importance to near term developments. Within the rating
framework, banks can also prescribe certain level of standards or critical parameters, beyond
which no proposals should be entertained. Banks may also consider separate rating
framework for large corporate / small borrowers, traders, etc. that exhibit varying nature and
degree of risk. Forex exposures assumed by corporates who have no natural hedges have
significantly altered the risk profile of banks. Banks should, therefore, factor the unhedged
market risk exposures of borrowers also in the rating framework. The overall score for risk is
to be placed on a numerical scale ranging between 1-6, 1-8, etc. on the basis of credit quality.
For each numerical category, a quantitative definition of the borrower, the loan’s underlying
quality, and an analytic representation of the underlying financials of the borrower should be
presented. Further, as a prudent risk management policy, each bank should prescribe the
minimum rating below which no exposures would be undertaken. Any flexibility in the
minimum standards and conditions for relaxation and authority therefore should be clearly
articulated in the Loan Policy.
<1
The credit risk assessment exercise should be repeated biannually (or even at shorter
intervals for low quality customers) and should be delinked invariably from the regular
renewal exercise. The updating of the credit ratings should be undertaken normally at
quarterly intervals or at least at half-yearly intervals, in order to gauge the quality of the
portfolio at periodic intervals. Variations in the ratings of borrowers over time indicate
changes in credit quality and expected loan losses from the credit portfolio. Thus, if the rating
system is to be meaningful, the credit quality reports should signal changes in expected loan
losses. In order to ensure the consistency and accuracy of internal ratings, the responsibility
for setting or confirming such ratings should vest with the Loan Review function and
examined by an independent Loan Review Group. The banks should undertake
comprehensive study on migration (upward – lower to higher and downward – higher to
lower) of borrowers in the ratings to add accuracy in expected loan loss calculations.
Va2&e At R-!
The VaR method is employed to assess potential loss that could crystalise on trading
position or portfolio due to variations in market interest rates and prices, using a given
confidence level, usually 95% to 99%, within a defined period of time. The VaR method
should incorporate the market factors against which the market value of the trading position
is exposed. The top management should put in place bank-wide VaR exposure limits to the
trading portfolio (including forex and gold positions, derivative products, etc.) which is then
disaggregated across different desks and departments. The loss making tolerance level should
also be stipulated to ensure that potential impact on earnings is managed within acceptable
limits. The potential loss in Present Value Basis Points should be matched by the Middle
Office on a daily basis vis-à-vis the prudential limits set by the Board. The advantage of
using VaR is that it is comparable across products, desks and Departments and it can be
validated through ‘back testing’. However, VaR models require the use of extensive
historical data to estimate future volatility. VaR model also may not give good results in
extreme volatile conditions or outlier events and stress test has to be employed to
complement VaR. The stress tests provide management a view on the potential impact of
large size market movements and also attempt to estimate the size of potential losses due to
<*
stress events, which occur in the ’tails’ of the loss distribution. Banks may also undertake
scenario analysis with specific possible stress situations (recently experienced in some
countries) by linking hypothetical, simultaneous and related changes in multiple risk factors
present in the trading portfolio to determine the impact of moves on the rest of the portfolio.
VaR models could also be modified to reflect liquidity risk differences observed across assets
over time. International banks are now estimating Liquidity adjusted Value at Risk (LaVaR)
by assuming variable time horizons based on position size and relative turnover. In an
environment where VaR is difficult to estimate for lack of data, non-statistical concepts such
as stop loss and gross/net positions can be used.
<.
</
?+7 INSPECTION METHODOLGY
The supervision of commercial banks and financial institutions is vested in the !eserve
Bank in terms of the provisions of the Banking !egulation ,ct, *090 and the !eserve
Bank of India ,ct, *0/9. This task is carried out by the #epartment of Banking
&upervision 5#B&6 under the guidance of the B&. The basic ob-ective of supervision of
banks is to assess the solvency, li)uidity and operational health of banks. The onsite
inspection of banks referred to as ,nnual inancial Inspection 5,I6 is conducted
annually 5e$cept in the case of &tate Bank of India in which case it is done once in two
years6. or this purpose, the unit of inspection is the :ead %ffice 5:%6 of the bank. ,
team of Inspecting %fficers from the !eserve Bank led by the (rincipal Inspecting
%fficer 5(I%6 visits the bank and conducts the inspection based on the internationally
adopted C,M"D 5Capital ,de)uacy, ,sset Ruality, Management, "arnings, Di)uidity6
model, modified as C,M"D& 5& for &ystems and Control6 to suit the needs of the Indian
banking system. The focus of the ,I in recent years has been on supervisory issues
relating to securitisation, business continuity plan, disclosure re)uirements and
compliance with other e$isting guidelines. In order to have an overall perspective, units
of the bank throughout the country are also taken up for inspection either by the same
team inspecting the :% or by additional teams from the !egional %ffices 5!%6 of the
!eserve Bank. These units could be treasury operations, specialised branches and
controlling offices in general, where there may be concerns relating mainly to frauds,
C(,s and e$posure to sensitive sectors. Ma-or findings of these other unit inspections are
incorporated in the !eport. The timeframe for carrying out the inspection of the corporate
:% of the bank is two to three months. The inspection report is generally finalised
within four months. %n completion of the inspection, the !% of the !eserve Bank,
under whose -urisdiction the :% of the bank is situated, issues the inspection report to the
bank for perusal, corrective action and compliance. urther, a detailed discussion on the
findings of the inspection and the road ahead is conducted by the !eserve Bank with the
C"%LCM# and other senior functionaries of the bank and a monitorable action plan is
decided andLor supervisory action is taken, wherever warranted. The findings recorded in
the inspection report along with the responses of the C"%LCM# of the bank are placed
<9
before the B&. Based on the findings of the inspection and other inputs, a supervisory
rating is assigned to the bank. "fforts are afoot to move to a risk based supervision 5!B&6
approach, which envisages the monitoring of banks by allocating supervisory resources
and focusing supervisory attention depending on the risk profile of each institution.
The process involves continuous monitoring and evaluation of the appropriateness of the
risk management system in the supervised institution in relation to its business strategy
and e$posures, with a view to assessing its riskiness.
<;
?+? RIS) MANAGEMENT IN BAN)S
!isk is inherent in any commercial activity and banking is no e$ception to this rule.
!ising global competition, increasing deregulation, introduction of innovative products
and delivery channels have pushed risk management to the forefront of today’s financial
landscape. Ab-2-tD to %a&%e the r-!! an' tae a##ro#r-ate #o!-t-on /-22 be the eD to
!&""e!!+ It "an be !a-' that risk takers ill s!r"i"e# e$$ecti"e risk %anagers ill
prosper and risk a"erse are likely to perish+ In the regulated banking environment,
banks had to primarily deal with credit or default risk. ,s we move into a perfect market
economy, we have to deal with a whole range of market related risks like e$change risks,
interest rate risk, etc. %perational risk, which had always e$isted in the system, would
become more pronounced in the coming days as we have technology as a new factor in
today’s banking. Traditional risk management techni)ues become obsolete with the
growth of derivatives and off2balance sheet operations, coupled with diversifications.
The e$pansion in "2banking will lead to continuous vigilance and revisions of
regulations.
Building up a proper risk management structure would be crucial for the banks in the
future. Banks would find the need to develop technology based risk management tools.
The comple$ mathematical models programmed into risk engines would provide the
foundation of limit management, risk analysis, computation of risk2ad-usted return on
capital and active management of banks’ risk portfolio. Measurement of risk e$posure is
essential for implementing hedging strategies.
3nder Basel II accord, capital allocation will be based on the risk inherent in the asset.
The implementation of Basel II accord will also strengthen the regulatory review process
and, with passage of time, the review process will be more and more sophisticated.
Besides regulatory re)uirements, capital allocation would also be determined by the
market forces. "$ternal users of financial information will demand better inputs to
make investment decisions. More detailed and more fre)uent reporting of risk positions
to banks’ shareholders will be the order of the day. There will be an increase in the
<<
growth of consulting services such as data providers, risk advisory bureaus and risk
reviewers. These reviews will be intended to provide comfort to the bank managements
and regulators as to the soundness of internal risk management systems.
!isk management functions will be fully centrali+ed and independent from the business
profit centres. The risk management process will be fully integrated into the business
process. !isk return will be assessed for new business opportunities and incorporated
into the designs of the new products. ,ll risks P credit, market and operational and so on
will be combined, reported and managed on an integrated basis. The demand for !isk
,d-usted !eturns on Capital 5!,!%C6 based performance measures will increase.
!,!%C will be used to drive pricing, performance measurement, portfolio management
and capital management.
!isk management has to trickle down from the Corporate %ffice to branches or operating
units. ,s the audit and supervision shifts to a risk based approach rather than transaction
orientation, the risk awareness levels of line functionaries also will have to increase.
Technology related risks will be another area where the operating staff will have to be
more vigilant in the coming days.
Banks will also have to deal with issues relating to !eputational !isk as they will need to
maintain a high degree of public confidence for raising capital and other resources. !isks
to reputation could arise on account of operational lapses, opa)ueness in operations and
shortcomings in services. &ystems and internal controls would be crucial to ensure that
this risk is managed well.
The legal environment is likely to be more comple$ in the years to come. Innovative
financial products implemented on computers, new risk management software, user
interfaces etc., may become patentable. or some banks, this could offer the potential for
reali+ing commercial gains through licensing.
<@
,dvances in risk management 5risk measurement6 will lead to transformation in capital
and balance sheet management. #ynamic economic capital management will be a
powerful competitive weapon. The challenge will be to put all these capabilities together
to create, sustain and ma$imise shareholders’ wealth. The bank of the future has to be a
total2risk2enabled enterprise, which addresses the concerns of various stakeholders’
effectively.
!isk management is an area the banks can gain by cooperation and sharing of e$perience
among themselves. Common facilities could be considered for development of risk
measurement and mitigation tools and also for training of staff at various levels.
Ceedless to add, with the establishment of best risk management systems and
implementation of prudential norms of accounting and asset classification, the )uality of
assets in commercial banks will improve on the one hand and at the same time, there will
be ade)uate cover through provisioning for impaired loans. ,s a result, the C(, levels
are e$pected to come down significantly.
<A
CHAPTER: &
AN OVERVIE( OF PUNJAB NATIONAL BAN) LTD
@+* PNB PROFILE
'ith over /A million satisfied customers and 9<<A offices, (CB has continued to
retain its leadership position among the nationali+ed banks. The bank en-oys
strong fundamentals, large franchise value and good brand image. Besides being
ranked as one of India4s top service brands, (CB has remained fully committed to
its guiding principles of sound and prudent banking. ,part from offering banking
products, the bank has also entered the credit card 8 debit card businessB bullion
businessB life and non2life insurance businessB ?old coins 8 asset management
business, etc.
&ince its humble beginning in *A0; with the distinction of being the first Indian
bank to have been started with Indian capital, (CB has achieved significant
growth in business which at the end of March .110 amounted to !s /,<9,9</
crore. Today, with assets of more than !s .,9<,011 crore, (CB is ranked as the
/rd largest bank in the country 5after &BI and ICICI Bank6 and has the .nd largest
network of branches 59<<A including ./A e$tension counters and / overseas
offices6.#uring the S .11A210, with /0G share of low cost deposits, the bank
achieved a net profit of !s /,10* crore, maintaining its number %C" position
amongst nationali+ed banks. Bank has a strong capital base with capital ade)uacy
ratio as per Basel II at *9.1/G with Tier I and Tier II capital ratio at A.0AG and
;.1;G respectively as on March’10. ,s on March’10, the Bank has the ?ross and
Cet C(, ratio of only *.@@G and 1.*@G respectively. #uring the S .11A210, its’
ratio of priority sector credit to ad-usted net bank credit at 9*.;/G 8 agriculture
credit to ad-usted net bank credit at *[email protected] was also higher than the respective
national goals of 91G 8 *AG.
<0
(CB has always looked at technology as a key facilitator to provide better
customer service and ensured that its FIT strategy’ follows the FBusiness strategy’
so as to arrive at JBest itK. The bank has made rapid strides in this direction.
,longwith the achievement of *11G branch computeri+ation, one of the ma-or
achievements of the Bank is covering all the branches of the Bank under Core
Banking &olution 5CB&6, thus covering *11G of it’s business and providing
F,nytime ,nywhere’ banking facility to all customers including customers of
more than .111 rural branches. The bank has also been offering Internet banking
services to the customers of CB& branches like booking of tickets, payment of
bills of utilities, purchase of airline tickets etc.Towards developing a cost effective
alternative channels of delivery, the bank with more than .*;1 ,TMs has the
largest ,TM network amongst Cationalised Banks.
'ith the help of advanced technology, the Bank has been a frontrunner in the
industry so far as the initiatives for inancial Inclusion is concerned. 'ith it’s
policy of inclusive growth in the Indo2?angetic belt, the Bank’s mission is
JBanking for 3nbankedK. The Bank has launched a drive for biometric smart card
based technology enabled inancial Inclusion with the help of Business
CorrespondentsLBusiness acilitators 5BCLB6 so as to reach out to the last mile
customer. The BCLB will address the outreach issue while technology will
provide cost effective and transparent services. The Bank has started several
innovative initiatives for marginal groups like rickshaw pullers, vegetable
vendors, diary farmers, construction workers, etc. The Bank has already achieved
*11G financial inclusion in .*,91A villages.
Backed by strong domestic performance, the bank is planning to reali+e its global
aspirations. In order to increase its international presence, the Bank continues its
selective foray in international markets with presence in
ngkong, #ubai,Ea+akhstan, 3E, &hanghai, &ingapore, Eabul and Corway. , second branch in
@1
ngkong at Eowloon was opened in the first week of ,pril’10. Bank is also inthe process of establishing its presence in China, Bhutan, #IC #ubai, Canada
and &ingapore. The bank also has a -oint venture with "verest Bank Dtd. 5"BD6,
Cepal. 3nder the long term vision, Bank proposes to start its operation in i-i
Island, ,ustralia and Indonesia. Bank continues with its goal to become a
household brand with global e$pertise.
,mongst Top *111 Banks in the 'orld, FThe Banker’ listed (CB at .;1th place.
urther, (CB is at the **<<th position among 9A Indian firms making it to a list of
the world’s biggest companies compiled by the 3& maga+ine Forbes’.
Cew #elhi, >an ;I The #elhi2based (un-ab Cational Bank 5(CB6 has received the
necessary approvals for patenting its rating model 22 (CB Trac 22 for its entire
category of lending. The loans with e$posure of above !s .1 lakh have been rated
individually, while loans with e$posure under !s .1 lakh have been rated
segment2wise on portfolio basis as per the terms of Basel II accord. This means
that the bank would be able to do credit ratings on its own for its lendings.
In terms of rating, (CB already has data for default rates for the last five years.
7The results of the e$ercise are e$tremely satisfactory,7 BM Mittal, chief general
manager, (CB, said, when contacted.
The default rates and migration matri$ are comparable to that of leading credit
international rating agencies such as &tandard 8 (oor4s, Moody4s, itch and with
international benchmarks. The default rates are also within the limits given in
Basel2II. Mittal added that the bank is fully e)uipped to implement the stringent
norms. 7Though the deadline for the Basel II norms implementation has been
e$tended by !eserve Bank of India, (CB is ready to come up with the parallel
run,7 he added.
@*
F-nan"-a2 Per.or$an"e:
(un-ab Cational Bank continues to maintain its frontline position in the Indian banking
industry. In particular, the bank has retained its C3MB"! %C" position among the
nationali+ed banks in terms of number of branches, #eposit, ,dvances, total Business,
operating and net profit in the year .11A210. The impressive operational and financial
performance has been brought about by Bank’s focus on customer based business with
thrust on &M", ,griculture, more inclusive approach to bankingB better asset liability
managementB improved margin management, thrust on recovery and increased efficiency
in core operations of the Bank.
The performance highlights of the bank in terms of business and profit are shown belowI
T!espective figure for the corresponding financial year
(arameters Mar41@ Mar41A Mar410 C,?!
%perating (rofitT /<*@ 911< ;@99 .<.1.
Cet (rofitT *;91 .190 /10* 9*.<@
#eposit */0A<1 *<<9;@ .10@<1 ...9@
,dvance 0<;0@ **0;1. *;9@1/ .<.;;
Total Business ./<9;< .A;0;0 /<99</ .9.*;
5!s.Crores6
ORGANIKATIONAL STRUCTURE OF
@.
PUNJAB NATIONAL BAN)
Hea' O..-"e
C-r"2e O..-"e!
8@=9
Bran"he! 8?,L<9
@+, CORPORATE BAN)ING AT PNB
(CB has introduced a new scheme for property owners having their property situated in
MetroL3rbanL &emi 3rbanLrural centres and who have let out such properties.
@/
E2-%-b-2-tD
(roperty %wners having their properties situated in metro, urban, semi2urban and rural
areas who have leased out such properties to the followingI
5i6 (ublic &ector 3ndertakings L ?ovt. L &emi L &tate ?ovt. 8 reputed
corporates, Banks, inancial Institutions, Insurance Companies and
Multinational Companies.
5ii6 !eputed private schoolsLcolleges 5approved byLaffiliated to &tate
BoardL3niversityL ,ICT"L any other govt. body6.
5iii6 !eputed private hospitalsL nursing homes.
Nat&re M E0tent o. 2oan
Re$a-n-n% #er-o' o. the 2ea!e N&ant&$ o. Loan
8Ma0-$&$ &#to .o22o/-n% Oa%e o. the
@9
.&t&re 2ea!e renta2! re"e-4ab2e .or
&ne0#-re' #er-o' o. 2ea!e9
3pto / years A1
Beyond / years 8 upto ; years @1
Beyond ; years 8 3pto @ years <;
Beyond @ years 8 3pto *1 years ;;
TBranches while financing under the scheme should ensure that the T#&, wherever
applicable have been taken into account.
Se"&r-tD
,ssignment of lease rentals.
")uitable mortgage of the leased property or any other immovable propertyI2
• In case of loans having repayment period upto ; years, the amount of loan should
not e$ceed the value of the property mortgaged.
• In case of loans having repayment period beyond ; years, the amount of loan
should not e$ceed @;G of the value of the property mortgaged.
In "a!e o. Co$#anD 3 Per!ona2 G&arantee o. #ro$oter '-re"tor!.
? !ate of interest
@;
? !epayment
Ma$imum *.1 monthly installments or remaining period of lease whichever is
less.
? (rocessing ee
1.@1G of the loan amount U &ervice Ta$ 8 "ducation Cess
? #ocumentation Charges
!s..@1L2 upto !s.. Dac U &ervice Ta$ 8 "ducation Cess
!s.9;1L2 over !s.. Dac U &ervice Ta$ 8 "ducation Cess
? "$im inance
Ser4-"e! o..ere' to E0#orter!
? (re2shipment finance in foreign currency and Indian rupees
? (ost2shipment finance in foreign currency and Indian rupees
? :andling e$port bills on collection basis
? %utward remittances for purposes as permitted under "$change Control
guidelines
? Inward remittances including advance payments
? Ruoting of competitive rates for transactions
? Maintenance of "$change "arners oreign Currency 5""C6 accounts
@<
? ,ssistance in obtaining credit reports on overseas parties
? orfeiting for medium term e$port receivables
Ser4-"e! o..ere' to I$#orter!
? "stablishment of Import Detters of Credit covering import into India and handling
of bills under Detter of Credit
? :andling of import bills on collection basis
? !emittance of advance payment against imports
? %ffering utilisation of (CC 5 pre2shipment credit in foreign currency6 for
imports
? Credit reports on overseas suppliers
"$change "arners oreign Currency 5""C6 #eposits &cheme
The "$change "arners oreign Currency 5""C6 #eposits &cheme was started by !BI in
the year *00. with the introduction of Diberalised "$change !ate Management &ystem.
3nder this scheme, the recipient of inward remittances, e$porters and other eligible
bodies are allowed to keep a portion of their inward remittances L e$port proceeds in
foreign currency with the banks in India which can later be utilised for permissible
purposes.
@@
(CB sets up connectivity with the Customs #eptt. for the benefit of e$portersLimportersI
To provide efficient service to our importerLe$porter clients, (CB has set up connectivity
with the Customs #epartment to facilitate payment of custom duty and receipt of duty
draw back by the importerLe$porter clients through the electronic media. 3nder this
system of "lectronic #ata Interchange 5"#I6, Custom ,uthorities process the shipping
bills and also effect on line payment of duty draw back for e$porters. urther, they
undertake processing of Bill of "ntry and deposit of custom duty for imports. This is a
pilot pro-ect in the country successfully implemented at Indira ?andhi International
,irport, Custom
use branch of (CB. This has now been replicated at (CB4s e$tensioncounters at Inland Container #epot, Tughlakabad, #elhi and (atpar ?an-, #elhi.
LOANS TO MANUFACTURING INDUSTRIES
To set up &&I units, for purchase of fi$ed assets and meeting working
capital needs.
@A
(3!(%&"
• or ac)uisition of fi$ed assets 5plant, machinery, land, building,
tools, etc.6.
• or working capital re)uirements within the ceiling limits of !s /
lakh L !s ; lakh as the case may be.
"DI?IBIDITS %! IC,CCIC? &&I
Technically )ualified entrepreneurs and L or those having ade)uate technical
practical e$perience in a particular field of technology.
M,!?IC
or Term Doan
5i6 3pto !s . lakh Cil
5ii6 ,bove !s . lakh 3pto !s / lakh *1G
5iii6 ,bove !s / lakh 3pto !s 9 lakh *;G
5iv6 ,bove !s 9 lakh 3pto !s ; lakh .1G
,M%3CT % D%,C
Ma$imum !s / lakh in case of individuals and !s ; lakh in case of
partnership firms or -oint stock companies. 5In case of ancillary unit or
industry with -oint financing of & L Bank higher assistance of !s ; lakh for
individual and !s *1 lakh for groups6.
!"(,SM"CT
; to @ years for term loan including moratorium period.
C%DD,T"!,D &"C3!ITS
Co collateral security for loans upto !s ; lakh. or loans in e$cess of !s ;
lakh and upto !s .; lakh no collateral security re)uired, if the unit is having
good track record 8 financial position. In other cases collateral security or
third party guarantee is asked only in cases where primary security is
inade)uate or for other valid reasons and not as a matter of routine.
D%C,TI%C % (!%>"CT
(referably the unit should be set up in an industrial estate where there is
provision for suitable accommodation with the re)uisite facilities such as
water, power, transport and communication. (ro-ect set up in industrial
areas, +ones or sites specifically declared as undeveloped by the &tate
@0
?overnment, concerned agencies L departments will be considered.
The re)uired accommodation should, as far as possible, be ac)uired on
rental or hire2purchase basis. This will ensure that the investment in fi$ed
assets is made for purchase of the re)uired machinery and e)uipment,
thereby enabling the entrepreneurs to make the best use of our financial
assistance.
CHAPTER: '
AN OVERVIE( OF ICICI BAN) LTD
L+* ICICI PROFILE
ICICI Bank is India4s second2largest bank with total assets of about !s. * trillion and a
network of about ;91 branches and offices and over *,111 ,TMs. ICICI Bank offers a
wide range of banking products and financial services to corporate and retail customers
through a variety of delivery channels and through its speciali+ed subsidiaries and
affiliates in the areas of investment banking, life and non2Banking , venture capital, asset
management and information technology. ICICI Bank4s e)uity shares are listed in India
on stock e$changes at Chennai, Mu+affarnagar, Eolkata and =adodara, the &tock
"$change, Mumbai and the Cational &tock "$change of India Dimited and its ,merican
#epositary !eceipts 5,#!s6 are listed on the Cew Sork &tock "$change 5CS&"6.
A1
ICICI Bank was originally promoted in *009 by ICICI Dimited, an Indian financial
institution, and was its wholly owned subsidiary. ICICI4s shareholding in ICICI Bank was
reduced to 9<G through a public offering of shares in India in fiscal *00A, an e)uity
offering in the form of ,#!s listed on the CS&" in fiscal .111, ICICI Bank4s ac)uisition
of Bank of Madura Dimited in an all2stock amalgamation in fiscal .11*, and secondary
market sales by ICICI to institutional investors in fiscal .11* and fiscal .11.. ICICI was
formed in *0;; at the initiative of the 'orld Bank, the ?overnment of India and
representatives of Indian industry. The principal ob-ective was to create a development
financial institution for providing medium2term and long2term pro-ect financing to Indian
businesses. In the *001s, ICICI transformed its business from a development financial
institution offering only pro-ect finance to a diversified financial services group offering a
wide variety of products and services, both directly and through a number of subsidiaries
and affiliates like ICICI Bank. In *000, ICICI become the first Indian company and the
first bank or financial institution from non2>apan ,sia to be listed on the CS&".
,fter consideration of various corporate structuring alternatives in the conte$t of the
emerging competitive scenario in the Indian banking industry, and the move towards
universal banking, the managements of ICICI and ICICI Bank formed the view that the
merger of ICICI with ICICI Bank would be the optimal strategic alternative for both
entities, and would create the optimal legal structure for the ICICI group4s universal
banking strategy. The merger would enhance value for ICICI shareholders through the
merged entity4s access to low2cost deposits, greater opportunities for earning fee2based
income and the ability to participate in the payments system and provide transaction2
banking services. The merger would enhance value for ICICI Bank shareholders through
a large capital base and scale of operations, seamless access to ICICI4s strong corporate
relationships built up over five decades, entry into new business segments, higher market
share in various business segments, particularly fee2based services, and access to the vast
talent pool of ICICI and its subsidiaries. In %ctober .11*, the Boards of #irectors of
ICICI and ICICI Bank approved the merger of ICICI and two of its wholly owned retail
A*
finances subsidiaries, ICICI (ersonal inancial &ervices Dimited and ICICI Capital
&ervices Dimited, with ICICI Bank. The merger was approved by shareholders of ICICI
and ICICI Bank in >anuary .11., by the :igh Court of ?u-arat at ,hmedabad in March
.11., and by the :igh Court of >udicature at Mumbai and the !eserve Bank of India in
,pril .11.. Conse)uent to the merger, the ICICI group4s financing and banking
operations, both wholesale and retail, have been integrated in a single entity.
L+, CORPORATE BAN)ING AT ICICI BAN)
E!"ro/ A""o&nt
,t ICICI Bank, we e$tend the trust you have in us by providing you with escrow services
for safe custody of assets or for revenue streams. These services are customised to meet
your needs. &ome of the escrow services offered are in relation to the followingI
• (ro-ect financing
• #ebt repayments
• &ale purchase transactions
• Mergers and ac)uisitions
Feat&re!
• &pecialised and dedicated services
• !isk reduction in new relationships
A.
• &ecurity towards contingencies
• Mandatory in certain transactions
Bene.-t!
• &implified documentation
• Customised transaction structure
• %nline tracking of your escrow account
F-0e' De#o!-t
Corporates can invest their surplus funds in fi$ed deposits for a wide range of tenures.
The minimum deposit amount is !s.*1,111. %ther features of the account areI
unding through a debit to the operative accountLche)ue for clearing
'hile interest is compounded )uarterly, payment of interest is )uarterly, monthly or on
maturity
Interest payouts can be through credit to your account or through banker4s che)ue
Bene.-t!
• 'ide range of tenures
• Choice of investment plans
• (artial withdrawal permitted
• ,vailability of auto2renewal facility
Str&"t&re' F-nan"e
In the &tructured inance space, our approach is totally client2centric. 'e believe that
every problem is uni)ue and therefore we endeavour to develop and offer the widest
range of solutions tailored to address specific re)uirements of each client. &ervices
offered areI
A/
• Str&"t&re' .-nan"e .or Cor#orate "2-ent!
The &tructured inance ?roup aims to enable its corporate clients access funds through
cost efficient structures. The group4s strength lies in its e$perience and e$pertise in
providing tailor2made solutions after understanding the client4s re)uirements.
To deliver these customi+ed structures, it leverages on ICICI Bank4s global presence,
industry e$pertise, large underwriting capability and comprehensive product suite. &trong
capabilities in end2to2end solutions and timely e$ecution have enabled ICICI Bank to
become one of the leading arrangers and underwriters of structured finance transactions.
The &tructured inance ?roup provides an array of services to its clients includingI
• ,c)uisition finance
• ,sset2backed finance
• !eceivables purchase
• &ubordinated debt
• Convertibles L :ybrid instruments
• Con2recourse structures
In4e!t$ent o##ort&n-t-e! -n !e"&r-t-:e' 'ebt -n!tr&$ent!
'e offer a plethora of investment opportunities in !e"&r-t-!e' 'ebt -n!tr&$ent! 8SDI!9
involving both Pa!!3Thro&%h and PaD3Thro&%h structures whichI
• offer a premium in yield to corporate debt instruments having similar risk profiles
• are customi+able to meet both )uantum and tenor re)uirements of the investors
• have well2diversified risk profiles
• could be customi+ed 5using different levels of credit protection6 to meet the
specific risk appetites of the investors
• could be offered as collateral by the investors at a later date for additional
leveraging
A9
or clients desirous of growth through the inorganic route, we can structure solutions
around sale of specific asset category5ies6 as per the clients4 needs.
urther, we could also structure solutions for clients desirous of getting involved in
market making or investing at specific points in time through structuring of appropriate
(ut %ptions.
Se"&r-t-:at-on M !tr&"t&re' .-nan"e a'4-!orD !o2&t-on!
'e help structure !e22-n% or b&D-n% o. a!!et #ort.o2-o! 5in whole or in part6 for clients
through securitisation or otherwise, thereby effectively limiting their e$posures to future
risks arising out of such asset pools. 'e can even offer to buy such identified asset pools
from clients if the commercials suit the Bank4s risk2return appetite.
Being involved in more than *11 securitisation transactions till date, we can provide
advice to clients for !tr&"t&r-n% !e"&r-t-!at-on tran!a"t-on efficiently. 'e have the
distinction of structuring and placing some of the largest securitisation transactions in the
Indian market including the !o2-tarD transaction which e0"ee'e' USD *+>> b-22-on in
si+e.
Traditionally Corporate borrowing has been on the basis of strength or weakness of
balance sheet, with the credit )uality of the borrower being the single most important
factor. But of late the borrowings are being closely linked to the value of the asset or the
revenue earning capability of the asset. This could be achieved by means of appropriate
A;
structuring wherein customi+ed borrowing propositions could be evolved for different
business.
, few e$amples of such structured financing could entail evolving solutions around
dealer financing, vendor financing, transporter financing, brand financing, "$port 8
(acking Credit 5"(C6 contract financing, investment monetisation, etc.
Deveraging on our rich e$perience and wide reach in the Indian debt markets, we can
provide arran%-n% !er4-"e! for clients interested in securitising their assets.
Being a &"BI registered Category 2 I merchant banker, we can provide &n'er/r-t-n%
!er4-"e! for securitisation transactions originated by clients.
'e can also provide #rote"t-on to the "2-ent .ro$ -ntere!t rate H "&rren"D r-!! for
their structured finance e$posures through interest rate swaps, currency swaps and
associated derivatives.
'e can also #ro4-'e #rote"t-on to the "2-ent .ro$ "re'-t r-!! for their structured
finance e$posures by tailoring suitable credit protection offerings.
'e can also participate in $aret $a-n% or investing at specific points in time through
structuring of appropriate P&t O#t-on!.
Dea2er .-nan"-n%
#ealers of large corporates can be provided finance which can be either with a limited
recourse 5on a first loss basis6 to the corporate or based on the creditworthiness of the
dealer and its relationship with the manufacturer. Bill discounting L 'eb2based financing
withLwithout recourse, Cash credit L #emand loan facilities, inancing for auto dealers,
could be some of the e$amples in this space.
A<
Ven'or .-nan"-n%
=endor financing can be structured as a direct line of credit to the vendors specifically to
be used for supplies to the company or as a revolving line for discounting bills raised by
the vendors on the company. The former can be integrated into the Internet banking
model of ICICI Bank and a web2based vendor financing structure can be created. The
web2based structure would offer the company the convenience of operating the credit line
of the vendors for making payments through the net immediately after accepting goods.
=endor financing programs can be set up for specific vendors recommended by the
company. Through the widespread branch network of ICICI Bank, the program can
include vendors at multiple locations.
Tran!#orter .-nan"-n%
This is a product designed to finance the truck operators who are dedicated transport
service providers to a company. The truck operators are typically small players and hence
have limited sources for raising funds. It is likely that the vehicles used by them have
been financed at a high cost which they would indirectly be passed on to the company in
the form of increased freight rates. , financing facility could be set up for the truck
operators with some support from the corporates they serve, which could be used for
refinancing their e$isting vehicles or could be used for e$pansion of their fleet in line
with the company4s growth re)uirements.
Bran' .-nan"-n%
Borrowings could be structured against security of specific brand5s6 or a sale and lease
back of the brand5s6. Borrowers could even be financed to fund purchase of a brand. In
the first option, the brand would be mortgaged in the name of the lender and only in the
event of default of the loan would the brand be transferred to the lender. The lender could
alternatively purchase the brand from the borrowing company and lease L license it out to
the same entity. ,fter e$piry of the lease L license period the brand could either revert to
the company or be sold to someone else. In the second option, the loan could be given to
A@
the company e$clusively for purchasing the brandLs which would then be mortgaged in
the name of the lender.
In4e!t$ent $onet-:at-on
This is a product designed to cater to the re)uirement of the business groups to streamline
the cross2holdings within their own group companies. , Trust could be set up to ac)uire
the intra2group cross holdings from the various companies in the group at current market
prices. To fund this, the Trust would issue (ass2through Certificates 5(TCs6 to the lender.
The take2out could be through a put option provided by the identified holding company
of the group wherein the lender could sell the (TCs to the put option provider at a pre2
determined price on a fi$ed date. The deal could be secured through a pledge of shares.
ProBe"t F-nan"e Gro&#
ICICI Bank (ro-ect inance ?roup 5(?6 has developed comprehensive domain
e$pertise and knowledge in the infrastructure 8 manufacturing sector, having ensured
timely financial closure of several big ticket pro-ects. (? has unmatched capabilities of
discovering, creating and structuring pro-ect finance transactions.
Gro&# !tr&"t&re
(? is the J%ne &top &hopK fulfilling the funding re)uirements of ?reenfield 8
Brownfield pro-ects in infrastructure 8 manufacturing sector. It comprises of three sub2
groups as followsI
• Infrastructure inance ?roup 5I?6I I? caters to the funding re)uirement in the
infrastructure sector like (ower, Telecom, !oads, (orts, ,irports, !ailways and
3rban infrastructure.
• Manufacturing (ro-ects group 5M(?6I M(? caters to the funding re)uirement in
the manufacturing sector like %il 8 ?as, &teel, ,luminium, Cement, ,uto, and
Mining
AA
• Infrastructure ")uity ?roup 5I"?6I I"? is engaged in providing e)uity support to
pro-ects in various established as well as upcoming sectors.
The pro-ect finance team of ICICI Bank has developed substantial insight in the
dynamics and trends in the infrastructure sector, having assisted the ?overnment of India
in formulating policies relating to various segments of the infrastructure sector. The
uni)ue insight and understanding thus derived from the e$ercise has not only enabled
ICICI Bank to provide optimum solutions to its clients, but has also provided ICICI Bank
with an appropriate decision support for strategic measures, going forward.
Ser4-"e o..er-n%!
(? provide a wide range of services including the followingI
• !upee term loans
• oreign currency term loans
• "$ternal Commercial Borrowings
• &ubordinated debt and me++anine financing
• "$port Credit ,gency backed funding
• Con fund based facilities like Detter of Credit, Bank ?uarantee, &upplier’s Credit,
Buyer’s Credit etc.
• ")uity funding
Te"hno2o%D F-nan"e
The Technology inance ?roup 5T?6 of ICICI Bank implements various programmes
for international agencies such as 'orld Bank and 3&,I#. The programmes currently
running are designed to help the industry and institutions undertake collaborative !8#
and technology development pro-ects. These programmes focus on the following sectorsI
• BiotechnologyL :ealthcare
A0
• "lectrical
• "lectronics 8 communication
• "nergy
• "nvironment
• Materials
• ManufacturingL Control technologies
• inancialL &ecurity services
The core group handling these programmes assists pro-ects, which introduce new
concepts, products, and processes that will have a positive impact on the industry and
help in improving competitiveness and operational efficiencies.
The programmes being implemented areI
Te"hno2o%D De4e2o#$ent an' Co$$er"-a2-:at-on 8TDC9 #ro%ra$$e
The ob-ective of this programme is to facilitate technology development,
commercialisation and strengthen Indo23& technology collaboration. Till date, the
Technology inance ?roup has assisted .0 pro-ects. (rivate sector companies which
would like to commerciali+e innovative concepts, products and processes in the areas of
energy, environment 8 healthcare are eligible for concessional !upee Term Doans up to a
ma$imum of ;1G of the pro-ect cost. The repayment is structured as per pro-ect and
programme re)uirements.
G&-'e2-ne! .or F-nan"-a2 A!!-!tan"e
01
The pro-ect is evaluated in terms of innovative content, likely impact on industry and
Indo23& linkages. The company is re)uested to submit a pro-ect profile covering the
following informationI
• Brief particulars of the company
• (ro-ect title
• #escription of e$isting facilities
• Current development activities
• (roposed commercialisation pro-ect
• Innovative content of the pro-ect in terms of comparison with current methods and
aim of pro-ect in )uantitative terms
• Ma-or stepsL activities involved in proposed ""L"&C%L#&M pro-ect
• Brief on product L processes to be developed
• Brief particulars of the work already carried out
• #etails on Indo23& technology collaboration 5if any6
• Cost of pro-ect with breakup and proposed means of financing
• &chedule of implementation
• Business plan for commercialisation
• #etails on market si+e, demandLsupply drivers, etc.
The programme is currently under renewal
The ob-ective of this programme is to stimulate technology development through private
investment in !8# and strengthen industry 8 technology institution 5TI6 collaboration.
The companies eligible for availing these facilities should be from the private sector
undertaking !8# in collaboration with TI.
Fo22o/-n% are the e2-%-b2e !e"tor!
• BiotechnologyL :ealthcare
• "lectrical
• "lectronics 8 communication
• "nergy
• "nvironment
0*
• Materials
• ManufacturingL Control technologies
• inancialL &ecurity services
The facilities include concessional !upee Term Doans of up to ;1G of the eligible pro-ect
cost. The repayment is structured as per pro-ect and programme re)uirements. Till date
the &(!",# has assisted *.1 pro-ects.
?uidelines for inancial ,ssistanceI To avail the facilities, the companies are re)uested to
submit a pro-ect profile covering the following informationI
• (ro-ect title
• Brief particulars of the company
• #escription of e$isting facilities
• Current !8# activities
• (roposed !8# pro-ect
• Collaborating technology institution
• Brief on product L processes to be developed
• Innovative content of the pro-ect in terms of comparison with current practice and
aim of pro-ect in )uantitative terms
• Ma-or steps L activities involved in proposed !8#
• Break2up of activities to be taken up by the company and by the Technology
Institution
• Brief particulars of the work already carried out
• Cost of pro-ect with breakup and proposed means of financing
• &chedule of implementation
• Business plan for commercialisation
• #etails on market si+e, demandLsupply drivers, etc.
The pro-ect is evaluated in terms of
• Innovative content 8 likely impact
• Contribution from the technology institution
0.
• Commercial potential.
DOCUMENTS
(lease return the form along with the following documents
*. irmLCompany profile
.. Dist of ; ma-or suppliers and customers including contact person and contact no
/. Constitution documents
9. ,udited financial statements of last / years along with IT return and ta$ audit report
and schedules and notes to accounts
;. Bank statement of the last < months
<. IT (,C card of concern 5entity6 and all (romoters L #irectors L (artners
@. (rovisional Balance &heet and (LD aLc of ...............2................... as certified by
proprietor L partner L director
(ro-ected Balance &heet and (LD aLc of ....,...........2................... as certified by proprietor L
partner L director
A. (roprietor4s L (artner4sL#irectors personal IT! and Balance &heet of last * year 2 C,
certifiedLsigned by individual
0. Current performance 5 (LD 8 Balance &heet 6 from ,pril ........................,.... to till date
*1. =,T assessment order or sales ta$ registration certificate or shop 8 establishment or
=,T return
or Dimited Co.
**. Datest list of #irectors
*.. orm noI /. and shareholding pattern or annual return
or (artnership
*/. !egistration certificate in case of partnershipLapplication for registration
(roperty papers 5for loan against collaterals6
*9. Title deed
*;. Completion certificate 8 occupancy certificate
*<. Ta$ receipts 8 sanction plan
0/
,dditional documents for loan against credit card securitisation
*@. C, certified last *. months credit card sales of Master 8 =isa only 5e$cluding
#inners 8 ,me$6
If applicable
*A. Doan no of ICICI Bank loans 5if any6
*0. Datest * year audited financials of sister concern 5If any6
.1. ,greement with principal 5if any6 2 ,pplicable to distributorsLsole selling
agentsLfranchisee etc.
.*. "$isting Banks sanctions letter 5if applicable6.
... ,ny other document as re)uired and deemed fit.
CHAPTER: (
AN OVERVIE( OF BLISS PHARMA LTD
<+* PHARMA INDUSTRY
The Indian pharmaceutical industry is a success story providing employment for millions
and ensuring that essential drugs at affordable prices are available to the vast population
of this sub-continent.”
R-"har' Ger!ter
09
The In'-an Phar$a"e&t-"a2 In'&!trD today is in the front rank of India’s science2based
industries with wide ranging capabilities in the comple$ field of drug manufacture and
technology. , highly organi+ed sector, the Indian (harma Industry is estimated to be
worth V 9.; billion, growing at about A to 0 percent annually. It ranks very high in the
third world, in terms of technology, )uality and range of medicines manufactured. rom
simple headache pills to sophisticated antibiotics and comple$ cardiac compounds,
almost every type of medicine is now made indigenously.
(laying a key role in promoting and sustaining development in the vital field of
medicines, In'-an Phar$a In'&!trD boasts of )uality producers and many units
approved by regulatory authorities in 3&, and 3E. International companies associated
with this sector have stimulated, assisted and spearheaded this dynamic development in
the past ;/ years and helped to put India on the pharmaceutical map of the world.
The Indian (harmaceutical sector is highly fragmented with more than .1,111 registered
units. It has e$panded drastically in the last two decades. The leading .;1 pharmaceutical
companies control @1G of the market with market leader holding nearly @G of the market
share. It is an e$tremely fragmented market with severe price competition.
The pharmaceutical industry in India meets around @1G of the country4s demand for bulk
drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules,
orals and in-ectibles. There are about .;1 large units and about A111 &mall &cale 3nits,
which form the core of the pharmaceutical industry in India 5including ; Central (ublic
&ector 3nits6. These units produce the complete range of pharmaceutical formulations,
i.e., medicines ready for consumption by patients and about /;1 bulk drugs, i.e.,
chemicals having therapeutic value and used for production of pharmaceutical
formulations.
ollowing the de2licensing of the pharmaceutical industry, industrial licensing for most of
the drugs and pharmaceutical products has been done away with. Manufacturers are free
to produce any drug duly approved by the #rug Control ,uthority. Technologically
0;
strong and totally self2reliant, the pharmaceutical industry in India has low costs of
production, low !8# costs, innovative scientific manpower, strength of national
laboratories and an increasing balance of trade. The (harmaceutical Industry, with its rich
scientific talents and research capabilities, supported by Intellectual (roperty (rotection
regime is well set to take on the international market.
<+, CASE FACTS
<+,+*+ COMPANY PROFILE
B2-!! G4! Phar$a L-$-te' was incorporated on **th #ecember, *0A9 as (ublic Dimited
Company. It is listed on Bombay and #elhi &tock "$change. The Manufacturing (lant is
located at (alghar 5appro$imately 01 kms from Bombay6 in an industrial area which is
well developed with all infra2structural facilities. The plant is *.; kms. from (alghar
!ailway &tation on the 'estern !ailway. The company4s most uni)ue product is 4Today4
0<
=aginal Contraceptive, a safe female contraceptive aimed at furthering planned
parenthood and is also an established method for preventing conception
Bliss ?vs (harma Dimited was incorporated on **
th
#ecember, *0A9 as (ublic Dimited
Company. It is listed on Bombay and #elhi &tock "$change. The Manufacturing (lant is
located at (alghar 5appro$imately 01 kms from Bombay6 in an industrial area which is
well developed with all infra2structural facilities. The plant is *.; kms. from (alghar
!ailway &tation on the 'estern !ailway. The company4s most uni)ue product is 4Today4
=aginal Contraceptive, a safe female contraceptive aimed at furthering planned
parenthood and is also an established method for preventing conception.
Bliss ?vs (harma Dimited has the most modern plant to manufacture emale
Contraceptives, &oft (essaries and &uppositories. Its most popular product is 4Today4
=aginal Contraceptive pessaries containing Cono$ynol 0. Bliss also manufactures to 3.&.
specification vaginal pessaries of Clotrima+ole 8 (ovidone Iodine in addition to ,nal
&uppositories for treatment of (iles.
BDI&& complies with all norms laid down by ood 8 #rug ,dministration for
manufacture of its products and maintains high International ?M( standards.
BDI&& also manufactures wide range of (essary ormulations, &uppository
ormulations, Calcium (reparation, (rotein (owders, Iron (reparation, ,ntibiotics,
,nalgesic 8 ,ntipyretics, !espiratory, ,nti2inflammatory, #ermatological (reparations,
,nti2#iarrhoeal products.
<+,+,+ LOCATION
It is a sophisticated automatic plant situated at (alghar 5appro$. 01 kms away from
Mumbai City6 in an Industrial area which is well2developed with all Infra2structural
facilities. This site is around *.; kms away from (alghar !ailway &tation on the 'estern
!ailway and is well2connected by !oad and !ail to most parts of the country, including
Mumbai.
The plant aims to be as the most modern and one of its kinds in Indian sub2continent, to
manufacture suppositories. Complete overhaul and annual maintenance has kept the plant
in e$cellent condition and fully operational with minimum down time. &pares and
0@
consumables are maintained at proper levels to prevent unnecessary delays and the
company has made efforts to employ a )ualified Maintenance "ngineer since production
should not be hampered in any way.
<+,+7+ A(ARDS AND ACCOLADES
Bliss ?=& (harma receives award from (harme$il
In recognition of commendable performance in e$ports of pharmaceuticals Bliss ?=&
(harma has announced that the company has received an ,ward from (harme$cil,
%utstanding "$port (erformance ,ward in the recognition of commendable performance
in the e$ports of pharmaceuticals in the category of &mall &cale Industries for the year
.11A2.110.
<+,+?+ PRODUCTS
Ant-$a2ar-a2
A2a0-n G4-ther P3A2a0-n
G!&nate Lonart
Ana2 S&##o!-tor-e!
Re"to2 Poro0-"a$ Para.en
Vo$-t-n S2-#-:e$ Ano$e0
Pro"h2o#era:-ne Con2a0 1ta"D
Me2o0-"a$ Re"t"-n G2D"er-n
0A
Va%-na2 Pe!!ar-e!
I$a
2e G4%D2 Ter"ona2eVa%-' G4%D2 3 N C2-n'e$D"-n
Po4-' H Ge4-' B2-!!.a!t H GDnan.ort )2o4-na2
M-"o
2e B2-!!no0 H (e22%Dna0 E"o
2e Va%--t Genera2
Lo.na" Co$-t K-n4-te
F&nba"t3A A"e"2o.ena" G&'a#et
G4.2&" C2a$o0-n Gba"t-n
91
<+7 FINANCIAL DATA
B,D,CC" &:""T ,& ,T /*&T M,!C: .110
5!s. In crores6
Balance sheet
Mar ' 09 Mar ' 08
Sources of funds
Owner's fund
Equity share capital 10.1 !."#
Share application $oney % %
&reference share capital % %
'eser(es ) surplus 8*.+ ##."
,oan funds
Secured loans +."1 1+.+
-nsecured loans % %
.otal 99.9 *".1
00
-ses of funds
/i0ed assets
1ross 2loc3 ".# +1.
,ess 4 re(aluation reser(e % %
,ess 4 accu$ulated depreciation 10.1* !.!
5et 2loc3 +".! 1".*
Capital wor3%in%pro6ress 0.1 0.0"
7n(est$ents % %
5et current assets
Current assets8 loans )
ad(ances
10+.#! 9+.*#
,ess 4 current lia2ilities )
pro(isions
+*.1+ .9
.otal net current assets *#."" #9.*
Miscellaneous e0penses not
written
% %
.otal 99.9 *".1
*11
&rofit loss account
Mar ' 09 Mar ' 08
7nco$e
Operatin6 inco$e 1+.9! 10+."
E0penses
Material consu$ed !9.8" "".#9
Manufacturin6 e0penses +." +.09
&ersonnel e0penses +.!" +
Sellin6 e0penses !.*1 ".#8
9d$instrati(e e0penses 1+.0 *.#
E0penses capitalised % %
Cost of sales 9.!# !0.!+
Operatin6 profit 9.1 "1.**
Other recurrin6 inco$e 0.19 0.09
9d:usted &B;7. 9."9 "1.8!
/inancial e0penses +.+! 1.8
;epreciation .#9 +.9
Other write offs % %
9d:usted &B. .!" *.##
.a0 char6es +.** 1.+*
9d:usted &9. 0.8* !.+8
5on recurrin6 ite$s !.*1 %1.1!
*1*
Other non cash ad:ust$ents %0.0 0.98
'eported net profit *.## !.09
Earni6s 2efore appropriation *.1" 9.01
Equity di(idend 1.## 0.!#
&reference di(idend % %
;i(idend ta0 0.+! 0.11
'etained earnin6s *1. 8.+#
CHAPTER: )
Ca!e !t&'D ana2D!-!
=+*+ ICICI RATING MODEL
ICICI Bank’s corporate banking strategy is based on providing customi+ed financial
solutions to clients, tailored to meet their specific re)uirements. The corporate banking
strategy focuses on careful management of credit risk and ade)uate return on risk capital
through risk2based pricing and proactive portfolio management, rapid growth in fee2
based services and e$tensive use of technology to deliver high levels of customer
satisfaction in a cost effective manner.
F-nan"-a2 #er.or$an"e
anufacturing Ma$. &core Co.&core
(arameter !ange &core 'eight
TurnoverLtotal
income
WX @;1 mn ; 9G ; .1 .1
;;1 to @;1 mn 9
911 to ;;1 mn /
.;1 to 911 mn .
*11 to .;1 mn *
Y*11 mn 1
Turnover ?rowth WX*;G ; .G ; *1 *1
*.G to *;G 9
*1.
0G to *.G /
<G to 0G .
/G to <G *
Y/G 1
%perating margin
5(B#ITLT%IG6
WX*AG ; ;G ; .; .;
*<G to *AG 9
*/G to *<G /
*1G to */G .
<G to *1G *
Y<G 1
Interest coverage
ratio
WX; times ; .G ; *1 *1
9 to ; times 9
/ to 9 times /
. to / times .
*.; to . times *
Y*.; times 1
Total debt to net
cash accruals
YX9 ; 9G ; .1 .1
9 to < 9
< to @ /
@ to A .
A to *1 *
W*1 1
#ebtors collection
period
YX<1 days ; /G . *; <
<1 to 01 9
01 to *.1 /
*.1 to *;1 .
*;1 to *A1 *
W*A1 days 1
Cetworth WX.11 mn ; .G ; *1 *1
*;1 to .11 mn 9
*11 to *;1 mn /
;1 to *11 mn .
/1 to ;1 mn *
Y/1 mn 1
T%DLTC' YX* ; ;G * .; ;
* to *..; 9
*..; to *.; /
*.; to *.@; .
*.@; to ..; *
W..; 1
Current ratio WX*.@; times ; 9G ; .1 .1
*.// to *.@; 9
*..; to *.// /
*1/
*.*; to *..; .
* to *.*; *
Y* 1
Inventory to
turnover ratio
YX/1 days ; .G 1 *1 1
/1 to 9; 9
9; to <1 /
<1 to @; .
@; to 01 *
W01 days 1
Co. of years
(rofitable
More than *1
years
; <G / /1 *A
Minimum *1
years
9
Minimum A
years
/
Minimum ;
years
.
Minimum .
years
*
Dess than .
years
1
(,T 5G6 WX<G ; .G ; *1 *1
;G to <G 9
9G to ;G /
/G to 9G .
.G to /G *
Y.G 1
Total 9*G 9< .1; *;9
B&!-ne!! !e%$ent an' $aret #o!-t-on
(arameter !ange &core 'eight Ma$.
&core
Co,4s
&core
Industry (ositive ; <G
*19
5Classification given in
,nne$ure 6
Moderately
positive
9
&table / / 5crisil
site6
/1 *A
Moderately
negative
*
Cegative 1
Contracts in hand L
confirmed ordersL
assured off take
WX91G of last
year4s turnover
; ;G / .; *;
/1G to 91G of
last year4s
turnover
9
.1G to /1G of
last year4s
turnover
/
*1G to .1G of
last year4s
turnover
.
1G to *1G of
last year4s
turnover
*
Co contracts L
confirmed
orders
1
Bargaining power :igh ; ;G .; *;
Moderate / /
Dow *
Cil 1
(roduct range 'ide ; 9G .1 *;
Ciche / /
Dimited *
&ingle 1
Co. of large customers
contributing to W;G of
turnover6
; ; /G / *; 0
9 9
/ /
. .
* *
1 1
Dength of association
with large customers
WX ; years ; /G ; *; *;
/ to ; years 9
. to / years /
*1;
* to . years .
< months to *
year
*
Y < months 1
G of turnover from
large customers
/1G to ;1G of
turnover
; /G
between .1G to
/1G or ;1G to
<1G
9 9 *; *.
between *;G to
.1G or <1G to
@1G
/
between *1Gto
*;G or @1G to
A1G
.
between ;Gto
*1G or A1G to
01G
*
Y;G or W01G 1
Total .0G .9 *9; 00
Parameter Range Scor
e
Weigh
t
Max
score
Cos.scor
e
Business vintage (years) 0 – 10 3
' (' ('
*1<
Persona! net"orth o# $romoters
(Rs. in mn)
0 – %0 3
Constitution o# the entity Pu&!ic !imite'
com$any
% 3
' (' ('
Private !imite'
com$any
(
Registere'
$artnershi$ )rm
3
*nregistere'
$artnershi$
)rm+,*-
.
So!e $ro$rietorshi$
concern
1
/ra'e re#erence+ Mar0et
#ee'&ac0 a&out $romoters
1xce!!ent % (
)* ()
2ery 3oo' (
3oo' 3
+
4&ove average .
4verage 1
Be!o" average 0
Promoter5s )nancia! 6exi&i!ity 1xce!!ent
('e$osits+investm
ents 78100.0 mn)
% 3
' (' ('
Pro$oter! H$ana%e$ent
*1@
9
; (' ('
?ood
5depositsLinvestments
;1.1 to @1.1 mn6
/
,bove average
5depositsLinvestments
.1.1 to ;1.1 mn6
.
,verage
5depositsLinvestments
*1.1 to .1.1 mn6
*
Below average
5depositsLinvestments
Y*1.1 mn6
1
(romoter4s payment record with other
banksLIsLCBCsLcreditors
"$cellent ; .G
; *1 *1
=ery ?ood 9
?ood /
,bove average .
,verage *
Below average 1
Total *AG
.A 01 A.
*1A
Collateral Security
Manufactur
ing
MA,
-CORE COs& -CORE
Parameter Range Score Weight
Co!!atera! as o#
!imits
78 3% % 9
' +* +*
30 to
3%
(
.% to
30
3
.0 to
.%
.
1% to
.0
1
:1% 0
Cor$orate
3uarantee (Rating
o# 3uarantor)
444 or 44; % 9
. +* ).
44 (
44< 3.%
4; 3
4 ..%
4< .
BBB 1
/ota! 1.
/ 0* '.
O1ERALL !O!AL '** +2/
*10
C'E;7. '9.751
Category Score
range
/ra'ing
an'
services
Manu#actur
ing
4 =% an'
a&ove
=0 100
B 9%<=% 90 =0
C %%<9% (0 %0
C%M(,CS C,M" &C%!" C,T"?%!S "H(%&3!" DIMIT
BDI&&
,!M, @@.A B A1 millions**1
=+,+ PNB CREDIT RATING MODEL
Bank has developed online comprehensive risk rating system that serves as a single point
indicator of diverse risk factors of counter2party and for taking credit decisions in a
consistent manner. The risk rating system is drawn up in a structured manner,
incorporating different factors such as borrower’s specific characteristics, industry
specific characteristics etc. Bank is also undertaking periodic validation e$ercise of its
rating models and also conducting migration and default rate analysis to test robustness
of its rating models.
5a$e of 2orrower 4 Bliss &har$a ,td
Branch Office 4 ,ar6e Corporate Branch8 Mu$2ai
Constitution
4 &u2lic ,i$ited Co$pany
S
r
5
o. &ara$eters
Co's
(alue
Benc$ar3
<alue
Sco
re
Benc
$ar3
<alu
e
S
c
o
r
e
Ben
c$
ar3
<al
ue Score
Benc$a
r3 <alue Score
Benc
$ar3
<alue Score
Score
award
ed
1 /inancials4
$ !OL3!4W )&.5
6'&** OR
7* 8*9
6.&*
* :
upto
'&**
8)
9
6)&
'*
:
upt
o
.&*
* 8.9
(&** :
upto )&'* 809 7(&** 829 0&**
$i Current Ratio +&+0 7(&** 8*9
(&**
:
upto
(&)'
8)
9
6(&
)'
:
upt
o
(&'
* 8.9
6(&'* :
upto )&** 809 6)&** 829 2&**
***
$ii ROCE
+'&/)
; 7.; 8*9
.; :
upto
2;
8)
9
2;
:
upt
o
()
; 8.9
(); :
upto (0; 809 6(0; 829 2&**
$v
$nventor< : =e>tors
?oldin% "Months# +&(+ 6' 8*9
6.&*
* :
upto
'&**
8)
9
6+
:
upt
o . 8.9
) : upto
+ 809 7)&** 829 .&**
1 -core under past financials +!.00
-u>jective Assessment of @inancials
vi
Relia>ilit< of Annual
@inancial -tatements
2*; :
>eloA
2*;
:
upto
2';
2'
; :
upt
o
/*
;
/*; :
upto /'; 6/';
1i
i
=iscountin% @actor for
scre inder "vi# a>ove& "B# '*;
"B#
+*;
"B#
)*
; "B# (*; 4$L
%
0.00
=
1i
ii
4et score under
@inancial after
discountin% >(%(ii? (2&**
$x
Estimated cash profit of
current <ear to 4et
Repa<ment o>li%ations
of current <ear
+*+&*/
; 7(**; 8*9
(**
; :
upto
()'
;
8)
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; :
upt
o
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9
5E. SCO'E O/
/7595C79,S >(iii@i0?
+ B-S75ESSA75;-S.'B
**.
i Expected -ales CroAth
CroAth of
less than
'; or
ne%ative
%roAth
durin% the
last + <ears
consecutive
l<& 8*9
Dositi
ve
%roAt
h of
mini
mum
';
durin
% an<
one
<ear
out of
past
+
<ears
and
positi
ve
%roAt
h of
mini
mum
'; is
expe
cted
to
conti
nue
durin
%
curre
nt
<ear&
8)
9
Dos
itive
%ro
Ath
of
mini
mu
m
';
for
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of
past
+
<ea
rs
and
exp
ecte
d to
cont
inue
duri
n%
curr
ent
<ea
r&
8.
9
Dositive
%roAth
of
minimu
m '; for
consecut
ivel< )
<ears
durin%
past +rd
<ear :
expecte
d to
continue
durin%
current
<ear& 809
Dositive
%roAth of
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1rade 999 99 9 BB B C D
CREDIT RIS) RATING A
=+7+ COMPARATIVE ANALYSIS
? ICICI model is divided into five parameters vi+ (romotersL management, business
and market position, financial performance, transaction history and collateral and
**@
each parameter is divided in various sub parameters while (CB model is divided
in four parameters vi+ financials, businessLindustry, management, conduct of
account and each parameter is relatively divided in less number of sub parameters
compared to ICICI bank
? Collateral securities are not considered by (CB whereas these parameters are
included in ICICI model. (CB bank should consider collateral securities of a
company while evaluating and rating company as collateral securities are
important to -udge company’s soundness.
? Transaction history of a company is considered by ICICI in detail as compared to
(CB model. ICICI bank considers various sub parameters under transaction
history like che)ue bouncing, DC devolvement and utili+ation of fund based limits
that are lacking in (CB bank.
? ICICI bank focuses on company’s relationship with customer in detail as it is
important to measure stability of a company and demand of its products and
services in market whereas (CB does not consider company’s relations with
customer.
? (ersonal networth of promoters and their fle$ibility is considered by ICICI bank
whereas (CB bank does not consider.
? ICICI model gives weightage along with score whereas in (CB model only scores
are given to each parameter. In ICICI credit rating model separate score and
weightage is given to all sub parameters along with parameters
? Bliss pharma scores @@.A and category 2 B as per ICICI model whereas it scores
<<.<@ and category 2 , as per (CB model
**A
? In case if total e$posure of an individual borrower e$ceeds ma$imum e$posure
according to scorecard special approval is needed as per ICICI model whereas
there is no such limit in (CB model
**0
CHAPTER *
;+* RECOMMENDATIONS TO PNB
? (CB bank should consider personal net worth of promoters, promoters financial
fle$ibility and their payment records with other banks, financial institutions,
creditors and non financial institutions while rating a company to evaluate
efficiency of a company and its repayment abilities.
? (CB bank should conduct in depth study of a company vi+ it should consider
customers of a company and transaction history in detail to -udge its stability in
market.
? ,s (CB bank ignores weightage of each parameters, scores loses its relevance.
Bank should consider weightage for each parameter along with each sub
parameter.
? (CB bank should include ma$imum e$posure limit in its credit rating model to be
very specific and clear.
*.1
;+, RECOMMENDATIONS TO COMPANY
? Bliss pharma should reduce its inventory turnover ratio for effective utili+ation of
resources.
? It should reduce debtor’s collection period for smooth running of business cycle
and working capital cycle.
? Company should increase its trade reference to increase its brand image.
? The company should increase its ratio between total outstanding liabilities and
total net worth to avail more credit from banks at easier terms. or this purpose it
has to increase its networth and reduce its outstanding liabilities.
*.*
CHAPTER 1+
CONCLUSION
? #uring my pro-ect I reali+ed that a credit analyst must own multi2disciplinary
talents like financial, technical as well as legal know2how about corporate lending
and credit rating model for the purpose of lending loan
? , study of both private bank and public bank enhanced my knowledge and I
gained a great learning e$perience
? #uring the study I learnt how the theoretical financial analysis aspects are used in
practice during the term loan finance assessment
? The credit appraisal for term loan finance system has been devised in a systematic
way. There are clear guidelines on how the credit analyst or lending officer has to
analy+e a loan proposal
? Credit ,ppraisal Model of both (CB and ICICI bank are based on sound
principles of lending
? Method of lending of both banks is different.
? Compared to (CB model, ICICI model is complicated as ICICI considers more
aspects and in detail compared to (CB.
? Both banks follow inventory and receivable norms as suggested by !BI.
*..
BIBLIOGRAPHY
(EB LIN)S:
www.rbi.com
www.icicibank.com
www.crisil.com
www.pnb.com
www.moneycontrol.com
www.icicidirect.com
LITERATURE SURVEY
• "conomics times
*./
doc_170066625.doc