Credit Appraisal means an investigation/assessment done by the banks before providing any Loans & advances/project finance & also checks the commercial, financial & technical viability of the project proposed, its funding pattern & further checks the primary & collateral security cover available for recovery of such funds.
Credit Appraisal is a process to ascertain the risks associated with the extension of the credit facility. It is generally carried by the financial institutions, which are involved in providing financial funding to its customers. Credit risk is a risk related to non-repayment of the credit obtained by the customer of a bank. Thus it is necessary to appraise the credibility of the customer in order to mitigate the credit risk. Proper evaluation of the customer is performed this measures the financial condition and the ability of the customer to repay back the Loan in future. Generally the credits facilities are extended against the security know as collateral. But even though the Loans are backed by the collateral, banks are normally interested in the actual Loan amount to be repaid along with the interest. Thus, the customer's cash flows are ascertained to ensure the timely payment of principal and the interest.
It is the process of appraising the credit worthiness of a Loan applicant. Factors like age, income, number of dependents, nature of employment, continuity of employment, repayment capacity, previous Loans, credit cards, etc. are taken into account while appraising the credit worthiness of a person. Every bank or lending institution has its own panel of officials for this purpose.
Objective of the Research
To study the credit appraisal system in SME sector, at AXIS Bank
To study the credit appraisal methods.
To understand the commercial, financial & technical viability of the proposal proposed and it's finding pattern.
This report will help researchers improving knowledge about the credit appraisal system and to have practical exposure of the credit appraisal system at AXIS Bank.
The project will help the management student to know the patterns of credit appraisal in Axis bank.
Basic Types of Credit
There are four basic types of credit. By understanding how each works, you will be able to get the most for your money and avoid paying unnecessary charges.
Service credit is monthly payments for utilities such as telephone, gas, electricity, and water. You often have to pay a deposit, and you may pay a late charge if your payment is not on time.
Loans let you borrow cash. Loans can be for small or large amounts and for a few days or several years. Money can be repaid in one lump sum or in several regular payments until the amount you borrowed and the finance charges are paid in full. Loans can be secured or unsecured.
Installment credit may be described as buying on time, financing through the store or the easy payment plan. The borrower takes the goods home in exchange for a promise to pay later. Cars, major appliances, and furniture are often purchased this way. You usually sign a contract, make a down payment, and agree to pay the balance with a specified number of equal payments called installments. The finance charges are included in the payments. The item you purchase may be used as security for the Loan.
Credit cards are issued by individual retail stores, banks, or businesses. Using a credit card can be the equivalent of an interest-free Loan- end of each month.-if you pay for the use of it in full at the
Loan Administration Pre- Sanction Process
Sound credit appraisal involves analysis of the viability of operations of a business and the capacity of the promoters to run it profitably and repay the bank the dues as and when they fall
Towards this end the preliminary appraisal will examine the following aspects of a proposal.
- Bank's lending policy and other relevant guidelines/RBI guidelines,
- Prudential Exposure norms,
- Industry Exposure restrictions,
- Group Exposure restrictions,
- Industry related risk factors,
- Credit risk rating,
- Profile of the promoters/senior management personnel of the project,
- List of defaulters,
- Caution lists,
- Acceptability of the promoters,
- Compliance regarding transfer of borrower accounts from one bank to another, if applicable;
- Government regulations/legislation impacting on the industry; e.g., ban on financing of industries producing/ consuming Ozone depleting substances;
- Applicant's status vis-à-vis other units in the industry,
- Financial status in broad Terms and whether it is acceptable The Company's Memorandum and Articles of Association should be scrutinized carefully to ensure (i) that there are no clauses prejudicial to the Bank's interests, (ii) no limitations have been placed on the Company's borrowing powers and operations and (iii) the scope of activity of the company.
Further, if the proposal is to finance a project, the following aspects have to be examined:
- Whether project cost is prima facie acceptable
- Debt/equity gearing proposed and whether acceptable
- Promoters' ability to access capital market for debt/equity support
- Whether critical aspects of project - demand, cost of production, profitability, etc. are prima facie in order
Required Documents for Process of Loan
Application for requirement of loan
Copy of Memorandum & Article of Association
Copy of incorporation of business
Copy of commencement of business
Copy of resolution regarding the requirement of credit facilities
Brief history of company, its customers & supplies, previous track records, orders In hand. Also provide some information about the directors of the company
Financial statements of last 3 years including the provisional financial statement for the year 2007-08
Copy of PAN/TAN number of company
Copy of last Electricity bill of company
Copy of GST/CST number
Copy of Excise number
Photo I.D. of all the directors
Address proof of all the directors
Copies related to the property such as 7/12 & 8A utara, lease/ sales deed, 2R Permission, Allotment letter, Possession
Bio-data form of all the directors duly filled & notarizedFinancial statements of associate concern for the last 3 years