Credit Saraswat

A Project
On
“Processing of Commercial Credit Proposals”
With reference to Saraswat Co-Operative Bank,
Mumbai
By
SAHIL B MULLA
Roll No: 91
PROJECT SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE

ACADEMIC REQUIREMENT FOR THE MMS PROGRAMME,
NCRD’s STERLING INSTITUTE OF MANAGEMENT, MUMBAI
June 2009
Under the Guidance of :
Mrs. P S Rege
DGM – Zone 1
Grant Road
Processing of Commercial Credit Proposals
Saraswat Co-operative
Bank
ACKNOWLEDGEMENT
Financial Sector is the backbone of any Economy. Banking plays a vital role in
building a nation. It’s my privilege to do my summer project on this vibrant Banking
Sector. I thank the Management of Saraswat Co-Operative Bank Ltd for permitting
me to undergo the Summer Project Training in their esteemed organization.
It has been a fabulous learning experience for the entire two months at the Zone1
Office at Grant Road of Saraswat Co-Operative Bank Ltd.
I would like to acknowledge and extend my heartfelt gratitude to the following

persons who have made the completion of this project possible.
Firstly I would like to thank “Saraswat Co-operative Bank Limited” for giving me an
opportunity of learning and contributing through this project.
I am grateful to Mr. Anjan Maiti Director, ‘Sterling Institute of Management

Studies’ for giving me this opportunity.
I acknowledge with special thanks the help of my project guide Mrs. P. S. Rege
(DGM Zone-1) for her valuable guidance and assisting me in completion of the
project. I also thank her for sharing lots of her knowledge and ideas, which were
useful for my project.
I would also, like to express my gratitude to Mr. D. G. Rege (AGM Zone-1) and all
other staff members of Zone1 for enriching me with their valuable knowledge and
also for providing me a conducive environment.
Sterling Institute of Management Studies Page 2

EXECUTIVE SUMMARY
This project titled “Processing of Commercial Credit Proposal” in Saraswat Co-

operative Bank.
While analyzing the credit proposal of the applicants, the applicant firms have to
submit CMA (Credit Monitoring Analysis) for previous as well as following years. In
some cases the firms are also required to submit the details of the partners if involved.
The bank estimates the financial position of the company by using various methods
such as ratio analysis. In ratio analysis various types of ratios are calculated on the
basis of the last three years balance sheet submitted by the company to bank.
Maximum Permissible Bank Finance (MPBF) method is used by the bank for cash
credit facility. Under this method the borrower will contribute 25% of the working
capital gap and the remaining 75% can be financed from the bank borrowings.
In Cash Credit facility the securities are:
1. Hypothecation of stock, debtors.
2. Property to be mortgaged.
Bank provides term loans to the companies for the purchase of machinery,
equipments, etc.
In term loan the securities are:
1. Hypothecation of the bank.
2. Other asset to mortgage.
3. Third party guarantee.

PROCESSING OF COMMERCIAL CREDIT PROPOSALS

Table of Contents
Objective ……………………………………………………………………………06
Research Methodology ……………………………………………………………...07
Economy & Banking Scenario ……………………………………………………...09
Banking Structure in India ………………………………………………………......13
Co-Operative Banking Sector ……………………………………………………….17
Saraswat bank Profile ………………………………………………………………..19
Credit Policy ….……………………………………………………………………...35
Credit Proposal ………….…………………………………………………………...40
Credit Lending Procedure……………………………………………………………42
Types of Credit Proposal …………………………………………………………….45
Ratio …………………………………………………………………………………50
Process of Credit Disbursement ……………………………………………………..59
 Documents
 Proposal
Case …………………………………….……………………………………………62
Conclusion ……………………………….…………………………………………..72
Recommendations……………………………………………………………………73
Bibliography ...…………………………….…………………………………………76

OBJECTIVE
1. To understand the process of commercial credit proposal

2. To analyse the proposals dealing with Funded and Non-Funded limits
3. To understand the working of Zonal Office of Saraswat Co-operative Bank
4. To study the proposal or renewal note

RESEARCH METHODOLOGY
For processing of Commercial Credit Proposals a proper research methodology is

followed by the bank. On receiving a particular request for credit the information or
the data related is collected.
The Data is of two typres:
1. Primary Data
2. Secondary Data
1. Primary Data
The first hand information or the primary data is being provided by the applicant firm,
which has applied to the bank for a credit facility. The primary data is collected
through a Bank’s loan application form. The information collected related to
application form are the name of the firm, its establishment date or incorporation date,
background of the firm, History and Bio-data of the directors or the key persons, the
financials for the past three year and the facilities if available from other banks etc.
The information is provided in two sets, one is submitted to Credit Enquiry
Department (CED) and other is with the bank. The proposal if is above Rs.1 crore
then only is sent to CED. The fees charged for processing are as per the banks norms.
2. Secondary Data
The secondary data is mainly obtained after proper acquirement of primary data and
analysis is done based on it. The assessment of the proposals is done by the zonal
head who decides whether it meets the banks requirements. If the applicant firm meets
the necessary requirements then a customer meeting is arranged at factory / office
where the books are verified and the site / factory is visited. All the additional data
required is collected and accordingly the project is subjected to various boards.
The proposal is recommended & sent to respective meeting. The proposal if is below
Rs. 1 crore is subjected to Deputy Managing Director, if above Rs. 1 crore and below
Rs. 7.5 crore is subjected to CENMAC (Central Management Committee) and if
above Rs. 7.5 crore is subjected to the board of directors.

The required data collected from annual report, books and website which shows the
necessary information for processing the proposals is the secondary type of data. The
websites used mainly are as follows:
i. www.mca.gov.in
ii. www.cibil.com
These websites give the information about the Company Identification Number (CIN)
& Directors Identification Number (DIN) and also whether the company is in
existence and how its account is rated.
Data Analysis:
After getting all the necessary information the proposals can be analyzed and this
helps in fulfilling the processing of the proposals. The secondary data is used mostly
to create a primary data, which in turn helps to calculate the necessary ratios and
compare it with previous year and also understand the future projections of the
applicant firm.
Interpretation:
After analysis of the data the results are drawn upon. The calculation of various ratios
and the credit rating based upon it helps in interpretation. This helps the assessing
officers in granting credit facilities to the applicant firm.

INTRODUCTION
ECONOMY & BANKING SCENARIO
Immediately after Independence, the government of India initiated measures to play

an active role in the economic life of the nation. In pursuance of this policy,
government adopted Industrial Policy Resolution in 1948 in which it envisaged a
mixed economy. From now onwards, government decided to play an active role in
different segments of an economy including banking and finance.
The Government of India, in a major step nationalized Reserve Bank of India in 1948.
In 1949, the Banking Regulation Act was enacted which empowered the Reserve
Bank of India (RBI) "to regulate, control, and inspect the banks in India.
Government in order to have firm grip over this sector nationalized the private banks
first in 1969 and later in 1980. With the second dose of nationalization, the GOI
controlled around 91% of the banking business of India. After this, until the 1990s,
the nationalized banks grew at a pace of around 4%, closer to the average growth rate
of the Indian economy.
In the early 1990s the then Narsimha Rao government embarking on a policy of
liberalisation, gave licenses to a small number of private banks, which came to be
known as New Generation tech-savvy banks, which included banks such as Global
Trust Bank, UTI Bank, (now re-named as Axis Bank), ICICI Bank and HDFC Bank.
This almost kick started the banking sector in India, which has seen rapid growth with
strong contribution from all the three sectors of banks, namely, government banks,
private banks and foreign banks.
FDI in Banking Sector

The next stage for the Indian banking has been setup with the proposed relaxation in
the norms for Foreign Direct Investment, where all Foreign Investors in banks may be
given voting rights which could exceed the present cap of 10%, at present it has gone
up to 49% with some restrictions.

Present Situation
In the present situation, banking in India has attained fair amount of maturity in terms
of supply, product range and reach-even though reach in rural India still remains a
challenge for the private sector and foreign banks. In terms of quality of assets and
capital adequacy, Indian banks are considered to have clean, strong and transparent
balance sheets relative to other banks in comparable economies in its region.
Since Indian economy is witnessing strong growth the demand for banking services,
especially retail banking, mortgages and investment services are expected to be
strong. One may also expect M&As, takeovers, and asset sales.
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks
(that is with the Government of India holding a stake), 29 private banks (these do not
have government stake; they may be publicly listed and traded on stock exchanges)
and 31 foreign banks. They have a combined network of over 53,000 branches and
17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public
sector banks hold over 75 percent of total assets of the banking industry, with the
private and foreign banks holding 18.2% and 6.5% respectively.
The Credit Scenario

The year-on-year aggregate bank deposits stood at 21.2 per cent as on January 2,
2009. Bank credit touched 24 per cent on January 2, 2009 as against 21.4 per cent on
January 4, 2008. The year-on-year growth in non-food bank credit at 23.9 per cent as
on January 2, 2009 was higher than that of 22.0 per cent as on January 4, 2008.
Increase in total flow of resources from the banking sector to the commercial sector
was also higher at 23.4 per cent as compared with 21.7 per cent a year ago. The
incremental credit-deposit ratio rose to 81.4 per cent as on January 2, 2009, as against
63.1 per cent as on January 4, 2008. Also, during 2008-09 so far, the total flow of
resources to the commercial sector from banks stood at US$ 58.83 billion upto
January 2, 2009. Scheduled commercial banks’ credit to the commercial sector
expanded by 27.0 per cent (y-o-y) as on November 21, 2008, as compared with 23.1
per cent a year ago.
There has been variation in credit expansion across bank groups. Credit expansion as
on January 2, 2009 for public sector banks stood at 28.6 per cent, scheduled

commercial banks (SCBs) including the regional rural banks (RRBs) at 24 per cent,
foreign banks at 6.9 per cent and private sector banks at 11.8 per cent, according to
the Annual Policy for 2008-09 of Reserve Bank of India.
Several measures initiated by the Reserve Bank have resulted in banks reducing their
deposit and lending rates between November 2008 and January 2009. The range for
deposit rates for public sector banks varied from 5.25 to 8.5 per cent, foreign at 5.25
to 7.75 per cent and private sector banks at 4 to 8.75 per cent. In the post-crisis quarter
caused due to collapse of Lehman Brothers, large corporates like Infosys moved their
deposits to State Bank of India (SBI), the country's largest bank. Infosys has revealed
that it transferred deposits of nearly US$ 200.61 million from ICICI Bank to SBI last
year.
Deposits as on January 2, 2009 for public sector banks stood at 24.2 per cent,
scheduled commercial banks (SCBs) including the regional rural banks (RRBs) at
21.2 per cent, foreign banks at 12.1 per cent and private sector banks at 13.4 per cent,
according to the Annual Policy for 2008-09 of the Reserve Bank of India.
The prime lending rates of public sector banks stood at 12 to 12.5 per cent, private
sector banks at 14.75 to 16.75 per cent and foreign banks 14.25 to 15.50 per cent as on
January 2009.
Bank loans rose 18.1 per cent on year-on-year basis as on March 13, the RBI has said
in its Weekly Statistical Supplement released on March 27, 2009. Outstanding loans
rose to US$ 541.82 billion in the two weeks to March 13. The non-food credit rose to
US$ 530.19 billion in the two weeks, while food credit stood at US$ 9.61 billion in
the same period.
Since October 2008, the central bank had cut the cash reserve ratio, or the proportion
of deposits that banks set aside, and the repo rate, or the rate at which it lends to
banks, by 400 basis points each to inject liquidity into the system and activate a lower
interest rate regime. Also, the reverse repo rate has been lowered by 200 basis points
to discourage banks from parking surplus funds with RBI. Till April 7, 2009, the CRR
had further been lowered by 50 basis points, while the repo and reverse repo rates
have been lowered by 150 basis points each. Public sector banks have pruned their

benchmark prime lending rates (BPLRs) by 150-200 basis points. Also, in April 2009,
private sector banks such as Axis and Bank of Rajasthan have reduced their BPLRs
by 50 basis points. Only few foreign banks such as Citibank have pared home loan
rates by 50 basis points to 13.75 per cent.
The rupee depreciated during 2008-09, reflecting varied developments in international

financial markets and portfolio outflows by foreign institutional investors (FIIs). The
rupee exchange rate was between 48.37 to 49.19 against the US dollar and 63.60-
68.09 against the Euro in January 2009.
Government Initiatives
Apart from the bank rate cuts announced in the stimulus packages, cash withdrawals
from bank will not attract tax from April 1, 2009 following abolition of the banking
cash transaction tax (BCTT) in the Union Budget 2008-09. The total collection of
BCTT stood at US$ 120.36 million in 2008-09. Also, inter-ATM usage transaction
became free of charges effective April 1, 2009.

BANKING STRUCTURE IN INDIA
The commercial banking structure in India comprises:

Scheduled Commercial Banks and Unscheduled Banks.
The banks, which are included in the second schedule of Reserve Bank of India (RBI)
Act, 1934 is called scheduled bank. RBI in turn includes only those banks in this
schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.
For assessing the performance of the bank, the Reserve Bank of India categorise the
bank as public sector banks, old private sector banks, new private sector banks and
foreign banks
Banking industry in India has evolved lately under the impact of the stimulus
packages announced by the Government. According to the Annual Policy 2008-09 of
the Reserve Bank of India (RBI), the central bank, key monetary aggregates have
witnessed some growth in 2008-09. This is reflected in the changing liquidity
positions arising from domestic and global financial conditions and the policy
initiatives taken by the government. Also, reserve money variations during 2008-09
have largely reflected an increase in currency in circulation and reduction in the cash
reserve ratio (CRR) of banks.
According to a study by Dun & Bradstreet (an international research body)—"India's

Top Banks 2008"—there has been a significant growth in the banking infrastructure.
Taking into account all banks in India, there are overall 56,640 branches or offices,
893,356 employees and 27,088 ATMs. Public sector banks made up a large chunk of
the infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and 60.3 per
cent of all automated teller machines (ATMs).

Hierarchy of Banking Institution in India
A) Commercial Bank:
Among the banking institution in the organized sector, the commercial banks are the
oldest institutions having a wide network of branches. They were established as
corporate bodies with share holdings by private individuals. They were mainly
engaged in financing organized trade, commerce and industry.
1) Public Sector Banks:

Public Sector in Indian banking reached its present position in three stages.
1. The conversion of the existing imperial bank of India into the State Bank of
India in 1955.
2. The nationalization of 14 major commercial banks in 1969.
3. The nationalization of 6 more commercial banks in 1980 and one of them New
Bank of India was later on merged with Punjab National Bank. Thus 27 banks
constitute public sector in Indian commercial banking.
2) Private Sector Bank:

The Narasimham Committee on Financial Sector (1991) recommended the
establishment of Private Banks in India. The Reserve Bank of India provide guidance
for the setting up of new private sector banks have been established mainly by the
financial institution such as a UTI, ICICI, IDBI, HDFC. They improve the image of
new commercial banking system and to win confidence of the depositing public.
B) Regional Rural Banks:

Regional Rural Banks have been established by the Government of India in terms of
the provisions of the Regional Rural Banks Act 1976. They grant loans & advances to
artisans, small entrepreneurs and persons who are engaged in trade, commerce or
industry or other productive activities.
C) Co-Operative Banks:
Registered under the Co-operative Societies Act of the Respective States, the banking
related activities of the co-operative banks are also regulated by the Reserve Bank of

India. They are governed by the Banking Regulations Act 1949 and Banking Laws
(Co-operative Societies) Act, 1965. The Co-operative banks are an important
constituent of the Indian Financial System. The Co-operative movement originated in
the West, but the importance that such banks have assumed in India is rarely
paralleled anywhere else in the world. Their role in rural financing continues to be
important even today, and their business in the urban areas also has increased
phenomenally in recent years mainly due to the sharp increase in the number of
primary co-operative banks.
While the co-operative banks in rural areas mainly finance agricultural based
activities including farming, cattle, milk, hatchery, personal finance, etc. along with
some small scale industries and self-employment driven activities.
The co-operative banks in urban areas mainly finance various categories of people for
self-employment, industries, small-scale units, home finance, Consumer finance,
personal finance, etc.
The co-operative banks have a three tier set up :
The state co-operative banks.
Central co-operative banks.
Primary Credit Societies.

The co-operative banks proceed on the principle of co-operation.
Some of the co-operative banks are quite forward looking and have developed
sufficient core competencies to challenge state and private sector banks. According to
The National Federation of Urban Cooperative Banks and Credit Societies
(NAFCUB) the total deposits & lending of co-operative banks is much more than Old
Private Sector Banks & also the New Private Sector Banks. This exponential growth
of Co-operative Banks is attributed mainly to their much better local reach, personal
interaction with customers, and their ability to catch the nerve of the local clientele.

LIST OF MAJOR SCHEDULED URBAN CO-OPERATIVE BANKS

1. Saraswat Co-Op. Bank Limited, MUMBAI
2. Abhyudaya Co-Op. Bank Limited, MUMBAI
3. Bombay Mercantile Co-Op. Bank Limited. MUMBAI
4. Citizen Credit Coop. Bank Ltd. Dadar, MUMBAI
5. Andhra Pradesh Mahesh Co-Op Urban Bank Ltd. HYDERABAD
6. Cosmos Coop. Urban Bank Ltd. MUMBAI
7. Janakalyan Sahakari Bank Ltd., Bombay MUMBAI
8. Shamrao Vithal Co op Bank Ltd. MUMBAI
9. Punjab & Maharashtra Coop Bank Ltd. MUMBAI
10. Charminar Coop.Urban Bank Ltd. HYDERABAD
11. Dombivli Nagari Sahakari Bank Ltd. MUMBAI
12. Goa Urban Co-Op. Bank Limited. MUMBAI
13. Kapole Cooperative Bank Ltd., Bombay MUMBAI
14. Thane Janata Sahakari Bank Ltd. NAGPUR
15. Bharat Co-Operative Bank (Mumbai) Ltd. MUMBAI
and many more.

CO-OPERATIVE BANKING SECTOR
Co-operative Banks are organised and managed on the principal of co-operation, self-
help, and mutual help. They function with the rule of one member, one vote. Function
on "no profit, no loss" basis. Co-operative banks, as a principle, do not pursue the goal
of profit maximization.
Co-operative bank performs all the main banking functions of deposit mobilization,
supply of credit and provision of remittance facilities. Co-operative Banks provide
limited banking products and are functionally specialists in agriculture related
products. However, co-operative banks now provide housing loans also.
UCBs provide working capital loans and term loan as well. The State Co-operative
Banks (SCBs), Central Co-operative Banks (CCBs) and Urban Co-operative Banks
(UCBs) can normally extend housing loans upto Rs 1 lakh to an individual. The
scheduled UCBs, however, can lend upto Rs 3 lakh for housing purposes. The UCBs
can provide advances against shares and debentures also.
Co-operative bank do banking business mainly in the agriculture and rural sector.
However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan
areas also. The urban and non-agricultural business of these banks has grown over the
years. The co-operative banks demonstrate a shift from rural to urban, while the
commercial banks, from urban to rural.
Co-operative banks are perhaps the first government sponsored, government-

supported, and government-subsidised financial agency in India. They get financial
and other help from the Reserve Bank of India NABARD, central government and
state governments. They constitute the "most favoured" banking sector with risk of
nationalisation. For commercial banks, the Reserve Bank of India is lender of last
resort, but co-operative banks it is the lender of first resort which provides financial
resources in the form of contribution to the initial capital (through state government),
working capital, refinance.

Co-operative Banks belong to the money market as well as to the capital market.
Primary agricultural credit societies provide short term and medium term loans. Land
Development Banks (LDBs) provide long-term loans. SCBs and CCBs also provide
both short term and term loans.
Co-operative banks are financial intermediaries only partially. The sources of their
funds (resources) are (a) central and state government, (b) the Reserve Bank of India
and NABARD, (c) other co-operative institutions, (d) ownership funds and, (e)
deposits or debenture issues. It is interesting to note that intra-sectoral flows of funds
are much greater in co-operative banking than in commercial banking. Inter-bank
deposits, borrowings, and credit from a significant part of assets and liabilities of co-
operative banks. This means that intra-sectoral competition is absent and intra-sectoral
integration is high for co-operative bank.
Some co-operative banks are scheduled banks, while others are non-scheduled banks.
For instance, SCBs and some UCBs are scheduled banks but other co-operative banks
are non-scheduled banks. At present, 28 SCBs and 11 UCBs with Demand and Time
Liabilities over Rs 50 crore each included in the Second Schedule of the Reserve
Bank of India Act.
Co-operative Banks are subject to CRR and liquidity requirements as other scheduled
and non-scheduled banks are. However, their requirements are less than commercial
banks. Since 1966, the lending and deposit rate of commercial banks have been
directly regulated by the Reserve Bank of India. Although the Reserve Bank of India
had power to regulate the rate co-operative bank but this have been exercised only
after 1979 in respect of non-agricultural advances they were free to charge any rates at
their discretion. Although the main aim of the co-operative bank is to provide cheaper
credit to their members and not to maximize profits, they may access the money
market to improve their income so as to remain viable.

SARASWAT BANK PROFILE:
Saraswat Bank is a Scheduled Cooperative Bank. On 14th September 1918, “The

Saraswat Co-operative Banking Society” was founded. Mr. J.K. Parulkar became its
first Chairman. Mr. N.B. Thakur, the first Vice-Chairman, Mr. P.N. Warde, the first
Secretary and Mr. Shivram Gopal Rajadhyaksha, the first Treasurer. These men in
charge of the Society had a commendable sense of service and duty imbibed in them.
The Society was initially set up to help families in distress. Its objective was to
provide temporary accommodation to its members in eventualities such as weddings
of dependent members of the family, repayment of debt and expenses of medical
treatment etc. The Society was converted into a full-fledged Urban Co-operative Bank
in the year 1933.
The Bank has the unique distinction of being a witness to History. The Bank, which
was originally founded in 1918, i.e. close on the heels of the Russian Revolution, also
witnessed as a Society and as Bank-the First World War, the Second World War,
India's freedom Movement and the glorious chapter of post-independence India.
During this cataclysmic cavalcade of history, the Bank as a financial institution and its
members could not of course remain unaffected by the economic consequences of the
major events. The two wars in particular brought in their wake, paucities of all kinds
and realities and stand by its members in distress as a solid bulwark of strength. The
Founder Members and the later-day management's of the Bank continued to
demonstrate their unwavering faith in the destiny of the common man and the co-
operative movement and they encouraged the shareholders to save despite all odds.
The bank still continues to function with the glorious tradition in public services.
Besides being the largest Urban Co-operative Bank in India, Saraswat Bank has now
become the largest in Asia. It has now 180 fully computerised branches, 9 Zonal
Offices and 23 departments located across 5 States viz. Maharashtra, Goa, Gujarat,
Madhya Pradesh, Karnataka and Delhi.
MOTTO & MISSION STATEMENT
Prosperity to customer relationship has been the motto of Saraswat Bank for the
last 90 years.

The Mission Statement of the Bank is "To emerge as one of the premier and most
preferred banks in the country by adopting highest standards of professionalism and
excellence in all the areas of working !!!"
MILESTONES
 Over 25 years after its inception, the Bank had gained strong foundation in
terms of its membership, resources, assets and profits. By 1942, it was
fulfilling all the banking needs of its customers.
 During the late fifties, the Bank grew from strength to strength. The Bank had
established five branches within the city of Mumbai and one each at Pune and
Belgaum. In its 50th year, the Bank chose a bee motif to symbolise the Bank's
emblem - a fitting and appropriate characteristics of a Bank that believed in
hard work, a search for all that is good, a team spirit to achieve its objectives
and a selfless service to its members and customers.
 The Bank has grown in stature, progressed in its social and economic
objectives and produced an image of what an ideal bank should be.
Resultantly, in the year 1977-78, the Bank's gross income crossed the Rs.3.00
crore mark for the first time.
 Last two decades the bank has witnessed a steady growth in the business. The
bank has a network of 180 fully computerised branches covering five states
viz. Maharashtra, Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi. The
Bank is providing 24- hour service through ATM at 52 locations.
 In 1988 the bank was conferred with "Scheduled" status by Reserve Bank of
India. The bank is the first co-operative bank to provide Merchant Banking
services.
 The bank got a permanent license to deal in foreign exchange in 1978.
Presently the Bank is having correspondent relationship in 45 countries
covering 9 currencies with over 125 banks.
 Saraswat Bank Business crossed Rs 21000 Crore mark on 31st March 2009.
The bank has a network of 180 branches, 11 Zonal Offices and 37 departments
located across the state of Maharashtra. RBI gave its nod for extending of the
bank’s branch network and three new branches have opened in Delhi,
Bangalore and Udupi. Saraswat Co-Operative Bank also has a network of 41

ATMs spread across the states of Maharashtra, Karnataka, Madhya Pradesh,

Goa, Gujarat and Delhi.
In Maharashtra, the branches are divided into various zones. A particular zone has
number of branches under it, which monitors all the credit proposals of the branches.
ZONES INFORMATION
There are different zonal offices distributed all over the Maharashtra & Goa.
1. Zone-I Grant Road
2. Zone-II Ghatkopar
3. Zone-III Goregaon
4. Zone-IV Pune
5. Zone-V Goa
6. Zone-VI Aurangabad
7. Zone-VII Thakurdwar
8. Zone-VIII Vyapar Bhavan
9. Sub Zone IV-A Sangli
10. Zone-IX Nashik
11. Zone-X Matunga
Zone-I Grant Road

This zone comprises of various branches whose work is monitored by the zone. The
branches under this zone are:
1. Ballard Estate
2. C.S.T.
3. Dadar
4. Fort
5. Girgaon
6. Grant Road
7. Madhukendra
8. Mahim
9. Masjid Bunder
10. Parel
11. Prabhadevi

12. Wadala
13. Worli
14. Surat
15. Shivaji Park (Gadkari Chowk)
The total business of Zone I as on 31.03.09 is Rs. 4201.15 crores which includes
Rs.2555.14 crores as deposits and Rs.1646.01 crores as advances. The growth in
advances and deposits was 12% for both and the profit as on 31.03.09 was Rs. 83.01
crores.
ACQUISITION:
14 branches were acquired by Saraswat Co-Operative Bank. It had acquired Murdha
Rajendra Co-Operative Bank, Mandvi Co-Operative Bank, Maratha Mandir Co-
Operative Bank, Annasaheb Karale Urban Co-Operative Bank, Nashik Peoples Co-
Operative Bank and South Indian Co-Operative Bank.
GROWTH:
The deposits of Saraswat Bank increased from Rs. 11430.82 crores as on 31 st March
2008 to Rs.12993.20 crores as on 11/05/09.
The advances of Saraswat Bank decreased slightly from Rs.7448.31 crores as on 31st
March 2008 to Rs. 7846.64 crores as on 11/05/09.

FINANCIALS OF SARASWAT CO-OPERATIVE BANK
Year Ended
Year Ended 31.03.2007 31.03.2008
Particulars
Audited (Rs in Crores) Audited (Rs in
Crores)
Interest Earned 669.81 1023.11
Other Operating Income 116.44 154.49
TOTAL INCOME 786.25 1177.59
Interest Expenditure 395.61 696.85
Operating Expenditure 208.88 234.39
TOTAL EXPENDITURE 604.49 931.24
GROSS PROFIT 181.76 246.35
Less: Provisions 15.53 14.51
OPERATING PROFIT
166.23 231.84
BEFORE TAX
Less: Income tax expenses 26.90 29.58
NET PROFIT AFTER TAX 139.33 202.26

Deposits 8924.94 11430.82
Advances 6370.46 7448.31
Net NPAs % 0.00% 0.00%
Share capital of Saraswat Bank 57 71.21
Reserves 955.64 1017.07
Capital Adequacy (%) 11.37% 10.85%

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PRODUCTS
The products that are offered by Saraswat Bank can be categorized into SIX groups as
follows :
PERSONAL :
The bank offers retail deposit products like savings, current and term deposit
accounts. The Bank also offers a bouquet of Retail Loan Products such as Vastu
Siddhi Home Loan, Saraswati Education Loan, Car Loan etc. With a view of fulfilling
all the needs of the customers under one roof Bank has entered into tie-ups with
various premium institutions, through which third party products like Life and non-
Life Insurance, Mutual Funds and Demat Services are offered.

The ‘NO Frills’ account called ‘Janhit Account’ and the ‘CUBS’ savings account for
the kids are the prominent features of this segment of products offered by Saraswat
Bank. Also, the bank has entered into a tie-up with one of the most respected and
leading industrial house of the nation, TATA MOTORS, to finance its world-
renowned most cost effective NANO cars.
NRI (Non Resident Indian) :

The Saraswat Co-operative Bank is the only Urban Co-operative Bank having a
permanent license from RBI to deal in foreign exchange. This division plays an active
role in the Forex operations through its B-category branches. The Bank has
relationship with more than 125 correspondent banks spread over 45 countries
covering nine currencies. The bank’s International Banking Division monitors the
flow of export credit.
The bank offers various NRI deposit products (like FCNR, NRE, NRO and RFC
accounts) and personal loans (against the security of funds held in NRE accounts and
NRO accounts) to the NRI segment.
FCNR ACCOUNT: Foreign Currency Non Resident (FCNR) accounts are permitted
to be maintained in term deposits only from one year to five years by NRIs. Saraswat
Banks accepts such deposits in three currencies i.e. US Dollar, Sterling Pound and
EURO
NRE ACCOUNT: Non Resident (External) Accounts can be opened by Persons of

Indian nationality or origin resident abroad. This account is designated in rupees. It
can be maintained in the form of savings, current or term deposit accounts. Accounts
can be opened/credited with remittances from abroad/transfer from existing
NRE/FCNR accounts/ deposit of foreign exchange brought into India, during visits to
India. NRE Accounts can be opened jointly with any other Non-Resident Indian
Principal amount with interest earned is eligible for repatriation abroad
NRO ACCOUNT : When an Indian national or person of Indian origin residing in

India leaves India for a foreign country (other than Nepal and Bhutan) for taking up
employment, business or vocation outside India, or for any other purpose, indicating

his intention to say outside India permanently or for an indefinite period, he becomes
a person resident outside India. His bank account, if any, in India is designated as an
Ordinary Non-resident Account (NRO Account). Such accounts can also be opened
with funds remitted from abroad. Funds held in NRO accounts, can be repatriated
outside India with an overall limit of USD one million per calendar year including
sale of assets held by NRI’s in India, on production of an undertaking and certificate
Interest earned on these deposits is not exempt from Indian Income-tax.
RFC ACCOUNT: Resident Foreign Currency Accounts are for the NRIs returning to
India permanently. The balances in NRE/FCNR accounts and other foreign currency
funds brought in by the NRI at the time of return and subsequently from the assets
maintained abroad could be freely invested in RFCs. The funds in RFCs can be
remitted abroad for any bonafide purpose of the account-holder or his dependents
without RBI`s approval. The funds can also be withdrawn by converting into rupees
for local payments. If the Returning Indian subsequently goes abroad to become an
NRI, the balance in his RFC account can be converted into an NRE/FCNR account.
Saraswat Bank accepts the RFC accounts in US Dollar currency.
CORPORATE:
The bank provides various products catering to the needs of the Mid Corporates,
Small & Medium Enterprises (SMEs), Traders, Professionals and Women
Entrepreneurs. The following arrays of facilities are being provided under this
segment:
• Working Capital
• Term Loan
• Export Finance (Pre shipment and Post Shipment)
• Import Finance
• Bank Guarantees
• Bill Discounting
• Letter of Credit (Inland and Foreign)
• Property Loan
• Rental Loans

Treasury:
Saraswat Bank Ltd. is the first co-operative Bank to set up a ‘Unified Treasury’
incorporating Foreign Exchange desk and Money Market desk. The Treasury is located
in the city of Mumbai and has a dealing room with ‘Reuters’ and ‘Bridge’ systems. All
the treasury operations are completely computerised. The treasury complies with the
statutory obligations of maintaining C.R.R. and S.L.R. for the Bank apart from
managing overall funds. The Money Market desk is specialised in Money market and
Debt market. This is one of the active G. Sec traders in the market.
The following products are offered :
 Debt market securities, including Government papers

 Call money lending and borrowing
 Retailing of Government Securities and other debt market securities
 Treasury Bills and Commercial Papers trading
Demat :
Modernisation in the trading and settlement system has been witnessed in the capital
market through automated trading mechanism of Demat. The advent of Electronic
trading and settlement has brought in transparency in trading and has eliminated risks
associated with Bad Delivery and handling huge load of paperwork. The country has
made a remarkable growth in the capital market by switching over to electronic
trading.
Saraswat Bank is registered as depository Participant with NSDL since 22nd February
1999.
Since then it provides the Demat Services to its customers. Services include Pledge,
Demat, Remat, Transfer & Settlement, and Transposition & Transmission.

Services:
The bank’s value added services can be categorized under this segment. This includes
the following :
Easy Pay – Payment of utility bills like Telephone, Electricity Bills, Cellular Phone
Bills, Insurance Premium etc automatically through the customers’ account.
Mobile Banking – This provides the authorized/registered users to avail the services
such as information relating to accounts, details about transactions etc.
ATMs – Provides the ATM facility to the customers. The customers can access over
2461 ATMs of 20 members Banks in "BANCS" network, which includes the ATMs
of the Saraswat Bank. For drawing cash from the ATMs of Consortium banks, no
charges are being levied.
Insurance – The bank has a tie-up with HDFC Standard Life Insurance Company Ltd
for offering the life insurance products. The life insurance products includes
Endowment plans, Children plan, Term plans, Pension plans/
For Non Life Insurance products, the bank has a tie-up with Bajaj Allianz General
Insurance Company Ltd, and offers Travel insurance, Health Insurance, Personal
Accident Insurance and Vehicle Insurance.
Mutual Funds - Considering the changes in Indian demographics (more than 70%of
the population below the age of 35), changes in investment pattern (rising disposable
incomes created a huge potential for investment in Insurance and Mutual Funds),
increased competition and thinning of Interest margins, the Indian Banking Industry
had to redesign their bouquet of products and introduce marketing of third party
products like Insurance and Mutual Funds, to increase fee based income.
To encash on this sentiment, the Saraswat Bank has entered into the Mutual fund
distribution business 5 years back and today it has a tie up with 21 fund houses with
total funds invested at around Rs 100 crores.

CORPORATE SOCIAL RESPONSIBILITY (CSR):
The corporate social responsibility of the bank is worth mentioning. Here CSR is not a
new fashion but it is an old creed. CSR constitutes the umbilical cord that connects
the bank to the society. Today the Bank is ninety year old but the importance of CSR
was understood presciently and intuitively by the leaders of the Bank in its infancy
itself. The corporate memory is resplendent with many examples of the early
awareness of CSR in the Bank. The laudable gesture of late Wamanrao Varde and his
associates on the Board then can never be forgotten in spontaneously responding to
the grave scarcity of foodgrains during the Second World War and in starting on
behalf of the Bank a ration shop at Girgaum in Mumbai to make available foodgrains
to all. At that time, Saraswat Bank was a wholly community Bank. The whole
community therefore applauded the gesture then.
Thereafter Saraswat bank, started scholarships and apprenticeships for deserving

students and through that process built the careers of several young men. It has been
providing financial assistance to many social, educational and medical institutions by
way of grants every year from its funds. From time to time, the Board of Directors
responded to national and natural calamities like flood, famine, earthquake etc., in a
magnificent way and employees of the Bank at all levels also contributed their mite in
equal measure towards such emergencies.
As a macro level expression of CSR, the bank in association with Maharashtra Times
created an intellectual platform entitled "Shikhar Maharashtra" with the objective of
researching into, debating and finding ways and means to deal with the many
stubborn economic and social issues that Maharashtra faces today. It is proposed that
at an interval of every three months, a major issue facing Maharashtra such as
farmers' suicides, malnutrition, foeticide, scarcity of drinking water, famine and
hunger, etc. is discussed threadbare on this nonpartisan platform by soliciting the
participation of intellectuals and social workers who are active in the field and
thereafter recommendations are made to the Government on the remedies that may
ameliorate the situation and pursued thereafter.
At the macro-level, another major issue that the bank took was one belonging to the
home turf viz. the 5,90,619 small depositors losing their hard earned money, which

they had kept in deposits in urban co-operative banks. It is here that the bank stepped
in, assimilated five ailing UCBs with it, resurrected all the deposits of all the
depositors and even restored those banks back to pristine health.
THE PROFILE :
The gists of the bank’s profile are as follows :
Registered Office “Madhukosh”, S.V. Sovani Path, Girgaum, Mumbai

– 400004
Mittal Court, ‘A’ Wing, First Floor, Vidhan Bhavan

Corporate Office
Marg, Nariman Point, Mumbai-400021
Date of Registration
September 14, 1918
No and Date of RBI Licence

ACD- MH-220-P dated 27.08.1980
Website
www.saraswatbank.com
ORGANISATION CHART

SARASWAT BANK
HEAD OFFICE
(NARIMAN POINT)
CHAIRMAN
VICE CHAIRMAN
DIRECTOR
MANAGING DIRECTOR
COMPANY MANAGEMENT
Board of Directors
Shri E. K. Thakur Chairman
Shri K. V. Rangnekar Vice-Chairman
Directors
Shri R. K. Patkar
Shri A. V. Dubhashi
Shri S. V. Deshpande
Shri S. S. Sanzgiri
Shri S. S. Shirodkar
Shri A. A. Pandit
Shri H. M. Rathi
Shri S. V. Saudagar
Shri S. D. Panse
Shri M. V. Desai
Dr. Shri. S. V. Bhende
Dr. (Smt.) A. P. Samant
Shri M. K. Mantri
Advisor to Board
Shri N. R. Warerkar
Managing Director
Shri S. K. Banerji
Joint Managing Director

Shri S. K. Sakhalkar
DEPARTMENT CHART
Zonal Office
Deputy General Manager
Assistant General Manager
Manager
Officer
Accountant Assistant
Clerk
CREDIT POLICY

The Credit Policy governs all credit and credit related exposures, fund based as well
as non-fund based and prescribes acceptance criteria for all forms of credit
dispensation. These would include short term, medium term and long term based
facilities, as also letters of credit, guarantees, acceptances, etc.
The objectives of the credit policy are reiterated as under:
1. Broad base the clientele of Corporate and Non-Corporate segments through

aggressive credit marketing, with focus on SME segment
2. Augment Credit Portfolio of the Bank consistent with the risk management
strategy of spreading risk for the purpose of minimizing the same
3. Address the genuine credit needs of the existing clients to ensure quicker and
prompt credit decision
4. Stringent assessment of new credit proposals, maintain & improve upon the
asset quality through effective monitoring the accounts and to maximize the
yield on advances
5. Develop the skill set of the officials looking after credit portfolio in keeping
with the changing trends in the economy, through training in areas like
appraisal, monitoring and unit inspection
6. Ensure compliance of all the directives/guidelines issued by Government /RBI
and all other regulatory requirements on credit matters
7. Evolve proper reporting system to fix the accountability
The Bank has a revised credit policy every year. The Broad highlights of the
Credit Policy for 2008-09 are :
The individual exposure is of Rs. 75 crores and that for group is Rs. 150 crores, which
has been well maintained between the RBI prudential exposure limits. The group
exposure has been differentiated further in respect of companies involved in similar
activities and those in diversified activities wherein sectoral risks are well spread
thereby increasing the Bank’s comfort level. However, maximum group exposure is
taken only in respect of the group having existing relationship with us for a
considerable time.

In case of Proprietary concerns proprietary concerns, partnership firms and

companies, additional exposure is taken if and only if at least 4 of the below
mentioned 8 conditions are fulfilled:
• Rating of the borrower is not below B

• Borrower has applied for additional funds for diversifying into new
ventures;
• Borrower has finalized plans for introducing private equity whereby
Debt equity ratio would further improve than the existing.
• Borrower is arranging for another Bank in consortium and the
arrangement is in the final stage.
• In case if the exposure is to the Export oriented unit, borrower has
taken per party ECGC (Export Credit Guarantee Cover) to secure against credit
default.
• Independent collateral cover offered is more than 50% of the advance applied;
• Activity of the company is such that the value addition is very high
(raw material consumption to sales is less than 70% as per the actuals for the last
three years)
• Insurance cover is obtained
Exposure norms laid down are as follows:
Exposure means outstanding balances in term/corporate loan account/s and sanctioned

working capital limits or outstanding balance, sanctioned DA L/C limit, bank
guarantee limit, sight L/C limit or outstanding balance whichever is higher net of
deposits held as margin for the credit limits sanctioned.
1. The above exposure limits in terms of credit concentrations is applicable only

for business/industrial loans including real estate loans (rent receivable, property
loans and construction) and not for credit against any tangible/liquid securities
such as, Term Deposits of the Bank, Government securities, Life Insurance policy
and RBI Relief Bonds. However, in case of loans against shares the exposure
norms are applicable as per the circular issued in this regard i.e. Rs.10.00 lacs
maximum against demated shares.

2. The Bank doesn’t lend to unregistered partnership firms or unregistered co-

operative societies.
3. The bank continues to follow RBI guidelines in regard to definition of a

group. As per RBI guidelines, a group is defined as a group of firms/corporate
wherein one or more than one directors/partners/major shareholders and their
relatives are common. Guiding principle has to be commonality of management
and effective control.
4. Near relatives include spouse, brothers, sisters, parents and children. Major
shareholding is defined as more than 10% of equity capital in respect of public ltd.
companies, more than 25% shareholdings in respect of private limited companies
and share of 25% of profits in case of partnership firms. In addition if a
private/public ltd. company holds more than 26% of share holding in another
private/public ltd. company and/or partnership firm, said concern is deemed to be
a group concern.
5. Any additional exposure over and above the prescribed exposure shall be
treated as deviation and would require prior clearance from appropriate authority
before accepting the proposal.
6. In case of their existing customers if the exposure is going beyond the ceiling
we may advise the customer to arrange for another bank in consortium, go for
multiple banking or approach provider of private equity. The bank may also allow
exit options for the customers if the exposure is going beyond the ceiling or where
the exposure is exceeding the individual sector wise exposure limit.
Credit Enquiry Reports & Techno–Economic Viability Reports:

The Branches / Zonal offices are required to conduct due diligence on new borrower /
new connection by conducting credit enquiry in the market in addition to obtaining
credit / opinion report from its existing bankers in respect of advances above Rs 25
lacs.

Credit Enquiry Report and Techno-Feasibility Report are undertaken from CE

Department for business proposals, exceeding an amount of Rs.100 lakhs. In case of
proposals involving large exposures i.e. exceeding Rs. 500 lacs, Techno Economic
Viability (TEV) reports are obtained from experts in this field.
Method of assessment for Working Capital requirement:
The bank uses the MBPF i.e. Maximum Permissible Bank Finance method for
calculation of Working Capital Requirement. For borrowers enjoying fund based
working capital limits in excess of Rs.5.00 crores, it is explored that 25% of the book
debts are financed through bills. The bank is in the process of arranging Credit
insurance on the lines of ECGC (Export Credit Guarantee Cover) from General
Insurance Companies mainly for insuring receivables. The requirement of working
capital therefore is split into limit against receivables and limit against stocks.
Margin against receivables can be reduced upto 10% and also finance against debtors
beyond 90 days upto 180 days can be given where such insurance cover is available.
Once the assessment of working capital limit including DA L/C limit is done and
approved, the interchangeability between these two limits and interchangeability
between L/C limit and bank guarantee limit if for any reason is required to be done, it
should be done with proper assessment and approval by the respective sanctioning
authority.
MPBF Method:
Reserve Bank of India has withdrawn the prescription in regard to the assessment of
working capital needs based on the concept of Maximum Permissible Bank finance
(MPBF).
a. As far as possible second method of lending i.e. minimum NWC 25% of total
current assets is applied to all the credit exposure above Rs.25.00lacs. The same
can be relaxed to first method of lending i.e. minimum NWC 25% of Working
capital Gap in deserving cases for credit limits of Rs.25.00 lacs to Rs.100.00 lacs
with proper justification and future plan of building up of NWC upto the desired
level.

b. As per earlier RBI guidelines following heads are to be excluded from current
assets while calculating MPBF. Margin against L/C, B/G, Fixed deposits for
payment of sales tax deferral, advances to associate concerns, directors, partners,
investment in associates, shares, debentures, debtors above six months and non
moving stock.
c. However, while calculating net worth the above items except following should be
treated as non current assets and should form part of net worth:
 Advances to associates/ investments in associates.
 Debtors above six months if stuck up and not recoverable.
 Non-moving/ old obsolete stock.
These items should be deducted from net worth.
d. Bills negotiated under L/C’s: As working capital requirements for the same are
assessed separately, receivables under L/C need not be included in the current
assets. Similarly, bank borrowings under bills purchased/ negotiated under L/C’s
need not be included under current liability. They should be shown as contingent
liability as additional information.
e. Term loan installments / Deferred Payment Guarantee (DPG) installments falling

due for payment during the next 12 months may be included under current
liabilities.
f. While calculating MPBF under first method of lending or second method of

lending DA L/C will be considered as working capital limits and the credit
enjoyed against D.A. L/C should be reflected in the creditors while assessing the
limit and margins on stocks, debtors and creditors should be considered
accordingly.

CREDIT PROPOSAL
Credit is the provision of resources by one party to another party where that second
party does not reimburse the first party immediately, thereby generating a debt and
instead arranges either to repay or return those resources at a later date. It is any form
of deferred payment. The first party is called a creditor, also known as a lender
Movements of financial capital are normally dependent on either credit or equity

transfers. Credit is in turn dependent on the reputation or creditworthiness of the
entity which takes responsibility for the funds.
The credit concept can be applied in barter economies based on the direct exchange of
goods and services, and some would go so far as to suggest that the true nature of
money is best described as a representation of the credit-debt relationships that exist
in society.
Commercial Credit
Definition
A bank loan to a company also called commercial lending or business credit.
A term used in accounting to describe either an entry on the righthand side of an
account or the process of making such an entry. A credit records the increases in
liabilities, owners’ equity and reserves as well as the decreases in assets and expenses.
The ability of an individual or a company to borrow money or procure goods on time,

as a result of a positive opinion by the particular lender concerning such borrower’s
solvency and reliability. The right granted by a creditor to a debtor to delay
satisfaction of a debt, or to incur a debt and defer the payment thereof.
Consumer credit consists of short-term loans made to people so that they can purchase
consumer goods and services for personal or household purposes.
The term credit has various applications to transactions that involve borrowing. Credit
can be used in reference to the ability to postpone payment, as in the case of an
individual who has credit with a local store that allows purchase of items on weekly
basis and settlement of account due once a month. An individual might also be

extended a credit line, the maximum amount of money that a lender will put at a
borrower’s disposal. In such a case, an individual enters into an agreement for taking
out a series of loans. Since there is a fixed limitation on the amount to be borrowed,
payments must be made to reduce the debt incurred when the maximum is reached.
RBI vide its circular Dt. May 5, 2003 and March 6, 2007 directed all scheduled
commercial banks to adopt the Fair Practice Code for lenders. Even though it is not
mandatory, Saraswat Co-operative Bank has adopted following Fair Practice Code for
its lending activities:

CREDIT LENDING PROCEDURE
i. Application and processing of loans:

- The Bank gives information explaining the key features of their loan products.
- Along with the application form the Bank provides all the information about fees/
charges payable for processing, the amount of such fees refundable in the case of non-
acceptance of application, pre-payment options etc to the prospective borrower.
- The Bank advises applicant about what information/ documentation is required with
respect to the identity, address, employment, etc. and any other document that is
stipulated by statutory authorities, in order to comply with legal and regulatory
requirements.
- The Bank also gives acknowledgement for receipt of all loan applications.
- The applicant is informed about the time frame within which loan application would
be disposed of.
- The Bank verify’s the loan applications within a reasonable period of time.
- The Bank conveys in writing to the applicant the main reason/ reasons for rejection
of the loan applications.
ii. Loan appraisal:

- The Bank ensures proper assessment of credit application of the borrowers
- The Bank conveys to the borrower the credit limit along with the terms and
conditions thereof
- They keep the borrower’s acceptance of terms and conditions on record
- The Bank provides the copy of the loan agreement along with a copy of all
enclosures quoted in the loan agreement to the borrower
- Borrower is made aware that following credit facilities are solely at the discretion of
lenders
- Drawings beyond the sanctioned limits
- Honouring cheques issued for the purpose other than specifically agreed to in the
credit sanction
- Disallowing drawing on a borrowal account on its classification as a non-performing
asset

- Disallowing drawing on a borrowal account on account of non-compliance with the

terms of sanction.
- In the case of lending under consortium (2 to 3 banks come together to fund)
arrangement, the Bank and other participating lenders evolve procedures to complete
appraisal of proposals in the time bound manner to the extent feasible, and
communicate their decisions on financing or otherwise within a reasonable time.
iii. Disbursement of loans:

- The Bank ensures timely disbursement of loans.
- The Bank gives notice of any change in the terms and conditions including interest
rates, service charges etc.
- The Bank ensures that changes in interest rates and charges are effected only
prospectively.
iv. Guarantee:
The Bank tells the person, before accepting him as guarantor about:
-His liability as guarantor
-The amount of liability he will be committing to the bank
-Circumstances in which he will have to pay up the liability
-Whether the Bank has recourse to his money in the bank if he fails to pay up as a
guarantor
-Whether his liabilities as a guarantor are limited to a specific quantum or are they
unlimited
-Time and circumstances in which his liabilities as a guarantor will be discharged as
also the manner in which the Bank will notify him about this.
v. Post disbursement supervision:

- Borrower is made aware of the submission schedule of various stock statements/
financial accounts etc to the Bank and the penalties, in case of default by the
borrower.
- Borrower is made aware of the stock audit/ credit rating etc to be completed by the
external agencies and the details of cost to be borne by him.

- The Bank gives notice to the borrowers before taking a decision to recall/ accelerate
payment or performance under the agreement or seeking additional securities.
- The Bank releases all securities on receiving payment of loan or realization of loan
subject to any legitimate right or lien for any other claim the Bank may have against
borrowers.
- If such right of set off is to be exercised, the Bank gives notice about the same to the
borrower with full particulars about the remaining claims.
vi. General:
- The Bank refrains from interference in the affairs of the borrowers except for what is
provided in the terms and conditions of the loan sanction documents (unless new
information, not earlier disclosed by the borrower, has come to the notice of the
lender)
- The Bank doesn’t discriminate on grounds of sex, caste and religion in the matter of
lending.
- In the matter of recovery of loans, the Bank doesn’t resort to undue harassment such
as persistently bothering the borrowers at odd hours, use of muscle power for
recovery of loans, etc.
- In case of receipt of request for transfer of borrowal account, the Bank conveys
consent or otherwise within 21 days from the date of receipt of request.
vii. Grievance Redressal Mechanism:

The Bank has prepared separate document for redressal of grievances, which is
displayed on the website, wherein clear procedure for resolving disputes is explained.

TYPES OF CREDIT PROPOSALS
Funded Facility:
A) Cash Credit:
In 1979 the Reserve Bank of India set up a working group to review the cash
credit system. Cash credit is a short-term cash loan to a company. A bank
provides this type of funding, but only after the required security is given to
secure the loan. Once a security for repayment has been given, the businesses
that receive the loan can continuously draw from the bank up to a certain
specified amount. This type of financing is similar to a line of credit.
Sometimes bank funding is just out of the question. Unless your business has
excellent credit and a proven track record, a bank loan will be nearly
impossible to obtain.
Features of Cash Credit

1) Annual Review of Accounts:
Banks are required to review accounts of all the borrowers having working
capital limits of Rs. 10 lacs and over from the banking system at least once in
a year.

2) Bifurcation of Accounts Discontinued:

The Reserve Bank withdrew its earlier directive to the banks requiring them to
bifurcate the cash credit accounts into demand loan and cash credit
components and to charge differential rate of interest. In case of accounts
already bifurcated, the differential rates were to be abolished immediately.
3) Withdrawal of Funds:
After the credit limits are sanctioned as stated above, the borrower should be
required to indicate, before the commencement of each quarter, his expected
requirement of funds in that quarter. Such limits are called the operating
limits. Borrower is expected to withdraw funds from the bank within the
operating limit in that quarter subject to a tolerance of 10 per cent either way.
If a borrower draws more than or less than these tolerance limits, it must be
considered as an irregularity in the account, which is the consequence of
defective planning by the borrower.
4) Temporary limits:
Bank should very carefully consider request for temporary limits in excess of
the sanctioned limits to meet unforeseen contingencies. Such limits should be
allowed for predetermined short durations may be in the form of a separate
demand loan or non operable cash credit account, bearing an additional
interest of one percent over the normal rate. If the borrower in such a case is
unable to provide corresponding additional contribution, bank may ignore the
same.
B) Term Loans:
Term loans are also known as term/project finance. They represent a source of
debt finance which is generally repayable in more than one year but less than
07 years. The primary sources of such loans are financial institutions.
Commercial banks also provide term finance in a limited way. The financial
institutions provide project finance for new projects as also for expansion /

diversification and modernization whereas the bulk of the term loans extended
by banks are in the form of working capital loan to finance the working capital
gap.
FEATURES OF TERM LOANS:
Maturity:
The maturity period of term loans is typically longer in case of sanctions by financial
institutions in the range of 6-10 years in comparison to 3-5 years of bank advances.
However, they are rescheduled to enable corporate borrowers tide over temporary
financial exigencies.
Security:
Term loans typically represent secured borrowing. Usually assets, which are financed
with the proceeds of the term loan, provide the prime security. Other assets of the firm
may serve as collateral security.
All loans provided by financial institutions, along with interest, liquidated damages,
commitment charges, expenses, etc., are secured by way of:
a) First equitable mortgage of all immovable properties of the borrower, both
present and future for the entire institutional loan including commitment charges,
interest, liquidated damages and so on; and
b) Hypothecation of all movable properties of the borrower, both present and

future, subject to prior charges in favour of commercial banks for obtaining
working capital finance / advance.
Non-Funded Facility:
A) Letter of Credit :
A letter of credit, sometimes called a creditor’s bill, is a written instrument from a

bank or merchant in one location requesting that anyone or some specifically named
individual, advance money or items on credit to the individual holding, or named in,
the letter. Repayment of the debt is guaranteed by the bank or merchant issuing the
letter. Letters of credit are popular in international commercial transactions because
they enable parties to transact business without the need to exchange large amounts of
cash.

This type of instrument was also popular prior to the common usage of credit cards
and travelers checks. A letter of credit is an instrument which facilitates trade
transactions between two parties who are not known to each other. A letter of credit
carries a promise or an undertaking by the issuing banker which is valued and
honoured on a global basis.
Advantages of Letter of Credit:
a) Certainly of payment and avoidance of risk. Though the exporter may be quite
unfamiliar with the importer, the letter of credit provides him an absolute.
b) Assurance that the bills of exchange drawn under the letter of credit will be
honoured.
c) Immediate negotiation of the bills is possible under letter of credit.
d) Security against exchange restriction the opening banker issues a letter of

credit after having been satisfied that the exchange control regulations of his own
country do not impose any restriction on the transfer of money for the purpose in
question.
L/C working is as follows:
Import L/C (DA – 90 days):
Projected Purchases under DA L/C.:- Rs.X lacs
No. of days from issue of L/C to shipment: - Y Days
Transit: - Y Days
Usance: - 90 Days
Lead period: - 100 Days
L/C facility works to X x 100 = Z lacs

360
B) Bank Guarantees :

Contracts of guarantee have special significance in the business of banking as a

means to ensure safety of funds lent to the customers. The safety of such funds is
primarily ensured by securing a charge over the tangible assets owned by the
borrower and by the personal security of the letter.
Significance of guarantee as a security for a loans granted has greatly
increased in recent years since the introduction of social control on banks and
specially after the nationalization of major banks, great attention is being paid
towards augmenting bank advances for small and neglected borrowers who are
unable to provide sufficient tangible assets as security. To safeguard the interest of
the lending bankers, arrangement has been made of providing guarantees in
respect of such advances by the deposit insurance and Credit Guarantee
Corporation of India.
A contract of guarantee is thus a secondary contract the principal contract
being between the creditor and the principal debtor themselves. If the promise or
liability in the principal contract is not fulfilled or discharged only then the
liability of the guarantor or the surety arises. It can be said as “A type of guarantee
in which a bank or other lending organization promises to repay the liabilities of a
debtor in the event that the debtor is unable to.”

RATIOS
Ratio Analysis:
A relationship between various accounting figures, which are connected with each
other, expressed in mathematical terms, is called accounting ratios.
According to Myers, Ratio analysis of financial statements is a study of relationship

among various financial factors in a business as disclosed by a single set of statements
and a study of trend of these factors as shown in a series of statements.
Ratio analysis is one of the techniques of financial analysis to evaluate the financial
condition and performance of a business concern. Simply, ratio means the comparison
of one figure to other relevant figure or figures.

Ratio analysis is the method or process by which the relationship of items or groups of
items in the financial statements are computed, determined and presented.
Ratio analysis is an attempt to derive quantitative measures or guides concerning the

financial health and profitability of the business enterprise. Ratio analysis can be used
both in trend and static analysis. There are several ratios at the disposal of the analyst
but the group of ratios he would prefer depends on the purpose and the objectives of
the analysis.
Accounting ratios are very useful as they briefly summarise the result of detailed and
complicated computations. Absolute figures are useful but they do not convey much
meaning. In terms of accounting ratios, comparison of these related figures makes
them meaningful.
Accounting ratios are effective tools of analysis. They are indicators of managerial
and overall operational efficiency. Ratios, when properly used are capable of
providing useful information. Ratio analysis is defined as the systematic use of ratios
to interpret the financial statements so that the strengths and weaknesses of a firm as
well as its historical performance and current financial condition can be determined
the term ratio refers to the numerical or quantitative relationship between items/
variables.
This relationship can be expressed as:
a. Fraction
b. Percentages
c. Proportion of numbers
The alternative methods of expressing items which are related to each other are, for
purposes of financial analysis, referred to as ratio analysis. It should be noted that
computing the ratio does not add any information in the figures of profit or sales.
What the ratios do is that they reveal the relationship in a more meaningful way so as
to enable us to draw conclusions from them.

Advantages and Uses of Ratio Analysis

There are various groups of people who are interested in analysis of financial position
of a company. They use the ratio analysis to workout a particular financial
characteristic of the company in which they are interested. Ratio analysis helps the
various groups in the following manner: -
1) To workout the profitability: Accounting ratio help to measure the profitability of

the business by calculating the various profitability ratios. It helps the management to
know about the earning capacity of the business concern. In this way profitability
ratios show the actual performance of the business.
2) To workout the solvency: With the help of solvency ratios, solvency of the
company can be measured. These ratios show the relationship between the liabilities
and assets. In case external liabilities are more than that of the assets of the company,
it shows the unsound position of the business. In this case the business has to make it
possible to repay its loans.
3) Helpful in analysis of financial statement: Ratio analysis help the outsiders just
like creditors, shareholders, debenture-holders, bankers to know about the profitability
and ability of the company to pay them interest and dividend etc.
4) Helpful in comparative analysis of the performance: With the help of ratio

analysis a company may have comparative study of its performance to the previous
years. In this way company comes to know about its weak point and be able to
improve them.
5) To simplify the accounting information: Accounting ratios are very useful as

they briefly summarise the result of detailed and complicated computations.
6) To workout the operating efficiency: Ratio analysis helps to workout the

operating efficiency of the company with the help of various turnover ratios. All
turnover ratios are worked out to evaluate the performance of the business in utilising
the resources.

7) To workout short-term financial position: Ratio analysis helps to workout the

short-term financial position of the company with the help of liquidity ratios. In case
short-term financial position is not healthy efforts are made to improve it.
8) Helpful for forecasting purposes: Accounting ratios indicate the trend of the
business. The trend is useful for estimating future. With the help of previous years’
ratios, estimates for future can be made. In this way these ratios provide the basis for
preparing budgets and also determine future line of action.
Limitations of Ratio Analysis:

In spite of many advantages, there are certain limitations of the ratio analysis
techniques and they should be kept in mind while using them in interpreting financial
statements. The following are the main limitations of accounting ratios:
1) Limited Comparability: Different firms apply different accounting policies.

Therefore the ratio of one firm can not always be compared with the ratio of other
firm. Some firms may value the closing stock on LIFO basis while some other firms
may value on FIFO basis. Similarly there may be difference in providing
depreciation of fixed assets or certain of provision for doubtful debts etc.
2) False Results: Accounting ratios are based on data drawn from accounting records.
In case that data is correct, then only the ratios will be correct. For example, valuation
of stock is based on very high price, the profits of the concern will be inflated and it
will indicate a wrong financial position. The data therefore must be absolutely correct.
3) Effect of Price Level Changes: Price level changes often make the comparison of
figures difficult over a period of time. Changes in price affect the cost of production,
sales and also the value of assets. Therefore, it is necessary to make proper
adjustment for price-level changes before any comparison.
4) Qualitative factors are ignored: Ratio analysis is a technique of quantitative

analysis and thus, ignores qualitative factors, which may be important in decision
making. For example, average collection period may be equal to standard credit
period, but some debtors may be in the list of doubtful debts, which is not disclosed
by ratio analysis.
5) Effect of window-dressing: In order to cover up their bad financial position some

companies resort to window dressing. They may record the accounting data according
to the convenience to show the financial position of the company in a better way.
6) Costly Technique: Ratio analysis is a costly technique and can be used by big
business houses. Small business units are not able to afford it.
7) Misleading Results: In the absence of absolute data, the result may be misleading.
For example, the gross profit of two firms is 25%. Whereas the profit earned by one is
just Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs.
10,00,000 and sales are Rs. 40,00,000. Even the profitability of the two firms is same
but the magnitude of their business is quite different.
8) Absence of standard university accepted terminology: There are no standard

ratios, which are universally accepted for comparison purposes. As such, the
significance of ratio analysis technique is reduced.
Types of Ratio:
a. Liquidity Ratio
b. Profitability Ratio
c. Turnover Ratio
d. Capital Structure Ratio
e. Coverage Ratio
Liquidity Ratio:
The following ratio’s come under this head:
1. Current Ratio
2. Quick Ratio
B) Profitability Ratio:

1. Gross Profit Ratio
2. Net Profit Ratio
3. Return on Assets
4. Return on Equity
5. Return on Capital Employed
C) Turnover Ratio
1. Inventory Turnover Ratio
2. Debtor’s Turnover Ratio
3. Creditor’s Turnover Ratio
4. Fixed Assets Turnover Ratio
D) Capital Structure Ratio

1. Capital Gearing Ratio
2. Debt Equity Ratio
E) Coverage Ratio
1. Interest Coverage Ratio
2. Dividend Coverage Ratio
3. Total Coverage Ratio
The Saraswat Co-Op. Bank uses following Ratios:
1) Own Fund Ratio:

This ratio includes opening balance, profit & loss, capital introduced, Reserves &
Surplus, Deferred tax, (drawing) & Net Worth

Own Fund Ratio: Opening Balance + Profit & Loss + Capital Introduced + Reserves
& Surplus – Drawing / Net Worth.
2) Current Ratio:
Current Ratio includes Current Assets & Current Liabilities.
Current Ratio = Current Assets / Current Liabilities
The minimum limit is 1.33 and any ratio below 1.33 is treated as deviation. As
regards proposals having exposures below Rs.1.00 crore and depending upon type of
activities/products, life cycle of production process, performance under other
parameters is permissible in deserving cases, but not below 1.17. Any such proposal
having current ratio lower than 1.17 is treated as deviation.
3) Debt equity Ratio:
Shareholders funds consist of Preference Share Capital, Equity Share Capital, Capital
Reserves, Revenue Reserves and Reserves representing earmark surplus. The amount
of fictitious assets is deducted from the above. Debts represent long-term debts. It
includes mortgage loans and debentures.
Debt equity Ratio = Borrowed Funds / Shareholders funds
For this ratio debt means sanctioned Fund based working capital limits or
outstandings whichever is higher plus outstanding term loans plus Letter of Credit
-usance limit or outstanding whichever is higher.
Particulars of Industry Norms Outer limit *

Manufacturing unit (S.S.I. only) 2.5 3.5:1
Other manufacturing units 2: 1 2.5:1
Trading units 1.25: 1 1.75:1
Diamond Industry As stipulated in Export policy
* Beyond which if proposal is considered, it amounts to deviation.
4) Interest Service Coverage Ratio:

The ISCR is a measurement of the number of times the company could make its
interest payments with its earning before interest and depreciation but after tax.
Higher ratio sounds the better financial capacity of the unit to serve the debt burden of
the company.
ISCR = Profit after Tax + Depreciation + Interest on Unsecured loan & Working
Capital / Interest on Working Capital & Unsecured Loan.
ISCR has to be calculated where only working capital limits are enjoyed with the
bank.
Numerator PAT + Depreciation + Interest
Denominator Total interest payable by unit to Banks, FIs

including interest on WC limits and
interest on Unsecured Loans
# This ratio should not be less than 2.5. ISCR below 2.5 is treated as a
deviation and proposals having ISCR below 2 deserve rejection from bank.
5) Debt Service Coverage Ratio (D.S.C R.):
Profit after tax + Int. on Term loan & working capital limits + Depreciation
Int. on Term loan & working capital limits + Term loan installment payable
It is the ability of a firm to make the contractual payments required on a scheduled

basis over the life of the debt. It is considered a more comprehensive and apt measure
to compute debt service capacity of a business firm. It provides the value in terms of
the number of times the total debt service obligations consisting of interest and
repayment of principal in installments are covered by the total operating funds
available after the payment of taxes. The higher the ratio, the better it is.
While calculating the cash accruals, the income generated from the business activity
should be considered and introduction of capital /unsecured loans should not be
considered. Normally an annual/average DSCR should be minimum of 1.5. However,
annual/average DSCR between 1.4 to 1.50 is accepted but with proper justification.

DSCR below 1.40 is treated as a deviation. An annual/average DSCR 1.25 or less

deserves outright rejection of the credit proposal.
6) Sales to Working Capital Ratio :
This ratio includes sales and working capital.
Sales to Working Capital Ratio = Sales / Working Capital.
7) Sales to Fixed Assets Ratio :
This ratio includes sales and Fixed Assets.
Sales to Working Capital Ratio = Sales / Fixed Assets.
8) Assets Coverage Ratio :
This ratio includes fixed assets and term loan, cash credit.
Assets Coverage Ratio = Total Fixed Assets / Term loan + Cash Credit.
8) Quick Ratio :
In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a
company to use its near cash or quick assets to immediately extinguish or retire its
current liabilities. Quick assets include those current assets that presumably can be
quickly converted to cash at close to their book values.
Quick Ratio = Cash + Marketable Securities + Accounts Receivable

Current Liabilities
Generally, the acid test ratio should be 1:1 or better, however this varies widely by
industry.

PROCESS OF GRANTING CREDIT
A) Collection of Documents:
 Audited profit and Loss A/c, Balance Sheet for the Current Year
 Month wise sales, purchases for the last year and current year
 Party wise major sales, purchases for the last year

 Pending orders in hand
 Xerox copies of tax payments especially Sales Tax, Income Tax, Service Tax,
Wealth Tax
 Assets and liability statement certified by a Chartered Accountant
 CIN and DIN in case of Companies
 Insurance Policy for stock & other assets duly endorsed in banks name
 Borrowings in the personal name of Directors / Partners (if any) from other
banks / other sources
B) Proposal :
Bank makes proposal on the basis of required documents. The Proposal shows the
capacity of the company by calculating various ratios and by giving comments on
those ratios.
Proposal includes, establishment of the company, activity, rate of interest,

sanction limit of cash credit and term loan and background of the company. The
applicable rate of interest is dependent upon the Credit Rating Model of the bank.
The Credit Rating model is divided into:

Financial parameters & Commercial & Technical Factors & Management factors &
Industrial Parameters.
The financial parameters include the ratios to which certain marks are allotted. These
marks vary depending upon the values obtained. Based upon the total marks obtained
a rating is achieved which helps to determine the rate of interest applicable.
The Financial parameters include ratios such as:

i. Current ratio

ii. Debt-Equity ratio

iii. PBDIT to sales ratio
iv. Sales to Working Capital exposure ratio
v. Sales to Fixed / Current assets ratio
vi. Debt Service Coverage Ratio
vii. Interest Service Coverage Ratio
viii. Trend Analysis
Here the trend in the outcome of ratios for the past three years is
considered. The ratios scrutinized here are
1. Current Ratio
2. Debt-Equity Ratio
3. Sales Growth Rate
4. Cash Accruals
Commercial & Technical Availability includes:

a. Raw Material availability
b. Competition faced
c. User / Product Profile
d. Technology used
e. Quality Control
f. Distribution Network
g. Recovery
Management parameters include:

a. Expertise / Technical Competitors
b. Integrity
c. Track Record
Industrial Parameters:
Based on the preference of the industry the marks are allotted
This table shows how the rating is done based upon the score obtained
The present Prime Lending Rate (PLR) of the bank is 13.00%

Sr. No. Credit Rating Score Applicable ROI

I PRIME 90 & Above 13.00
II A 81 – 90 13.50
III B 71 – 80 14.00
IV C 55 – 70 15.00
V D 41 – 54 16.00
VI E Below 40 17.00
The credit rating is must for every account and every year the credit rating of a
particular account is done. The PLR is determined by the bank & is based upon the
economic condition.
CASE
‘XYZ’ Private Limited Company.
Constitution: Private Limited Company
Establishment: 1994
Banking with us since: 1994
Sector: Trading
Present PLR: 13.00%
Rating: B
Applicable ROI; PLR + 1.00% i.e. 14.00%
Activity: Trading
Products: Alphox, Polymeg, Sorbitrol, Sodium Hydro Suplhite, Maize Starch, Liquid
Glucose, Dicyandiamide.
Type of Sancd. Ruling Addl. Addl. Total O/s Bal. Overd

Facility Limit Limit ues
Applied Recomd. 31.03.09
(1) (2) (3) (4) (5) (6) (7) (8)

Cash 130.00 120.00 50.00 - 130.00 18.64 -
Credit *
Total 130.00 120.00 50.00 - 130.00 18.64 -
Funded
Letter of 70.00 70.00 50.00 40.00 110.00 90.78 -
Credit-90
days
Bank 15.00 15.00 - - 15.00 10.05 -
guarantee
Total N- 85.00 85.00 50.00 - 125.00 100.83 -
Funded
Total FB 215.00 205.00 100.00 40.00 255.00 119.47 -
+ NFB
Background:
 The company is mainly in the business of trading in dyes and chemicals. The
company is an authorized distributor of major chemical companies. The main
range of products traded by the company are Alphox, Polymeg, Sorbitrol, Sodium
Hydro Suplhite, Maize Starch, Liquid Glucose, Dicyandiamide etc. which find
uses in the various industries like textile pharmaceuticals, glassware etc.
 The applicant company has started importing products like DCDA from China.
The products are finding a very good demand in the Indian market mostly in the

textile and pharma industry for which the marketing channel has already been
established by the company by way of its existing clientele.
The CIBIL Inquiry was carried out and the account described was Standard. Carrying
out CIBIL (Credit Information Bureau India Limited). The need for such enquiry can
be described as below:
At a time when the economy is growing more resilient and self-sufficient, the demand
for credit is on the rise. Borrowers are sometimes predisposed towards taking
advantage of the system by moving from one institution to another, despite being
defaulters in their earlier banking relationships. The aim of CIBIL's Commercial
Credit Bureau is to minimise instances of concurrent and serial defaults by providing
credit information pertaining to non-individual borrowers such as public limited
companies, private limited companies, partnership firms proprietorships, etc. CIBIL
maintains a central database of information as received from its Members. CIBIL then
collate and disseminate this information on demand to Members, in the form of
Commercial Credit Information Reports (CIR) to assist them in their loan appraisal
process.
The CIN and DIN of the company were referred from the website www.mca.gov.in
(CIN-Company Identification Number & DIN- Directors Identification Number) This
is useful to know whether the company is really in existence and have the directors
really registered for that company. The charge against the fixed assets has to be
registered with the ROC. For this there is a need to know whether the company is in
existence.

The Financials for ‘XYZ’ Private limited Company

Profit and Loss A/c
XYZ Pvt. Ltd.
OPERATING STATEMENT SCHEDULE 4
Audited Audited Audited Proj. Prov.

2005-06 2006-07 2007-08 2008-09 2008-09
Local Sales (Mfg.) 818.21 1,240.00 1,701.16 2,500.00 2,370.08
Local Trading/ Jobwork - -
Export sales (Mfg.) - - - - -
Export sales (Trading) - - - - -
Total Gross Sales 818.21 1,240.00 1,701.16 2,500.00 2,370.08
Less: Excise Duty/ Returns - - - - -
NET SALES 818.21 1,240.00 1,701.16 2,500.00 2,370.08
12.76% 52% 37.19% 46.96% 39.32%
MATERIAL CONSUMED
Imported - -
Indigenous 786.41 1,271.33 1,565.07 2,275.00 2,153.96
Material consumption to sales

ratio 96.11 102.53 92.00 91.00 90.88
Packaging material - - - - -
Spares, stores & consumables - - - - -
Power, fuel, water - - - - -
Direct labour - - - - 2.65
Direct expenses - - - 80.00 60.51
Depreciation 2.54 1.90 1.42 1.00 1.07
Sub Total 788.95 1,273.23 1,566.49 2,356.00 2,218.19

Add :Opening W.I.P. - - - - -
Less: Closing W.I.P. - - - - -
Cost of Production 788.95 1,273.23 1,566.49 2,356.00 2,218.19
Add : Opening Finished Goods 1.85 13.38 111.10 99.00 98.52

Less: Closing Finished Goods 13.38 111.10 98.52 115.00 122.58
Cost of Sales 777.42 1,175.51 1,579.07 2,340.00 2,194.13

92.82 93.60 92.58
GROSS PROFIT 40.79 64.49 122.09 160.00 175.95
G.P.% 4.99% 5.20% 7.18% 6.40% 7.42%
Interest to Bankers 2.40 8.62 11.84 28.00 12.71

Interest to Unsec. Loans 0.88 1.35 1.19 - -

Selling & Administration Exp. 41.77 50.91 104.57 120.00 133.13
Salary/ Int.to partners/Dir. - 5.40 - - 17.98
Sub Total 45.05 66.28 117.60 148.00 163.82
OPERATING PROFIT (4.26) (1.79) 4.49 12.00 12.12

Operating Profit % -0.52% -0.14% 0.26% 0.48% 0.51%
Other Income 11.95 10.42 10.56 15.00 6.20

Other Expenses
Net Other Income 11.95 10.42 10.56 15.00 6.20
Profit Before Tax 7.69 8.63 15.05 27.00 18.32

P.B.T.% 0.94% 0.70% 0.88% 1.08% 0.77%
Less: Tax Provision 2.84 3.44 5.85 8.00 -
N.P. After Tax 4.85 5.19 9.20 19.00 18.32

PAT % 0.59% 0.42% 0.54% 0.76% 0.77%
Add: Depreciation 2.54 1.90 1.42 1.00 1.07
Less: Drawings/Dividend - - - - -
CASH ACCRUALS 7.39 7.09 10.62 20.00 19.39
BALANCE SHEET

XYZ Pvt. Ltd. SCHEDULE 5

COMPARATIVE FINANCIAL POSITION
Audited Audited Audited Proj. Prov.

2005-06 2006-07 2007-08 2008-09 2008-09
Vehicles 4.22 3.12 - - -
Other Fixed Assets 2.89 2.08 4.07 5.00 3.20
TOTAL 7.11 5.20 4.07 5.00 3.20
Less: Revaluation
Reserve - - - - -
TOTAL FIXED ASSETS 7.11 5.20 4.07 5.00 3.20
TL from Institutions.
(excl.1 yr.) - - - - -
Bank Term Loan (excl.
1 year) 1.39 - - - -
Other term loans - - - - -
TOTAL TERM
LIABILITIES 1.39 - - - -
NET FIXED ASSETS 5.72 5.20 4.07 5.00 3.20
Raw Material
Indigenous - - - -
------"---------- Imported - - - -
Finished Goods 13.38 111.10 98.52 115.00 122.58
Stores & Spares - - - - -
Adv. To suppliers - - - - -
Trade Debtors Local (<
6 mths) 168.38 172.79 408.09 300.00 338.38
Trade Debtors Export
(<6 mths) - - - - -
Loans & advances 1.44 1.69 - - 2.19
Advance Payment of
Taxes 4.38 7.37 13.29 13.00 6.45
Advance Income Tax 13.73
Cash & Bank Balance 0.23 0.37 11.03 2.00 2.59
Fixed Deposits 6.14 7.94 2.94 12.00 10.03
Other Current assets 0.66 0.88 - - 4.42
TOTAL CURRENT
ASSETS 194.61 302.14 533.87 442.00 500.36
Cash Credit 28.94 58.05 112.94 180.00 130.50
Bill Purchase - - - - -
Term Loan Installment.
In a year - - - - -
Creditors for goods
Local 90.88 152.55 330.25 115.00 214.31
'---------"--------- - - - - -

Import
Creditors for expenses 2.24 - 0.48 - -
Deposits accepted - - - - 0.30
Advances received - - - - -
Taxes Payable - - - - 3.96
Tax Provisions 4.03 7.64 13.60 13.00 20.25
Other provisions 1.40 - 4.19 - 2.13
Others - 1.51 - - 0.13
TOTAL CURRENT
LIABILITIES 127.49 219.75 461.46 308.00 371.58
NET CURRENT
ASSETS 67.12 82.39 72.41 134.00 128.79
TANGIBLE NET
WORTH 72.84 87.59 76.48 139.00 131.99
Represented By:
Opening Balance of
Capital 1.00 1.00 1.00 1.00 1.00
+Profit/Loss in the year - - 9.20 - 18.32
+Capital introduced - - - - -
+Reserves ( Excl Rev.
Reserve) 9.50 14.69 14.69 43.00 23.89
+Unsecured Loan/quasi
equity 62.92 72.60 52.33 95.00 89.03
- Drawings/Dividend - - - - -
NET WORTH (A) 73.42 88.29 77.22 139.00 132.24
Debtors above 6
months, non recoverable - - - - -
+Investments including
ICD’s 0.25 0.25 0.25 - 0.25
=Total non current
assets 0.25 0.25 0.25 - 0.25
-Non current liabilities - - - - -
=NET NON CURRENT
ASSETS(B) 0.25 0.25 0.25 - 0.25
Intangible Assets (C) 0.33 0.45 0.49 - -
TANGIBLE NET
WORTH (A-B-C) 72.84 87.59 76.48 139.00 131.99
(0.00) (0.00) (0.00) (0.00) (0.00)
Cash credit limit 30.00 80.00 130.00 180.00 130.50

L/C 70.00 70.00 70.00 70.00
Bank guarantee 15.00 15.00 15.00 15.00

Total 30.00 165.00 215.00 265.00 130.50
Fixed Assets 7.11 5.20 4.07 5.00 3.20

Term Liabilities 1.39 - - - -
Current Assets 194.61 302.14 533.87 442.00 500.36
Current Liab. 98.55 161.70 348.52 128.00 241.08
Bank Finance 28.94 58.05 112.94 180.00 130.50
Net Worth 72.84 87.59 76.48 139.00 131.99
Sales Growth Rate
Own Funds %age 14.30 17.77 32.23 31.65 32.68
Current Ratio 1.53 1.37 1.16 1.44 1.35
Debt / Eq. Ratio 0.41 1.71 2.62 1.80 0.99
Sales – F.A. Ratio 115.08 238.46 417.98 500.00 -
Asset Coverage Ratio 0.24 0.03 0.02 0.02 0.02
I. S. C. R. 3.25 1.71 1.82 1.71 2.53
Avg. I. S. C. R 2.33
KEY RATIOS

Current ratio for 2008-09 provisional is 1.35 which is above the banks outer norm of
1.17 and hence it satisfies the requirements with respect to Current ratio. The trend for
past years is also in the acceptable limits.
The debt-equity ratio is 1.63 which is above the below norm of 1.75. The debt-equity
ratio is on higher side on account of due to increase in the unsecured loans.

The ISCR is 2.53, which is above the banks norms of 2.5. The average for the four
years is well above the rejection norms.
Sales:- Company has achieved sales of Rs.2370.08 lacs as against Rs.1701.16 lacs in
the previous year. There is growth in sales to the extent of 39.32% over the previous
year.
During the previous there were frequent fluctuations in prices of the chemicals and
hence the company had to restrict dealings of certain chemicals whose prices had
increased substantially.

Networth:- Company’s networth as on 31.03.09 is Rs.131.99 lacs as against Rs.76.48

lacs as on 31.03.08. Increase in networth is on account of net sales to the extent of
Rs.668.92 lacs.
Profitability:- Company has recorded operating profit at 0.51% as against operating

loss of 0.26% in the previous year. With rise in turnover, the profit margins have
improved. The other income of Rs.6.20 lacs includes commission Rs.2.53 lacs,
discount Rs.2.71 lacs, interest received Rs.0.58 lacs, foreign exchange fluctuation
income Rs.0.33lacs and dividend Rs.0.05 lacs. Cash accruals are Rs.19.39 lacs and are
at 0.82%.

CONCLUSION
1) The Zone provides Funded, Non-Funded & other services to customers

Funded facilities like TL / WC / WCTL / PCPS
Non-funded facilities like LC / BG
2) It is studied during the project that, past record with regard to payments, nature
of business is scrutinized neatly before considering the proposals
3) At the time of visit to the firm the concerned officers check the required
information & also discuss the third party products like CASA (Current A/c’s
& Savings A/c’s}, Deposits & other banks accounts
4) Ratio analysis method is specially use by the bank for company’s future
financial study for e.g. debt equity ratio, current ratio etc.
5) The rating of the firms applying for credit is done on the basis of the credit
rating model every year. The parameters considered for rating are financial
and non-financial parameters like raw materials availability, competition faced
etc.
6) Security in the nature of prime & collateral. Prime security is where the bank
has prima facie charge and collateral security is secondary in nature. In case if
the prime security fails to service the advance only then the collateral security
is considered.
7) Security is in liquid form like FDR, LIC policy, NSC etc. or tangible form like
any property (gala, godown), machinery etc.
8) For manufacturers or traders bank provides cash credit facility against stock.
Prime Security for Cash Credit (CC) is in the nature of Stock + (Debtors -
Creditors) or else property & collateral may be in liquid or tangible form
9) Bank collects required documents and prepares proposal on the basis of

collected documents, before granting loan to the company. This
documentation is done after the sanction letter is issued by the zonal office to
the respective branch. The legal department then verifies these documents

Recommendations
The Saraswat Co-Operative bank being the leading Co-operative bank has some areas
where it needs to be looked upon. The present state of economy has resulted into
many big players in banking sector shaping up their strategies accordingly. Though
the economy is grooming up from the effects of recession the following steps for
various industry segments is suggested for Saraswat bank.
1. Auto ancillary:
The rise in the interest rate is deterring the purchase of commercial vehicles, which
has reduced the sales of commercial vehicles of some big companies. This is further
compounded by steep rise in international prices of crude oil resulting into
skyrocketing prices of petrol and diesel. General slump in automobile sales may in
turn affect the companies which supply components to auto manufacturers. Hence, the
bank needs to adopt cautious approach while financing such units. The sales of the
units should not be dependent only on single party.
2. FMCG:
The rising purchasing power of individuals has boosted the FMCG segment. This will
boost the industries directly/indirectly dependent on the FMCG segment. Packaging
industry is one such related industry. With the continuous growth in country’s GDP
fortunes of this industry are bright. Impending global economic slowdown would
have least effect on this sector and hence this sector needs to be encouraged .
3. Steel:

The units engaged in steel manufacturing are expected do well due to increasing
infrastructure projects that are coming up. At the same time, the bank needs to have a
cautious approach while lending to units engaged in trading especially due to high
price volatility. Integrated steel mills with captive sources of basic raw material like
coal can be looked at. Stainless steel making units are also doing well presently due to
increased demand from equipment manufacturers.
4. Textile:
The textile industry is booming. However, due to appreciation of the value of the
rupee borrowal units engaged in exports may take a hit. Manufacturers with fixed rate
contracts with MNCs like Wall Mart may be affected due to general slowdown in
USA. However, the Indian textile industry is presently in the diversified markets and
is expected to do well due to favorable GOI (Textile Upgradation Fund Scheme)
policies and acceptability it can achieve from the world markets towards its quality of
product. Possible global economic slowdown would affect this industry the most.
5. Pharmaceuticals:
The pharmaceutical industry has registered a steady growth and is expected to
continue doing so. Units in Active Pharma Ingredients and those in contract
manufacturing are doing well. Contract research is another booming area and few
units set up for this activities have shown good performance.
6. Hotel & Tourism:

The policies and initiatives taken by the Government for strengthening the tourism
infrastructure are responsible for growth in the hotel industry. The availability of
cheap air travels and various websites offering reasonable package tours is also one of
the reasons to boost hotel and tourism industry. However recent terror attack on
Mumbai coupled with global economic meltdown has affected this industry badly and
revival may take some more time.
Recently RBI has modified the definition of industry/business for the purpose of
classification. Earlier the units were classified as Small business, SSI, Medium and
Large industries. Now as per the new definition the units will be classified as Micro,
Small and Medium Enterprise (MSME) of which micro and Small enterprises were
classified as priority sector advances. The bank should therefore implement its
policies according to the new guidelines.
In addition to the above suggestions the bank shows negligence in granting credit to
Sugar industries, Oil crushing industries, Glass industries and audio and video
cassettes industries. This negligence is due to the performance of the sector in the
economy and the risk associated with it. But credit facilities should be provided as
these sectors have high demand for their products in market and wont be much risky
at the present economic scenario.
The bank has also slowed down the granting of credit to some industries such as:-
1. Textiles (natural fiber as well as synthetic fibre)- staple fiber into yarn i.e. spinning
mills and standalone texturised yarn makers, Denim.
2. Steel manufacturing like melting of scrap through induction furnace, manufacturing
of sponge iron & pig iron.
3. Cigarette manufacturing, manufacturing of Gutka & Paan Masala
4. Infrastructure-direct finance to large projects.
5. Project Finance - Large Greenfield projects with long gestation period
6. Production of TV serials and films.
7. Service sector industries such as Travel by sea, land for new entrants, tourism,
hospitality, healthcare and hospitals with long gestation period have least acceptance
for credit from the bank.
The bank therefore needs to explore these segments so as to build its esteemed
presence in the banking sector at more higher and competitive level.

BIBLIOGRAPHY:
Web:
a. http://www.saraswatbank.com
b. http://www.wikipedia.com
c. http://www.investopedia.com
d. http://www.mca.gov.in
e. http://www.cibil.com
f. http://www.moneycontrol.com
g. http://www.google.com
h. http://www.teachmefinance.com
i. http://www.rbi.gov.in
Books:
Financial Management – Khan & Jain
Banking Law & Practice – Varshney P. N.
Papers:
The Economic Times
Business Standard

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A Project

PROJECT SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE

Under the Guidance of :

I would like to acknowledge and extend my heartfelt gratitude to the following

I am grateful to Mr. Anjan Maiti Director, ‘Sterling Institute of Management

Sterling Institute of Management Studies Page 2

This project titled “Processing of Commercial Credit Proposal” in Saraswat Co-

Sterling Institute of Management Studies Page 3

PROCESSING OF COMMERCIAL CREDIT PROPOSALS

Sterling Institute of Management Studies Page 4

Sterling Institute of Management Studies Page 5

1. To understand the process of commercial credit proposal

Sterling Institute of Management Studies Page 6

For processing of Commercial Credit Proposals a proper research methodology is

Sterling Institute of Management Studies Page 7

Sterling Institute of Management Studies Page 8

ECONOMY & BANKING SCENARIO

Immediately after Independence, the government of India initiated measures to play

FDI in Banking Sector

Sterling Institute of Management Studies Page 9

The Credit Scenario

Sterling Institute of Management Studies Page 10

Sterling Institute of Management Studies Page 11

The rupee depreciated during 2008-09, reflecting varied developments in international

Sterling Institute of Management Studies Page 12

BANKING STRUCTURE IN INDIA

The commercial banking structure in India comprises:

According to a study by Dun & Bradstreet (an international research body)—"India's

Sterling Institute of Management Studies Page 13

Hierarchy of Banking Institution in India

1) Public Sector Banks:

2) Private Sector Bank:

B) Regional Rural Banks:

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Central co-operative banks.

Primary Credit Societies.

Sterling Institute of Management Studies Page 15

LIST OF MAJOR SCHEDULED URBAN CO-OPERATIVE BANKS

Sterling Institute of Management Studies Page 16

CO-OPERATIVE BANKING SECTOR

Co-operative banks are perhaps the first government sponsored, government-

Sterling Institute of Management Studies Page 17

Sterling Institute of Management Studies Page 18

SARASWAT BANK PROFILE:

Saraswat Bank is a Scheduled Cooperative Bank. On 14th September 1918, “The

MOTTO & MISSION STATEMENT

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Sterling Institute of Management Studies Page 20

ATMs spread across the states of Maharashtra, Karnataka, Madhya Pradesh,

Zone-I Grant Road

Sterling Institute of Management Studies Page 21

Sterling Institute of Management Studies Page 22

FINANCIALS OF SARASWAT CO-OPERATIVE BANK

NET PROFIT AFTER TAX 139.33 202.26

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#new yet to publish

Sterling Institute of Management Studies Page 24

Sterling Institute of Management Studies Page 25

NRI (Non Resident Indian) :

NRE ACCOUNT: Non Resident (External) Accounts can be opened by Persons of