“CREDIT APPRAISAL

SYSTEM FOR SME

SECTOR”
BY – RISHAV SARKAR
 a) STRENGTHS b) WEAKNESS
1. Greater securities of 1.Basel Committee
Funds 2. Powerful Unions
Banking 2. Banking network 3. Priority Sector Lending
3. Large Customer Base
Industry in India 4. Low Cost of Capital
4. High Non-Performing
Assets

Facts :
Regulatory Board – RBI
c) OPPORTUNITIES
d) THREATS
Largest market share – 1. Universal Banking
1. NBFCs, Capital Markets
State Bank of India 2. Differential Interest and Mutual funds
Rates
2. Changes in the
Booming Sector – Retail 3. High Household Savings Government Policy
Banking 4. Untapped Foreign
Markets
3. Inflation
4. Recession
5. Internet Banking
 RBI

Development
Financial Banks
institutions

IFCI SIDBI NABARD IRBI NHB EXIM Bank ICICI IDBI

Land
Commercial Cooperative
Development Rural Banks
Banks Banks
Banks

Public Sector
private Sector
Banks
Banks

Nationalized
SBI Groups
Banks Indian Banks Foreign Banks

CLASSIFICATION OF BANKING INDUSTRY IN INDIA

 Character
(integrity/
willingness)

CREDIT
APPRAISAL Conditions
Capacity
(ability/
(environment/
“an investigation/assessment framework) financial
soundness)
done by the banks before
providing any Loans &
advances/project finance & 5C’s
also checks the commercial,
financial & technical
viability of the project Collateral
proposed its funding pattern Capital (backing/
(strength/funds
& further checks the primary availability) fall back/
& collateral security cover security)
available for recovery of
such funds”
 Receipt of application from applicant

Receipt of documents

CREDIT (Balance sheet, KYC papers, Different govt. registration no.)

Pre-sanction visit by bank officers

APPRAISAL Check for RBI defaulters list, willful defaulters list, CIBIL
data, ECGC,
Title clearance reports of the properties to be obtained
PROCESS Valuation reports of properties to be obtained from
empanelled valuer
Preparation of financial data

Proposal preparation

Assessment of proposal
Sanction/approval of proposal by appropriate sanctioning
authority
Documentations, agreements, mortgages

Disbursement of Loan
Post sanction activities such as receiving stock statements, review of
accounts, renew of accounts, etc. (On regular basis)
 Industry Banking, Financial services

Founded 6 January 1943

Company Profile Headquarters Kolkata, West Bengal, India

Area served Worldwide

Key people Arun Kaul(Chairman and Managing Director)

Products Consumer banking, corporate banking, finance and

insurance, investment banking, mortgage loans, private banking,
wealth management
 SME PRODUCTS OFFERED BY UCO

Prime Scheme for

Scheme for
Minister financing
Laghu Swarozgar UCO Mahila providing UCO
Artisan Employment Handloom UCO Udyog
Udyami Credit Card Pragati finance to Commercial UCO Trader UCO Doctor
Credit Card Generation Weavers Mitra
Credit Card Scheme Dhara the Rice Vehicle
Programme Group
Shellers
(PMEGP) (HWG)
 To study the basic fundamentals of banking industry.

OBJECTIVE OF To study entire loan system for SME sector in India

THE STUDY
To study credit appraisal methods.
“statements
describing what the To understand the commercial, financial and technical
project is trying to viability of the proposed proposal and its funding pattern.
achieve & the effect To know on what criteria the bank appraise the loan to the
or change that the business.
project is supposed
To understand the different financial tools required for
to cause.” credit appraisal
RESEARCH PROBLEM
STATEMENT
RESEARCH
DESIGN
DATA
COLLECTION
SAMPLE
SAMPLING
METHOD
SAMPLE SIZE

METHODOLOGY • To study the

Credit
• The research
is analytical
• Secondary
Data
• Case study • Convenient
Sampling
• Case Studies
(2)
Appraisal in nature

“procedure for
System in
SME sector
at UCO Bank.

collecting data • To
understand
on what
to be analyzed” criteria, the
bank
approves a
loan
FINANCIAL TOOLS
ON WHICH DATA CAPITAL Internal Net Average Payback
ANALYSIS IS BUDGETING
TECHNIQUES
rate of
return.
Profitability
index
present
value
rate of
return
period
method

CONDUCTED RATIO
ANALYSIS
Net profit
ratio
Operating
profit ratio
Gross
profit ratio
Debt
equity Proprietary Quick ratio Current
ratio
ratio ratio

“techniques WORKING
CAPITAL
Working
Capital
Assessment.
ANALYSIS.
used to RISK Promoters Operational
Market risk

decipher ANALYSIS risk risk

Net
OTHER Net Profit
information” PARAMETERS
Sales Operating
Cash Flow
TOL / TNW
margin
 CASE STUDY – 1
The financial tools shows a positive sign on
the financial position of the company and the
company is expected to continue the same in
FINDINGS the future. Hence it is suggested to accept the
Proposal

CASE STUDY – 2
The overall projected performance and
financial position of the unit are satisfactory
and the project can be accepted
 ADOPTING 4C APPROACH

IMPROVING RATING MECHANISMS

SUGGESTIONS AND IMPROVING PERSONNEL SKILLS
RECOMMENDATIONS DEVELOPING RELATIONSHIPS

DATA AUTHENTICATION

CUSTOMIZING PRODUCTS INNOVATING DELIVERY PLATFORMS

REVISING CREDIT POLICY PERIODICALLY

MODERATE RATE OF INTEREST

SPECIAL MEASURES FOR AGRICULTURAL SECTOR

 Usually, it is seen that credit appraisal is basically
done on the basis of fundamental soundness. But,
after different types of case studies, it can be
concluded that credit appraisal system is not only
looking for financial wealth. Other strong parameters
CONCLUSIONS also play an important role in analyzing credit
worthiness of the firm/company.
Credit Appraisal should be
based upon
In all, the viability of the project from every aspect is
 Financial performance analyzed, as well as type of business, industry,
 Business performance promoters, past records, experience, projected data
and estimates, goals, long term plans also plays
 Industry outlook crucial role in increasing chances of getting project
 Quality of management approved for loan.

 Conduct of account