Summer Internship Project Report

On

“A Study of Loans and Advances Offered in Bajaj Finance Limited “

With Respect To

Bajaj Finance Limited

Submitted In The Partial Fulfilment Of The Requirement For The Two-Year Fulltime Master Of
Business Administration

Submitted By: Under The Guidance Of:

Student Name: Niketan Kumar Prof. Parul Gupta
Semester Mba (2023-25)
Mr. Akash Kumar Pandey

(Sales Manager)

Institute of Technology &Science, Ghaziabad

SESSION- (2023-2025)
 Certificate Of Originality

I Hereby Declare That This Summer Internship Report Is My Own Work and That, To
the Best of My

Knowledge and Belief, It Reproduces No Material Previously Published or Written That

Has Been Accepted for The Award of Any Other Degree or Diploma, Except Where Due
Acknowledgement Has Been Made in The Text.

(Niketan Kumar)

Enrollment No……………….

Date:………………..
 Certificate

This Is To Certify That Mr. Niketan Kumar (2023-25 Batch) A Student Of Institute Of Technology And Science
Has Undertaken The Summer Internship Report On “A Study Of Loans And Advances Offered In Bajaj
Finance Limited “ With Respect To Bajaj Finance Ltd.

The Project Has Been Carried Out by The Student in Partial Fulfillment of The Requirements for The Award of
Mba, Under My Guidance and Supervision.

I Am Satisfied with The Work of Mr. Niketan Kumar.

Date:

Academic Mentor’s Name: Prof. Parul Gupta Industry Mentor Name: Mr. Akash Kumar Pandey
 Acknowledgement

I Acknowledge My Deep Sense of Gratitude Of I.T.S Ghaziabad and A.K.T.U For Giving Me Opportunity to
Make This Mini Project That Is Going to Enhance My Skills. Many People Have Contributed to The Success of
This Project. Although A Single Sentence Hardly Suffices, I Would Like to Thank Almighty God for Blessing Us
With

Her Grace. I Extend My Sincere and Heartfelt Thanks to Academic Mentor Prof. Parul Gupta, And Industry

Mentor Mr. Akash Kumar Pandey My Mentor for Providing Us the Right Ambience for Carrying Out This
Work. And For Innumerable Acts of Timely Advice, Encouragement and I Sincerely Express My Gratitude to
Her. Last But Not the Least, I Want to Thank All Others, Especially My Family, Friends and Classmates Who
in One Way or Another Helped Me in The Successful Completion of This Work.

Niketan Kumar
 TABLE OF CONTENT

Sn No. Topic Page No.

1. Introduction

2. Industry Overview

3. Literature Review

4. Research Methodology

5. Data analysis &Interpretation

6. Finding, Bibliography &Questionnaire

7. Recommendation
8. Conclusion

9.

INTRODUCTION
Money is an essential element for any business, because it fulfills the short term and long term requirement

of funds. It is not possible for the owner to bring all the money himself, so he/she take recourse to loans and

advances. Loans refer to a debt provided by a financial institution for a particular period while Advances

are the funds provided by the banks to the business to fulfill working capital requirement which are to be

payable within one year. The loan amount is required to be repaid along with the interest, either in lump sum

or in suitable installments. It can be a term loan (payable after 3 years) or demand loan (payable within 3

years). In the same way, advances also requirement repayment along with the interest within one year. These

two terms are always uttered in the same breath, but there are a number of differences between loans and

advances.

Meaning of Loans and Advances:-

The term ‘loan’ refers to the amount borrowed by one person from another. The amount is in the nature of

loan and refers to the sum paid to the borrower. Thus From the view point of borrower, it is ‘borrowing’ and

from the view point of bank, it is ‘lending’. Loan may be regarded as ‘credit’ granted where the money is

disbursed and its recovery is made on a later date. It is a debt for the borrower. While granting loans, credit

is given for a definite purpose and for a predetermined period. Interest is charged on the loan at agreed rate

and intervals of payment. ‘Advance’ on the other hand, is a ‘credit facility’ granted by the bank. Banks grant

advances largely for short-term purposes, such as purchase of goods traded in and meeting other short-term

trading liabilities. There is a sense of debt in loan, whereas an advance is a facility being availed of by the

borrower. However, like loans, advances are also to be repaid. Thus a credit facility- repayable in

installments over a period is termed as loan while a credit facility repayable within one year may be known

as advances. The amount lent by the lender to the borrower for a specific purpose like the construction of the
building, capital requirements and purchase of machinery and so on, for a particular period of time is known

as Loan. In general, loans are granted by the banks and financial institutions. It is an obligation which needs

to be repaid back after the expiry of the stipulated period.

Definition: -

According to Thembi Palane “a loan is a financial transaction in which one party (the lender) agrees to give

another party (the borrower) a certain amount of money with the total expectation of repayment agreed upon

by both parties. Usually there’s a predetermined time for repaying a loan with conditions attached to it”

According to oxford dictionary “Money that someone borrow from a bank or other financial organization for

a period of time during which they pay interest”

Loan is classified in the following categories:-

On the basis of Security:

• Secured Loan: The loan which is backed by securities is Secured Loan.

• Unsecured Loan: The loan on which no asset is pledged as security is Unsecured Loan.

On the basis of Repayment:

• Demand Loan: The loan which is repaid on demand of the lender is Demand Loan.

• Time Loan: Loan, which is repaid in full at a future specified date, is Time Loan.

• Installment Loan: Loans which are to be repaid in evenly distributed monthly installments is

Installment Loan.
 On the basis of Purpose:

• Home Loan

• Car Loan

• Education Loan

• Commercial Loan

• Industrial Loan

Definition of Advances:-

Advances are the source of finance, which is provided by the banks to the companies to meet the short-term

financial requirement. It is a credit facility which should be repaid within one year as per the terms,

conditions and norms issued by Reserve Bank of India for lending and also by the schemes of the concerned

bank.

Definition:-

According to the oxford dictionary Advance means “an amount of money paid before it is due or for work

only partly completed”

They are granted against securities which are as under:

• Primary Security: Hypothecation of Debtors, Stock Pro-notes, etc.

• Collateral Security: Mortgage of land and buildings, machinery, etc.

 • Guarantees: Guarantees given by partners, directors or promoters, etc.

The following are the forms of Advances:-

• Short term loans: Advance in which the entire amount is provided to the borrower at one time.

• Overdraft: A facility provided by the bank in which the customer can overdraw money from his

account up to a specified limit.

• Cash Credit: A facility granted by the bank in which the customer can advance money up to a

certain limit against the asset pledged.

• Bills Purchased: An advance facility provided by the bank against the security of bills.

The Advantages and Disadvantages of Loan:-

Loan is a form of debt, often with interest. There are several reasons why people apply for loans. Usually

they borrow money to purchase a house, buy a car, or start a business. Often, applying for a loan is necessary

because most do not have available financial resources they need to make a purchase. Other forms of loans,

like the student loans have helped a lot of students get through school. Those who use student loan debt

consolidation clearly have multiple student loans. They do this to manage their obligations better.

Since loan is borrowed, the lender expects to receive payment with the interest specified. In addition,

borrowers should make the payments at the specified due date for a certain period. This is where most

people have problems. Most problems start when people cannot make the monthly payments required due to

different circumstance. Some finds it difficult to pay their loan because of the many other debts they have.

Some encounter additional problems such as medical emergencies and job loss.

Since getting a loan is a commitment, you have to be very careful with your decisions. Choose the right

lender. There is more to picking a lender than just looking for one with the least interest. Keep in mind that
those with low interest require longer period. Remember, when choosing a lender, check its stability, its

flexibility, repayment schemes, and interest rates.

Before you decide to get a loan, it is only right that you review its advantages and disadvantages.

Advantages: -

Below are the advantages of getting a loan. These are also the reasons why many apply for it:

✔ There is a loan for just about anything. If you are in need of money to purchase a house, you can

apply for a housing loan. If you need a car, you can apply for a car loan. With all the loans

available, you will be able to purchase everything you need.

✔ It helps a person afford an expensive purchase. All of us wish to acquire a property. However, we

do not have the amount of money to make the purchase. Loans allow us to do this. They lend us the

money so that we can finally afford our desired property.

✔ Payment is staggered, which makes it affordable. This enables the person to pay off the loan

gradually. If a person has chosen a good deal, he should be able to finish paying off the loan in the

time specified.

✔ One gets the funding he needs. If a person wants to start a business, he can do so by applying for a

business loan. He does not have to wait for his savings to build up before he can start his own

business. They can also use the amount they loan for investment purposes.

✔ Getting a loan is very helpful to start building your dream. However, you have to be very careful

with your decisions. This is because of the problems you will possibly encounter if you mismanage

your loans and other debts. If you have multiple loans, make sure to manage it well. Use a debt

consolidation loan calculator and check if it is better to consolidate all your loans.

Make sure that you manage your loans from the start. Keep in mind that loans have disadvantages too.
 Disadvantages: -

Here are some of the disadvantages of having loans:

✔ is a long-term debt. This means that you have to deal with it for a specified period, which means

that you have to commit yourself to making monthly payments specified in your agreement for the

period indicated to repay the loans.

✔ If you miss payments, you will face serious consequences. You can face foreclosure or repossession

of the property. In addition, you could also face penalties and legal issues. It will also reflect in your

credit rating, which can lead to a low credit scores.

✔ You may not be able to make early loan repayment. Few lenders give option for early repayment.

Although there are some who will allow you to do this, they will charge you with early repayment

fees.

✔ Loans are very helpful. However, you have to manage them well because you can get into a lot of

trouble if you fail to make the expected payments.

Advantages and disadvantages of Cash Advances:-

At some time or another you will have to use some sort of cash advance system, especially if you don’t

have any credit cards or know someone you can borrow money from. While it may be alright to use

cash advances every so often, becoming dependant on them to help you pay bills every month is not.

Cash advances can be extremely expensive because you are charged a fee in addition to the money you

are borrowing. Overtime, these monthly fees could be used to make a down payment on a house or car.

This is why it is important to learn the proper ways to use this type of loan service and to educate you

about the advantages and disadvantages of cash advances.

Advantages of Cash Advances:-

✔ Pay bills on time and avoid disruption of services. Some people consider having running water,

and/or electricity more of a priority than being charged a service fee for obtaining a cash advance.

✔ Avoid late fees or penalties. Oftentimes, cash advance fees are less expensive than the late fees or

penalties put into effect by the credit card companies or other lenders.

✔ Most businesses that offer cash advance services do not require an in depth credit check; therefore

people with bad credit are more likely to get approved for cash advances.

✔ You are charged a onetime fee for borrowing the money. And you have a specific amount of time to

pay back the cash advance, otherwise additional fees will apply.

Disadvantages of Cash Advances:-

✔ You are charged a fee based on the amount of money you borrow or based on the percentage of

money you borrow.

✔ Overtime, cash advance fees can add up to quite a bit of money. If you take out a cash advance

every single month for a year and the fee is $15 each month; that is $180 that you are throwing

away. So

you may want to see if there is any way you can save a little bit at a time to pay your bills every

month.

✔ If you don’t have the money in your account to pay back the cash advance, you will be charged an

additional fee by the lender.

✔ If you don’t have sufficient funds in your checking account, you will have to pay the fee associated

with insufficient funds put into effect by your financial institution when your check bounces.
 ✔ As you can see there are many advantages and disadvantages of cash advances. To find out if a cash

advance is the right solution for your current financial situation, you should first weigh the pros and

cons before you sign on the dotted line. While cash advances may be one of the easiest ways to

obtain cash when you have bad credit or no credit history, they should be used sparingly and with

caution. Make sure to read all the rules and stipulations associated with the cash advance loan

before making an agreement to pay it back. By following these cash advance tips, you will know

when you should use this type of loan and when you should consider other available options.

Note: - Cash advances are not entirely bad and not entirely good. However, they do make it possible

for

some people to make ends meet when times are tough. Learn some of the advantages and

disadvantages of using cash advances and when you should consider using them to help pay

bills

Utility of Loans and Advances:-

Loans and advances granted by banks and other financial institutions are highly beneficial to

individuals, firms, companies and industrial concerns. The growth and diversification of business

activities are effected to a large extent through bank financing. Loans and advances granted by banks

help in meeting short-term and long term financial needs of business enterprises. We can discuss the

role played by banks in the business world by way of loans and advances as follows:-

✔ Loans and advances can be arranged from banks in keeping with the flexibility in business

operations. Traders may borrow money for day to day financial needs availing of the facility of

cash credit, bank overdraft and discounting of bills. The amount raised as loan may be repaid
 within a short period to suit the convenience of the borrower. Thus business may be run efficiently

with borrowed funds from banks for financing its working capital requirements.

✔ Loans and advances are utilized for making payment of current liabilities, wage and salaries of

employees, and also the tax liability of business.

✔ Loans and advances from banks are found to be ‘economical’ for traders and businessmen, because

banks charge a reasonable rate of interest on such loans/advances. For loans from money lenders,

the rate of interest charged is very high. The interest charged by commercial banks is regulated by

the Reserve Bank of India.

✔ Banks generally do not interfere with the use, management and control of the borrowed money. But

it takes care to ensure that the money lent is used only for business purposes.

✔ Bank loans and advances are found to be convenient as far as its repayment is concerned. This

facilitates planning for future and timely repayment of loans. Otherwise business activities would

have come to a halt.

✔ Loans and advances by banks generally carry element of secrecy with it. Banks are duty-bound to

maintain secrecy of their transactions with the customers. This enhances people’s faith in the

banking system.

Objectives of Loans and Advances:-

General Objective:

The general objective of the study is to figure out the Loan and Advances of Bajaj Finance limited.

Specific objectives are:

1. To have idea regarding various types of Loan and Advances of Bajaj Finance Limited.

2. To identify the loan sanction procedure in different sectors in last some years.

3. To identify the credit approval, their securities and monitoring process of Bajaj Finance Limited

4. To know the loan and advances activities of Bajaj Finance Limited.

5. To identify the recovery rates of the loans in different sectors in last some years and have a

comparison among them.

6. To identify the problems regarding loan and advances and give some recommendations for

improving the effectiveness and efficiency of Loan and Advances services. Types of loans:-

Highlights
 Loans can be classified basis collateral requirements and usage

Secured loans vary based on the asset used as collateral

Personal loans are the most popular form of unsecured loans

Avail instant financing with pre-approved loan offers

A loan is essentially money borrowed with a promise of return within a specific time period/tenor. The

lender decides a fixed rate of interest that you must pay on the money you borrow, along with the

principal amount borrowed. Let us take a look at the different types of loans that are available in India.

-3

There are various types of loans available in India, and they are classified based on two factors:

- Whether they require collateral

- The purpose they are used for

Based on whether they require collateral, loans are classified into secured loans and unsecured loans.

Let’s take a look at each type.

I. Secured loans:-

These are loans that do require collateral, i.e., you have to provide an asset to the lender as
security for the money you are borrowing. That way, if you are unable to repay the loan, the lender still

has some means to get back their money. The rate of interest of secured loans tends to be lower as

compared to those for loans without collateral.

Types of secured loans:-

1. Home loan

Home loans are a secured mode of finance, that give you the funds to buy or build the home of your

choice. The following are the type of home loans available in India:

Land purchase loan: Purchase land for your new home

Home construction loan: Build a new home

Home loan balance transfer: Transfer the balance of your existing home loan at a lower interest rate

2. Loan against property (LAP)

Loan against property is one of the most common forms of a secured loan where you can pledge any

residential, commercial or industrial property for availing the funds required. The loan amount

disbursed is equivalent to a certain percentage of the property’s value and varies across lenders.

While some lenders may offer an amount equivalent to 50-60% of the property’s value, others may

offer an amount close to 80%. A loan against property helps you unlock the dormant value of your asset

and can be used to satiate personal life goals such as higher education of children or marriage.

Businesses use a loan against property for business expansion, R&D and product development among

others.
3. Loans against insurance policies

Yes, you can also avail loans against your insurance policy. However, note that all insurance policies

don’t qualify for this. Only policies, such as endowment and money-back policies, which have a

maturity value can be used to avail loans.

Thus, you can’t avail a loan against a term insurance plan as it doesn’t have any maturity benefits. Also,

loans can’t be availed against unit-linked plans as the returns aren’t fixed and depends on the

performance of the market. It’s essential to note that you can opt for a loan against endowment and

money back policies only after they’ve acquired a surrender value. These policies acquire a surrender

value only after paying regular premiums continuously for 3 years.

4. Gold loans

For the longest time, gold has been one of the most favored asset classes. The organized Indian gold

loan industry is expected to touch Rs.3,101 billion by 2019-20, according to a KPMG report, thanks to

flexible interest rates offered by financial institutions.

A gold loan requires you to pledge gold jeweler or coins as collateral. The loan amount sanctioned is a

certain percentage of the gold’s value pledged. Gold loans are generally used for short-term needs and

have a short repayment tenor compared to home loans and loan against property.

5.Loans against mutual funds and shares

An ideal vehicle for long-term wealth creation, mutual funds can also be pledged as collateral for a

loan. You can pledge equity or hybrid funds to the financial institution for availing a loan. For doing so,

you need to write to your financier and execute a loan agreement.

Your financier then will write to the mutual fund registrar and a lien on the certain number of units to

be pledged is marked. Typically, you can get 60-70% of the value of units pledged as a loan.

Similarly, with shares, financial institutions create a lien against shares against which the loan is taken

and the loan value is equivalent to a percentage of the value of the shares.

6.Loans against fixed deposits

The humble fixed deposit not only offers assured returns but can also come handy when you need a

loan. The amount of loan can vary between 70-90% of the FD’s value and varies across lenders.

However, it’s essential to note that the loan tenor can’t be more than the FD’s tenor.

II. Unsecured loans

These are loans that do not require collateral. The lender lends you the money based on past

associations, and your credit score and history. Thus, you have to have a good credit history to avail

these loans. Unsecured loans usually come at a higher rate of interest due to the lack of collateral.

Types of unsecured loan:-

1. Personal loan

Offering an instant flush of liquidity, a personal loan is one of the most popular types of unsecured

loans. However, since a personal loan is an unsecured mode of finance, the interest rates are higher

compared to secured loans. A good credit score along with high and stable income ensures you can

avail this loan at a competitive rate of interest. Personal loans can be used for the following purposes-

- Manage all expenses of a family wedding

- Pay for a vacation or an international trip

- Finance your home renovation project

- Fund the cost of your child’s higher education

- Consolidate all your debts into a single loan

- Meet unexpected/ unplanned/ urgent expenses

2. Short-term business loans

Another type of unsecured loans, a short-term business loan can be used to meet their expansion and

daily expenses by various entities and organizations.

- Working capital loans

- Machinery loans and equipment finance

- Small business loans for MSMEs

- Loans for women entrepreneurs

- Loans for traders

- Loans for manufacturers

 - Loans for service enterprises

Flexi Loans

A facility whereby you can avail funds from your approved limit and as when required and pay interest

only on the amount used. You can withdraw on your loan limit, any number of times and prepay when

you have extra cash, at no extra cost. Such a unique facility gives you the freedom to be in full control

of your finances unlike rigid term loans and offers you savings on your EMIs by up to 45%. Here, you

also have the option to pay only interest as EMIs, with the principal payable at the end of the tenor.

1.Education loans

Aspiration for higher education from reputed institutions have bolstered the demand for education loans

in the country. This loan covers the basic fees of the course along with allied expenses such as the

accommodation, exam fee, etc. In this loan, the student is the main borrower while parents, siblings and

spouse are co-applicants.

An education loan can be taken for a full-time, part-time or vocational course along with graduation

and post-graduation course in the fields of management, engineering and medicine, among others. The

loan must repaid by the student once the course is complete.

A unique feature of an education loan is the moratorium period, wherein the student has the option of

not paying the EMIs until after 12 months of completing the course or 6 months after he/she starts

working, whichever is earlier.

 1. Vehicle loans

A vehicle loan is extended in the form of a two or four-wheeler loan which helps you to buy your

dream vehicle. Vehicle loans are offered either on purchase of a new vehicle or a used one. Your credit

score, ratio of debt to income, loan tenor, etc., play a crucial role in determining the loan amount.

With Bajaj Finserv you can get pre-approved offers on all the above-mentioned loans and there are no

queues, forms or details needed. Here, your loan offer is already approved, so you can avail instant

financing. All you need to do is simply provide some basic details and get your pre-approved offer.

Documents required for the loan approval:-

Personal Loan:-
One of the options to get money from reputed banks for all needs is through personal loan. And, to

apply successfully for a personal loan an applicant needs to provide certain set of documents.

These documents helps lender (be it a Bank or a NBFC) to know and understand the financial stability

of the borrower and analyze the credit risk. Apart from that it helps a lender know and verify all the

details about the applicant such as age, income, address, employer and employment. It is on the basis

of this a lender decides whether to lend or not to the applicant.

As personal loans are unsecured loans, the lender does not takes anything as collateral for the lending

amount, hence there is always a potential risk of borrower defaulting or absconding on the loan. Hence

to be double triple sure a lender asks for a certain set of documents so that it can learn and analyse the

applicant and then decide.

The documents required for personal loan help a lender to know and understand the following about

the applicant:

1. Identity

2. Age

3. Income

4. Address

5. Existing Loans

6.Repayment History (if any)

Once a lender has these details, they can know and understand the applicant better. And, using the

information provided, they can come up with the best loan offer for the applicant.
As such, providing the required documents while applying for a personal loan, helps the applicant to

get the best offer.

Above is the checklist of all the required documents for a personal loan.

Home loan:-

Here is a checklist of the documents required to apply for a home loan.

1. Passport Size Photographs

2. Identity Proof: Passport / Driving License / Voter ID / PAN Card / Aadhaar Card.

3. Address Proof: Driving License / Registered Rent Agreement / Electricity Bill (up to 3 months

old) / Passport.

4. Employment Appointment Letter: Required if the current employment is less than 1-year old.

5. Financial Documents:

Last3monthssalaryslip
 6monthbankstatement

2 year Form 16

6. Property Documents: Sale deed, Khata, transfer of ownership.

7. Advance Processing Cheque: A cancelled cheque for validation of bank account.

8. Financial Documents:

❖ For Salaried Individual: 3 month salary slip, Form 16 and bank statement

❖ For Self-Employed Individual: IT returns for last 2 years along with computation of income tax

for past 2 years certified by a Chartered accountant

❖ For Self-Employed Non- Professionals: IT returns for last 3 years along with computation of

income tax for past 2 years certified by a Chartered accountant

9. Complete Home Loan Application form duly filled

Vehicle Loan:-

Here is the checklist of the documents required to apply for a car loan:

• Proof of age
• Identification proof

• Application form

• Passport size photograph

• Proof of residence

• Income proof

• Signature verification proof

• Pro-forma Invoice or Rate List

Reasonable interest rates, affordable EMIs, simplistic paperwork, and quick disbursement are a few

reasons why car loans have become such a comfortable option for today’s common man. Now the

dream of owning a car is no longer far-fetched- a few documents are all you need.

Predominantly, the lender banks look for proof that you are a good credit risk and are in a position to

repay the car loan. This information, along with your credit report and score, will directly impact the

interest rates that you are charged.

Since your credit rating will be assessed while applying, it is worth cleaning up any existing debts

before you lodge your initial application. This is sure to improve your chances of approval. If you have

a bad credit history, the lender bank will also want to see your credit card statements, mortgage details

and verification of other loans that you hold.

 Educational Loan:-

Documents required for an Educational Loan:

For students seeking a loan for studies within the country, they can provide the following documents.

Duly-filled application form.

Bank statement

Signature verification proof

Pro-forma Invoice or Rate List

Reasonable interest rates, affordable EMIs, simplistic paperwork, and quick disbursement are a few

reasons why car loans have become such a comfortable option for today’s common man. Now the

dream of owning a car is no longer far-fetched- a few documents are all you need.
 Predominantly, the lender banks look for proof that you are a good credit risk and are in a position to

repay the car loan. This information, along with your credit report and score, will directly impact the

interest rates that you are charged.

Since your credit rating will be assessed while applying, it is worth cleaning up any existing debts

before you lodge your initial application. This is sure to improve your chances of approval. If you have

a bad credit history, the lender bank will also want to see your credit card statements, mortgage details

and verification of other loans that you hold.

Educational Loan:-

Documents required for an Educational Loan:

For students seeking a loan for studies within the country, they can provide the following documents.

• Duly-filled application form.

• 2 passport size photographs.

• Graduation, Secondary School Certificate, or High School Certificate or mark sheets

• KYC documents that include ID, address, and age proof.

• Signature Proof

• Income Proof of parents or guardian

• If collateral is required, documentation for Immovable property, FDs, etc.

• For students interested in a loan to study abroad, they will need to provide the documents below.

• Duly-filled application form.

• 2 passport size photographs.

• KYC Documents that include ID, residence and age proof.

• A copy of statement of marks or certificates of last examination passed.

• Proof of admission to the university and the course

• Schedule of course expenses

• If you have received a scholarship, a copy of the scholarship letter is needed.

• Copy of Foreign Exchange permit if you have it.

• Bank account statement for last six months of the borrower, parents or guardian.

• Last 2 years’ Income Tax assessment of the borrower, parents or guardian.

 • For loans with collateral, the details of security offered must be furnished. You might also be required

to provide an advocate’s search and report about its marketability, mortgage ability, etc.

• Proof of the source of margin is required.

Educational loans are a sector which is promoted as it gives students the opportunity to study further. It

enhances the growth and development of the citizens and the country. Educational loans are an

investment into the future, so it is important to do your research and take your time. Government and

banks also offer subsidies and lower interest rates to promote education for all.

Terms and conditions of loan agreement:-

What is a Loan Agreement?

Few people sail through life without borrowing. With few exceptions, almost everyone takes a loan

to buy a car, finance a home purchase, pay for a college education or cover a medical emergency.
 Loans are nearly ubiquitous and so are the agreements that guarantee their repayment.

Loan agreements are binding contracts between two or more parties to formalize a loan process.

There are many types of loan agreements, ranging from simple promissory notes between friends

and family members to more detailed contracts like mortgages, auto loans, credit card and short- or

long-term payday advance loans.

Simple loan agreements can be little more than short letters spelling out how long a borrower has to

pay back money and what interest might be added to the principal. Others, like mortgages, are

elaborate documents that are filed as public records and allow lenders to repossess the borrower’s

property if the loan isn’t repaid as agreed.

Each type of loan agreement and its conditions for repayment are governed by both state and

federal guidelines designed to prevent illegal or excessive interest rate on repayment.

Loan agreements typically include covenants, value of collateral involved, guarantees, interest rate

terms and the duration over which it must be repaid. Default terms should be clearly detailed to

avoid confusion or potential legal court action. In case of default, terms of collection of the

outstanding debt should clearly specify the costs involved in collecting the debt. This also applies

to parties using promissory notes as well.

Purpose of a Loan Agreement:-

The main purpose of a loan contract is to define what the parties involved are agreeing to, what

responsibilities each party has and for how long the agreement will last. A loan agreement should be in

compliance with state and federal regulations, which will protect both lender and borrower should

either side fail to honor the agreement. Terms of the loan contract and which state or federal laws

govern the performance obligations required by both parties, will differ depending upon the loan type.
Most loan contracts define clearly how the proceeds will be used. There is no distinction made in law

as to the type of loan made for a new home, a car, how to pay off new or old debt, or how binding the

terms are. The signed loan contract is proof that the borrower and the lender have a commitment that

funds will be used for a specified purpose, how the loan will be paid back and at what amortizationrate.

If the money is not used for the specified purpose, it should be paid back to the lender immediately.

Other Reasons for Using Loan Agreements:-

Borrowing money is a huge financial commitment, which is why a formal process is in place to

produce positive results on both sides.

Most of the terms and conditions are standard fare – amount of money borrowed, interest charged,

repayment plan, collateral, late fees, penalties for default – but there are other reasons that loan

agreements are useful.

A loan agreement is proof that the money involved was a loan, not a gift. That could become an

issue with the IRS.

Loan agreements are especially useful when borrowing or loaning to a family member or friend.

They prevent arguments over terms and conditions.

A loan agreement protects both sides if the matter goes to a court. It allows the court to determine

whether the conditions and terms are being met.

If the loan includes interest, one side may want to include an amortization table, which spells out

how the loan will be paid off over time and how much interest is involved in each payment.

Loan agreements can spell out the exact monthly payment due on a loan. It is

safe to say that anytime you borrow or lend money, a legal loan agreement should be part of the

process.
On Demand vs. Fixed Repayment Loans:-

Loans use two sorts of repayment: on demand and fixed payment.

Demand notes are usually used for short-term borrowing and are often used when people borrow from

friends or family members. Sometimes banks will offer demand loans to customers with whom they

have an established relationship. These loans typically don’t require collateral and are for small

amounts.

Their key feature is how they are repaid. Unlike longer term loans, repayment can be required

whenever the lender desires, as long as sufficient notification is given. The notification requirement is

usually spelled out in the loan agreement. Demand loans with friends and family member might be a

written agreement, but it might not be legally enforceable. Banks demand loans are legally enforceable.

A check overdraft facility is one example of a bank demand loan – if you don’t have the money in your

account to cover a check, the bank will loan you the money and pay the check, but you are expected to

repay the bank quickly, usually with a penalty fee.

Fixed term loans are commonly used for large purchases and lenders often demand that the item

purchased, perhaps a house or a car, serve as collateral if the borrower defaults. Repayment is on a

fixed schedule, with terms established at the time the loan is signed. The loan has with a maturity date

when it must be fully repaid. In some cases, the loan can be paid off early without penalty. In others,

early repayment comes with a penalty.

Legal Terms to Consider:-

All loan agreements must specify general terms that define the legal obligations of each party. For
instance, the terms regarding repayment schedule, default or contract breach, interest rate, loan

security, as well as collateral offered must be clearly outlined.

There are some standard legal terms involved in loan agreements that all sides should be aware of,

regardless of whether the contract is between family and friends or between lending institutions and

customers.

Here are four key terms you should know before signing a loan agreement:

Choice of Law: This term refers to the difference between laws in two or more jurisdictions. For

example, the laws governing a specific part of a loan agreement in one state may differ from the same

law in another state. It is important to identify which state (or jurisdiction’s) laws will apply. This term

is also known as a “Conflict of Law.”

Involved Parties: This refers to personal information about the borrower and lender that should be

clearly stated in the loan agreement. That information should include the names, addresses, social

security numbers and phone numbers for both sides.

Severability Clause: This term states that terms of a contract are independent of each other. Thus, if

one condition of the contract is deemed unenforceable by a court, that doesn’t mean all conditions are

unenforceable.

Entire Agreement Clause: This term defines what the final agreement will be and supersedes any

agreements previously made in negotiations, whether written or oral. In other words, this is the final

say and anything that was said (or written) before, no longer applies.
Interest Rate Determination:-

Many borrowers in their first experience securing a loan for a new home, automobile or credit card are

unfamiliar with loan interest rates and how they are determined. The interest rate depends on the type

of loan, the borrower’s credit score and if the loan is secured or unsecured.

In some cases, a lender will request that the loan interest be tied to material assets like a car title or

property deed. State and federal consumer protection laws set legal limits regarding the amount of

interest a lender can legally set without it being considered an illegal and excessive usury amount.

If the loan includes interest payments, as most do, the terms will be spelled out in the loan’s terms and

conditions. Interest is either fixed fee or floating fee.

A fixed fee, or fixed rate, loan establishes an interest rates that remains unchanged during the

repayment of the loans. If you borrow money with a 4% annual rate, you will pay the lender 4% a year

on the balance due until the loan is paid off. The amount of interest you pay will decrease over time as

the balance is paid down and the principal payment will increase. If you borrow $200,000 to buy a

house, the monthly payment will remain constant, but the portion of the payment that goes to interest

and principal will change each month as the loan is balance is reduced.

Floating fee interest rates, also called variable rate loans, carry interest rates that change over time. The

amount of interest based on a benchmark rate, usually a widely followed index like the LIBOR those

changes regularly. Floating fee rates are adjusted periodically and generally are only used in complex

loans like adjustable-rate home mortgages.

Contract Length & Amortization:-

The length of a loan contract is determined by a lender’s reliance upon an amortization schedule. Once
the lender and the borrower have determined the amount of money needed, the lender will use the

amortization table to calculate what the monthly payment will be by dividing the number of payments

to be made and adding the interest onto the monthly payment.

Mandatory Arbitration:-

Mandatory arbitration is an increasingly popular provision in loan agreements that requires parties to

resolve disputes through an arbitrator, rather than the court system.

More than 50% of lending institutions include mandatory arbitration as part of their loan contracts

because it is supposed to be faster and cheaper than going to court. Arbitration puts the final decision in

the hands of one person, who likely is more experienced and sophisticated about the law than six jurors

in a courtroom.

In most cases, mandatory arbitration clearly favors the lenders, who have legal counsel that specialize

in this area of law on their side. The borrower often has no lawyer or inadequate representation because

lawyers are not guaranteed payment in arbitration cases.

The borrower is at an even bigger disadvantage if the arbitration is binding, meaning there can be no

appeal. The rules in the Fair Credit Reporting Act and the Truth in Lending Act have no bearing in

arbitration cases, which also favors the lender.

Members of the military are especially vulnerable to loan agreements that include mandatory

arbitration. A solider serving out of the country may not be able to attend or have competent

representation at an arbitrary hearing and because of that, lose possession of a car or other asset. The

arbitrator’s decision can’t be appealed, so there is no recourse if the decision goes against the soldier.

Before you sign a loan agreement, read it closely and if it includes a mandatory arbitration clause,

decide whether you are comfortable with that as a means of settling disputes.
Usury and Predatory Protections

Several federal and state consumer protection laws protect consumers against predatory and usury loan

tactics used by lenders. The Truth In Lending Act, Real Estate Settlement Act and the Home Owners

Protection Act federally protect borrowers against predatory lenders.

Many states enacted companion consumer predatory and usury protection acts to protect borrowers.

Both parties benefit because lenders make reasonable interest repayment rates and borrowers receive a

muchneeded loan.

Several federal and state consumer protection laws protect consumers against predatory and usury loan

tactics used by lenders.

Promissory Notes:-

Promissory notes resemble loan agreements but lack complexity. Often, they are little more than

commitment-to-pay letters like IOUs or simple payment on demand notes. Usually the borrower writes

a letter specifying how much money he or she is borrowing and the terms under which it will be repaid.

They are almost always used for small loans between people who know one another well.
 INDUSTRY OVERVIEW

NBFC - INDUSTRY OVERVIEW:-

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956

engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities

issued by Government or local authority or other marketable securities of a like nature, leasing, hire-

purchase, insurance business, chit business but does not include any institution whose principal

business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than

securities) or providing any services and sale/purchase/construction of immovable property. The NBFC

sector is an important part of the Indian financial sector. They have shown dynamism in delivering

innovation and in assisting financial inclusion.

NBFCs typically have several advantages over banks due to their focus on niche segment, expertise in

the specific asset classes, and deeper penetration in the rural and unbanked markets. However, on the

flip side, they depend to a large extent on bank borrowings, leading to high cost of borrowings and face

competition from banks which have lower cost of funds.

The growing asset size of the NBFC sector has increased the need for risk management in the sector

due to growing interconnectedness of NBFCs with other financial sector intermediaries. The Reserve

Bank of India (RBI) has been in the recent past trying to strengthen the risk management framework in

the sector, simplify the regulations and plug regulatory gaps so as to prevent regulatory arbitrage

between banks and NBFCs.

The Reserve Bank of India released the ‘Revised Regulatory Framework for NBFCs’ on November 10,
 2014 which broadly focuses on strengthening the structural profile of NBFC sector, wherein focus is

more on safeguarding of the depositors money and regulating NBFCs which have increased their asset-

size over time and gained systemic importance.

Due to subdued economic growth, last two years, have been challenging period for the NBFCs with

moderation

Due to subdued economic growth, last two years, have been challenging period for the NBFCs with

moderation

in rate of asset growth, rising delinquencies resulting in higher provisioning thereby impacting profitability.

The Associated Chambers of Commerce and Industry of India (ASSOCHAM):-

Non-banking finance companies (NBFCs) form an integral part of the Indian financial system. They

play an important role in nation building and financial inclusion by complementing the banking sector

in reaching out credit to the unbanked segments of society, especially to the micro, small and medium

enterprises (MSMEs), which form the cradle of entrepreneurship and innovation. NBFCs’ ground-level

understanding of their customers’ profile and their credit needs gives them an edge, as does their ability

to innovate and customize products as per their clients’ needs. This makes them the perfect conduit for

delivering credit to MSMEs.

However, NBFCs operate under certain regulatory constraints, which put them at a disadvantage vis-à-

vis banks. While there has been a regulatory convergence between banks and NBFCs on the asset side,

on the liability side, NBFCs still do not enjoy a level playing field. This needs to be addressed to help

NBFCs realize their full potential and thereby perform their duties with greater efficiency.

Moreover, with the banking system clearly constrained in terms of expanding their lending activities,
 the role of NBFCs becomes even more important now, especially when the government has a strong

focus on promoting entrepreneurship so that India can emerge as a country of job creators instead of

being one of job seekers. Innovation and diversification are the important contributors to achieve the

desired objectives.

IMF (International Monetary Fund) cuts India’s growth rate to 4.8% citing slowdown in local

demand, stress in NBFC sector.

 8 per cent for the current fiscal year which is expected to rise to 5.8 per cent in 2020?

 The IMF attributed the slash in growth rate to the slowdown in demand in the domestic market and

stress in the nonbank financial sector.

 “India’s growth is estimated at 4.8 percent in 2019, projected to improve to 5.8 percent in 2020

and 6.5 percent in 2021,” said IMF in a statement.

 The 5.8 per cent estimate in 2020 is down by 0.9 per cent from the previous estimate.

 The steep cut in India’s growth rate has affected the IMF’s projection on the world economy,

which is now expected to expand 2.9 per cent in 2019 as compared with the previous forecast at

3.0 per cent.

 In its World Economic Outlook Report, IMF stated that the growth markdown largely reflects a

downward revision to India’s projection, where domestic demand has slowed more sharply than

expected amid stress in nonbank financial sector and a decline in credit growth.

 According to IMF, the global economy is expected to accelerate to 3.3 per cent in 2020 from 2.9

per cent in 2019. Further, it is expected to rise to 3.4 per cent in 2021.

 However, the IMF has in its latest estimates trimmed the global growth rate by 0.1 per cent each
 for 2019 and 2020 and by 0.2 percentage for 2021.

 Earlier in December, IMF chief economist Gita Gopinath had estimated a likely cutdown in India’s

growth estimate during the January review.

 United Nations had also cut down India’s growth estimate for Financial Year 2020 to 5 per cent

from 5.7 per cent. World Bank had also cut its estimate to 5 per cent from its earlier prediction of 6

per cent

NBFC crisis:-

The continuing liquidity crunch facing non- banking financial companies is likely to result in creasing

bad loans risks for banks both from these shadow banks as well as from companies relying on such

lenders for funding, warns a report.

The spillover of stress among NBFCs to borrowers, and ultimately to banks, will hinder improvements

in banks' asset quality, profitability and capital, which is credit negative.

Owing to liquidity crisis, NBFCs are forced to reduce lending, leading to funding constraints for

relying on non-bank lenders.

SWOT Analysis of NBFCs

Strengths:-

 High on service aspect

 Strong last-mile approach

 Focus on recovery

 Easy and fast appraisal and disbursements

 Regional linkages

 Able to generate higher yield on assets

 Attained critical mass in terms of size

 Own employees versus DSAs

Weaknesses:-

 Weak in urban markets

 Weak credit history of most NBFCs

 Largely restricted to the regional markets (say South India)

 Weaker risk management and technology systems

 Too much of diversification from core business

 Higher regulatory restrictions

Opportunities:-

 Augmentation of capital and leveraging for growth

 Large untapped market, both rural and urban and also geographically

 Demographic changes and under-penetration

 New opportunities in credit card, personal finance, home equity and distribution of mutual fund

schemes

 Tie-up with global financial sector giants

 Blurring gap between banks in terms of costs of funds

 Securitization, to liberate funds to fuel asset growth

Threats:-

 Weak financial health of many of the NBFCs

 High cost of funds

 Asset quality deterioration may not only wipe out profits but also net worth

CRISIL NBFC REPORT:-

"However, increases in banks' real estate NPLs will be marginal as their direct exposures to real estate

companies remain small, growing more slowly than NBFC loans to the sector," it said

After witnessing healthy growth over the past few years, non-bank credit growth slowed down in the

second half of fiscal 2019 due to the tight liquidity conditions that engulfed the sector. Consequently,

Non Bank Financial Companies (NBFCs) which were gaining market share from banks across major

asset classes in the past could not do so in fiscal 2019.

Going forward, NBFCs will need to recalibrate their strategies in order to deal with the changing

business dynamics. How would this impact the credit growth of the sector? When is the liquidity

situation going to improve? Can NBFCs achieve pre-2018 growth in the medium term or will the

growth remain anemic?

What are the key factors that will drive their growth? Will their earnings growth trajectory be lower?

What will be the capital that they will need over the next 1-2 years? What will separate the winners

from the losers? Where are the opportunities for growth?

CRISIL Research's NBFC Report, 2019 delves deep into the fast-changing industry landscape to come

up with the answers. The report contains CRISIL Research's perspective on growth prospects,
competitive scenario and the attractiveness of the 11 segments in which NBFCs operate and also gives

a perspective on the emerging fintech market.

The coverage also includes:

 Outlook on growth and delinquencies, credit costs by segment

 Segment-wise profitability outlook, considering business growth, resource profile and asset quality

 Detailed assessment of competitive scenario with banks and market share of NBFCs in various

segments

 Perspective on regulatory direction in each segment

 Financial and operational benchmarks across various segments

 Profiles of over 200+ NBFCs, detailing key operational and financial parameters

 Details of fund-raising in various NBFC segments

 Level of digital medium usage in origination and appraisal process

Product segments covered

Housing finance Low cost housing finance

Infrastructure finance MSME finance - secured (including LAP) and

unsecured

Auto finance Wholesale finance

Micro finance Gold loans

 Consumer durables finance Construction equipment finance

Education loans

Coverage

Overvi For each of the segments covered

ew

Outlook on yields and spreads in fiscals 2019 and 2020 Overall growth in the industry

Relative attractiveness of the NBFC segments

Market share of NBFCs vs banks
based on growth and profitability

outlooks