82106850 Credit Management

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CreditCredit MManagementanagement(In addition to the analysis of credit risk

management and credit recovery mechanism)

Undertaken at

Punjab National

Bank

SUBMITTED BY:

JAHANVI BANSAL

8013

M.B.E-1

SUBMITTED TO:

GGDSD COLLEGE

DEPARTMENT OF

ECONOMICS


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COMPANYS PROFILE:COMPANYS PROFILE:

PUNJAB NATIONAL BANK , is a state-owned financial services company .It was registered onMay 19, 1894 under the Indian Companies Act with its office in Lahore.

Today, the Bank is the second largest government-owned commercial bank in India

with about 5000 branches .

And 37 million customers.

VISIONTo be a Leading Global Bank with Pan India footprints and become a household brand in the Indo-Gangetic

Plains providing entire range of financial products and services under one roof"

MISSION:"Banking for the Unbanked"

.

The name you can bank upon

Sh.K.R.Kamath (Chairmen and M.D)


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INTRODUCTION TO THEINTRODUCTION TO THE

TOPICTOPIC

I. CREDIT MANAGEMENT:: Credit Management in the bank is highlighted bythe quality of its loan portfolio. Every Bank is striving hard to ensure that its credit portfolio

is healthy and that Non Performing Assets are kept at lowest possible level, as both of these

factors have direct impact on its profitability.

WHAT PART OF A BANKS CREDIT GOES TO WHICH

TYPE OF LOANS?


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CONTINUED.CONTINUED.

CREDIT RISK MANAGEMENT (RATING) MODEL AT PNB:

It is management of the risk of default by borrower due to inability and/or unwillingness to repay his

debts in accordance with the agreed terms and conditions.

The modelevaluates the credit risk rating of a borrower on a scale of AAA to

D with AAA indicating minimum risk and D indicating maximum risk.

CREDIT RECOVERY MECHANISM IN PNBIt defines the responsibility of the branch to monitor advance accounts, ensure that they are conducted as per

the terms of sanction and the interest and instalments, wherever applicable are recovered promptly.


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OBJECTIVES OF THE STUDYOBJECTIVES OF THE STUDY

Tostudy broad contours of management of credit.

To understand the basis of credit risk rating and its significance for PNB.

To learn about credit recovery mechanism of public and private sector banks.

To appraise the creditworthiness of those organizations who approaches PUNJAB NATIONALBANKforcredit which includes :

y Financial Evaluation

y Management Evaluation

y Business / Industry Evaluation

y Conduct Of Account


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REVIEW OF LITERATUREREVIEW OF LITERATURE

The research work on the topic the appraisal on consumer credit banking products with the

asset quality frame: A multiple criteria application

The research paper on Evaluation of decision support system for credit management decisions.

The research paper on the topic Competitive analysis in Banking, Appraisal of methodologies

The book name Financial Analysis for bank lending in liberalized economy


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RESEARCH METHODOLOGY RESEARCH METHODOLOGY

DATA SOURCE:

QUESTIONNAIRE

CASE STUDY

SAMPLE SIZE

4 MAJOR BANKS*

TYPE OF METHODS

PRIMARY DATA

SECONDARY DATA

Four major players have been selected for the purpose

Punjab national bank (PNB)

Oriental bank of commerce (OBC)

Axis Bank Ltd

Industrial Credit Investment Corporation of India Bank (ICICI)

Public Sector Bank

Private

Sector Bank


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Respondents were asked whether their Corporate Credit Policy entails a Credit Recovery Policy/Respondents were asked whether their Corporate Credit Policy entails a Credit Recovery Policy/

Mechanism or not?Mechanism or not? Fig .A

0

50

100

PNB OBC ICICI AXIS

CREDIT RECOVERY POLICY

INTERPERATION:

It was observed that the Total number of credit default cases is very less in public sector bank

as compared to private sector banks, thus they dont need any separate credit recovery

mechanism policy .This depicts that public sector banks enjoys much a secured position as

compared to private sector banks.

DATA ANALYSIS AND INTERPERATIOCOMPARATIVE ANALYSIS OF CREDIT RECOYERY MECHANISM BETWEEN PUBLIC AND PRIVATEBANKS.


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Respondents were further asked whether their institution have a separate credit recovery department

that handles collection of credits in default or not?

Fig. B

0

2040

60

80

100

PNB OBC ICICI AXIS

CREDIT RECOVERY DEPARTMENT

CREDIT

RECOVERYDEPARTMENT

INTERPERATION:

Private Banks do have a credit recovery cell but not proper separate department thus in privatesector banks we find few banks having separate department instead they have cells like

SARC(Stressed Assets Recovery Cell). So, public sector banks are more focussed as compared to

private sector banks.


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Respondents were then asked that whether they hire any agency for credit recovery?

Fig. C

0

20

40

60

80

100

PNB OBC ICICI AXIS

CREDIT RECOVERYAGENCY

INTERPERATION:

Due to this the level of NPAs are high in case of private sector banks. Thus, it is suggested

that though the credit default issues can be well managed internally also but still it is

advisable to hire an outside agency for credit recovery as their work is more professional and

systematic..


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Respondents were then questioned that how many number of reminders their institutions give before

any legal proceeding?

1-5

5-1010-15

15-20

More than 20Fig. D

INTERPERATION:

It was observed that Public sector banks sends reminder by making a gap of proper time period and

not after passing a little bit of time. This shows that public sector banks moves in a justified

manner.

0 5 10 15 20

PNB

OBC

ICICI

AXIS

NUMBERS OF REMINDERS


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The further question which was asked to the respondents was about the average duration

for recovery:

0-15 days

15-30days1-3 months

3-6 months

More than 6 months Fig. E

0 10 20 30

PNB

OBC

ICICI

AXIS

AVERAGE RECOVERY DURATION

AVERAGE

RECOVERYDURATION

INTERPERATION:

It was observed that Public sector banks recover their money in easy instalments under the rules

and regulations specified by the RBI while in some cases private sector banks do not even follow

proper procedure for recovering their money.


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Respondents were further asked about the average costs incurred in trying to collect the loans (e.g.,

costs of litigation, costs for external lawyers, valuation reports, auction or execution costs, experts.)

0-5000

5000-1000010000-15000

15000-20000

More than 20000 Fig. F

0

5000

10000

15000

PNB OBC ICICI AXIS

AVERAGE CREDIT RECOVERYCOST

INTERPERATION:

Public sector has less cost incurred reason being their fewer requirements in credit recovery

because of their planned and properly managed credit recovery procedure. Public sector banks

have many optimal options for recovering their amount like tagging, full amount settlement etc.

This makes less NPAS in comparison to private sector banks.


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Respondents were asked whether their banks follow any Compromise policy or not?

Fig. G

0

2040

60

80

100

PNB OBC ICICI AXIS

COMPROMISE POLICY

COMPROMISE

POLICY

INTERPERATION

When a customer is not in position of repaying, this service makes compromise between the

customer and the bank for settlement of his account. This gives the smoothness to the NPAs

customer as well as to the banks.


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Respondents were asked about the overall average recovery rate:

20%

20-40%

40-60%60-80%

More than 80%Fig. I

0% 50% 100%

PNB

OBC

ICICI

AXIS

AVERAGE RECOVERYRATE

AVERAGE

RECOVERYRATE

The public sector banks are able to recover equal to or more than 80% (approx.) of its credit

recovery cases while private sector banks are able to recover even less than 80% of its credit

recovery cases. This shows the difference of level of efficiency in credit recovery mechanism

between public sector banks and private sector banks. Thus public sector banks in way follows

better credit recovery mechanism polices


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ANALYSISANALYSIS OF CREDIT RISK MANAGEMENOF CREDIT RISK MANAGEMEN

THROUGH A CASE STUDYTHROUGH A CASE STUDYMultaniMultani pharmaceuticals Ltd.pharmaceuticals Ltd.

FEASIBILTY ANALYSIS OF THE COMPANY:

FINANCIAL ANALYSIS-20

MANAGEMENT ANALYSIS-10

BUSINESS/OUTLOOK-15

CONDUCT OF ACCOUNT-10

TOTAL:55

According to internal credit rating, the company has been rated as BB

ESTIMATED COST OF THE PROJECT :

Land Rs. 46,00,000

Building Purchased Rs. 11,800,000

Building New construction 26,000 sq feet @ 600 Rs. 15,600,000

Plant and Machinery Rs. 12,300,000

Furniture and other office equipment Rs. 1,300,000

Total Cost Rs. 45,000,000


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The average DSCR is 4.049.

Sensitivity analysis was done. The results of which are as follows:-Benchmark level : 1.5

When sales are decreased by 5% the DSCR is down to 3.022. This is above the benchmark level.

When sales are decreased by 10% the DSCR is down to 1.99. This is above the benchmark level.

SSS

In the worst case scenario, the sales decreases by 5% and the cost of production increases by 5%.In this highly unlikely worst case scenario, the DSCR is 1.456. In this case DSCR is below

benchmark level and is bad.

Thus the project is financially viable and has low risk since except in worst case scenario DSCR is

well above benchmark level and worst case scenario is very rare.

SENSITIVITY ANALYSIS WITH PROJECTED BALANCE SHEET

When Sales Down by 5% When Sales Down by 10% When sales down by 5 % and cost of production by 5%

CONTINUED.CONTINUED.


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CONCLUSIONCONCLUSION

y

PNB follows a systematic and efficient credit appraisal system based onsound principles of lending.

y Further to ensure asset quality PNB has formulated its own Credit RiskRating model i.e. PNB Trac. It considers important parameters like

profitability, repayment capacity, efficiency of the unit, historical / industrycomparisons etc depending on the industry. PNB Trac is one of the bestrating models present till date.

y Public sector banks are more efficient as compared to Private sector banks inrecovering their credits due to their well organized and managed creditrecovery departments and recovery polices. PNB (Public Sector Bank) also hasa well-organized and managed credit recovery mechanism.


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82106850 Credit Management

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