credit appraisal

Topics: Financial ratios, Balance sheet, Credit Pages: 45 (8978 words) Published: February 25, 2014
CHAPTER 1: INTRODUCTION

This project was undertaken to understand, analyze and review the “CREDIT APPRAISAL SYSTEM” at “HDB Financial Services”. The project is basically done to analyze the appraisal process and criteria’s set by the institution for obtaining Loan against Property. In addition the project also focused on financial performance of HDBFS.

1.1 Purpose of the Study

The main purpose of study is to know how the loans are granted against property and how the worthiness of the borrower is appraised. The study helps us to know the various procedures, policies, criteria and eligibility required during the sanction of loan. It was also undertaken to analyze the financial performance of HDB Financial Services over the past years.

1.2 Significance of Study

The study was of significance to many financial institutions, organization, Government, and policy makers as it focused on process of credit appraisal while granting loan against property; comparison of HDBFS with its competitor Religare Finvest Ltd.and financial analysis of HDBFS over the past five years.

1.3 Industry Profile
The Credit Appraisal is a holistic exercise which starts from the time a prospective borrower walks into the financial institution and culminates in credit delivery and monitoring with the objective of ensuring and maintaining the quality of lending and managing credit risk. Credit appraisal means an assessment done by lender before providing any loans and advance to the borrower and also checking the commercial, financial and technical viability of the project proposed. It involves evaluation of customer, measuring of financial condition and ability to pay back the loan. It is the process of appraising the credit worthiness of the borrower. The process of Credit Appraisal is multidimensional and includes: Management Appraisal

Technical Appraisal
Commercial Appraisal
Financial Appraisal
Economic Appraisal
Management Appraisal has received lot of attention these days as it is one of the long term factors affecting the business of the concern.

Technical Appraisal emphasizes on the technical feasibility of the venture and also finds out the possible economic life period of the present technology.

Commercial Appraisal focuses on the commercial viability of the project .It tries to find matters regarding demand in market, the acceptance of product in market. It also focuses on the presence of other substitutes of the product in the market. It also focuses on the multiple scope of the product.

Financial Appraisal is done to find out whether the promoter is having the capacity to raise finance – both own equity and debt? What are the sources of margin? Will the business generate sufficient funds to service the debt and other stakeholders? Is the capital structure optimal?

Economic Appraisal examines level of cost/ benefit and IRR (Internal Rate of Return). The scope of credit structure is incomplete without examination of credit proposal. Credit proposal has to be examined from the point of 6 C’: Character , Capacity, Capital, Condition, Collateral and Cash flow.

If any one of these is missing in the lending, the manager question the viability of credit extended.

1.4 Company Profile

HDB Financial Services Ltd was incorporated in Ahmedabad on 4th June 2007 as a non-deposit taking Non-Banking Finance Corporation (NBFC) as defined under section 45-1A of RBI Act 1934 and is engaged in the business of financing. The Company is promoted by HDFC Bank Ltd which has 97.5% shareholding in the Company as on 31st March 2011.The Company has been rated AAA by CARE for long term loans from banks. The Company caters to the growing needs of the India’s increasingly affluent middle market. The requirements of Medium, small and micro business enterprises that are too small to be serviced by corporate lending institutions are also addressed by HDB through suitable products and services. These segments are typically...
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