INTRODUCTION

2.1 LITERATURE/CONCEPTUAL SUPPORT:

The purpose of the literature review is to review what has previously been done

on the subject and analyze it in the present context so that an effective understanding

can be established.

BANKING SECTOR

Banking in India originated in the first decade of 18th century with The general Bank of

India coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks

are now defunct. The oldest bank in existence in India is the State Bank of India being

established as “ The Bank of Bengal” in Calcutta in June 1806. A couple of decades later,

foreign banks like Credit Lyonnais started their Calcutta operations in the 1850’s. At that point

point of time , Calcutta was the most active trading port, mainly due to the trade of the British

Empire,and due to which banking activity took roots there and prospered. The first fully Indian

owned bank was the Allahabad Bank, which was established in 1865.

By the 1900’s the market expanded with the establishment of banks such as Punjab National

Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai – both of which were founded

under private ownership. The Reserve Bank of India formally took on the responsibility of

regulating the Indian banking sector from 1935. After India’s independence in 1947, the Reserve

Bank was nationalized and given broader powers.

EARLY HISTORY:

At the end of late 18t century, there were hardly any banks in india in the modern sense of the

term.
With large exposure to speculative ventures, most of the banks opened in India during that period

could not survive and failed. Th depositors lost money and lost interest in keeping deposits with

banks. Subsequently, banking in India remained the exclusive domain of Europeans for next

several decades until the beginning of the 20th century.

At the beginning of the 20th century, Indian economy was passing through a relative period of

stability. At that time there were very small banks operated by Indians, and most of them were

owned and operated by particular communities. The banking in India was controlled and

dominated by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal and the

Bank of Madras- which later on merged to form the Imperial Bank of India, and Imperial Bank

of India, upon india’s independence , was renamed the State Bank of India. Ther were also some

exchange banks,as also a number of Indian joint stock banks. All these banks operated in

different segments of the economy. The presidency banks were like the central banks and

discharged most of the functions of central banks. They were established under charters from the

British East India Company.

This resulted into greater involvement of the state in different segments of the economy

including banking and finance. The major steps to regulate banking included:

 In 1948, the Reserve Bank of India, India’s central banking authority, was nationalized,

and it became an institution owned by the government of India.

 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”.

  The Banking Regulation Act also provided that no new bank or branch of an existing

bank may be opened without a license from RBI, and no two banks could have ommon

directors.

INDIAN BANKING INDUSTRY

The growth in the Indian Banking Industry has been more qualitative than quantitative and it is

expected to remain the same in the coming years. Based on the projections made in the “India

Vision 2020” prepared by the Planning Commission and the draft 10th plan , the report forecasts

that the pace of expansion in the balance sheets of the banks is likely to decelerate.
DEFAULT RATE

The rate at which debt holders default on the amount of money that they owe. It is often used by

credit card companies when setting interest rates, but also refers to the rate at which corporations

default on their loans. Default rates tend to rise during economic downturns, since investors and

businesses see a decline in income and sales while still required to pay off the same amount of

debt.
 CREDIT APPRAISAL

Credit Appraisal is a process to ascertain with the extension of the credit facility. It is generally

carried by the financial institutions, which are involved in providing financial funding to its

customers. Credit risk is a risk related to non repayment of the credit obtained by the customer in

order to mitigate the credit risk. Proper evaluation of the customer is performed, which measures

the financial condition and the ability of the customer to repay back the loan in future. Generally

the credit facilities are extended against the security know as collateral. But even though the

loans are backed by collateral,banks are normally interested in the actual loan amount to be re

paid along with the interest. Thus, the customer’s cash flows are ascertained to ensure the timely

payment of the principal and the interest.

Restructuring of Balance sheet as per CMA requirements:

1. The balance sheet of a corporate entity as per Companies Act needs to be restructured by

the bank before a meaningful analysis can be made.

2. The balance sheet prepared as per the Companies Act lists the assets and liabilities in the

descending order of security. However as per the CMA format the assets and liabilities

are listed out in the descending order of liquidity.

3. The CMA format has also incorporated certain changes in respect of classification of

preference sheet capital, fixed assets etc.

Margin required to be brought by

Barclays Bank

Strengths

Barclays has a widespread global presence, allowing it to spread risk and enjoy
economies of scale.

The Barclays brand is well-established historically and continually promoted, for

example through sponsorship of Premier League football.

Barclays is particularly associated with innovation. It brought out the first credit card in
1966, and has continued to develop cards, most recently the OnePulse card combing
Oyster, cashless and credit functions for London-based customers.

The opening of several new flagship branches along with a refurbishment programme can
be seen as an attempt to refocus on customer demands for a strong presence on the high
street .

Weaknesses

Services provided in Zimbabwe to individuals connected with Zanu PF have generated

controversy and raised questions about Barclays’ ethical position: investors are
increasingly concerned about ethics.

Large bonuses for Directors have attracted unwanted attention from commentators, and it
has been speculated that the bank’s reluctance to take financing from the UK
government is because that would end its autonomy with regard to bonuses.

Plans to expand in Asia were limited when Barclays were outbid for ABN Amro in 2006,
and alternative expansion plans have had to be adopted.

The bank does not plan to pay dividends on its shares until the second half of 2009,
making them less attractive to investors.

Opportunities

Barclays was keen to acquire some of Lehman’s assets prior to its collapse: after the
collapse, they have been able to negotiate a better deal with liquidators which also
allowed them to be very selective in which parts of the business they acquired

The bank’s strategy is to offer a full portfolio of services worldwide, providing a wide
range of cross-selling opportunities.
 Asia is still considered an opportunity for Barclays’ expansion, and operations are being
set up in a number of locations.

Welfare provision has decreased in many countries because of the cost to governments,
and Barclays sees self-provision as an increasing trend that it can utilise.

The court recently found that Barclays banking charges, which had been challenged
legally, were enforceable, thus repayment is not necessary and charges can continue to
be enforced.

Threats

If the economic downturn is prolonged, acquisition of Lehman’s assets could prove to be
a mistake.

Barclays has been accused of moving loss-making investments associated with the sub-
prime market from its accounts to those of other investors, and there is a risk it may be
sued.

While offering a wide range of services provides opportunities, there is also the threat
that customers may prefer to go to suppliers who present a more specialised approach.

Barclays acquired a reputation for closing branches because of a high incidence of this in
2000, and competitors have been able to position themselves as more consumer-
friendly through a strategy of keeping branches open.

The Asia expansion is seen as risky given that Barclays are in a less strong position than
banking industry leaders regarding capitalisation, and this may detract investors.
 PROJECT FINANCING PROCEDURE

BORROWER/CLIEN PROJECT REPORT BANK

T

PRESENCTION
APPRAISAL

CREDIT RETURN

SANCTION OF LOAN

DOCUMENTATION

VERIFICATION OF
DOCUMENTS

INSPECTION OF
REPAYEMENT OF TERM
SECURITIES
LOAN INSTALLMENTS

POST SANCTION
MONITORING

DISBURSEMENT OF
GENERATION OF LOAN
THE LOAN
ACCOUNT
 PROJECT APPRAISAL CYCLE

TECHNICAL FEASEBILITY

PREFEASEBILITY REPORT

DEMAND AND MARKET

ANALYSIS

PROMOTER CAPITAL

COST OF PROJECT MEANS OF FINANCING

PUBLIC CAPITAL

FINANCIAL STATEMENT

INTERPRETATION OF
FINANCILAL

INTERPRETATION OF DSCR AND

APPLY APPRAISAL CRITERION IRR

COMPARE WITH COST OF CAPITAL

 STUDENT UNDERTAKING

The project “Loan appraisal of SME’s” is submitted to Jagan Institute of Management Studies,
New Delhi, as a summer training project towards the partial fulfillment of two – year, full time
Post Graduate Diploma in Management.

I declare that the form and contents of the above mentioned are original and have not been
submitted anywhere else for any other degree/diploma of this or any other
Organization/Institute/University.

Project guides:

Barclays India Finance: Mr. Shailendra Dixit

(Relationship Manager)

Jagan Institute of Management: Mrs. Dilpreet Kaur

Mrs. Priyanka Arora

I
 CERTIFICATE

This is to certify that the project work done on “Loan appraisal of SME’s” is an original work
carried out by Mr./Ms. Garima Singh under my supervision and guidance. The project report is
submitted towards the partial fulfillment of two – year, full time Post Graduate Diploma in
Management.

This work has not been submitted anywhere else for any other degree/diploma. The work was
carried out from 3rd.May.2010to 3rd.July.201 in Barclays.

Name & Sign of Industry Guide

Mr. Shailendra Dixit

Date: Name & Sign of Faculty

Student’s Name and Sign

Roll No.
RESTRUCTURING OF BALANCE SHEET AS PER CMA REQUIREMENT

1. The balance sheet of a corporate entity as per Companies act needs to be

restructured by the bank before a meaningful analysis can be made.