NAME: KOWSHICK G

USN: 1NH21BA076
COMPANY NAME: MAHINDRA AND MAHINDRA FINANCIALSERVICE LTD
 CHAPTER-1
INTRODUCTION
INTRODUCTION
An Internship is a circumstance, It is a place to get knowledge about the
company in efficiently. Internship helps to know the in-depth information
about the zone of learning and also to raise skills for the work field. This
internship had taken a period of 6 weeks.

The intern is relied upon to give data on the organization in which he or

she workedportrayals of the particular work finished, and particular
games and additionally recreational angles relevant to the assigned-out
assignments. The report likewise gives data on your relational abilities
and ought to show basic speculation aptitudes. Since a noteworthy piece
ofyour experience ought to be identified with either games or diversion,
that ought to be exhibited in your report.

Picture-1.1

Credit risk management is a systematic process of identification, analysis, measurement, and

decision making relating to various factors of credit risk to an individual or an entity, in

respect of goods sold or services provided on credit basis or grant of loan and such

management also involves limiting the risk as well as eliminating risks.

Explanation

 Before we touch the main topic of the article, we need to understand a few basic terms

revolving around credit risk management.

 A business entity may sale its goods or provide its services either on a cash basis or

on a credit basis to its customers. The realization of revenue has issues only in case of

“credit sales”. The business entity is exposed to the risk “what if the customer does

not pay the amount in full or what if the customer defaults in payment or what if it

liquidates within the credit period”. Such questions give rise to the “credit quality” of

the customer.

 Above was the case of a normal business entity. In the case of banking entities, they

carry a huge risk of default in case of low credit rating customers. Bankers cannot

work on a cash basis for grant of loans. So, the problem is “credit risk” and the

solution is “credit risk management”.

 Every problem can be tackled through preventive measures or compensatory

measures. Credit risk management is a preventive measure for credit risks.

 For the growth of any normal entity or a banking institution, credit is an important

factor of multiplying the business. Such entities need to assess whether the customer

is credit worthy to be trusted. Thus, credit risk management analyses various factors

around the customer and provides a mechanism to identify, evaluate, mitigate, and

eliminate credit risks.

 It also provides measures to manage the risk.

Objectives of the study:
 Co-ordinate and apply the hypothesis and research abilities got
from his/her coursework.
 Increase direct information and a more prominent
comprehension of the association, including the regulatory
capacities and the group strengths with influence its association
and organization.
 Create methods and abilities normal to the administration
framework (e.g., observing, planning and data collecting).
 Find out about one’s own particular capacities and aptitudes. You
will see with your own eyes the sorts of identities, behaviour,
tactics, group relations, practices andother regulating methods
of direct that do and don’t work, are not worthy. Further, you will
take in the language and operational phrasing that professionals
use in their everyday correspondence.

Picture-1.2
 The goal of credit risk management in banks is to maintain credit risk exposure within
proper and acceptable parameters. It is the practice of mitigating losses by understanding
the adequacy of a bank’s capital and loan loss reserves at any given time. For this, banks
not only need to manage the entire portfolio but also individual credits.

How do banks set up a Credit Risk Management system?

Even though every bank may have their own approach to establishing credit risk
management models, there are a few basic steps that every Credit Risk Management
includes-

 A complete understanding of a bank’s own capital reserve.

Understanding a bank’s overall credit risk based on individual, customer and portfolio levels.
 Implementing an integrated and quantitative credit risk solution to make an appropriate credit
risk environment.
 The business model in place should be such that is ever-evolving, able to achieve real-time
scoring to limit monitoring, have data visualization capabilities and business intelligence tools
to make it available any time.
 Establishing a sound credit-granting process or criteria that will clearly indicate the bank’s
target market. This should include appropriate credit administration, measurement and
monitoring process.

TOPIC CHOSEN FOR THE STUDY

A Study on “Credit Risk Management at Mahindra and Mahindra financial services

limited ” Bangalore.

1.2 NEED FOR THE STUDY

There is a need to understand the risk involved in lending the credit to the
borrower by the bank to make sure that the loan lent will not be set as
default. And to find out the necessary measures that how the bank can
minimize the risk involved in its lending. The various aspectsthe bank
needs to analyse while lending the loan in order to reduce its loan and
 maintain the profitability.

Techniques of Credit Risk Management

 Credit analysis is the most rewarded mechanism in the globe for the management of

credit risk. It basically involves collecting various sorts of information, evaluating &

assessing the factors and deciding on the credit profile. It also checks the ability of the

customer for repayment of the loan amount.

 Evaluating the market value of the collateral provided by the customer is another

technique. Here, the entity asks for the independent valuation of the collateral security

to be provided and its chances, quantification of deterioration in value over the period

of the loan.

 Reassessing the credit profile on a periodic basis is done by various entities as a

compensatory measurement to evaluate further risk.

 The entity needs to develop a credit analysis strategy and should automate the process

therein to evaluate the credit risk for new customers.

 Many entities outsource such activities to an outsider agency that evaluates various

information regarding the pros.

Picture-1.3
 Importance of Credit Risk Management

 Risk is something acceptable thing for a normal banking operation. Credit risk

management plays the role of preventive measure to mitigate the probable risk or to

reduce the chances of occurrence of the risk.

 This further helps bankers to protect the valued treasure from credit unworthy

customers, who may defalcate the hard-owned money of depositors.

 Credit risk management is further important to decide on the collateral to be taken.

 It helps bankers to take cautious decisions.

STATEMENT OF THE PROBLEM

The profits of the bank are totally dependent on loans and advances which
lead to both economic and industrial growth. When the borrower fails to
make the payment for the amount borrowed by him, the credit risk for
the bank increases, For many banks, loans and advances are the essential
source of credit risk exists through the operations of the bank.
 Bank are progressively going up against credit chance in various
budgetary instruments other than progresses, including affirmation,
entomb bank trades, trade financials, remote exchange trades, cash
related destinies, swaps, securities, equities, options and in the
expansion of duty and ensures, and the settlement of transactions. Hence,
there is a need to study the reasons for the credit risk and the process to
manage or minimize the credit risk.

Picture 1.4

OBJECTIVES OF THE STUDY

 To study various types of loans and advances given by the M&M financial
services Ltd.
 To study the credit risk of the M&M financial services Ltd.
 To study various credit risk management strategies adopted by
the M&M financial services Ltd., Bangalore.
Managing Risk

All lenders must reduce their risk of loan loss. Credit risk management is the most difficult
potential loan loss to prevent. Borrowers with consistently poor credit reports or excellent
credit scores allow lenders to make easier approval and rejection decisions. However,
prospective borrowers with a mix of on-time payments and late payments create credit risk
management challenges for lenders.

Procedures

Lenders design lending pricing, policies and procedures for employees to achieve credit-risk
objectives. Based on borrower credit scores, procedures advise bank employees how to
process and price loan applications to reduce credit risks. Banks often instruct lending staff
to approve or reject applicants based on their credit scores. For example, lender procedures
may give loan officers permission to approve loans at higher than market interest rates for
borrowers with credit problems that increase loan risk.

Credit Risk and Customer Satisfaction

Balancing credit risk and superior customer service often requires approving applications
while changing loan terms, such as increasing down payments or interest rates, to manage
risk and increase loan security. Since banks do not want to appear to be restrictive, increasing
interest rates or down payments can achieve credit risk management objectives, while
maintaining customer satisfaction. Balancing credit risk objectives and customer loan
approvals, adjusted for increased risk, can achieve reasonable risk and customer satisfaction.

Fiduciary Responsibility

Lenders have a fiduciary responsibility to stockholders (banks) and members (credit unions)
to make the safest operational, financial and risk decisions at all times. Conservative credit
risk management is critical to exercising appropriate fiduciary responsibility. Adhering to
conservative credit risk policies better protects loan portfolios and satisfies stockholders,
management and customers, while proving to federal or state regulators that the lender is
exercising effective fiduciary responsibility.

Credit Risk Equals Financial Risk

Just as banks must avoid financial risk with their investments and cash security measures,
they must establish credit risk policies that minimize loan losses. Credit risk can impact both
the lending and the financial areas of banks and credit unions. Loan losses occur at every
bank; however, mismanaged credit risk can lead to excessive loan problems, inevitably
damaging the financial condition of financial institutions. Properly managing credit risk,
along with improving the earnings of the loan portfolio, can prevent excessive financial
damage.
 SCOPE OF THE STUDY

First and foremost, is to comprehend the significance of the role played

by risk management department pretended by risk administration office
as well as practices when the bank lends cash to its borrowers.

.1.5.1 Credit risk

Credit risk arises from the probability that one party to a financial instrument will fail to meet
its contractual obligations for reasons of insolvency or inability to pay and cause a financial
loss for the other party. This includes management of counterparty risk, issuer credit risk,
liquidation risk and country risk.
BBVA quantifies its credit risk using two main metrics: expected loss (EL) and economic
capital (EC). The expected loss reflects the average value of losses and is considered a business
cost. Economic capital is the amount of capital considered necessary to cover unexpected losses
if actual losses are greater than expected losses.
Market risk
Market risk originates in the possibility that there may be losses in the value of positions held
due to movements in the market variables that affect the valuation of financial products and
assets in trading activity.
The main risks generated may be classified into the following groups:
 Interest-rate risk: They arise as a result of exposure to the movement in the different interest-
rate curves on which there is trading. Although the typical products generating sensitivity to
movements in interest rates are money market products (deposits, futures on interest rates, call
money swaps, etc.) and the traditional interest-rate derivatives (swaps, interest-rate options
such as caps, floors, swaptions, etc.), practically all the financial products have some exposure
to movements in interest rates due to the effect of the financial discount in valuing them.

Pictue-1.5
Operational risk
Operational risk is defined as the one that could potentially cause losses due to human errors,
inadequate or faulty internal processes, system failures or external events. This definition
includes legal risk, but excludes strategic and/or business risk and reputational risk.
Operational risk is inherent to all banking activities, products, systems and processes. Its
origins are diverse (processes, internal and external fraud, technology, human resources,
commercial practices, disasters and suppliers). Operational risk management is integrated into
the BBVA Group's global risk management structure.
Structural interest rate risk.
The aim of managing balance-sheet interest rate risk is to maintain the BBVA Group's exposure
to variations in interest rates at levels in line with its strategy and target risk profile.
Movements in interest rates lead to changes in a bank’s net interest income and book value,
and constitute a key source of asset and liability interest-rate risk.
1.5.5 Structural exchange rate risk.
This risk is basically caused by exposure to variations in currency exchange rates that arise in
the BBVA Group’s foreign subsidiaries and the provision of funds to foreign branches financed
in a different currency to that of the investment. The BBVA Group’s structural exchange-rate
risk management aims to minimize the potential negative impact from fluctuations in exchange
rates on the solvency ratios and on the contribution to earnings of international investments
maintained on a permanent basis by the Group.
Structural risk in the equity portfolio.
The BBVA Group’s exposure to structural risk in the equity portfolio basically results from the
holdings in industrial and financial companies, with medium/long-term investment horizons.
It includes the holdings consolidated in the Group, although their variations in value have no
immediate effect on equity in this case.
This exposure is mitigated through net short positions held in derivatives on their underlying
assets, which are used to limit portfolio sensitivity to potential falls in prices.
Liquidity risk.
Liquidity and funding risk management aims to ensure in the short term that a bank does not
have any difficulties in duly meeting its payment commitments, and that it does not have to
resort to funding under burdensome terms which may harm the bank's image or reputation.
In the medium term the aim is to ensure that the Group’s financing structure is ideal and that it
is moving in the right direction with respect to the economic situation, the markets and
regulatory changes. Management of structural funding and short-term liquidity is decentralized
in BBVA Group.

LIMITATIONS OF THE STUDY

 Research is limited Only M&M financial services Ltd Bangalore.

 Only a particular bank is considered.
 Time requirement is a restricting component.
  Some of the data is confidential in nature and couldn’t be revealed for the
review.
Advantages of Credit
Using credit has some advantages.
Convenience. Using credit cards when you travel or shop is more
convenient than carrying cash. It also provides a handyrecord of transactions. Using a credit
card also may give you some bargaining power if there is a dispute or disagreementinvolving
a purchase.
Use other people’s money. During the time between when you buy
something with credit and when you pay the bill, you’re actually using someone else’s money
Picture-1.6

rather thanyour own cash.

Meet emergencies. Unexpected costs such as car repairsor health needs
can be met quickly with credit.
Use something whileyou pay for it. You can enjoy usingsomething you need as you pay for it.

Get something you can’t afford now. If you can’t af- ford to pay cash for a car or other large
purchase, using creditallows you to get it now.
May get better service on something bought on credit.If you haven’t paid for something entirely
and aproblem arises,it may be easier to get the service needed.

Take advantage of sales. If you truly have a need for something on sale anddon’t
have the cash to get it, credit allows you to get it now.
Establishes a credit history. Buyingsomething on creditwith some
creditors (even when you can afford to pay cash for it) means you have a
 credit record.

Disadvantages of Credit Use

Using credit also has some disadvantages.
Credit almost always costs money. You have to decideif the item
is worth the extra expense of interest paid, the rateof interest and possible fees.
It can become a habit and encourages overspending.By simply
having a credit card available, a person is likely to spend more when shopping than
when paying cash for everything.
Overuse of credit leads to a poor credit record. A poor credit
record means you will find it more difficult and moreexpensive to get future credit.
Comparison shopping may be discouraged. If you have credit
available, you may be more likely to buy now rather than shopping around to find
the best buy.
Reduces future buying power. Future income is tied upin credit
payments. If you use credit, part of everything you earn in the future will go toward
what you bought in the past.
Extra fees add to the total cost. Credit card companies are
collecting higher late and over-the-limit fees which add to the total cost of credit.
Pay attention to due dates and total amount charged to avoid these added costs.
 CHAPTER-2
REVIEW OF LITERATURE
INRODUCTION (STUDY AREA):

Credit risk management is a very important area for the banking sector and there are
wide prospects of growth and other financial institutions are face problems which are
financial in nature. Also, banking professionals have to maintain a balance between the risks
and the returns. For a large customer base banks need to have a variety of loan products.

If bank lowers the interest rates for the loans it offers, it will suffer. In terms of
equity abank must have substantial amount of capital on its reserve, but not too much that
it missed theinvestment revenue, and not too little that it leads itself to financial instability
and to the risk ofregulatory non compliance. Credit risk management is risk assessment that
comes in a investment. Risk often comes in investing and in the allocation of capital, the
risk must be assessed so as toderive a sound investment decision. And decisions should
be made by balancing the risks andreturns. Giving loans is a risky affair for bank sometimes
and certain risks may also come whenbanks offer securities and other forms of investments.
The risk of losses that result in the default ofpayment of the debtors is a kind of risk that must
be expected.

Figure 2.1

A bank to keep substantial amount of capital to protect its solvency and to maintain
its economy stability. The greater the bank is expose to risks, the greater the amount of capital
must bewhen it comes to reserves, so as to maintain its solvency and stability. Credit
risk managementmust play its role then to help banks be in compliance with basel II accord
and other regulatory bodies. For assessing the risk, banks should plan certain estimates,
conduct monitoring and performreviews of the performance of the bank.
They should also do loan reviews and portfolio analysis in order to determine risk involved. Banks must
be active in managing the risks in various securities and derivatives.
 Theoretical Framework of Credit Risk Management
The management of credit risk of credit portfolios is therefore one the most important
tasks for the financial liquidity and stability of banking sector in connection with
increased sensitivity of banks to the credit risks and changes in the development of prices
of financial instruments (Kiseľáková and Kiseľák, 2013). The most significant impact
on performance of the enterprise has just financialrisk. The unsystematic risks have a
higher impact on performance of the enterprise as systematic risks (Kiseľáková et al.,
2015).
The determination of each individual loan, or borrower, risk assessment techniques plays a
primary role in the management and minimization of the credit risk. It is

BACKGROUND OF THE STUDY:

Credit risk refers to the probability of loss due to a borrower’s failure to make payments on any
type of debt. Credit risk management is the practice of mitigating losses by understanding the
adequacy of a bank’s capital and loan loss reserves at any given time – a process that has long
been a challenge for financial institutions.

The global financial crisis – and the credit crunch that followed – put credit risk management
into the regulatory spotlight. As a result, regulators began to demand more transparency. They
wanted to know that a bank has thorough knowledge of customers and their associated credit
risk. And new Basel III regulations will create an even bigger regulatory burden for banks.

To comply with the more stringent regulatory requirements and absorb the higher capital costs
for credit risk, many banks are overhauling their approaches to credit risk. But banks who view
this as strictly a compliance exercise are being short-sighted. Better credit risk management
also presents an opportunity to greatly improve overall performance and secure a competitive
advantage.

Challenges to Successful Credit Risk Management

 Inefficient data management. An inability to access the right data when it’s needed causes
problematic delays.

 No groupwide risk modeling framework. Without it, banks can’t generate complex,
meaningful risk measures and get a big picture of groupwide risk.

 Constant rework. Analysts can’t change model parameters easily, which results in too much
duplication of effort and negatively affects a bank’s efficiency ratio.

 Insufficient risk tools. Without a robust risk solution, banks can’t identify portfolio
concentrations or re-grade portfolios often enough to effectively manage risk.
 Cumbersome reporting. Manual, spreadsheet-based reporting processes overburden analysts
and IT.

Figure 2.2 Industry Distribution

Source: Moody's Analytics

Best Practices in Credit Risk Management

The first step in effective credit risk management is to gain a complete understanding of a
bank’s overall credit risk by viewing risk at the individual, customer and portfolio levels.

While banks strive for an integrated understanding of their risk profiles, much information is
often scattered among business units. Without a thorough risk assessment, banks have no way
of knowing if capital reserves accurately reflect risks or if loan loss reserves adequately cover
potential short-term credit losses. Vulnerable banks are targets for close scrutiny by regulators
and investors, as well as debilitating losses.

The key to reducing loan losses – and ensuring that capital reserves appropriately reflect the
risk profile – is to implement an integrated, quantitative credit risk solution. This solution
should get banks up and running quickly with simple portfolio measures. It should also
accommodate a path to more sophisticated credit risk management measures as needs evolve.
The solution should include:

 Better model management that spans the entire modeling life cycle.

 Real-time scoring and limits monitoring.

 Robust stress-testing capabilities.

 Data visualization capabilities and business intelligence tools that get important information
into the hands of those who need it, when they need it.

Knowing your customer

In any line of business, it is always worth having a strong understanding of, and good
relationship with, your customers, but it is essential for a company looking to succeed in
creating reliable credit risk management processes. Assessing an individual or
company’s credit profile is only possible if the data that is collected on them is accurate and
up-to-date. It is also worth establishing strong relationships with clients as it will ensure that
the customer keeps coming back, as well as helping in creating CRM techniques and models
that are supplied with rich data sets that will help improve credit risk measurement.

Figure 2.3. EDF Trend

Source: Moody's Analytics

LITERATURE REVIEW:

Danjuman, Ibrahim, Kola, Ibrahim Abdullateef, Magaji, Badiya Yusuf,

Kumshe & Hauwamodu (2008) explained the credit risk management and
customer satisfaction. It shows the positive relationship between credit risk
management and customer satisfactionand there is no need for banks
management to pay attention to other factors that contributes towards the
customer satisfaction other than granting of credits. Bank needs to focus on its
credit policy in order to make more profits.
Hameeda Abu, Hussain, Al Ajmi & Jasim (2009) examined the administration
of risk practices followed by the ordinary banks and found that the risk levels
confronted by banks are higher in case of traditional banks. Hence, nationwide,
residual and settlement, operational, risks are seen to be higher if there must be an
event to occur in traditional banks.

Abmed, Sufi Fizan, Malik & Qaisarali (2010) assessed the credit risk
administration and advance execution of micro scale banks. The consequences of
the examination are demonstrating that there is s a positive connection between
the credit term and execution of advance. While, there is a positive connection
between gathering approach and control of Credit risk however they are
insignificantly affecting the advance.

Parsley & Mark (2011) found that credit and market risks alone cannot explain
the earnings volatility they experience and against which they want to allocate
capital. Measuring operational risk will provide banks a way to price a new and
lucrative source of business. Hence bank needs to concentrate more on controlling
its operational risk in order to increase its source of business.

Meighs & Frank E (2012) Analysed by utilizing conventional credit instruments

withregards to interest rate swaps which offers the credit officers to sufficiently
deal with another source of credit risk. End clients of financing interest rate swaps
can fundamentally decrease their credit chance by taking insurance. It acts as new
instrument to deal withthe risk required in loaning credit to the clients.

Gupta V K (2013) Reviewed that asset and liability administration has extended
to incorporate into financing interest rate risk, cash chance, liquidity risk and
operational risk. Modelling utilizing all the risk elements empowers investors to
get ready for any instabilities.
 It is required for every banks to set their fixation towards the credit
displaying which permits the broker to decrease and face any eventuality.

Weber, Olaf, Fenchel, Mareus, Scholz & Roland W (2014) examined the
reconciliation of natural risks into credit risks administration methods and techniques
of banks and finding the huge contrasts in incorporating environmental risks between
banks that are signatories of UNEP proclamation by the banks on the earth and
sustainable advancement in coordinating environmental risks and banks that had not
consented to thisarrangement so far could be found.

Jobs, Norbert J. Zenios & Stavros A (2015) found that spread risk and interest rate
risk are Essential variables which won't broaden away in a substantial portfolio
setting and particularly when top notch instruments are considered Bank should focus
on limiting such risks keeping in mind the goal to accomplish long run development in
the business level.

Sensarma, Rudra & Jaydev M (2016) found a novel method for taking a glimpse at
banks financial related aspects that is from the risk management perspective. This
review helps in creating outline scores of risk management capacities of banks. As
risk management is appeared to be an imperative determinant of stock return of
banks, bank ought to adjust all around prepared instrument to control credit risk and
push the stock comes back to another level.

Ljaz & Maha (2017) found that examination in credit risk management has
considerably moved from estimation of credit risk to the evaluating of credit risk
which is more pivotal process for the bank. There is reliable increment in the zone of
interest rate risk. In any case, different parts of the region are not yet mindful of its
fullest potential.
 CHAPTER-3
INDUSTRY PROFILE
INDUSTRY PROFILE

Mahindra Finance began as a captive financier of Mahindra Utility Vehicles in the early 90s. From
Mahindra UVs to tractors to non-Mahindra products, the company has diversified into a financial
services provider with a whole suite of financial solutions tailored to the under-served customer in
under-penetrated rural markets.
Our product portfolio consists of vehicle finance, which includes financing of passenger vehicles,
utility vehicles, tractors, commercial vehicles, construction equipment; and pre-owned vehicles
and SME finance, which includes project finance, equipment finance, working capital finance and
bill discounting services to SMEs. The company also undertakes mutual fund distribution, fixed
deposits and personal loans tailor-made to suit its unique customer set.
With over 33,000 employees, Mahindra Finance has a presence in every state in India and a
footprint in 85% of its districts. It has a network of over network 1380 offices, serving customers
in more than 3, 80,000 villages– that’s one in every two villages in the country. And has assets
under management (AUM) of over Rs. 81,500 crores.
Picture-3.1

Since inception, Mahindra Finance has served as a positive change agent catering to the financial
needs of millions in rural and semi-urban India. Its deep connection with the customers and their
evolving needs has been the key to its growth and success. The company has thus pioneered several
innovative financial solutions tailor-made to the earning patterns of the unique “Earn and Pay”
segment that it serves.
Our endeavour to stay deeply connected with the customer begins with our recruitment strategy.
We consciously recruit employees at the local level, rather than appoint them from cities and
depute them to rural branches.
 Our employees speak the local language, are connected to the land, its people, and understand the
local challenges. This connect also helps us anticipate market needs and business trends and
enables us to respond with the right combination of products and solutions.
Through our subsidiary, Mahindra Insurance Brokers Limited (MIBL), we provide life and non-
life insurance products through tie-ups with various leading insurance companies. Another one of
our subsidiaries Mahindra Rural Housing Finance, provides loans for home construction,
extension, purchase and improvement to customers in rural and semi-urban India. Mahindra Asset
Management Company, offers a variety of mutual fund schemes, with a special focus in rural and
semi urban areas. Interestingly, its Mutual Fund schemes have been launched with Hindi names,
so that investors in rural areas understand the objectives of the schemes better.
Mahindra Finance is the only Non-Banking Financial Company from India to be listed on Dow
Jones Sustainability Index in Emerging Market Category. Mahindra Finance has been ranked in
Top 20 India's Best Workplaces to Work in BFSI, 2019 by Great Place to Work® Institute India.
We have also been recognized as Aon Best Employer 2019 and ranked 49th amongst Top 100
Indian companies for Sustainability & CSR under Responsible Business Rankings 2019 by
Futurescape.

Vision
To be a leading financial services provider in semi-urban and rural India.

Mission
To transform rural lives and drive positive change in the communities.

Product Portfolio
Vehicle Financing

 Auto and utility vehicles

 Tractors
 Cars
 Commercial vehicles and construction equipment
 Pre-owned vehicles and others

SME Financing
 Project finance
 Equipment finance
 Working capital finance
 Institutional lending
 Personal Loans
 Wedding
 Children’s education
 Medical treatment
 Working capital

Insurance Broking*
 Retail customers Corporates
 New house, house renovation and improvements

* Mahindra Insurance Brokers Limited (MIBL)

Housing Finance*
 New house
 House renovation and improvements

Mahindra Rural Housing Finance Limited (MRHFL)

Mutual Fund Schemes*

 Liquid scheme
 Equity-linked Saving Scheme (ELSS)
 Equity-oriented balanced scheme
 Short-term debt scheme

Investments

 Fixed deposits
 Mutual fund distribution
 Picture-3.2

Credit Rating:
CRISIL has assigned “CRISIL AA+/Stable” rating to the captioned Non-
Convertible Debenture (NCDs) issue of the Company.
The Rating(s) are not a recommendation to buy, sell or hold securities and
Investors should take their own decisions. The rating may be subject to
revision or withdrawal at any time by the assigning Rating Agency on the
basis of new information. Each rating should be evaluated independent of
any other rating.

Our Strengths
We believe that the following are our key strengths:

Knowledge of rural and semi-urban market

We have over 15 years of operating experience in rural and semi-urban

markets. Of our 607 offices as of March 31, 2012, a substantial majority
cater to customers located in rural and semi-urban markets. We believe
that significant understanding of local characteristics of these markets has
allowed us to address the unique needs of our rural and semi-urban
customers. We have adapted to markets that are largely cash driven and
are affected by limitations of rural infrastructure. For origination and
collection, we hire employees with knowledge of the local markets and
have also implemented a de-centralized process to approve loans that
meet pre-determined criteria. Further, our Company’s field executives use
hand-held general packet radio service (“GPRS”) devices to record data
 while collecting loan payments at the customer’s home or business
location, which leads to face-to-face interaction that improves our
understanding of the needs of our customers and enables us to be more
responsive to local market demand. We believe that our knowledge of the
rural and semi-urban markets is a key strength that has enabled us to
become one of India’s leading NBFCs providing financial services to
these markets

We operate an extensive network of 607 offices, spread over 24 states and 4

union territories, as of March 31, 2012, as compared to 436 offices as of March
31, 2009. The reach of our offices allows us to service our existing customers
and attract new customers through personal relationships cultivated by proximity
and frequent interaction by our employees. Our widespread office network
reduces our reliance on any one region in India and allows us to apply best
practices developed in one region to others. Our geographic diversification
also mitigates some of the regional, climatic and cyclical risks we face, such
as heavy monsoons or droughts. In addition, our extensive office network
benefits from a de- centralized approval system, which allows each office to
grow its business organically as well as leverage its customer relationships by
offering distribution of insurance products and mutual funds. We service multiple
products through each of our office, which reduces operating costs and
improves total sales. We believe that the challenges inherent in developing an
effective office network in rural and semi-urban areas provide us with a
significant first mover advantage over our competitors in these areas.

Effective use of technology and streamlined approval

and administrative procedures

We believe that we benefit from our streamlined company-wide approval

and administrative procedures that are supplemented by our employee
training and integrated technology. Our local offices are responsible for
appraisal, disbursement, collection and delinquency management of loans.
We require simple documentation to comply with regulatory norms and
the collateral on the vehicle or purchased and typically disburse loan funds
within two business days from receiving the complete loan application. Each
of our security agreements contains alternate dispute resolution provisions
for arbitration, re- possession and sale of assets that secure defaulting loans.
We also require that the customer provides a guarantor as part of a reference
check prior to disbursing the funds, a process which we believe socially
reinforces the timely repayment by our rural and semi-urban customers.
3. History, Incorporation and Background

We were incorporated on January 1, 1991 as Maxi Motors Financial Services

Limited and received certificate of commencement of business on February
19, 1991. The name was changed to Mahindra & Mahindra Financial
Services Limited on November 3, 1992. We are registered with the RBI as
an NBFC with effect from September 4, 1998 under Section 45IA of the
Reserve Bank of India Act 1934. We are certified as an ‘Asset Finance
Company’ (AFC) by RBI.

Key Events in our business history

Calendar Event
Year
1993  Commenced financing of M&M UVs
1995  First branch opened outside Mumbai, at Jaipur
1996  Commenced financing M&M dealers for purchase of tractors
1998  Launched pilot project for retail tractor financing
1999  Commenced tractor retail financing in rural and semi-urban areas
2001  Total Assets crossed Rs. 10 billion
2002  Commenced financing of non-M&M vehicles
 Received Tier II debt from International Finance Corporation
 Our first securitisation transaction of Rs. 434.8 million
 Mahindra & Mahindra Financial Services Ltd. SWOT Analysis:
Strengths, Weakness, Opportunity, and Threats

Strengths of Mahindra and Mahindra

Business strengths are competitive advantages that allow a firm to outcompete, generate
value and achieve efficiency.
 Market Leader in Multiple Automotive Segments.
 Strong Research & Development R&D
 Excellent Products According to Indian Road Conditions
 Low After-Sale Cost
 E-commerce

Weaknesses of Mahindra and Mahindra

A company weakness is any resource or process that your business lacks but needs to
succeed. Weaknesses limit your company’s ability to reach its full potential.
 Geographic Dependence
 Overdependence on the Automotive Industry
 Product Recalls Affects Brand Image

Opportunities for Mahindra and Mahindra

In the market, there also exist a lot of opportunities through which a company can grow. Let’s
see some among them.
 Growth in the Indian Automotive Industry
 Increasing Demand for Hybrid Electric Vehicles
 Emerging Nations

Threats to Mahindra and Mahindra

Threats include anything that can negatively affect your business from the outside, such as
supply-chain problems, shifts in market requirements, or a shortage of recruits.
 Competition in Other Businesses Put Pressure on M&M
 Stringent Regulations

GROWTH IN M&M FINANCIAL SERVICES LIMITED

Earnings vs Market: M&MFIN's earnings (29% per year) are forecast to grow faster than the
Indian market (20.8% per year). High Growth Earnings: earnings are expected to grow
significantly over the next 3 years.
Market cap: ₹224.22b
Earnings: ₹11.37b
A sluggish growth outlook is perhaps built into valuations. Despite the recent gains,
Mahindra Finance’s shares trade at a modest multiple of 1.6 times its estimated book
value for FY22.
Shares of Mahindra & Mahindra Financial Services Ltd have outperformed the broader
market since January, rising over 13% despite its headline asset quality numbers being weak
for the December quarter.
Picture-3.3
 FINANCIAL STATEMENT OF M&M
BalanceSheet - Mahindra & Mahindra Ltd.
Rs (in Crores)
Rs (in
Particulars Mar'21 Mar'20 Mar'19 Mar'18 Mar'17 Crores)
12 12 12 12 12
Liabilities Months Months Months Months Months
Share Capital 852.27 861.48 595.80 594.97 297.06
Reserves & Surplus 33649.65 33606.36 33613.43 29699.07 26488.56
Net Worth 34501.92 34467.84 34209.23 30294.04 26785.62
Secured Loan 7094.77 2932.03 2480.32 .00 12.20
Unsecured Loan .00 .00 .00 2864.37 2760.67
TOTAL LIABILITIES 41596.69 37399.87 36689.55 33158.41 29558.49
Assets
Gross Block 20856.52 20000.25 18534.97 15510.34 14501.88
(-) Acc. Depreciation 10677.17 9605.66 8453.22 7650.93 6730.84
Net Block 10179.35 10394.59 10081.75 7859.41 7771.04
Capital Work in Progress 4832.16 4009.46 2419.79 3128.71 2040.40
Investments 24065.07 19938.13 22016.03 20582.97 17908.40
Inventories 3955.47 3400.91 3839.27 2701.69 2758.01
Sundry Debtors 2342.85 2998.98 3946.30 3172.98 2938.84
Cash and Bank 6255.42 4236.51 3731.66 2893.73 1687.48
Loans and Advances 7958.48 5523.48 6662.26 7077.26 4864.15
Total Current Assets 20512.22 16159.88 18179.49 15845.66 12248.48
Current Liabilities 16550.21 11583.65 14435.91 12729.14 9019.90
Provisions 1441.90 1518.54 1571.60 1529.20 1389.93
Total Current
Liabilities 17992.11 13102.19 16007.51 14258.34 10409.83
NET CURRENT
ASSETS 2520.11 3057.69 2171.98 1587.32 1838.65
Misc. Expenses .00 .00 .00 .00 .00
TOTAL
ASSETS(A+B+C+D+E) 41596.69 37399.87 36689.55 33158.41 29558.49
 CHAPTER-4
THEORITICAL BACKGROUND OF THE STUDY
Introduction to Credit Risk Management

Credit helps the individual to meet his necessities at a specific purpose of

time and the cost ofthat need can be paid further. Advancement and
globalization in the economy brought the significance of risk
administration. it's imperative for a bank to comprehend and deal with its
credit chance. Banks are putting bunches of endeavours to organizing of
credit risk and money related demonstrating.

Risk management is not only a technique however it is a fundamental

issue of the banking sports. every financial institution desires to establish
green hazard adjusted go back on capitalmethodologies, and to come up
with reducing edge portfolio credit score chance managementstructures.
historically the primary threat of financial organization has been credit
score risk bobbing up thru lending. As monetary organization entered in
new markets and traded new products, different risks inclusive of market
risk started out to finish for management'sattention. in the previous few a
long time economic institution have advanced tools and methodologies to
control marketplace chance.

Picture-4.1
 Meaning of Credit

‘CREDO’ defines the word credit originated from a Latin word. It is

that the trust between the buyer and a seller. Ehen a buyer buys
something without paying any amount and agrees1o pay it later and the
seller believes the buyer, there exists a mutual trust between the buyer
and the seller which is defined by Latin word.

Forms of credit

1. Long-term loan
2. Cash credit
3. Purchase bills
4. Bank guarantee

Meaning of Risk

Risk is the events or occurrence which is unexpected in nature and which

results in some losses which may be a financial loss or operational loss.

There are mainly 3 types of risks They are,

4.4.1 Market Risk:

It is the risk of deviation which is incompatible in nature of the market

estimation of the exchanging portfolio, because of marketplace
development, amid the duration required to promote the exchanges.

4.4.1 Operational Risk:

it is one area of risk that is faced with the aid of all institutions. more
unpredictable the association greater exposed it'd be operational danger.
This threat emerges because of deviation from arranged and usual
working of the innovation framework strategies andhuman sadness of
exclusion and fee.
 4.4.3 credit risk.

It is characterized because the capacity that a bank borrower will forget about to satisfy
its commitment as per concurred terms.

Credit Risk: It refers to the risk arising out of the credit or amount of money lent by
seller tobuyer with a mutual understanding which falls later and results in the losses to
seller.

Factors affecting Credit Risk:

Credit Risk of a bank's collection relies upon both internal and external components.
Outer economy can be economy wide and in addition organization particular. Some
outside elements are;

Management aptitude

Company policy
Labour relation

Internal elements influencing the banks credit hazard are;

Deficiencies credit strategies organisation

Lack of risk pricing systems
Absence of credit audit system
.Inadequacy characterized loaning limits for credit panels/advance officers.
Excessive reliance on guarantee without discovering its quality.
Ineffective arrangement of observing of records.
 Picture-4.2

MINIMIZING CREDIT RISK

Following method can be used by a lender

Risk based pricing

Covenants
Contraction
Creditors can reduce the risks of credit by lending less amount of money to be lent
As Credit, total or cetin particular debtors. The period for which the credit can also
be reduced, a reduction in the period of credit will impact in reduction of bad debt
losses and thereby it result in minimum credit risk situation.
4.6.3 Credit score coverage and credit derivatives
lenders and bond holders can hedge their credit hazard via the acquisition of credit
coverage or credit derivatives. these contracts switch the threat from the creditors
to the seller of the insurance in exchange for a payment. the most commonly used
credit derivative is credit default swap.

CREDIT RISK MANAGEMENT

Mostly all the banks practice risk managements. Banks were understanding the impact
of credit risk management and it acts as a foot step to reduce the quantity of NPA.
banksare using various methods and practices aiming to reduce the risk arising out
of the credit sanctioned by them to the borrower which turns as a loss for the lend.
The constituent elements of credit risk can be viewed from the following flowchart:

Picture-4.3
Picture-4.4

ELEMENTS CREDIT RISK MANAGEMENT

Building the perfect credit risk environment:

Comes up with an environment which makes the process of controlling the credit much
smoother and effective. A periodical review of the credit related policy is made by the
directors and necessary changes regarding is made.

Processing the credit through an efficient credit granting process:

Before granting of the credit, the documents related to the customer and the
collateral properties are collected and analysed. Further by taking the advice
of the legal advisor the extent of amount to be lent is decided.

Managing the credit administration. measurement supervision and its monitoring:

Proper administration and regular monitoring of the customer to understand

and know the use of the amount lent to him. If any misuse of fund is identified then the
 customer can be held liable and the credit sanctioned gets cancelled.

Having a proper control towards the credit risk:

Minimise the risk involving in the credit is the main and foremost aim of the
bank. The periodical review has to be made and the result of such review
needs to be communicated to the higher authorities for making corrective actions.

Identifying the role of supervisors:

It is essential and very important to have a system to identify, measure and

monitor the credit risk and formulate a proper strategy and policy relating to
granting of credit. Supervisors needs to focus on the restricted banks’ exposure
and prudential norms.
Prerequisites for Efficient Risk Management

Methods

The methods used show how risks are captured, measured, and aggregated into a risk position
for the bank as a whole. In order to choose suitable management processes, the methods should
be used to determine the risk limits, measure the effect of management instruments on the
bank’s risk position, and monitor the risk positions in terms of observing the defined limits and
other requirements.

Processes and organizational structures

Processes and organizational structures have to make sure that risks are measured in a timely
manner that risk positions are always matched with the defined limits, and that risk mitigation
measures are taken in time if these limits are exceeded. Concerning the processes, it is
necessary to determine how risk measurement can be combined with determining the limits,
risk controlling, as well as monitoring. Furthermore, reporting processes have to be introduced.
The organizational structure should ensure that those areas which cause risks are strictly
separated from those areas which measure, plan, manage, and control these risks.

IT systems and an IT infrastructure

IT systems and an IT infrastructure are the basis for effective risk management.

Among other things, the IT system should allow

— The timely provision and administration of data;

— The aggregation of information to obtain values relevant to risk controlling;

— as well as an automated warning mechanism prior to reaching critical risk limits.

Why manage credit risk?

The reasons behind managing credit risks are as follows (Amitabh Bhargava,2004):

a) Increase shareholder value

— Value creation

— Value preservation

— Capital optimization

b) Instill confidence in the market place

c) Alleviate regulatory constraints and distortions thereof.

 Picture 4.5

Risk Strategy

A successful, bank-wide risk management requires the definition of a risk strategy which is
derived from the bank’s business policy and its risk-bearing capacity. Risk strategy is defined
as

— the definition of a general framework such as principles to be followed in dealing with risks
and the design of processes as well as technical-organizational structures; and

— the definition of operational indicators such as core business, risk targets, and limits.

The risk strategy in an operational sense should be prepared at least every year, with risk
management and sales cooperating by balancing risk and sales strategies. The sales units
contribute their perspective concerning market requirements and the possible implementation
of the risk strategy. The proposal for a risk strategy thus worked out will be presented to the
executive board, and following their approval, passed on to the supervisory board for their
information. The risk strategy serves to establish an operational link between business
orientation and risk-bearing capacity. It contains operational indicators which guide business
decisions. (Credit Approval Process and Credit Risk Management, 2005, Oesterreichische
National Bank )

Limits

The definition of limits is necessary to curb the risks associated with bank’s activities. It is
intended to ensure that the risks can always be absorbed by the predefined coverage capital.
When the limits are exceeded, risks must be reduced by taking such steps as reducing exposures
or using financial instruments.

Methods of Defining Limits

The risk limits in the bank’s individual business units are based on the bank’s business
orientation, its strategy, and the capital allocation method selected. A consistent limit
management system should be installed to define, monitor, and control the limits. Such a
system has to meet the follo
wing requirements:

— The parameters used to determine the risks and define the limits should be taken from
existing systems. The parameters should be combined using automated interfaces. This ensures
that errors due to manual entry cannot occur during the data collection process.

— The defined indicators should be used consistently throughout the bank. The data should be
consistent with the indicators used in sales and risk controlling.

— Employees should be able to understand how and why the indicators are determined and
interpreted. This is intended to ensure acceptance of the data and the required measures, e.g.
when limits are exceeded.

— In order to guarantee effective risk management, it is essential to monitor risks continuously

and to initiate clear control processes in time. Therefore, credit decision and credit portfolio
management should be closely linked to limit monitoring. (Bernanke, 2006)

CREDIT RISK MANAGEMENT PROCESS:

Following process explain the steps that are taken before lending any credit.

Appraisal of credit
Before lending credit to any customer, the information related
the soundness and viability of that particular customer needs to be
collected and it should be properly analysed. In any case the
customer proved not to have any soundnessin his incomes then
the loan can be rejected at any time.

Sanctioning of credit:
A proper guideline for the sanction of credit needs to be
maintained. Only after the customer is proven with adequate
incomes, the further procedure takes place. Customer needs to
follow the rules, regulations and guidelines related to the credit
that he is availing. Need to know the terms and conditions of the
particular bank and the type of the loan.

Collecting the documents related to credit:

Financial institution collects the information regarding the
properties or the collateral securities against which the loan is
raised. Analyses the real worth of such collateral securities and
understands the legality of those assets or properties.

Administration of credit:
Financial Institutions must ensure that their credit portfolio is properly
dealt with that is, advance understandings are appropriately
masterminded, restoration notice are sent intentionally and records
related to credit are much of the time revived. A foundation may
relegate its credit association ability to un office or to doled out
individuals in credit activities, dependent upon the size and
multifaceted nature of its credit portfolio.
Disbursement:
Loan amount can be discharged to the customers after the offer
given by the bank is duly signed and authorised by the customer
and its one copy is returned to the banks or financial
institution. Loan amount, collateral Securities, insurance any on
such collateral securities everything should be infavour of the
institution.
 Picture-4.6

Having a control over the individual credit and monitoring it by time to time: Continuous
monitoring of the individuals loan whether the loan granted is utilised fully to its
purpose or not. The decision of granting loan is c correct or wrong can be identified. If
any loss arises out of such credit, how much credit loss can be expected is to
be ascertained.

4..8.6 Maintaining a credit portfolio:

The basket of the credit created should be properly maintained in order to
identify the loss making units in the portfolio. Such loss making units needs to be
properly administered and measures to recover from such losses can be
identified.

4.8.7 Classifying the credit:

Credit which is making high amount of profit and which is incurring losses
needs to be identified and classified for further valuation. The loss making
credits amounts of loan can be reduced in future course and the reasons
for such loss are determined and certain corrective measures are implemented.
Where the profit

making units need to be pulled further with the intention of making further high profit
Facing the problem related to the recovery of credits:
In case the credits lent cannot be recovered, loss arises in such situation Further the necessary
changes relating to the credit term is introduced to improve the quality of the credit policies
and strategies used to control the risk of the credit.

Managing Problem Credits/Recovery

A financial institution’s credit risk policy should clearly set out how problem credits are to be
managed. The positioning of this responsibility in the credit department of an institution may
depend on the size and complexity of credit operations. The monitoring unit will follow all
aspects of the problem credit, including rehabilitation of the borrower, restructuring of credit,
monitoring the value of applicable collateral, scrutiny of legal documents, and dealing with
receiver/manager until the recovery matters are finalized.

The collection process for personal loans starts when the account holder has failed to meet one
or more contractual payment (Installment). It therefore becomes the duty of the Collection
Department to minimize the outstanding delinquent receivable and credit losses. This
procedure has been designed to enable the collection staff to systematically recover the dues
and identify / prevent potential losses, while maintaining a high standard of service and
retaining good relations with the customers. It is therefore essential and critical, that collection
people are familiar with the computerized system, procedures and maintain effective liaison
with other departments within the bank (Prudential regulations for consumer financing 2004,
Bangladesh Bank).

Collection objectives

The collector’s responsibility will commence from the time an account becomes delinquent
until it is regularized by means of payment or closed with full payment amount collected. The
goal of the collection process is to obtain payments promptly while minimizing collection
expense and write-off costs as well as maintaining the customer’s goodwill by a high standard
of service. For this reason it is important that the collector should endeavor to resolve the
account at the first time worked. Collection also protects the assets of the bank. This can be
achieved by identifying early signals of delinquency and thus minimizing losses. The
customers who do not respond to collection efforts – represent a financial risk to the institution.
The Collector’s role is to collect so that the institution can keep the loan on its books and does
not have to write-off / charge off.

Ident Nationalities and allocation of accounts

When a customer fails to pay the minimum amount due or installment by the payment due date,
the account is considered in arrears or delinquent. When accounts are delinquent, collection
procedures are instituted to regularize the accounts without losing the customer’s goodwill
whilst ensuring that the bank’s interests are protected.
 Picture-4.7

INTRODUCING EFFECTIVE CREDIT POLICY

Introduction of the proper and effective credit policy helps in reducing

the loss caused by the credit.

Introduction of credit standards:

Establishing the standards for lending the credits to the individuals

based on their financial worthiness. Deciding upon the ability of
such customer to repay the loan as agreed upon.

Defining the terms of the credit:

Decision regarding the period to be provided to each customer for making

the repayment of loan. It should be fixed by analysing the customers'
credibility.

Fixing of collection procedures for the recovery of credit:

The expenses to be incurred for recovering the credits lent to the customer
is essential. The higher the collection expenses the higher the amount to
be invested in receivables and vice versa.
 CHAPTER-5
ANALYSIS AND INTERPRETATION
 Table 5.1 Showing The Total Deposits of M&M FSL.

Year Amount (Rs in lakhs) Growth rate in (%)

2015-2016 711915.41 100

2017-18 720148 101.56

2019-20 736379.49 103.44

2021-22 915142 128.55

Graph 5.1.1 Showing The Total Deposits Growth With Percentage Of M&M FSL.

Deposits(%)
1000000

800000 915142

711915.4 720148 736379.4

600000

400000

100 1 1.56 1 3.44 1 8.55

0
2015-16 2017-18 2018-19 2017-18

Amount (Rs in lakhs) Growth rate in (%)

Analysis and Interpretation

The deposits of M&M financial services Ltd increased significantly from 2015 to 2018
can be understood by the above graph. For calculating the ratios of deposits 2015 is taken
as the baseyear. In the base year the deposits of the M&M financial services Ltd was Rs.
711915.41(in lakhs) which increased to Rs. 915142 (in lakhs). The increased deposits
ratio depicts the trust of the people towards the M&M financial services ltd.
 Table 5.2 showing the Total Capital of M&M financial services Ltd.,

Year Amount (Rs in lakhs) Growth rate in (%)

2014-15 23902 100

2015-16 28222 118.07

2016-17 41894 175.27

2017-18 44512 186.23

Graph 5.2.1 Showing The Total Capital Growth With Percentage Of M&M financial services ltd

Capital (%)
5000
0
4000 41894 44512
0
28222
3000 23902
0
100
2000
Amount (Rs in lakhs) Growth rate in (%)
2014-15 2015-16 2016-17 2017-18

Analysis and Interpretation

From the above table clear that when compared to base year 2014-15 there is increase in
the growth rate of total deposit for the year, from 23902 to 44512. The increase in deposit
is a good indication for the bank, which increase their sources of fund.
 Table 5.3 Showing The Growth Rate In Reserves Of M&M financial services Ltd.

Year Amount (Rs in lakhs) Growth rate in (%)

2014-15 64029 100

2015-16 67883 106.02

2016-17 71234 111.25

2017-18 75613 118.09

Graph 5.3.1 Showing The Total Growth In Reserves With Percentage Of M&M financial
services ltd

Reserves (%)
80000
70000 75613
71234
67883
60000 64029

50000

40000

30000

1000
0 100 106.02 111.25 118.09

2014-15 2015-16 2016-17 2017-

Amount (Rs in lakhs) Growth rate in (%)

Analysis and Interpretation

The above graph, states that reserve and other funds invested by the M&M financial
services Ltd increased gradually from 2015 to 2018. In this ratio, 2015 is considerd as a
base year and further calculation is performed. The percentage increase in the reserves
and other funds were100 in the base year to 106.02,111.25, and 118.09 in 2016, 2017,
and 2018 respectively.
Table 5.4 Showing the Growth Rate In Advances of M&M financial services Ltd.

Year Amount (Rs in lakhs) Growth rate in (%)

2014-15 930436 100

2015-16 950687 102.18

2016-17 1077473 115.80

2017-18 1091733 117.34

Graph 5.4.1 Showing The Growth Rate Of Total Advances In Financial Years
2015,2016,2017&18

Advances
1200000 1077473 1091733

930436 950687
1000000

800000

600000

400000
100 102.18 115.8 117.34
0
Amount (Rs in lakhs) Growth rate in (%)

2014-15 2015-16 2016-17 2017-18

Analysis and Interpretation:

From the above table it is clear that when compared to base year 2014-15 there is increase
in growth rate of total advance 930436 to 1091733 in the year 2017-18.

The increase growth rate in advance is due to increase in lending rate which shows that
the bank is having more proper application of funds in the form of advances which
increases the profitability position if recovery rate is proper.
Table 5.5 showing the Growth Rate In Investment of M&M financial services Ltd.

Year Amount (Rs in lakhs) Growth rate in (%)

2014-15 236157 100

2015-16 243155 102.96

2016-17 324348 137.34

2017-18 341470 144.59

Graph 5.5.1 Showing the Growth Rate Of Investment in financial years 2015,
2016,2017 & 2018

Investmen
400000
350000

300000

250000

150000

100000

50000

2014-15 2015-16 2016-17 2017-18

Amount (Rs in lakhs) Growth rate in (%)

Analysis and Interpretation:

From the above table it is clear that when compared to base year 2014-15 there is
increase ingrowth rate of total investment 236157 to 341470 in the year 2017-18.

The increased growth rate in investment shows that the bank is having proper portfolio
of thefunds collected and its investment in different fields.
5.6. Credit to Deposit Ratio: Total money lent by the bank that is loan to the total money
received by the bank in the form of deposits. Here, total loans lent by the K.S.C Apex
bank ltd. with that of total money received in the form of deposits is taken into account.
Loan
Credit Deposit Ratio =
* 100
Deposits

Table 5.6.1 Showing The Credit To Deposit Ratio Of The Bank From 2015-2018
(Rs in Lakhs)

Year Total loan Deposits Credit to Deposit Ratio

2015 643929 711915.41 90.45
2016 613969 720148 85.25
2017 745510 736379.49 101.23
2018 643122 915142 70.27

Graph 5.6.1 Showing The Credit To Deposit Ratio Of The Bank From 2015-2018

Credit To Deposit Ratio

120
101.23
100 90.45
85.25
80 70.27
60

40

20

0
2015 2016 2017 2018

Analysis and Interpretation:

The above graph shows that in the base year credit to deposit ratio was 90.45 which
decreased to 85.25 in 2016 and which increased to 101.23 in 2017 and again it
decreased to
70.27 in 2018. It concludes that M&M financial services ltd. credit to deposit ratio
decreased fromthe year 2015 to 2018.
5.7 Debt to Equity Ratio

This ratio is a one of the financial ratio, which indicates the relative proportion of
shareholder’s fund and the debt used to finance a company’s assets. This ratio can be
calculated by using the following formula:

Debt Equity Ratio (D/E)= Total Long term debts / Shareholders Fund

Table 5.7 Showing The Debt To Equity Ratio Of The Bank From 2015-2018
(Amount in Lakhs)

Year Total Long term Shareholder’s Ratio

debts Fund
2014-15 643928.70 23901.93 26.94
2015-16 613969.39 28222.33 21.75
2016-17 745510.46 41894.32 17.80
2017-18 643122.50 44511.52 14.45

Graph 5.7.1 Showing the Debt to Equity Ratio of the Bank From 2015-2018

Debt Equity Ratio

30

20

Analysis and Interpretation:

M&M financial services ltd Debt Equity Ratio for the year 2014-15 is 26.94, 2015-16 is
21.75, 2016-17 is 17.80& in the year 2017-18 is 14.45.From the above graph it is evident
that debt equity turnover ratio of M&M financial services ltd is decreasing. The
decreasing in debt equity ratio of M&M financial servicesl ltd means lower the debt ratio
less the company has to worry in meeting its fixed obligations and also less dependent
on shareholders and outsiders.
 Table 5.8 Showing The Investment To Deposit Ratio Of The Bank From 2015-2018

(Amount in lakhs)

Reserves and Investment to

Year Deposits
Other Funds Deposits ratio

2014-15 64029.00 711915.41

8.99

2015-16 67883.00 720148.00

9.43

2016-17 71234.00 736379.49

9.67

2017-18 75613.00 915142.00

8.26

Graph 5.8.1 Showing the Investment to Deposit Ratio of the bank from 2015-2018

Investment To Deposit Ratio

2014-15 2015-16 2016-17 2017-18
9.67
9.43
8.99

8.26

Analysis and Interpretation:

Above graph depicts that investment made by the M&M financial services ltd against
the deposits made with the M&M financial services ltd. Investment to deposit ratio was
lower in the base year as compared to the rest of the year. From 2015-16 this ratio was
higher and then it increased to 9.43, in 2015-16 it also increased to 9.67, and further it
decreased in the year 2017-18. It concludes that investment to deposit ratio fluctuates
from the year 2014-15 to 2017-18.
Table 5.9 Showing The Return On Assets Ratio Of The Bank From 2015-2018
(Amount in lakhs)

Year Return Total Assets Return To Total Assets

2014-15 3030.00 1476353.70 0.205

2015-16 3145.00 1468014.53 0.214

2016-17 3300.00 1637857.67 0.201

2017-18 3425.00 1731835.23 0.197

Graph 5.9.1 Showing The Return On Assets Ratio Of The Bank From 2015-2018

Return To Total Assets

0.22

0.215

0.21
0.214

0.205
0.205 0.201
0.197

0.2
2014-15 2015-16 2016-17 2017-18

Analysis and Interpretation: Return on assets of the M&M financial services ltd can
be depicted by seeing the above graph. It can be understood that return on assets in the
year 2015-16 is the highest compared to the rest. In the base year 2014-15 return on asset
was less i.e 0.205 compared to 2014-15 i.e 0.214. later on it is decreased in the year
20116-17 and 2017-18. It indicates that the company is not effectively using its assets to
generate its earnings.
 CHAPTER-6
FINDINGS AND CONCLUSION
FINDINGS:

 It is observed that the total deposit position is increased from year to year
continuously. It was 100% in the year 2014-15, further it increased to
101.56% in 2015-16 and10 3.44% in the year 2016-17. Then 128.55% in
the year 2017-18.
 It is observed that the total capital growth rate was 100% in the year 2014-
15. there is continuous increase in the capital growth year by year i.e.
118.07% in the year 2015- 16 and 175.27% in 2016-17. Then 186.23% in
the year 2017-18.
 In the last 3 years the credit to deposit ratio has continuously fluctuating
but in the 2017-18 it is suddenly decreased to 31.27%.
 It is observed that the total reserve growth rate was 100% in the year 2014-
15 and it is increased to 106.02% in 2015-16 and 111.25% in 2016-17.
Then 118.09% in 2017-18 the increase in index of reserve shows that there
is increase in profit every year and their profitability of company is
satisfactory.
 In the investment to deposit ratio the data shows that gradually increasing
from theyear 2014-17 later on in the year 2017-18 it is suddenly decreased
to 1.41%.
 It is observed that the total advances growth rate was 100% in the year
2014-15 and it is increased to 102.18% in 2015-16 and 115.80% in 2016-
17 and then 117.34% in the year 2017-18 the increase growth rate in
advance is due to increase in lending rate which shows that the bank is
having proper application of funds in the form ofadvances which increases
to profitability position if recovery rate is proper.
 The M&M financial services ltd has to more concentrate on the net banking and mobile
banking.
 The overall performance of the bank is satisfactory. It has successfully
improved its financial position. It is working in order to strengthen its
financial viability.
SUGGESTION

 Bank should adopt modern banking technology for better customer service
anddevelopments of the bank.
 Bank may attract more customers through advertisement preferably
through socialmedia.
 Bank may adopt customer grevience redressal and credit rating
machanisam for betterperformances.
 Bank may open more number of branches in bangalore metropolitan
city so as tocover entire area of operation of BBMP.
 The quality of the man power of the bank may be improved through
training forwhich bank may adopt suitable effective training policy like
corporate sector.
 The performance and reports must be regularly reviewed in order to detect the errors.
 Bank should have a system for carrying remedial action on
determining credits andmanaging credit problems.
 Credit rates of the company or the customers must be updated periodically.
 The bank should implement a credit rating model in order to control
and manage thecredit risk of the borrower.
 They should give More awareness through advertisement regarding
various loansschemes introduced by the banks.
 CONCLUSION:

Credit risk management starts with the process of lending the loans and comes to an end
by repaying the debt amount along with interest. For managing the risk, banks needs to
concentrate on credit scoring and credit rating aspects which improves process of credit
lending and also helps in identifying the credit worthiness of the bank. From the study it
is found that customer of the bank are happy and satisfied with the customer service
provided by the bank.

The growth and development of the bank are all parameter showing above average
growth rate which indicated the financial helth of the bank.

The M&M financial services ltd bank being a state level co-operative bank played a
significant role in sustainable development of short term credit co-operative movement
in state i.e. development of DCC banks at distric level and PACS at village level.

The inference drawn is based on the analysis of primary and secondary data provided by
the bank and interactions with the concerned officers of the bank however due to lack of
time andbusy schedule of bank officials with year end work deep collection and analysis
of data was not possible.

Finally I would like to extend my sincere gratitude and thanks to Karnataka state co-
operativeapex bank which provides an opportunity to conduct a study as part fulfilment
of myacademic career.
 ANNEXURE

PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM 1-04-2014 TO 31-03-2018

Particulars
2015 2016 2017 2018

INCOME

Interest and Discount 9403158357 10097088325 10460246852 11640016352

Commission and Brokerage 14276469 6788301352 11899073 18948511

Dividend and Miscellaneous

Receipts 69131954 81836327 85750106 100186146
Total Revenue 9486566779 10190952059 10557896031 11759151009

EXPENSES
Interest on Deposits &
Borrowings 8062254091 8851000148 8823434778 9316809752
Salaries, Allowances &
Provident Fund 306693871 336119769 477016096 431154238
Directors Fee, Local
Committee Members fee and 4784038 5955390
Allowances 7473332 21065103
Rent, Taxes, Insurance &
Electricity Charges 48783388 54240294 63184496 68997428

Legal Charges 2019094 1594805 374945 429395

Postage and Telephone 3074571 3472714 4046208 4169685

Audit fees 1248177 2158857 1718875 7506000

Repairs to Bank Properties 12522403 4906867 5514157 5298851

Printing, Stationery and
Advertisement 13790389 10236035 13160177 102046614

Other Expenditure 129422973 141311661 219536508 282544466

Depreciation 48111420 65367118 39063899 34826660

Provisions and
Contingencies :

a) Bonus/Exgratia 5000000 5000000 5000000 5000000

b) Staff Gratuity Fund 12475428 20404843
 9389873 10000000
- -
c) Pension scheme fund - 5000000
- -
c) Provision for Salary 15000000 5000000
Arrears
e) Bad & Doubtful
Debt 57739000 66500000 75000000 150000000
Reserve
- -
f) Provision for Other Assets 88400000
g) Contingent Reserves
for 34600000 19000000 70000000 21550000
Standard Assets
h) Centenery Year - -
Celebration 1277000 3407552
Fund
i) Investment - -
Fluctuation 50000000 20000000
Reserve

j) Capital Reserve - - 10000000 40000000

-
k) Non Performing Assets - - 342100000

Total Expenses 8846110289 9586271209 9877998899 10879903035

Profit Before Tax 640456490 604680850 679897132 879247974

Provision for Taxes:

Provision for Income Tax 262500000 277900000 315000000 525250000

- -
Provision for Deferred Tax - -

Income Tax of earlier years 74956490 12280850 34897132 11497974

Net Profit for the year
303000000 314500000 330000000 342500000
 M&M financial services LIMITED. BANGLORE.BALANCESHEET
AT 31 MARCH 2015,16,17&18

BALANCE SHEET
PARTICULARS 2015 2016 2017 2018

I. CAPITAL AND LIABILITIES

SHARE CAPITAL
2390192700 2822232500 4189432500 4451152300
RESERVE FUND, OTHER FUNDS
AND RESERVES 6402928345 6788301352 7123372520 7561262454

PROFIT AND LOSS ACCOUNT 303000000 314500000 330000000 342500000

DEPOSITS AND OTHER
ACCOUNTS 71191540623 72014766397 73637948604 91514235113

BORROWINGS 64392870311 61396939084 74551045862 64312249690

INTEREST PAYABLE 57406300 95151807 342214072 886708073

OTHER LIABILITIES 1922945932 1962369529 1872126099 2303956216

- -
BRANCH ADJUSTMENT 37546554 1283882
OVERDUE INTEREST RESERVE
(AS PER CONTRA) 936938522 1405908485 1739627629 1811459344
TOTAL
147635369287 146801453035 163785767286 173183523190

II. PROPERTY AND ASSETS

CASH AND BANK BALANCES 5833625833 5003084369 17173005881 11981436673

MONEY AT CALL AND SHORT
NOTICE 22350000000 19150000000 2899000000 3350000000

INVESTMENTS 23615697313 24315467850 32434829268 34147005789

ADVANCES 93043572669 95068744695 107747261119 109173301171

FIXED ASSETS 1344943200 1333909693 1285513080 1024030369

OTHER ASSETS 510591750 524337943 484409241 11688479776

BRANCH ADJUSTMENT - - 22121068 7810068
OVERDUE INTEREST RESERVE
(AS PER CONTRA) 936938522 1405908485 1739627629 1811459344
TOTAL
147635369287 146801453035 163785767286 173183523190