1nh21ba076 230712 112345
1nh21ba076 230712 112345
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.
Picture-1.1
Explanation
Before we touch the main topic of the article, we need to understand a few basic terms
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
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
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.
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.
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
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.
The entity needs to develop a credit analysis strategy and should automate the process
Many entities outsource such activities to an outsider agency that evaluates various
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
This further helps bankers to protect the valued treasure from credit unworthy
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
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.
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.
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
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.
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.
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
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.
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.
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.
LITERATURE REVIEW:
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.
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
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
Housing Finance*
New house
House renovation and improvements
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:
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
Picture-4.1
Meaning of Credit
Forms of credit
1. Long-term loan
2. Cash credit
3. Purchase bills
4. Bank guarantee
Meaning of 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.
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
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
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.
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.
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.
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 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 are the basis for effective risk management.
The reasons behind managing credit risks are as follows (Amitabh Bhargava,2004):
— Value creation
— Value preservation
— Capital optimization
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.
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.
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.
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.
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.
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.
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
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.
Graph 5.1.1 Showing The Total Deposits Growth With Percentage Of M&M FSL.
Deposits(%)
1000000
800000 915142
400000
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.,
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
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.
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
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.
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 (%)
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.
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
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)
Graph 5.6.1 Showing The Credit To Deposit Ratio Of The Bank From 2015-2018
40
20
0
2015 2016 2017 2018
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)
Graph 5.7.1 Showing the Debt to Equity Ratio of the Bank From 2015-2018
30
20
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)
Graph 5.8.1 Showing the Investment to Deposit Ratio of the bank from 2015-2018
8.26
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)
Graph 5.9.1 Showing The Return On Assets Ratio Of The Bank From 2015-2018
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
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
BALANCE SHEET
PARTICULARS 2015 2016 2017 2018