Docstoc

A Study on Loans and Advances project

Document Sample
A Study on Loans and Advances project Powered By Docstoc
					                                                                                       1



                                1.      Introduction

    The term „loan‟ refers to the amount borrowed by one person from another. The
amount is in the nature of loan and refers to the sum paid to the borrower. Thus. from
the view point of borrower, it is „borrowing‟ and from the view point of bank, it is
„lending‟. Loan may be regarded as „credit‟ granted where the money is disbursed and
its recovery is made on a later date. It is a debt for the borrower. While granting
loans, credit is given for a definite purpose and for a predetermined period. Interest is
charged on the loan at agreed rate and intervals of payment. „Advance‟ on the other
hand, is a „credit facility‟ granted by the bank. Banks grant advances largely for short-
term purposes, such as purchase of goods traded in and meeting other short-term
trading liabilities. There is a sense of debt in loan, whereas an advance is a facility
being availed of by the borrower. However, like loans, advances are also to be repaid.
Thus a credit facility- repayable in instalments over a period is termed as loan while a
credit facility repayable within one year may be known as advances. However, in the
present lesson these two terms are used interchangeably.

Loans and advances granted by commercial banks are highly beneficial to individuals,
firms, companies and industrial concerns. The growth and diversification of business
activities are effected to a large extent through bank financing. Loans and advances
granted by banks help in meeting short-term and long term financial needs of business
enterprises.
We can discuss the role played by banks in the business world by way of loans and
advances as follows :-

(a) Loans and advances can be arranged from banks in keeping with the flexibility in
business operations. Traders, may borrow money for day to day financial needs
availing of the facility of cash credit, bank overdraft and discounting of bills. The
amount raised as loan may be repaid within a short period to suit the convenience of
the borrower. Thus business may be run efficiently with borrowed funds from banks
for financing its working capital requirements.

(b) Loans and advances are utilized for making payment of current liabilities, wage
and salaries of employees, and also the tax liability of business.

(c) Loans and advances from banks are found to be „economical‟ for traders and
businessmen, because banks charge a reasonable rate of interest on such
loans/advances. For loans from money lenders, the rate of interest charged is very
high. The interest charged by commercial banks is regulated by the Reserve Bank of
India.
                                                                                        2


(d) Banks generally do not interfere with the use, management and control of the
borrowed money. But it takes care to ensure that the money lent is used only for
business purposes.

(e) Bank loans and advances are found to be convenient as far as its repayment is
concerned. This facilitates planning for future and timely repayment of loans.
Otherwise business activities would have come to a halt.

(f) Loans and advances by banks generally carry element of secrecy with it. Banks are
duty-bound to maintain secrecy of their transactions with the customers. This
enhances people‟s faith in the banking system.

1.1      Lending of Money
         You have noted in the earlier lessons that commercial banks lend money in
four different ways: (a) direct loans, (b) cash credit, (c) overdraft, and (d) discounting
of bills. These are briefly discussed below:
Loans
       Loan is the amount borrowed from bank. The nature of borrowing is that the
money is disbursed and recovery is made in instalments. While lending money by
way of loan, credit is given for a definite purpose and for a pre-determined period.
Depending upon the purpose and period of loan, each bank has its own procedure for
granting loan. However the bank is at liberty to grant the loan requested or refuse it
depending upon its own cash position and lending policy.

There are two types of loan available from banks :
(a) Demand loan, and
(b) Term loan

(a) A Demand Loan is a loan which is repayable on demand by the bank. In other
words, it is repayable at short-notice. The entire amount of demand loan is disbursed
at one time and the borrower has to pay interest on it. The borrower can repay the loan
either in lumpsum (one time) or as agreed with the bank. Demand loans are raised
normally for working capital purposes, like purchase of raw materials, making
payment of short-term liabilities.

(b) Term Loans : Medium and long term loans are called term loans. Term loans are
granted for more than a year and repayment of such loans is spread over a longer
period. The repayment is generally made in suitable instalments of a fixed amount.
Term loan is required for the purpose of starting a new business activity, renovation,
modernization, expansion/ extension of existing units, purchase of plant and
machinery, purchase of land for setting up of a factory, construction of factory
building or purchase of other immovable assets. These loans are generally secured
against the mortgage of land, plant and machinery, building and the like.
                                                                                         3



Cash credit

Cash credit is a flexible system of lending under which the borrower has the option to
withdraw the funds as and when required and to the extent of his needs. Under this
arrangement the banker specifies a limit of loan for the customer (known as cash
credit limit) up to which the customer is allowed to draw. The cash credit limit is
based on the borrower‟s need and as agreed with the bank. Against the limit of cash
credit, the borrower is permitted to withdraw as and when he needs money subject to
the limit sanctioned.
It is normally sanctioned for a period of one year and secured by the security of some
tangible assets or personal guarantee. If the account is running satisfactorily, the limit
of cash credit may be renewed by the bank at the end of year. The interest is
calculated and charged to the customer‟s account. Cash credit, is one of the types of
bank lending against security by way of pledge or /hypothetication of goods. „Pledge‟
means bailment of goods as security for payment of debt.
 Its primary purpose is to put the goods pledged in the possession of the lender. It
ensures recovery of loan in case of failure of the borrower to repay the borrowed
amount. In „Hypothetication‟, goods remain in the possession of the borrower, who
binds himself under the agreement to give possession of goods to the banker
whenever the banker requires him to do so. So hypothetication is a device to create a
charge over the asset under circumstances in which transfer of possession is either
inconvenient or impracticable.

Overdraft

Overdraft facility is more or less similar to „cash credit‟ facility. Overdraft facility is
the result of an agreement with the bank by which a current account holder is allowed
to draw over and above the credit balance in his/her account. It is a short-period
facility. This facility is made available to current account holders who operate their
account through cheques. The customer is permitted to withdraw the amount of
overdraft allowed as and when he/she needs it and to repay it through deposits in the
account as and when it is convenient to him/her. Overdraft facility is generally
granted by a bank on the basis of a written request by the customer. Sometimes the
bank also insists on either a promissory note from the borrower or personal security of
the borrower to ensure safety of amount withdrawn by the customer. The interest rate
on overdraft is higher than is charged on loan.
                                                                                       4


The following are some of the benefits of cash credits and overdraft :-

(i) Cash credit and overdraft allow flexibility of borrowing, which depends upon the
need of the borrower.
(ii) There is no necessity of providing security and documentation again and again for
borrowing funds.
(iii) This mode of borrowing is simple and elastic and meets the short term financial
needs of the business.



Discounting of Bills

        Apart from sanctioning loans and advances, discounting of bills of exchange
by bank is another way of making funds available to the customers. Bills of exchange
are negotiable instruments which enable debtors to discharge their obligations to the
creditors. Such Bills of exchange arise out of commercial transactions both in inland
trade and foreign trade. When the seller of goods has to realise his dues from the
buyer at a distant place immediately or after the lapse of the agreed period of time, the
bill of exchange facilitates this task with the help of the banking institution. Banks
invest a good percentage of their funds in discounting bills of exchange. These bills
may be payable on demand or after a stated period.

        In discounting a bill, the bank pays the amount to the customer in advance, i.e.
before the due date. For this purpose, the bank charges discount on the bill at a
specified rate. The bill so discounted , is retained by the bank till its due date and is
presented to the drawee on the date of maturity. In case the bill is dishonoured on due
date the amount due on bill together with interest and other charges is debited by the
bank to the customers account.

Nature and Security of Loans

         To ensure the safety of funds lent, the first and most important factor
considered by a bank is the capacity of borrowers to repay the amount of loan, The
bank therefore, relies primarily on the character, capacity and financial soundness of
the borrower. But the bank can hardly afford to take any risk in this regard and hence
it also has the security of tangible assets owned by the borrower. In case the borrower
fails to repay the loan, the bank can recover the amount by attaching the assets. It can
sell the assets offered as security and realize the amount.
 Thus from the view point of security of loans, we can divide the loans into two
categories: (a) secured, and (b) unsecured.
                                                                                      5


        Unsecured loans are those loans which are not covered by the security of
tangible assets. Such loans are granted to firms/institutions against the personal
security of the owner, manager or director. On the other hand, Secured loans are
those which are granted against the security of tangible assets, like stock in trade and
immovable property. Thus, while granting loan against the security of some assets, a
charge is created over the assets of the borrower in favour of the bank. This enables
the bank to recover the dues from the customer out of the sale proceeds of the assets
in case the borrower fails to repay the loan. There are various types of securities
which may be offered against loans granted, but all of those are not acceptable to the
banks.

The types of securities generally accepted by the bank are the following:

      Tangible assets such as plant and machinery, motor-van, etc.
      Documents of title to goods, like Railway Receipt (R/R), Billsof exchange,
       etc.
      Financial Securities (Shares and Debentures)
      Life-Insurance Policy
      Real estates (Land, building, etc).
      Fixed Deposit Receipt (FDR)
      Gold ornaments, Jewellery etc.
                                                                                         6


                         1.1     INDUSTRY PROFILE

1.1.1   BANKING INDUSTRY IN INDIA

        Banking in India is originated in the last decades of the 18th century. The
oldest bank in the bank in existence in India is the state bank of India, a government-
owned bank that that traces its origin back to june 1806 and that is the largest
commercial bank in the country. Central banking is the responsibility of the reserve
bank of India, which in 1935 formally took over these responsibilities from the
imperial bank of India, relegating it to commercial banking functions. After India‟s
independence in 1947. The reserve bank was nationalised and given broader powers.
In 1969 the government nationalised the 14 largest commercial banks, the government
nationalised the six largest in 1980

The first bank in India, General Bank of India was established in 1786. From 1786
till today, the journey of Indian banking system can be segregated into three distinct
phases.

They are as follows

       Early phase from 1786 to 1969 of Indian Banks.

       Nationalization of Indian banks and up to 1991 prior to Indian banking sector
        reforms.

       New phase of Indian banking system with the advent of Indian Financial &
        Banking sector Reforms after 1991.

1.1.2          BANKING IN INDIA

    BANKING DURING BRITISH PERIOD BEFORE INDEPENDENCE

   The first joint stock bank, namely The general Bank of India was established in
    1786.
   Later on Bank of Hindustan and Bengal Bank also came in to existence, bank of
    Hindustan carried on business till 1906.
   East India company established the following three banks, namely The Bank of
    Bengalin 1809, The Bank of Bombay in 1840 and The Bank of Madras in 1843.
   They were collectively called Presidency Banks and were well functioning
    independent units.
   The three banks established by the East India company were amalgamated in 1920
    and new bank called Imperial Bank of India was established.
                                                                                          7




   At least 94 banks in India failed between 1913 and 1918 as indicated in the
    following table:

                   Number of     banks Authorised         capital Paid-up       Capital
         Years
                   that failed         (Rs. Lakhs)                (Rs. Lakhs)
            1913           12                    274                       35
            1914           42                    710                      109
            1915           11                        56                     5
            1916           13                    231                        4
            1917           9                         76                    25
            1918           7                     209                        1


   The businessmen had established a number of Private Banks in mid of the 19 th
    onwards. In the surcharged atmosphere of swadeshi movement, a number of banks
    with Indian management, namely Punjab national bank ltd, Bank of India ltd,
    Canara bank ltd, and Indian bank ltd ,etc were established.




   The Reserve bank of India was established as the Central Bank of the country
    under an act called Reserve Bank of India Act. Later on with the passage of
    Banking regulation act passed in 1949. RBI was conferred with supervision and
    control of the banks and licensing powers and authority to conduct inspections
    was also given to it.


AFTER INDEPENDENCE

   In 1955, Imperial Bank of India was nationalised and was given the name “State
    Bank of India”. It was established under State Bank of India Act 1955.

   In 1960, RBI was empowered to force the compulsory merger of the weak banks
    with the strong ones. This led to the reduction in the number of banks from 566 in
    1951 to about 89 in 1969.

   On July19, 1969, 14 major banks were nationalised.

   In 1980, another 6 banks were nationalised, this raising the number of nationalised
    banks to 20.

   On the suggestions of Narashiman Committee, the Banking Regulation Act was
    amended in 1933 and thus the gates for the new private sector banks opened.
                                                                                   8



1.1.3   PRESENT STRUCTURE OF INDIAN BANKING SYSTEM

Reserve Bank of India (RBI) is the Central Bank and all Banks of India are required
to follow the guidelines issued by RBI. The present structure of the Indian Banking
System is as follows :-




Currently, India has 88 scheduled commercial banks (SCBs) – 28 public sectors banks
(that is with the Government of India holdinga stake), 29 private banks (these do not
have government stake; they may be publicly listed and traded on stock exchanges)
and 31 foreign banks. They have a combined network of over 53,000 branches and
17,000 ATMs. According to a report by ICRA limited, a rating agency, the public
sectors banks hold over 75% of total assets of the banking industry, with the private
and foreign banks holding 18.2% and 6.5% respectively.
                                                                                   9


                        1.2    COMPANY PROFILE


        Canara Bank Founded as 'Canara Bank Hindu Permanent Fund' in 1906, by
late Sri. Ammembal Subba Rao Pai, a philanthropist, this small seed blossomed into a
limited company as 'Canara Bank Ltd.' in 1910 and became Canara Bank in 1969 after
nationalization.

"A good bank is not only the financial heart of the community, but also one with an
obligation of helping in every possible manner to improve the economic conditions of
the common people" - A. Subba Rao Pai.

Founding Principles

    To remove Superstition and ignorance.
    To spread education among all to sub-serve the first principle.
    To inculcate the habit of thrift and savings.
    To transform the financial institution not only as the financial heart of the
     community but the social heart as well.
    To assist the needy.
    To work with sense of service and dedication.
    To develop a concern for fellow human being and sensitivity to the
     surroundings with a view to make changes/remove hardships and sufferings.

Sound founding principles, enlightened leadership, unique work culture and
remarkable adaptability to changing banking environment have enabled Canara Bank
to be a frontline banking institution of global standards.

MISSION

To provide quality banking services with enhanced customer orientation, higher value
creation for stakeholders and to continue as a responsive corporate social citizen by
effectively blending commercial pursuits with social banking.

VISION

        To emerge as a Best practices bank by pursuing global benchmarks in
profitability, operational, efficiency, asset quality, risk management and expanding
the global reach.
                                                                               10


Significant Milestones

Year
1st July   Canara Hindu Permanent Fund Ltd. formally registered with a
1906       capital of 2000 shares of Rs.50/- each, with 4 employees.
1910       Canara Hindu Permanent Fund renamed as Canara Bank Limited
           14 major banks in the country, including Canara Bank, nationalized
1969
           on July 19
1976       1000th branch inaugurated
           Overseas branch at London inaugurated
1983
           Cancard (the Bank‟s credit card) launched
1984       Merger with the Laksmi Commercial Bank Limited
1985       Commissioning of Indo Hong Kong International Finance Limited
1987       Canbank Mutual Fund & Canfin Homes launched
1989       Canbank Venture Capital Fund started
1989-90    Canbank Factors Limited, the factoring subsidiary launched
           Became the first Bank to articulate and adopt the directive
1992-93
           principles of “Good Banking”.
           Became the first Bank to be conferred with ISO 9002 certification
1995-96
           for one of its branches in Bangalore
           Opened a 'Mahila Banking Branch', first of its kind at Bangalore,
2001-02    for catering exclusively to the financial requirements of women
           clientele.
2002-03    Maiden IPO of the Bank
2003-04    Launched Internet & Mobile Banking Services
2004-05    100% Branch computerization
           Entered 100th Year in Banking Service
           Launched Core Banking Solution in select branches
2005-06
           Number One Position in Aggregate Business among Nationalized
           Banks
           Retained Number One Position in Aggregate Business among
           Nationalized Banks.
2006-07    Signed MoUs for Commissioning Two JVs in Insurance and Asset
           Management with international majors viz., HSBC
           (Asia Pacific) Holding and Robeco Groep N.V respectively
                                                                              11


             Launching of New Brand Identity
             Incorporation of Insurance and Asset Management JVs
2007-08      Launching of 'Online Trading' portal
             Launching of a „Call Centre‟
             Switchover to Basel II New Capital Adequacy Framework
             The Bank crossed the coveted Rs. 3 lakh crore in aggregate business
2008-09
             The Bank‟s 3rd foreign branch at Shanghai commissioned
             The Bank‟s aggregate business crossed Rs.4 lakh crore mark.
2009-10      Net profit of the Bank crossed Rs.3000 crore.
             The Bank‟s branch network crossed the 3000 mark.

As at June 2010, the total business of the Bank stood at Rs.4,12,649 crore.
                                                                                   12


                        1.3     PRODUCT PROFILE

Loans and Advances:
For immediate financial need in times, Canara bank has a host of Loan options for a
corporate to choose from. These enable smooth functioning without monitory hassles.

Loan and Advances offered by Canara bank are:-

    Working capital finance

           o Working Capital is basically the investment in current assets like raw
               materials, stores, semi-finished goods, finished goods, sundry debtors
               etc.
           o Working Capital Finance is extended in different forms basing on the
               requirement in the form of Inventory Limits (Pre-Sales), Finance
               against Receivables (Post-Sales), Non-Fund based limits and Short
               Term Lending products.
      Export Finance
           o Pre shipment Finance
           o Post shipment Finance
           o Foreign Bank Guarantee (FBG)
           o Foreign Letters of Credit (FLC)
      Term loans
           o Term Loan is normally extended for acquisition of Land, Building and
               machinery, purchase of vehicles etc. and also along with working
               capital finance as composite loans.
           o Term Loan is given both for industrial and non-industrial borrowers
               i.e.     both     for    projects     /    activities   involved     in
               manufacture/processing/repairing and business / trading activities etc.
               The project needs to establish technical feasibility and economic
               viability.
      Infrastructure Finance
           o The Bank extends finance to various infrastructure projects. The
               finance is characterized by large outlay of funds and longer repayment
               period. The project needs to establish technical feasibility and
               economic viability.
      Bill Finance
      Advance against Shares
      Loan against Rent Receivables
      Short term corporate loans
      Project Finance
      Home loan
      Home improvement loan
                                                                                    13



                      1.4     NEED FOR THE STUDY

   The main purpose of doing this project is to know about the Loans and Advances
provide by the banking industries (Canara bank).

      Now the country is witnessing a Globalization, Privatization and
       Liberalization wave with a strong influence in culture and its implication.

      The need for the loan have become inevitable at present scenario, hence there
       is a need to study the progress and trends. Since more and more competitors
       have entered the market with many features in their services.

      The study is conducted to know the various financial requirements of the
       individuals and corporate borrowers.

      What types of credit facilities bank can provide to assist business needs of the
       needful?

      What are the Prospective areas of investment for the banks in the near future?

      What are the various opportunities and challenges in this industry?

      The study is also required to analyze the views of the borrowers and to analyze
       the satisfaction level of customers.

    This helps to know in detail about the Loans and Advances provided by the bank,
right from its inception stage, growth, and future prospects.
                                                                                 14



                  1.5    OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE:-

        To make “A brief study on Loans and Advances” segments contributing the
profitability to the individuals and corporate borrowers.


SECONDARY OBJECTIVE:-

    To analyze the trend of the advances for which the industries or public in need
     for finance.

    To analyze the progress and the future trend for the finance.

    Based on the data opted from the past and the future of the advance
     components and its importance for the banking industries had been forecasted.

    To study the purpose of availing the loan among borrowers. This includes
     credit facilities provided by the bank.

    To study whether the borrowers are knowing the various schemes available.
                                                                                      15



                        1.6    SCOPE OF THE STUDY

         The study has been undertaken mainly to highlight the features of loans
offered by banking sectors. This deliberately attracts the industries in need for the
finance to carry out their production process smoothly and without any financial
crisis. It provides an opportunity to a businessman, customer or an industry in need
for the finance to understand the concept of advances and how effectively can they
can approach it.Growing complexity of financial products, competitiveness among
industries and the development of alternative strategies in asset management ask for a
deep understanding of market dynamics and the availability of the finance throughout
the various stages. The study is entitled to various area such as; loans, interest rates,
the customer‟s preference.

       Many banks in the 21st century have already been bankrupt and forced to wind
up or they have been acquiescing with the other high potential banking institutions.
Many of the others are in the survival of fittest stage and are struggling to save
themselves from bankruptcy.

       Therefore there is a need of understanding the changing market dynamics,
innovation in the product quality and hence good for the banking industries for their
investment.
                                                                         16



                          1.7    LIMITATION



 The research has to undergo several hardships in the process of data
  collection. The process of data collection itself was a very tedious one.


 The study is entirely based on the financial statements prepared by
   Canara bank.

 The study relies more on secondary sources and its has certain
  limitations applicable to the project..
                                                                                       17


                 2.      RESEARCH METHODOLOGY

2.1      RESEARCH DEFINITION

        Research is a scientific and systematic search for on a specific topic. In short,
the search for knowledge through objective and systematic method of finding solution
to the problem is research.
        The main phase of research includes statement of the problem, forming of
objectives, data collection, analysis and its interpretation.

Research can be defined as the search for knowledge, or as any systematic
investigation, with an open mind, to establish novel facts, usually using a method.

 Research is an active, diligent and systematic process of inquiry in order to discover,
interpret or revise facts, events, behaviour or theories or to make practical applications
with the help of such facts, laws or theories.

2.2      RESEARCH DESIGN:

        The aim of the study was to analyze the Loans and Advances provided by the
banking industry. Hence the research design applied for this study was Analytical in
nature.
        Analytical research is a type of research in which the researcher use the facts
or information already available and analyse this to make the critical evaluation of the
materials

SOURCE OF DATA:
Secondary data is used for the study. Secondary data are data which are not collected
for the first time and have already been collected. Secondary data or information has
been sourced from namely, books, trade journals, internet, government agencies and
access through various database.


2.3 TOOLS USED FOR ANALYSIS:

Research tools are statistical techniques used for data analysis and to arrive certain
conclusions. Statistical tools are used to obtain finding and average information in
logical sequence from the data collected. Tools used are as follows:-

     Trend Analysis
     Correlation Analysis
                                                                                      18


CORRELATION ANALYSIS:

Correlation analysis is a statistical technique which shows the relation between two or
more variables i.e. used to measure the degree and direction of relationship between
the variables. The measure of correlation is called coefficient of correlation. In this
research, correlation analysis is used to interpret the relationship between the interest
rate and the advances opted by the industries or public.

Correlation Coefficient, r = (∑(X-a)(Y-b)) / (                         ))

TREND ANALYSIS
The quality of the forecast management can make is strongly related to the
information that can be extracted and used from past data. Trend Analysis or Time
series Analysis is one quantitative method we use to determine the data collected over
time.
I have used this method to forecast the future of the Advance component provided by
Canara bank in India and outside India.

The two normal equations are:




The trend line is
Y= a+bx (where origin year =0 and X = 1
                                                                            19


             3. DATA ANALYSIS & INTERPRETATION

3.1 Time-series analysis shows the trend of the advances opted by the priority
sector in India.

                                 Table 3.1.1
      Table shows the advances lent by Canara bank to the priority sector

                                             (Rs in crores)
                   Year (x)                   Advances(y)
                    2006                          29.92
                    2007                          36.68
                    2008                          41.97
                    2009                          45.99
                    2010                          56.69


                                 Table 3.1.2
           Table shows the trend calculation for the Priority Sector.

         Year         X         Advance(Y)                XY        X2

         2006         -2          29.92              -59.84             4
         2007         -1          36.68              -36.68             1
         2008         0           41.97                   0             0
         2009         1           45.99               45.99             1
         2010         2           56.69              113.38             4
         Total        0           211.25              62.85         10


The two normal equations are:



The trend line equation is:

       Y= a+bx (where origin year =0 and X = 1)
                                                                                    20


Substituting and after calculation, the trend line is

211.25 = 5(a) + b(0)
62.85 = a(0) + 10(b)

a = 42.25
b = 6.28

Y= 42.25+6.28x (where origin year is 2008=0 and X units = 1 year)

2006 = 42.25+6.28(-2) = 29.69
2007 = 42.25+6.28(-1) = 35.97
2008 = 42.25+6.28(0) = 42.25
2009 = 42.25+6.28(1) = 48.53
2010 = 42.25+6.28(2) = 54.81
2011 = 42.25+6.28(3) = 61.09

                                 Chart 3.1
     Chart showing the Advances lent by canara bank for the piority sector




Inference:

From the above tables and chart ,it has been observed that there is a steady and
substantial increase in the advance lent by the Canara bank to the priority sector in
India in last 5 years.

The trend line shows that there is a positive trend of increase in the advance
component for which the priority sector is opting for over the year in future and hence
good for the banking industries for their investment.
                                                                            21


3.2 Time-series analysis shows the trend of the advances opted by the Public
sector in India.

                                  Table 3.2.1
       Table shows the advances lent by Canara bank to the Public sector

                                             (Rs in crores)
                     Year (x)                Advances(y)
                      2006                        10.08
                      2007                        12.18
                      2008                        7.16
                      2009                        20.25
                      2010                        18.46


                                 Table 3.2.2
            Table shows the trend calculation for the Public Sector.



          Year         X        Advance(Y)                XY           X2
          2006         -2         10.08               -20.16           4
          2007         -1         12.18               -12.18           1
          2008         0           7.16                   0            0
          2009         1          20.25                  20.25         1
          2010         2          18.46                  36.92         4
         Total         0          68.13                  24.83         10



The two normal equations are:



The trend line is:

       Y= a+bx (where origin year =0 and X = 1)
                                                                                    22


Substituting and after calculation, the trend line is

68.13 = 5 (a) + b (0)
24.83 = a (0) + 10 (b)

a = 13.62
b = 2.48

Y= 13.62+2.48x (where origin year is 2008=0 and X units = 1 year)

2006 = 13.62+2.48(-2) = 8.66
2007 = 13.62+2.48(-1) = 11.14
2008 = 13.62+2.48(0) = 13.62
2009 = 13.62+2.48(1) = 16.10
2010 = 13.62+2.48(2) = 18.58
2011 = 13.62+2.48(3) = 21.06

                                 Chart 3.2
       Chart showing the Advances lent by Canara bank for Public sector




Inference:

From the above tables and chart, it has been observed that there is a substantial
increase in the advance lent by the Canara bank to the public sector in India in last 5
years.

The trend line shows that there is a positive trend of increase in the advance
component for which the public sector is opting for over the year in future and hence
good for the banking industries for their investment.
                                                                             23


3.3 Time-series analysis shows the trend of the advances opted by the Banking
sector in India.

                                  Table 3.3.1
      Tables shows the advances lent by Canara bank to the Banking sector

                                              (Rs in crores)
                     Year (x)                   Advances(y)
                      2006                         0.001
                      2007                         0.004
                      2008                         0.002
                      2009                         0.038
                      2010                         3.014



                                  Table 3.3.2
            Table showing the trend calculation for the Public Sector.



          Year            X     Advance(Y)             XY            X2
          2006            -2       0.001                0                4
          2007            -1       0.004             -0.004              1
          2008            0        0.002                0                0
          2009            1        0.038              0.038              1
          2010            2        3.014              6.02               4
          Total           0        3.04               6.05           10




The two normal equations are:



The trend line is:

       Y= a+bx (where origin year =0 and X = 1)
                                                                                   24


Substituting and after calculation, the trend line is

3.04 = 5 (a) + b (0)
6.05 = a (0) + 10 (b)

a = 0.608
b = 0.605

Y= 0.608+0.605x (where origin year is 2008=0 and X units = 1 year)

2006 = 0.608+0.605(-2) = -0.602
2007 = 0.608+0.605(-1) = -0.003
2008 = 0.608+0.605(0) = 0.608
2009 = 0.608+0.605(1) = 1.213
2010 = 0.608+0.605(2) = 1.818
2011 = 0.608+0.605(3) = 2.423

                                  Chart 3.3
      Chart showing the Advances lent by Canara bank for Banking sector




Inference:

From the above tables and chart ,it has been observed that there has been sudden
decrease and substantial steady increase in the advance opted by the other bank sector
in India in last 5 years from the Canara bank.

The trend line shows that there is a positive trend of increase in the advance
component for which other bank is opting for over the year in future and hence
Canara bank needs an improvement in this regard.
                                                                             25


3.4 Time-series analysis shows the trend of the advances opted by the Other
sector in India.
                                   Table 3.4.1
        Table shows the advances lent by Canara bank to the Other sector

                                              (Rs in crores)
                   Year (x)                   Advances(y)
                    2006                          38.81
                    2007                          48.84
                    2008                          56.58
                    2009                          68.45
                    2010                          84.18




                                  Table 3.4.2
            Table showing the trend calculation for the other Sector.



        Year         X          Advance(Y)                XY            X2

         2006        -2           38.81               -77.62            4

         2007        -1           48.84               -48.84            1

         2008        0            56.58                   0             0

         2009        1            68.45               68.45             1

         2010        2            84.18               168.36            4

        Total        0            296.86              110.35            10




The two normal equations are:




The trend line equation is:

       Y= a+bx (where origin year =0 and X = 1)
                                                                                  26



Substituting and after calculation, the trend line is

296.86 = 5 (a) + b (0)
110.35 = a (0) + 10 (b)

a = 59.37
b = 11.03

Y= 59.37+11.03x (where origin year is 2008=0 and X units = 1 year)

2006 = 59.37+11.03(-2) = 37.31
2007 = 59.37+11.03(-1) = 48.34
2008 = 59.37+11.03(0) = 59.37
2009 = 59.37+11.03(1) = 70.4
2010 = 59.37+11.03(2) = 81.43
2011 = 59.37+11.03(3) = 92.46

                                  Chart 3.4
Chart showing the Advances lent by Canara bank for other sector with Trend
data




Inference:

From the above tables and chart, it has been observed that there is a steady and
substantial increase in the advance lent by the Canara bank to the others in India in
last 5 years.

The trend line shows that there is a positive trend of increase in the advance
component for which others opted for over the year in future and hence good for the
banking industries for their investment.
                                                                             27



3.5 Time-series analysis shows the trend of the Overall advances provided by the
Canara bank.
                                   Table 3.5.1
Table shows the Overall advances lent by Canara bank in past 5 years


                                              (Rs in crores)
                  Year (x)                     Advances(y)
                    2006                          79.42
                    2007                          98.50
                    2008                          107.23
                    2009                          138.21
                    2010                          169.33



                                 Table 3.5.2
       Table showing the trend calculation for the Overall Advances lent.



      Year           X            Advance(Y)               XY        X2

      2006           -2              79.42                -158.84     4
      2007           -1               98.5                 -98.5      1
      2008            0              107.23                  0        0
      2009            1              138.21               138.21      1
      2010            2              169.33               338.66      4
      Total           0             592.69                219.53     10



The two normal equations are:



The trend line equation is:

       Y= a+bx (where origin year =0 and X = 1)
                                                                                28



Substituting and after calculation, the trend line is

592.69 = 5 (a) + b (0)
219.53 = a (0) + 10 (b)

a = 118.53
b = 21.95


Y= 118.53+21.95x (where origin year is 2008=0 and X units = 1 year)

2006 = 118.53+21.95(-2) = 74.63
2007 = 118.53+21.95(-1) = 96.58
2008 = 118.53+21.95(0) = 118.53
2009 = 118.53+21.95(1) = 140.43
2010 = 118.53+21.95(2) = 162.43
2011 = 118.53+21.95(3) = 184.38

                                Chart 3.5
  Chart showing the Overall Advances lent by Canara bank with Trend data




Inference:

From the above tables and chart, it has been observed that there is a steady and
substantial increase in the Overall advance lent by the Canara bank in last 5 years
over the big picture.

 The trend line shows that there is a positive trend of increase in the advance
component lent by Canara bank over the year in future and hence good for the
banking industries for their investment.
                                                                               29


3.6 Time-series analysis shows the trend of the Bills purchased & Discounted in
India.

                                 Table 3.6.1
Table shows the Bills purchased & Discounted by Canara bank in past 5 years

                                              (Rs in crores)
                   Year (x)                   Advances(y)

                     2006                         4.92

                     2007                         5.71

                     2008                         6.19

                     2009                         6.28

                     2010                         6.32




                                  Table 3.6.2
   Table showing the trend calculation for the Bills purchased & Discounted.



       Year        X            Advance(Y)               XY          X2
       2006        -2              4.92                  -9.84        4
       2007        -1              5.71                  -5.71        1
       2008         0              6.19                   0           0
       2009         1              6.28                  6.28         1
       2010         2              6.32                  12.64        4
       Total        0              29.42                 3.37        10



The two normal equations are:




The trend line equation is:

       Y= a+bx (where origin year =0 and X = 1)
                                                                                      30


Substituting and after calculation, the trend line is

29.42 = 5 (a) + b (0)
3.37 = a (0) + 10 (b)

a = 5.884
b = 0.337

Y= 5.884+0.337x (where origin year is 2008=0 and X units = 1 year)

2006 = 5.884+0.337(-2) = 5.21
2007 = 5.884+0.337 (-1) = 5.54
2008 = 5.884+0.337 (0) = 5.88
2009 = 5.884+0.337 (1) = 6.21
2010 = 5.884+0.337 (2) = 6.55
2011 = 5.884+0.337 (3) = 6.89

                                  Chart 3.6
 Chart showing the Bills purchased & Discounted by Canara bank with Trend
                                    data




Inference:

From the above tables and chart, it has been observed that there is a steady and
substantial increase in the Bills purchased & Discounted by the Canara bank in last 5
years over the big picture. There is an substantial increase i.e., in (2006-4.92), (2007-
5.71), and in (2010-6.32).

The trend line shows that there is a positive trend of increase in the advance
component for over the year in future and hence in (2011-6.895) will be the growth
rate.
                                                                                31


 3.7 Time-series analysis shows the trend of the Cash certificate, Overdrafts &
                    Loans Repayable on demand in India.

                                  Table 3.7.1
Table shows the Cash certificate, Overdrafts & Loans Repayable on demand by
                        Canara bank in past 5 years

                                             (Rs in crores)
                   Year (x)                   Advances(y)

                      2006                        38.51
                      2007                        47.02
                      2008                        45.56
                      2009                        64.14
                      2010                        79.89




                                 Table 3.7.2
   Table showing the trend calculation for the Cash certificate, Overdrafts &
                        Loans Repayable on demand.



    Year         X              Advance(Y)                  XY          X2
    2006         -2                38.51                  -77.02         4
    2007         -1                47.02                  -47.02         1
    2008          0                45.56                     0           0
    2009          1                64.14                   64.14         1
    2010          2                79.89                  159.78         4
    Total         0               275.12                   99.88        10



The two normal equations are:




The trend line equation is:

       Y= a+bx (where origin year =0 and X = 1)
                                                                                   32



Substituting and after calculation, the trend line is

275.12 = 5 (a) + b (0)
99.88 = a (0) + 10 (b)

a = 55.02
b = 9.98


Y= 55.02+9.98x (where origin year is 2008=0 and X units = 1 year)

2006 = 55.02+9.98 (-2) = 35.06
2007 = 55.02+9.98 (-1) = 45.02
2008 = 55.02+9.98 (0) = 55.02
2009 = 55.02+9.98 (1) = 65
2010 = 55.02+9.98 (2) = 74.98
2011 = 55.02+9.98 (3) = 84.96

                                   Chart 3.7
 Chart showing the Cash certificate, Overdrafts & Loans Repayable on demand
                    lent by Canara bank with Trend data




Inference:

From the above tables and chart, it has been observed that there is a steady and
substantial increase in the certificate, Overdrafts & Loans Repayable on demand by
the Canara bank in last 5 years over the big picture. There is an substantial increase
i.e., in (2006-35.06), (2007-45.02), and in (2010-74.98).

The trend line shows that there is a positive trend of increase in the advance
component for over the year in future and hence in (2011-84.96) will be the growth
rate.
                                                                             33



3.8 Time-series analysis shows the trend of the Term loans in India.


                                Table 3.8.1
     Table shows the Term loans provided by Canara bank in past 5 years

                                                  (Rs in crores)
                         Year (x)                Advances(y)
                          2006                      35.98
                          2007                      45.76
                          2008                      55.48
                          2009                      67.79
                          2010                      83.11



                                   Table 3.8.2
              Table showing the trend calculation for the Term loans.



      Year          X               Advance(Y)                 XY       X2

      2006          -2                35.98                 -71.96      4
      2007          -1                45.76                 -45.76      1
      2008          0                 55.48                    0        0
      2009          1                 67.79                 67.79       1
      2010          2                 83.11                 166.22      4
      Total         0                 288.12                116.29      10




The two normal equations are:




The trend line equation is:

       Y= a+bx (where origin year =0 and X = 1)
                                                                                  34


Substituting and after calculation, the trend line is

288.12 = 5 (a) + b (0)
116.29 = a (0) + 10 (b)

a = 57.62
b = 11.62


Y= 57.62+11.62x (where origin year is 2008=0 and X units = 1 year)

2006 = 57.62+11.62 (-2) = 34.38
2007 = 57.62+11.62 (-1) = 46
2008 = 57.62+11.62 (0) = 57.62
2009 = 57.62+11.62 (1) = 69.24
2010 = 57.62+11.62 (2) = 80.86
2011 = 57.62+11.62 (3) = 92.48

                                 Chart 3.8
      Chart showing the Term Loans lent by Canara bank with Trend data




Inference:

From the above tables and chart, it has been observed that there is a steady and
substantial increase in the Bills purchased & Discounted by the Canara bank in last 5
years over the big picture. There is an substantial increase i.e., in (2006-34.38),
(2007-46), and in (2010-80.86).

The trend line shows that there is a positive trend of increase in the advance
component for over the year in future and hence in (2011-92.48) will be the growth
rate.
                                                                              35


3.9 Time-series analysis shows the trend of the Interest Earned.

                                  Table 3.9.1
        Table shows the Interest Earned by Canara bank in past 5 years

                                                 (Rs in crores)
                        Year (x)             Interest Earned(y)

                         2006                      5.48

                         2007                       7.5

                         2008                      9.87

                         2009                      12.81

                         2010                      13.94




                                 Table 3.9.2
          Table showing the trend calculation for the Interest Earned.



      Year         X               Advance(Y)                XY          X2
      2006         -2                 5.48                 -10.96        4
      2007         -1                 7.5                   -7.5         1
      2008         0                  9.87                    0          0
      2009         1                 12.81                  12.81        1
      2010         2                 13.94                  27.88        4
      Total        0                  49.6                  22.23        10




The two normal equations are:




The trend line equation is:

       Y= a+bx (where origin year =0 and X = 1)
                                                                                       36


Substituting and after calculation, the trend line is

49.6 = 5 (a) + b (0)
22.23 = a (0) + 10 (b)

a = 9.92
b = 2.22


Y= 9.92+2.22x (where origin year is 2008=0 and X units = 1 year)

2006 = 9.92+2.22 (-2) = 5.48
2007 = 9.92+2.22 (-1) = 7.7
2008 = 9.92+2.22 (0) = 9.92
2009 = 9.92+2.22 (1) = 12.14
2010 = 9.92+2.22 (2) = 14.36
2011 = 9.92+2.22 (3) = 16.58

                                  Chart 3.9
      Chart showing the Interest Earned by Canara bank with Trend data




Inference:

From the above tables and chart, it has been observed that there is a steady and
substantial increase in the Interest Earned by the Canara bank in last 5 years over the
big picture. There is an substantial increase i.e., in (2006-5.48), (2007-7.50), and in
(2010-13.94).

The trend line shows that there is a positive trend of increase in the Interest Earned for
over the year in future and hence in (2011-16.58) will be the growth rate.
                                                                            37



3.10 Correlation Analysis

It shows the correlation between the Loans & Advances lent by the Canara bank
and the interest earned on the loans and advances in the last 5 years.


                                Table 3.10.1
  Loans & Advances lent by Canara bank and Interest Earned on the loans &
                         advances in last 5 years.
                                                           (Rs in crores)
    Year          Loans & Advances                 Interest Earned
    2006                  79.42                          5.48
    2007                   98.5                           7.5
    2008                 107.23                          9.87
    2009                 138.21                         12.81
    2010                 169.83                         13.94

                              Chart 3.10
  Chart showing Loans & Advances provided by Canara bank in last 5 years.
                                                                38




                        Chart 3.11
Chart showing Interest Earned by Canara bank in last 5 years.
                                                                        39


                             Chart 3.12
Chart showing Comparative study of Loans & Advances lent and Interest
                              earned.
                                                                                           40




   Correlation Coefficient, r = (∑(X-a) (Y-b)) / (                           ))



                                   Table 3.10.2
    Table showing the Correlation calculation for the Loans & Advances lent and
                                 Interest earned.



     Loans &               Interest
   Advances(X)            Earned(Y)           (X-a)    (Y-b)    (X-a)(Y-b)    (X-a)2   (Y-b)2
       79.42                 5.48           -39.218    -4.44    174.1279     1538.052 19.7136
       98.5                   7.5           -20.138    -2.42    48.73396     405.539 5.8564
      107.23                 9.87           -11.408    -0.05     0.5704      130.1425 0.0025
      138.21                12.81           19.572     2.89     56.56308     383.0632 8.3521
      169.83                13.94           51.192     4.02     205.7918     2620.621 16.1604
                          Mean (b)=
Mean (a)= Total/5=         Total/5=                             485.7872     5077.417     50.085
     593.19                  49.6
    118.638                  9.92



   Hence,
            r = 485.78 / (                               )
            r = 0.9633 (< 1)

   After calculation of the r, we got
                            r = 0.9633

   Inference:
   Since the value of the correlation coefficient is very close to 1, it is obvious and
   observed that Loans & Advances are strongly associated with the interest.

    Also from the study of the above table and charts, it has been observed that the trend
   of the loans & advances in positive route and keeps growing.
                                                                                    41


Comparative study of Advances lent by Canara bank in India and Outside India
in past 5 years.

                                 Table 3.11
             Table showing Advances lent in India and Outside India

                                                       (Rs in Crores)
                   Year          In India           Outside India
                   2006           78.82                  0.59
                   2007           97.77                  0.79
                   2008           105.72                 1.5
                   2009           134.72                 3.48
                   2010           162.35                 6.97



                                 Chart 3.13
             Chart showing Advances lent in India and Outside India




Inference:

From the study of the above table and charts, it has been observed that there has been
a steady and substantial increase in the Advances lent by Canara bank in the past 5
years. Whereas outside India, it has not performed consistently and have been very
much irregular. Therefore investing in India is better choice for the Canara bank than
that of Outside India.
                                                                                  42


Comparative study of Advances lent by Canara bank in India in different sectors
in past 5 years.

                                Table 3.12
Table showing Advances lent by Canara bank in India in different sectors in
past 5 years.

             year    Priority          Public            Banks     Others
             2006     29.92            10.08             0.001      38.81
             2007     36.68            12.18             0.004      48.84
             2008     41.97             7.16             0.002      56.58
             2009     45.99            20.25             0.038      68.45
             2010     56.69            18.46             3.014      84.18

                                Chart 3.14
Chart showing Advances lent by Canara bank in India in different sectors in
past 5 years.




Inference:

From the study of the above table and charts, it has been observed that both public &
private sectors has come forward over the past 5 years and a steady and substantial
increase in the advances have been seen among them. Canara bank has done much
better in other sectors in terms of Advances lent.
                                                                                  43


                            4.1 FINDINGS


 There has been a significant increase in the advances opted by the priority,
  public sectors in India over the past 5 years.

 There has been a significant decrease in the advances opted by the banking
  sectors in India over the past 5 years.

 There has been a huge increase in the advances opted by the others sectors in
  India over the past 5 years.

 There has been a significant in the overall advances being lent by Canara bank
  in India & outside India.

 There is a significant relationship between the advances and interest earned.

 The future trend is very bright for the advances component and investing in
  India is better choice.

 It is better for the banking industries to invest in India rather than outside
  India.

 The Advances lent have not been recovered or repaid back on time, which is
  an area of concerns for the banks.

 There is an substantial increase in Bills purchased and Discounted by the
  Canara bank over the past 5 years.

 There has been a huge increase in the cash credits, overdrafts and loans
  repayable on demand lent by Canara bank to the individuals and to corporate
  borrowers.
                                                                                44


                         4.2 SUGGESTIONS


 Procedures followed by the banks can be clear and simple so that it makes the
  respondents to be comfortable to avail the loans and advances.

 Loan application procedure can be made online to reduce time gap between
  application and approval.

 Charges like Penalty, Loyalty can be considerably reduced to make the
  borrowers feel happy and gives some sort of relaxation.

 Repayment schedules can be made more customized and flexible.

 Banks should be more flexible rather than fixed in terms of the interest rates.

 Advertisement of service provided and products provided by the bank can
  create awareness among the people.

 Customer credit rating facilities should be provided and customers may be
  rewarded based on them time to time this increase customer satisfaction.
                                                                                 45


                           4.3 CONCLUSIONS


There is huge and vital scope of the Advance component in India especially in the
Private and Public Sectors. Banks need to introduce more dynamic and innovative
Advances and Loans schemes. The study profoundly concludes that the features of
the different kinds of advances are good in both public and private sectors. A good
number of customers especially the industries which are in production initial
phases and need huge financial support, are utilizing these features and many
more going to be in the near future. The future is very bright, in India and slowly
strengthening its root outside India as well. The customers go more for the
convenience in carrying out the banking operations. For this they consider, the
efficiency of operations, promptness of service and location of the bank.

The approach in banking with technology and process has been found highly
appreciated by the customers. Advertisements of products and services provided
by the banks can create more and more awareness among the industries in need
for finance and thus improve the market share of the public and private banks. The
bank has to reduce loan and advance processing time. It is clear that finance is one
of the critical components to continue the business process, especially in this
strong competitive world where each industries are fighting hard and hard to keep
their roots stronger and deeper in the business world.

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:1126
posted:10/31/2011
language:English
pages:45