Final project report

On
STUDY OF
Techniques
Assessment

used

for

Credit

With Special Reference to

CHOLAMANDALAM INVESTMENT AND FINANCE
COMPANY LIMITED

By
SHALINI
MBA, 3rd SEMESTER
USHA MARTIN ACADEMY
SUMMER INTERNSHIP PROGRAMME
(BATCH OF 2009-2011)

PROJECT TITLE
Study of Techniques Used For Credit Assessment
With special reference to Cholamandalam Investment and Finance
Company Limiteds Vehicle Finance
A Report submitted in partial fulfillment of the requirement

of MBA program

Company Guide:
Mr. Shashank Sahay
Branch Credit Manager
CIFCL
Patna
Faculty Guide:
Mr. Suparsawa Chakraborty
Dean
Usha Martin Academy
Patna
Submitted By:
Shalini
Usha Martin Academy
Patna

TABLE OF CONTENTS

DECLARATION
5

CERTIFICATE
6

AKNOWLEDEMENT
7

INTRODUCTION TO FINANCE INDUSTRY

8
COMPANY
9

THE SPIRIT OF MURUGAPPA GROUP

10
PRODUCT OVERVIEW
11

CHOLAMANDALAM INVESTMENT AND FINANCE CO. LTD.

:
14
COMPETITORS
16

CUSTOMERS AND THE BASIS OF THEIR CATEGORIZATION

:
19
INDUSTRY :
21
VEHICLE FINANCE
22
ASSET PROFILE
24

:
:

PRODUCT MIX
25

BASIC PARAMETERS FOR

DECISION :
26

CREDIT

CREDIT AND ITS TECHNIQUES

27

ASSESSMENT

THE FLOW ASSEMBLY LINE PROCESS

31
HOW DOES CREDIT LOOK AT A FILE
32
PRINCIPAL DOCUMENTATIONS
33
KYC POLICY
34

:
:

MONEY LAUNDERING AND CREDIT

36

TYPESOF MONEY LAUNDERING ACTIVITIES

37
CUSTOMER DUE DILIGENCE AND CREDIT
38
CIBIL

AND

:
:

LEARNING IN CHOLAMANDALAM
53

OBJECTIVE OF THE STUDY

58

:
39

FRAUD AND ITS IDENTIFICATION

42

RATIONALE OF THE STUDY

57

:
:
4

CONTRIBUTION AND FUTURE SCOPE

59

DECLARATION

I, SHALINI, hereby declare that the project report

entitled

Study

Of

Techniques

Used

For

Credit

Assessment is an original piece of work done by me

during

my

Summer

Internship

Program

(SIP)

at

CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY

LIMITED,

Patna.

The

report

submitted in any manner.

has

not

earlier

been

SHALINI
Date:-

CERTIFICATE
This is to certify that the Summer Internship project
titled

Study

Of

Techniques

Used

For

Assessment is a bona fide work of SHALINI

Credit
which is

original and has been done under my supervision

towards the partial fulfillment of MBA for the period of 2
months from 3rd November,2010 to 2nd January, 2011. I
am pleased to say that her performance during the
period was excellent.

Mr. Suparsawa Chakraborty

Faculty Guide
Usha Martin Academy
Patna

ACKNOWLEDGEMENT
An Old Chinese proverb says: When eating your
bamboo sprouts, remember the men who planted them.
Now that my sprouts are ready to eat, it is time for me
to express my deepest gratitude to All those who have
made this possible.
Acknowledgment gives us an opportunity to
highlight and thank people who genuinely took interest
in my assignment and always stood next, whenever
needed.
I would like to thank my Branch Manager, Mr.
Surendra Kumar, Branch Credit Manager and Corporate
Guide Mr. Shashank Sahay and Branch Operations
Incharge, Mr. Gopi Krishna for their moral support,
encouragement and kind assistance and systematic
7

guidance, invaluable advice throughout this project

work.
My heartfelt thanks to my Faculty Guide, Mr.
Suparsawa Chakraborty for his invaluable advice,
support and guide during my project whenever it
surmounts with difficulties.
I owe successful completion of this project to all the
supportive people whose ideas, critical insights and
suggestions proved invaluable in the accomplishment of
this report.
I would like to convey my special thanks to all the
faculty members of Usha Martin Academy, Patna, for
giving me the opportunity to work on this project and
providing all the requisite training needed to accomplish
my Project on time.

SHALINI
Usha Martin Academy

INTRODUCTION
INDUSTRY

TO

THE

FINANCE

The financial system comprises of financial

institutions, financial instruments and financial markets
that provide an effective payment and credit system and
thereby facilitate channelizing of funds from savers to
the investors of the economy. In India considerable
growth has taken place in the Non-banking financial
sector in last two decades. Over a period of time they
are successful in rendering a wide range of services.
8

Initially intended to cater to the needs of savers

and investors, Non Banking Financial Companies
(NBFCs) later on developed into institutions that can
provide services similar to banks. In India several
factors have contributed to the growth of NBFCs. They
are the financial institutions that provide banking
services without meeting the legal definition of bank i.e.
one that does not hold a banking license. Operations are
regardless
of this, still exercised under Bank
Regulations. The services provided by them are:

a) Acts as suppliers of loan and credit facilities

b) Funds for private education
c) Trade money market instruments
d) Supporting investments in property
e) Provide retirement planning

COMPANY
Cholamandalam being a NBFC is a pan- Indian,
composite financial services provider. It comprises the
parent company, Cholamandalam Investment & Finance
Company
Limited
(CIFCL),
and
its
subsidiaries
Cholamandalam Distribution Services Limited (CDSL)
and Cholamandalam Securities Limited. The shares of
9

CIFCL are listed in the Bombay Stock Exchange Ltd. and

National Stock Exchange of India Ltd.

CIFCL was incorporated in 1978 as the financial arm

of the MURUGAPPA group. The company that
commenced business as an equipment financing
company has now emerged as a comprehensive financial
services solution provider that offers vehicle finance,
business finance, home equity loans, stock broking and
distribution of financial products to its customers. The
company operates across India with assets under
management over Rs 9000 Crores. The subsidiaries of
Cholamandalam
include
Cholamandalam
securities
limited (CSec) and Cholamandalam distribution Limited
(CDSL).

MURUGAPPA Group founded in the year 1900, the

Rs.13617 crores (USD 3.03 billion) is one of Indias
leading business conglomerates with interests in
engineering, abrasives, finance, general insurance,
fertilizers, farm inputs, sugar, bio-products, cycles and
plantations.. The group has 29 companies under its
umbrella, of which seven are listed and actively traded
in NSE & BSE.

Headquartered in Chennai, the major companies of

the Group include Carborundum Universal Limited,
Cholamandalam
Investment & Financial
Company
Limited, Cholamandalam
MS General
Insurance
Company Limited, Coromandel International Limited,
Coromandel
Engineering
Company
Limited, EID
Parry(India) Ltd, Parry
Agro Industries
Ltd, Tube
Investment of India Limited & Wendt(India)Ltd. The
Group, which has forged strong joint venture alliances
10

with leading international companies like DBS Bank,

Mitsui
Sumitomo,
Cargill,
China
Engineering
&
Explorations Bureau and Groupe Chimique Tunisien, has
consolidated its status as one of the fastest growing
diversified business houses in India.

THE SPIRIT OF THE MURUGAPPA GROUP

11

Products Overview

12

1. Agriculture and farm products inputs:

Fertilizers
Pesticides
Plantation
Sugar and Bio-Products

2. Engineering products:
Chain
Tubes
Metal frames of cars
3. Consumer durables:
Sanitary ware
Bicycles
4. Service Sector:
Financial services
Insurance services
IT services
Travels

Concentrating on the Service sector, the discussion

of the sub- sectors under service are as follows:

13

I.

Financial service: Cholamandalam DBS, the financial

arm of the group, is a leading player in the industry
and provides holistic financial services. It includes
vehicle finance, capital market finance, personal
loans, mutual funds, securities broking, depository
services, as well as distribution services

II.

Insurance services: Cholamandalam MS offers

comprehensive product solutions covering almost
every non-life insurance need, from motor
insurance, health, home and travel, to accident to
property, marine and engineering. Cholamandalam
MS is completely consumer oriented, right from
underwriting and product development to product
differentiation, quick policy issuance, as well as fair
and quick claims settlement.

III.

IT Services, Travel: The Group has three companies

that do business in the sunrise information
technology sector. While Laser words is into highend publishing, Net Access provides hosting and
mailing solutions, and creates websites. Wend soft,
part of Wendt India, has introduced two excise
management software packages and markets two
exclusive software packages.

IV.

Travels: Parry Travels a business division of Parry

Enterprises India Limited, offers complete travel
solutions
including
air
ticketing,
hotel
accommodation and package tours.

14

CHOLAMANDALAM INVESTMENT AND

FINANCE
COMPANY LIMITED (CIFCL)
CIFCL was incorporated in 1978 as the financial
services arm of the MURUGAPPA GROUP. The company was
formerly known as Cholamandalam DBS Finance Limited and changed its
name to Cholamandalam Investment and Finance Company Ltd. on June
2, 2010. The company that commenced business as an
equipment financing company has now emerged as a
comprehensive financial services solution provider that
offers vehicle finance, business finance, home equity
loans, stock broking and distribution of financial
products to its customers. The Company operates across
India with an asset under management over 13000
crores.
Cholamandalam
Investment
and
Finance
Company Ltd., a non banking finance company, together
with its subsidiaries, provides various financial services
to individual and institutional customers in India. The
company offers vehicle finance for a range of vehicles,
including heavy and light commercial vehicles, multi
utility vehicles, cargo, and cars; corporate finance for
corporations, promoters, high net worth individuals, and
retail investors; and home equity loans.
It also provides mutual funds, life and general
insurance, equities, real estate, private equity, and fixed
income products. In addition, the company offers stock
broking and equity advisory services to institutional and
individual investors, as well as acts a depository
participant with National Securities Depository Limited
and Central Depository Services (India) Limited. It
operates from approximately 140 branches. The
subsidiaries of Cholamandalam include
15

a)
Cholamandalam
Securities
Limited:
Cholamandalam Securities Limited is a securities
brokerage firm offering stock broking and equity
research services to institutional investors, including
many of the largest mutual funds in India, and to select
individual clients. CSec is a member of the Stock
Exchange, Mumbai (BSE) and the National Stock
Exchange (NSE). It is also a depository participant with
NSDL.

b) Cholamandalam Distribution Limited: Formerly

called Cholamandalam AMC Ltd, DCAM is the asset
management company and the investment manager of
DBS Chola Mutual Fund, which offers mutual funds to
retail and institutional investors. Established in 1996,
the company manages funds in excess of Rs 2,761 crore
across 17 schemes with more than 200,000 customers.
DCAM is present in over 22 locations and has a strong
distribution network in place.

16

COMPETITORS

1) Shriram Transport Finance Company Limited

(STFC):
It was established in 1979 to finance Small Road
Transport Operators (SRTO) who own and operate over
75% of trucks in India. Engaged exclusively in financing
of Commercial Vehicles, both new as well as old, STFC,
as of now has 5,00,000 outstanding truck contracts.
The asset under management is around Rs. 11,000
crores (US$ 2.4 Billion). STFC also enjoys monopoly
position in financing of used vehicles.
Growing at 30% p.a, STFC boasts a pan-India
Branch Network of 339 offices and employees of around
5,000 people. STFC is listed on the Bombay Stock
Exchange (BSE) and the National Stock Exchange of
India (NSE).
STFC assists its customers through the entire
transportation business lifecycle. These include: Finance
for purchase of vehicle, working capital, purchase of
tyres, vehicle repairs etc. Assistance is also provided in
finding finance by pledging existing vehicle, getting
freight loads, discounting load challans, exchanging
17

existing vehicle and buying

vehicle, among others.

reconditioned

or

new

2) Larsen &Toubro Finance Limited (LTF):

It is a subsidiary of Larsen and Toubro. It was
incorporated as a Non Banking Finance Company in
November 1994. Through LTF, L&T aims at making a
strong foray in the ever-expanding financial services
sector.
LTF offers a spectrum of financial products and
services for trade, industry and agriculture. The
company's focus segments are corporate products,
construction equipment, Commercial Vehicles and
tractors.
Despite the turbulence in the financial services
markets over the past few years, L&T Finance has
adapted well to the changing market dynamics to
remain consistently profitable.
Like the rest of the companies in L&T group, LTF is
also
professionally
managed.
LTF
shares
the
professional values and ethics of its parent company,
and has acquired and maintained a reputation for
reliability, transparency of operations and absolute
integrity.

3) Magma Fincorp Ltd (MFL):

It is a Kolkata based non-banking financing
company
(NBFC).
It
provides
financing
of
CV,
construction equipment, cars, utility vehicles, tractors,
SME loans and insurance distribution. It has a pan-India
presence with 157 branches across 20
18

States and 1 union territory with an employee base of

~4700. It mainly targets rural and semi-urban markets
and has a niche in financing first time buyers and small
entrepreneurs.
Magma Fincorp has been a relatively conservative
player, financing asset-backed products. Unlike many
companies, Magma does not deal in personal loans. MFL
offers financing to a broad spectrum of segments viz.
Commercial
Vehicle
(CV)
Finance,
Construction
Equipment (CE) Finance, Car & Utility Vehicle Finance,
Used Car Finance, SME loans and Tractor Finance. We
are of the opinion that most of these segments are
seeing a buoyant demand and Magma with its effective
collections is a proxy play to these growing sectors in
India.

4) Tata Motors Limited:

Established in 1945, Tata Motors' presence indeed
cuts across the length and breadth of India. It is India's
one of the largest
automobile company,
with
consolidated revenues of Rs. 92,519 crores (USD 20
billion) in 2009-10. The company is the world's fourth
largest truck manufacturer, and the world's second
largest bus manufacturer.
The company's 24,000 employees are guided by the
vision to be "best in the manner in which we operate,
best in the products we deliver, and best in our value
system and ethics."

5) Mahindra
Limited:

&

Mahindra
19

Financial

Services

A subsidiary of Mahindra & Mahindra Limited, the

company is one of
Indias leading nonbanking finance companies. Focused
on the rural and semiurban sectors, it provides finance
for utility vehicles, tractors and cars and has the largest
network of branches covering these areas.
Its goal is to be the preferred provider of retail
financing services in the rural and semiurban areas of
India, while its strategy is to provide a range of financial
products and services to its customers through a
nationwide distribution network.

6) Other Competitors:
Other competitors of Cholamandalam Investment
and Finance Company Limited include the following:
HDFC
Indusind Bank
Reliance Capital

CUSTOMERS AND THE BASIS OF THEIR

CATEGORISATION
INDIVIDUAL
PROPRIETARY CONCERN
PRIVATE/ PUBLIC LIMITED COMPANY
PARTNERSHIP FIRM
CORPORATE
NRI
20

 TRUST/ SOCIETY

The customers can

following three categories:

be

categorized

into

the

ASSET BASED: A specialized method of providing

structured working capital and term loans that are
secured
by
accounts
receivable,
inventory,
machinery, equipment and/or real estate. This type
of funding is great for startup companies,
refinancing existing loans, financing growth,
mergers and acquisitions, and management buyouts (MBOs) and buy-ins (MBIs).
When the applicant has some asset on his
name or the co-applicant has some asset on his
name, then they fall in the category of Asset based
financing. Thus, either the applicant or the coapplicant must have some asset on their name.

AGRICULTURE BASED: The customer can also be

categorized under Agriculture based financing when
he satisfies or fulfills the conditions stated below

The ownership of the agricultural land must be in the

name of the hirer

Agriculture land ownership documentary proof is to

be collected which would be either agriculture
passbook, patta, chitta, adangal, Form 7/12 etc.

21

 The usage of the vehicle should be purely for carrying

agricultural produce/inputs
In case of refinance or top up the usage of funds
should be for production or investment for
agricultural or allied activities and the hirer should
not be the owner of more than one vehicle

GREEN CHANNEL: When the applicant has some

asset on the name of his ancestors, may be
Grandfather or great grand father then he can be
categorized under green channel financing.

INDUSTRY
Cholamandalam DBS Finance Limited (the company)
with its total assets base of Rs. 4485 crores (including
assets securitized and assigned) is one of the premier
non-banking finance companies in the country. The
company, along with its subsidiaries provides a range of
services such as vehicle finance, finance against shares,
personal loans, loans against property, secured loans to
22

corporate, mutual funds, distribution

products and securities trading.

of

financial

Vehicle finance with an asset deployment share of

52% continues to hold largest share of the asset
portfolio of the company. The personal loans business
achieved significant growth levels during this year and
accounts for 17% of the asset size of the company.
During the year 2006-07, the company also increased its
business in the business finance sector by over 150%
which currently accounts for 20% of the total assets of
the company. The company continues to enjoy a high
reputation with institutional fund-providers and rating
agencies. Over the years, the company has built up a
strong market presence through its cumulative
experience, strong distribution network, sound systems
and
processes.
The companys long-term aspiration is to play a
significant role in meeting the finance requirements of
small and large commercial vehicle operators, retail
borrowers and investors and small and medium
enterprises.

VEHICLE FINANCE
Vehicle finance is the Company's largest business of
Cholamandalam Investment & Finance Company Limited
23

accounting for over 51% of assets. The Company offers

finance for a range of vehicles, including Heavy and
Light
Commercial
Vehicles,
Multi
Utility
Vehicles, cargo and cars.

Traditionally, Cholamandalam has financed the

acquisition of commercial vehicle and cars. Over the
years, Cholamandalam Investment & Finance Company
Limited vehicle finance business has built significant
strengths, namely strong distribution with presence in
150 locations, major product presence and strong credit
and recovery systems, marked by customer service
excellence.
Cholamandalam Investment & Finance Company
Limited service to customers is not restricted to flexible
credit norms, quick credit decisions and speedy
disbursements. The Company nurtures long-term
relationships with its customers, even advising them on
the choice of appropriate vehicles that suit their
business and personal requirements.

The past few years saw the economic growth

continuing with significant growth in almost all sectors,
which had a favorable impact on the vehicle finance
business. Focus on commercial vehicles especially in the
used and mini light commercial vehicles segment helped
the vehicles finance business enhance spreads and
profitability. The company was selective in its approach
towards extending financing to new commercial vehicles
and cars with regard to credit and yield, which helped to
maintain its presence in these segments. The key
strategies adopted by the business are:

24

 continue diversification of product mix into used

vehicles and small commercial vehicles.
maintain superior portfolio behavior through improved
collection efficiency, sound internal processes and risk
management systems.
improve productivity
turnaround time.

levels

to

reduce

cost

and

nurturing a strong and mutually beneficial relationship

with the manufacturers of commercial vehicles.
Generation of fee income through service charges and
cross selling to enhance customer impact and
profitability.
Customer service through wider product offerings,
quick approvals and simple documentation resulting in a
sharp improvement in customer retention and referral
business.

25

ASSETS PROFILE

The vehicle industry witnessed a robust growth.

The commercial vehicle and car financing industrys
growth are expected to mirror the growth in respective
vehicle sales.
The larger banks and manufacturer owned finance
companies continued to dominate the market through
aggressive pricing and a strong distribution presence.
While the penetration in the used vehicle industry
improved significantly as a proportion of total financing,
lack of availability of scientific evaluation models and
organized used vehicles distribution network continues
26

to impede
segment.

the

growth

of

organized

used

vehicle

PRODUCT MIX
The companys vehicle finance business reviews its
product mix based on evaluation criteria that takes into
consideration

the size of the market

the risk levels associated with the product category
the intensity of competition
financial viability and
The companys ability to enhance customer value.

The product mix was suitably adapted to generate

top line growth, augment revenue and insulate the
business from rate sensitivities. The company has
grasped the increased consolidation of used vehicle
segment as an opportunity for growth. Its domain
knowledge and wider distribution network provided a
strong platform to improve its penetration in this
segment. As this is a high margin business, this has also
helped increasing the spread levels for the company. To
mitigate the risk, the company established tighter credit
processes and increased the feet on street collection
staff.

27

Basic Parameters for Credit Assessment

and Decision
There are certain parameters for assessing the
credit and making the decision thereafter, which are as
follows:

a) Category of Funding: It is an important point to see

under which category a proposal is best suited.

b) Product Viability: It involves assessing whether the

product is viable for the sort of business the customer is
into. This has to be linked with the EMI amount and
compared with the income generation to be obtained
from the vehicle.

C) Deviations Assessment: The deviations noticed in the

proposal should be taken into consideration. It should
be checked whether the deviations pertaining to
documents are as per norms or are within the available
documents.

28

d) Risk Assessment: Finally, trying to assess the risks

involved in funding a proposal is also seen. This has to
be done with a view of what would be the loss in case if
the vehicle is seized. In case of resale, if loss arises,
then can the shortfall amount be collected?

Credit and its Techniques

Credit Assessment is the evaluation or estimation
of the nature, quality, or ability of someone to obtain
goods or services before payment, based on the trust
that payment will be made in the future.
Credit assessment focuses at determining credit
risk for various financial and nonfinancial instruments as
well as projects. The measurement and management of
credit risk has become a key risk-management issue for
both financial and non-financial institutions.
The Five Cs of Credit What lenders look for in a
mortgage application:
All questions that are found in a mortgage
application are always motivated towards obtaining
information that will give the lender a solid
understanding of ones creditworthiness.
The "Five C's" of credit are the basic components of
any credit assessment. The 5Cs are described here to
give an insight into what a lender is thinking and what
the key issues that will be assessed.
29

1) Capacity: The capacity to repay a mortgage is the

most critical of the five credit factors. Any prospective
lender will want to know exactly, how you intend to
repay the loan and from what income source(s). If you
are employed, it is a relatively simple task to identify
how much you earn, irrespective as to whether you are
employed on a full time, part time, causal or on contract
basis. The lender merely has to confirm this information
with your employer or through other documents such as
Group Certificates, or computer generated pay slips that
show the number of hours worked, year to date income
earned and other information that the lender requires.
Simply speaking, different lenders have different
policies as to what income they will accept, which is why
there is a broad range of maximum loan sizes available
from lenders to the same applicant.

2) Credit: The second C of credit assessment is all

about ones credit history. Consumer & small business
credit history records are a very basic system of event
recording. Of the few credit reporting bureaus
operating, the leading bureau merely provides lists of
events there is no interpretation or assessment
provided, a credit report must show the following:

Consumer Credit enquires

Credit defaults

Legal Actions

Directorships & Proprietorships

Bankruptcies

However, one will have a credit record that shows;

No credit history
A credit history with no adverse entries noted or
30

A credit history with one or more adverse credit

entries

Now, the key issue for any borrower is to

understand what lenders are looking for when they
review ones credit file.
Having No credit history can be frustrating in some
circumstances, but this problem generally impacts on
borrowers intending to obtain unsecured loans
(personal loans, car loans etc). For secured loans (like
mortgages) having no credit history is of little
relevance, unless it conflicts with other information that
is available to a lender.
A credit history with no adverse entries allows the
borrower a fairly free hand at the choice of lender and
product available from the entire lending community.
Lenders call these applicants clean and are the most
desired borrower type.
If a borrower has good income, significant assets,
low debt levels and a clean credit history, then this
credit profile is the most preferred borrower type and
implies a low risk of any future default or loss for the
lender.
An adverse credit history is an area which catches
many borrowers out. If one has a poor credit history,
this could mean different things to different lenders. For
some lenders, having a number of unpaid defaults, may
not necessarily mean one cannot obtain a mortgage. It
simply means that the number of lenders that will look
at one application is reduced. Most lenders try to
understand one application and the reasons for any
credit default, but that does not mean that one is
guaranteed to obtain a mortgage with any lender one
choose.

3) Collateral: Collateral refers to an asset or assets that

a lender secures by way of a mortgage to protect
themselves in the event of borrower loan default. As far
31

as mortgage finance is concerned, collateral relates to

real property security. This could mean Residential,
Industrial,
Commercial,
Rural,
Vacant
land
etc.
Practically anything that has a Title Deed. The collateral
provided by a borrower provides a lender with the
security necessary to hedge against a borrower
defaulting on a loan.
More often than not, a security is valued either by
lenders staff or by licensed valuers who prepare written
reposts outlining their opinion of the properties

Estimated market value

Marketability of the property

Size, type and use of the property

Location

Geographic location

Market volatility

4) Conditions: Generally, the conditions issue is one

that lenders regard when considering the economic
circumstances of the overall national economy, the state
and regional economies and also the industry type the
applicant or security is involved in.
Lenders will look at the macro and micro economic
factors relevant to this industry type & will judge the
merit of the borrowers application with the added
strength (or lack of it) of sound future cash flows,
industry growth, employment opportunities & /or
demand for a security type.

5) Character: Character refers to the general impression

one make on a prospective lender.
If one has changed jobs 4 times in the last year
without a good reason to do so, and one has moved
32

house two or three times as well, have a one or two

small credit defaults, and no record of a savings history
plus a car loan; ones credit profile simply wont impress
the lender. There may be opportunities to secure
mortgage finance, but ones options will be limited.
On the other hand, if one has saved some funds or
have equity in a property, have no credit defaults, little
debt and a sound employment record with residential
stability; one will be seen to be a less risky borrower.
Of course there is no guarantee that anyone will repay
their loan, as per their contract, but assessing the
character of a borrower from personal meetings or their
preparedness to provided full and frank disclosures,
often is a good indicator of future loan conduct.
The five Cs of Credit are issues that all lenders
consider in one way or another. Some lenders will
process loan applications on a scoring basis with
limited human interference in the approval / decision
process.
Of course these models are not foolproof, so people
still will review marginal cases. In the recent years, a
number of specialist lenders have actually gone back to
more traditional methods of credit assessment by
looking at every application in detail. These specialist
lenders are endeavoring to identify reasons to actually
approve a loan, when other lenders have scored the
loan as declined.
Lending today has become a vastly more complex
industry however to secure the right finance, one really
need to secure the right assistance.

The Flow- Assembly Line Process

33

Sourc
ed

Evalua
tion

AS IT IS

FI
Trigge
r

Other Terms

Approve
d

Agreement

Rejected

IPR/PMT
Capitalisati
on

Shortf
all
NOC

Seizure

Delivery
Order

Paid and
over

PDD
Updation

The above diagram shows the process of credit and

makes the various stages very clear.

In relation with the process, there are certain points on

which the files are looked upon and are sated in the
below topic.
34

How does Credit look at a file?

Which is the vehicle
What is the category of funding proposed
What is the amount of funding
Purpose of the vehicle
What and how many deviations are there in the file
Should it be an outright reject?
Shall approval be given with some conditions?
Lay down the possible risks before final approval

35

Principal Documentation

I.

Income Proof For income proof, audited Balance

Sheet and Profit and Loss A/c for the last two years
or Income Tax Returns duly signed by the Hirer
should be given for the purpose of knowing the
financial soundness of the concerned party.

II.

Address Proof For contact ability, address proof is

an important document. For ensuring the stability
of stay, Residence proof is required which includes
Ration Card/ Passport/ Property Tax Receipt/ Driving
License/ Telephone Bill whereas to ensure the
continuity in employment/ business, Office Proof is
required and includes ST
Regn./ Shop or
Establishment Regn./ Lease Deed/ Telephone bill
being a document that will establish existence.

III.

Photograph For identity as legal reference,

photograph is required which should be duly signed
by the Proprietor on the reverse or any Public
Document.

IV.

Post Dated Cheques For security purpose, post

dated cheques for the entire tenure is a must.

V.

Application Form For the purpose of Data capture,

application form is required which should be duly
signed by Hirer and Guarantor. It is a legal
requirement to avoid dispute as to the papers were
not given by the customer.
36

KYC Policy

Know your customer (KYC) is the due diligence

and bank regulation that financial institutions and other
regulated companies must perform to identify their
clients and ascertain relevant information pertinent to
doing financial business with them. In the USA, KYC is
typically a policy implemented to conform to a customer
identification program mandated under the Bank
Secrecy Act and USA PATRIOT Act.
Know your customer policies are becoming
increasingly important globally to prevent identity theft
fraud, money laundering and terrorist financing NBFCs
need to follow certain customer identification procedure
for opening of accounts and sanctioning of loans to
customers. This policy is called KYC policy.

What KYC means?

Know (What we should know?)
True identity and beneficial ownership of the
accounts
Permanent
address,
administrative address
Your (Who should know?)
Branch Manager
Audit Officer
37

registered

and

 Monitoring Officials
Customer
One who maintains an account, establishes
business relationship, on whos behalf account
is
maintained,
beneficiary
of
accounts
maintained by intermediaries, and one who
carries potential risk.

KYC means
Making reasonable efforts to determine the true
identity and beneficial ownership of accounts
Purpose of loans
Nature of customers business
Constitutes of a reasonable account activity

KYC does not mean

Denial of service to the common person
Intrusive behavior
Use of information for cross selling
Harassment of customers

One aspect of KYC checking is to verify that the

customer is not on any list of known fraudsters,
terrorists or money launderers, such as the Office of
Foreign Assets Control's Specially Designated Nationals
list. This list contains thousands of entries and is
updated at least monthly. As well as sanctions lists
there are lists of third party vendors that track links
38

between persons regarded as high-risk owing to

negative reports in the media about them or in public
records.
Beyond name matching, a key aspect of KYC
controls is to monitor transactions of a customer against
their recorded profile, history on the customers
account(s) and with peers.

MONEY LAUNDERING AND CREDIT

Money laundering is the process of making dirty
money clean. The money is moved around the financial
system again and again in such a manner that its origin
gets hidden. Money generated from illegitimate source
is converted into that derived from legitimate source
and used for terrorist activities.
So, it is the legal obligation of the company to look
after few important points to control money laundering.
The legal obligations are as follows:

Proper identification of all the customers

Risk classification of all the customers
39

 Monitoring the ongoing transactions

Reporting of cash transactions over Rs. 10 lacs
Monitoring of suspicious transactions
Reporting of suspicious transactions
Maintenance of customer records

TYPES OF MONEY LAUNDERING ACTIVITIES

40

CUSTOMER DUE DILIGENCE (CDD) AND

CREDIT

41

CDD refers to the monitoring of clients and their

activities to see if the client does not change markedly
over time. In effect this combats the possibility that an
individual (or more often an organization) that has
passed KYC is still who they say they are and doing what
they said they would do when they underwent KYC
checks.
For example a corporate account set up honestly
and openly by one person who passes KYC checks could
be passed years later to another person that would not,
without CDD the services provider would not know that
the new owner is present. KYC (CDD) policy would
normally demand KYC checks on the new owner
regardless of the account history.
In order to control the money laundering, there are
certain guiding principles for the Customer Due
Diligence which is stated below:
Do business only with reputable clients involved in
legitimate and lawful business activities.
Determine and record the identity, background and
business of all clients.
Identify and know the beneficial owners of all
relationships.
Understand

the

business

purposes

for

companys products and services are used.

42

which

CREDIT
LTD.

INVESTIGATION

BUREAU

(INDIA)

Credit Information Bureau (India) Limited is India's

first credit information bureau. Its a repository of
information, which contains the credit history of
commercial and consumer borrowers. CIBIL provides this
information to its members in the form of credit
information reports.
As on September 2009, CIBIL has an information
base on over 160 million consumer trades, and 4 million
commercial trades which continues to grow at a fast
pace and shares credit information with its 175 member
base on the principle of reciprocity. CIBILs members
include all leading banks, financial institutions, nonbanking
financial
companies,
housing
finance
companies, state financial corporations and credit card
companies.
CIBIL was promoted by the State Bank of India,
Housing Development Finance Corporation Limited, Dun
& Bradstreet Information Services India Private Limited
and TransUnion International Inc. The shareholding
pattern was as follows:

SBI 16.25%
HDFC 16.25%

ICICI Bank 10%

Dun & Bradstreet 10%

TransUnion 10%

TransUnion and Dun & Bradstreet are the technical

and equity partners of CIBIL. TransUnion is one of the
largest consumer credit bureaus in the world. Dun &
43

Bradstreet is worlds leading source of commercial

information and insights on businesses.
In 2004, SBI and HDFC divested a part of their stake
in CIBIL to other shareholders comprising of leading
banks and financial institutions in the country.
According to the World Bank over the last few years
several reforms have improved the environment for
getting credit in India. Credit Information Bureau
(India) Limited, a private partnership between several
commercial banks and credit information service
providers, has started to increase the amount of credit
information available in the country. CIBILs coverage
has more than doubled in the last few years.
The advantage of CIBIL is that it gives both positive
and negative information with the help of which
opportunities can be availed and pitfalls can be
avoided. It helps us in knowing:
Whom to give loan
Whom not to give loan
Retention of good customers
Alerts on possible defaulters
The rejection criteria are as follows:
Customers must not have any Suit filed in the
CIBIL report
Customers must be never 60 Days Past Due,
never Sub Standard, never Doubtful, never
Loss in the last 12 months
The criteria for approval are:

44

 If customer is ever 60, Sub Standard, Doubtful

or Loss then the outstanding balance must not
be less than equal to Rs. 5000 as this can be
cheque bounce or non accrual charges.

CIBIL FLOW CHART

CIBIL
Match

Reject

YES

Suit

NO
Filed

NO

YES

Last
12
months
showing
ever 60,
SUB, DBT
or LOSS

Balance
Outstan
ding =<
Rs. 5000

NO

NO

45
Approve

Reject

Approve

FRAUD AND ITS IDENTIFICATION

In the broadest sense, a fraud is an intentional

deception made for personal gain or to damage another
individual. The specific legal definition varies by legal
jurisdiction. Fraud is a crime, and also a civil law
violation.
There are certain documents which the credit
department comes across almost every day. They are:

1) BANK STATEMENT:
An account statement or a bank statement is a
summary of all financial transactions occurring over a
given period of time on a deposit account, a credit card,
or any other type of account offered by a financial
institution.
Bank statements are typically printed on one or
several pieces of paper and either mailed directly to the
account holder's address, or kept at the financial
institution's local branch for pick-up. Certain ATMs offer
46

the possibility to print, at any time, a condensed version

of a bank statement.
Depending on the financial institution, bank statements
may include certain features such as the cancelled
cheques (or their images) that cleared through the
account during the statement period, promotional
inserts or important notices about changes in fees or
interest rates. Due to identity theft concerns, a virtual
statement may be seen as a safer alternative against
physical theft as it does not contain tangible personal
information, and does not require extra safety measures
of disposal.

Things to be watched in a Bank Statement is as follows:

Transactions should be within the period for
which the statement has been printed

Any transaction before or after that date shows

Fudged Banking

Transactions should not be present on Bank

Holidays

Transactions should be in ascending order of

dates

47

 The interest paid by

credited periodically

the

bank

is

always

Minimum balance charges need to be Debited

from the account

In Government Banks, the cover page of the

passbook gives the details of the customer

The newly opened account can be determined

if the first balance in the statement is zero

While checking the totals, in case of addition

mistakes, the statement is fudged

2) FORM 16:
Form 16 is Certificate of deduction of tax at source
under section 203 of the Income Tax Act, 1961.
Employers provide TDS certificate to the employees on
Form 16.
48

If you are salaried employee in an organization,

then you will get the salary after deducting tax by the
employer. This process is called as Tax Deduction at
Source (TDS). Every company has to get the TIN. TIN is
Tax Identification Number. This number is issued to a
person who is responsible to deduct Tax on payments
made to employees.
At the end of financial year, company must issue a
form 16 which contains the details about the salary
earned by that employee and how much tax deducted. It
will have details on each month. In simple terms Form 16
is details about the tax deducted by the employer in
behalf of employee. The same will be paid to
government by the company

Things to be watched in Form 16 are as follows:

The name and the designation of the employee
is mentioned in the top part of the form

Income of the particular financial year is taxed

in the next year called the Assessment year

3) INCOME TAX RETURN

49

This document gives the tax collector information

about the tax payer's tax liability.
The points which have to be taken into
consideration are as follows:
PAN no. should be verified with the PAN card and
the Form 16 to establish that all these belong to the
same person.

No cutting/ whitener is permitted especially at the

top part of the ITR
Three things are a must in any ITR:
Date of the filing return
Ward/ Circle/ Range no.
Serial no. / Receipt no.

Assessment year = Previous /Financial year + 1

Date cannot be a Saturday/ Sunday/ Government

holiday

If the handwriting in the top part (customer detail)

is different from the handwriting in the rest of the
ITR, there is a possibility of fraud
If on the Original ITR, the Stamp is of Red ink, it
shows that the applicant does not have a PAN card.
50

If the stamp is blue, it shows that the applicant will

have a PAN card

Simple addition and subtraction should be correct

There should be some rebate/ deductions in the ITR

PAN no. is necessary from Financial year 2002-2003

4) VOTER ID
One thing that has much importance as to prove
identity in India is voter ID card issued to adults by the
Election Commission. There are multipurpose roles of
voter i-card hence it remains in limelight due to one
reason or the other. Usually voter i-card is issued to
adults after cross verification on local level. Next to
passport one possesses voter ID card is an identity
proof that uses at various occasions.
A voter id card is issued to individual voters in
every constituency. List of voters is decided according
to people fulfilling criteria. Terminology used for such
people is electoral roll comprehensive list of
individuals whom voter i-card is issued. Certain factors
are taken into account before issuance of voter ID card.
It includes confirming age of applicant that should be
at least eighteen years while enrolled.
The points that are taken into consideration are as
follows:
51

 The photograph on the voter ID card should be

computerized
The serial no. appears on both sides of the card
which are issued after 2000. Hence, for a given
copy, both the serial numbers should match
Date in the field Age as on (front page) will
always be less than date of issue (2 nd page) and
the difference will never exceed one and a half
years
The font should match on the front and the second
page. The two commonly used fonts are Ariel and
Times New Roman (size8/ 10)
The signature of the issuing authority on the back/
second side is stamped (not done by pen)
The photo is 3 cm(l) and 2.3 cm (b)

5) SALARY SLIP:
Salary slip is a document that gives the details of
the salary of an employee during the particular period.
Normally the salary is paid on monthly basis. There are
many custom information that can be written in the pay
slip based on company policy, for example like days
present, days absent, basic earnings, other allowances,
deductions of taxes and other dues. And usually salary
slip format gives breakup of the gross earnings,
deductions and net earnings of the employee.
Things to be watched in salary Slip are as follows:

52

 The employee code should be present on the salary

slip of category A and B organization/ Government
organizations

In the salary account (bank account) the figures

every month should match salary slip

Stamp of the company/ signature of the accountant

should be present

No whitener should be applied on the slip/ no

cutting is permitted

Basic salary is always mentioned in the slip

Any loan taken

mentioned

from

the

organization

is

also

PF deductions, if mentioned, is in the range of

8.33% to 12%

6) DRIVING LICENSE
It is an official document which states that a
person may operate a motorized vehicle, such as a
53

motorbike, car, truck or a bus, on a public roadway. The

laws relating to driver's licensing vary between
jurisdictions. In some jurisdictions, a driving license is
issued after the recipient has passed a driving test,
while in others; a person acquires a license before
beginning to drive. Different categories of license often
exist for different types of motor vehicles, particularly
large trucks and passenger vehicles. The difficulty of the
driving test varies considerably between jurisdictions,
as do factors such as age and the required level of
practice.
Things to be watched in a Driving License are as
follows:
The serial no. mentioned on the top of the driving
license contains a location specific alphabet (P for
Delhi) followed by 8 numbers (the date which is
always less than or equal to date of issue)

Photograph is 2.5 cm*2.5 cm

Nowadays in all driving licenses the photograph is

computerized

At the top right side there is an alphabet mentioned

which can be:N- Stands for New Driving License
R- Stands for Renewal of License
D- Stands for the duplicate of the Driving License

54

 A Commercial Driving License is for 1 year

A Personal Driving License is for years that are

multiple of 5
7) PAN CARD
PAN or Permanent Account Number is a ten-digit
alphanumeric code generated by the India's 'Income Tax
Department', that is required by anyone and everyone
who wish to conduct any kind of financial transaction in
India. Even those whose financial transaction is limited
to paying income tax require it. PAN is required if you
wish to enter the Indian Share Market. This is true for
NRIs - Non Resident Indians living abroad too, who wish
to make investment in India, buy property/ house in
India, open bank account, etc.
Things to be considered in a Pan Card are as
follows:
It consists of a 10 digit no. (5 Alphabets, 4
Numbers, 1 Alphabet respectively in order)

The 5th Alphabet is the first letter of the applicants

surname

Fathers name is a mandatory field

Date of Birth + signature of the applicant (scanned)

along with a scanned photograph is present
55

 Bottom right there is the scanned signature of the

issuing Authority with the name. Issuing Authority
is the Commissioner of Income Tax

Top right The scanned Ashoka Chakra logo (with

lions) is present

Size of photo is 3.2 cm(l)*2.5 cm(b)

All headings/ fields are mentioned in both English

and Hindi (regional language)

For a Hindu Undivided Family, the name and photo

of the Karta is present but instead of date of birth,
its date of incorporation is given
8) RATION CARD
A Ration Card is a document issued under an order
or authority of the State Government, as per the Public
Distribution System, for the purchase of essential
commodities from fair price shops. State Governments
issue distinctive Ration Cards to Above Poverty Line,
Below Poverty Line and Antyodaya families and conduct
periodical review and checking of Ration Cards.
A Ration Card is a very useful document for Indian
citizens. It helps save money by aiding in the
procurement of essential commodities at a subsidized
rate. It has also become an important tool of
identification now-a-days. One may need to produce a
copy of ones Ration Card as proof of identification when
applying for other documents like Domicile Certificate,
for inclusion of ones name in the Electoral Rolls, etc.
56

Things to be considered in a Ration Card are as

follows:
Page 1 (left) contains the name of owner + photo of
owner + fathers name + date of issue + residence
address

The stamp of the Food and Supply Corporation is

near the address (on page 1)

Page 2 (right) contains the name and relation of the

dependants along with their age as on date of issue

Page 2 also contains the stamp of the Food and

Supply Corporation in case of any address change

The headings/ fields are in Hindi/ regional language

9) PASSPORT
A passport is a document, issued by a national
government, which certifies, for the purpose of
international travel, the identity and nationality of its
holder. The elements of identity are name, date of birth,
57

sex, and place of birth. Most often, nationality and

citizenship are congruent.
A passport does not of itself entitle the passport
holder entry into another country, nor to consular
protection while abroad or any other privileges. It does,
however, normally entitle the passport holder to return
to the country that issued the passport. Rights to
consular
protection
arise
from
international
agreements, and the right to return arises from the laws
of the issuing Country. A passport does not represent
the right or the place of residence of the passport
holder in the Country that issued the passport.
Things to be considered in a Passport are as
follows:
The serial no. present on the first page should
match the serial numbers on the other pages of the
passport (this is a must)

The headings/ fields are in English + Hindi (regional

language)

The information is filled in English

In the computerized Passport, there is a 28 digit

code in the last line
The first 8 digits are the serial no.
Digits 11, 12, 13 are IND (country)
14 19 connotes the date of birth of the holder
in reverse
58

 21 is the sex
22 27 is the date of expiry in reverse

Duration of the Passport is 10 years. Between 1995

98 there had been a provision for 1 year durations

14) ELECTRICITY BILL

Each location has a different service provider and
the format of the bill may differ marginally.
The bill will contain:
Name of the customer (the owner)
Address
Period for which the statement pertains
Units used
Cost per unit
Arrears outstanding if any
Date of submission (without late fees)
Amount to be submitted after the due date (with
late fees)

59

The things to watch out for are:

Arrears
Reconnection charges

LEARNING IN CHOLAMANDALAM
1. TELE-CALLING
Telecalling was made mainly, for 3 purposes.
They were For collection of Registration Certificate (RC):
Registration Certificate also known as Owner
book is an important document for any Vehicle
finance company. The customers are supposed
to submit the photocopy of the Registration
Certificate as it is kept as a backup or proof
and as a trainee; I called them for submitting
the RCs photocopy in the office. The
interaction with different people was very
interesting as it helped in enhancing the interpersonal skills.
For reminding for Installments: According to
the terms and norms, the customers are
supposed to deposit the installment on the due
60

dates of every month and I called the

customers for making them aware of the
installment dates. During the calls, I received
few good feedbacks because many customers
owned more than one vehicle, so, remembering
the dates for every installment was confusing.
For
Customers
feedback:
Knowing
the
Customers feedback for the company is an
important task because the customers may
have an
endless number of complains
regarding the company. But none of the
customers were having grievances and I would
be happy to say that, our company is one of
the best service providers.

2. DAILY COLLECTION REPORT (DCR)

Referring to Cashier Collection, when cashiers
calculate their Sales Collection for the day, this report
proved itself of being very useful. The real purpose is
to calculate how much is the net amounts suppose to
remain in the cashier's drawer at the end of the day.
However, invoices are not included because Invoices
does
not
require
immediate
payment
from
customers. . Hence, payment has not received yet and
not shown in this report.
I learnt to fill the DCR and maintain it in the
Register as well as in the Excel sheet.

3. FINAL APPROVAL MEMO (FAM)

61

Before dispatching the file of loan to the Head

Office, Final Approval is required from the Branch
Office. A FAM includes the name, application no., and
other details of the applicant. It also includes the
name of the dealer and the category in which the
vehicle falls.

4. ANALYSING THE PROBLEM

It was a kind of testing the analytical power. In
this task, certain problems were assigned and I was
to come out with a solution. In this, I took feedback
of customers as well as the executives feedback.
Then, I had to find the deviation between the two and
submit a report on the same. This has definitely
increased my analytical power.

5. CIBIL
Credit Information Bureau (India) Limited is
India's first credit information bureau. Its a
repository of information, which contains the credit
history of commercial and consumer borrowers. CIBIL
provides this information to its members in the form
of credit information reports. CIBIL can help in
catching the defaulter easily. In this form, all the
minute detail is being filled up related to the
applicant. And the moment it is submitted, it can
verify that the individual has taken the loan from any
other bank or not.

62

6. TELEPHONIC VERIFICATION REPORT

It is made to check the authenticity of the
documents, which are attached with the application
form. In this, we talk to the borrower, co-borrower,
guarantors and references if any regarding the
details submitted in the form.

7. HEALTH CHECK
The proper checking of the file is termed as
health check. Thus each and every documents are
required to be checkes in files. The documents
required are as follows:

Application form
Agreement
Post Dated Cheques
FEFI form
TAT Sheet
TALIC
RTO Documents
PAC Form
Term Cum Payment Sheet
Signature Verification Form
TVR
CIBIL, etc.

8. TRACK RECORDING
The Track Record of the applicant is used
tracing his past records that helps in analyzing
time period and pattern of payment of
installments. Track recording helps in making
63

for
the
the
the

decision whether to grant loan to the applicant or

not.

9. DEAL STRUCTURE
An Agreement made between the investor
and the company defining the rights and
obligations of the parties involved. The process by
which one arrives at the final term and conditions
of the investment.

RATIONALE OF THE STUDY

Credit Assessment is the technique with the help of
which one evaluates an individuals capability to pay
back the loan taken against an asset or property. The
project undertaken is very much important and relevant
to any financial Institution providing loan to any
individual, trust or a company. When the institution
provides loan to any party, it is important to look for his
creditability. The Banking or the Non- Banking financial
Institution, without knowing these things would not
provide loan, because, ultimately its the Institution
which bears the risk.
64

Being in the Vehicle Finance Department, I

undertook this topic to know the basic fundamentals
regarding the pros and cons of credit assessment of an
individual applying request for a loan which helps
determining the likelihood of the applicant that he/ she
will live up to his/her obligations.

OBJECTIVE OF THE STUDY

The study shows the learning process that one goes

through to get a result. The study allows for a very
structured system to organize work. It allows for
showing how small steps lead to the larger whole. The
study also allows to see at a glance the stages of their
work for self-reflection and evaluation. Allowing for selfevaluation gives the opportunity to take full ownership
65

of work. Authentic assessment is an important part of

the study. The management trainees use their creativity
to design projects to demonstrate their grasp of the
curriculum.
A credit rating helps in assessing the credit. Credit
Rating estimates the credit worthiness of an individual,
corporation, or even a country. It is an evaluation made
by credit bureaus of a borrowers overall credit history.
A credit rating is also known as an evaluation of a
potential borrower's ability to repay debt, prepared by a
credit bureau at the request of the lender. Credit ratings
are calculated from financial history and current assets
and liabilities. Typically, a credit rating tells a lender or
investor the probability of the subject being able to pay
back a loan. A poor credit rating indicates a high risk of
defaulting on a loan, and thus leads to high interest
rates, or the refusal of a loan by the creditor.
Thus, credit assessments main objective is
evaluating or estimating the nature, quality, or ability of
an individual, corporation or trust to obtain goods
before payment, based on the trust that payment will be
made in the future.

CONTRIBUTION AND FUTURE SCOPE

In the past decade, regulators have been gaining
familiarity and experiences in the monitoring of banks
and other financial institution in terms of issuance of
66

credit on various bases. During 2001 and 2002, there

have been very high profile cases of default, with very
large amount of outstanding debt. Some financial
institutions have been caught unguarded with large
amount of exposure. The correct credit assessment and
analysis and accurate measurement of the amount of
credit risk involved is very important in determining
whether the extra benefit from other business can
compensate. The risk finally has to be borne by the
Company so it is very important to look after every
aspect of credit.
It is important for financial institutions to develop
internal models to demonstrate the capability of risk
management, including demonstrating the effectiveness
of hedging which can result in freeing up of regulatory
capital. Given the improvement in the regulatory
regime, sound credit assessment and analysis, are more
relevant for the future.

67

THANK YOU

68