49335131-Credit-Appraisal

A

Project Report on

“CREDIT APPRIASAL SYSTEM OF COMMERCIAL VEHICLES”

With Special Reference To

“SHRIRAM TRANSPORT FINANCE CO.LTD”

PUNE

Submitted To

SHIVAJI UNIVERSITY, KOLHAPURFor an award of Post Graduate Degree of

MASTER OF BUSINESS ADMINISTRATION (MBA)By

MR. SHRINATH A. MORE

Under The Guidance of

DR. P.R. WADJE

THROUGH THE PRINCIPAL

DKTE’S TEXTILE AND ENGINEERING INSTITUTE,

ICHALKARANJI, 416115.

(Department of Management Studies)

For the year 2008-2010

CERTIFICATE

This is to certify that the Project Report entitled

“CREDITE APPRAISAL SYSTEM OF COMMERCIAL VEHICLE ”

With Special Reference To

SHRIRAM TRASPORT FINANCE CO. LTD. PUNE.

SUBBMITED TO

SHIVAJI UNIVERSITY, KOLHAPURFor an award of Post Graduate Degree of

MASTER OF BUSINESS ADMINISTRATION (MBA)

is an independent research work carried out byMR. SHRINATH MORE

Under my guidance, during his MBA course. To the best of my knowledge and belief this project report has not been previously submitted for the award of any degree or diploma of this or any other university.Place: Ichalkaranji Date:

Dr.P.R. Wadaje Dr. A.I. Wasif

(Project Guide) (Principal)

Dr. P.R. WadjeHead

Department of Management Studies

DECLARATION OF THE STUDENT

I, the undersigned, hereby declare that this dissertation entitled “CREDITE

APPRAISAL SYSTEM OF COMMERCIAL VEHICLE IN SHRIRAM

TRASPORT FINANCE CO. LTD. IN PUNE REGION” is a genuine and bonafide

work prepared by me and submitted to the SHIVAJI UNIVERSITY through DKTE”S

College of Ichalkaranji, for the partial fulfillment of The Masters Degree in Business

Administration.

The present work is of original nature and the conclusions drawn therein are based on the

data collected by myself.

To the best of my knowledge, the matter presented in this dissertation has Not been

submitted for the award of any Degree, Diploma or Membership Either to this or any

other Institute / University.

Place: Ichalkaranji. Shrinath A. More.

Date: (Student)

Acknowledgement

Journey is easier when we travel together. Interdependence is certainly

more important than independence. It will always be my pleasures to thank those who

have helped me in making this project a lifetime experience for me. I would like to

express my heartiest gratitude to SHRIRAM TRANSPORT FINANCE CO.LTD. for

giving me an opportunity to work with its regional Branch situated at Chandan Nagar,

PUNE, my Institute and important persons associated with this project as without their

guidance and hard work I would have never ever have got a chance to have real life

experience of working with a Non Banking Financial Institute of such a great repute and

learn practically about the Credit Appraisal Process.

I would also like to extend my gratitude to Mr. Narendra Kulkarni (Branch Manager,

Chandan Nagar Branch) for giving me an opportunity to join him to know and learn

various aspects of the Loans and Advances in the organization.

It is my privilege to thank Mr. Holkar sir (field officer) whose guidance has made me

learn and understand the finer and complicated aspects of NBFC, in general and of Credit

Appraisal Process, in particular. The help and guidance which he has extended to me has

made me feel as being an integral part of the organization.

My heartiest gratitude extend to my Guide Dr. P.R. wadje sir who has helped me in every

aspect of my work.I would like to express my profound sence of gratitude to the Principal

Dr. A.I Wasif sir.

The greatest credit goes to the blessings bestowed upon me by Almighty God without

whose yearning; I could not have even moved a step forward and to my parents who are

always a constant source of inspiration in all my endeavors.

PREFACE

Summer training is an integral part of our academic curriculum. During the

training a student gets an opportunity to set the practical aspects of theory. Theory makes

the concept clear.

I feel great pleasure in submitting this piece of work as my summer training

project, taken from Shriram Transport Finance Co. Ltd. PUNE.

I hope that this work will provide fruitful result in the eyes of the reader. It is hence

expected that creating of this shall benefit the reader in all aspects.

The project deals with nearly all the aspects of NBFC’s and the essence of Know Your

Customer Norms. I have tried my best to cover nearly all the aspects related to Credit

Apparaisal of Shriram Transport Finance Co. Ltd.

The working title of the project is “CREDIT APPRAISAL PROCESSS”. It is done in a

very cordial manner. This research is an attempt to present a report on account of little

practical knowledge. In my opinion, the readers will be satisfied with the project in all

ways. I guarantee the original work and authenticity of this.

Shivaji University, KOLHAPUR

3.6 Content of the agreement 67

3.7 Segments of Vehicle 70

4 Findings, Conclusions & Suggestions 75

5 Appendix 79

MBA programme, D.K.T.E.S Department of Management Studies Page

TABLE OF CONTENTS

Chapter No. Particulars Page No.

1 Introduction

1.1 Introduction and Importance 08

1.2 Significance & Scope of the study 12

1.3 Rational of the studuy 15

1.4 Objectives of the study 16

1.5 Research Methodology 18

1.5.1 Data Type (primary / secondary)

20

1.5.2 Methods of data collection 21

1.5.3 Techniques of the research 24

1.6 Limitations of the study 26

2 Introduction to the Organization

2.1 Introduction to the Industry 28

2.2 Brief History 35

2.3 Company Vision 39

2.4 Regional Spilt of Branches 42

2.5 SWOT Analysis 43

2.6 Important Statistical information 45

2.7 Organization Structure 47

3 Theoretical Background

3.1 Theory related to topic 50

3.2 Schemes 51

3.3 Financing procedure of vehicle 54

3.4 Hire purchase Financing/Lease fin./auto loan 55

3.5 Commercial Vehicle Loan 61

6


Chapter I:

INTRODUCTION


7


1.1: Introduction and Importance

WHAT IS CREDIT APPRISAL?

A loan proposal system is by far the heart procedure, which is security, is given.

In this aspect basically the valid extract are taken from the report and the data enables any

credit officer to take decision regarding finalization of loan proposal. Credit appraisal

system is summary of extracted records. Regarding verification made towards the profile

of the applicant. It is presentation of report in suitable format.

While easily reflect the eligibility of loan procedure viz tenor eligibility E.M.I. (equated

monthly installment)

The credit appraisal is done for different purpose they are as follows

1) To know the market for business.

2).To knows the customers financial assistance & experience.

3) To know that whether he is taking the loan from other bank or non-banking financial

institution and whether he is able to paying timely to pay installment to satisfy their loan

amount taken by particular reasons

Thus the appraisal of credit appraisal is very much important for the disbursement of loan

and advances.


8


Appraisal also helps to find out his integrity in this project for which customers takes

loan his aims and intensions in the customers taking his loan and the purpose for which

he is taking loan for which its overall capacity is checked.

In short credit appraisal system is an important for the purpose of bank and NBFC (non-

banking financial company) and it would not be able to collect the money which is

lending to their customers. If that NBFC is not able to collect their installments then that

factor is become NPA [non performing asset] and the goodwill and reputation of the

NBFC will be down.The officer, who will be giving sanction to that particular proposal.

He must do the proper check & analysis of the documents after studying all this aspects.

He sanctions that particular proposal.

CREDIT APPRAISAL - The process by which a lender appraises the creditworthiness of

the prospective borrower. This normally involves appraising

the borrower’s payment history and establishing the quality and sustainability of his

income. The lender satisfies himself of the good intentions of the borrower, usually

through an interview.


9


Credit Scoring:

Credit scoring is the statistical system used by lenders to determine your creditworthiness. Information about you and your credit experiences is collected from your loan application and your credit report. Using a statistical program, lenders compare this information to the credit performance of consumers with similar profiles.

A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points "a credit score" helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

The points are distributed in various aspects of your profile such as : - personal information : age, educational qualifications, number of dependents / children, spouse’s income - employment information : organization, designation, length of service, etc. - income information : net income, installment of other loans, other liabilities. - net worth information : owning a house, vehicle, credit cards, telephone, etc. - previous relations with the lender : banking account, credit card, any other loan, etc from the same lender.

Your level of education can give an indication to the lenders whether it is a good risk to extend credit to you. Higher the education better is the credit score. A person with professional qualifications is given more points than a simple graduate.

Lenders prefer people who are stable. So, lenders assign more points to people who’ve lived in a particular location or have worked for a single employer for many years. If you’ve moved around a lot, you lose precious points. If you’ve moved because of a better-paying job, you can recoup some of those points if your salary has increased, for example.

Lenders rate your profession and your employers too. Most of the lenders have a list of approved companies. Credit points are allotted based on the type of company you work for or the type of profession you are in. The rating from most favoured to least favoured profession / organization may vary from lender to lender however an indicative list is presented here under: a) government / public sector undertakings / MNCs. b) teaching / educational institutions. c) Scientists / engineers. d) Banks / financial institutions. e) chartered accountants / company secretaries. f) Hotels / travel organisations. g) Media / pr / advertising agencies.


10


h) Software companies. i) Lawyers You get additional points based on whether you own a house, or have a vehicle, or hold a valid credit card. Some lenders insist that all prospective customers must have a phone at residence. These factors play an important role in determining your credit eligibility.

Why is credit scoring used?

Credit scoring is based on real data and statistics, so it usually is more reliable than

subjective or judgmental methods. It treats all applicants objectively. Judgmental

methods typically rely on criteria that are not systematically tested and can vary when

applied by different individuals.

Credit scoring models are complex and often vary among creditors and for different types

of credit. If one factor changes, your score may change. The trick here is you can’t find

out your score.

Companies providing loans and credit do not disclose their credit appraisal criteria. Both

the score and the statistics that go into it are top secret. The reason

being that if people understood their appraisal criteria and scorings, they could

cheat by altering their profile thereby artificially jacking-up their over all credit score.

But, of course, we will try to improve our credit scores, won’t we?

In short credit appraisal system is a conclusive report, which enables decision according

to the norms and policies of the organization.Extensive quantity of loan proposal. It is the

first tool in the hands of credit appraisal officer. In short credit appraisal system is a vital

and important task to be done at loan and sanctioning proposal.


11


1.2 Significance / Scope of the study:

The Credit Apparaisal is a holistic exercise which starts from the

time a prospective borrower walks into the branch and culminates in credit

delivery and monitoring with the objective of ensuring and maintaining the

quality of lending and managing credit risk.

The process of Credit Appraisal is multidimensional and includes- Management

Appraisal, Technical Appraisal, Commercial Appraisal, Financial Appraisal and

Economic Appraisal.

Management Appraisal has received lot of attention these days as it is one of the

long term factors affecting the business of the concern.

Technical Appraisal emphasizes on the technical feasibility of the venture and

also finds out the possible economic life period of the present technology.

Commercial Appraisal focuses on the commercial viability of the project .It tries

to find matters regarding demand in market, the acceptance of product in market.

It also focuses on the presence of other substitutes of the product in the market. It

also focuses on the multiple scope of the product.

Financial Appraisal is done to find out whether the promoter is having the

capacity to raise finance – both own equity and debt? What are the sources of

margin? Will the business generate sufficient funds to service the debt and other

stakeholders? Is the capital structure optimal?

Economic Appraisal examines level of cost/ benefit and IRR (Internal Rate Of

Return.)


12


The scope of credit structure is incomplete without examination of credit

proposal. Credit proposal has to be examined from the point of 6 C’s viz.

Character, Capacity, Capital, Condition, Collateral and Cashflow.

The Credit Policy of STFC has undergone changes to cope with the

environmental changes, tap the available opportunities, achieve their commercial

objective, fulfill social obligations and adhere to mandatory directed lending

norms.

The credit policy is studied under – Coverage, Clientele, Marketing.

The STFC has over the years designed and adopted the Best Practices

Code. This in effect represents the STFC’s philosophy towards effective

Corporate Governance.

STFC has specialised type of lending known as Segmented Lending in which

STFC has set within it specialised branches for focused lending to various

segments.

This segmented approach is expected to provide both market and

customer focus for ensuring better business development, better development of

expertise and better customer satisfaction.

STFC has also set exposure norms which corresponds to the quantum of finance

been credited. These exposure norms are as per the RBI norms and also the

bank’s specific norms.


13


One of the important monitoring aspects in the credit portfolio is the periodic

review of advance accounts. The vital decision to deploy the STFC’s resources

should necessarily be based upon the thorough assessment and evaluation of the

needs of the borrower. For this, a proper periodical review of any account is

inevitable.

STFC has introduced Fair Lending Practices Code which helps the STFC to

provide professional, efficient, courteous, diligent and speedy services in matter

of lending. The Fair Practices Code codifies the procedures to ensure clarity,

transparency, timeliness and responsiveness in STFC’s relationship with the

borrower customers at all stages like marketing, processing, sanctioning,

monitoring and administration.

With the kind of transformation that is taking place in the banking industry and in

the country, it is imperative for us to be conscious of our earnings and asset

quality. Further, as profit is reward for risk bearing capacity, the spread available

in case of high quality assets are thin. With the ushering in an era of liberalisation

in the economy, new opportunities are available and for a Financial Institute of

our size it is important that we realise our market share through better

understanding of these developments


14


1.3 Rationale of the study (Justification):

The purpose of this study is to provide a detailed summary of findings

from the primary and secondary research in relations to various opinions from literatures,

as well as to evaluate to what extent the research objectives have been achieved. The

research limitations, suggestions for further research, and the outcomes from learning

experience are also included.

The main purpose of conducting the primary and the secondary research

lies in Achieving research objectives before discussing the findings, it is important to

reaffirm the objectives of study. The objectives of the dissertation are outlined as follows:

To understand and analyse the system followed by the STFC.

To understand credit monitoring arrangement data, this is very important part in

the credit appraisal done by the STFC.

Data collected in the primary research was essential and for research

objectives. It was a good learning experience where in I got to know about the working of

a department in an organization. But the main point of consideration for the Shriram

Transport Finance co. ltd is to analyze the risk on the financial part more thoroughly.


15


1.4 Objectives of the study

Aims & Objectives

Objective of Shriram Finance:

Shriram finance aims at providing finance to commercial vehicles. The main objective of

STFC is to meet the financial need of the customers, assisting them within different

schemes.

The project study has to have an objective so as to make it concrete and clear. When

the objective is defined and understood one can get a direction to carry out a project

report. A clear objective will help to deliver precise and accurate results. The objective

will also help to predict the time frame involved the scope of the project and identify the

relevance of it in current situations.

1) To have general awareness about the history of Indian Business from ancient

times to the present era, including the eths of the Indian Business.

2) Study the development of Indian history for the British period to Independence

and thereafter.

3) To study the emergence of modern Indian Business, house and possible role of

India as a major economic power in Asia.

4) Besides the above academic aim, it helps to develop the habit of self-study and

enhance the team building capacity


16


General Objective:

To analyze the financing practices of Shriram Transport finance

Specific Objectives:

To study in deep varies terms, conditions and terminologies used in commercial

vehicle finance.

To know the application of knowledge, legal background of financial procedure

while buying four wheeler.

To know various norms of automobile finance as well as STFC financial

strategies in financial market.

To have comparative study of loan and HPA (Hire Purchase Agreement).

To become well acquainted & familiarized with the basics of four wheelers

financing & the mechanics of the market.

To clear the ideas regarding the extent of loan to be sanctioned as it depends upon

various parameters which are taken into consideration while evaluating the

finance proposal.


17


1.5. Research Methodology

Basically research aims at expanding the depth of knowledge and solutions for

problems. It addresses to fundamental questions and also provides specific alternative

solutions for it. Thus the research is carried out for solving the problems and guiding

specific decisions.

There are two possible viewpoints towards a subject of study.

-Subjective

-Objective

These viewpoints are almost opposite polls.

Objective viewpoint gives importance to and lays emphasis on upon the object of

the study. It is object-oriented study. On the other hand, in subjective standpoint, the

thoughts, feelings and prejudices of the investigator are more important.


18


Objectivity:

A study in which a subject matter is the centre of attention and prejudices are given no

place.This is known as objective study.

Need of Objectivity

To make study scientific

In order to arrive at specific conclusion

To achieve representative facts

For verification of the objective

For actual study of the problem

It aims at discovery of unknown fact

Means of research

The research is based upon various types of information, which give knowledge

concerning the problem. Now in order to carry on research successfully, information

should be gathered from proper source. The more valid is the source of information, the

more reliable will be the information received, which in turn, will lead to correct, and

reliable conclusion.


19


1.5.1 Kinds of Data:

1. Primary Data

Primary data are the actual information, which are received by the researcher for study

from the actual field of research. These data are obtained by means of questionnaires and

schedules. The primary data are the facts there are many more methods of collecting the

primary data. Such data are known as primary because the researcher attains them from

the field of research directly and for the first time. for this study I had asked queries to the

seniors, also gathered information by direct interacting with customers.

2. Secondary Data

Secondary data are the information, which is attained indirectly. The researcher does not

attain them himself or directly. Such data are attained generally from published and

unpublished material. Secondary data are gathered from information collected from the

individuals and institutions through letters survey documents. There are mainly two

sources of generation of data namely-

1. Personal documents such as diaries letters etc.

2. Public documents such as books, records, census reports, and various information

published in news papers and magazines, reports and surveys of private institutions etc.


20


1.5.2 Methods of DATA COLLECTION

Primary or field sources:

The sources of such information are the individuals and the incidents around them

generally; primary source information is gathered through direct observation,

questionnaire, schedule and interview methods.

1. Direct observation

The chief primary source of information concerning the problem is direct observation.

The method requires that the researcher should personally and directly observes the

conditions of his field study. It is the most reliable method for gathering information. In

this observation, the observer should be absolutely detached and objective in gathering

the information concerning with the problem. The researcher is only external spectator.

2. Questionnaire

Questionnaire includes questions concerning different aspects of the subject of the study.

Sometimes questionnaires are delivered by hand and at other times they are delivered by

post. Questionnaires may be the sources of information only when the informers are well

educated and well prepared to cooperate with the research worker.


21


3. Schedule

Schedules are particular type of questionnaires. In schedules the researcher records

replies. He questions the informers and records the replies in the proper places specified

in the schedule. The main advantage of the schedule is that it may be used even in the

case of uneducated informer. However, it can be used only in a limited filed, as compared

to the questionnaire method.

4. Interview

In an interview, the researcher meets people and discusses the problems with them.

During the course of this discussion, he gathers facts. It is a different form of schedule.

Schedule includes a predetermined form of questions but the interview has not any

definite form or order of questions. The researcher may ask any questions on the basis of

his insights into the problem

Secondary or documentary sources

The sources of information through documents concerning individuals and institutions

are known as secondary or documentary source. It represents conditions and systems. It

also provide information of past which is not possible from any other source? To

facilitate the study, secondary data is important to know historical background of the

concerning problem.


22


1) Records:

Records occupy the most important place among public documents. Most of the

governmental and non-governmental departments preserve so many types of records

constituting of important keeps a record of important keeps a record of important

information.

2) Published data:

Published documents include data published by government and non-governmental

institutions from time to time. Such institutions conduct periodical survey.

3) Journals and Magazines:

Journals and Magazines are important public documents including a variety of

information, which can be usefully utilized in research. Most of this information is very

much reliable. Letters to the editors published in various magazines and journals are an

important source of information.

4) Other documents:

Other document mainly include newspapers publish news, discussions on important

issues, meetings and conferences. The reliability of this source is very high. Besides it,

television public speeches are other important source of information


23


1.5.3 Techniques of research

1) Definition of problem under study:

Now the nature of the problem selected should be defined. This will determine the scope

of the problem and also its nature and character.

2) Analysis of problem by making a schedule:

After the problem is defined, we have to analyzed the varies elements, constituents or

factors involved in the problem so that a detailed and systematic list of these may be

formulated. It is only when a detailed list of the problems is available that the relevant

information can be systematically gathered.

3) Determination of scope:

The study of a problem implies systematic investigation in to a limited and well-defined

subject matter. Before the beginning it is imperative to determine the scope of the

problem.

4) Determination of time limits:

Research requires the considerable amount of money; accordingly it is essential to set a

time limit for it. The validity of results may vary on account of change of condition so we

have to set time limit for it.

5) Determination of survey techniques:


24


Before stating, it should be made clear what techniques are to be used in research. The

choice of technique depends upon the scope and nature of the research.

6) Field work:

Having completed the above formalities field workers go to respective individuals to

gather information. They have to keep the conveniences of persons to be interviewed.

7) Organisation of material, classification and statistical analysis:

The collected material is organised, classified and statistically analysed.

8) Elucidation of conclusions:

Having analysed the data, researchers draw conclusions from them and elucidate

conclusions.

9) Presentation of graphs:

Lastly the conclusions of a research are graphically represented. Some schedules and

charts are also given to aid the understanding of these conclusions.

1.6 Limitations of the study


25


Difficulty in collection:

It is difficult to collect more important and confidential personal documents. They are rarely

recorded and more seldom preserved. They are generally destroyed after a short time.

Reliability of data:

It is very difficult to access correctly the reliability of data. There is almost no criterion to

judge their validity since they are written from subjective view point.

Difficulty to reach definite conclusion:

It is not easily possible to arrive at some conclusions about a problem on the basis of data

collected. The data do not represent conditions objectively. Therefore, not much reliable

information can be secured through the collected data.

Limitations of time, sample size money:

There are limitations of time so we can’t measure the trends which are very slow. Due to lack

of money and sample size we can’t have that much quality data.

Inadequacy of sufficient material:

There is great dearth of journals and magazines in different areas in India to publish data

concerning various aspects of problem. Even the data is collected; it is seldom published

in time. Thus we can’t use it for our purpose of research.


26


Chapter II

Introduction to the Organization

2.1 Introduction to the Industry


27


NON-BANKING FINANCIAL COMPANIES

(NBFC’s)

A financial system, which gives access to affordable credit to an extensive section of

society, is imperative for sustainable economic growth for any country. In India, NBFC’s

typically function in unorganized and under-serviced segments of the economy,

establishing a forte in those areas. The NBFC business model is highly customer centric

with a deep perception of customer needs. With a wider and specialized branch network,

they are able to develop very close customer interaction and relationships, presenting

unique last mile credit delivery. The vast and diverse character of India itself has

inevitably assured a gap in the dispensation of credit and mobilization of savings. Several

NBFCs have stepped in and supplemented the role of banks in selected markets for select

products. These credit-starved and under-serviced segments have created an enormous

opportunity for them. NBFCs have demonstrated that they can play a definite long –term

role in the financial inclusion strategy of the country. They have succeeded in the

mobilization of inactive assets and users of credit because of their innate capability to

provide customized services according to the needs of the client.

It is reflected by the steady increase in the levels of credit penetration that they are

bringing about. The rigidity of the banking system’s policies for lending, especially in the

automobile and transport sector, is consequently giving NBFCs an opportunity to meet

this unmet demand through their perceptive lending.


28


As on March 31st 2006, there were 13,049 NBFCs, of which 434 are permitted to accept

and hold public deposits. Amongst a sea of players, emerged as the undisputed largest

asset financing NBFC in the country, with total asset under management of close to Rs.

7500 crore. Focusing on the new and pre-owned transport vehicles (CV) financing

space, with approximately 20% market share in pre-owned commercial vehicles. The rest

of the market is serviced primarily by the unorganized sector, essentially made up of

private financiers.

Shriram Transport Finance Company Limited (STFCL) is one of the well known

companies in NBFC’s which gives finance to the commercial vehicle.


29


Automobile Finance

Survey of car loan is playing vital role for the customers. It is very important to any

company or institution to know customer’s behavior about its products. It is useful to

evaluate and maintain of the product market. Apart from the public banks, financing

needs of individuals meet by financial institutions like Shriram Transport Finance. It

offers refills financial services. The company has identified loan segment a one with

potential and growth prospects.

Also they offering to truck operators include new truck finance, used truck finance, tyre

finance, power finance, power finance, personal loan etc.

This subject is a combination of marketing and finance, specially financing element. This

attempt is made to shed light on the financing mode used Shriram Transport Finance and

also the use of different schemes as tool of funding.

A rise in interest rate has an adverse impact on the profit margin of the company where

the loss of margin due to interest rate is forwarded to the end users .This price of the

goods and further to inflation. It hurts the Common man the most, especially one who

does not have a stable earning. This has a major impact on the sectors that require heavy

financing.

Automobile:


30


Almost 60% to 70% of sales is on credit and is financed by banks or non-banking

financial services (NBFCs). An increase in the interest rates makes the loan less attractive

to the customers, thereby reducing the turnover. The automobile sectors growth rate

declined to 0.9% in March 2008 compared with 21.2% in the corresponding month of the

previous year.

India is emerging as one of the world’s fastest-growing commercial vehicle markets.

Automobile industry contributed 8% to India’s Gross Domestic Product (GDP) in 2007-

08. India is home to largest fore wheeler manufacture. The market size of automobile

industry reached US$ 8.6 billion in 2007-08 and the auto component industry’s turnover

was US$ 2.7 billion. The integral part of the industry is tyre, which has registered a

turnover of almost US$ 3 million. Automobile industry has witnessed an overall growth

of around 19% in revenue and 6.3% in number of four wheelers sold in 2007-08


31


Automobile finance industry

The world over, the automobile industry and auto finance sector have traditionally shared

a symbiotic relationship. In fact. The post liberalization era has seen the auto fiancé

sector in India emerge as an integral entity of this multi million dollar industry. The

twentieth century is the era of insta buys. Research indicates that 70% four wheelers

bought in the last decade were through finance.

In today’s business economy the retail trade finance is concern the great way to earn the

additional revenue is by financing two and four. Need of four wheeler finance is

increased by day by day. Out of overall sale four wheeler 40% vehicles has been sold

through finance.

The growth rate is about 10% In automobile sector (Business world 20 June 08) it seems

to show that market for this finance sector going to increase.

Business Review


32


India has a population of approximately 4 million Commercial Vehicles. The commercial

vehicle industry has reported 30% CAGR over FY03-05 in with the buoyant economic

growth, good replacement demand and focus on development of the national highway

network new trucks sales has grown at 18% CAGR of 8-10% up to 2010, with some

underlying cyclicality.

The commercial vehicle financing market in India can be broadly divided into two

segments:

1) Financing of new trucks.

2) Financing of pre-owned trucks.

While new-trucks financing market is estimated to be an Rs.186 billion annual

opportunity of Rs.450 billion. Modernization of trucking industry and increasing

penetration of organized financiers are the key growth in Commercial Vehicle sales,

aggressive stance adopted by private sector banks in terms higher loan to value and

longer tenures are some of the key growth drivers for new commercial vehicle financing

market.

On the other hand, pre-owned commercial vehicle financing is largely serviced by the

unorganized sector and SHRI RAM TRANSPORT FINANCE COMPANY LTD.

(STFCL) is arguably the only large corporate entity active in this space.


33


Overcoming the Risky Business Perception:

Banks and other NBFCs have earlier tried to penetrate this dynamic and cyclical industry.

They have conventionally thought this business to be too risky due to the movable nature

of the asset and the lack of documentation to evaluate the credit worthiness of truck

owners.With more than 75% of the used truck owned and operated by small truck

owners, banks and other NBFCs have generally believed that giving loans to this class of

clients may not be viable. This vacuum of credit has led to a proliferation of small

financers, who now control as much as approximately 75% of the used-truck market.

This has meant that these groups of borrowers have had to endure exorbitant interest rates

for decades.

Over the years, STFCL has pioneered a contrarian’s view on the risks associated to this

business by ensuring a sound understanding of such clients and evolved methods of

managing the credit extended to them. So much so, that once-shy banks and conventional

views to regard this segments as attractive marketplace to be in.

2.2 Brief History


34


STFC was established in 1979 to finance the much neglected Small Truck Owner.

Shriram understood the power of 'Aspiration' much before marketing based on

'Aspiration' became fashionable

Shriram started lending to the Small Truck Owner to buy new trucks. But they found a

mismatch between the Aspiration and Ability. The Truck Operator was honest but the

Equity at his command was not sufficient to support the credit levels required to buy a

new truck.

STFC peoples did not have the heart to send the Truck Operator back empty handed; they

decided to fund Pre-owned Trucks. This was the most momentous decision that they

made. What followed was sheer magic.

From Driver to Owner, even if only of a Pre-owned Truck and from Pre-owned Truck to

the New Truck, they have been with him in his journey of Prosperity as he has been their

partner in our road to success and leadership.

For STFC peoples at Shriram, credit-worthiness of the Small Truck Owner has always

been an article of faith. This faith has guided their journey from their


35


pioneering days in financing Small Truck Owners to the present day leadership. Today

they are not only the leader in Truck Finance; they are also India's largest Asset Based

Non-Banking Finance Company.

The flagship company of the Shriram Group, Shriram Transport Finance Company

Limited is India’s largest asset financing institution. Headquartered in Mumbai and with

a pan-India presence, Shriram Transport provides accessible, affordable commercial

vehicle finance to almost 6,00,000 customers. Shriram Transport enjoys a track record of

almost three decades (since 1979) in this Business. Shriram Transport is helped in this

Endeavour by its team of more than 9,600 Employees operating from 430

branches across the length and breadth of India. Shriram Transport is a holistic finance

provider for the commercial vehicle industry and seeks to partner small truck owners for

every possible need related to their assets. Therefore, besides financing trucks (both new

and pre-owned) Shriram Transport extends finance for tyres and engine replacement too.

Shriram Transport also provides ancillary services such as freight exchange and bill

discounting besides offering co-branded credit cards. Passenger vehicles, tractors and

construction equipment have recently been added to the Shriram Transport portfolio,

making it a diversified, end to end provider of finance solutions to the domestic road

logistics industry.


36


Shriram Transport had over Rs. 19,500 cr (USD4.88 billion) of assets under management

as on March 31, 2008. In 2007-08, Shriram Transport disbursed a total of 11,589.70 cr,

and earned Rs. 2,494.14 cr as total income. Its net profit stood at a robust Rs. 389.83 cr.

Shriram Transport’s excellent track record and credit worthiness are reflected in its AA

credit rating and its capital adequacy ratio exceeding the statutory 12 percent. The

principal stakeholders of Shriram Transport (besides the Shriram Group) are reputed

institutions such as TPG-Newbridge, ChrysCapital, Citicorp, Axis Bank, etc., besides an

overall family of 38,719 shareholders. Its shares are listed on the Bombay, Madras and

the National Stock Exchanges. On March 31,2008, Shriram Transport’s market

capitalization stood at Rs. 6,856 cr.

15,000 plus Resident Representatives -

1300


Area of operation All India

Branch Offices 327

Employees About 4000

Depositors 14 Lack

37


Agency Force

Funds Managed Rs.10,000 crore

Net worth Rs.945 crore

2.3 Company Vision:-

STFC was set up with the objective of offering the common man a host of products and

services that would be helpful to him on his path to prosperity. Over the decades, the

company has achieved significant success in reaching this objective, and has created a

tremendous sense of loyalty amongst its customers.

Operational efficiency, integrity and a strong focus on catering to the needs of the

common man by offering him high quality and cost-effective products & services are the


38


values driving STFC. These core values are deep-rooted within the organization and have

been strongly adhered to over the decades.

STFC prides itself on a perfect understanding of the customer. Each product or service is

tailor-made to perfectly suit customer needs. It is this guiding philosophy of putting

people first that has brought the company closer to the grassroots, and made it the

preferred choice for all the truck financing requirements amongst customers

Executive Brief

Financial Services

Helping Create Wealth.Empowering people through prosperity. The relentless pursuit of

this mission, since our inception in 1974 has given the Shriram Group our raison d'être

and our distinct identity. The Group’s reputation for effectiveness, transparency and

integrity has helped it to become one of India’s largest Financial Services Network.

The Group’s Financial Services Businesses manage assets exceeding Rs.13,500 crores,

boast 4 million clients, served by 80,000 Agents and 12,000 employees, through nearly


39


1,000 Branches across India. The Shriram Way Shriram Group’s businesses strive to

serve the largest number of common people.

Consider these:

Commercial Vehicle Financing, Consumer & Enterprise Finance,

Retail Stock Broking, Life Insurance, Chit Funds and Distribution of Investment

& Insurance Products. Our foray into Non-Life (General) Insurance shortly,

is again a strong expression of this commitment.

Industrial Investments

The Group has also made investments in Manufacturing, Value Added

Services, Project Development, Engineering Services, Pharmaceuticals,

Machined & Auto Components, Press Dies & Sheet Metal Stamping, Packaging,

Information Technology, Property Development etc.

Management Philosophy


40


Shriram Group’s business ventures are highly successful due to our management

philosophy. Features of this include total empowerment of its employees, decentralized

decision-making €process and freedom of action. Most of all, the Group views every

employee as a potential partner in business. Group Companies have also been

Instrumental in creating innumerable indirect jobs in the communities they serve.

2.4 Regional Spilt of Branches

6 Regional Offices

50 SBUs

430 Branch Offices

490 Private Financiers

South East,


41


126

2.5 SWOT ANALYSIS

Strength:-

1) Company network in all over India.

2) Company provide quick loan to the customer with minimum interest

3) Minimum document.

4) Quick loan procedure

5) Loan plan according to customer


42


Weakness:-

1) Company cannot provide loan to personal vehicle.

2) company cannot provide two wheeler loan.

Opportunity:-

1) Company can be enter to the personal vehicle loan business.

2) Company can be enter to two wheeler loan business.

Threat :-

1) Some times company not identifies correctly to the customer not paid loan

that time company face loss.

COMPANY’S COMPETITORS

TATA FINANCE

CHOLAMANDALAM


43


CITY FINANCE

MAHINDRA FINANCE

ICICI FINANCE

ASHOK LEYLAND FINANCE

2.6 Important statistical Information

Performance in 2007-08?

It was quite satisfying. We have succeeded in growing our business and margins in a

challenging Industry scenario. Thus our total income appreciated by 76.2 percent to Rs.

2,494.14 cr and net profit rose 104.74 percent to Rs. 389.83 cr. All this on a higher base

of Assets Under Management (AUM) which stood at Rs. 19,519.70 cr up by 62.15


44


percent from Rs. 12,038.40 cr in the previous year. This performance is a testimony to

our broad based scale up initiatives, which ensured that the growth happened through

good

quality assets. Our gross NPAs remained under 2 percent this year, demonstrating an

unrelenting emphasis on a sound credit discipline.


45


Financial Position of the Company

Graphical Financial Position

2004-05 2005-06 2006-07 2007-080

20000400006000080000100000120000140000160000180000

Turnover

2.7 Organisation Structure


Year Turnover Rs(lacks)

2004-05 34582

2005-06 90866

2006-07 141552

2007-08 170000

46


Well Defined Organizational Structure

-Pan India coverage through 6 regional offices with responsibilities for SBUs within

that region (South-2, West, Central North and East)

-50 SBUs with the authority of approving disbursements

-Operating units of business with each branch having 10 employees . branch

head, 4-5 field officers and 3-4 support staff


47


Clearly Demarcated Responsibilities

Field Offices: Direct contact points with customers for vehicle inspection & primary

valuation, sales-lead generation, and

collection & repossession in the case of default.

Branch Officer: Deciding the credit worthiness of individuals and arranging the necessary

documentation

SBU Head: Final deciding authority for disbursement


48


Chapter III

Theoretical Background

3.1 THEORY RELATED TO THE TOPIC


49


Background

Four-Wheeler is most effective mean of travel. Today this product mainly attracts higher

class, higher middle class and middle class. Also it servers need of services, professions

and business means, etc.

It is observed that four wheeler loan markets have always with high competition. The

public banks, private banks competing for their share in the market. Any product

normally has to face serve competition in the market due to government policies of

liberalization.

Bank loans Vs. Finance company scheme

A customer looking for vehicle finance, a bank loan proves to be more expensive than a

finance company scheme because of various reasons; the finance company has

specialized in that field, they have the requisite field investigation agencies in place,

registration formalities smoothed out with the RTO and Shriram finance can procure

vehicles at better rate.

3.2 SCHEMES


50


Basic schemes offered:

Most companies offer schemes in the following four basic versions.

Margin money scheme

This is the most straight forward scheme of them all. For instance, if a car cost Rs. 1 lack,

a typical scheme would require you to pay at leaser 10% up front, and you would get a

loan of Rs. 90,000. The loan to value (LTV) ratio is 90% in this case. The interest rate

coated will be on this Rs. 90,000. Thus if the rate coated is 16% for 12 installments, the

EMI would be RS. 8,166. The interest rate is charged on a monthly basis.

Advance EMI

This is another variation of the margin money scheme. The bank offers to give complete

amount as loan but requires you to pay some amount as EMIs in advance. It achieves two

things:

-You are giving a down payment, thereby reducing the lending amount and the risk along

with it. Also, the bank stands to gain on the amount that it gets. Firstly, it does not give

the 100% loan it had promised.

-The interest that it charges on the amount that it has lent is in actuality greater. This is

because, it calculates the interest rate on what it has lent, but forgets about the sum it has

already taken in advance. Very simply put, If the bank lent you Rs 200 and collected Rs.

100 as advance EMI, it will get its 16% on rate RS. 100 that it has actually lent, by telling

you that it is lending to you at 8%on Rs.200 that you borrowed.


51


Security deposit schemes:

This is a variation of the margin money scheme. In this, the company claims to give a

loan of 100% but asks for, say 10% of the amount in advance, which it will return at the

end of the loan period. In effect, you are still getting a loan of 90% But the reason that

you are being “Shown” a lower rate is that the designer is making interest on your deposit

for the period of the loan, when your money is laying with him. He uses the money to

offset the amount that he is charging less from you. Some security deposit schemes offer

interest on the deposit that you pay. As long as this rate is lower than the rate that you are

paying in normal margin scheme, the designer can reduce the price \of loan. Suppose you

had to put in a deposit of RS. 10,000 in the above case, on which 14% is being offered.

The scheme lets you borrow RS. 1 lack, instead of only Rs. 90,000. In effect, he is

borrowing the additional Rs. 10,000 from you at 14% and is lending you that same

money at 16% so he making extra money, which he can afford to use to reduce the 16%.

Thus he is using your own money to give a lower rate.

Processing fess:

This is the most innocuous-seeming (and popular) method. At the beginning of the

period, the bank requires you to pay 2% to 4% (typically) on the loan amount as

“processing” fees. In effect, the bank is lending you lesser that it had promised which

increase the effective rate that you are paying. For example, if a bank lends you Rs. 1

lack at 16% for one year (12 EMIs) and charges you 3% as processing fees, you are in

effect paying an interest of 22%!


52


Most schemes are a combination of these base versions. A company might offer a loan at

a price of 5.9% for 12 month’s tenure, with EMIs payable in advance and processing fees

of 2%. The effective rate- a whopping 21.5! And you thought you were paying 5.9%!

Anatomy of the finance scheme:

When a financer gives a scheme to a person seeking financing, he will get a quote that

looks like this:

Type of finance option-hire purchase or lease

Finance Amount …..%

Margin money …..%

Rate of interest …..%

Tenure …..Months

Payments …..Monthly in arrears

EMI per lack of fiancé amt…..Rs.

For answering these questions a person need to know what the various components of a

finance schemes are and in all likelihood he will have to decide on all or some of them

before finalizing deal.

\


53


3.3 Financing procedure of vehicles:

According to Palish “In modern money using economy, finance may be defined as the

provision of money at the time it is wanted”

According to Bonneville and Dewey “Financing consist of the raising, providing

connection with business”

Here we are concerned with asst based financing. There are two most popular asset based

financing

1) Hire purchase financing

2) Lease financing

3) Loan

3.4 Hire purchase financing


54


Hire purchase finance is a popular financing mechanism especially in certain sectors of

Indian business such as the automobile sector. Ion this, there are 3 parties the

manufacture, the Borrower & Guarantor. The borrower may be the manufacturer or a

finance company. The manufacturer sells assets to the borrower who sells it to the

guarantor in exchange for the payment to be made over a specified period of time.

3.4.2 MANUFACTURER BORROWER GUARANTOR

Fig: - hire purchase financing

Fig No.

Hire purchases agreement is the agreement between the customer (borrower) & the

finance company, which is the owner. The title of the vehicle passes on to the customer

when the last due sum & one rupee. Till the last rupee, the right, title & interest in the

vehicle along with any additions and improvements to the vehicles remain the absolute

property of owner

When a payment is more than 14 days late it is considered a default. Date of receipt is

considered. Payment by post is considered the risk of the hirer.

Increases in 0.85% bank interest rate results in a protanto increase in finance charges. But

in this regime of falling interest rates NBFC’S also pull down rates accordingly.

Supplier or dealer delivers the vehicle on be\half of owner but risk is not that of the

owner. Increase the damage or non-delivery suffered by borrower and borrower charges

commence as if vehicle were delivered terms of agreement remain.

Borrower takes the insurance in the name of the owner. Owner may renew and recover

from hirer. The policy taken and the insurance company have to be approved by the


55


owner. Borrower obtains necessary license. Registration of the vehicle is in the joint

name of owner and guarantor and copy of RC submitted to owner. borrower pays sells

tax.

Borrower indemnifies the owner against any claims demands, loss and damage from a

cause even beyond the control of the guarantor. Borrower cannot sublet or sell the vehicle

during the term of the agreement. Expenses of reposition to be paid by the borrower.

Delivery of vehicles concludes that hirer accepts it as it is. Guarantees or warrantees are

given by the supplier/dealer/manufacturer not the owner. Increase the damage insurance

claim negotiations steeled after consent of the owner. Any damage to vehicle not covered

by insurance is born by borrower. The vehicle cannot be hypothecated or mortgaged to

any other organization.

The asset that is the vehicle is shown in the balance sheet of the hirer. Accordingly the

guarantor can claim depreciation.

Interest component of the installment is a tax-deductible expense. Guarantor enjoys

salvage value.

There is a 5% service charge & 0.2% resale tax. Resale because the Hire Purchase

agreements involves three parties and two transactions. Dealer or manufacturer, owner

(finance) company and customer.

Finance amount as a percentage of price varies according to the credibility of customer

Generally it is up to 80%-90%. 100% financing can be done for trucks. This is possible

because the company finances only the chassis, the customer will be investing in the

body. Effectively, the whole vehicle only 80% gets finance.


56


The interest rate in hire purchase is always quoted as a flat rate 6.5% onwards.

Finance amount is calculated as a percentage of the price of the vehicle. The difference

between finance amount and price is called the “margin money”.

Thus,

Contract value=total interest +service tax + insurance provisions + principal.

EMI (equal monthly installment) = contract value / tenure (months)

Total interest is calculated as follows,

Finance amount * interest rate * tenure

Service charge is 5% of the total interest.

Resale tax = 0.5%

Stamp charges = 1% [(contract value + margin money)/tenure in years]

Initial payment includes margin money, EMI, Stamp duty, service charges & resale tax.

There are following three conditions.

1. The owner of the asset gives the possession of the asset to the hirer with an

understanding that the hirer will pay agreed installment over a specified

period of time.

2. The ownership of the asset will transfer to the hirer to the hirer on the

payment of all installments.

3. They will have the option of the terminating the agreement any time before

the transfer of ownership of the asset.

Thus for the hirer the hire purchase agreement is like a cancelable lease with a

right to buy the asset.


57


The hirer is required to show the hired asset on his balance sheet and is entitled to claim

depreciation, although he does not own the asset until full payment has been made. The

payment made by the hirer is divided in to two parts; interest charges and repayment of

the principal. The hirer thus gates tax relief on interest paid and not the entire payment.

Mobilisation of funds:

In case of Hire purchase agreement the finance company can present the proposal to the

bank and mobilized funds against it. These can be done, since the finance company is the

owner of the vehicle till the complete payment is model thus the bank can hold the

vehicle as security.

3.4.3 Lease financing

Leasing is widely used in Western countries to finance investment in USA, which has the

largest leasing industry in the world.

Lease is contract between a lessor, the owner gives the right to use the asset to the user

over an agreed period of tine for a consideration called the lease rental. The lessee pays

the rental to the lessor as regular fixed payments over a period of time at the beginning or

at the end of the month, quarter, half-year, or year. Although generally fixed, the amount

and the timing of payment of Lease can be tailored to the lessee’s profits or cash flows. In

up-fronted Leases, more rentals are charged in the initial years and less in the later years

of the contract. The opposite happens in back-ended Lease. At the end of the contract, the

asset reverts to the lessor. Who is the legal owner of the asset. As legal owner, it is lessor

not lessee, who is entitled to claim depreciation on the leased asset. In long term lease

contract, lessee is generally given an option to buy or renew the Lease. Sometimes it is


58


divided into two types- primary lease and secondary lease for the purpose of lease rentals.

Primary lease provides for the recovery of the cost of the asset and profit through lease

rentals during a period of about 4-5 years. It may be followed by a perpetual, secondary

lease on nominal lease rentals.

3.4.3 Auto Loan

Most of the banks and financial institution are providing today finances for most of the

automobiles. The most important automobile today being cars, two wheelers, commercial

vehicles. These loans are given on various models at very competitive rates. If a person

has the required eligibility and documents. He can avail the loans for any vehicle and any

model of his choice.

There are two important segments in the auto loan market.

New Vehicle loan

Used vehicle loan.

The loan is given to the person on the basis of the value of the vehicle. Usually 90% of

the loan amount of the value of the vehicle is given in case of new one and in the case of

old one. It is up to 80% of the value of the vehicle.

Auto loan is a secured loan. As there are some physical assets involved in it and it can be

hypothecated. Then it is called as hypothecated vehicle, which means that the motor

vehicle is to be owned and acquired by the borrower in respect of which the loan is to be

made by the bank.


59


A loan agreement involves two parties, lender and borrower, neither is the 5% does not

exist. Neither is the 5% service charge.

The asset that is vehicle is not shown in the borrowers balance sheet, thus the borrower

cannot claim depreciation. However the title of the vehicle is with the customer/borrower.

Interest component of the installment is a tax-deductible expense.

Registration is same as hire purchase. It is in the joint name of Shriram finance and

customer.

Contract value = total interest principal + insurance

EMI = contract value/tenure (months)

Service tax resale tax not applicable to loan agreements.

Stamp charges:

Up to loan amount of 5 lacks stamp charge is Rs. 960

Above 5 lacks it is Rs.500 + Rs 200 per lack

Thus initial down payments include 1st EMI and stamp duty. Neither service tax not

resale tax nor margin money is payable to the finance company (lender)

Mobilisation of funds

Increase of a loan agreement a bank cannot mobilize funds towards finance company

against a loan proposal because it would have only the receivables as security i.e.

securities the debt. Banks do not do debt securitization for finance companies because

that means the bank would have to rely on the finance companies assessment.

3.5 COMMERCIAL VEHICLE LOAN:


60


Commercial vehicle loan is loan given to a person for purchasing a vehicle which is used

for his daily earnings or business purpose; it may be new or used vehicle. any person who

want to buy commercial vehicle for his business or his earnings can get the loan from

banking and non banking institute like Shriram transport finance co. it is fully secured

loan, in this type of loan the ownership of vehicle is with Shriram transport finance co.

(stfc) till the borrower repay full amount of loan. on the RC book of the borrower there is

hypothecation (HP) of stfc.

FEATURES OF COMMERCIAL VEHICLE LOAN:

it is fast , flexible and simple process of loan, there is no limit of loan amount. There are

two types of vehicles

-new vehicles

-used vehicles

The borrower has to pay some interest to the bank or financial institution according to the

amount arrived at by the credit manager. The loan is given to a period of certain time

duration depend upon so many factors. These are basically two segments in auto loan

market as we have already mentioned earlier

Schemes:

There are two types of schemes for the borrower in stfc.

1) Even scheme

2) Uneven scheme

i) Even scheme:


61


In this scheme the interest rate is flat. Generally stfc offers customers even schemes it

beneficial to the borrower as well as company. In this scheme borrower have to repay the

loan amount within given period. The time period will be given as per borrower’s

demand from available schedules. (12 months, 15 months, 18 months, 24 months, 30

months, and 36 months )

ii) Uneven scheme:

In this scheme the interest rate is not fixed.

RATE OF INTEREST:

YEAR IRR FLAT RATE

1991-94 30 16.00%

1995-96 28 15.869%

1997-2000 26 14.00%

2001-2004 24 13.00%

2005-2008 22 10.00%

In case of used vehicle sometime the rate also depends upon the condition of the model

and field officer also.

There are two types of vehicles

1) New vehicles

2) Used vehicles

New vehicles:


62


for new vehicles borrower have to take quotation of vehicle from authorized dealer of

vehicle and then submit with application then stfc will review the quotation and if the

quotation is ok then stfc will grant the loan up to 80-85% of the demanded amount.

New vehicle borrowers have to submit the following documents:

1) Agreement Book Set

2) Hirer Document.

a) 2 Colour Photo.

b) Address Proof.

c) Identify Proof.

3) Guarantor Documents

a) 2 Colour photo.

b) Address Proof.

c) Identify Proof.

4) Performa Invoice

5) M. M. Receipt

6) Scheme confirmation.

Used Vehicles Loan

Old Vehicle borrowers have to submit the following documents:

1) Agreement Book Set.

2) Vehicle Photo (4-side).

3) Vehicle Chassis Print.


63


1) Hirer Document

a. 2 Color Photo.

b. Address Proof.

c. Identify Proof.

4) Guarantor Document.

a. 2 Color photo.

b. Address Proof.

c. Identify Proof.

5) R. C. Book with STFC Endo.

6) “B” Extract Original.

7) Insurance Policy with STFC Endo.

Existing owner – current policy

Transfer of owner – old policy, transfer rece.

8) Fitness.

9) Hirer/seller affidavit on Rs. 100/- Stamp paper.

10) Scheme conformation.

11) Security Cheques will not be accepted, unless it is not affiliated to nationalized

Bank.It has to be 2 Cheques per annum.

12) Bank statement for Borrover alone is required, but NOT that of Guarantor’s.

however signature verification should be there for both.

13) Agree proof in all the cases.


64


After submitting document, STFC provide loan for the customer they have prepared

record file this file call as proposal file. In this proposal file required following

documents.

1) Borrower Document

A) Residential Proof

B) Identity Proof

C) Passport Photo Two

D) Cheques

E) Sign Verification

F) Borrower Sign on all document and agreement

2) Guarantor Document

A) Residential Proof

B) Passport Photo Two

C) Registration Certificate

D) Guarantor Sign on all document and agreement

3) Vehicle Document

A) Registration Certificate with HPA endorsement

B) Fitness Certificate

C) Permit

D) Vehicles four sides Photograph

E) Clear chassis print

F) To be check mfg year, chassis no., Engine no.

G) RTO information original


65


4) Insurance Policy

A) Clear compressive insurance policy (vehicle no, name chassis, engine no.)

B) IDV of the policy is higher than loan amount

C) HPA endorsement of STFC

D) Policy start date and end date

5) Loan Approval

A) Funding is preferable 80%

B) If higher side then take PM approval


66


3.6 CONTENTS OF AGREEMENT

An Agreement is the legal proof of with the company that is a security for the

company. Whenever in future any problems will arises in future, if customer tries to cheat

with the company. Agreement is the main important document with the company, which

helps to take any legal action with the customer. This is signed by the Customer himself

when he gets the loan . this agreement content various forms, terms & conditions. In an

agreement we will find the following forms.

1) FILD INVESTIGATION FORM :

This is a report by the field investigation officer which

gives the exact idea about verification done by the officer. This report is all about just to

verify the address & the family information provide by the Customer.

2) SCHEDULE I,II & III :

Attached to and forming part of the loan cum

Hypothecation Agreement part of the loan cum hypothecation agreement describing

particulars of the amount payable. Schedule I is description of credit facilities, &

Schedule II is about Description of Hypothecated asset. & the Schedule III is about

Equated monthly installment Schedule (EMI).


67


2) FORM 20:

Application for registration of a motor vehicle.

To be made in duplicate if vehicle is held under an agreement of

Hire-purchase/lease/Hypothecation and duplicate copy with the Endorsement of the

Registering Authority to be returned to the Financer simultaneously on registration of

motor vehicle.

3) FORM-26:

Application for the issue of duplicate certificate of registration.

4) FORM-27:

Application for assignment of new registration mark to a motor

vehicle.;

5) FORM 28:

Form of application and grant of “NO OBJECTION CERTIFICATE”

6) FORM 29:

Notice of ownership of a motor vehicle.

7) FORM 30:

Application for intimation and transfer of ownership of a motor vehicle.

8) FORM 34: Application for making an entry of an agreement of

hire-purchase/lease/hypothecation subsequent to registration.


68


9)FORM 35:

Notice of termination of an agreement of hire-purchase/lease/hypothecation.

10) FORM 36:

Application for issue of a fresh certificate of registration in the mane of the

financer.

An agreement contents the above various forms. Which all signed by the customer &

financer.this book have two book set, first one is original copy which send to head office,

& another one copy is with that perticuler branch for reference purpose.


69


3.7 SEGMENTS OF VEHICLES

There are various segments of vehicles which are divided in Eight

different types, this types can be defined as follows.

1) Prime:

Contents all trucks which are registered between year 2001 to 2009.

2) Strategic:

All trucks which are registered in between year 1995 to 2001 this comes under this

segment.

3) C.E.(CONSTRACTION EQUEPEMENT):

All vehicles which are made for construction purpose like JCP, TPPER etc.


70


4) L.C.V.(light commercial vehicles):

All big tempo comes under light commercial Vehicles.

5) S.C.V.(Small Commercial Vehicle):

This segment contents small commercial vehicles like TATA ACE,

MAHINDRA PICK UP etc.


71


6) Passenger:

This is the segment which has big business in pune, mostly for

employees, as well as other regular transport purpose most companies’ uses these type

vehicles .it includes Sumo, Indica, Tavera, Indigo, STAR bus etc.


72


7) Tractor:

In this segment we will found all company’s tractors. Like Mahindra,

Same etc.

8) Articulated(above 31 tones):

Articulated vehicles are those which have above 31 tons kg weight &

specialy used for high weight goods. Like newly manufactured vehicles can be moved by

such vehicles. Continuers etc.


73


Chapter IV

Findings,Suggestions & Conclusion


74


FINDINGS:

1) Shriram Transport Finance Company Limited is one of the most trusted financial

institutions in NBFC, with 500000 satisfied customers.

2) The interest rate is lower than other banks and non-financial institution like ICICI,

cholamandal, Sundaram etc.

3) From the responses of the customer is the staff of STFCL is cooperative.

4) The staff is well-qualified and versed with the loan system as per the policy of the

company.

5) There is flat rate system in the company which is mainly beneficial to the company.

6) From the information customers are satisfied with STFCL, 35% customers are old

customer.

7) From the data the loan procedure of company is easy as compared to others.

8) 80% customer are taking loan from STFCL only and remaining 20% they have

taken from other financial institution this shows the loyalty of customers to the

company.

9) The main competitor of STFCL is Cholamandal.

10) In the company the recovery rate is 90%


75


RECOMANDATIONS

1) The company should maintain proper customer relationship.

2) The company should try to reduce the rate of interest

3) The company should try to make the procedure more easy than existing procedure

4) The company should try for reducing the documentation required for loan.

5) The company should try to reduce paper work.

6) Appoint required staff for attending the customers complaints

7) Company should appoint customer relationship manager for better customer

relations.

Lastly I will include one thing in conclusion is that SHRIRAM TRANSPORT

FINANCES COMPANY LTD is very good company. I really learn many things under

this company.


76


I never meet companies Director& Excises Person, but when I working under this

company {SHRIRAM TRANSPORT FINANCES COMPANY LTD.} I meet all these

persons.

One more thing I mention in this conclusion part is that I never saw these kinds of

good relationship with customers. But I working with these companies I really get good

experience from it. I would get very good corporate exposure because of this company.


77


CONCLUSIONS

1) The credit appraisal of STFCL is simple to understand and easy to calculate.

2) The EMI is affordable

3) Even if the credit goes to wrong person then it will not affects the performance of

the company because company gives loan against hypothecation (HP) of vehicle.

4) In the company the credit manager is the only person who takes care of proposals.

The credit manager should consult the recovery manager that a person is not a

default gist. If the customer taking loan twice then credit manager should check

his previous record.

5) Pre sanction and post sanction inspection is essential.

6) STFCL is the only NBFC, which is continuously upgraded to achieve the highest

customer satisfaction.

7) the loan systems starts from verifying and checking the necessary documents,

collection the actual cost in terms of monthly installment and end’s with No

Objection Certificate (NOC)


78


CHAPTER V

Appendix


79


B IBLIOGRAPHY

1. Credit Appraisal, Risk Analysis And Decision Making, Mukherjee D.D

publisher:Snowwhite.

2. Banking Strategy, Credit Appraisal and Lending Decisions: A Risk-Return

Framework. by Bhattacharya Hrishikes,publisher:Oxford University Press, USA.

3.

1. www.google.com

2. www.shriram.com

3. www.stfc.in .

Other Sources

1) Annual Report 2008-09 of STFC.

2) Shriram Samachar.


80

http://www.stfc.in/

http://www.shriram.com/

http://www.google.com/