PROJECT REPORT ON ASSESSMENT OF TERM LOAN
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INTRODUCTION TO BANKING
The Indian banking industry has its foundations in the 18th century, and has had a varied evolutionary experience since then. The initial banks in India were primarily traders’ banks engaged only in financing activities. Banking industry in the pre-independence era developed with the Presidency Banks, which were transformed into the Imperial Bank of India and subsequently into the State Bank of India. The initial days of the industry saw a majority private ownership and a highly volatile work environment. Major strides towards public ownership and accountability were made with nationalization in 1969 and 1980 which transformed the face of banking in India. The industry in recent times has recognized the importance of private and foreign players in a competitive scenario and has moved towards greater liberalization.
ROLE OF BANKS IN INDIA
Banks play a positive role in economic development of a country as repositories of communities’ savings & as purveyors of credit. Indian banking as aided the economic development during the last 50 years in an effective way. The banking sector has shown a remarkable responsiveness to the need of planned economy. It has brought about a considerable progress in its efforts at deposit mobilization & has taken a number of measures in the recent past for accelerating the rate of growth of deposit.
By pooling the saving together bank can make available funds to specialized institution which finances different sectors of the economy, needing capital for various purpose, risk & durations. This intermediation role of banks is particularly important in the early stage of economic development & financial specification.
DEVELOPMENT CREDIT BANK (DCB) Incorporated in 1918, with the market capital of 9530.5253472 (Rs. In millions). Chairperson of DCB is Mr. Nasser Munjee and managing director is Mr. Murali. M. Natrajan. Total income for the year ending March 2012 was Rs 8196.965 million Development credit bank ltd operates in the state commercial banks sector. Development credit bank limited (DCB) a publicly held banking company engaged in providing banking and financial services. The company operates in four segments: Treasury operations, corporate banking, Retail banking and other banking operations. Treasury operation includes all financial markets activities undertaken on behalf of the bank’s customer, trading, maintenance of reserve requirement and resource mobilization from other banks and financial institution. Corporate banking includes lending, deposit taking and other services offered to corporate customer. Retail banking includes lending, deposit taking and other services offered to retail customers. Other banking operations include Para banking activities, such as third party product distribution, merchant banking. As of march 31, 2011, (DCB) operates a network of 80 braches across 28 locations in Maharashtra, Gujarat, Andhra Pradesh, Karnataka, New Delhi, Goa, Tamil Nadu, Haryana
A new generation private sector bank, Development Credit Bank (DCB) is the preferred banking services provider across 82 state-of-the-art branches across 10 states and two union territories. The Bank has recently launched several value added initiatives and intends to become one of the country’s preferred and profitable private sector banks, providing a comprehensive suite of “best in class” products for customers in Retail, SME and Corporate Banking market segments in chosen geographies.
TERM LOAN OVERVIEW
Term loan is a loan borrowed for fixed amount over the fixed period of repayment & floating rate of interest. The borrower is offered a predefined schedule of repayment by the lending institution comprising of principle amount & interest thereon. Term loan is secured by collateral security. Term loan facilitates the borrower to raise a stipulated amount one time & plan the business expenditure or investments or purchases on his or her own. Term loan is normally preferred by small & medium scale businesses to meet the need of working capital or to buy assets or infrastructure which is required to run the business on day to day bases. The maturity period or term is between 1-10 years.
PURCHASE OF FIXED ASSETS –
The term loan can be used to purchases fixed assets like premises, plant and machinery etcThe usage or performance of assets increases the business performance and hence the profit and makes the repayment of the loan easier. Even the term loan is settled the assets procured continue the productivity as assets life span is certainly longer than the term loan span. If a premises is purchased then the value of premises is always appreciated and in that case the business leverages higher value of premises which further can be used to raise funds for business expansion or diversification
SWITCHING OF HIGHER INTEREST LOAN –
Many a time’s business owners opt to raise business loans at higher rate of interest. Such loans are processes and sanctioned faster but result in heavy burden interest. This interest payment becomes a fixed monthly expenses and starts leaking the profit. To arrest the growing rate of interest and penalties the higher interest loan can be switched to lower rate of interest loans or term loans. This way a borrower reduces the growing burden of interest on business loan and can save a considerable amount of money. It also benefits in maintaining the credit rating as the borrower closes one loan liability and opens another in form of term loan with lower rate of interest and easier repayment condition.
MORTGAGE TERM LOAN –
Term loan can be availed by mortgaging a kind of security like home, office premises etc. this type of loan is borrowed for a longer period of time i.e. 10, 15 or 20 years. The repayment of principle amount & interest may be fixed in nature or it may vary over the course of repayment. The borrower may avail the revised rate of interest later & may be benefited by saving in interest.
• Moratorium payment:
A moratorium period is a time during the loan term when the borrower is not required to make any repayment. It is a waiting period before which repayment by way of EMIs begins. Normally, the repayment begins after the loan is disbursed and the payments have to be made each month. However due to this moratorium period, the payment starts after some time. Education loans provide this feature. This is because education loans are repaid by the students after they start earning and build their finances there might be a time lag between their completing studies and before getting a job. That is why a provision for moratorium period is made. The most important feature of education loans is the structure of repayments. You do not have to make any loan repayments until you complete your course. During the moratorium period, on an education loan the bank will calculate interest on your loan on simple interest basis. Interest calculations will start as and when amounts are disbursed to you and not on the entire loan amount at once. This interest will be accumulated until the end of the moratorium period. There are some banks that offer a concessional interest rate if you take the loan and arrange to pay the interest portion of the loan during the moratorium period.