Loan Recovery (1)

(To evaluate the effectiveness of Asset loan recovery procedure

adopted by Magma finance and selected public and private

sector banks.)

EXECUTIVE SUMMARY

The main objectives of the study were:

The objective of the project was to evaluate the asset loan recovery procedure of Magma

fincorp limited in Bathinda and Axis Bank and ICICI Bank .The study contains the

comparison of Magma finance and Axis Bank and ICICI bank. The objective of this

study was to analyze the difference between the procedures of assets loan recovery in the

NBFC & BFC.

Research & findings

Comparison between Procedure of assets loan recovery of Magma finance and

other banks.

Problem face by recovery executive.

Assets loan recovery procedure depends on the applicant reaction.

Long procedure adopted by the company regarding assets loan recovery.

Table of Contents

Acknowledgement

Executive Summary

Chapter 1: Introduction

1.1 Industry Profile

1.2 Company Overview

1.3 Objectives of the study

Chapter 2: Research Methodology

Chapter 3: Loan recovery process and procedure in different financial Institutions

Chapter 4: Observation and Findings

Chapter 5: Limitations and Recommendation

Annexure

References

CHAPTER-1

INTRODUCTION

Finance company plays a very important role in the growth of Indian economy. Finance

company increases the living standard of the people. Finance company provides chance to setup

new business and be an entrepreneur.

In India people don’t like to take risk but in other counties like America, China people take risk.

All entrepreneurs have one quality in common; they are always ready to take risk. Some years

ago Indian people didn’t like to take loan but now everyone’s thinking has changed a lot. Now

everyone prefer Loan. So we can say that in India there is a wide scope of BFCs and NBFCs.

Insurance company provides various facilities to the people. They take loan for purchasing a new

car, house, tractor, etc. In agriculture sector farmers are not able to purchase tractor or other

agriculture equipment. Finance company provides facility to purchase the tractor or other

agriculture equipment on some interest rates.

The purpose of this training was to have practical experience of working Within the

organization, in the field of business and collection to have exposure to the important

management practices in the field.

While writing this report the language has been keep simple and the entire discussion has been

logical. The main motive of the project work was asset loan recovery Magma finance and other

private and public sector bank.

INDUSTRY PROFILE

A Non- Banking Financial Company (NBFC) is a company registered under the companies Act,

1956 and is engaged in the business of loan and advances, acquisition of

shares/stock/bonds/debenture/securities issued by government or local authority or other

securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but

does not include any institution whose principal business is that of agriculture activity,

sale/purchase/construction of immovable property. A non banking institution which is a

company and which has its principal business of receiving deposits under any scheme or any

other manner or lending in any manner is also a non banking financial company.

NBFCs are doing function akin to that of bank; however there are a few differences

i) NBFC cannot accept demand deposits

ii) NBFC is not a part of the payment and settlement system and as such an NBFC

cannot issue cheque drawn on itself

iii) Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is

not available for NBFC depositors unlike in case of banks.

1.1 TYPES OF NBFC’S

Originally, NBFCs registered with RBI were classified as:

Equipment leasing company

Hire-purchase company

loan company

Investment company

However, with effect from December 6, 2006 the above NBFCs registered with RBI have

been reclassified as

Asset Finance Company (AFC)

Investment Company (IC)

Loan Company (LC)

1.2 REGULATIONS OF NBFC’S

In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be

registered with RBI to commence or carry on any business of non-banking financial institution as

defined in clause (a) of Section 45 I of the RBI Act, 1934. However, to obviate dual regulation,

certain categories of NBFCs which are regulated by other regulators are exempted from the

requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking

companies/Stock broking companies registered with SEBI, Insurance Company holding a valid

Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of

the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds

Act, 1982 or Housing Finance Companies regulated by National Housing Bank.

A company incorporated under the Companies Act, 1956 and desirous of commencing

business of non-banking financial institution as defined under Section 45 I(a) of the RBI

Act, 1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh

w.e.f April 21, 1999). The company is required to submit its application online by

accessing RBI‘s secured website https://secweb.rbi.org.in/COSMOS/rbilogin.do (the

applicant companies do not need to log on to the COSMOS application and hence user

ids for these companies are not required). The company has to click on ―CLICK‖ for

Company Registration on the login page. A window showing the Excel application forms

available for download would be displayed. The company can then download suitable

application form (i.e. NBFC or SC/RC) from the above website, key in the data and

upload the application form. The company may note to indicate the name of the correct

Regional Office in the field ―C-8‖ of the ―Annex-Identification Particulars‖ worksheet

of the Excel application form. The company would then get a Company Application

Reference Number for the COR application filed on-line. Thereafter, the company has to

submit the hard copy of the application form (indicating the Company Application

Reference Number of its on-line application), along with the supporting documents, to

the concerned Regional Office. The company can then check the status of the application

based on the acknowledgement number. The Bank would issue Certificate

of Registration after satisfying itself that the conditions as enumerated in Section 45-IA

of the RBI Act, 1934 are satisfied

All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid

Certificate of Registration with authorization to accept Public Deposits can accept/hold

public deposits. NBFCs authorized to accept/hold public deposits besides having

minimum stipulated Net Owned Fund (NOF) should also comply with the Directions

such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by

the company.

Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be

paid or compounded at rests not shorter than monthly rests. The NBFCs are allowed to

accept/renew public deposits for a minimum period of 12 months and maximum period

of 60 months. They cannot accept deposits repayable on demand.

The NBFCs are allowed to accept/renew public deposits for a minimum period of 12

months and maximum period of 60 months. They cannot accept deposits repayable on

demand.

NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from

time to time. The present ceiling is 12.5 per cent per annum. The interest may be paid or

compounded at rests not shorter than monthly rests.

NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.

NBFCs (except certain AFCs) should have minimum investment grade credit rating.

The deposits with NBFCs are not insured.

The repayment of deposits by NBFCs is not guaranteed by RBI.

Certain mandatory disclosures are to be made about the company in the Application

Form issued by the company soliciting deposits.

Effective from April 24, 2004, NBFCs cannot accept deposits from NRIs except deposits

by debit to NRO account of NRI provided such amount does not represent inward

remittance or transfer from NRE/FCNR (B) account. However, the existing NRI deposits

can be renewed.

1.3 GUIDELINES FOR NEW DEPOSITS

Customer identification: 'Know the Customer' (KYC) should be the key guiding principle

for identification of an individual / corporate customer (depositor or borrower).

Accordingly, the KYC framework should have two-fold objective, (i) To ensure customer

identification and verifying his identity and residential address;

o (ii) To monitor transactions of a suspicious nature.

NBFCs should ensure that the identity of the customer, including beneficial owner is

done based on disclosures by customers themselves.

Typically easy means of establishing identity would be documents such as Permanent

Account Number (PAN), ration card, driving license, Election Commission's identity

card, passport, et cetera in case of individuals and registration certificate, partnership

deed/agreement, et cetera and other reliable documents in respect of companies, firms

and other bodies.

Verification through such documents should be in addition to the introduction by a

person known to the NBFC.

Procedures for existing customers

In respect of existing customers, NBFCs should ensure that gaps and missing information

in compliance of KYC guidelines on customer identification procedure is filled up and

completed before June 30, 2004.

Ceiling and monitoring of cash transactions

NBFCs would normally not have large cash withdrawals and deposits.

However, wherever transactions of Rs 10 lakh (Rs 1 million) and above are undertaken,

they should keep record of these transactions in a separate register maintained at branch,

as well as at Registered Office.

Such information should be made available to regulatory and investigating authorities,

when demanded.

GUIDELINES AND MONITORING PROCEDURES

The board of directors of NBFCs should formulate policies and procedures to continue

the guidelines and put in place an effective monitoring system to ensure compliance by

their branches.

Early computerization of branch/office reporting will facilitate prompt generation of such

reports and monitoring.

INTERNAL CONTROL SYSTEMS

Duties and responsibilities should be explicitly allocated among the staff for ensuring that

policies and procedures are managed effectively and that there is full commitment and

compliance to an effective KYC program me in respect of both existing and prospective

customers/clients.

INTERNAL AUDIT/INSPECTION

Internal auditors must specifically scrutinize and comment on the effectiveness of the

measures taken by branches / offices of NBFC in adoption of KYC norms and steps

towards prevention of money laundering.

Specific cases of violation should be immediately brought to the notice of head /

controlling / registered office.

RECORD KEEPING

NBFCs should prepare and maintain proper documentation on their customer

relationships and cash transactions of Rs 10 lakh and above.

The records of all such transactions should be retained for at least ten years after the

transaction has taken place and should be available for perusal and scrutiny by audit

functionaries as well as regulators and law enforcement authorities; as and when

required, at the branch as well as at registered office.

1.4 RESPONSIBILITIES

The NBFCs accepting public deposits should furnish to RBI

Audited balance sheet of each financial year and an audited profit and loss account in

respect of that year as passed in the annual general meeting together with a copy of the

report of the Board of Directors and a copy of the report and the notes on accounts

furnished by its Auditors;

Statutory Annual Return on deposits - NBS 1;

Certificate from the Auditors that the company is in a position to repay the deposits as

and when the claims arise;

Quarterly Return on liquid assets;

Half-yearly Return on prudential norms;

Half-yearly ALM Returns by companies having public deposits of Rs. 20 crore and above

or with assets of Rs. 100 crore and above irrespective of the size of deposits ;

Monthly return on exposure to capital market by companies having public deposits of Rs.

50 crore and above; and

A copy of the Credit Rating obtained once a year along with one of the Half-yearly

Returns on prudential norms as at (v) above.

1.5 IMPORTANCE OF NBFC’S

According to RBI Non Banking Finance Companies (NBFCs) is a constituent of the institutional

structure of the organized financial system in India. NBFCs perform a significant and important

role in our financial system. They facilitate the process of channelizing of public savings and

provide better return to the depositors. We are aware that due to liberalization and globalization,

banking industry and financial sector has gone through many reforms. In the present economic

environment it is very difficult to cater need of society by Banks alone so role of

Non Banking Finance Companies and Micro Finance Companies become indispensable. The

activities of non-banking financial companies

(NBFCs) in India have undergone qualitative changes over the years through functional

specialization. The role of NBFCs as effective financial intermediaries has been well recognized

as they have inherent ability to take quicker decisions, assume greater risks, and customize their

services and charges more according to the needs of the clients. While these features, as

compared to the banks, have contributed to the proliferation of NBFCs, their flexible structures

allow them to unbundle services provided by banks and market the components on a competitive

basis. The distinction between banks and non-banks has been gradually getting blurred since

both the segments of the financial system engage themselves in many similar types of activities.

At present, NBFCs in India have become prominent in a wide range of activities like hire-

purchase finance, equipment lease finance, loans, investments, etc. By employing innovative

marketing strategies and devising tailor-made products, NBFCs have also been able to build up a

clientele base among the depositors, mop up public savings and command large resources as

reflected in the growth of their deposits from public, shareholders, directors and their companies,

and borrowings by issue of non-convertible debentures, etc.

According to KPMG survey The Indian Non Banking Finance Company (NBFC) sector has

often been relegated to the shadows, in most discussions on the Indian Financial Services (FS)

industry. Banks, insurance companies and capital market players take centre stage and

invariably, NBFCs attract public attention only during times of crisis. Little attention has been

paid to the silent but effective manner in which NBFCs have spread their operations across the

country. NBFCs have provided financial solutions to sections of society who hitherto were at the

mercy of unorganized players for credit and savings products, which were delivered on

economically and socially usurious terms. Ironically, in recent times, NBFCs are once again in

the spotlight for their perceived strengths and capabilities rather than their problems. While this

re-rating ought to bring cheer to a much maligned sector, a degree of caution needs to be instilled

within potential investors in NBFCs, who need to clearly understand the true drivers of value for

finance companies. This understanding is imperative to enable a better judgment of the intrinsic

worth of NBFCs.

This article proceeds to illustrate the key factors responsible for the strong re-rating of the

NBFC sector, as well as discuss the validity of each of these factors, as actual drivers of value.

Today, the NBFC sector is as financially sound as it has ever been. To an extent, this can be

attributed to the very problems affecting the sector which have resulted in the purging of several

players, leaving the fittest few to dominate the landscape. Taking the Reserve Bank of India‘s

(RBI) definition of ‗reporting NBFCs‘ as a proxy for non-dormant players, a mere 24 NBFCs

held 92.7 percent of the total assets of all NBFCs in 2005-2006. The balance assets, amounting

to less than 8 percent of the total, were fragmented across 439 NBFCs. In addition to this

consolidation, at present, NBFCs in general are well-capitalized with strong parent support. A

majority of active NBFCs reported capital adequacy ratios exceeding 12 percent.

1.6 ROLE OF NBFC’S

According to EPW Research Foundation (EPWRF the Indian economy is going through a period

of rapid `financial liberalization'. Today, the `intermediation' is being conducted by a wide range

of financial institution through a plethora of customer friendly financial products. The segment

consisting of Non-Banking Financial Companies (NBFCs), such as equipment leasing/hire

purchase finance, loan and investment companies, etc. have made great strides in recent years

and are meeting the diverse financial needs of the economy. In this process, they have influenced

the direction of savings and investment. The resultant capital formation is important for our

economic growth and development. Thus, from both the macroeconomic perspective and the

structure of the Indian financial system, the role of NBFCs has become increasingly important.

The crucial role of Non Banking Finance Institutions (NBFIs) in broadening access to financial

services, and enhancing competition and diversification of the financial sector has been well

recognized. The main advantages of these companies lie in their ability to lower transactions

costs of their operations, their quick decision-making ability, customer orientation and prompt

provision of services. While NBFIs are sometimes seen as akin to banks in terms of the products

and services offered, this is strictly not accurate, as more often, NBFIs play a range of roles that

complement banks. Further, Status Note on NBFCs

NBFIs can add to economic strength to the extent they enhance the resilience of the financial

system to economic shocks. A well developed and properly regulated NBFI sector is thus an

important component of broad, balanced, efficient financial System that spreads risks and

provides a sound base for economic growth and prosperity.

1.2 COMPANY OVERVIEW

Magma Fincorp Limited (formerly Magma Leasing Limited) was incorporated in 1988 and

commenced operations in 1989 in Kolkata. To strengthen its business, the company merged with

ARM Group Enterprises in 1992 and acquired Consortium Finance Limited, a north based NBFC

in 2000.

In early 2007, Magma acquired Shrachi Infrastructure Finance Ltd. (SIFL), a non-banking retail

financing company having network in West and South India. The combined entity was renamed

Magma Shrachi Finance Ltd.

On August 2008, the company was rechristened as Magma Fincorp.

We are headquartered in Kolkata (India), and registered with the Reserve Bank of India as an

asset financing NBFC. Magma is listed on National Stock Exchange and Bombay Stock

Exchange.

Magma today has a pan India presence with over 200 locations in 21 states and 1 UT and

represented by a qualified team of over 5700 Magmaites. Over 81% of our branches are located

in rural and semi rural areas and about 60% of our customers are from the hinterlands. The deep

rural and semi urban presence further emphasizes Magma's motto of providing equality of

opportunity to the economically disenfranchised. Magma today is one of the largest asset finance

companies and carries an asset base of Rs 13,293 crore.

In response to rapidly evolving demand, Magma offers individual and corporate customers a

range of financial products and services in:

Commercial Vehicle Finance

Construction Equipment Finance

Car and Utility Vehicle Finance

Suvidha Loans (Refinance)

Strategic Construction Equipment Finance

Tractor Finance

Gold Loan

SME Loans

Insurance

Magma not only provides a one-stop-shop financing facility to the wide base of customers, also

fulfils the dreams of millions of first-time entrepreneurs, catalyzing local economies and helping

the nation grow.

Magma has been one of the fastest growing asset financing companies in the country with a

CAGR (compounded annual growth rate) of more than 26% in business growth over the past five

years.

The rapid growth does not derive solely from a conscious initiative in growing our physical

infrastructure; it is also owing to careful investments in lasting relationships with team members,

alliance partners, customers and vendors.

Products/Services

Magma Fincorp Limited has a "diversified product portfolio" and has a strong presence in semi-

urban and rural areas. Magma has a bunch of financial products including

Commercial Vehicles Finance

Cars & Utility Vehicles Finance

Construction & Strategic Construction Equipment Finance

Tractor Finance

SME Loans

Suvidha (Refinance)

Commercial Vehicle Finance

Magma finances new commercial vehicles.

Magma focuses on first time buyers across semi – urban and rural areas.

Magma emerged as a preferred financing partner for vehicle manufacturers like Tata

Mahindra & Mahindra, Ashok Leyland, Volvo and Eicher Motors among others.

Cars & Utility Vehicles Finance

Provides loans to customers with or without proof of income, through its 'Income Proof'

and 'Non-Income Proof' schemes, extending its service to a wide range of customers.

Facilitates exchange schemes, where Magma buys old cars at attractive prices and

finance new cars at customer-friendly terms.

Vertical segregation of sales, credit and collection functions has helped Magma achieve a

rapid turnaround time in customer service.

Construction & Strategic Construction Equipment Finance

Magma finances construction equipment in the retail segment.

Has the shortest turnaround time in financing assets to customers.

Magma has entered into tie-ups with Telcon and JCB and works closely with L&T, Ace,

Caterpillar, Volvo and others to attain market leadership in the areas where present.

LC facilities for import and export of various kinds of equipment help customers take up

large projects in India and abroad.

Tractor Finance

Magma finances farmers owning less than six acres of land.

Magma is focused on rural tractor financing.

Magma has entered into a joint venture with agri-equipment manufacturer International

Tractors Limited through Magma ITL Finance Limited and also enjoys strategic alliance

with Mahindra & Mahindra, TAFE, John Deere, New Holland, etc.

SME Loans

Magma has engaged in unsecured lending for mid and semi large corporate following

comprehensive balance sheet appraisal.

Suvidha (Refinance)

Company initiated the financing of used commercial vehicles and financed first time

buyers and commercial vehicles 2 – 15 years old through schemes addressing the needs

of the lower-end of the customer segment.

Magma established equipment valuation norms, which were checked by independent

values and resident equipment managers prior to disbursement.

Installed a credit programme that ensured the customers’ compliance with existing

practices.

Magma strengthened process to reduce turnaround time coupled with stringent asset and

collections mentoring.

Vision & Mission

V I S I O N

The company's vision is to become the largest retail asset financing company in the country

M I S S I O N

Continue service excellence in retail financing to bring prosperity and happiness

to all.

Values

Openness and Transparency

We will foster honesty and frankness in all our dealings and be clearly discernible to

everybody we deal with.

Integrity and Credibility

We will act with the utmost intellectual and financial uprightness and will be seen acting

as such.

Fairness and Impartiality

We will be just in our dealings with others and practice empathy.

Trust and Respect for people

we will recognize and demonstrate through our actions, our inherent belief in the dignity

that every human being is entitled to.

Demanding excellence

we will, in demanding excellence of ourselves and others, exceed all expectations and

overcome perceived barriers.

Growth Path

1. 1989: Magma Leasing Limited commenced operations

2. 1992: Merged with Arm Group Enterprises to strengthen its business

3. 1996: Entered retail financing business for vehicles and construction equipment

4. 1998: Expansion of retail financing operations in Orissa and Chhattisgarh, thus expansion

of network in East India

5. 1999: Acquisition of Consortium Finance Ltd (CFL); expansion of network across 40

branches in North and East India

6. 2001: Strategic joint financing agreement with Citicorp

7. 2003: Strategic arrangement with ICICI Bank

8. 2005: Launched fee-based business - Insurance and Personal loan

9. 2006: Rolled out two new products - Used Vehicle Finance & Strategic Construction

Equipment

10. 25 August 2006: Magma Leasing and Shrachi Infrastructure merger announced; Magma

also entered into a tie-up with Maruti Udyog Limited, the country's largest carmaker, to

finance Maruti cars

11. 2007: Merger and integration of Magma Leasing and Shrachi Finance completed - pan-

India footprint with 160 offices in 20 states and asset base of over Rs 6,400 crore

12. August 2007: Magma Shrachi and International Tractors Limited (ITL) entered into a

joint venture to form Magma ITL Finance Limited

13. August 2008: Underwent a major branding exercise, subsequent to which the company

was renamed Magma Fincorp Limited

14. 2009: Entered into a tie-up with Ashok Leyland for financing of commercial vehicles.

15. 2009: Magma inks JV with German insurer HDI Gerling to enter general insurance

business.

16. 2010: Entered into a tie-up with Caterpillar India to finance the latter's entire range of

construction and mining machines.

17. 2011: Magma received the initial 'R1' approval from the Insurance Regulatory and

Development Authority (IRDA) to launch general insurance business

18. 2011: Kohlberg Kravis Roberts & Co. L.P. (together with its affiliates, "KKR") along

with International Finance Corporation ("IFC") invested Rs. 400 crore in Magma

19. 2012: Magma received the 'R2' approval from the Insurance Regulatory and

Development Authority (IRDA) to launch general insurance business

20. 2012: Launched Gold Loan Business

OUR STRENGTHS:-

A number of business-strengthening initiatives have helped us gain a leadership position in a

competitive industry.

Credit appraisal expertise

We have implemented credit screen-based and template-driven appraisal processes for

approval of new proposals. This has resulted in uniform quality of business sourcing

across all branches yet decentralization of credit decision to achieve faster turnaround

time (TAT).

Further, the portfolio quality is regularly monitored at regional levels on scientific

parameters and corrective measures are taken based on feedback from monitoring.

Collection expertise

To ensure complete focus for achieving timely collection of the instalments throughout

the month, we have introduced separate collection teams at all branches. The segregation

of sales and collection functions has also eliminated conflict in the two functions in

interactions with the customers and resulted in vastly improved collection efficiency and

lower NPAs.

Well-defined customer identification

when it comes to the kind of customer we fund, we walk the road less travelled: We focus

on the small customer as well as first-time vehicle and equipment user in under-served

areas. This reflects in our customer profile: over 80% of our customers are either first-

time buyers or small customers with 0-5 vehicles or equipment. This affords us a better

spread and intimate relationships.

Wide geographical presence

we are selectively present across 21 states and 1 UT, which offer us the benefit of under-

penetration, growing consumer aspirations and attractive returns. We are particularly

strong in the BIMARU states (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh) and

Orissa: We have 9 regional offices, 200 branches and 2,500 sourcing points (marketing

clusters) in this region.45% branches are located in rural India, 35% in semi-urban and

20% in urban areas.

This geographic selection works to our advantage: our 'fleet on the street' ensures a one-

point interface with our clients, leading to a lower cost and top-of-the-mind recall.

Prudent product portfolio mix

we finance products that power a growing India. Nearly 28% of our disbursement has

been towards the financing of commercial vehicles, (medium and heavy commercial

vehicles, light commercial vehicles and public bus), 19% towards the financing

construction equipment (excavators, loaders, motor graders, soil compactors, bore well

unit, tippers and other standard mining and road construction equipment) and 30%

towards multi-utility vehicles and passenger cars.

Over the years, we have introduced insurance products, strengthening our one-stop

service proposition.

We are also present in the SME loan segment. We have also extended our activities to the

financing of tractors. We have improved the share of high-yield products (used

Commercial Vehicle finance, Tractor finance and SME finance) in the overall

disbursement to 23%.

People oriented HR practices

At Magma, Human resources is a key function that instills self belief among the

employees and promotes leadership talent at various levels in all critical functions

including Sales, Recovery, Credit and Operations. Simple yet effective people sensitive

HR policies & programmers ensure a committed & engaged workforce. The effectiveness

of Magmaites is further enhanced through a performance oriented culture where the roles

and responsibilities are clearly defined and supported by sound performance management

systems and excellent career prospects.

IT systems and infrastructure

Information Technology (IT) is the biggest enabler for retail financing across our vast

distribution network and has attained unprecedented importance in achieving the business

goals. Over the years, we have made sustained investments in state-of-the-art

technologies to develop new systems or enhance the existing ones and achieve seamless

connectivity for data and voice across regions to facilitate online business, instant report

access for faster decision-making and improved service levels.

The entire business runs on Oracle-based centralized database and application systems

following three-tier architecture. Besides extensive VPN connectivity covering all the

Big Branches, CITRIX solution along with Netscape enables remotest of branches to gain

access to the Application Systems through the internet, enabling real-time availability of

information. We have also invested in Business Intelligence systems and tools to

facilitate deeper data analysis and informed decision-making.

A disaster recovery system with adequate redundancy is already provided as a

contingency measure.

This IT infrastructure is continuously upgraded with the latest innovations to synchronies

with our business growth.

INDICATIVE RATES

About Us - Indicative Rates

Normally applicable indicative minimum interest rates are :

Customer Category Rate

CAR

Personal Use 15.00%-20.25%

Commercial Use 18.00%-22.50%

Used Finance 19.50%-27.00%

CV

FTU/FTB 14.00%-18.25%

CAT B 13.65%-15.75%

CAT C 13.50%-15.25%

CAT D 13.00%-15.00%

SCV and others15.00 %- 22.75%


CE

FTB 14.50%-15.00%

Small customer 14.00%-14.50%

Ungraded Customer 13.50%-14.00%

Graded Customer 12.00%-12.75%


SUVIDHA

FTB 19.50%-27.50%

CATB 18.50%-25.50%

CATC 18.00%-24.50%

SME

Loan Amount

upto 24.99 Lacs 19.25%-20.75%

25 Lacs-49.99 Lacs 18.50%-20.00%

50 Lacs-99.99 Lacs 17.00%-18.50%

>=100 15.50%-16.50%

TRACTOR 19.30%-21.50%

GOLD LOAN 12%-26%

NOTES

1. CAR - The applicable rates vary depend on the following:

a. Mode of payment i.e. PDC or NPDC

b. Model of vehicle being procured i.e. MUV or Passenger

c. End use i.e. commercial or personal use

d. Segment of customer i.e. Income proof, Non income proof, First Time User(FTU)

Commercial, Non FTU Commercial

e. Tenor of loan

f. Location Category of customer

2. CV/ CE and Suvidha - The applicable rates vary depend on the following:

a. Segment of customer i.e. First Time Buyer and Fleet Owners

b. Tenor of loan

c. Location Category of customer

3. The above rates have been worked out based on cost of funds, risk premium and return

expectation

4. Rates are subject to change as and when warranted by the situation and are always

subject to the sole discretion of the management on case to case basis.

For further details, please contact Company's office nearest to you.

1.3 OBJECTIVES OF THE STUDY

1) The main objective of this study was to analyze the effectiveness of the loan recovery process

and procedure adopted by Magma Finance.

2) To determine the effectiveness of asset loan recovery.

The objective of the project was to determine Effectiveness of Asset Loan Recovery. Therefore

to get establish, company had to make its competitor’s analysis and need to determine where

they stand.

3) Benefits derived by assessing effectiveness of asset loan recovery:

- Feedback to organization regarding product.

- Formulating asset loan recovery strategies.

5) Identify pros and cons of the brand.

This was a fundamental objective of the whole research. Company wants to

Identify that where does the brand lack. In other words, what are the brands?

So that it can rectify them in order to establish the brand in the market.

6) Suggestions and recommendations.

The objective of the research was not only to find out the problem but also

The identification of solutions or suggestions of the problems

CHAPTER-II

LOAN RECOVERY PROCESS AND

PROCEDURE IN DIFFERENT

FINANCIAL INSTITUTIONS

Process and procedure of asset loan recovery in Magma finance.

1. In loan recovery case first step is that if applicant has a two aging then we send a letter. If the

applicant does not pay overdue installments then we send third and forth letter respectively.

2. If applicants becomes NPA (NON PERFORMING ASSET) then company adopts legal

procedure u/s 138 .

3. Branch Manager and collection employee visits applicant house.

4. When Applicant comes under fifth or six aging than companies again adopt legal procedure.

According to the law, applicant comes under section 9 & 17.

5. Company sends surrender letter to the applicant. Applicant signs the surrender letter then we

send recovery employee for picking the vehicle and if the applicant does not signs the surrender

letter than company takes order from court for recovery the loan. Company informs the nearest

police station regarding the recovery and then recovery employees pick the vehicle.

6. Company sells the vehicle after sixty days. Company sends letter to the applicant regarding

picking his vehicle from company yard. If the applicant not take his vehicle from company yard

than company evaluate the assets value and sale the assets.

Process and procedure of asset loan recovery in Axis Bank.

In govt. banking sector, if second installment is not paid by the applicant then bank sends

a letter under section 138.

Applicant has over due three installments than he is come under the three aging and

applicant becomes a NPA (non performing asset).

There after the legal process for Loan Recovery starts.

Letters are sent to the applicant’s place till 6th ageing. Branch Manager also visits the

place.

Then after 6th ageing Vehicle is picked up from the applicant and kept with the company

for around 60 days.

The applicant is sent a letter and asked to pay the installment and take the vehicle.

The vehicle is thereafter sold after 60 days.

If the applicant does not take the vehicle then the company sells off the vehicle.

Process and procedure of asset loan recovery in ICICI Bank.

1. In loan recovery case first step is that if applicant has a two ageing then applicant is called.

2. Reminder letter is send to the applicant.

3. Branch Manager and collection employee visits applicant house.

4. Vehicle picked up after the 6th ageing.

5. Company sends surrender letter to the applicant. Applicant signs the surrender letter then we

send recovery employee for picking the vehicle and if the applicant does not signs the surrender

letter than company takes order from court for recovery the loan. Company informs the nearest

police station regarding the recovery and then recovery employees pick the vehicle.

6. Company sells the vehicle after sixty days. Company sends letter to the applicant regarding

picking his vehicle from company yard. If the applicant not take his vehicle from company yard

than company evaluate the assets value and sale the assets.

Legal strategy of assets loan recovery

The following points were covered:-

Ways to strengthen legal

Legal action/decision taken against defaulter cases

Improving dealer relationship and business

Strategies to improve collections in the area

Strategies to improve self sourced business

WAYS TO STRENGTHEN LEGAL PROCEDURE

Legal aspect plays a significant role in any financial organization and is an integral part of the

recovery of loan amount. The NPA cases assumed as intentional defaulter, chronic defaulters and

other cases were recovery of loan amount through routine collection is not possible are usually

routed through court for realizing the loan amount. After a careful study of various legal aspects

in Patiala branch, the following key areas were identified were efforts should be concentrated to

strengthen the legal.

1) PROBLEM STATEMENT

Power of attorney allocation: It is seen that for most of the time the branch remains

unrepresented in the concerned court due to lack of power of attorney or unavailability of the

executive in the branch office.

SUGGESTION

Process of assigning Power of attorney should be redesigned in a way such that its allocation

is quick and once the legal executive takes charge of the office, he/she should be assigned the

power of attorney on immediate basis without delay. As without the power of attorney an

executive cannot represent the branch in the court.

Additional power of attorney vested with BM/TM: It is seen that attrition rate is too high in

the legal department and legal department remains unrepresented many a times so BM or TM of

the branch should also be vested with power of attorney so that in the absence of legal executive

they can represent the department and cases in the pipeline are not lost.


High attrition rate: It seen in the legal department. From the above statistics it can be seen that

it takes a on average two months to recruit a new executive and another 2 months for the new

executive to get the power of attorney meanwhile the branch remains unrepresented in the court.

SUGGESTION

To ensure that the attrition rate remains low and right candidate is selected it is proposed that the

following point should also be covered at the time of recruitment:

o Local person: The prospect must be a local resident so that he/she is available when

required, has links in the court and other department and it would be cost saving as well

as satisfying staying at home

o Legal Background: A person with a family background of legal should be preferred as

they have required links in the court and police department and in absence of the

executive someone else from the family can facilitate the process in emergency.

o Must have practiced: A practicing lawyer with adequate experience should be preferred.


It is seen that the present incentive system can be revised to give executives a greater opportunity

to earn more incentives. This would work as a motivating factor and also lead to increased

satisfaction among them

SUGGESTION

Method 1: Percentage of money realized: A small percentage of the amount recovered through

legal proceeding in the court can be fixed as incentive for the legal executive. This would

directly motivate the legal executive to concentrate on high amount cases and due to personal

interest involved executive would try t put the best efforts to convert the same.

Method 2: Special incentive for out of the court settlement: Out of the court settlement saves

companies time and resources so executives should be motivated to settle the cases in this way

by fixing a particular number of cases that should be converted to claim a special incentive.


Incomplete/wrong address: It is found that a number of cases are lost on account of incomplete

address or wrong address. The adequate details containing the exact house number and location

specially incase of villages is not available. It becomes very difficult to provide service,

summoning process gets delayed and many a times summon never reaches the required address.

SUGGESTION

Proper Address verification: Measures should be taken for proper address verification at the

time of field investigation. The investigating officer must personally visit every house before

approving a loan and note down the complete address with nearest landmark and a route map to

locate the residence should be attached with every case. The BA should confirm the exact

address at the time of Tele Verification to ensure no negligence has occurred during verification.

At the time of approving loan BM should also go through the address once and make sure that it

is complete in all aspects and if any detail is missing it should be immediately supplied.


Bribe to postman by customer: In case the customers is residing at a far flung area or in

outstation case, it becomes difficult for legal executive to reach the customer personally due to

long distance and time crunch, so the summon is sent through post. Now the customer pays bribe

to the postman and returns the summon citing “no one available at residence” or “address not

available”.

SUGGESTION

Proper Area Allocation: It is seen by the time summon would return after return advice it

would be a long time and resending summon again is a tedious task. So to eliminate this situation

proper area allocation should be done before processing the loan. This could be done by ensuring

the customer falls within the prescribed distance or region. It should be made sure that the area of

operation falls within the prescribed and approachable distance from branch. So distance based

distribution should be followed instead of area based distribution such that radius/distance from

branch should be considered and not specific areas as in many cases a single area covers a large

geographic distribution which is too far from branch. So an upper limit of distance from branch

should be specified considering various aspects like:

Total geographic area of the region

Number of branches in the region

Key business areas to be covered

LEGAL ACTION/DECISION TAKEN AGAINST DEFAULTER

CASES

There are various actions/ decisions taken against defaulter cases. The following sections are

most widely practiced:

Section 138 (Negotiable Instrument Act): Dishonor of cheque for insufficiency, etc., of funds

in the accounts.

Where any cheque drawn by a person on an account maintained by him with a banker for

payment of any amount of money to another person from out of that account for the discharge, in

whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of

the amount of money standing to the credit of that account is insufficient to honor the cheque or

that it exceeds the amount arranged to be paid from that account by an agreement made with that

bank, such person shall be deemed to have committed an offence and shall without prejudice to

any other provisions of this Act, be punished with imprisonment for 2["a term which may extend

to two year"], or with fine which may extend to twice the amount of the cheque, or with both

Section 9 (Arbitration Act): Power to party to appoint new arbitrator or in certain cases, a sole

arbitrator. Where an arbitration agreement provides that a reference shall be to two arbitrators,

one to be appointed by each party, then, unless a different intention is expressed in the

agreement.

CHAPTER-III

OBJECTIVES OF THE

STUDY

THE MAIN OBJECTIVES OF THE STUDY

To evaluate the asset loan recovery procedure of Magma fincorp limited in

Bathinda and Axis Bank and ICICI Bank .

To Know The Procedure Of Loan Recovery Used By Magma

CHAPTER-IV

RESEARCH METHODOLOGY

DATA COLLECTION

The main objective of this study was to analyze the effectiveness of the loan recovery process

and procedure adopted by Magma Finance.

Primary data

The primary data collected by filled the questionnaire from recovery employee and interaction

between branch managers of Axis Bank and ICICI Bank Branch manager. Primary data collected

from Magma employee.

Secondary Data

i) Company Profile

ii) Product Profile

iii) Competitors Profile

The data were collected through Internet.

Data Collection Method

I was visited to the recovery employee after taking permission from the branch manager.

Discussion with collection employee and recovery agent regarding the problem of assets

recovery. Interaction with AXIS BANK and ICICI bank recovery employee regarding the assets

loan recovery procedure.

CHAPTER-V

DATA ANALYSIS &

INTERPRETATIONS

1. Do you Take any Loan

Response No. of Peopleyes 80no 20

Series1

INTERPRETATION In the Survey I find that our of 100 people 80 people have taken a loan and only 20 people have not taken any loan.

2. From which Bank you have taken a Loan

Name of the Bank No. of PeopleICICI 20

Axis 18Magma 52

No. of People

No. of People

INTERPRETATION In the survey of 100 peoples 20 has taken loan from icici bank, 18 has taken a loan from Axis Bank and 52 has taken a loan from Magma.

3. For what Purpose you have taken a Loan

Loan Type No. PeopleTractor Loan 40Truck Loan 30

Car Loan 30

No. People

No. People

INTERPRETATION I take a survey of 100 people who are having a loan from which people 40 are taken Tractor loan, 30 are taken truck loan and 30 are taken car loan .

4. Do You Know the Legal Procedure of Recovery of Loan

Response No. of Peopleyes 30no 70

No. of People

No. of People

INTERPRETATION In the survey of 100 people only 30 people know the legal procedure of recovery of loan and rest 70 people don’t know the procedure

5. Do You agree that Legal Action will taken

Response No. of PeopleAgree 85Disagree 15

No. of People

No. of People

INTERPRETATION In the survey of 100 peoples 85 people are agree that legal action will taken against deflators and 15 people are not agree with this statement.

6. Do You agree that all Loan Recovered On Time

Response No. of People

Agree 50Disagree 50

No. of People

No. of People

INTERPRETATION In the survey I find that 50people are agree that all loan recovered on the time and 50 people are disagree with the question.

7. Do agree that Collection Executive plays the main role to recover the assets

Response No. of PeopleAgree 80Disagree 20

No. of People

No. of People

In the survey I find that 80 people are agree that collection executive plays the main role to recover the assets and 20 people are not agree with this statement.

8. Market value of the asset is helpful to recover the advances ?

Response No. of Peopleyes 85

no 15

No. of People

No. of People

INTERPRETATION

In the survey 85 people say that market value helps to recover the loan and 15 people says that market value of the asset does not help to recover the loan.

9. At what time company picked up the asset ?

Response No. of PeopleFirst notice 22nd reminder 8

1st visit of employee 10

6th ageing 80

No. of People

No. of People

INTERPRETATION In the survey 80 people are agree that asset picked up at 6th ageing

CHAPTER-VI

OBSERVATIONS AND FINDINGS

In assets loan recovery case company faces losses most of time when company disposes

the assets.

If applicant comes under 11th or 12th aging than company has full chance to face the loss

in this situation. If applicant does not pay the installment the collection employee makes

the proper follow-up of the applicant and assets because it is very help full for cover the

loss.

Market value of the product is very helpful to the cover asset loss.

If collection employee does not make a proper follow-up of the applicant then it is very

difficult to trace the assets. In this case, the company faces 100% loss.

In the case of utility vehicle like Alfa passenger resale value of the assets is very low.

CHAPTER-VII

LIMITATIONS AND RECOMMENDATIONS

Limitations:-

Any new project is likely to have its share of limitation. Most of the stage which constitute the

recovery frame work, contribute to the overall limitation and also during course, assets loan

recovery in Magma finance.

Mention below can be some limitation:-

.

Creating evaluation criteria is always a problem, whether to quantify the required level or

calculating the actual level.

The time constraint did not allow validating the results obtained.

Communication gap between the employee and applicant.

Recommendations:-

If the Company wants to reduce the defaulters then check reference of customer.

Viability of installment is very important for the applicant to pay the installment.

Company use “fard” for the recover the assets loss.

If the applicant becomes an NPA then the company should start the legal process.

If applicant has good track before the overdue of installment then company should reduce

the valid interest so that applicant is able to pay the installment.

CHAPTER-VIII

CONCLUSION

As analyzed in the analysis and interpretation part the following conclusions have been drawn.

1. In the majority of the cases both the banker and borrower are responsible to become an

account NPA. The reasons may be different in their own sides.

2. The problem of NPA is behavioral as well as economic in nature.

3. Due to lagging in proper realizable security from the borrowers, banks are facing

difficulty to recover its loans and advances.

4. The monitoring mechanism of the bank is one of the reasons to become an account NPA.

5. After lending the amount, the attitude of the lender and borrower are changing due to

some circumstances.

6. The borrowers are turning towards willful defaulters due to some problem in procedure

of debt realization.

7. They have continuous monitoring and follow up deficiency.

8. Bankers are lagging in continuous check, inspections, guiding to borrowers as there are

the right of the banks.

9. At the time bank can ask for the required information as they needed for the performance

evaluation of the project.

10. From the bankers’ side the main fault is not having proper security or adequate security

in some cases.

CHAPTER -IX

ANNEXURE

1. Do you Take any Loan

Response No. of Peopleyesno

2. From which Bank you have taken a Loan

Name of the Bank No. of PeopleICICIAxisMagma

3. For what Purpose you have taken a Loan

Loan Type No. PeopleTractor LoanTruck LoanCar Loan

4. Do You Know the Legal Procedure of Recovery of Loan


5. Do You agree that Legal Action will taken

Response No. of PeopleAgreeDisagree

6. Do You agree that all Loan Recovered On Time


7. Do you agree that Collection Executive plays the main role to recover the assets


8. Market value of the asset is helpful to recover the advances?


9. At what time company picked up the asset?

Response No. of PeopleFirst notice2nd reminder1st visit of employee

6th ageing

REFERENCESFor the purpose of the study the following books have been

Referred :-

Books Referred:

1. Management Accounting : Shashi K. Gupta

2. Financial Management : Shashi K. Gupta

3. Investment Management : V. K.Bhalla

Website:-

Error! Hyperlink reference not valid. accessed on 4july2012

http://www.magma.com accessed on11july2012

http://www.obc.com accessed/on11july2012

Error! Hyperlink reference not valid. accessed on 11july2012

http://rbi.gov accessed/on12july2012

http://googal.com accessed/on12july2012

http://googal.com/

http://rbi.gov/

http://www.obc.com/

http://www.magma.com/

Loan Recovery (1)

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