1. 1
1. INTRODUCTION OF PROJECT
My survey is based on role of financial ratio for IDBI bank while lending finance to
any organization. By conducting this survey I came to know what is the procedure of lending in
case of IDBI bank. My project speaks about the banking system India, different type‘s banks and
its services. Its gives better idea about the major banking sectors and its operations
in India. It contains company profile of IDBI bank, its products chart and organizational chart In
the later sections we will see various types of financial ratio and its importance for a bank in case
of disbursement of loan to a company.
The most widely emphasized goal of the firm is to maximize the value of the firm to its
owner‘s .This is possible only when, it has sufficient financial resources to meet the
long term and short term requirements. Funds are invariably required to carry on the various
activities of a business. Thus, Finance is a significant factor of every business. Funds can be
procured through various modes .Banks play an important role in the industrial economy of
India. Bank loans are the primary source of funds for private limited companies.Though lending is the
primary activity of the bank, they are very cautious in granting theloans to their clients because
their funds are collected from the general public in the form of deposits that can be withdrawn at a
shortnoticeatanytime.
Before providing finance to the company, bank assesses the ability of the business to repay
its debts on maturity through their financial statements. Analysis of financial statements helps the
banker to know the financial position of the business which enables the banker to take better
decisions. Among the various tools for evaluating the financial statements, ratio analysis is the
most widely used tool, as it helps us to measure the financial and operational performance of any
business. Ratio analysis will facilitate meaningful and purpose oriented decision making,
depending on the evaluator‘s requirements.

2. 2
2. RESEARCH OBJECTIVE:
1. To know the importance financial ratio.
2. To know the role played by financial ratio in IDBI bank towards disbursement of loan
to the various organization.
3. To know what are the techniques followed by the loan officer of IDBI bank.
4. Toassesstheshort-termand long-termsolvencyofthecompany.
5. Toknowtheefficiencyoffinancialoperations.
6. Topredictthefinancialhealthandviabilityofthecompanywithspecialreferencetothedebtcapacity.
7. Toprovidesuggestions forimproving thefinancialposition.

3. 3
3. METHODOLOGY
Methodology plays a significant role in any study including social science
research. It provides the essential tools/techniques to carry out the study in a
scientific manner. The concept of truth, usefulness, acceptability could be ascertained
through paper quantification, verification of facts through different method of study.
The reliability and validity of the study /project depend upon the methods/procedures used.
Keeping this in view, the following methods has been employed to carry out the
present study.
SECONDARY DATA:-
It will be collected from already available source like-
1. Magazines, journals, newspapers
2 .Different books
3. Reference to the existing work done in this area.
4. Reference to the various reports, material, published by the company
5. Internet
DATA ANALYSISTOOLS
1. Ratio analysis.
2. For data representation tables and graphs will be used.

4. 4
4. REVIEW OF LITERATURE
1. Many of the research works have been conducted, over the period to evaluate the
financial position of the company with the help of the various ratios or by applying
the Multiple Discriminate Analysis to predict the corporate performance.
2. Bagchi S.K (2004) analyzed about practical implication of accounting ratios in risk
evaluation and concluded that accounting ratios are still dominant factors in the
matter of credit risk evaluation.
3. Krishna Chaitanya (2005) used Z model to measure the financial distress of IDBI
andconcluded that IDBI is likely to become insolvent in the years to come. From
The above reviews, the researcher identified the research gap which could be dealt
in this study.
4. Whereas Mansur. A .Mulla (2002 made a study in Textile mill with the help of Z
score model for evaluating the financial health with five weighted financial ratios
and followed by Selvam M, and others (2004).

5. 5
5. LIMITATIONS OF THE STUDY
No study is an ultimate effort. It always leaves room for improvement and it is the limitation of
one study, which serves as the bases for further research ventures. Even though, sincer efforts
are taken to ensure that an exact picture can be arrived at, still there may be some limitations
related to the study. These are listed as below:
1. This study is limited to only one financial institution i.e. IDBI Bank.
2. The study is limited to time, cost and effort of the investigator
3. In a few span of period it is not possible to collect all the information.
4. As I am a stranger to the company, companies are being heisted to provide to right or
valid data which is very much important for my study and it forced me to rely on
secondary data to grate extend.
5. There may be some vital information which the organization may feel reluctant to
share. They may give some wrong information.

6. 6
1.1 INTRODUCTION OF FINANCIAL SYSTEMS
The Financial System Financial System Financial System Financial System is a set or
aggregation of institutions, instruments, markets and services. A complex interplay of these
components makes the financial system vibrant .
As with any other system, the financial system too has a paramount objective, i.e. to ensure
smooth flow of money from those who have it [savers] to those who want to use it [users], so
that the latter can make an effective use of the same, in the process benefiting them selves, the
savers and the economy as a whole.
CHART-1-STRUCTURE OF FINANCIAL SYSTEM

7. 7
1.2 FINANCIAL SYSTEM CONSTITUENT
Financial Institutions are engaged in the business of ‗money or finance‘. They can be further
classified into three categories:
1. Intermediaries
2. Non-Intermediaries
3. Regulatory Agencies
1. Intermediaries
Intermediaries are the financial institutions that accept deposits from the savers and channelize
the same as lending/ investment to the users. In other words, financial Intermediaries function as
a bridge between the savers and the users in any economy. The financial intermediaries by their
smooth ‗conduit function‘ make the economy infinitely more efficient in the usage of money.
Examples of financial intermediaries are:
Banks
Investment Companies
Non-Banking Finance Companies [NBFCs]
,Insurance companies
Mutual funds
Stock Brokerages
Credit Card Companies
2. Non Intermediaries
These are popularly known as Development Banks. These institutions fund the users of money,
but, as a matter of policy, do not accept deposits from ordinary savers. They get funds from their
owners or members as capital contribution/subscription & not from depositors.
Classic examples of such institutions in the international context are:
Asian Development Bank
World Bank

8. 8
International Monetary Fund (IMF).
State Financial Corporations (In the Indian context)
3. Regulatory
These are agencies whose sole function is to monitor and regulate the functioning of the
intermediaries and non-intermediaries and are referred to as ‗Regulatory Authorities ‘.They are
like the traffic cops that lay down the ―Do‘s and Don‘ts‖ for the players in the market. To make
their regulations enforceable, these agencies are generally armed with punitive powers, which
can be exercised in case of non-compliance by any of the players.
1.3 FINANCIAL INSTITUTIONS
Financial institutions have traditionally been the major source of long-term funds for the
economy in line with the development objective of the state. A wide variety of financial
institutions (FIs) emerged over the years. While most of them extend direct finance, some also
extend indirect finance and still some others extend largely refinance.
A financial institution acts as an agent that provides financial services for its clients or members.
Financial institutions generally fall under financial regulation from a government authority.
Common types of financial institutions include banks, building societies, credit unions, stock
brokerages, asset management firms, and similar businesses.
1.4 FUNCTION
Financial institutions provide a service as intermediaries of the capital and debt markets. They
are responsible for transferring funds from investors to companies, in need of those funds.
The presence of financial institutions facilitate the flow of monies through theeconomy. To do
so, savings are pooled to mitigate the risk brought vide funds for loans. Such is the primary
means for depository institutions to develop revenue. Should the yield curve become inverse,
firms in this arena will offer additional fee-generating services including securities underwriting,
and prime brokerage .

9. 9
1.5 TYPES OF FINANCIAL INSTITUTIONS
Financial Institutions can be broadly categorised as all India or state level institutions depending
on the geographical coverage of their operation. Based on their major activity, all-India financial
institutions (AIFIs) can be classified as
(i) Term-lending institutions [IFCI Ltd., Industrial Investment Bank of India (IIBI)
Ltd.Infrastructure Development Finance Company (IDFC) Ltd., Export-Import
Bank of India (EXIM Bank) and Tourism Finance Corporation of India (TFCI)
Ltd.] which extend long-term finance to different industrial sectors.
(ii) Refinance institutions [National Bank for Agriculture and Rural
Development(NABARD), Small Industries Development Bank of India (SIDBI)
and National Housing Bank (NHB)] which extend refinance to banking as well as
non-banking financial intermediaries for on-lending to agriculture, small scale
industries (SSIs) and housing sectors, respectively; and
(iii) Investment institutions [Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC) and its erstwhile subsidiaries) which deploy
their assets largely in marketable securities. State/regional level institutions area
distinct group and comprise various State Financial Corporations (SFCs), State
Industrial and Development Corporations (SIDCs) and North Eastern
Development Finance Corporation (NEDFi) Ltd. Some of these FIs have been
notified as Public Financial Institutions (PFIs) by the Government of India under
Section 4A of the Companies Act,1956.
1.6 INTRODUCTION OF BANKING SYSTEM
1.6.1 DEFINITION OF A BANK
The term bank is generally understood as an institution that holds a banking license granted by
the Bank regulatory authority and is provided rights to conduct the most fundamental banking
services. All banks come under the Intermediaries categories functioning as a bridge between the
savers and the users.
Bank is a commercial institution licensed as a receiver of deposits. It is a financial institution that
accepts deposits and channels the money into lending activities. It provides banking
services for profit. The essential function of a bank is to provide services related to the storing of

10. 10
deposits and extending of credit. A bank generates profits from transaction fees on financial
services and on the interest it charges for lending.
1.6.2 BANKING SERVICES
Although the nature of services offered by a bank depends upon the type of the bank and the
country, the primary services provided include
(i) Taking deposits from the general public and issuing checking and savings
(ii) Accounts, keeping money safe while also allowing withdrawals when needed
(iii) Providing loans to individuals, businesses & Corporate
(iv) Encashing cheques
(v) Facilitating money transactions such as wire transfers and cashiers checks(Inter Bank,
Intra Bank, Inter/Intra country etc…)
(vi) Issuing credit cards, ATM, and debit cards
(vii) Storing valuables, particularly in a safe deposit box
(viii) Facilitation of standing orders and direct debits, so that payments for bills can be
made automatically
1.6.3 BANKING SYSTEM IN INDIA
Indian Banking System is fairly complex because of the presence of a variety of banks and
a phenomenal number of branches. (Possibly; in terms of sheer branch network, Indian banking
system could be reckoned as the largest in the world.
Incidentally,SBI is the largest bank in terms of number of branches/ personnel. As for the structu
re, theMinistry of Finance is the super-regulator with RBI operating under its guidance.
RBI is, the regulator of the banking system in India. It is responsible for bank licensing, as well
as branch licensing, issuing directives and supervising the functioning of banks.It is empowered
with punitive powers that can be exercised against errant banks. Besides the RBI, there are
agencies such as the Deposit Insurance, Corporation &Guarantee Corporation of India (DICGC)
and the Banking Ombudsman that have Jurisdiction over banks in select matters Categories of
banks in India include: Public Sector Banks, Private Sector Banks ,Foreign Banks, Cooperative
Banks Local Area Banks and Regional Rural Banks. Examples of Public sector banks are SBI &
its associates and nationalized banks such as Canara Bank, UCO Bank, Syndicate Bank, etc. Old
generation Private sector banks include: Karur Vysya Bank, Federal Bank, Catholic Syrian
Bank, etc. & those incorporated after 1992 are branded as ―New Private Sector Banks. E.g.:

11. 11
HDFC Bank, ICICI Bank and Indusind Bank.Foreign banks are those that are incorporated
outside India but carry on their operations in India under license from the RBI [E.g.: Citibank,
Standard Chartered, HSBC Bank, etc.While the above categories of banks are treated
as ‗commercial banks‘, there are also other banks in India such as Cooperative Banks, Local
Area Banks and Regional Rural Banks. The regulatory frame work could vary in detail from one
category of banks to another.
1.6.4 KINDS OF BANKS
Financial requirements in a modern economy are of a diverse nature, distinctive variety and large
magnitude. Hence, different types of banks have been instituted to cater to the varying needs
of the community.
Banks in the organized sector may, however, be classified in to the following major forms:
1. Commercial banks
2. Specialized banks
3. Co-operative banks
4. Central bank
1.COMMERCIAL BANKS:-
Commercial banks are joint stock companies dealing in money and credit. In India, however
there is a mixed banking system, prior to July 1969, the entire commercial Banks-73 scheduled
and 26 non-scheduled banks, except the state bank of India and its Subsidiaries-were under the
control of private sector. On July 19, 1969, however, 14 major commercial banks with
deposits of over 50 Corers were nationalized. In April 1980, another six commercial banks of
high standing were taken over by the government.
At present, there are 20 nationalized banks plus the state bank of India and its 7 subsidiaries
constituting public sector banking which controls over 90 per cent of the banking business in the
country.

12. 12
2. SPECIALIZED BANKS:-
There are specialized forms of banks catering to some special needs with this unique nature of
activities. There are thus,
1. Foreign exchange banks
2. Industrial banks
3. Development banks
4. Land development banks
5. Exim bank.
3. CO-OPERATIVE BANKS:-
Co-operative banks are a group of financial institutions organized under the provision so f the
Co-operative societies Act of the states. The main objective of co-operative banks is to provide
cheap credits to their members. They are based on the principle of self-reliance and mutual co-
operation. Co-operative banking system in India has the shape of a pyramid a three tier structure,
constituted by
CHART-2
Primary credit socities
(Apex)
Central co-operative
(district level)
State co-operative Bank
(village,town,cities)

13. 13
4. CENTRAL BANK:-
A central bank is the apex financial institution in the banking and financial system of a country.
It is regarded as the highest monetary authority in the country. It acts as the leader of the money
market. It supervises, control and regulates the activities of the commercial banks. It is a service
oriented financial institution. India‘s central bank is the reserve bank of India established in
1935.a central bank is usually state owned but it may also be a private organization. For
instance, the reserve bank of India (RBI), was started as a shareholders‘ organization in 1935,
however, it was nationalized after independence, in 1949.it is free from parliamentary.
1.6.5. INDIAN BANKING INDUSTRIES
In India the banks are being segregated in different groups. Each group has their own benefits
and limitations in operating in India. Each has their own dedicated target market. Few of them
only work in rural sector while others in both rural as well as urban. Many even are only catering
in cities. Some are of Indian origin and some are foreign players.
MAJOR BANKS IN INDIA
ABN-AMRO Bank
• Abu Dhabi Commercial Ban
• American Express Bank
• Andhra Bank
• Allahabad Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Bank of Punjab
• Bank of Rajasthan
• Bank of Ceylon
• BNP Paribas Bank
• Canara Bank
• Catholic Syrian Bank
• Central Bank of India
• Centurion Bank
• China Trust Commercial bank
• Citi Bank
• City Union Bank
• Corporation Bank

14. 14
• Indian Overseas Bank
• Indusind Bank
• ING Vysya Bank
• Jammu & Kashmir Bank
• JPMorgan Chase Bank
• Karnataka Bank
• Karur Vysya Bank
• Laxmi Vilas Bank
• Oriental Bank of Commerce
• Punjab National Bank
• Punjab & Sind Bank
• Scotia Bank
• South Indian Bank
• Standard Chartered Bank
• State Bank of India (SBI)
• State Bank of Bikaner & Jaipur
• State Bank of Hyderabad
• State Bank of Indore
• State Bank of Mysore
• State Bank of Saurastra
• Dena Bank
• Deutsche Bank
• Development Credit Bank
• Dhanalakshmi Bank
• Federal Bank
• HDFC Bank
• HSBC
• ICICI Bank
• IDBI Bank
• Indian Bank
• State Bank of Travancore
• Syndicate Bank
• Taib Bank
• UCO Bank
• Union Bank of India
• United Bank of India
• United Bank Of India
• United Western Bank
• UTI Bank
• Vijaya Bank

15. 15
1.6.6. UPCOMING FOREIGN BANKS IN INDIA
By 2009 few more names is going to be added in the list of foreign banks in India. This is as an
aftermath of the sudden interest shown by Reserve Bank of India paving roadmap for foreign
banks in India greater freedom in India. Among them is the world's best private bank by Euro
Money magazine, Switzerland's UBS.
The following are the list of foreign banks going to set up business in India:-
• Royal Bank of Scotland
• Switzerland's UBS
• US-based GE Capital
• Credit Suisse Group
• Industrial and Commercial Bank of China

16. 16
2.1 INTRODUCTION TO LOAN
Loan is a type of debt. A loan entails the redistribution of financial assets over time, between the
lender and the borrower.
One of the reasons for boom in Indian economy is that now a days loans are easily available and
the rate of interests at which they are available are very reasonable. Banks are giving loan for and
loan against any and every thing. Government too is encouraging people to take loans for certain
purposes. For example, government is encouraging people to take housing loans by giving tax
concessions.
2.2 TYPES OF LOAN
1. Home Loans
2. Auto Loans
3. Business Loans- Business loans are available to firms and corporations to meet
their operating expenses; to finance for capital expenditure / acquisition of fixed assets
towards starting / expanding a business or industrial unit; and to swap existing high cost
debt from other bank / financial institution etc .Maximum amount of business loan that
can be sanctioned varies from bank to bank. Generally, the maximum loan amount is Rs.
25 lakhs and maximum loan tenure is 5years.
4. Education Loans
5. Marriage Loans
6. Personal Loans
7. Loans against
8. Loans against share

17. 17
2.3 HOW IS A LOAN PROCESSED?
Banks are experts at analyzing financial condition of potential borrowers. Depth of analysis
depends on size of the loan, type of loan (revolving line of credit, seasonal loan backed by
inventory or receivables, or term loan with lien on some asset), and whether or not the applicant
is known to the bank. Naturally, the type of loans a bank is willing to offer is at the heart of its
strategy, and that determines the parameters for pricing different loans.
Initial bank loan application, interview and negotiation with loan officer
A local branch loan officer, who receives an initial inquiry from a potential borrower, must
conduct a complete analysis of the client. The first step is to determine whether the type of loan
the client wants is available from the bank (i.e. if it is part of bank's strategy). The loan officer
will reject a request if i) the information provided is insufficient, ii) the bank does not offer the
type of financing requested, or iii) there is doubt as to the ability of the borrower to repay the
loan. If the request is not rejected, the loan officer is then responsible for gathering of all the
information essential to conduct a complete investigation of the applicant.The information
requested is usually a business plan with financial statements for the past three years, cash flow
statements, tax returns, pro forma (or projected) statements and budgets, such as, especially, a
cash budget. A cash budget is essential for a revolving line of credit and a season loan because it
must show the pattern of loan repayment down to zero.Since a cash budget covers only 12
months, it is not as crucial for term loans with installments extending over several years, but it
still illustrates a company's handling of its obligations.Other information that may be needed
deals with the nature of the activity or asset being financed, documents related to the collateral or
personal financial statements of business owners, especially if the firm is a closely held
corporation, a partnership or sole proprietorship. The bank officer must also supplement all the
documents received with personal observations about the applicant. It is during a crucial initial
interview that judgmental observations about the applicant are recorded by the loan officer while
checking the completeness of the loan application with its supporting documents.
The investigation involves the use of credit reporting agencies, inquiries to other banks of the
client, checking public records for liens or judgments against applicant, as well asassembling all
relevant information about the nature of the industry and the history of the company.
When you submit your business loan application, it may seem like it disappears into a black hole.
But understanding how the commercial loan processing system works can help reduce your
anxiety while you wait for approval. Some lenders like to prequalify potential borrowers to
determine how much they can afford. This will also give you and your lender an opportunity to
see which loan program would be most appropriate for your needs. The lender will gather basic
information, such as your income and existing debts. To initiate the loan process, you must then
complete and submit a loan application.

18. 18
Once your application is received, a loan officer or processor will review your creditrports, the a
mount of available collateral, and your income. Your loan officer will determine if any additional
documentation is required, such as personal financial statements. If you are purchasing real
estate, you may also need to submit preliminary environmental reports, area maps, title
reports, property appraisals, and lease summaries. If you are going through a broker he or she
will package your loan requestand submit it to several lenders for approval.
After your commercial loan package is submitted to the decision makers — either a loan
committee or underwriter — the processor will present you with a letter of intent or term sheet.
This is a formal document intended to ensure that all parties involved (the lender and your
company) are on the same page. The letter of intent may include the names of involved parties,
amount of financing, type of security (collateral), and other key terms.During the underwriting
process, you may need to furnish additional documentation.If you are using a broker, he or she
should be helping you negotiate the best terms, fees, and conditions from various lenders. The
next step is choosing the most attractive offer, and signing and returning the final letter of intent
along with a check, if required, for a deposit, and to pay for third-party reports, such as
appraisals.
2.4. CREDIT RISK RATING
Credit risk rating is a rating assigned to borrowers is based on an analysis of their ability and
willingness to repay the debt taken from the bank. This rating is assigned on a scale, which
generally has 6 to 8 levels. Companies falling in the same credit risk category have similar
probability of default. Better the rating, lower is the probability of default. The probability of
default increases in an exponential manner as the credit risk rating deteriorates.
Uses of Credit Risk Rating
Credit risk rating is one of the important tools to decide in the following matters:
Whether to lend to a borrower or not:
The credit risk rating of a borrower determines the appetite of the bank in determining exposure
level. A bank would bewilling to lend to highly rated borrowers but would not like exposure to
borrowerswith very poor credit risk rating.

19. 19
Pricing : The risk premium to be charged to a borrower should be determined by its credit
risk rating. Borrowers with poor credit rating should be priced high.
Risk Mitigants: The extent of collateral security required and the need to step up
marginrequirements are linked to credit risk rating of a borrower. The higher the risk category of
a borrower, the greater should be the value of collateral and/or the margins.
Product mix: There is need to gradually shift from the present form of credit facility by way of
Cash Credit limit to Term Lending in Working Capital.
Level of decision-making: The delegation of loan sanction/approval powers can be linked to the
credit risk rating of a borrower. For low risk borrowers, higher power of approval can be at the
branch level to facilitate faster sanctioning of loans there by ensuring better customer service.
For higher risk borrowers, approval from higher levels may be considered.
Frequency of renewal and monitoring: Renewal of facility in case of high rated borrowers can
be considered at longer intervals as compared to low rated borrowers. Credit risk ratings
eventually help a bank to assign a probability of default for borrower according to its risk
category. This probability of default is determined statistically from past data by observing the
behavior of various rated clients over a number of years. The expected losses from a loan can be
determined using this probability of default. This probability will then help to determine the
terms and conditions for the loans in terms of the amount, interest rate to be charged, maturity
etc. Credit risk rating will be just one of the inputs which will be used in making the credit
decisions, besides other factors like collateral provided, period and quality of relationship with
the borrower, portfolio concentration etc.
2.5. RBI GUIDELINES ON CREDIT RATING
Banks should have a comprehensive risk scoring/rating system that serves as a single point
indicator of diverse risk factors of counter party and for taking credit decisions in a consistent
manner. To facilitate this, a substantial degree of standardization is required in ratings across
borrowers. The risk rating system should be designed to reveal the overall risk of lending, critical
input for setting pricing and non- price terms of loans as also present meaningful information for
review and management of loan portfolio. This risk rating, in short, should reflect the underlying
credit risk of the loan book. The rating exercise should also facilitate the credit granting
authorities some comfort in its knowledge of loan quality at any moment of time. The risk rating
system should be drawn up in a structured manner, incorporating, inter alia, financial analysis,
projections and sensitivity, industrial and management risks. The banks may use any number of
financial ratios and operational parameters and collaterals as also qualitative aspects of

20. 20
management and industry characteristics that have bearings on the credit worthiness of
borrowers.
Banks can also weigh the ratios on the basis of the years to which they represent for giving
importance to near term developments. With in the rating framework, banks can also prescribe
certain level of standards or critical parameters, beyond which no proposals should be
entertained. Banks may also consider separate rating framework for large corporate/small
borrowers, traders, etc. that exhibit varying nature and degree of risk. Forex exposures assumed
by corporate who have no natural hedges have significantly altered the risk profile of banks.
Banks should, therefore, factor the un hedged market risk exposures of borrowers also in the
rating framework. The overall score for risk is to be placed on a numerical scale ranging between
1-6, 1-8, etc. On the basis of credit quality. For each numerical category, a quantitative definition
of the borrower, the loan‘s underlying quality, and an analytic representation of the underlying
financials of the borrower should be presented. Further, as a prudent risk management policy,
each bank should prescribe the minimum rating belowwhich no exposures would be undertaken.
Any flexibility in the minimum standardsand conditions for relaxation and authority, therefore, s
hould be clearly articulated in theLoan Policy. The credit risk assessment exercise should be
repeated biannually (or even at shorter intervals for low quality customers) and should be
delinked invariably from the regular renewal exercise .The updating of the credit ratings should
be undertaken normally at quarterly intervals or at least at half-yearly intervals, in order to gauge
the quality of the portfolio at period icintervals. Variations in the ratings of borrowers over time
indicate changes in credit quality and expected loan losses from the credit portfolio. Thus, if the
rating system is to be meaningful, the credit quality reports should signal changes in expected
loan losses. In order to ensure the consistency and accuracy of internal ratings, the responsibility
for setting or confirming such ratings should vest with the Loan Review function and examined
by an Independent Loan Review Group. The banks should undertake comprehensive study on
migration (upward – lower to higher and downward – higher to lower) of borrowers in the
ratings to add accuracy in expected loan loss calculations.

21. 21
3.1. INTRODUCTION OF DEVLOPMENT BANK
The economic development of any country depends on the extent to which its
financial system efficiently and effectively mobilizes and allocatesresources.There
are a number of banks and financial institutions that perform this function;one of
them is the development bank. Development banks are unique financial institutions
that perform the special task of fostering the.
Development of a nation, generally not undertaken by other
banks Development banks are financial agencies that provide medium-and long-
term financial assistance and act as catalytic agents in promoting balanced
development of the country. They are engaged in promotion and development of
industry ,agriculture, and other key sectors. They also provide development services
that can aid in the accelerated growth of an economy.
3.2. OBJECTIVES OF DEVLOPMENT BANK
The objectives of development banks are:
1. To serve as an agent of development in various sectors, viz. industry, agricult
ure and international trade
2. To accelerate the growth of the economy
3. To allocate resources to high priority areas
4. To foster rapid industrialization, particularly in the private sector, so as to provide
employment opportunities as well as higher production
5. To develop entrepreneurial skills
6. To promote the development of rural areas.
7. To finance housing, small scale industries, infrastructure, and social utilities.
In addition, they are assigned a special role in:
8. Planning, promoting, and developing industries to fill the gaps
inindustrial sector.Coordinating the working of institutions engaged in financ
ing, promoting or developing industries, agriculture, or trade, rendering prom
otional servicessuch as discovering project ideas, undertaking feasibility stud
ies, and providing technical, financial, and managerial assistance for the
implementation of projects.

22. 22
3.3. COMPANY OVERVIEW OF IDBI BANK
The Industrial development bank of India (IDBI) was established in 1964 by parliament as
wholly owned subsidiary of reserve bank of India. In 1976, the bank‘s ownership was
transferred to the government of India. It was accorded the status of principal financial institution
for coordinating the working of institutions at national and state levels engaged in financing,
promoting, and developing industries.
IDBI has provided assistance to development related projects and contributed to building up
substantial capacities in all major industries in India. IDBI has directly or indirectly assisted all
companies that are presently reckoned as major corporate in the country. It has played a
dominant role in balanced industrial development. IDBI set up the small industries development
bank of India (SIDBI) as wholly owned subsidiary to cater to specific the needs of the small-
scale sector.
In 2004, IDBI Bank and IDBI Limited were merged to form IDBI - a Universal Bank. IDBI
created history as the company profile includes the building up of leading financial institutions in
India namely:
1. National Stock Exchange of India (NSE)
2. The National Securities Depository Services Limited (NSDL)
3. Stock Holding Corporation of India Ltd. (SHCIL)
Currently enjoying the position of the tenth-largest development bank in the world, IDBI has
employee strength of around 15435 employees. The careers at IDBI are among the most desired
ones for anyone in the finance industry. Also the recruitments are done on the basis of exams
conducted regularly. The results are displayed on the official IDBI website. The result of the
exam decides your merit for a career at IDBI Bank India Ltd.
With a web of 1284 branches, 2156 ATM and895 Centers, IDBI plans to reach as many
customers as possible and provide finance solutions to one and all. The Chairman and MD
of IDBI –Mr. Rajendra Mohan Malla aims to take the bank to universal standards fulfilling the
commitments made to the people in India.
3.4 FINANCIAL HIGHLIGHTS
The Board of Directors of your Bank is pleased to present its Report on the business and
operations of your Bank for the financial year ended March 31, 2013. Your Bank''s performance
during the financial year 2012-13 improved significantly on many fronts, enabled by strategic
policy initiatives, enhanced reach in terms of branch and ATM network and focussed customer

23. 23
service delivery. As on March 31, 2013, your Bank''s aggregate deposits and advances touched
Rs. 2,27,116 crore and Rs. 1,96,306 crore, respectively, reflecting a corresponding growth of
7.90% and 8.71% over the previous year. The Performance highlights of your Bank for the
period under review is presented in Table.
TABLE NO.-1
Financial Highlights (Rs. crore)
As on March 31, 2012 2013
Capital 1,278.4 1,332.7
Reserves & Surplus 18,148.7 19,902.5
Deposits 2,10,492.6 2,27,116.5
Borrowings 53,477.6 65,808.9
Other Liabilities & Provisions 6,919.0 8,607.9
Total liabilities 2,90,316.3 3,22,768.5
Cash & Balances with RBI 15,090.2 10,544.0
Balances with Banks & Money at Call
& Short Notice 2,967.4 7,380.6
Investments 83,175.4 98,801.0
Advances 1,80,572.3 1,96,306.4
Fixed & Other Assets 8,551.0 9,736.5
Total Assets 2,90,316.3 3,22,768.5
Total Income 25,482.1 28,283.8
Total Expenses (other than provisions) 21,432.5 22,825.6
Provisions (other than tax) 1,419.9 2,836.4
Profit Before Tax 2,629.7 2,621.8
Provision for Tax* 598.1 739.7
Profit After Tax 2,031.6 1,882.1
* Net of current income tax and deferred income tax.
PROFIT AND APPROPRIATIONS
During FY 2012-13, your Bank''s gross income amounted to Rs. 28,284 crore, comprising
interest income at Rs. 25,064 crore and other income at Rs. 3,220 crore. Interest expenses of Rs.
19,691 crore and operational expenses of Rs. 3,134 crore led to total expenditure, excluding
provisions and contingencies, of Rs. 22,826 crore. Total provisions during the year were at Rs.
3,576 crore, which mainly includes Rs. 1,758 crore towards provision for bad and doubtful debts
and investments, Rs. 383 crore towards bad debts written off, Rs. 493 crore towards restructured
assets, Rs. 172 crore towards incremental prudential provisions for standard assets, and Rs. 740
crore towards tax. Your Bank''s working during FY 2012-13 resulted in a Profit Before Tax

24. 24
(PBT) of Rs. 2,622 crore, After making a provision of Rs. 740 crore towards taxation, Profit
After Tax (PAT) amounted to Rs. 1,882 crore.
IDBI BANK’S PRODUCT AND SERVICES
IDBI Bank offers a bunch of products and services to meet the every need of the people. The
company cares for both, individuals as well as corporate and small and medium enterprises. For
individuals, the company has a range accounts, investment, and pension scheme, different types
of loans and cards that assist the customers. The customers can choose the suitable one from a
range of products which will suit their life-stage and needs .For organizations the company has a
host of customized solutions that range from funded services, Non- funded services, Value
addition services, Mutual fund etc.
These affordable plans apart from providing long term value to the employees help in enhancing
goodwill of the company. The products of the company are categorized into various sections
which are as follows:
TABLE-2 PERSONAL BANKING
Loan Product Deposit Product Investment & Insurance
1. Home Loan
2. Loans Against
Property
3. Educational Loans
4. Personal Loan
5. loan Against Securities
6. Holiday Travel Loan
7. Reverse Mortgage
Loan
1. Saving Account
2. Current Account
3. Fixed Deposit
4. Suvidha Tax Saving
Fixed Deposit
5. Pension Account
6. Sabka account
7. Sample AOF
8. Super Shakti Account
for Women
9. Jubliee Plus Account
1. Demat Account
2. IPO
3. Family Care
4. Wealth Insurance

25. 25
TABLE NO.-3
Cards Payment Services Access To Bank
1. Gold Debit Card
2. International Debit Cum ATM
Card
3. Foundation Day Cash Back
Scheme 2008
4. Gift Card
5. World Currency Card
6. Cash Card
Other Product
1. Instiutional Saving
Account
2. Corporate Payroll
Account
3. Citizenidbibank
4. Locker
5. India Post
1. Tax Payment
2. Stamp Duty Payment
3. Easy Fill
4. Bill Payment
5. Card To Card Mony
Transfer
6. Online Payment
7. Pay Mate
1. Phone Banking
2. SMS Banking
3. Account Alerts
4. Internet Banking
.

26. 26
TABLE NO.-4 OTHER SERVICES
Corporate Banking SME Finance Agri Business
1. Projet Finance
2. Infrastructure Finance
3. Syndication,Underwritting&
Advisory Service
4. Carban Cerdit Business
5 .Working Capital
6. Cash Management Sevices
7. Trade Finance
8. Tax Payment
9. Derivatives
10.Technology Up Gradation Fund
Scheme(TUFS)
11.Film Financing Scheme
12.Direct Discounting Bills
13.Rehabilitation Finance
1. Sulabh Vyapar Loan
2. Dealer Finance
3. Funding Under
CGFMSE
4. Direct Credit Scheme
SIDBI
5. Perferred Custmer
Scheme-IDBI
Bank/SIDBI
6. Vender Financing(Pre-
Sale)
7. Vender Financing(Post-
Sale)
8. Lending Against The
Security Of Future
Credit Card Receivables
9. Working Capital
Financing-Software
Development
10. Finance To Medical
Practitioners
11. Loan to SRWTO
12. SME Hosiery Special
Current Account
(SHORT TREM LOANS)
1.Crop Loan With Kisan Credit
Card
2.PSL Gold Loan Scheme
3.Warehouse Recipt Finance
4.Loan Against Crop receivables
(TREM LOANS)
5.Farm Mechanization
6.Financing Wells
7.Lift Irrigation Scheme
8.Loan for Purchase Land
9.Loan for Land Development
10.Horticulture& Forestry
11.Bio Gas
(Allied Activities)
12.Dairy Loans
13.Poultry Farming
14. Loan for Sheep &Goats
rearing
15.Fisheries Loans

27. 27
3.5 IDBI LENDING PROCESS AND INSTITITUIONAL STRUCTURE
IDBI was established in 1964 under an Act of Parliament for providing credit and other facilities
for the development of industry. It also acts as the principal financial institution for coordinating
the activities of institutions engaged in the finance, promotion, or development of industry. The
Government of India‘s shareholding in IDBI amounts to 72%, and the rest of the shares are
owned by the general public. IDBI has also offered specialized schemes for energy conservation
viz. Equipment Finance for Energy Conservation and Energy Audit Subsidy Scheme. Presently,
IDBI provides rupee and foreign currency term loans for the acquisition and installation of
energy conservation equipment, and for pollution control and prevention projects in highly
polluting industrial sectors, funded inter alia out of World Bank‘s Industrial Pollution Prevention
Project (IPPP) or the US Agency for International Development-funded Greenhouse Gas
Pollution Prevention (GEP) Project. Besides, financeis made available for out of the on-going
Industrial Energy Efficiency Project of the ADB of which the TA forms a part. Under this
project, finance is given to industrial units in rupee as well as in foreign currency. Additional
funding needs left unmet by the ADB funds are supplemented by IDBI‘s own funds as well.
3.5.1. IDBI INSTITUTIONAL STRUCTURE
IDBI is governed by a Board of Directors and its operation is carried out under the supervision of
the Chairman and Managing Director assisted by four Executive Directors an done Adviser.
With its head office in Mumbai, IDBI has 43 additional offices through out India. As of
November 1998, IDBI was structured into 33 departments, which are organized into five groups
to facilitate proper distribution of responsibility. Among these departments, the ones relevant to
the efficient lending activities are briefly described below.
1. Project appraisal department.
The Project Appraisal Department (PAD) appraises all the industrial project proposals. PAD
projects constitute the majority of projects sanctioned by IDBI in terms of value. Besides a
number of smaller projects are funded at the branch level.
2. Corporate finance departments.
The three Corporate Finance Departments (CFDs) follow up on the projects that have already
been sanctioned, in order to ensure their timely implementation and proper utilization of funds.
In addition, a new concept of a Relationship Manager was instituted within the CFDs. These
managers will be dedicated to manage IDBI‘s interactions with a major industrial (ownership)
group, such as Reliance Industries, the Tata Group, etc. IDBI‘s interactions with a major
industrial (ownership) group, such as Reliance Industries, the Tata Group, etc. While the
relationship manager system works well from the perspective of consolidating knowledge about

28. 28
an industry group, it may not work as well where the focus has to be on an aspect of technology
within an industry sector. For example, a relationship manager cannot be expected to be an
expert on energy efficiency in every industry sector that forms a part of the industry group being
dealt with by him/her.Hence, in order to develop some expertise in some of the industries, which
are notnecessarily dominated only by a few major industry groups, industry-sector-wise
approach is also adopted. Thus the organization of a CFD is a workable mix of industry group
and industry sub-sector, with the expertise of one Dealing group drawn upon by another.
3. Forex services and treasury departments.
The Treasury and Funding Division contracts,decides on utilization and monitors all lines of
creditfrom multi-lateral institutions like theWorld Bank (WB) and the Asian Development Bank
(ADB). It manages the various specialized loans and grants for energy and environmental
technology projects, including this TA project.
3.5.2. IDBI LENDING PROCEDURE
The current procedure for lending at IDBI includes:
1. An inquiry stage
2. An application stage
3. Site visits
4. Preparation of an appraisal note
5. An evaluation by IDBI committee
6. The issuance of a Letter of Intent, and
7. Preparation of a legal agreement for lending for suitable projects.
IDBI also operates special credit lines for the mitigation of pollution, implementation of the
Montreal Protocol commitments, modernization and expansion of energy intensive industry,
etc. The technical norms for these lines were determined individually, but the lending procedure
is the same as that for other IDBI projects.
The lending procedure followed by IDBI is comprehensive, based on accepted methods
of evaluation and collective wisdom, and is transparent. The procedure, however, does not
provide for a serious attempt to evaluate the energy and environmental components of any
lending proposal. At each stage of the application for a loan, a company is required to
provideinformation on energy consumption, along with that of other utility services. Energycons
umption information is disaggregated into fuels and electricity categories. The company is not
required to provide indicators of energy use to IDBI, which makes the information difficult to
evaluate. Indicators could link the energy (fuel and electricity) consumption to physical activity
levels and permit comparison with best practice in India and abroad.

29. 29
3.5.3 DOCUMENTATION FOR LOAN APPLICATION
1. Application form of bank duly filled in
2. Industrial license/SIA registration, NOC from State Pollution Control Board, Sanction
for Power
3. Balance Sheet, Profit & Loss Account and Directors Report for minimum 3 years
4. Memorandum and Articles of Association
5. Cash Budget, in case of working capital borrowing
6. Statement of Net wealth of Promoters
7. Statement of collateral securities with their market valuation by approved valuer and
copies of title deeds
8. Copies of board resolutions authorizing execution of loan agreement and signing various
documents to be submitted
9. Quotations, purchase orders, invoices

30. 30
4.1 FINANCIAL RATIO
Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios
can be calculated from information provided by the financial statements. Financial ratios can be
used to analyze trends and to compare the firm's financials to those of other firms. In some cases,
ratio analysis can predict future bankruptcy. Financial ratios are used by managers within a firm,
by current and potential shareholders (owners) of a firm, and by afirm's creditors. Security
analysts use financial ratios to compare the strengths andweaknesses in various companies. If
shares in a company are traded in a financial market, the market price of the shares is used in
certain financial ratios.
Values used in calculating financial ratios are taken from the balance sheet, incomestatement,
cash flow statement and (rarely) statement of retained earnings. These comprise the firm's
accounting statements or financial statements. Ratios are always expressed as a decimal value,
such as 0.10, or the equivalent percent value, such as 10%.
4.2 USE AND USERS OF RATIO ANALYSIS
There are basically two uses of financial ratio analysis: to track individual firm performance over
time, and to make comparative judgments regarding firm performance. Firm performance is
evaluated using trend analysis—calculating individual ratios on a per-period basis, and tracking
their values over time. This analysis can be used to spot trends that may be cause for concern,
such as an increasing average collection period for out standing receivables or a decline in
the firm's liquidity status. In this role, ratios serve as red flags for troublesome issues, or as
benchmarks for performance measurement. Another common usage of ratios is to make relative
performance comparisons. Users of financial ratios include parties both internal and external to
the firm. External users include security analysts, current and potential investors, creditors,
competitors, and other industry observers. Internally, managers use ratio analysis to monitor
performance of the organization.
4.3 TYPES OF FINANCIAL RATIO
Considering the need of users‘ financial ratio can be divided into five types
1. LIQUIDITY RATIO which give a picture of a company's short term financial
situation or solvency.
2. LEVERAGE RATIO which show the extent that debt is used in a company's capital
structure.
3. TURNOVER RATIO which use turnover measures to show how efficient a
company is in its operations and use of assets.

31. 31
4. PROFITABILITY RATIO which use margin analysis and show the return on sales
and capital employed
5. VALUATION RATIO which give a picture of a company's ability to generate cash
flow and pay it financial obligations.
1. LIQUIDITY RATIO
Liquidity implies a firm‘s ability to pay its debt in short term. This ability can be measured by
the use of liquidity ratio. Short term liquidity involves the relationship between current and
current liability. If a firm has sufficient net working capital (excess of current asset over current
liabilities) it assumed to have enough liquidity.
Liquidity ratio can be classified into three types- current ratio, acid-test ratio, and cash ratio.
Current ratio:- The current ratio measures the capabilities of the organization to meet its current
liabilities. Current assets include cash, current investments, debtors, inventories, loan and
advances and prepaid expenses. Current liabilities are those that have to be repaid within one
year. Current liabilities include loans (secured as well as unsecured) taken, trade creditors,
accrued expenses and provisions.
Current Ratio= Current Assets /Current Liabilities
Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders
may prefer a lower current ratio so that more of the firm's assets are working to grow the
business. Typical values for the current ratio vary by firm and industry. For example, firms in
cyclical industries may maintain a higher current ratio in order to remain solvent during down
turns. One drawback of the current ratio is that inventory may include many items that are
difficult to liquidate quickly and that have uncertain liquidation values. For most manufacturing
companies 1.5 is an acceptable current ratio. The standard current ratio for a healthy business
organization is close to 2.0.
Acid-test/Quick Ratio : - The quick ratio is an alternative measure of liquidity that does not
include inventory in the current assets. It is a more stringent measure of liquidity because
inventories, which are last liquid of current assets, are excluded from the
ratio.Ideally the acid test ratio will be 1.1, but 0.8 is acceptable.
Acid- test Ratio (Quick ratio) =(Current Assets –Inventories+Prepavment)/Current
Liabilities
Cash Ratio : - The cash ratio is the strictest measure of the liquidity of a company. It takes into
account the cash and bank balance of the organization and current investments and matches them
with current liabilities.

32. 32
2. LEVERAGE RATIO :-
Leverage ratios assess the capital structure of an organization (in terms of equity and debt) and
the risk arising from the use of debt as a source of funds. It helps in controlling the cost of capital
and risk of increased debt.
Leverage ratio can be classified into structural ratios and coverage ratios.
Structural Ratio:- Structural ratios are derived from the proportions of debt and equity used by
the organization. The important structural ratios are: financial leverage ratio, debt-equity ratio,
and debt-asset ratio.
Financial Leverage Ratio: - Financial leverage ratios are used to assess the effectiveness
with which the organization utilizes external funding to improve returns to shareholders.
Financial leverage ratio= Total assets/Shareholder’s fund (net worth)
Debt-Equity Ratio: - It indicates the proportion of equity and debt the company is using to
finance its assets. High debt-equity ratio implies that the company is at higher risk of bankruptcy.
Capital-intensive industries such as auto manufacturing tend to have a debt-equity ratio of above
2, while less capital intensive industries have a debt-equity ratio of under 0.5.
Debt-Equit Ratio=Debt/Equit
Debt-Asset Ratio: - The debt- asset ratio indicates what proportion of the company‘s assets is
being financed through debt. A ratio of less than 1 means a majority of assets are financed by
through equity, above 1 means they are financed more by debt.
Debt-Asset Ratio= Debt/ Assets
Coverage Ratio: - It shows the relationship between the obligations will be met.The important
coverage ratios are interest coverage ratio, fixed charges coverage ratio,and debt service
coverage ratio.
Coverage Ratio =Funds available to meet an obligation/ amount of that obligation
3. TURNOVER RATIO:- Turnover ratio measures how efficiently a company utilizes its
assets. These ratios are also known as efficiency ratios or asset management ratios. It gives the
speed of conversion of current assets into cash. The inventory turnover ratio, the debtor turnover
ratio, the average collection period, the fixed assets turnover ratio, and total assets turnover ratio
are some important turnover ratio.

33. 33
Inventory Turnover Ratio:- The inventory turnover ratio or stock turnover measure show fast
the inventory is moving through the firm and generating sales. Higher the ratio, greater the
efficiency of inventory management. It could also mean that there is in sufficient inventory. A
low turnover implies poor sales and therefore excess inventory.
Inventory Turnover Ratio=Cost of Goods Sold/ Average Inventory
Debtor Turnover Ratio: - The debtor turnover ratio measures the number of times receivables
turn over during a year. If the turnover ratio of receivables is high, then it would indicate a short
time period between sales and cash collection.
Debtor Turnover Ratio =Annual Credit Sales/Annuals credit Sales
Average Collection Period: - It indicates the time taken (in days) by a company to collect its
account receivables. This ratio indicates efficiency of its collection managers.
Average Collection Period =360/ Average Account Receivable turnover
Fixed Assets Turnover Ratio: -It is a measure of the sales generated per rupee invested in fixed
assets. It measures the company effectiveness in generating revenue from investment in fixed
assets. The higher the fixed assets turnover ratio, the more effective the company‘s investment
in net property, plant, and equipment.
Fixed Assets Turnover Ratio= Net Sales/Average Net Fixed Assets
Total Assets Turnover Ratio: - It is a measure of the sales generated per rupee invested in total
assets. It measures the company‘s effectiveness in generating revenue from investment in total
assets.
Total Assets Turnover Ratio= Net Sale /Average total Assets
4. PROFITABILITY RATIO:-
Profitability ratios measure the outcomes or profitability of business operations Profitability
ratios measure the firm's use of its assets and control of its expenses to generate an acceptable
rate of return.
Gross profit margin, net profit margin, return on assets, earning power, return on capital
employed, and return on equity are some of the widely used profitability ratio.
Gross Profit Margin: - It is a measure of the gross profit earned on sales by a company. It
indicates how efficiently a business is using its material and labour in the production process. It
shows the percentage of net sales remaining after subtracting the cost of goods sold. A high gross

34. 34
profit margin indicates that a business can make a reasonable profit on sales, as long as it keeps
overhead cost under control.
Gross profit Maragin =Sales-Cost of Goods sold /Sale
Net Profit Margin:- It indicates the earnings of the company after deduction of taxes as a
percentage of net sales. The net profit margin tells us how much profit a company makes for
every rupee it generates in revenue. The higher a companies profit margin as compared its
competitors the better.
Net profit margin =PAT /Net sales
Return on Assets: - It is an indicator of how profitable a company is relative to its assets. The
ROA indicates how efficiently an organization is in managing it‘s an asset to generate returns.
Return On Assets=Net income/Total Assets
Earning Power Ratio: - Earning power is a measure of performance of the business which is not
affected by tax or interest charges.
Earning Power Ratio = PBIT /Average Total Assets
Return On Capital Employed: - It is a measure of the returns realized from the totalcapital
employed in the business. ROCE gives an indication of whether the organizationis earning
adequate revenue and profit through the efficient use of its capital.
Return On Capital Empoyed =NOPAT/Average Assets
Return on Equity: - It measures how much profit a company generates with the money invested
by the shareholders. It also known as return on net worth (RONW).
Return on Equity= PAT/Average Equity

35. 35
5. VALUATION RATIO
Valuation ratio gives an indication of how the stock of the company is valued in the capital
market. Price earning ratio, yield, and market value to book value ratio are some of the
important valuation ratio.
Price Earning Ratio: - Price earning ratio is the ratio of a company‘s current share price to
it‘s per share earnings. It shows how much investors are willing to pay per rupeeearned by
the company
Price earning ratio= Market price per share/Earning per share
Yield: - Yield is a measure of the rate of return earned by shareholders. Share holders earn
returns in terms of dividend and capital appreciation. Yield is the sum of dividend yield and
capital gains yield. [Dividend/Initial market price per share] is also known as dividend yield and
[Change in market price per Share/ Initial market price per share] is known as capital gains yield.
Market Value to Book Value Ratio:- It is an indication of the organization‘s contribution to
wealth creation in society. It is desirable to have a market value to book value ratio greater than 1
because it means that the company has been successful in creating wealth for society.

36. 36
5. FINDINGS & ANALYSIS
CHART- 3 MARKET SHARES OF IDBI IN COMPARISION TO COMPETITORS
BANK NAME % OF SHARE
SBI 30%
IDBI 15%
ICICI 25%
PNB 10%
HDFC 5%
HSBC 5%
OTHER 10%
Graph no.-1 Market Shares Of IDBI in Comparision To Competitors
SBI
33%
IDBI
17%
ICICI
28%
PNB
11%
HDFC
5%
HSBC
6%
% OF SHARE

37. 37
CHART-4 Factors Responsible For Performance of IDBI Bank
Parameters % Of Share
Product 50%
Advertisment 5%
Manpower 25%
Net-Banking 2%
Phone –Banking 5%
Investment Scheme 10%
Network 3%
Graph no.-2 Factors Responsible For Performance of IDBI Bank
Role of financial ratio and loan officer
Commercial loan departments of IDBI Bank use financial ratios to determine whether a loan
should be granted to companies, as well as the amount it will lend. The ratios considered most
significant by commercial loan officers are financial measures of liquidity and debt. Loan
officers need to consider a company‘s ability to repay the loan, thus liquidity ratios are
emphasized. Debt ratios are also emphasized in order to determine the degree to which a
company uses long-term debt and to determine the company‘s financial structure (how it uses
debt versus equity).
Specifically, loan officer consider the current ratio and the debt/equity ratio the mostsignificant
in determining whether to grant a loan and the amount to lend. The third most significant ratio,
Product, 50%
Advertisment, 5
%
Manpower, 25
%
Net-
Banking, 2%
Phone
Banking, 5%
Investment
Schme, 10% Network, 3%
% OF SHARE

38. 38
according to loan officers, is the net profit margin, which is a measure of the company‘s
profitability. Loan procedure of IDBI bank can be easily understood by following example.
Sagar Cements Limited
In this activity, the Senior Loan Officer at IDBI Bank must determine whether to grant a$750
million loan requested by ExchangePlace.com. Then he requested to a Junior Analyst at the Bank
analyze the financial statements (balance sheet and income statement) of Sagar Cements
Limited and make an initial recommendation as to whether the loan should be granted. The
Junior Analyst has recommended that the Bank grant the loan to Sagar Cements Limited. Then
the Senior Loan Officer assesses the Junior Analyst‘s analysis and determines whether the
recommendation is appropriate or not. Sagar Cements Limited approached the Senior Loan
Officer at IDBI Bank, requesting a $750million loan. Sagar Cements Limited indicated the
loan will be used to grow the business. Then Senior Loan Officer asked the Junior Analyst to
analyze the balance sheet and income statement (2005 and 2004) of Sagar Cements Limited, and
to make a recommendation based on the analysis to either grant or deny the loan request.
The following additional information was provided by Sagar Cements Limited:
1. Sagar Cements Limited incurred a net loss of $475 million in 2003.
2. Sagar Cements Limited borrowed $680.5 million in 2005 and $325 million in 2004.
3. The common stock of Sagar Cements Limited is publicly traded. In the past year (2005),
it raised $721 million by selling common stock, and plans to sell additional shares
next year. The market price of the stock continues to increase at a steady rate on the stock
exchange.
Upon reviewing this information, senior loan officer have calculated the
payments Sagar Cements Limited would be required to make based on the terms of the loan.
Payments would be made quarterly over 25 years; each payment, which includes principle and
interest, is$28.95 million.
The Junior Analyst has recommended that IDBI Bank grant the loan to Sagar Cements Limited
and has provided with the following analysis.
Based on the analysis below, the Junior Analyst recommends that IDBI Bank grants
the$750 million loan requested by Sagar Cements Limited.
1. Sagar Cements Limited is very liquid, an indication that it is able to repay the loan. As
shown below, the current ratio is well above the standard or average of 2.0. In fact, the
current ratio improved from 1.99 in 2004 to 2.21 in 2005. The quick ratio and cash ratio
are both over 1.0, a rare and positive indicator of their liquidity position. These ratios

39. 39
have also improved, from 1.31 and .25, respectively in 2004, to 1.76 and 1.07 in 2005. In
addition, working capital increased and is approaching $1 billion, at $986 million.
2. Sagar Cements Limited is in a liquid position because its cash balance has
increased542%, or $734.5 million, from $135.5 million in 2004 to $870 million in 2005.
This provides Sagar Cements Limited the needed cash to repay a loan.
3. The company‘s total assets have increased $732 million, from $1.881 billion in 2004
to$2.613 billion in 2005, a sure sign that the company is growing.
4. Sagar Cements Limited provided information that in the past year (2005), it raised
$721million by selling common stock. Additional paid-in-capital increased almost 60%,
from$1.23 billion in 2004 to $1.951 billion in 2005. This indicates the company can raise
capital by selling shares of its stock, which it plans to do in the future. By selling shares
of its stock, the company provides itself with the liquidity to repay a loan.

40. 40
FINDINGS
1. It can be distilled from data that IDBI bank has good market share as compared to its
competitors considering the amount of resources deployed by them in the market.
2. The credibility of IDBI bank is good in comparison to its competitors as
GOI(Government of India) is a major share holder in the company.
3. IDBI bank will improve loan processing times by turning the linear process into a virtual
process. The flexibility of a virtual process allows employees to work on any part of the
loan process at any time, increasing productivity and reducing costs.
4. Loan officer of IDBI Bank consider the current ratio and the debt/equity ratio the most
significant in determining whether to grant a loan and the amount to lend. Bank prefer a
high current ratio since it reduces their risk
5. The SMEs are not aware of the credit schemes offered by the commercial banks and
nodal agencies.
6. The delays in sanctioning of the loan and the neglecting attitude of the bank official sare
the main causes behind the bad perception of SMEs towards the banks.
7. The network of IDBI in Orissa is lagging behind a little than its competitors like
ICICI bank and HDFC bank.

41. 41
SUGGESTIONS
Based on the data collected through the questionnaire and interactions with the studentsthe
following recommendations are made for consideration:
1. Besides opening more branches it should also look for opening some extension counter
inrural areas.
2. As Government is the majority share holder in the shares of IDBI bank, which makes
this bank more reliable than other private banks, this thing can be used in the favors of
IDBI bank by making people aware about this fact and winning their faith.
3. Banks should also provide consultancy services and professional guidance at thetime of
setting up for considering the long-term and short-term financial requirements of a small
unit for lending purposes.
4. The entrepreneurs are of the opinion that , the funding institutions are taking muchtime in
sanctioning the loan. Hence it is suggested that the funding institutions shouldtake less ti
me in offering credit to the entrepreneurs.

42. 42
CONCLUSION
The financial services sector and capital markets have a significant influence on howeconomies d
evelop, principally through their role in allocating financial capital between different economic
activities, as well as through their own operations ,not only do banks manage their own financial
and sustainability performance, they are in a position to influence Socio-economic and
environmental performance in client organizations and through their lending strategies.
Banks are the oldest lending institutions in Indian scenario. They are providing all facilities to all
citizens for their own purposes by their terms. IDBI Banks play an important role in the
industrial economy of India. Bank loans are the primary source of funds for private limited
companies. Though lending is the primary activity of the IDBI bank, they are very cautious in
granting the loans to their clients because their funds are collected from the general public in the
form of deposits that can be withdrawn at a short notice at any time.
Lending always invokes some amount of risk. The banker should evaluate the borrowers‘ credit
history i.e. track records which reveal the morale of lenders. The basis for analysis and decision-
making is financial information. Financial information is needed to predict, compare and
evaluate the firms earning ability in all respects. The financial information is reported through
the financial statement, other accounting reports and ratio analysis.
My project speaks about the banking system India, different type‘s banks and its services. Its
gives better idea about the major banking sectors and its operations in India. It contains company
profile of IDBI bank, its products chart, organizational chart and lending procedure. It also tells
about the different types of financial ratio and its uses.
This study would help manager to find out the market response of corporate loans and its credit
risk before its launch. It helps them to know the different types of financial ratios and its uses. It
provides a feedback to the company about their product. It provides the information about the
company‘s stand in the market. It helps the manager to apply the various activities, which is
useful to increase the market share of its product. It helps the manager to know about the
preference and choice of the customers so that they can plan out their future analysis and
strategies on that basis.

43. 43
Bibliography
Books and magazine
1. Philip Kotler, ―Marketing Management‖ .
2. C.R. Kothari, ―Research Methodology‖.
3. Khan & Jain, ―Finanical Management‖.
4. Bagechi S K (2004), ― Accounting Ratios For Risk Evaluation‖, The Management
Accountant, July, Vol.39, No.7, pp571-573
5. Krishna Chaitanya V (2005), ―Measuring Financial Distress of IDBI Using Altman Z–
Score Model‖, The ICFAI Journal of Bank Management, August, Vol. IV , No.3 ,pp7-17
6. Trend and progress of banking in India.
7. Indian banking system.
8. The economist magazine
Website:
1. Google.com.
2. Wikipedia.org
3. Idbibank.com
4. Scribd.com