"Credit Appriasal System of Commercial Vehicles": "Shriram Transport Finance Co - LTD" Pune
"Credit Appriasal System of Commercial Vehicles": "Shriram Transport Finance Co - LTD" Pune
"Credit Appriasal System of Commercial Vehicles": "Shriram Transport Finance Co - LTD" Pune
Project Report on
Submitted To
SHIVAJI UNIVERSITY, KOLHAPUR
For an award of Post Graduate Degree of
SUBBMITED TO
College of Ichalkaranji, for the partial fulfillment of The Masters Degree in Business
Administration.
The present work is of original nature and the conclusions drawn therein are based on the
To the best of my knowledge, the matter presented in this dissertation has Not been
submitted for the award of any Degree, Diploma or Membership Either to this or any
Date: (Student)
Acknowledgement
training a student gets an opportunity to set the practical aspects of theory. Theory makes
I hope that this work will provide fruitful result in the eyes of the reader. It is hence
expected that creating of this shall benefit the reader in all aspects.
The project deals with nearly all the aspects of NBFC’s and the essence of Know Your
Customer Norms. I have tried my best to cover nearly all the aspects related to Credit
very cordial manner. This research is an attempt to present a report on account of little
practical knowledge. In my opinion, the readers will be satisfied with the project in all
TABLE OF CONTENTS
Chapter I:
INTRODUCTION
A loan proposal system is by far the heart procedure, which is security, is given.
In this aspect basically the valid extract are taken from the report and the data enables any
credit officer to take decision regarding finalization of loan proposal. Credit appraisal
system is summary of extracted records. Regarding verification made towards the profile
While easily reflect the eligibility of loan procedure viz tenor eligibility E.M.I. (equated
monthly installment)
The credit appraisal is done for different purpose they are as follows
3) To know that whether he is taking the loan from other bank or non-banking financial
institution and whether he is able to paying timely to pay installment to satisfy their loan
Thus the appraisal of credit appraisal is very much important for the disbursement of loan
and advances.
Appraisal also helps to find out his integrity in this project for which customers takes
loan his aims and intensions in the customers taking his loan and the purpose for which
In short credit appraisal system is an important for the purpose of bank and NBFC (non-
banking financial company) and it would not be able to collect the money which is
lending to their customers. If that NBFC is not able to collect their installments then that
factor is become NPA [non performing asset] and the goodwill and reputation of the
NBFC will be down.The officer, who will be giving sanction to that particular proposal.
He must do the proper check & analysis of the documents after studying all this aspects.
the borrower’s payment history and establishing the quality and sustainability of his
income. The lender satisfies himself of the good intentions of the borrower, usually
through an interview.
Credit Scoring:
A credit scoring system awards points for each factor that helps predict who is most
likely to repay a debt. A total number of points "a credit score" helps predict how
creditworthy you are, that is, how likely it is that you will repay a loan and make the
payments when due.
- net worth information : owning a house, vehicle, credit cards, telephone, etc.
- previous relations with the lender : banking account, credit card, any other loan, etc
from the same lender.
Your level of education can give an indication to the lenders whether it is a good risk to
extend credit to you. Higher the education better is the credit score. A person with
professional qualifications is given more points than a simple graduate.
Lenders prefer people who are stable. So, lenders assign more points to people who’ve
lived in a particular location or have worked for a single employer for many years. If
you’ve moved around a lot, you lose precious points. If you’ve moved because of a
better-paying job, you can recoup some of those points if your salary has increased, for
example.
Lenders rate your profession and your employers too. Most of the lenders have a list of
approved companies. Credit points are allotted based on the type of company you work
for or the type of profession you are in. The rating from most favoured to least favoured
profession / organization may vary from lender to lender however an indicative list is
presented here under:
a) government / public sector undertakings / MNCs.
b) teaching / educational institutions.
c) Scientists / engineers.
d) Banks / financial institutions.
e) chartered accountants / company secretaries.
f) Hotels / travel organisations.
g) Media / pr / advertising agencies.
h) Software companies.
i) Lawyers
You get additional points based on whether you own a house, or have a vehicle, or hold a
valid credit card. Some lenders insist that all prospective customers must have a phone at
residence. These factors play an important role in determining your credit eligibility.
Credit scoring is based on real data and statistics, so it usually is more reliable than
methods typically rely on criteria that are not systematically tested and can vary when
Credit scoring models are complex and often vary among creditors and for different types
of credit. If one factor changes, your score may change. The trick here is you can’t find
Companies providing loans and credit do not disclose their credit appraisal criteria. Both
the score and the statistics that go into it are top secret. The reason
being that if people understood their appraisal criteria and scorings, they could
cheat by altering their profile thereby artificially jacking-up their over all credit score.
But, of course, we will try to improve our credit scores, won’t we?
In short credit appraisal system is a conclusive report, which enables decision according
to the norms and policies of the organization.Extensive quantity of loan proposal. It is the
first tool in the hands of credit appraisal officer. In short credit appraisal system is a vital
time a prospective borrower walks into the branch and culminates in credit
delivery and monitoring with the objective of ensuring and maintaining the
Economic Appraisal.
MBA programme, D.K.T.E.S Department of Management Studies
Page
Shivaji University, KOLHAPUR
Management Appraisal has received lot of attention these days as it is one of the
also finds out the possible economic life period of the present technology.
Commercial Appraisal focuses on the commercial viability of the project .It tries
It also focuses on the presence of other substitutes of the product in the market. It
Financial Appraisal is done to find out whether the promoter is having the
capacity to raise finance – both own equity and debt? What are the sources of
margin? Will the business generate sufficient funds to service the debt and other
Economic Appraisal examines level of cost/ benefit and IRR (Internal Rate Of
Return.)
proposal. Credit proposal has to be examined from the point of 6 C’s viz.
The Credit Policy of STFC has undergone changes to cope with the
norms.
The STFC has over the years designed and adopted the Best Practices
Corporate Governance.
STFC has set within it specialised branches for focused lending to various
segments.
STFC has also set exposure norms which corresponds to the quantum of finance
been credited. These exposure norms are as per the RBI norms and also the
One of the important monitoring aspects in the credit portfolio is the periodic
review of advance accounts. The vital decision to deploy the STFC’s resources
should necessarily be based upon the thorough assessment and evaluation of the
needs of the borrower. For this, a proper periodical review of any account is
inevitable.
STFC has introduced Fair Lending Practices Code which helps the STFC to
of lending. The Fair Practices Code codifies the procedures to ensure clarity,
With the kind of transformation that is taking place in the banking industry and in
quality. Further, as profit is reward for risk bearing capacity, the spread available
in case of high quality assets are thin. With the ushering in an era of liberalisation
in the economy, new opportunities are available and for a Financial Institute of
our size it is important that we realise our market share through better
from the primary and secondary research in relations to various opinions from literatures,
as well as to evaluate to what extent the research objectives have been achieved. The
research limitations, suggestions for further research, and the outcomes from learning
The main purpose of conducting the primary and the secondary research
reaffirm the objectives of study. The objectives of the dissertation are outlined as follows:
Data collected in the primary research was essential and for research
objectives. It was a good learning experience where in I got to know about the working of
a department in an organization. But the main point of consideration for the Shriram
Transport Finance co. ltd is to analyze the risk on the financial part more thoroughly.
Shriram finance aims at providing finance to commercial vehicles. The main objective of
STFC is to meet the financial need of the customers, assisting them within different
schemes.
The project study has to have an objective so as to make it concrete and clear. When
the objective is defined and understood one can get a direction to carry out a project
report. A clear objective will help to deliver precise and accurate results. The objective
will also help to predict the time frame involved the scope of the project and identify the
1) To have general awareness about the history of Indian Business from ancient
times to the present era, including the eths of the Indian Business.
2) Study the development of Indian history for the British period to Independence
and thereafter.
3) To study the emergence of modern Indian Business, house and possible role of
4) Besides the above academic aim, it helps to develop the habit of self-study and
General Objective:
Specific Objectives:
vehicle finance.
To become well acquainted & familiarized with the basics of four wheelers
To clear the ideas regarding the extent of loan to be sanctioned as it depends upon
various parameters which are taken into consideration while evaluating the
finance proposal.
Basically research aims at expanding the depth of knowledge and solutions for
solutions for it. Thus the research is carried out for solving the problems and guiding
specific decisions.
-Subjective
-Objective
Objective viewpoint gives importance to and lays emphasis on upon the object of
the study. It is object-oriented study. On the other hand, in subjective standpoint, the
Objectivity:
A study in which a subject matter is the centre of attention and prejudices are given no
Need of Objectivity
Means of research
The research is based upon various types of information, which give knowledge
should be gathered from proper source. The more valid is the source of information, the
more reliable will be the information received, which in turn, will lead to correct, and
reliable conclusion.
1. Primary Data
Primary data are the actual information, which are received by the researcher for study
from the actual field of research. These data are obtained by means of questionnaires and
schedules. The primary data are the facts there are many more methods of collecting the
primary data. Such data are known as primary because the researcher attains them from
the field of research directly and for the first time. for this study I had asked queries to the
2. Secondary Data
Secondary data are the information, which is attained indirectly. The researcher does not
attain them himself or directly. Such data are attained generally from published and
unpublished material. Secondary data are gathered from information collected from the
individuals and institutions through letters survey documents. There are mainly two
2. Public documents such as books, records, census reports, and various information
published in news papers and magazines, reports and surveys of private institutions etc.
The sources of such information are the individuals and the incidents around them
1. Direct observation
The chief primary source of information concerning the problem is direct observation.
The method requires that the researcher should personally and directly observes the
conditions of his field study. It is the most reliable method for gathering information. In
this observation, the observer should be absolutely detached and objective in gathering
the information concerning with the problem. The researcher is only external spectator.
2. Questionnaire
Questionnaire includes questions concerning different aspects of the subject of the study.
Sometimes questionnaires are delivered by hand and at other times they are delivered by
post. Questionnaires may be the sources of information only when the informers are well
3. Schedule
replies. He questions the informers and records the replies in the proper places specified
in the schedule. The main advantage of the schedule is that it may be used even in the
case of uneducated informer. However, it can be used only in a limited filed, as compared
4. Interview
In an interview, the researcher meets people and discusses the problems with them.
During the course of this discussion, he gathers facts. It is a different form of schedule.
Schedule includes a predetermined form of questions but the interview has not any
definite form or order of questions. The researcher may ask any questions on the basis of
also provide information of past which is not possible from any other source? To
facilitate the study, secondary data is important to know historical background of the
concerning problem.
1) Records:
Records occupy the most important place among public documents. Most of the
information.
2) Published data:
information, which can be usefully utilized in research. Most of this information is very
much reliable. Letters to the editors published in various magazines and journals are an
4) Other documents:
issues, meetings and conferences. The reliability of this source is very high. Besides it,
Now the nature of the problem selected should be defined. This will determine the scope
After the problem is defined, we have to analyzed the varies elements, constituents or
factors involved in the problem so that a detailed and systematic list of these may be
formulated. It is only when a detailed list of the problems is available that the relevant
3) Determination of scope:
subject matter. Before the beginning it is imperative to determine the scope of the
problem.
time limit for it. The validity of results may vary on account of change of condition so we
Before stating, it should be made clear what techniques are to be used in research. The
choice of technique depends upon the scope and nature of the research.
6) Field work:
8) Elucidation of conclusions:
Having analysed the data, researchers draw conclusions from them and elucidate
conclusions.
9) Presentation of graphs:
Lastly the conclusions of a research are graphically represented. Some schedules and
Difficulty in collection:
It is difficult to collect more important and confidential personal documents. They are rarely
recorded and more seldom preserved. They are generally destroyed after a short time.
Reliability of data:
It is very difficult to access correctly the reliability of data. There is almost no criterion to
judge their validity since they are written from subjective view point.
It is not easily possible to arrive at some conclusions about a problem on the basis of data
collected. The data do not represent conditions objectively. Therefore, not much reliable
There are limitations of time so we can’t measure the trends which are very slow. Due to lack
of money and sample size we can’t have that much quality data.
There is great dearth of journals and magazines in different areas in India to publish data
concerning various aspects of problem. Even the data is collected; it is seldom published
Chapter II
(NBFC’s)
society, is imperative for sustainable economic growth for any country. In India, NBFC’s
establishing a forte in those areas. The NBFC business model is highly customer centric
with a deep perception of customer needs. With a wider and specialized branch network,
they are able to develop very close customer interaction and relationships, presenting
unique last mile credit delivery. The vast and diverse character of India itself has
inevitably assured a gap in the dispensation of credit and mobilization of savings. Several
NBFCs have stepped in and supplemented the role of banks in selected markets for select
opportunity for them. NBFCs have demonstrated that they can play a definite long –term
role in the financial inclusion strategy of the country. They have succeeded in the
mobilization of inactive assets and users of credit because of their innate capability to
It is reflected by the steady increase in the levels of credit penetration that they are
bringing about. The rigidity of the banking system’s policies for lending, especially in the
As on March 31st 2006, there were 13,049 NBFCs, of which 434 are permitted to accept
and hold public deposits. Amongst a sea of players, emerged as the undisputed largest
asset financing NBFC in the country, with total asset under management of close to Rs.
7500 crore. Focusing on the new and pre-owned transport vehicles (CV) financing
space, with approximately 20% market share in pre-owned commercial vehicles. The rest
private financiers.
Shriram Transport Finance Company Limited (STFCL) is one of the well known
Automobile Finance
Survey of car loan is playing vital role for the customers. It is very important to any
evaluate and maintain of the product market. Apart from the public banks, financing
offers refills financial services. The company has identified loan segment a one with
Also they offering to truck operators include new truck finance, used truck finance, tyre
This subject is a combination of marketing and finance, specially financing element. This
attempt is made to shed light on the financing mode used Shriram Transport Finance and
A rise in interest rate has an adverse impact on the profit margin of the company where
the loss of margin due to interest rate is forwarded to the end users .This price of the
goods and further to inflation. It hurts the Common man the most, especially one who
does not have a stable earning. This has a major impact on the sectors that require heavy
financing.
Automobile:
MBA programme, D.K.T.E.S Department of Management Studies
Page
Shivaji University, KOLHAPUR
financial services (NBFCs). An increase in the interest rates makes the loan less attractive
to the customers, thereby reducing the turnover. The automobile sectors growth rate
declined to 0.9% in March 2008 compared with 21.2% in the corresponding month of the
previous year.
08. India is home to largest fore wheeler manufacture. The market size of automobile
industry reached US$ 8.6 billion in 2007-08 and the auto component industry’s turnover
was US$ 2.7 billion. The integral part of the industry is tyre, which has registered a
turnover of almost US$ 3 million. Automobile industry has witnessed an overall growth
of around 19% in revenue and 6.3% in number of four wheelers sold in 2007-08
The world over, the automobile industry and auto finance sector have traditionally shared
a symbiotic relationship. In fact. The post liberalization era has seen the auto fiancé
sector in India emerge as an integral entity of this multi million dollar industry. The
twentieth century is the era of insta buys. Research indicates that 70% four wheelers
In today’s business economy the retail trade finance is concern the great way to earn the
additional revenue is by financing two and four. Need of four wheeler finance is
increased by day by day. Out of overall sale four wheeler 40% vehicles has been sold
through finance.
The growth rate is about 10% In automobile sector (Business world 20 June 08) it seems
Business Review
vehicle industry has reported 30% CAGR over FY03-05 in with the buoyant economic
growth, good replacement demand and focus on development of the national highway
network new trucks sales has grown at 18% CAGR of 8-10% up to 2010, with some
underlying cyclicality.
The commercial vehicle financing market in India can be broadly divided into two
segments:
penetration of organized financiers are the key growth in Commercial Vehicle sales,
aggressive stance adopted by private sector banks in terms higher loan to value and
longer tenures are some of the key growth drivers for new commercial vehicle financing
market.
On the other hand, pre-owned commercial vehicle financing is largely serviced by the
(STFCL) is arguably the only large corporate entity active in this space.
Banks and other NBFCs have earlier tried to penetrate this dynamic and cyclical industry.
They have conventionally thought this business to be too risky due to the movable nature
of the asset and the lack of documentation to evaluate the credit worthiness of truck
owners.With more than 75% of the used truck owned and operated by small truck
owners, banks and other NBFCs have generally believed that giving loans to this class of
clients may not be viable. This vacuum of credit has led to a proliferation of small
financers, who now control as much as approximately 75% of the used-truck market.
This has meant that these groups of borrowers have had to endure exorbitant interest rates
for decades.
Over the years, STFCL has pioneered a contrarian’s view on the risks associated to this
managing the credit extended to them. So much so, that once-shy banks and conventional
STFC was established in 1979 to finance the much neglected Small Truck Owner.
Shriram started lending to the Small Truck Owner to buy new trucks. But they found a
mismatch between the Aspiration and Ability. The Truck Operator was honest but the
Equity at his command was not sufficient to support the credit levels required to buy a
new truck.
STFC peoples did not have the heart to send the Truck Operator back empty handed; they
decided to fund Pre-owned Trucks. This was the most momentous decision that they
From Driver to Owner, even if only of a Pre-owned Truck and from Pre-owned Truck to
the New Truck, they have been with him in his journey of Prosperity as he has been their
For STFC peoples at Shriram, credit-worthiness of the Small Truck Owner has always
been an article of faith. This faith has guided their journey from their
pioneering days in financing Small Truck Owners to the present day leadership. Today
they are not only the leader in Truck Finance; they are also India's largest Asset Based
The flagship company of the Shriram Group, Shriram Transport Finance Company
Limited is India’s largest asset financing institution. Headquartered in Mumbai and with
vehicle finance to almost 6,00,000 customers. Shriram Transport enjoys a track record of
almost three decades (since 1979) in this Business. Shriram Transport is helped in this
Endeavour by its team of more than 9,600 Employees operating from 430
branches across the length and breadth of India. Shriram Transport is a holistic finance
provider for the commercial vehicle industry and seeks to partner small truck owners for
every possible need related to their assets. Therefore, besides financing trucks (both new
and pre-owned) Shriram Transport extends finance for tyres and engine replacement too.
Shriram Transport also provides ancillary services such as freight exchange and bill
discounting besides offering co-branded credit cards. Passenger vehicles, tractors and
construction equipment have recently been added to the Shriram Transport portfolio,
making it a diversified, end to end provider of finance solutions to the domestic road
logistics industry.
Shriram Transport had over Rs. 19,500 cr (USD4.88 billion) of assets under management
as on March 31, 2008. In 2007-08, Shriram Transport disbursed a total of 11,589.70 cr,
and earned Rs. 2,494.14 cr as total income. Its net profit stood at a robust Rs. 389.83 cr.
Shriram Transport’s excellent track record and credit worthiness are reflected in its AA
credit rating and its capital adequacy ratio exceeding the statutory 12 percent. The
principal stakeholders of Shriram Transport (besides the Shriram Group) are reputed
overall family of 38,719 shareholders. Its shares are listed on the Bombay, Madras and
Depositors 14 Lack
STFC was set up with the objective of offering the common man a host of products and
services that would be helpful to him on his path to prosperity. Over the decades, the
company has achieved significant success in reaching this objective, and has created a
Operational efficiency, integrity and a strong focus on catering to the needs of the
common man by offering him high quality and cost-effective products & services are the
values driving STFC. These core values are deep-rooted within the organization and have
STFC prides itself on a perfect understanding of the customer. Each product or service is
people first that has brought the company closer to the grassroots, and made it the
preferred choice for all the truck financing requirements amongst customers
Executive Brief
Financial Services
this mission, since our inception in 1974 has given the Shriram Group our raison d'être
and our distinct identity. The Group’s reputation for effectiveness, transparency and
integrity has helped it to become one of India’s largest Financial Services Network.
The Group’s Financial Services Businesses manage assets exceeding Rs.13,500 crores,
boast 4 million clients, served by 80,000 Agents and 12,000 employees, through nearly
1,000 Branches across India. The Shriram Way Shriram Group’s businesses strive to
Consider these:
Retail Stock Broking, Life Insurance, Chit Funds and Distribution of Investment
& Insurance Products. Our foray into Non-Life (General) Insurance shortly,
Industrial Investments
Machined & Auto Components, Press Dies & Sheet Metal Stamping, Packaging,
Management Philosophy
Shriram Group’s business ventures are highly successful due to our management
decision-making €process and freedom of action. Most of all, the Group views every
6 Regional Offices
50 SBUs
South East,
126
Strength:-
3) Minimum document.
Weakness:-
Opportunity:-
Threat :-
1) Some times company not identifies correctly to the customer not paid loan
COMPANY’S COMPETITORS
TATA FINANCE
CHOLAMANDALAM
CITY FINANCE
MAHINDRA FINANCE
ICICI FINANCE
Performance in 2007-08?
It was quite satisfying. We have succeeded in growing our business and margins in a
challenging Industry scenario. Thus our total income appreciated by 76.2 percent to Rs.
2,494.14 cr and net profit rose 104.74 percent to Rs. 389.83 cr. All this on a higher base
percent from Rs. 12,038.40 cr in the previous year. This performance is a testimony to
our broad based scale up initiatives, which ensured that the growth happened through
good
quality assets. Our gross NPAs remained under 2 percent this year, demonstrating an
2004-05 34582
2005-06 90866
2006-07 141552
2007-08 170000
180000
160000
140000
120000
100000
80000 Turnover
60000
40000
20000
0
2004-05 2005-06 2006-07 2007-08
-Pan India coverage through 6 regional offices with responsibilities for SBUs within
Field Offices: Direct contact points with customers for vehicle inspection & primary
Branch Officer: Deciding the credit worthiness of individuals and arranging the necessary
documentation
Chapter III
Theoretical Background
Background
Four-Wheeler is most effective mean of travel. Today this product mainly attracts higher
class, higher middle class and middle class. Also it servers need of services, professions
It is observed that four wheeler loan markets have always with high competition. The
public banks, private banks competing for their share in the market. Any product
normally has to face serve competition in the market due to government policies of
liberalization.
A customer looking for vehicle finance, a bank loan proves to be more expensive than a
finance company scheme because of various reasons; the finance company has
specialized in that field, they have the requisite field investigation agencies in place,
registration formalities smoothed out with the RTO and Shriram finance can procure
3.2 SCHEMES
This is the most straight forward scheme of them all. For instance, if a car cost Rs. 1 lack,
a typical scheme would require you to pay at leaser 10% up front, and you would get a
loan of Rs. 90,000. The loan to value (LTV) ratio is 90% in this case. The interest rate
coated will be on this Rs. 90,000. Thus if the rate coated is 16% for 12 installments, the
EMI would be RS. 8,166. The interest rate is charged on a monthly basis.
Advance EMI
This is another variation of the margin money scheme. The bank offers to give complete
amount as loan but requires you to pay some amount as EMIs in advance. It achieves two
things:
-You are giving a down payment, thereby reducing the lending amount and the risk along
with it. Also, the bank stands to gain on the amount that it gets. Firstly, it does not give
-The interest that it charges on the amount that it has lent is in actuality greater. This is
because, it calculates the interest rate on what it has lent, but forgets about the sum it has
already taken in advance. Very simply put, If the bank lent you Rs 200 and collected Rs.
100 as advance EMI, it will get its 16% on rate RS. 100 that it has actually lent, by telling
This is a variation of the margin money scheme. In this, the company claims to give a
loan of 100% but asks for, say 10% of the amount in advance, which it will return at the
end of the loan period. In effect, you are still getting a loan of 90% But the reason that
you are being “Shown” a lower rate is that the designer is making interest on your deposit
for the period of the loan, when your money is laying with him. He uses the money to
offset the amount that he is charging less from you. Some security deposit schemes offer
interest on the deposit that you pay. As long as this rate is lower than the rate that you are
paying in normal margin scheme, the designer can reduce the price \of loan. Suppose you
had to put in a deposit of RS. 10,000 in the above case, on which 14% is being offered.
The scheme lets you borrow RS. 1 lack, instead of only Rs. 90,000. In effect, he is
borrowing the additional Rs. 10,000 from you at 14% and is lending you that same
money at 16% so he making extra money, which he can afford to use to reduce the 16%.
Processing fess:
This is the most innocuous-seeming (and popular) method. At the beginning of the
period, the bank requires you to pay 2% to 4% (typically) on the loan amount as
“processing” fees. In effect, the bank is lending you lesser that it had promised which
increase the effective rate that you are paying. For example, if a bank lends you Rs. 1
lack at 16% for one year (12 EMIs) and charges you 3% as processing fees, you are in
Most schemes are a combination of these base versions. A company might offer a loan at
a price of 5.9% for 12 month’s tenure, with EMIs payable in advance and processing fees
of 2%. The effective rate- a whopping 21.5! And you thought you were paying 5.9%!
When a financer gives a scheme to a person seeking financing, he will get a quote that
Tenure …..Months
For answering these questions a person need to know what the various components of a
finance schemes are and in all likelihood he will have to decide on all or some of them
According to Palish “In modern money using economy, finance may be defined as the
Here we are concerned with asst based financing. There are two most popular asset based
financing
2) Lease financing
3) Loan
Indian business such as the automobile sector. Ion this, there are 3 parties the
manufacture, the Borrower & Guarantor. The borrower may be the manufacturer or a
finance company. The manufacturer sells assets to the borrower who sells it to the
guarantor in exchange for the payment to be made over a specified period of time.
Fig No.
Hire purchases agreement is the agreement between the customer (borrower) & the
finance company, which is the owner. The title of the vehicle passes on to the customer
when the last due sum & one rupee. Till the last rupee, the right, title & interest in the
vehicle along with any additions and improvements to the vehicles remain the absolute
property of owner
When a payment is more than 14 days late it is considered a default. Date of receipt is
Increases in 0.85% bank interest rate results in a protanto increase in finance charges. But
in this regime of falling interest rates NBFC’S also pull down rates accordingly.
Supplier or dealer delivers the vehicle on be\half of owner but risk is not that of the
owner. Increase the damage or non-delivery suffered by borrower and borrower charges
Borrower takes the insurance in the name of the owner. Owner may renew and recover
from hirer. The policy taken and the insurance company have to be approved by the
owner. Borrower obtains necessary license. Registration of the vehicle is in the joint
name of owner and guarantor and copy of RC submitted to owner. borrower pays sells
tax.
Borrower indemnifies the owner against any claims demands, loss and damage from a
cause even beyond the control of the guarantor. Borrower cannot sublet or sell the vehicle
during the term of the agreement. Expenses of reposition to be paid by the borrower.
Delivery of vehicles concludes that hirer accepts it as it is. Guarantees or warrantees are
given by the supplier/dealer/manufacturer not the owner. Increase the damage insurance
claim negotiations steeled after consent of the owner. Any damage to vehicle not covered
The asset that is the vehicle is shown in the balance sheet of the hirer. Accordingly the
salvage value.
There is a 5% service charge & 0.2% resale tax. Resale because the Hire Purchase
agreements involves three parties and two transactions. Dealer or manufacturer, owner
Generally it is up to 80%-90%. 100% financing can be done for trucks. This is possible
because the company finances only the chassis, the customer will be investing in the
The interest rate in hire purchase is always quoted as a flat rate 6.5% onwards.
Finance amount is calculated as a percentage of the price of the vehicle. The difference
Thus,
Initial payment includes margin money, EMI, Stamp duty, service charges & resale tax.
1. The owner of the asset gives the possession of the asset to the hirer with an
understanding that the hirer will pay agreed installment over a specified
period of time.
2. The ownership of the asset will transfer to the hirer to the hirer on the
3. They will have the option of the terminating the agreement any time before
Thus for the hirer the hire purchase agreement is like a cancelable lease with a
The hirer is required to show the hired asset on his balance sheet and is entitled to claim
depreciation, although he does not own the asset until full payment has been made. The
payment made by the hirer is divided in to two parts; interest charges and repayment of
the principal. The hirer thus gates tax relief on interest paid and not the entire payment.
Mobilisation of funds:
In case of Hire purchase agreement the finance company can present the proposal to the
bank and mobilized funds against it. These can be done, since the finance company is the
owner of the vehicle till the complete payment is model thus the bank can hold the
vehicle as security.
Leasing is widely used in Western countries to finance investment in USA, which has the
Lease is contract between a lessor, the owner gives the right to use the asset to the user
over an agreed period of tine for a consideration called the lease rental. The lessee pays
the rental to the lessor as regular fixed payments over a period of time at the beginning or
at the end of the month, quarter, half-year, or year. Although generally fixed, the amount
and the timing of payment of Lease can be tailored to the lessee’s profits or cash flows. In
up-fronted Leases, more rentals are charged in the initial years and less in the later years
of the contract. The opposite happens in back-ended Lease. At the end of the contract, the
asset reverts to the lessor. Who is the legal owner of the asset. As legal owner, it is lessor
not lessee, who is entitled to claim depreciation on the leased asset. In long term lease
contract, lessee is generally given an option to buy or renew the Lease. Sometimes it is
divided into two types- primary lease and secondary lease for the purpose of lease rentals.
Primary lease provides for the recovery of the cost of the asset and profit through lease
rentals during a period of about 4-5 years. It may be followed by a perpetual, secondary
Most of the banks and financial institution are providing today finances for most of the
automobiles. The most important automobile today being cars, two wheelers, commercial
vehicles. These loans are given on various models at very competitive rates. If a person
has the required eligibility and documents. He can avail the loans for any vehicle and any
The loan is given to the person on the basis of the value of the vehicle. Usually 90% of
the loan amount of the value of the vehicle is given in case of new one and in the case of
Auto loan is a secured loan. As there are some physical assets involved in it and it can be
hypothecated. Then it is called as hypothecated vehicle, which means that the motor
vehicle is to be owned and acquired by the borrower in respect of which the loan is to be
A loan agreement involves two parties, lender and borrower, neither is the 5% does not
The asset that is vehicle is not shown in the borrowers balance sheet, thus the borrower
cannot claim depreciation. However the title of the vehicle is with the customer/borrower.
Registration is same as hire purchase. It is in the joint name of Shriram finance and
customer.
Stamp charges:
Thus initial down payments include 1st EMI and stamp duty. Neither service tax not
resale tax nor margin money is payable to the finance company (lender)
Mobilisation of funds
Increase of a loan agreement a bank cannot mobilize funds towards finance company
against a loan proposal because it would have only the receivables as security i.e.
securities the debt. Banks do not do debt securitization for finance companies because
that means the bank would have to rely on the finance companies assessment.
Commercial vehicle loan is loan given to a person for purchasing a vehicle which is used
for his daily earnings or business purpose; it may be new or used vehicle. any person who
want to buy commercial vehicle for his business or his earnings can get the loan from
banking and non banking institute like Shriram transport finance co. it is fully secured
loan, in this type of loan the ownership of vehicle is with Shriram transport finance co.
(stfc) till the borrower repay full amount of loan. on the RC book of the borrower there is
it is fast , flexible and simple process of loan, there is no limit of loan amount. There are
-new vehicles
-used vehicles
The borrower has to pay some interest to the bank or financial institution according to the
amount arrived at by the credit manager. The loan is given to a period of certain time
duration depend upon so many factors. These are basically two segments in auto loan
Schemes:
1) Even scheme
2) Uneven scheme
i) Even scheme:
In this scheme the interest rate is flat. Generally stfc offers customers even schemes it
beneficial to the borrower as well as company. In this scheme borrower have to repay the
loan amount within given period. The time period will be given as per borrower’s
RATE OF INTEREST:
In case of used vehicle sometime the rate also depends upon the condition of the model
1) New vehicles
2) Used vehicles
New vehicles:
for new vehicles borrower have to take quotation of vehicle from authorized dealer of
vehicle and then submit with application then stfc will review the quotation and if the
quotation is ok then stfc will grant the loan up to 80-85% of the demanded amount.
2) Hirer Document.
a) 2 Colour Photo.
b) Address Proof.
c) Identify Proof.
3) Guarantor Documents
a) 2 Colour photo.
b) Address Proof.
c) Identify Proof.
4) Performa Invoice
5) M. M. Receipt
6) Scheme confirmation.
1) Hirer Document
a. 2 Color Photo.
b. Address Proof.
c. Identify Proof.
4) Guarantor Document.
a. 2 Color photo.
b. Address Proof.
c. Identify Proof.
8) Fitness.
11) Security Cheques will not be accepted, unless it is not affiliated to nationalized
12) Bank statement for Borrover alone is required, but NOT that of Guarantor’s.
After submitting document, STFC provide loan for the customer they have prepared
record file this file call as proposal file. In this proposal file required following
documents.
1) Borrower Document
A) Residential Proof
B) Identity Proof
D) Cheques
E) Sign Verification
2) Guarantor Document
A) Residential Proof
C) Registration Certificate
3) Vehicle Document
B) Fitness Certificate
C) Permit
4) Insurance Policy
A) Clear compressive insurance policy (vehicle no, name chassis, engine no.)
5) Loan Approval
An Agreement is the legal proof of with the company that is a security for the
company. Whenever in future any problems will arises in future, if customer tries to cheat
with the company. Agreement is the main important document with the company, which
helps to take any legal action with the customer. This is signed by the Customer himself
when he gets the loan . this agreement content various forms, terms & conditions. In an
gives the exact idea about verification done by the officer. This report is all about just to
verify the address & the family information provide by the Customer.
Schedule II is about Description of Hypothecated asset. & the Schedule III is about
2) FORM 20:
motor vehicle.
3) FORM-26:
4) FORM-27:
vehicle.;
5) FORM 28:
6) FORM 29:
7) FORM 30:
9)FORM 35:
financer.
An agreement contents the above various forms. Which all signed by the customer &
financer.this book have two book set, first one is original copy which send to head office,
& another one copy is with that perticuler branch for reference purpose.
1) Prime:
Contents all trucks which are registered between year 2001 to 2009.
2) Strategic:
All trucks which are registered in between year 1995 to 2001 this comes under this
segment.
3) C.E.(CONSTRACTION EQUEPEMENT):
All vehicles which are made for construction purpose like JCP, TPPER etc.
6) Passenger:
This is the segment which has big business in pune, mostly for
employees, as well as other regular transport purpose most companies’ uses these type
vehicles .it includes Sumo, Indica, Tavera, Indigo, STAR bus etc.
7) Tractor:
Same etc.
8) Articulated(above 31 tones):
Articulated vehicles are those which have above 31 tons kg weight &
specialy used for high weight goods. Like newly manufactured vehicles can be moved by
Chapter IV
Findings,Suggestions
& Conclusion
FINDINGS:
1) Shriram Transport Finance Company Limited is one of the most trusted financial
2) The interest rate is lower than other banks and non-financial institution like ICICI,
4) The staff is well-qualified and versed with the loan system as per the policy of the
company.
5) There is flat rate system in the company which is mainly beneficial to the company.
6) From the information customers are satisfied with STFCL, 35% customers are old
customer.
7) From the data the loan procedure of company is easy as compared to others.
8) 80% customer are taking loan from STFCL only and remaining 20% they have
taken from other financial institution this shows the loyalty of customers to the
company.
RECOMANDATIONS
3) The company should try to make the procedure more easy than existing procedure
4) The company should try for reducing the documentation required for loan.
relations.
FINANCES COMPANY LTD is very good company. I really learn many things under
this company.
I never meet companies Director& Excises Person, but when I working under this
persons.
One more thing I mention in this conclusion part is that I never saw these kinds of
good relationship with customers. But I working with these companies I really get good
experience from it. I would get very good corporate exposure because of this company.
CONCLUSIONS
MBA programme, D.K.T.E.S Department of Management Studies
Page
Shivaji University, KOLHAPUR
3) Even if the credit goes to wrong person then it will not affects the performance of
the company because company gives loan against hypothecation (HP) of vehicle.
4) In the company the credit manager is the only person who takes care of proposals.
The credit manager should consult the recovery manager that a person is not a
default gist. If the customer taking loan twice then credit manager should check
6) STFCL is the only NBFC, which is continuously upgraded to achieve the highest
customer satisfaction.
7) the loan systems starts from verifying and checking the necessary documents,
collection the actual cost in terms of monthly installment and end’s with No
CHAPTER V
Appendix
BIBLIOGRAPHY
publisher:Snowwhite.
3.
1. www.google.com
2. www.shriram.com
3. www.stfc.in.
Other Sources
2) Shriram Samachar.