The Ethics of Accepting and Rejecting Bank Loan Applications

A developed banking sector plays a essential role for financial stability of a country. HDBFS is one the leading NBFC in India which provides a variety of products and services. It has a strong capitalisation which was an enriching experience to work in a corporate environment. I have completed the program based on the theoretical and practical knowledge in Jaipur Kishanpole branch which is headed by the key person Mr. Naveen Sharma. It serves both retail and commercial clients in two verticals: Salaried and Self Employed. I have selected “the loan approval process and factors affecting the rejection of files” as my topic because credit appraisal is one of the important factor through which the credit worthiness of the customer can be analysed. It varies from company to company. Credit plays a vital part in the profitability of the company. And having a strong credit policy helps in reducing the default by the customers. The credit team preform a large number of activities like system login, going on person discussion with the customers, finding its average bank balance and the maximum EMI amount that the customer can pay through credit appraisal memo. These all things give an understanding about the customer credit worthiness.

In my 60 days of internship I have found that there are many loan application files which gets rejected by the company due to different different reasons to avoid the counter party default. But this also hampers the business of the company, so I had made a research on what are the most common reasons due to which a loan application gets reject. The results has been analysed through the primary data, which has gather from the company employees by interview and survey.

Understanding the credit appraisal process of a company is very important for the customers as well to the employees of the company. Because if customer will know about the policy and the process followed by the company, it will reduce most of their issues that why company needs so many documents for approving loan. Because the customers don’t feel secure in providing documents and information about their business. So this develops a trust among their customers that the company needs all the documents for verification and apart from these they also get knowledge about the KYC documents needed by the company and they will not intent to providing any wrong details to the company time.

It is equally important for the entire company employee as well because it helps the employee to better convince the customer and bring those customers to the company that will fit according to the policy of the company. Along with that the second part of report includes the factor affecting the rejection of loan application files. I have chosen this topic because this hampers the business of the company. As this the choice of funding of many of the people now a days. So it’s very important for the customers to know why such type of NBFCs reject any loan application so that they can be aware about certain important things before applying for a loan. As most of the customers are not aware about these reasons and they think they can mislead these companies by providing false information. So when they apply for loan their applications gets rejected and ultimately affects the CIBIL or credit history of the customers. And for the company it is important to know that which type of customers to avoid and how to increase their business by meeting the norms of the company and reducing the rejection of such type of loan applications. So that the training department should be trained before bringing customers to the company. Responses for the survey has been taken by the employees of Malviya Nagar as well as the Tonk Road Branch and has analysed to reach to the conclusions.

Introduction of NBFCs

It’s mandatory for a NBFC to get registered under the Companies Act, 1956 to get into the business of loans and advances, acquisitions of share/stocks/ bonds etc. issued by government or local authority or security market. There is a criteria which is established by RBI to make any NBFC registere. Its financial assets should be 50% more than its total assets and income from financial assets should be more than 50% of gross income

And for the companies which are majorly involved in agricultural operations, industrial activity, purchase and sale of goods, providing services or purchase, as their primary business and in the financial business segment, cover only a small percentage, they will not be controlled by the Reserve Bank. The requirements for a registered company with Reserve Bank of India are as follows- A company which is incorporated under the Companies Act, 1956 and seeking for starting business as an NBFC as defined under Section 45 I (a) of the RBI Act, 1934 should company with it should be a company registered under Section 3 of the companies Act, 1956 and have to have a minimum net owned fund of 2Cr.

Services Provided By NBFC

NBFCs offer many of banking services, such as loans and credit facilities, private education funding, retirement planning, underwriting stocks and shares. They also provide wealth management such as managing portfolios of stocks and shares, discounting services e.g. discounting of instruments and advice on merger and acquisition activities. The market share of non-banking financial companies has increased greatly in the last few years. Though can’t take deposits from the general public so they are required to find other means of funding their operations such as issuing debt instruments.

Difference Between NBFCS AND Banks

Though NBFCs perform functions alike to that of banks but there are a few differences:

• NBFC cannot accept demand deposits.
• NBFC cannot issue cheques drawn on itself.
• Deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors, not like banks.

About the Company

The HDB is a subsidiary company of HDFC Bank. The first one to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994 was HDFC. And the bank has been incorporated in August 1994 which has its registered office in Mumbai. HDFC began its operations as a Scheduled Commercial Bank in the year of 1995.

HDB Financial Services (HDBFS) is a leading Non-Banking Financial Company (NBFC) that provides to the developing needs of the Retail & Commercial Clients. It is a well-established business with strong capitalisation. For its long term debt and banking facilities it has been accredited with CARE AAA & CRISIL AAA ratings. And for its short term debt and commercial papers, it has been given A1+ ratings.

Being a NBFC, HDB Financial Services Limited provides financing, collection, and insurance services in India. The two major segments of the company is lending and BPO service. Talking about its products it offers unsecured loans, including business and personal loans; loans against properties, gold jewellery, securities, and enterprise business, consumer durables, car, and commercial vehicle loans. And the BPO services segment helps in providing back office services such as forms processing, documents verification, finance and accounting services and correspondence management.

Vision and Mission

Vision

To Be India’s most Esteemed NBFC; Through Great Execution, Driving Simplicity & Developing Humility

Mission

To provide inventive products and services to satisfy to the growing needs of an aspirational India and serve both Retail & Commercial Clients.

Values

HDBFS has a strong obligation to ethical behaviour. Transparency is in-built in the structure of the Code of Ethics and the compliance policies to confirm that the highest standards of professional conduct are constantly strengthened and surrounded in the organisation.