Case Of Retail Loans

Appraisal of Education Loan and Consumer Loan Material

Background information on applicant Rajan Soni and Loan Application form Literature on Retail Banking -Set III

Activity

Evaluation of Education and Consumer Loan Request

Questions • • •

Using the six “C” criteria and the credit scoring model, you are asked, first of all, to decide if the loan should or should not be made as it is presented. Specifically work out the availability of funds to establish timely payment of EMI. If the loan is not acceptable in its present form, decide under what circumstances you would be willing to grant this loan, including what adjustments Rajan could undertake to make this credit request acceptable to Sun Bank.

Background Information on Applicant Rajan Soni The credit application, as per Exhibit I, was submitted by Rajan Soni to the Sun Bank,New Delhi Office. The application indicates that Rajan has recently been admitted to the three year part time Executive MBA Program of FORE School of Management. Considering the distance from his present place of residence, he has shifted to a new one room apartment in the neighbourhood of the institute and requires new furniture, consumer durables etc for furnishing the apartment. For payment of fee and furnishing the apartment, he has applied for an education loan of Rs. 360,000 (Rupees Three Lakhs Sixty Thousand) and a 12 month consumer loan for Rs.90,000 (Ninety Thousand). His aunt, Ms Ruby Malhotra is working as a designer with a leading fashion house and also a customer of the bank, has agreed to stand as guarantor should the loan be approved. Ms Ruby has been in the current employment for the past 3 years and earns Rs.300000 (Rupees Three lakh)per annum. Her credit rating is only average with some slow or delayed payments. Currently, Rajan is working as an Assistant Accountant with a consulting firm at a salary of Rs 30,000 per month, which is barely enough to meet his living expenses. Rajan’s employer indicates that he is with them for the last 3 years, initially on part-time basis and on present position for last two years. They are aware that Rajan has got admission in MBA parttime program. Incidentally, Rajan is expecting a salary revision soon.

Exhibit I Composite Loan Application Form Nature and Purpose of the Loan Request Date Amount Requested Nature of Loan Education Loan Consumer Loan

August 3, 2009 Rs 450,000/= Amount (Rs) Purpose Repayment Terms 360,000 Course fee payable in 36 months after three equal annual completion of the course instalments 90,000 Purchase of furniture 12 months and consumer durables

Collateral that might be pledged to secure the Consumer loan: Furniture, Consumer durables etc. Personal Guarantee of Ms Ruby Malhotra for education loan Name and Address of Customer Full name of customer: Rajan Soni Current residence address: C 201, Ber Sarai, New Delhi Telephone: None. Mobile: 9899324211 Customer’s Personal History Date of Birth: 18 March, 1983 Pan Number: Not Available Driver’s license no: 22218 Previous residence address: F 321 Janakpuri, New Delhi Number of dependents: None Employment Status Name of employer: Fine Consulting Inc. Name of immediate supervisor: Raman Varghese Employer’s business address: Commercial Complex, Tower B, Raja Garden, New Delhi Current salary: Rs 24,000 per month Previous employer’s name: None Other sources of income: None Banking Relationships Customer of this bank today: Yes/No Accounts held with the Bank: Savings Bank A/c No. 042-331218-006 Average monthly account balance (approx.) Rs 7,500 Relatives Who May Be Contacted

Nearest living relative: Ms. Ruby Malhotra Relationship : Aunt Address: C 432 Malviya Nagar, New Delhi

Telephone: 32402286

Personal Finances and Credit Record Assets Cash on Hand Rs 7,500/Automobiles: 1. Motor Bike (2004 model) 2. Securities or Investments Rs 45,000/- Mutual Funds 3. Insurance Policy Rs 450,000/(Cash value of Rs 30,000/-)

Liabilities 1. Mortgage or Lease Held: Lease Apt. at Rs 6,000 per month 2. Other Debts: From employer, Fine Consulting Inc. Rs 60,000/- (Outstanding as on date Rs 18,000/- )

The credit investigation on Rajan reveals nothing adverse.