A STUDY ON CREDIT APPRAISAL SYSYEM OF HIRE PURCHASE BUSINESS WITH REFERENCE TO SUNDARAM FINANCE LIMITED, CHENNAI.

A PROJECT REPORT Submitted By

V.P. SIVASAKTHI
[Link] in partial fulfillment for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

IN DEPARTMENT OF MANAGEMENT STUDIES R.M.K. ENGINEERING COLLEGE

ANNA UNIVERSITY: CHENNAI 600 025

JUNE 2009

ANNA UNIVERSITY: CHENNAI 600 025

BONAFIDE CERTIFICATE
Certified that this project report A STUDY ON CREDIT APPRAISAL SYSYEM OF HIRE PURCHASE BUSINESS WITH REFERENCE TO SUNDARAM FINANCE LIMITED, CHENNAI is the bonafide work of [Link] who carried out the project work under my supervision.

SIGNATURE

SIGNATURE

Dr. PREMA SANKARAN HEAD OF THE DEPARTMENT Master of Business Administration R.M.K. Engineering College R.S.M. Nagar, Kavaraipettai 601 206 Gummidipoondi

MRS. R. MUZHUMATHI SUPERVISOR Master of Business Administration R.M.K. Engineering College R.S.M. Nagar, Kavaraipettai 601206 Gummidipoondi.

ACKNOWLEDGEMENT I express my foremost thanks to the Almighty God for his blessings in helping me to complete my Project Work successfully. I express my sincere gratitude to DR. K. CHANDRASEKARAN, Principal, R.M.K. ENGINEERING COLLEGE, who granted me this opportunity. I express my sincere gratitude to DR. PREMA SANKARAN, Ph.D., Head of the Department, who granted me this opportunity. I am deeply grateful to my internal guide [Link], M.B.A., [Link]., Ph.D. for her guidance and effective suggestion. I extend my special thanks to [Link], Manager (Operations), SFL who has given his help and a source of great support throughout the project. I also express my sincere gratitude to all the respondents who have given me all necessary information for carrying out my study successfully.

V.P. SIVASAKTHI.

TABLE OF CONTENTS
CHAPTER NO. ABSTRACT LIST OF TABLE LIST OF FIGURES LIST OF ABBREVIATIONS I INTRODUCTION 1.1 Introduction to the study 1.1.1 1.1.2 1.1.3 1.1.4 Need and Importance of the study Scope of the study Objectives of the study Research Methodology [Link] [Link] [Link] [Link] [Link] 1.1.5 1.1.6 Research Design Sources of Data Population and sample Hypothesis Tools and Techniques TITLE PAGE NO. i ii iii iv

Limitations of the Study Chapterisation

1.2 Review of Literature 1.2.1 Theoretical Review of the study

CHAPTER NO. 1.2.2 1.2.3 1.2.4 II

TITLE Industry Profile Company Profile Product Profile

PAGE NO.

ANALYSIS AND INTERPRETATION 2.1 Percentage Analysis 2.2 Statistical Analysis 2.2.1 Chi square 2.3 SWOT analysis

III

SUMMARY AND CONCLUSION 3.1 Findings of the Study 3.2 Suggestions 3.3 Conclusions BIBLIOGRAPHY APPENDICES Data collected

ABSTRACT

SUNDARAM FINANCE LIMITED (SFL) is one of the leading financial institutions in India comes under the category of non-banking financial companies (NBFCs). SFL is a largest financial company belongs to TVS group. SFL is a financial institution which provides vehicle finance, leasing and accepts deposits from its customer. SFL has uncompromising commitment to customer service and employee welfare. SFL has well known for its loyal customer. SFL has more than 541 branches allover India. The study is entrusted to analyze the credit appraisal process and to find out the performance and workings of Hire Purchase business in SFL. The study is also entrusted to view the development of Hire Purchase business in SFL, its concepts, agreement, features, terms and stages involved in Hire Purchase business. This study is done by evaluating the performance of HP business. A sample of HP customers is taken for analysis purpose. With respect to data collection both primary data and secondary data have been collected. Primary data are being collected by personal interviews and discussions with the various officials of SFL. Secondary data are being collected from the annual reports, companys website, and credit appraisal reports of the company. From the study, the credit appraisal process and its performance on HP is analyzed by applying of various tools and techniques. Based on the findings, suggestions are given for the development of credit appraisal process which in turn helps in the development of HP business of SFL.
i

LIST OF TABLES

2.1 Percentage Analysis

[Link]. 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2..1.6 2.1.7 2.1.8 TITLES Table showing the credit deviation in car contracts Table showing the credit deviation in commercial vehicle contracts Table showing the performance of car contracts Table showing the performance of commercial vehicle contracts Table showing the various credit deviations for car contracts Table showing the various credit deviations for commercial vehicle contracts Table showing the development of HP Business Table showing the sales performance of HP Business 2.2.1 Chi-square [Link]. [Link] [Link] TITLES Table showing the relationship between credit deviation and performance of car contracts Table showing the relationship between credit deviation and performance of commercial vehicle contracts
ii

Page No

Page No

LIST OF FIGURE
[Link]. TITLES PAGE NO.

2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.1.6 2.1.7 2.1.8

Figure showing the credit deviation in car contracts Figure showing the credit deviation in commercial vehicle contracts Figure showing the performance of car contracts ABBREVIATIONS Figure showing the performance of commercial SFL Sundaram Finance Limited vehicle contracts Figure showing Purchase credit deviations for car HP Hire the various contracts NBFC Non the various credit deviations Figure showingBanking Financial Company for EMI Equal Monthly Installments commercial vehicle contracts Figure showing the development of HP Business Figure showing the sales performance of HP Business

iii

LIST OF ABBREVIATIONS

iv

CHAPTER I INTRODUCTION

CHAPTER I 1. INTRODUCTION
1.1 Introduction to the Study

Hire Purchase is a type of installment credited under which the hire purchaser, called the hirer agrees to take the goods on hire at a stated rental which is inclusive of the repayment of principal as well as interest, with an option to purchase. A contract of hire is a contract act. The system of acquire an asset to an intending purchaser who is unable to pay the full price of the asset at one time in lump sum. At the time, there was great deal of hire purchase particularly in respect of customer durables. The sellers of consumer installment credit were looked upon as disguised money lender who tempted their customers into debt which they could not afford to pay, whereas the hirers were accused of lending improvident lives. But social attitudes towards HP have today undergone a remarkable change and not only the old prejudice against it has practically disappeared, but HP is also fast receiving due recognition as a mode of industry finance, one step further to non consumer finance. All early HP transactions were financed by the manufactures or dealers themselves who sold the goods on HP terms. Subsequently independent financial houses come into existence who offered finance on HP terms for the purchase of a wide variety of consumer articles, automobiles and later industrial machinery also.

At one time, the dealer was expected to pay for the privilege of this financing facility by selling the goods to the finance company to a discount but competition among the finance houses led to a general increase in the dealer bargaining power, and eventually the finance company was forced to

pay the dealer a commission on certain classes of transactions - e.g., agreements relating to motor vehicle - if it wished to obtain business. The growth of and development of the system of HP finance can be traced to the advent of industrial development in the UK, it is said that one Mr. Henry Moore a bishop gate piano maker introduced the system of HP first time in 1846. Thereafter this new method obtaining goods on credit rapidly gained favor with the advent of sewing machine produced by singer manufacturing company which let out machines to its customer under hiring agreement containing on options, the sums paid by the way of hire rent being allowed against the purchase price in the event of the option being exercised. At one time the dealer was expected to pay for the privilege of this financing facility by selling the goods to the finance company to a discount but competition among the finance houses led to a general increase in the dealer bargaining power, and eventually the finance company was forced to pay the dealer a commission on certain classes of transaction - e.g., agreements relating to motor vehicles - if it wished to obtain business.

Concept of HP: Any product from pin to plane is financed. The purchaser or the user identifies the product. He contact the HP company and after finalizing the quantum of finance, period, finance charges, or rate he enter with the finance

company called the hire purchase agreement. The finance company is called the owner and the user is called the hirer. Guarantor can be accepted as per requirement. He then makes the initial payment called INITIAL HIRE. Document charges as required in the particular state where the transaction is put through and incidental charges if applicable. One rupee is collected as option money in HP agreement. The reason is hire purchase is a deemed sale at the end of the contract. The product is sold to the user and the end of the contract and this is the sale price from the finance company to the user. SFL is basically a hire purchase company. This company was established on 1954 with a basic aim to support commercial vehicles operators. Now the company has taken a major shift to cars for the sake of volume in the last 6 years and is doing a very good volume.

1.1.1 Need and Importance of the study HP financing has gained much momentum. Many NBFCs have adopted this mode of finance and the income from HP financing affect profitability of the

concern with the combination of risk. Hence the need for studying Hire Purchasing and Profitability, and Credit appraisal process arises to assess the impact of Hire Purchase transaction on profitability of the company and risk associated with it. 1.1.2 Scope of the Study The project work is undertaken to analyze the existing credit appraisal system of Sundaram Finance Limited,Chennai. The impact on recovery because of credit policy deviation is found and hence through which the stringency of credit policies are found. The study was based on car contracts and commercial vehicles contracts. Suggestions that help improve the existing appraisal method will be stated.

Objectives of the Study

Primary objective:

To study the existing credit appraisal system of Hire Purchase business of Sundaram finance limited.

Secondary objective:

To analyze the process of HP business in SFL To study the development of HP in SFL To assess the sales performance of HP business of SFL

To study on the deviation of credit policy.

1.1.4 RESEARCH METHODOLOGY

Research means a search of knowledge. Sometime it may refer to scientific and systematic search pertinent information on specific topic infact; research is an art scientific investigation. Redman and Mory defines research as a systemized effort to gain new knowledge. Research can be defined as a Scientific and Systemic Search for pertinent information on a specific topic. Therefore, research could be understood as an organized activity with specific objectives on a problem or issues supported by compilation of related data and facts, involving application of relevant tools of analysis and deriving logically on originality. [Link] RESEARCH DESGIN This research deals with the analytical research. Analytical research is analyzing and making critical evaluation based on the facts and information already available. Analytical research includes surveys and fact finding enquires of different kinds.

[Link] SOURCES OF DATA

 Primary data The data collected for the first time through field survey is known as primary data. Here the primary data was collected from the employees by personnel interviews and discussions with various officials of SFL. Secondary data The Secondary data are being collected from the annual reports, companys website, and credit appraisal reports of the company. [Link] POPULATION AND SAMPLE This study is based on the secondary data, for which the customer database is taken as sample in terms of number of contracts. The total number of contracts for the financial year 1st April to 31st March is 4458 contracts for car customers and 640 contracts for commercial vehicle. The sampling method adopted here is systematic sampling. This method of sampling involves selecting the samples in a systematic manner. In this study every 20th contract is taken as sample. Sample size of 222 contracts for car customers and 32 for commercial vehicle customer, which is 5% of the total population of car and commercial vehicle contracts.

[Link] HYPOTHESIS

Null Hypothesis (Ho)

It shows there is no significance difference between the sample statistic and corresponding population parameter or between two sample statistics.

Alternative Hypothesis (H1) It shows there is significance difference between the sample

statistic and corresponding population parameter or between two sample statistics.

[Link] TOOLS AND TECHNIQUES STATISTICAL TOOLS Statistical tools constitute an integral part of research analysis. Hence, any analysis of data complied should be subjected to relevant analysis so that meaningful conclusions could be arrived at. The following are the statistical tools which were applied for this project. 1. CHART Bar chart are used for analyzes to get a clear idea about the tabulated data.

2. PERCENTAGE ANALYSIS

Show the entire population in terms of percentage. It reveals the number of people belonging in a particular category or the number of people preferring a particular theory, in terms of percentage. In this study the number of people who responded in a particular manner is interpreted in the term of percentage. Percentage = (number of respondents / total respondents) * 100 3. CHI SQUARE METHOD: The objective of chi-square test is to determine comparison of expected frequency (E) with the observed frequency (O) to determine where the difference between the two is greater than which might occur chance. Condition for use:

Two set data should be present i.e., observed and expected Data based on sample size. Each observed and expected count should be 5 or greater than 5, The difference between rows and columns must represent

otherwise Yates correction to be done.

categorical variable.

If computed value is greater than the tabulated value at a predetermined level of significance and degree of freedom the hypothesis is rejected. On the other hand if the calculated chi-square value is less than the tabulated value, the hypothesis is rejected x = SUM (Oi Ei) 2/Ei Oi = Observed Frequency Ei = Expected Frequency

1.1.5 LIMITATIONS OF THE STUDY

The project is concerned with the activities of SFL only and does not have any reference with the subsidies of SFL. The procedures involved and schemes of HP business in NBFCs are varying in nature. Hence, being a case study, the findings and suggestions cannot be applied to other NBFCs. The study could collect only limited samples, as the data were kept confidential.

The period of study taken for analysis of credit process of HP business of SFL was to one financial year i.e.2008-2009

1.1.5 CHAPTERISATION

The Chapter I give the introduction to the study, need and importance of the study, scope of the study, objectives of the study, research methodology, tools and techniques and limitations of the study. It also gives the theoretical review of the concept, survey of literature, industry profile, company profile and product profile. The Chapter II shows the analysis and interpretation of the study. It gives the tools and techniques used for the study. It also shows the analysis in the form of tables and charts. The Chapter III gives the findings of the study, suggestions based on the study and conclusion.

1.2 Review of the literature Credit analysis is the method by which one calculates the creditworthiness of a business or organization. The audited financial statements of a large company might be analyzed when it issues or has issued bonds. Or, a bank may analyze the financial statements of a small business before making or renewing a commercial loan. The term refers to either case, whether the business is large or small. Credit analysis involves a wide variety of financial analysis techniques, including ratio and trend analysis as well as the creation of projections and a detailed analysis of cash flows. Credit analysis also includes an examination of collateral and other sources of repayment as well as credit history and management ability. Before approving a commercial loan, a bank will look at all of these factors with the primary emphasis being the cash flow of the borrower. A typical measurement of repayment ability is the debt service coverage ratio. A credit analyst at a bank will measure the cash generated by a business (before interest expense and excluding depreciation and any other non-cash or extraordinary expenses). The debt service coverage ratio divides this cash flow amount by the debt service (both principal and interest payments on all loans) that will be required to be met. Bankers like to see debt service coverage of at least 120 percent. In other words, the debt service coverage ratio should be 1.2 or higher to show that an extra cushion exists and that the business can afford its debt requirements.

1.2.1 Theoretical Review of the concept Credit Appraisal It is the process of appraising the credit worthiness of a loan applicant. Factors like age, income, number of dependents, nature of employment, continuity of employment, repayment capacity, previous loans, credit cards, etc. are taken into account while appraising the credit worthiness of a person. Every bank or lending intuition has its own panel of officials for this purpose. It is the process by which a lender appraises the creditworthiness of the prospective borrower. This normally involves appraising the borrowers 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 Appraisal is a process to ascertain the risks associated with the extension of the credit facility. It is generally carried by the financial institutions which are involved in providing financial funding to its customers. Credit risk is a risk related to non repayment of the credit obtained by the customer of a bank. Thus it is necessary to appraise the credibility of the customer in order to mitigate the credit risk. Proper evaluation of the customer is performed this measures the financial condition and the ability of the customer to repay back the loan in future. Generally the credits facilities are extended against the security know as collateral. But even though the loans are backed by the collateral, banks are normally interested in the actual loan amount to be repaid along with the interest.

Thus, the customer's cash flows are ascertained to ensure the timely payment of the principal and the interest. Credit appraisal techniques The Banking sector in Pakistan continues to suffer from a loan problem portfolio, due to a variety of reasons. While there is no guaranteed procedure for ensuring loans do not go bad (certain circumstances can go against the best of borrowers), I have tried to develop a procedure for analyzing credits, as outlined below. This is based primarily on personal experience of over 20 years as a lending officer, sitting on the Board of Banks besides guidance from earlier supervisors, and training programmes attended. The important thing to remember is not to be overwhelmed by marketing or profit center reasons to book a loan but to take a balanced view when booking a loan, taking into account the risk reward aspects. Generally we remain optimistic during the upswing of the business cycle, but tend to forget to see how the borrower will during the downturn, which is a shortsighted approach. Furthermore we tend to place greater emphasis on financials, which are usually outdated; this is further exacerbated by the fact that a descriptive approach is usually taken, rather than an analytical approach, to the credit. Thus a forward looking approach should also be adopted, since the loan will be repaid primarily from future cash flows, not historic performance; however both can be used as good repayment indicators.

Having postulated above guidelines, following is a suggested general procedure for reviewing short term lending proposals

Company Profile / Ownership Proposed Transaction Purpose of facility Source of repayment Credit limits Security Financial analysis Management evaluation Organization culture, corporate strategy Risk areas Checkings Loan profitability The above is a basic guideline to reviewing short-term credits and is not all exhaustive. It should thus be reviewed on a case by case basis. Each borrower has different the above is a basic guideline to reviewing short-term credits and is not all exhaustive. It should thus be reviewed on a case by case basis. Each borrower has different circumstances and should be reviewed as such. I have attempted to cover short-term borrowings only - project finance and other form of lending have different risk criteria, which have not been addressed here. However 3 Cs of a credit are crucial and relevant to all borrowers / lending which must be kept in mind at all times

Character Capacity Collateral If any one of these is missing in the equation then the lending officer must question the viability of the credit. There is no guarantee to ensure a loan does not run into problems; however if proper credit evaluation techniques and monitoring are implemented then naturally the loan loss probability / problems will be minimized, which should be the objective of every lending officer. About the Author The author has an honors degree in Economics / Accounting and a MBA, both from British Universities. Subsequently he has gained over 20 years lending experience with Citibank and American Express Bank, in Pakistan and the Middle East. He has served on the Board of Directors of NDFC and Orix Investment Bank besides other Companies and is presently working as a Credit Advisor with Pakistan Kuwait Investment Company (Pvt.) Ltd. The above article has been derived from presentations the author has made to Bankers on Credit Analysis. It has been written in view of the positive responses obtained, recognizing the need to reach a wider audience on this relevant subject.

Concept of Hire Purchase: Hire purchase (frequently abbreviated to HP) is the legal term for a contract developed in the United Kingdom, and now found in India, Australia, New Zealand, Ireland and other stateswhich have adopted the English Law concept. (In North America, where the word hire most commonly refers to employment, the comparable system is called closed-end leasing.) In cases where a buyer cannot afford to pay the asked price for an item of property as a lump sum but can afford to pay a percentage as a deposit, a hire-purchase contract allows the buyer to hire the goods for a monthly rent. When a sum equal to the original full price plus interest has been paid in equal installments, the buyer may then exercise an option to buy the goods at a predetermined price (usually a nominal sum) or return the goods to the owner. In the United States, a hire purchase is termed an installment plan; other analogous practices are described as closed-end leasing or rent to own. Hire purchase differs from a mortgage and similar forms of lien-secured credit in that the so-called buyer who has the use of the goods is not the legal owner during the term of the hire-purchase contract. If the buyer defaults in paying the installments, the owner may repossess the goods, a vendor protection not available with unsecured-consumer-credit systems. HP is frequently advantageous to consumers because it spreads the cost of expensive items over an extended time period. Business consumers may find the different balance sheet and taxation treatment of hire-purchased goods beneficial to their taxable income. The need for HP is reduced when consumers have collateral or other forms of credit readily available. Standard provisions

To be valid, HP agreements must be in writing and signed by both [Link] must clearly set out the following information in a print that all can read without effort: 1. a clear description of the goods 2. the cash price for the goods 3. the HP price, i.e., the total sum that must be paid to hire and then purchase the goods 4. the deposit 5. the monthly installments (most states require that the applicable interest rate is disclosed and regulate the rates and charges that can be applied in HP transactions) and 6. a reasonably comprehensive statement of the parties' rights (sometimes including the right to cancel the agreement during a "cooling-off" period). 7. The right of the hirer to terminate the contract when he feels like doing so with a valid reason. The seller and the owner If the seller has the resources and the legal right to sell the goods on credit (which usually depends on a licensing system in most countries), the seller and the owner will be the same person. But most sellers prefer to receive a cash payment immediately. To achieve this, the seller transfers ownership of the goods to a Finance Company, usually at a discounted price, and it is this company that hires and sells the goods to the buyer. This introduction of a third party complicates the transaction. Suppose that the seller makes false claims as to the quality and reliability of the goods that induce the buyer to

"buy". In a conventional contract of sale, the seller will be liable to the buyer if these representations prove false. But, in this instance, the seller who makes the representation is not the owner who sells the good to the buyer only after all the instalments have been paid. Implied warranties and conditions to protect the hirer The extent to which buyers are protected varies from jurisdiction to jurisdiction, but the following are usually present: 1. the hirer will be allowed to enjoy quiet possession of the goods, i.e. no-one will interfere with the hirer's possession during the term of this contract
2. the owner will be able to pass title to, or ownership of, the goods

when the contract requires it 3. that the goods are of merchantable quality and fit for their purpose, save that exclusion clauses may, to a greater or lesser extent, limit the Finance Company's liability 4. where the goods are let by reference to a description or to a sample, what is actually supplied must correspond with the description and the sample.

The hirer's rights

The hirer usually has the following rights: 1. To buy the goods at any time by giving notice to the owner and paying the balance of the HP price less a rebate (each jurisdiction has a different formula for calculating the amount of this rebate) 2. To return the goods to the owner this is subject to the payment of a penalty to reflect the owner's loss of profit but subject to a maximum specified in each jurisdiction's law to strike a balance between the need for the buyer to minimize liability and the fact that the owner now has possession of an obsolescent asset of reduced value 3. With the consent of the owner, to assign both the benefit and the burden of the contract to a third person. The owner cannot unreasonably refuse consent where the nominated third party has good credit rating 4. Where the owner wrongfully repossesses the goods, either to recover the goods plus damages for loss of quiet possession or to damages representing the value of the goods lost. Basically hirer has following rights 1) Rights of protection, 2) Rights of notice, 3) Rights of repossession, 4) Rights of Statement, 5) Rights of excess amount

The hirer's obligations

The hirer usually has the following obligations: 1. to pay the hire installments 2. to take reasonable care of the goods (if the hirer damages the goods by using them in a non-standard way, he or she must continue to pay the installments and, if appropriate, compensate the owner for any loss in asset value) 3. to inform the owner where the goods will be kept. The owner's rights The owner usually has the right to terminate the agreement where the hirer defaults in paying the installments or breaches any of the other terms in the agreement. This entitles the owner: 1. to forfeit the deposit 2. to retain the installments already paid and recover the balance due 3. to repossess the goods (which may have to be by application to a Court depending on the nature of the goods and the percentage of the total price paid) 4. to claim damages for any loss suffered.

Hire purchase in Australia

Hire purchases are commonly used by businesses (including companies, partnerships and sole traders) in Australia to fund the purchase of cars, commercial vehicles and other business equipment. Under Australian Taxation Office rules, businesses who account for GSTon a accruals basis are entitled to claim an Input Tax Credit for all of the GST contained in the purchase price of the goods on their next Business Activity Statement [Hire purchase] is also commonly known as commercial hire purchase and corporate hire purchase (both abbreviated to CHP) in Australia.

1.2.2 INDUSTRY PROFILE

NON-BANKING FINANCIAL COMPANIES [NBFCs] DEFINITION According to the Reserve Bank of India (Amendment Act) 1997, NBFCs means a non-banking financial institution which is a company and which has its principal business receiving of deposits under any scheme or arrangements or in any other manner or lending in any manner such other non-banking institution or class of such institutions as the bank may with the previous approval of the central government specify. The definition excludes financial institutions. Besides institutions which carry an agricultural operations as their principal business NBFCs consist of financial companies which carry on hire purchase finance, housing finance, investments, loan, equipments, leasing or mutual benefits in financial companies but do not include insurance companies or stock exchanges or stock-brokering companies. INTRODUCTION Non-Banking Financial Companies [NBFCs] are financial intermediaries, which mostly cater to the financial needs of small corporate as well as non-corporate entities through activities such as leasing, bills discounting, and extending trade finance through mortgage loans. NBFCs are heterogeneous in nature in terms of activity and size, are important to financial intermediaries and are integral part of Indian financial system. They have been able to carve out themselves in meeting the credit needs of both wholesale and retail customers. They serve a large spectrum of retail customers by the way of automotive financing through hire purchase and

loan and by providing avenues for investments in the form of deposits. NBFCs began their long trek as support companies. Their primary functions included acting as fixed deposit collecting centers and working out leasing deals for corporate clients. Initially, most of these NBFCs were concentrated in South India. Bulging deposits pushed up confidence levels leading to NBFCs for growing into greener pastures such as investment banking, bill discounting consumer durable finance, auto finance, apart from leasing and hire purchase. Finally NBFCs had arrived in the nations financial scene. The boom came, a period of unrefined growth. Mushrooming of NBFCs became the order of the day. With rising demand and entry barriers, almost every corporate entity floated on NBFCs. The eighties saw a dozen of NBFCs springing up. The number of NBFCs grows up from 7003 in 1981 to 41000 in 1996. A non-banking financial sectors in India are recorded a master growth in the recent years in terms of number of NBFCs. The banking laws (miscellaneous provision) act 1963 was introduced to regulate them. The RBI Act regulates different types of NBFCs under the provision of Chapter III-B, it was amended in 1997 in order to provide comprehensive regulatory framework for the NBFCs sector. Today this sector alone finances most of the transport business in the non-corporate sector, which is the most important and the largest sector in the economy. The future does seem to be bright for the NBFCs industry. Leasing is gaining grounds among the industries. There is a significant role of NBFCs to play in which private banks are yet to make their presence felt.

RBI GUIDELINES FOR NBFCs The nineties witnessed a dramatic increase in the number of NBFCs and it was thought necessary to have a regulatory framework for NBFCs. RBI came out with set of guidelines for NBFCs specifically aimed at protecting the depositors. To encourage the NBFCs that is running on sound business principals, on July 24th 1996, NBFCs were divided into two classes,
i.

Equipment leasing and hire purchase (finance company) Loan and investment companies

ii.

CATEGORIES OF NBFCs i. ii. iii. iv. v. vi. loan companies investment companies hire purchase companies equipment leasing companies mutual benefits finance companies housing finance companies

1. Equipment leasing company Any company, which is a financial institution, carrying on its principal business. The activities of leasing of equipment of the financing of such activity. 2. Hire purchase finance company A company, which is a financial institution, carrying on its principal business, hire purchase transaction.

3. Investment Company A company, which deals with acquisition of securities. 4. Loan Company A company, which is a financial institution and carries on its principal business of providing finance by any activities other than its own.
5. Mutual benefit finance company A company, which is a financial

institution. This is notified by the central government under section 620 (a) of The Companies Act 1956. FUTURE HOLDS FOR NBFCs i. ii. iii. iv. v. vi. vii. reduce number of players cross barrier competition segmentation and positioning end of tax based leasing emergency of vendor leasing asset based funding price based competition

REASONS FOR RAPID GROWTH OF NBFCs i. ii. iii. iv. v. vi. vii. lower transaction costs quick financial decision-making customer orientation prompt provision of services flexibility in month installment structure lower degree of regulation vis--vis banks no entry barriers

1.2.3 COMPANY PROFILE SUNDARAM FINANCE LIMITED Sundaram Finance was set up in 1954, when Late. T.S. Santhanam envisioned the future of hire purchase finance in India. The company was started with a paid-up capital of Rs. 2.00 lakhs. It was promoted by Madras Motor and General Insurance Company that was then one of the leading insurance companies in India prior to nationalization in 1971. T.S. Santhanam who promoted Sundaram Finance is the son of Late T. V. Sundaram Iyengar. Actually it was formed as a private limited company under the companys act 1913 in the year 1960 it becomes a subsidiary of (MMGI) it is the largest non banking finance companies [NBFCs] in the country emerging as a leader in the industry and is holding. The position for the last four decades:

In 1972 capital of Rs.1 crore was invested at that time. The company shares of Rs. 100 each were such divided into 10 shares of the nominal value of Rs. 10 each. The company has the record interrupted divided declaration ever since its incorporation and has been maintaining and improving the quantum of dividends. [Link] is the founder and the first MD of the company. The other members of the board are eminent persons who hold responsible positions in the government banking institutions and Engineering industry. The company is also a member of International Finance and Leasing Associations (IFCA).

The company other than HP is also engaged in hypothecation of loans, leasing of plant and machinery to corporate bodies. As supplementary and allied activities to HP and leasing, car financing, tyre financing, bills discounted and mortgaged loans on section of properties are extended selectively.

OBJECTIVES OF THE COMPANY Sundaram Finance was initiated with the sole objective of financing commercial vehicles and passenger cars. Within a span of 55 years they have spread their wings to every exposable area in the Non-banking finance sector. Sundaram Finance Where Truth, Fairness and Transparency guide the management of finance. VALUES A set of values have governed their growth over the years. Among them are transparent in their business practices, dedicated customer service fair, efficient and safe financial policies.

STRENGTH

Support of the group companies. Involvement of the directors on major policy matters. High employee morale. Good initial system for operation and control. Efficiency and sophisticated software system for decision support system. Investors trust and faith in the company. Easy financing schemes for all cars new and second hand cars. Simple documentation, quick processing and speedy approval. Customized schemes, personalized service. Direct dealing between customer and company. No hidden costs. Tailor made products to suit individual requirements.

SUBSIDARIES / GROUPS

Sundaram Finance Sundaram BNP Paribas Asset Management Sundaram BNP Paribas Home Finance Limited Royal Sundaram Alliance Insurance Sundaram InfoTech Solutions Sundaram Business Services Sundaram Finance Distribution Limited Infrieght Logistics Solutions Limited

EXPANSION OF SUNDARAM FINANCE LIMITED S = Services, Safety & Security. U = Understanding the client needs. N = No problem approach. D = Development of human resources. A = Attitude always positive. R = Resourceful. A = Anticipate customers need. M = Marketing edges/Managerial edges. F = financial soundness. I = Integrity N = Never have a negative approach. A = Authenticity. N = Numerous among finance companies. C = Commitment, Courtesy & Customer. E = Efficiency and effectiveness. L = Love for the organization. T = Technical experience. D = Depositors concern paramount

AWARDS RECEIVED

Certificate of Commendation award by the Government of India under the scheme of Good Tax Payers. Second Best Tax Payer in the category of Private Sector Company for Assessment Year 1994-95 in Tamil Nadu Region, from the Income Tax Department, Tamil Nadu. Rolling Trophy by Rotary Club of Madras South West for Best Employer-Employee Relationship for the year 1995-96. Best Tax Payer in the category of Private Sector Company for Assessment Year 1995-96 in Tamil Nadu Region, from the Income Tax Department, Tamil Nadu. Automan Award to Shri T S Santhanam, Chairman, from Motor India in 1998. Pioneering Service Award to Shri T S Santhanam Chairman, from Chennai Good Transport Association. Sarige Ratna Award to Shri T S Santhanam, Chairman, from the Bangalore City Lorry Transporting Agents Association (Regd). Most Valued Customer Award to Shri T S Santhanam Chairman, from the state bank of India. The Best Financier of the New Millennium 2000 to Shri. G K Raman, Managing Director, from the All India Motor Transport Congress.

MAJOR MILESTONES
1954 1972 1981 1994 1995 1996 1996 1997 1997 1998 1999 2000 2000 2001 2005 2006 2008 Birth of Sundaram Finance First finance company to be listed on the Madras Stock Exchange Started Leasing operations. Formation of Lakshmi General Finance Receivables crossed Rs. 1000 crore (Rs. 10 billion) Deposits crossed Rs. 500 crore (Rs. 5 billion) Formed Sundaram Newton Asset Management Company Ltd. in collaboration with Newton Management Ltd., UK. Received Best Tax Payer Award Received Best Tax Payer Award Receivables crossed Rs. 2000 crore (RS. 20 billion) Promoted Fiat Sundaram Auto Finance Limited, a joint venture with Fidis S.p.A., Italy Promoted Sundaram Home Finance Limited with equity participation from International Finance Corporation (IFC), Washington, and FMO Netherlands Promoted Royal Sundaram Alliance Insurance Company Limited, a joint venture with Royal & Sun Alliance Plc, for Non-Life Insurance Promoted Sundaram InfoTech Solutions - InfoTech division of Sundaram Finance Promoted Sundaram Business Services - BPO arm of Sundaram Finance Merger with LGF making SF Billion dollar Balance sheet NBFC BBNP Paribas Asset Management Group, France acquires 49.90 % stake in Sundaram Asset Management Company Ltd from SFL. Union de Credit pour le Batiment SA (UCB), a wholly owned subsidiary of BNP Paribas SA, France, acquires 49.90% stake in Sundaram Home Finance Ltd from SFL.

BOARD OF DIRECTORS CHAIRMAN Sri S Viji DIRECTORS Sri S Ram Sri N Venkataramani Sri P N Venkatachalam Sri S Prasad Sri S Ravindran Sri Srinivas Acharya Sri Aroon Raman MANAGING DIRECTOR Sri T T Srinivasaraghavan DIRECTOR(strategy & planning) Sri Harsha Viji CHIEF FINANCIAL OFFICER Sri M Ramaswamy

COMPANY SECRETARY Sri P Viswanathan

1.2.4 PRODUCT PROFILE PRODUCTS / SERVICES OFFERED

Hire Purchase Leasing Deposits Car Finance Commercial Vehicle Finance Equipment Finance Fleet Card Tyre finance

HIRE PURCHASE In hire purchase the vehicle is sold to the finance company, which in turn hires it to the user. After the end of the contract the product is sold to the user after collecting option money.

A Hire Purchase has two elements which are governed by the Indian Contract Act 1872, and Sale of Goods Act 1930. Bailment is one aspect, which comes under the Indian Contract Act. A sale is the sale of goods act. The hirer who becomes the purchaser is a bailee until he pays the full price of goods. The contract of sale is completed only on the payment of the last installment.

FEATURES OF HP AGREEMENT The seller contacts a finance company to finance a hire purchase deal:

The customer selects the good and expresses his desire to acquire them on hire purchase basis. The customer after filling the proposal form makes the down payment to the finance company. The sellers send the document to the finance company, requesting it to purchase the goods and accept the HP transaction. The finance company signs the agreement and sends a copy of the agreement to the hirer along with instructions with regard to the payment of installments. The seller is also informed by the finance company and is instructed o deliver the goods to the hirer. The sellers deliver the goods to the hirer and the ownership gets transferred to the finance company. The hire makes payment in the form of installments periodically as per the agreement.

On payment of the last installment or on completion of the hire team, the ownership is transfer the hirer on issue of completion certificate by the finance company.

LEASING

It is only in financial lease, the ownership will get transferred while in operating lease, the ownership is not transferred. It is only a bipartite agreement involving lessor and lessee. Depreciation is claimed by the lessor in the lease agreement. In operation lease, through the lessor can be one person, there can be a number of lessees. Period of lease will be shorter, and duration as technological changes will affect the lessee. The relationship in a lease agreement is that of lessor and lessee. Ownership will pass on when the lesser has collected sufficient money from the lessee, which is equivalent to the value of the goods or equipment. Lease agreement is entered more among business concerns. Sales tax depends on the actual value at the time of sale.

On the termination of lease agreement, if it is an operating lease, the lessor takes the equipment back. In the case of financial lease, the equipment can be sold for a particular value to the lessee. Interest does not form a major part of lease agreement, but the lease charges will include interest also as part of it.

DEPOSITS The term Deposits contained in section 451 of the Reserve Bank of India Act, could cover all money received by Non-Banking institution by way of deposits except the money received by the way of share capital or contribution by the partners of the firm. TYPES OF DEPOSIT

Fixed deposit Cumulative deposit

FIXED DEPOSIT It is a deposit where the interest is being paid at regular intervals:

Monthly interest is payable n 16th every month (for 36 months deposits only) Quarterly interest is payable on 16th of March, June, September and December of every month. When the interest warranty amount exceeds Rs 25000, the same will be spent through account Payee crossed cheque demand draft. For all frequencies of interest payable, fixed deposit interest from the last interest paying date till 31st march of each financial year, will be credited to deposit amount on 31st march and the interest will be included in the subsequent periodic interest payable as the case may be.

Interest payable at Ahmadabad, Ban galore, Delhi, Nagpur, Coimbatore, Chennai, Hyderabad, Kolkata, Madurai, Mumbai, and Trivandrum will be made only through Electronic Clearing Service (ECS) mode.

CUMULATIVE DEPOSITS Cumulative deposits are accepted for periods at the rate of interest mentioned overleaf. Interest compounded at the respected rates will be credited at the depositors account on 31st arch every year. In all cases the accumulated interest is payable only on maturity CAR FINANCE

Sundaram finance is one of the largest and a leading player in the area of car finance. It extends finance on all models of cars. It has a vast network of over 150 branches and experienced field force help its customers choose the vehicle and the finance package to suit their budget. The approval is fat and with minimum documentation. In fact customers can drive away with their dream car in 48 hours flat. SFLs car finance schemes are easy to understand and without any hidden costs. It deals with those employees who care of high integrity and extremely customer friendly. Realizing the high growth potential of the car market, SF launched Sundaram car finance exclusively to finance cars and utility vehicles. Supported by a large country wide network, strong dealer relationship and its customized service, SF has attained a portion of strength in its area, servicing a large customer base. EQUIPMENT FINANCE Sundaram Finance provides finance for acquiring equipment either under Hire Purchase or Lease finance routes. The mode of finance to the employed for funding the requirement is left to its customers. Equipment finance is generally provided only for general purpose machinery. TYRE FINANCE Sundaram Finance offers interest from finance up to 80% of invoice value to get brand new tyres for the fleet. Fleet operators big or small, and corporate can avail this facility for HCV, MCV, and LCV, including buses.

This facility would ease the customers working capital requirements of fleet operations. For this facility Sundaram Finance has entered into an exclusive arrangement with the largest commercial vehicle tyre manufacturers in India, JK tyres. The customers can avail finance for minimum 2 tyres per transaction. The repayment has to be made in 4 installments.

FLEET CARD Sundaram Finance has tied up with Bharat Petroleum Corporation Ltd (BPC) and Indian Oil Corporation Ltd (IOC) for extending credit facility to the fleet customers, through co-branded fleet cards. The FLEET CARD credit program was launched on 1st Oct 2004. Under this arrangement, BPL and IOC would be the issuers of smart fleet and XTRAPOWER FLEET CARDS. These fleet cards are based on smart card technology. Sundaram Finance would extend credit facility on these cards, for the restricted use of purchasing auto fuel and tubes, at designated retail outlets of IOC and BPC. These retail outlets would be based mainly in the highways and major roads where diesel sales are high, apart from key city centric locations catering to corporate.

HIRE PURCHASE in detail To begin with, let us say there are three ways of funding an asset. a) Hypothecation, b) leasing and c) Hire Purchase. HYPOTHECATION: In hypothecation, the title (ownership), according to the Sale of Goods Act, 1872, goes to the purchaser. The asset is hypothecated to the finance company. The lien is cancelled at the end of the contract. In short, the financier extends finance for the purchase of the asset. The parties to the contract are Lender (financier) and Borrower (one who takes finance for the purchase of the asset). The monthly dues are called installments. LEASING:

The finance company buys the asset and lets it on lease to the user. The title or the asset cannot be sold or transferred to the lessee at the end of the contract. The parties to the contract are Lessor (financier) and Lessee (user of the asset). The installments are called Lease Rentals. HIRE PURCHASE (HP): The financier purchases the asset and lets it on hire to the user. The user exercises an option to purchase the asset at the end of the contract after paying all the dues. HP is a transaction in which the purchaser of goods pays an initial deposit and takes possession. Subsequent installments are made over a specified time after which ownership passes to the purchaser. The parties to the contract are Owner (financier) and Hirer (purchaser / user). The installments are called Hire Money. Usually every hire-purchase agreement shall contain the following terms:

The cash price of the goods, cash price means the price at which goods may be purchased. The hire-purchase price, hire purchase price means the total amount which is payable by the hirer under the agreement.

The date on which the hire-purchase agreement will commence.

The description of the goods that will be delivered to the hirer at the commencement of the agreement. The number of installments to be paid by the hirer along with the amount of each installment and the date of payment of each installment.

The down payment if any, the down payment means the amount which is required to be paid by hirer to the hire vendor at the time of commencement of hire-purchase agreement.

The rate interest charged by the hire vendor (optional).

Characteristics of a Hire Purchase agreement: The characteristics of hire-purchase system are as under

The goods are delivered in the possession of the purchaser at the time of commencement of the agreement. Hire vendor continues to be the owner of the goods till the payment of last installment.

The hirer has a right to use the goods as a bailer.

The hirer has a right to terminate the agreement at any time in the capacity of a hirer. The hirer becomes the owner of the goods after the payment of all installments as per the agreement. If there is a default in the payment of any installment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount.

Why do people avail finance?

When individuals source of income or flow of money is low When there is a need for working capital and maintain liquidity To enjoy tax benefits and income tax exemptions.

by business class.

Whom to finance:

Any individual who is above 18 yrs of age Any individual who is mentally fit Any individual who has the capacity to borrow

Qualifications to finance:

Ability to repay Willingness to repay

Ability to repay: Financial ability to repay is judged by the income of a person or an entity. Generally the net income should be taken for assessing his financial capacity. Net income = [gross monthly income deductions] x 12

For business entities, Net income or cash profit = Net Profit after tax + Depreciation Net annual income should be equal to or greater than twice the annual commitment of the contract. This is called cash flow cover. Amount Commitment = Equal Monthly Installment [EMI] x 12

Willingness to repay: Though the methods adopted to check willingness to repay for any individual is not completely reliable, still techniques like field enquiry is carried out to enquire about the individual in his / her locality and to know about the general behavior of the individuals.

Operation and process involved in a Hire Purchase agreement.

The field officers of the company are in constant touch with their clients, whenever they spot a proposal; they approach the prospective customer and explain the terms of hire purchase finance provided by the company.

Once the customer makes up his mind, the company makes through a quick credit evaluation of the customer. This is done at the branch level and is then sent to the head office for approval.

A schedule giving a break up of finance is prepared and given to the customer.

This contains details about the invoice amount, finance charges, finance amount (normally 75% of the invoice amount) with the EMI is shown along with the details regarding insurance amount.

Once the official and the customer are satisfied they prepare the HP document and customer will sign this document along with a guarantor and a witness.

After all formalities are fulfilled the vehicle is purchased in the name of Sundaram Finance Limited and registered in the name of the hirer with an endorsement in the RC book that the vehicle is under HP agreement with the company.

Installments that are due are payable on the respective due dates, by the hirer at any one of the branches or the field staff may collect the same from hirers place.

If the hirer defaults, he is given enough time, before which the last remedy i.e., repossession is sought.

A record of the installment received from hirer and the installments due is also maintained in most efficient manner.

After collecting the entire amount that is due, termination papers are issued to cancel the lien in the RC Book. The contract comes to a close.

Calculation of EMI (Equated Monthly Installment) EMI = (Finance amount + Finance charges) / No. of Installments

Finance Charges = Finance amount x flat rate of interest x No. of years. Flat rate of interest:

This is generally used for computing the EMI manually, easily and easy understanding of a monthly commitment. The EMI is initially fixed and the hirer has to pay this fixed amount for all the installments

The amount contributed towards the interest and principle varies with installments.

Simple rate of interest:

In this technique, the Interest amount is calculated for every month with respect to the principle remaining. Hence the EMI charges payable by the consumers vary for every installment and hence it is confusing.

PROCESS OF HP Selection of product Identifying procedures Broacher proposal form Receipt of proposal appraisal of proposal Acceptance Offer letter Party acceptance of offer Rejection End

Placing of order Drawing up of an agreement Insurance and installment Accounting Fore closure Computing of fore Closure accounting Normal closure Direct call for termination of contract

Settlement of account & agreement End of flow

HISTORY The first Hire purchase company in India is Commercial Credit Corporation. (Situated at Patullos Road next to Sundaram Finance, Head Office). The concept of hire purchase began in the nineteenth century, when singer sewing machine Company in the United Kingdom came out with an Installment Credit Scheme. In India, Hire Purchase Act, 1972, controls all Hire Purchase finance companies. However, in 1989, a bill was introduced for making certain amendments in the Act, but the bill was introduced for making certain amendments in the Act, but the has not been passed yet.

Sundaram Finance Limited extends finance through hire purchase for

Cars Commercial vehicles

The documents that are collected for the finance of cars and commercial vehicles are the same. (E.g., Identity proof, address proof, income proof, and asset proof). Cars: Generally classified as

Segment A : Cars costing up to Rs. 3 lakhs Segment B : Cars costing from Rs. 3 to Rs. 7 lakhs Segment C : Cars costing from Rs. 7 to Rs. 13 lakhs Segment D : Cars costing above Rs. 13 lakhs

Segment A and B, SFL funds up to 90% of the cost of the cars and funds up to Segment C and D, SFL funds up to 75% of the cost of the cars only, because of the fact that the vehicles in segment C &D depreciate faster. The repayment period is up to 5 years for salaried class and 4 years for business class. Commercial vehicles: Buses, autos, tankers, lorries and trucks constitute commercial vehicle. It is classified as follows

Light commercial vehicles (LCV) carrying capacity up to 3 Medium commercial vehicles (MCV) carrying capacity up to Heavy commercial vehicles (HCV) carrying capacity beyond

tons

10 tons

10 tons In the cases of buses, they are classified as

Contract carriage: They are operators under with certain specified companies or persons on contract. They vehicles have no particular route or any specific time of operation. The route and operation will depend as per request in the contract Stage carriage: These vehicles have a specific route and timing. (e.g., MTC buses)

For commercial vehicles, Sundaram Finance Limited extends finance up to 75% of the cost of the vehicle. The repayment period is up to 4 years for Medium and Heavy Commercial vehicles and 3 years for Light commercial vehicles. HIRE PURCHASE DOCUMENT PROCEDURE: I. Agreement to enter in to HP agreement (AEHA) This is the first and the basic document between the hirer and the financier for entering into a HP business. It contains the following:

 Date of agreement Asset type Details of the hirer and dealer Undertaking by the hirer to take a comprehensive insurance policy for the vehicle. Acceptance to indemnify the owner at times of losses. Compliance to various terms and conditions. II. Collection of necessary forms a) Form 20 application of registration of motor vehicle. b) Form 27 application for assignment of the new registration mark to a motor vehicle. c) Form 26 application for the issue of duplicate d) Form 28 application and grant of non-objection certificate e) Form 29 notice of transfer of ownership of a motor vehicle f) Form 30 report of transfer of ownership of a motor vehicle g) Form 33 intimation of change address for recording it in the certificate of registration and office records h) Form i) Form 34 35 application notice of for making an of entry of a HP hire agreement/lease/hypothecation. termination agreement purchase/lease/hypothecation. j) Form 36 application for the issue of fresh certificate of registration in the name of the financier. k) Form 60 this is to be submitted in case the hire does not have PAN or GRIN.

l) Form 61 this is a document whether the hire has agricultural income. III. Documents collected Income proof Identity proof Location proof Asset proof Signature verification Bank statement Photograph

CHAPTER II ANALYSIS AND INTERPRETATION

2. ANALYSIS AND INTERPRETATION

2.1 PERCENTAGE ANALYSIS TABLE 2.1.1

Table showing the credit deviation in car contracts

Particulars Deviation from credit policy No deviation from credit policy Total

No. of contracts 163 59 222

Percentage 73.42 26.58 100

Inference: From the above table it is inferred that, 73.42% of car contracts are deviated from the credit policy and 26.58% of car contracts are not deviated from the credit policy.

CHART 2.1.1 Figure showing the credit deviation in car contracts

credit deviation in car contracts

percentage of deviation 80 70 60 50 40 30 20 10 0 Deviation from credit policy No deviation from credit policy

particulars

TABLE 2.1.2 Table showing the credit deviation in commercial vehicle contracts

Particulars Deviation from credit policy No deviation from credit policy Total

No. of respondents 30 2 32

Percentage 93.75 6.25 100

Inference: From the above table it is inferred that, 93.75% of commercial vehicle contracts are deviated from the credit policy and 6.25% of commercial vehicle contracts are not deviated from the credit policy.

CHART 2.1.2 Figure showing the credit deviation in commercial vehicle contracts

credit deviation in commecial vehicle contracts

100 percentage 80 60 40 20 0 Deviation from credit policy No deviation from credit policy

particulars

TABLE 2.1.3

Table showing the performance of car contracts

Particulars Good Average Poor Total

No. of contracts 197 14 11 222

Percentage 88.74 6.31 4.95 100

Inference: From the above table it is inferred that, 88.74% of car contracts performance is good, 6.31% of car contracts performance is average and 4.95% of car contracts performance is poor.

CHART 2.1.3 Figure showing the performance of car contracts

Perofrmance of car contracts

100 80 Percentage 60 40 20 0 Good Average Particulars Poor

TABLE 2.1.4

Table showing the performance of commercial vehicle contracts

Particulars Good Average Poor Total

No. of contracts 27 4 1 32

Percentage 84.375 12.5 3.125 100

Inference: From the above table it is inferred that, 84.375% of commercial vehicle contracts performance is good, 12.5% of commercial vehicle contracts performance is average and 3.125% of commercial vehicle contracts performance is poor.

CHART 2.1.4

Figure showing the performance of commercial vehicle contracts

Performance of commercial vehicle contracts

100 80 Percentage 60 40 20 0 Good Average Particulars Poor

TABLE 2.1.5

Table showing the various credit deviations for car contracts

Particulars Excess finance Contract period Exposure PDC collection Others Total

No. of contracts 90 46 13 45 89 222

Percentage 40.54 20.72 5.86 20.27 40.1

Inference: From the above table it is inferred that, 40.54% of car contracts has deviation in excess finance, 20.72% of car contracts has deviation in contract period, 5.86% of car contracts has deviation in exposure, 20.27% of car contracts has deviation in PDC collection and 40.1% of car contracts has deviation in other credit policy.

CHART 2.1.5 Figure showing the various credit deviations for car contracts

various credit deviation for car contracts

45 40 35 30 25 20 15 10 5 0 Excess finance Contract period Exposure PDC collection Others

percentage

credit deviaitions

TABLE 2.1.6

Table showing the various credit deviations for commercial vehicle contracts

Inference: From the above table it is inferred that, 81.25% of commercial vehicle Particulars Excess finance Contract period Exposure PDC collection Others Total No. of contracts 26 2 20 0 21 32 Percentage 81.25 6.25 62.5 0 66

contracts has deviation in excess finance, 6.25% of commercial vehicle contracts has deviation in contract period, 62.5% of commercial vehicle contracts has deviation in exposure, no commercial vehicle contracts has deviation in PDC collection and 66% of commercial vehicle contracts has deviation in other credit policy.

CHART 2.1.6

Figure showing the various credit deviations for commercial vehicle contracts

various credit deviations for commercial vehicle contracts

100 percentage 80 60 40 20 0 Excess finance Contract period Exposure PDC collection Others

credit deviations

2.2 STATISTICAL ANALYSIS

2.2.1 CHI-SQUARE METHOD [Link] FOR ELUCIDATING THE RELATIONSHIP BETWEEN DEVIATION FROM CREDIT POLICY AND PERFORMANCE OF CAR CONTRACT AIM: To test the relationship between deviation from credit policy and performance of car contract. NULL HYPOTHESIS (H0): Deviation from credit policy and performance of car contract are independent ALTERNATIVE HYPOTHESIS (H1): Deviation from credit policy and performance of car contract are dependent Table [Link]
IS THERE DEVIATION FROM CREDIT POLICY YES NO COLUMN TOTAL IS THE PERFORMANCE OF CONTRACT GOOD ROW TOTAL CHISQUARE VALUE DEGREE OF FREEDOM TABLE VALUE

YES 144 50 194

NO 18 10 28 162 60 222 1.2223 1 3.841

FORMULA EXPECTED VALUE: Row total X Column total / Grand total

CALCULATION:

R1C1: 162*194/222 = 141.57

R1C2: R2C2: 144 18 50 10

162*28/222 = 20.43 60*28/222 = 7.57 141.57 20.43 52.43 7.57 Oi-Ei 2.43 -2.43 -2.43 2.43 (Oi-Ei)2/Ei 5.90 0.0417 5.90 0.2888 5.90 0.1125 5.90 0.7793 2 SUM(Oi-Ei) /Ei = 1.2223 (Oi-Ei)2

R2C1: 60*194/222 = 52.43

Degree of freedom = (C-1) (R-1) =1 At 5% level of degree table value is = 3.841 The calculated value is = 6.297 CONCLUSION: since the calculated value of chi-square is less than the table value, reject alternative hypothesis at 5% level of significance. Hence there is no relationship between deviation from credit policy and performance of contract and they are independent to each other.

2.2.1 CHI-SQUARE METHOD [Link] FOR ELUCIDATING THE RELATIONSHIP BETWEEN DEVIATION FROM CREDIT POLICY AND PERFORMANCE OF COMMERCIAL VEHICLE CONTRACT

AIM: To test the relationship between deviation from credit policy and performance of commercial vehicle contract. NULL HYPOTHESIS (H0): Deviation from credit policy and performance of commercial vehicle contract are independent ALTERNATIVE HYPOTHESIS (H1): Deviation from credit policy and performance of commercial vehicle contract are dependent Table [Link]
IS THERE DEVIATION FROM CREDIT POLICY YES NO COLUMN TOTAL IS THE PERFORMANCE OF CONTRACT GOOD ROW TOTAL CHISQUARE VALUE DEGREE OF FREEDOM TABLE VALUE

YES 25 2 27

NO 5 0 5 30 2 32 0.3907 1 3.841

FORMULA EXPECTED VALUE: Row total X Column total / Grand total

CALCULATION:

R1C1: 30*27/32 = 25.31 R1C2: R2C1: R2C2: 25 30*5/32 = 4.69 2*27/32 = 1.69 2*5/32 = 0.31 Oi-Ei -0.31 0.31 0.31 -0.31 (Oi-Ei)2 (Oi-Ei)2/Ei 0.096 0.0037 0.096 0.0205 0.096 0.0568 0.096 0.3097 2 SUM(Oi-Ei) /Ei = 0.3907

25.31 4.69 1.69 0.31

Degree of freedom = (C-1) (R-1) =1 At 5% level of degree table value is = 3.841 The calculated value is = 0.3907 CONCLUSION: since the calculated value of chi-square is less than the table value, reject alternative hypothesis at 5% level of significance. Hence there is no relationship between deviation from credit policy and performance of contract and they are independent to each other.

2.3 SWOT ANALYSIS

SWOT Analysis on process of HP business STRENGTHS: Detailed form of HP agreement Clear and full details are collected Full details of customer is collected Every procedure is documented Every document is verified WEAKNESS: Very long procedure Too much of documentation Documents to be submitted is more Period for documentation is long Minimum requirements are more Guarantor is mandatory in some cases When compared with other business HP has long procedure Because of strict credit policy more deviation are found in HP contracts.

OPPORTUNITIES:

 More receivables through HP business Most of the contracts performing well Creating more knowledge in customers mind Building customer relationship THREATS: Consumption of time is more for documentation Customers shift to loan Increase in competitors Changes in market

TABLE 2.1.7 Table showing the development of HP Business

Year 1954 1972 1976 1978 1982 1986 1991 1996 2003 2004 2005 2006 2007 2008 2009 Turnover (Rs. In Cr.) 0.1 9.86 19.87 27.18 76.6 184.66 483.21 1637.05 2669.91 3093.32 4488.3 5452.18 7327.02 8925.05 15406.19

Inference: From the above table it is inferred that, the turnover of SFL of HP business has started with Rs. 10 lakhs and with a tremendous improvement every year now it as reached a turnover of more than Rs. 15,000 Crores.

Turnover (Rs. in Cr.) 18000 16000 14000 12000 10000 8000 6000 4000 2000 0

Figure showing the development of HP business

Development of HP

CHART 2.1.7

Year

19 54 19 yr 72 19 yr 76 19 yr 78 19 yr 82 19 yr 86 19 yr 91 19 yr 96 20 yr 03 20 yr 04 20 yr 05 20 yr 06 20 yr 07 20 yr 08 20 yr 09 yr

TABLE 2.1.8 Table showing the sales performance of HP Business

Months April May June July August September October November December

2007-2008 4105 3691 3722 3744 3475 3365 3308 3540 3720

2008-2009 4724 4877 4203 3882 3859 4261 4338 3474 5061

CHART 2.1.8 Figure showing the sales performance of HP business

Sales performance of HP business

6000 5000 4000 3000 2000 1000 0 November June July October September December April August May

no. of units

2007-2008 2008-2009

months

INFERENCE APRIL 2008

Starting of the new financial year 2008, April has yielded positive results for the Indian automobile industry especially car sales experiencing 14.64 % growth rate. It also revealed good show up by all segments of cars. Along with the market, the sales of cars in Sundaram finance through hire purchase grew up to 13.1 % when compared with the figures of April 2007. The likely reasons for such high growth rate are - The government initiative to cut down excise duty on two and three wheelers to enable consumers afford them, is largely accredited for growth in the Indian automobile industry in April 2008. Festival of Tamil New Year and fear of price hike in automobile industry also boosted vehicle sales during April 2008. MAY 2008 Overall car market sales figures growth was 12.47 %, and Sundaram Finance car figures growth was 24.31 %. The likely reasons for are - In spite of high interest rates, the higher sales rate was possible because of a very dominant presence in the compact segment. Purchases increased in anticipation of a price rise of as much as 3 % because of increase in prices of steel. Sensing opportunities several foreign players like NISSAN were signing in with the Indian counterparts.

JUNE 2008 Overall car market sales growth was only 5.75% Sundaram Finance car figures growth was 11.44% The likely reasons for are - Creeping interest rates, Raising fuel prices, Inflationary pressures Despite the fact that car makers like Maruti, Tata Motors lowered discounts on select models inflationary pressures failed to entice buyers.

JULY 2008 Overall car market segment registered a negative growth at 1.73%. Sundaram Finance car figures growth dropped to 3.55 % The likely reasons for are - With high inflation, interest rates were soaring. The Fuel prices were increased to about Rs. 5 per litre of petrol and Rs. 3 per litre of diesel. And also rise in input costs because of the increase in prices of raw material by about 50 % made the prices of the vehicles higher and as a result the sales declined.

AUGUST 2008

Overall car market sales showed a marginal increase of 4.56 % Sundaram Finance car figures growth was 9.95 % The likely reasons for are - Continued inflationary scenario. Further increase in prices of petrol and diesel were the predominant reasons for the debilitated sales figures. SEPTEMBER 2008 Overall car market sales showed a marginal increase of 2.75 % Sundaram Finance car figures growth was 21.02 % The likely reasons for are - Though the same scenario continued in the month of September, the sales were boosted up in Chennai because of the festival season. Intensive advertisement and launch of new models in the market contributed to the sales OCTOBER 2008 Overall car market sales growth dropped to negative 7.05 % Sundaram Finance car figures growth was 23.74 % The likely reasons for are - Despite the season of festivals and the government employees getting their additional pay (arrears) after 6th Pay Commission created more disposable income sales did not prop up IT professionals being a major source, dropped drastically.

NOVEMBER 2008

Overall car market sales growth dropped drastically to negative 24.04 % Sundaram Finance car figures growth a negative 1.89 % The likely reasons for are - Economic meltdown and recession dominated the world and as a result there were several job losses and job cuts. A severe liquidity crisis has also forced many of the car buyers to cut upgrades to bigger cars and many are pushed back from buying new cars. With deteriorating car sales, even production has gone down to a great extent, which has eventually put a negative impact on the Indian automobile industry. DECEMBER 2008 Overall car market sales growth dropped to negative 7.51 % Sundaram Finance car figures growth was 26.49 % The likely reasons for are - Though the economic meltdown was at its peak during the month, the sales of new cars through SF were surprisingly high, when analyzed it was found that, the government employees were rewarded with the arrears of pay after the implementation of the 6th Pay Commission and therefore the amount of disposable income was higher. This lead to the purchase of compact cars by the middle income group, and the maximum sales were contributed by the government employees.

CHAPTER III SUMMARY AND CONCLUSION

CHAPTER III 3. SUMMARY AND CONCLUSION

3.1 Findings of the Study

73.42% of car contracts are deviated from the credit policy and 26.58% of car contracts are not deviated from the credit policy. 93.75% of commercial vehicle contracts are deviated from the credit policy and 6.25% of commercial vehicle contracts are not deviated from the credit policy.
88.74% of car contracts performance is good, 6.31% of car contracts

performance is average and 4.95% of car contracts performance is bad. 84.375% of commercial vehicle contracts performance is good, 12.5% of commercial vehicle contracts performance is average and 3.125% of commercial vehicle contracts performance is bad.

 40.54% of car contracts have deviation in excess finance, 20.72% of car contracts have deviation in contract period, 5.86% of car contracts have deviation in exposure, 20.27% of car contracts have deviation in PDC collection and 40.1% of car contracts have deviation in other credit policy. 81.25% of commercial vehicle contracts has deviation in excess finance, 6.25% of commercial vehicle contracts has deviation in contract period, 62.5% of commercial vehicle contracts has deviation in exposure, no commercial vehicle contracts has deviation in PDC collection and 66% of commercial vehicle contracts has deviation in other credit policy. From the chi-square test it is found that, there is no relationship between the deviations from the credit policy and the performance of the car contracts. It shows the credit worthiness of the customers is good. From the chi-square test it is found that, there is no relationship between the deviations from the credit policy and the performance of the commercial vehicle contracts. It shows the credit worthiness of the customers is good. SWOT analysis on process of HP business shows that weakness and threats is more in HP documentation procedure and hence necessary steps to be taken to overcome it.

 Receivable through HP business has been increasing from the year it started. Now it reached more than 15000Crs. HP business shows a good turnover for SFL. Sales of cars through HP business have increased when compared with the previous financial year. It has shown a tremendous growth in performance of HP business.

3.2 Suggestions
HP business the major operation of SFL and the major portion of total income is earned from HP business. The credit policy can be made lien ant so that credit deviations can be minimized or total eliminated. This in turn brings in more customers and receivable to SFL. The documentation procedures and HP process in SFL are very complicated. Hence, the company should reduce the cumbersome procedure and should make the process easy. This avoids customers shifting to other means or other company. The HP business can be further developed by building good customer relationship and by comparing with their competitors and making necessary changes. SFL should concentrate on advertisement in print media and broadcast media to attract more number of customers all over India. This helps in growth of sales performance, which in turn helps in the development of SFL.

3. Conclusions
Sundaram Finance with its extensive network, dealer relationship, and trade advance to dealers was able to take advantage of the conductive market conditions and offset the negative conditions and beat the current trend of declining productivity due to Economic Downturn by Strategic planning and continued operational excellence Sundaram Finance Limited is financial institution which plays well in this competitive market. HP business is more profitable in SFL then the other activities of the company. The company should concentrate more on HP business to maintain the present level. Thus, it is concluded that SFL is one of the important financial institution in India which is operating well.

BIBLIOGRAPHY

BIBLIOGRAPHY RESEARCH METHODOLOGY

Research Methodology -C.R. Kothari Research Methods for Business Uma Sekaran

STATISTICS ANALYSIS Statistical Methods S.P. Gupta

WEBSITES
[Link] [Link] [Link]

APPENDICES

FORMAT OF DATA COLLECTION

[Link]. Proposal no.

Data collection - car contracts Contract Deviation from credit no. policy 1 2 3 4 5

Performance of the contract 1 2 3

[Link].

Data collection commercial vehicle contracts Proposal Contract Deviation from credit Performance of the no. no. policy contract 1 2 3 4 5 1 2 3

Data collection: Deviation from the credit policy: 1. Excess finance 2. contract period 3. exposure limit 4. PDC collection 5. Others yrs in service, yrs in location, guarantor not available, etc. Performance of the contract: 1. Good-repayment before 1month 2. Average- repayment before 3months 3. Poor- repayment or no repayment received beyond 3months

DATA COLLECTION
DATA COLLECTION - CAR CONTRACTS Deviation from the credit policy Contract No. 1 2 3 4 5 C0001 No deviation C0002 C0003 C0004 C0005 No deviation C0006 C0007 C0008 No deviation C0009 No deviation C0010 No deviation C0011 No deviation C0012 C0013 C0014 C0015 No deviation C0016 No deviation C0017 C0018 C0019 C0020 C0021 No deviation C0022 C0023 C0024 No deviation C0025 Performance of the contract 1 2 3

[Link]. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Proposal No. 107118 107119 107120 107121 107122 107123 107124 107125 107126 107127 107128 107129 107130 107131 107132 107133 107134 107135 107136 107137 107138 107139 107140 107141 107142

[Link]. 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Proposal No. 107143 107144 107145 107146 107147 107148 107149 107150 107151 107152 107153 107154 107155 107156 107157 107158 107159 107160 107161 107162 107163 107164 107165 107166 107167

Contract No. C0026 C0027 C0028 C0029 C0030 C0031 C0032 C0033 C0034 C0035 C0036 C0037 C0038 C0039 C0040 C0041 C0042 C0043 C0044 C0045 C0046 C0047 C0048 C0049 C0050

Deviation from the credit policy 1 2 3 4 5 No deviation No deviation No deviation No deviation No deviation

Performance of the contract 1 2 3

[Link]. 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75

Proposal No. 107168 107169 107170 107171 107172 107173 107174 107175 107176 107177 107178 107179 107180 107181 107182 107183 107184 107185 107186 107187 107188 107189 107190 107191 107192

Contract No. C0051 C0052 C0053 C0054 C0055 C0056 C0057 C0058 C0059 C0060 C0061 C0062 C0063 C0064 C0065 C0066 C0067 C0068 C0069 C0070 C0071 C0072 C0073 C0074 C0075

Deviation from the credit policy 1 2 3 4 5 No deviation No deviation No deviation No deviation No deviation

Performance of the contract 1 2 3

[Link]. 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

Proposal No. 107193 107194 107195 107196 107197 107198 107199 107200 107201 107202 107203 107204 107205 107206 107207 107208 107209 107210 107211 107212 107213 107214 107215 107216 107217

Contract No. C0076 C0077 C0078 C0079 C0080 C0081 C0082 C0083 C0084 C0085 C0086 C0087 C0088 C0089 C0090 C0091 C0092 C0093 C0094 C0095 C0096 C0097 C0098 C0099 C0100

Deviation from the credit policy 1 2 3 4 5 No deviation No deviation No deviation No deviation No deviation No deviation

Performance of the contract 1 2 3

[Link]. 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125

Proposal No. 107218 107219 107220 107221 107222 107223 107224 107225 107226 107227 107228 107229 107230 107231 107232 107233 107234 107235 107236 107237 107238 107239 107240 107241 107242

Contract No. C0101 C0102 C0103 C0104 C0105 C0106 C0107 C0108 C0109 C0110 C0111 C0112 C0113 C0114 C0115 C0116 C0117 C0118 C0119 C0120 C0121 C0122 C0123 C0124 C0125

Deviation from the credit policy 1 2 3 4 5 No deviation No deviation No deviation No deviation No deviation No deviation No deviation

Performance of the contract 1 2 3

[Link]. 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150

Proposal No. 107243 107244 107245 107246 107247 107248 107249 107250 107251 107252 107253 107254 107255 107256 107257 107258 107259 107260 107261 107262 107263 107264 107265 107266 107267

Contract No. C0126 C0127 C0128 C0129 C0130 C0131 C0132 C0133 C0134 C0135 C0136 C0137 C0138 C0139 C0140 C0141 C0142 C0143 C0144 C0145 C0146 C0147 C0148 C0149 C0150

Deviation from the credit policy 1 2 3 4 5 No deviation No deviation No deviation No deviation No deviation

Performance of the contract 1 2 3

[Link]. 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175

Proposal No. 107268 107269 107270 107271 107272 107273 107274 107275 107276 107277 107278 107279 107280 107281 107282 107283 107284 107285 107286 107287 107289 107290 107291 107292 107293

Contract No. C0151 C0152 C0153 C0154 C0155 C0156 C0157 C0158 C0159 C0160 C0161 C0162 C0163 C0164 C0165 C0166 C0167 C0168 C0169 C0170 C0171 C0172 C0173 C0174 C0175

Deviation from the credit policy 1 2 3 4 5 No deviation No deviation No deviation No deviation No deviation No deviation

Performance of the contract 1 2 3

[Link]. 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200

Proposal No. 107294 107295 107296 107297 107298 107299 107300 107301 107302 107303 107304 107305 107306 107307 107308 107309 107310 107311 107312 107313 107314 107315 107316 107317 107318

Contract No. C0176 C0177 C0178 C0179 C0180 C0181 C0182 C0183 C0184 C0185 C0186 C0187 C0188 C0189 C0190 C0191 C0192 C0193 C0194 C0195 C0196 C0197 C0198 C0199 C0200

Deviation from the credit policy 1 2 3 4 5 No deviation No deviation No deviation No deviation No deviation No deviation No deviation

Performance of the contract 1 2 3

[Link]. 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222

Proposal No. 107319 107320 107321 107322 107323 107324 107325 107326 107327 107328 107329 107330 107331 107332 107333 107334 107335 107336 107337 107338 107339 107340

Contract No. C0201 C0202 C0203 C0204 C0205 C0206 C0207 C0208 C0209 C0210 C0211 C0212 C0213 C0214 C0215 C0216 C0217 C0218 C0219 C0220 C0221 C0222

Deviation from the credit policy 1 2 3 4 5 No deviation No deviation No deviation No deviation No deviation No deviation No deviation No deviation No deviation

Performance of the contract 1 2 3 197 88.74 14 6.31 11 4.95

TOTAL PERCENTAGE

222 90 46 13 45 89 100 40.5 20.72 5.86 20.3 40 NO DEVIATION CONTRACTS = 60

[Link]. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

Proposal No. O98837 O98838 O98839 O98840 O98841 O98842 O98843 O98844 O98845 O98846 O98847 O98848 O98849 O98850 O98851 O98852 O98853 O98854 O98855 O98856 O98857 O98858 O98859 O98860 O98861 O98862 O98863 O98864 O98865 O98866 O98867 O98868

DATA COLLECTION - COMMERCIAL VEHICLES Deviation from the credit policy Contract No. 1 2 3 4 5 C6501 C6502 C6503 C6504 C6505 C6506 C6507 C6508 C6509 C6510 C6511 C6512 C6513 C6514 C6515 C6516 C6517 C6518 C6519 C6520 C6521 C6522 C6523 C6524 C6525 No deviation C6526 C6527 C6528 C6529 C6530 C6531 No deviation C6532 32 26 2 20 0 21 100 81.25 6.25 62.5 0 65.6 NO DEVIATION CONTRACTS = 2

Performance of the contract 1 2 3 4 12.5 1 3.125

TOTAL PERCENTAGE

27 84.375