Tips on advances for new officers

(for private circulation only and no responsibility shall be undertaken by the sender )
You must be well conversant with the circulars of the bank/ lending policy/ latest RBI
policies.
election of borrower is the foremost factor. !is integrity" track record" willingness to
repay the borrowed funds" his managerial talent/acumen" his own capital" his inter#
personal relationship etc. are crucial points before selecting a buyer. $owadays" %IBI&
report is easily accessible and market report can be obtained from several sources. !is
e'#banker can be contacted or even by interviewing his staff in an informal way shall
lead to so much information. !is character" habits" commitment towards business"
spending style" speculative activities shall throw light into his real faces. (undamental
finance knowledge" technical aspects of the business" sourcing rawmaterials /skilled
personnel/funds" marketing skills are necessary for the promoters.
$ature of industry/business has to be looked into. Industry in the growth stage is better
than the declining stage one.
!is resources" ability to mobili)e funds through his relatives" friends etc. are to be looked
into.
*ovt. policy / RBI policy / Bank+s lending policy and all other laws of the country should
not prohibit the lending.
Be thorough with our lending policy/ circulars/manuals or at least refer them whenever
necessary. ,lease e'change views with other officers / consult seniors in case of doubt.
Business should be a viable one with growth in sales and profit. -ny e'tra ordinary sales
or profit should be ignored for the general viability of the pro.ect. -bnormal e'penses or
income should be probed into.
-udited financials of the borrower has to be verified and in particular" emphasis should
be given to audit comments/ reservations//ualifications. 0a'/*ovt. dues to be looked
into.
0erm loan funds should be used only for term loan purposes as prescribed at the time of
sanction and the amount should not go to any body+s B/%1 accounts.
2orking capital funds (%% /31 etc) should be used only for working capital purposes
say buying raw materials" salary" electricity" administrative/selling e'penses only and not
for term loan purpose like machines.
,ractically we have to process loan" and then only we will come to understand so many
things faster. 0his is like swimming/driving/cooking where practice is necessary more
4
than that of theory. tart with retail credit" then working capital with limits below 56 lacs
then 67 lacs then in crores gradually.
$ever sanction any loan for the reasons beyond credit worthiness like as recommended
by a friend/ superior/ or any other e'ternal force. If the proposal has its merits we can
proceed.
,re#sanction inspection and post sanction inspection are very vital. 8nit inspection"
verification of stock" debtors" progress of the pro.ect should be inspected periodically
and for 9- accounts" once in : months. %reditors for stock should be deducted from
stock value in computing drawing power. 0he above said points are well known to
everyone" but practically ignored due to paucity of time or assuming all are well despite
warning signals are there in the borrowing units.
2hile passing the che/ue or doing morning call of vouchers" please see the names of
payees which shall throw light on diversification of funds" the lenders of our borrower.
;ligible accounts should be restructured at the right time in order to avoid $,-.
;9I should be increased and informed to the customers during the time of review if
warranted due to increase in BR or at the time of increase in the interest rates. 0his
shall prevent $,-s.
Repayment capacity of the borrower should be taken into account very meticulously.
Rise in interest rate also should be considered. ;ven though our norms say <7= take
home pay is enough for borrowers" please keep in mind" this norm may not suit for lower
middle class and poor people. 2e have to take into account the number of family /
dependent members on that take home pay also. Income per head should be taken into
our account for our calculation. (urther" we have to interview them for assessing their
monthly e'penses also. If you analyse their monthly /annual e'penses (considering
some annual payments like insurance premium" tuition fees) you would get clear picture
about their repayment capacity. 2e shall see one e'ample. 3ne borrower earns
Rs.<7777/> per month and his members are age old parents (consuming so much
medical e'penses every month) " wife and three school going children. !is take home
pay is Rs.4?777 only after paying all the credit card payments" office loan installment
and our ;9I. $ow" do you think" he can manage his family with Rs.4?777/> per month@
uppose rate of interest goes up and he has to shell out Rs.5777 more. 0hen" with
Rs.4<777 can he run the family with his (Rs.<7777 salary) standard of living level.
-nother point to remember is to go through the sanctioned terms and details of process
note meticulously. ,re#disbursement conditions should be complied before disbursal of
funds. &egal vetting/1ocument audit before disbursement shall mitigate so many
problems. &ending policy guidelines should be adhered to.
5
-ccount wise 1%B position (demand collection balance) should be monitored regularly.
;A0BR statement should be checked at#least once in a week (pl see finacle menu for
;A0BR).
(ollow up over phone" letter and personal visit is necessary. ,hone followed by letter
and personal visit if necessary shall be highly effective.
1, calculation for term loan is as followsB
anctioned limitB ay Rs.477777
&ess due installments ( for e'ample Rs.6777 ' 44 due installments)
1,> Rs. 477777#66777><6777
In case of ;9I accounts" interest should be added to the sanctioned limit and then
deduct ;9I. ay Rs. 47777 has been added as interest so far" then 1, should be
447777 less ;9I due say Rs.6577'47 i.e. Rs.447777#65777>6C777/>.
-fter sanction" monitoring is most important. If even one single installment is not
deposited" please call the customer and remind. If no response" please write a letter.
;ducation loan re/uires continuous monitoring as after education" student/family goes
to other places.
In case of monthly instalment" if the customer wants to pay every week one fourth of the
amount or every ten day one third of the amount" let them deposit. If any borrower wants
to pay one month ;9I in advance" it is also welcome.
Calculation of drawing power for cash credit limitB (Rs/lac)
Dalue of stock ay 6.77
&ess unpaid stock (%reditors)" obsolete stock" non moving item 4.77
> <.77
&ess margin 56= or as per terms of sanction 4.77
> :.77
EEEEEE(a)
,lus value of sundry debtors below F7 days or as per sanction 47.77
&ess margin <7= or as per terms of sanction <.77
>
?.77EEEEE..(b)
aGb F.77
:
uppose limit is Rs.47.77 lacs. 1, is Rs.F.77 lacs only as per the stock statement.
!ence" we can allow upto Rs.F.77 limit only.
!ow to fi' limit at the time of review for term loanB It shall be fi'ed as per the 1, and not
at the rundown balance. Rundown balance shall be taken if the account is being
serviced e'actly as per terms of sanction.
-dhoc limit shall be given once or twice per annum for a ma' period of :7 days generally
(e'treme cases ?7 days) sub.ect to availability of the drawing power ( availability of
stock" drs etc.)
%onsortium financing involves more than one bank if .oint documentation and creation of
security happen with the consensus of the lending bankers. 9ultiple banking involves
individual documentation and creation of charge.
2hat is creation of chargeB ecurity is created by e'ecution of hypo/e/uitable
mortgage/pledge/lien documents etc. in favour of the lending banker !owever" in case of
corporates" within :7 days of creation of charge" that should be filed with the Registrar of
%harges (R3%).
- search shall be conducted immediately (preferably within 5": days) of R3%
registration.
2hat is pari passu chargesB ;ach and every lending banker shall have proportionate
interest in the security created favouring banks. It means out of Rs.477 crores of total
secured term loan" if we finance Rs.47 crores" then our share shall be 47= in the
security.
2hat is first chargeB (irst charge means" holders (banks) shall have prior rights over the
second charge holders. 2hatever remains in the security/sale proceeds of security after
paying the first charge holders shall be given to the second charge holders of the
security.
(or non fund facilities (&%" &*) limit fi'ation is necessary backed by security. In case of
477= cash margin no need for other security. !owever" we have to careful about HY%
norms too.
!ow to tally balance sheet fastB 0angible net#worth plus long term liabilities shall e/ual to
net block plus non# current assets plus networking capital.
$et working capital means current assets minus current liabilities. 2orking capital
means current assets (necessary for carrying out day to day operations of the firm#
necessary funds to carry out the working capital cycle. 2orking capital cycle means the
period taken for cash out flow to inflow through sales).
<
2hat is cash profitB ,rofit after ta' plus non#cash e'penses like depreciation.
%ollateral/additional security means the security or assets charged in our favour apart
from primary security ( ,rimary securityB -ssets bought out of the money lent by us
presently).
230 analysisB Strength and Weakness of the firm (Internal factors)IOpportunities and
Threats (e'ternal factors) to be analysed .
-ll mortgages should be registered with %entral Registry through R3.
Pl remember that this is not an exhaustive list. (&atest updates also to be referred.)
$ow let us see why businesses fail / why accounts become NP
*lobal reasons like depression" slow down etc.
,olitical reasons like trade restrictions" war" enmity.
Industry in the downtrend (for e'ample black and white 0D Js near e'tinction)
&ack of managerial skill" financial wisdom.
&ack of technical wisdom.
$ot employing the right people for technical / financial management.
1iversion of working capital for long term uses/fi'ed assets and vice versa.
8nder financing /wrong assessment by banks
&ack of capital
,oor marketing strategy
,oor stocking of raw materials Kunder or over stocking. $on#availability of raw materials
in time. Buying them in off season resulting into losses.
,oor product mi'
,oor time management
,oor planning / control.
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1elay in bank financing
1elay in arrival of machinery and their installation.
1elay in getting *ovt. clearances / licenses.
,oor receivable management K granting more than necessary time.
,oor employee management.
trike" lock out etc.
,ower problem.
2rong selection of borrower
2rong selection of business.
&ocational disadvantages (what happened to $-$3 in 2est Bengal)
(ollowing obsolete technology. $on up#gradation of resources at the right time.
(ire" theft etc. (Insurance shall mitigate this risk even then time gap shall be there for
reimbursement)
Improper utilisation of resources like men" material" money etc.
Inade/uate profit margin.
,rotest by local population for land ac/uisition / employment/ compensation etc.
;nvironmental problems
,oor accessibility ( transportation facilities)
,lease note this is not an e'haustive list. ome other specific problem pertinent to the unit /
business may cause the failure of the business.
?
$ow" let us see how to process medium si!e or large si!e loan proposalsB
( $30; !38&1 B; ,R;,-R;1 I$ 8%! - 2-Y 3 0!-0 -$Y $;2 R;-1;R 980
8$1;R0-$1 0!; ,R3,3-& I$ - &8%I1 9-$$;R )
2e shall go through the loan processing steps from page 4 (title" synopsys" about the company
etc.)
Initially we type the name of the bank" department / branch / name of region. ay"
8$I0;1 B-$H 3( I$1I-
outhern Regional 3ffice"
%hennai#5C
0hen" left hand side we give the $ote $o and then right side date appears.
0hen name of the account
ReB (resh proposal for#####
you have to write the proposal in brief" purpose" facilities re/uired" tenor of term loan"
repayment" interest rate etc. If review" we have to specify review. If any modification
/restructure" then we have to specify that also ( in < to L lines). (.ust by reading these lines"
every body must get a hint about the proposal in nutshell).
L
0hen companyMs profile (this can be given in first page or as anne'ure to the note). ,rofile
includes" name" constitution (proprietor or partnership firm or private limited company" public
limited company)
1ate of incorporation/commencement of that business
&ine of activity" address of registered office" pro.ect site/factory etc.
$ames of board of directors" their designations. pecify promoter director.
0hen whether any bank director has stake/ interest in the borrowing co.
1efault status of company/directors. Derify RBI/cibil/8BI $,- list/-& (all on a latest date)
If any name is there" we have to find out whether he is the same person or not by verifying ,-$"
1I$ (1irector identification number) address" title" fatherMs name" date of birth etc.
If he is a defaulter" he has to be removed from the directorship of the company. If he intimates
that he is not the same person (as found in the defaulter list) he has to submit (orm 5< -- (in
case of companies) and affidavit to the effect that he is not the same person whose name is
found in the defaulters+ list.
hareholding pattern of the company. $ames of ma.or shareholders" their holding" face value"
total have to be included in a table format. 0able format has to be used where#ever applicable
in the process note. 0otal must tally with the balance sheet (see audited annual report# it has to
be signed by the auditor. -nnual report must be in the prescribed format of %ompanies -ct#
4F6?.) ,lease go through any big companyMs annual report and keep a copy for your ready
reference.
%apital market particulars" price etc. 3therwise mention unlisted (,vt. %o. can+t go to capital
market)
$ame of statutory auditor
ee ;BI and %&B observations through their web sites on the company. You will get so much
information on the company including legal cases against the company.
$ame of the sector whether priority or non priority and then name of the industry to be
specified.
(ollowing are applicable only for e'isting accountsB (up#to the line starting with J other
particulars+)
Information on e'isting e'posure. %redit relation since ### (date of first sanction)
,resent position of the account giving the facility" limit" value of security" 1," outstanding
balance" remarks on servicing of interest and term loan instalments (in a tabular format). Dalue
of stock and debtors take from the latest stock statement. (i'ed assets from the latest audited
balance sheet.
C
2hether all the terms of e'isting sanction have been complied with@
1ocument position. 2hether e'ecuted. 1ate of R3% registration for corporate accounts and
then search with R3% whether our charges are created perfectly with the R3%. R3% site can
be verified through on line also. (mca.gov.in) . -part from this" central registration also to be
done.
1ate of last balance confirmation if possible" may be given.
1ate of last document audit and comments if any. Replies to the comments.
1ate of latest inspection" names of the inspecting officials and their observations on the pro.ect
or functioning of the company. -ny adverse things should be commented upon.
3ther particulars including credit/debit summation" &(-R/!3/RBI comments and their replies"
insurance" value connection etc.
!ealth of the accountB Rating by outside agency/internal risk rating by I9-%.
-sset classificationB standard /####
$ame of the group if any to be given.
*roup e'posure to be seen. Because 1, of the sanctioning authority depends upon the group
e'posure also.
Banking arrangementB if sole/ multiple/ consortium give the details or give under anne'ure.
*ive name of the lead bank also.
Bank wise limit" balances" asset classification" rate of interest may be given here or under
anne'ure.
Investment by the bank in the company.
ector e'posure ceilingB (,lease refer lending policy categorisation and e'posure limit)B
sanctioned limit in total to the particular industry" percentage of total advances sanctioned to the
industry and ma'imum ceiling limit for e'posure to the particular industry. 0his is calculated in
order to sanction any new proposal after verifying vacancy for that industry/sector.
,rudential e'posure ceiling both e'isting and the proposed for the individual company and for
the group companies. 0hen in the last column of the table we have to give banks e'posure
ceiling for infrastructure/non#infrastructure (depending upon the case) as given in the lending
policy. ,lease refer lending policy for the e'posure or the latest circular if any.
!istory of the companyB 2rite the past history of the company" its incorporation" promoters"
general achievements" future plans etc.
0hen brief notes on the promoters" their managerial competence" e'perience in the line of
business" age" /ualification" relationship among the partners etc.
F
Industry scenarioB !ere you have to narrate the latest industry level developments" profit
margin" future growth" growth rate of the industry etc. ( refer %9I;/internet/industry maga)ines
etc.)
0hen !3 observations start with providing past : years (audited) and estimated and pro.ected
financials of the company in the normal tabular format (you can refer the lending policy if
necessary).
2e have to be careful about revaluation reserves and they should not be included in the
tangible net worth and fi'ed assets. If necessary you can discuss in a paragraph on this topic.
Intangible assets should be deducted while calculating 0$2.
8nsecured loans obtained from the promoters/ directors" associate companies and relatives of
promoters can be included as a /uasi e/uity. 0hey should give undertaking that during the
tenor of the loan this unsecured loan would not be withdrawn. 0$2 shall be increased on this
.ustification.
In the comments section" first of all we have to tally 0$2 for the last two years (audited).
0hen income/sales should be discussed comparing the previous year and with Y;-R 3$ Y;-R
(Y3Y) growth percentage" other income also should be e'plained.
,BI10-" ,B0" ,-0 should be analysed comparing the previous year. 2hether they are in
conformity with the sales should be looked into.
%urrent ratio" 03&/0$2 should be discussed then. (If any deviation is there" an approval from
the higher authority should be taken after sanctioning the note.)
$on current assets" contingent liabilities" statutory liabilities also to be discussed. if the amount
is in crores" we should go deep for understanding and analysis.
(und flow analysis may be made for large accounts (atleast for the accounts having 47 crores
and above credit facility.)
0hen present financial performance on ma.or parameters like 0$2" Income" ,B0" ,-0 etc. for
the period after the last audit date and up#to the end of the previous month or /uarter as the
case may be. 0his can be compared to the previous period also. ay eptM45 vis#a#vis ept 44
in respect of capital" 0$2" income" ,B0" ,-0 etc. *rowth percentage on Y3Y basis also can
be given.
,resent proposalB $arrate the proposal in few lines. *ive the recommending R.3. branch
names also. 0heir inspection comments with date" if any" should be given.
in case of term loan" purpose of term loan in a paragraph and then cost of pro.ect and means of
finance has to be e'plained in a tabular format. !ow much funds have been invested duly
certified by the %- in the contribution portion of the means of finance should be discussed.
(Below that table). ources of e/uity should be probed into.
47
0hereafter" ma.or components of the pro.ect cost should be discussed and the total amount
must be tallied. (or term loan of Rs.47 crores and above" techno economic viability study should
be conducted by the bankMs empanelled consultant or any ,8 bankMs empanelled consultant.
2hy it is needed@ 2e may not know the capacity of the machineries used in the pro.ect/
technical facts" economic viability etc. financial viability also should be looked into. (inancial
pro.ections for the total repayment period of the term loan should be discussed by them. Break
even analysis" 1%R / IRR" sensitivity analysis along with the assumptions made on the
financial pro.ections also should be given. -ssumptions include the capacity of the unit" number
of units to be produced under each capacity" unit cost" price cost" ,/& e'penses reliability etc.
0hey should be vetted/ verified by us. %onsultant shall certify that the pro.ect is technically"
economically and financially viable.
2orking capital assessment must be done for the forthcoming :4
st
9arch period. If only :" <
months are left for :4
st
march" then ne't years+ :4
st
9arch also to be analysed. !olding levels
should be compared with the last : years average or industry average. -ny specific reason for
deviation is there" it has to be .ustified clearly. %9- data (%redit monitoring arrangement) is
necessary for working capital assessment" especially for limits above Rs.6.77 crores. %9-
contains details of ,/&" B/sheet heads of accounts N 9,B( computation.
2orking capital under turnover method shall come to 57= of the pro.ected sales. (or details on
9,B( method and cash flow method" pl be guided by the lending policy.
&% assessment shall be done on the basis of goods purchased under &% divided by &% cycle
(8sance period plus lead time from ordering date to date of receipt of goods).
&* assessment shall take into account present outstanding less to be e'pired within the
financial year. (or bid bond guarantee success rate has to be realistically estimated.
0hen 230 analysis may be made. trengths and weaknesses of the firm internally and
opportunities and threats from e'ternal factors also would be analysed.
Inter#firm comparison with the similar si)ed companies in the same industry shall be made for
profit margin" sales" pro.ect cost etc on certain bases. (It is preferable to analyse for term loans
of Rs.47.77 crores and above)
Risk mitigation techni/ues shall include promoter risk" market risk" demand risk" *ovt. policy
changes" fore' risk" force ma.eure by nature of god/ fire/theft etc. and other risks pertinent to the
particular industry. 9itigation techni/ues to be discussed then and there.
0hen interest" security factors" -%R/(-%R for term loan to be computed. ,ari#passu means
proportionate share shall be given as security for a bank i.e. if out of Rs. 477.77 crores term
loan we have sanctioned Rs.47 crores" our share of security shall be 47=.
econd charge means balance amount available after paying the first charge holders.
ubservient charge means residual security after paying first charge holders and second
charge holders.
44
0hen we have to see whether %urrent ratio" 03&/0$2" -%R" %redit risk rating" ,romoters+
contribution" tenor of loan etc are complied as per lending policy norms of the bank or not . If
not" deviation reasons to be given and necessary approval has to be obtained from the ne't
higher authority.
R&%% recommendation" their inspection comments have to be given. (inally" recommendation
part along with our rationale.
In the anne'ure"
i) !istory of the company" bio data of the promoters
ii) Review particulars
iii) : Years audited financials of the *roup accounts
iv) ;'isting terms of sanction
v) (inancial analysis for : audited years and one estimated years along with details of
current assets" current liabilities" term liabilities" non# current assets to be given.
vi) 1%R if any along with sensitivity analysis
vii) ,ro.ected cash flow statement" B/s" ,/&.
viii) Break even analysis and / or Internal rate of return
i') 9a'imum permissible bank finance computation and any other relevant anne'ure for
the particular account
') Recommended terms of sanction. It is a vital part. It should be a relevant one and we
should not miss any important point. ,l refer old sanctioned terms of same type of
industry/facility and try to improve upon. $ever put imaginary conditions .
(or your kind reference" e'cerpts from STC bulletin are furnished hereunderB
How to handle Credit Proposals? A Step by Step Checklist
4. Receive the application and record it in the Proposal "eceiving "egister.
5. %onduct an interview with the borrower and record it. If the proposal is found prima#facie
untenable as per bank+s norms" re.ect the proposal at this stage.
:. %heck the application and the enclosures to ensure that all relevant documents /papers
are received as per check list supplied to the borrower.
<. Derify photocopies of documents with the original. Heep a note Overified with original#
on the photo copy itself.
6. If there are missing documents/information ask/write to the party to submit them within
specific date. Heep the office copy along with the proposal. 1o not ask
papers/information from the borrower in piecemeal.
45
?. %onduct pre#sanction due diligence inspection of the factory/location of the
unit/residence of the borrower. If you feel the need" you may take the help of approved
outside agencies for conducting due diligence investigation. 0his will be in addition to
your own.
L. 9ake local en/uiry to verify the personal data.
C. -ppraise the pro.ect. 0ake assistance from 1I%/II/$I%/$abard/HDI% as the case
may be" whenever you do not have sufficient knowledge about the venture
( technology/process etc)
F. -nalyse the financial data/financial ratios and compare with bench mark and also with
bank+s lending norms to ensure that there is no deviation.
47. -ssess the 2orking %apital / 0erm &oan re/uirement as the case may be.
44. ,hysically inspect the collaterals offered against the loan. 3btain search certificate N
valuation report as per norms.
45. 3btain %redit information from e'isting banker" if the prospective borrower is en.oying
credit limit from other banks. 0ake the help of R3 to access %IBI& credit information data
base/RBI defaulter &ist.
4:. If the proposal is not within branch 1," process the proposal and send the proposal to
the ne't higher authority with your recommendation.
4<. 1ispose of the proposal within the time norms.
46. %ommunicate your decision (sanction/re.ection) to the party.
4?. anction loans as per lending norms and guidelines issued by the bank. -ny deviation
needs to be approved by the ne't higher authority. Heep note of all the
deviations/rela'ations with .ustification in the process note. %ommunicate sanction to the
borrowers and disburse only after the deviations are approved by the ne't higher
authority.
CHECKLIST FO !S!E "OO#ES $%ATA TO "E KEPT EA%& "& THE C'STO!E(
$%or New Proposal &New 'nit(
4. ,roof of identity K Doter+s I1 %ard/,assport/1riving &icense/,-$ %ard/signature
identification from present bankers of promoter" partner or director(if a company)
5. ,roof of residence# Recent telephone bills" electricity bill" property ta'
receipt/passport/voter+s I1 %ard of proprietor" partner or director(if a company)
:. 0rade license" ,roof of business address.
<. Derify %IBI& report. core should not be below L67.
6. Derify R3% for e'isting charges created. Derify %entral registry also.charg
?. ,rofiles of the unit(includes names of promoters" other directors in the company" like
activity being undertaken" addresses of all offices and plants" share holding pattern etc.
(applicable for cases with exposure above "s) *+ lacs)
L. 9emorandum and -rticles of -ssociation of the %ompany/,artnership 1eed of partners
etc.
4:
C. -ssets and &iabilities statement of promoters and guarantors along with latest income
ta' returns
F. Rent -greement (if business premises on rent).
47. %ertificate of compliance i.e . from pollution control etc.
44. %opy of ;9"(entrepreneurship memorandum)filed with competent authority" where ever
applicable.
45. ,ro.ected balance sheets for the ne't two years in case of working capital limits and for
the period of the loan in case of 0erm &oan. ((or all cases of Rs.5 lacs and above.)
4:. ,ro.ect Report (for the proposed pro.ect if term funding is re/uired) containing details of
the machinery to be ac/uired" from whom to be ac/uired" price" name of suppliers"
financial details like capacity of machines" capacity utili)ation assumed" production"
sales" pro.ected profit and loss account and balance sheets for the ne't : to L years till
the proposed loan is to be paid. 1etails of labour" skilled/unskilled staff to be hired.
-rrangement of power supply) Basis of assumption of such financial details etc.
(applicable for cases with exposure above "s) *+ lac)
4<. ,rofiles of important e'ecutives in the company"
46. -ny tie#ups with traders for supply of finished goods. 2ork order received in hand
4?. 1etails about raw material used and any tie up for their supplies.
4L. 1etails about the ma.or competitors and the company+s strength and weakness as
compared to their competitors
4C. ,hoto copies of lease deeds/title deeds of all the properties being offered as primary
and collateral securities.
,$%or New Proposal &-xisting 'nit(
ll the points covered under .#above and
4. &ast three years balance sheets of the units along with income ta'" sales ta' returns etc.
(-pplication for all cases from Rs.5 lac and above). !owever" for cases below fund
based limits for Rs.47 lac if audited balance sheets are not available" then unaudited
balance sheets are also acceptable as per e'tant instructions of the bank. (or cases of
Rs.47 lac and above" the audited financial statements are mandatory.
5. ,resent banking arrangement
:. &atest sales" ,B0 etc say latest /uarter . You can compare Y3Y .
C)For take O*er Proposals
ll the points covered under .,# above and
4. anction letters of facilities being availed from e'isting bankers/(inancial Institutions
along with detailed terms and conditions and statement of accounts for last 45 months.
5. %redit Report from the e'isting banker (,osition of accounts from the e'isting bankers
and confirmation about the asset being tandard with them(in case of take over)
/$%or Proposal of enhancement of credit limit of existing borrower
4. &ast three years balance sheets of the units along with income ta'" sales ta' returns
etc. (for all cases from Rs.5 lac and above). !owever" for cases below fund based
limits for Rs.47 lac if audited balance sheets are not available" then unedited balance
sheets are also acceptable as per e'tant instructions of the bank. (or cases of Rs.47
lac and above" the audited financial statements are necessary.
4<
5. %opy of ;9"(entrepreneurship memorandum)filed with competent authority" where ever
applicable.
:. ;stimated Balance heet N ,& statement for the current year and ,ro.ected balance
sheet N ,& statement for the ne't year in case of working capital limits and ,ro.ected
,rofitability statement for the entire period of the loan in case of 0erm &oan. ((or all
cases of Rs.5 lac and above)
<. &ast three years balance sheets of the -ssociate/*roup %ompanies(if any) (applicable
for cases with exposure above "s) *+ lac)
6. ,ro.ect report (for the proposed pro.ect if term funding is re/uired) containing details of
the machinery to be ac/uired" from whom to be ac/uired" price" name of suppliers"
financial details like capacity of machines" capacity utili)ation assumed" production"
sales" pro.ected profit and loss account and balance sheets for the ne't : to L years till
the proposed loan is to be repaid" the details of labour" staff to be hired" basis of
assumption of such financial details etc. (applicable for cases with exposure above
"s) *+ lac)
?. Review of account containing month wise sales(/uantity and value both)"
production(/uantity and value)" imported raw materials(/uantity and value)" indigenous
raw material(/uantity and value)" value of stocks in process" finished goods(/uantity
and value)" debtors" bank+s outstanding for working capital limits" term loan limits" bills
discounted. (applicable for cases with exposure above "s) *+ lacs)
L. &ist of work order in hand
C. ,hoto copies of lease deeds/title deeds of all the properties proposed to be offered as
additional securities.
F. 9anufacturing process. if applicable (when proposal is to ac/uire new technology for
moderni)ation.)
(The chec0list is only indicative and not exhaustive and depending upon the local
re1uirements2 at different places2 addition could be made as per necessity()

Puly#45
$ow" we will move on to slightly higher levelB
3( What to do if sales pro4ections for the coming year seem more than the growth
level of the recent past or the past 5 years audited financials6
uppose we are in the month of $ov and the customer has sent the proposal for
enhancement of cash credit limit by :7= or 67= and we are perple'ed by the demand.
a) ee whether the industry is in growth path or not.
b) ee the market share of the borrower in the industry whether all India level or state
or district or local. Derify %9I; reports/ internet reports on growth /demand for the
products.
c) %ompare the sales of ept or 3ct with the last years ept or 3ct sales.
46
d) %ompare the growth rate of peer group. ,eer means more or less same level of
turnover or in the same locality with the same type of customers
e) %heck his sales invoices / sales ta' returns if applicable.
f) uppose in the first si' months <7= sales are registered in the industry and in the
last ? months ?7= sales may happen and vice versaE. ee the industry trend.
g) In case of situations where every month his sales increase" see the last months sale
and multiply it for the remaining months up#to 9arch and verify the estimated sales.
3ther way is to compute month#wise growth rate and apply for the remaining months
accordingly and estimated sales of the forthcoming 9arch.
ay (Rs/lacs)
-pril#45 actual sales 477
9ay 475
Pune 476
Puly 47F
-ugust 44<
ept 457
3ct actual sales 45L
$ov estimates 4:6
1ec estimates 4<<
Pan estimates 46<
(eb estimates 4?6
9arch estimates 4LL
0hat is LL= growth. 3n receiving application for LL= growth" you might have
thought otherwise. In business both are possible either lesser sales or higher sales
and some times stagnant sales.
In the aforesaid e'ample" there are three ways to compute estimated sales for the
forthcoming 9arch.
ince half year growth is <7=" assume <7= growth for the whole year.
econd method isEE in the month of 3ct" L lacs increase and multiply L by
remaining 6 months . 0hat is :6 lacs. -dd :6 to 45LE. 0here comes 4?5 meaning
?5= growth.
4?
0hird method is LL= growth as shown above.
,lease also go through e#circular dated 5?.7:.4: on O1ue diligenceQ.
*o through the policy on credit risk mitigation and %redit audit policy
7et us find out some common mista0es found in the process notes6
4) Registration of firm not there
5) ensitivity analysis not done for 1%R ( preferably for term loans ofRs.5 crores and
above)
:) $3% not obtained from the concerned authorities.
<) 1eviations in the benchmark parameters of lending policyE approval should be obtained
from the higher authority.
6) ales are less or constant.
?) ources of margin/ capital/e/uity to be verified
L) 9arketing techni/ues not specified / no selling agreement available
C) tock statements not verified with the audited financials as on :4
st
9arch on receiving
the balance sheet.
F) &atest sales" profit not compared with the estimated figures for the forthcoming :4
st

9arch
47) Pustification for the estimated sales or pro.ected sales missing / unreasonable.
44) 3rders in hand not discussed
45) anction beyond the financial powers.
4:) Review not undertaken in time.
4<) 0ransactions in the account do not commensurate with the sales. -ll sales are not
routed through our bank.
46) !ow the shortfall in the working capital shall be brought in not discussed.
4?) -verage holding period for the last : years not discussed.
4L) tock statement older than F7 days
4C) Reasons for adhoc limit not discussed. !ow it would be repaid / what are the sources
not discussed. 9onthly cash flow analysis not done.
4F) (inancial pro.ections not .ustified.
4L
57) Raw#material availability not discussed.
54) 0entative drawdown not given for term loan
55) ,ro.ect implementation schedule not given.
5:) 1ocument audit/credit audit not done. 0heir comments not replied in time.
5<) Daluation of properties not verified with guideline value/ local en/uiries. !igh
dependence on approved valuers and /lawer opinions. ,ersonal en/uiries needed.
56) Balance sheets not analysed properly.
5?) 9onitoring immediately after sanction needs improvement. ,ost sanction inspections are
vital.
4C