Corporate Finance

ACKNOWLEDGEMENT

It is my great pleasure to present this Final Report, which is part of my Summer

Internship Program. This report is a result of great contribution and guide lines from my
professors and project guides.

To start with, I am deeply indebted to my project guide Mr. V. Ramchandran, DGM,

CBB & Mrs. Pranoti Nene, Relationship Manager, whose help, stimulating suggestions
and encouragement helped us at all times right from the start to the complete of this
project.

I would like to express my appreciation to Prof. Mr. Hemant Joshi, VESIMSR, who
provided his direction and assistance at each and every step of the project and for taking
considerable time out of their busy schedules for me. I would also like to express my
sincere gratitude to the other employees of Corporate Business Branch, ‘S’ Bank for
extending their time and support for the project.

Finally very special thanks to all friends who helped me, with their comments,
suggestions and remarks in the various stages of this project.

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INDEX

Sr.No. Content Page No.

1 Objective of the study & Proposed Methodology 5
2 Background 6-7
- Banking Scenario 6
- Raising of Finance 7
3 About ‘S’ Bank 8-11
- Bank Profile 8
- Credit Facilities Provided by ‘S’ Bank 9
4 Corporate Finance Process 12-36
- Appraisal 13
- Credit Rating 24
- Credit Sanction & Documentation 28
- Credit Disbursement & Charging of Securities 30
- Credit Monitoring 32
- Recovery 34
5 ‘S’ Bank’s Credit Portfolio & Analysis of Credit Lending 37-42
Pattern
- Industry wise Analysis 39
- Sanctions 41
- Fund wise Analysis 42
6 Credit Appraisal of ABC Ltd. 43-76
7 Learning 77
8 References 78

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OBJECTIVE OF THE STUDY

A considerable importance has been placed on the role of commercial banks by

successive Governments in the development of the economy of our country. It is almost
certain that a bank will be associated with every project of industry/trade or business
irrespective of its size. The banks are now certainly catering to the credit needs of a large
variety of projects, big or small, in all the sectors of economy including agriculture, trade,
industry and services etc. Granting of short term finance for working capital requirements
has always remained an area exclusively reserved for commercial banks. Banks have now
assumed the role of a development institution in promoting small projects in all the
sectors of economy besides increasing their presence even in big industrial projects.

The lending policies of banks have also undergone a sea change with the passage of time
and there had been a few historical events which had an important bearing on the general
approach of a banker towards lending.

The objective of this study is to envisage ideal framework of corporate finance

management for Indian Banks. It will be of interest to have a brief discussion of various
approaches of banks towards lending and their relative importance in present scenario.

The scope of project includes study of -

1. The different types of credit facilities provided by the bank.

2. The credit assessment techniques for different types of credit facilities.
3. The credit appraisal and monitoring standards to meet genuine credit needs of
clients.
4. The credit evaluation system.
5. Bank’s credit portfolio and analysis of its credit lending pattern.

PROPOSED METHODOLGY:

The information on the project under study will be obtained from the Bank employees
and officials. Also I have to study various files and the official correspondence of the
Bank The next stage is to understand the actual corporate finance process adopted by
‘S’ Bank. It includes understanding of the credit proposals of certain selected borrowers
as prepared by the Bank. Also bank’s credit portfolio will be analyzed. The methodology
also includes making actual proposal of one of its proposed clients, which will help to get
practical experience of the corporate finance methodology.

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BANKING SCENARIO

The financial system is the lifeline of the economy. The changes in the economy get
mirrored in the performance of the financial system, more so of the banking industry.

The Indian banking can be broadly categorized into nationalized, private banks and
specialized banking institutions. The Reserve Bank of India acts as a centralized body
monitoring any discrepancies and shortcoming in the system. It is the foremost
monitoring body in the Indian financial sector. The nationalized banks (i.e. government-
owned banks) continue to dominate the Indian banking arena. Industry estimates indicate
that out of 274 commercial banks operating in India, 223 banks are in the public sector
and 51 are in the private sector. The private sector bank grid also includes 24 foreign
banks that have started their operations here. Under the ambit of the nationalized banks
come the specialized banking institutions. These co-operatives, rural banks focus on
areas of agriculture, rural development etc. Indian nationalized banks continue to be the
major lenders in the economy due to their sheer size and penetrative networks which
assures them high deposit mobilization.

The banks before nationalisation were generally catering to the needs of large industrial
houses and big trade and laid a great emphasis on the safety of their funds and insisted
upon availability of good tangible security to cover the advance. Offer of an acceptable
form of good tangible security would always have a very positive influence on the
decision of the banker to grant advance. This approach resulted in cornering out of scarce
financial resources available with banks by a small group of individuals and other users
who had necessary security to offer to the banks. This process also resulted in ignoring
the genuine needs of other prospective borrowers who could not provide required security
though they had good project in hand. This was truly an example of class banking and
was cited as an important reason for nationalisation of 14 major commercial banks in
1969 by Government of India. It was envisaged to redistribute the financial resources
available in the economy in a more equitable manner and to ensure that credit needs of all
the sectors of economy and all sort of borrowers are adequately met. It was the first major
steps towards the march to mass banking.

Economic Liberalization & Financial Sector reforms introduced in 1991 followed by

Second Phase of Financial Sector reforms in 1997 ushered in an era of fast track growth
in size, technology and deliverables of Banks in India.

The financial sector reforms gradually moved the Banking Industry from a regulated
environment to a deregulated market economy. In this process, banking operations
transformed from its traditional intermediary role to a business of risk return trade off.

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RAISING OF FINANCE

Finance for a project in India can be raised by way of:

(a) Share Capital

(b) Long-term Borrowings
(c) Short-term Borrowings

Both share capital and long-term borrowings are used to finance fixed assets plus the
margin money required to obtain bank borrowings for working capital. Working capital is
financed mainly from bank borrowings and from unsecured loans and deposits.

Term finance is mainly provided by various banks, All India Development Banks,
specialized financial institutions and investment institutions. In addition, term finance is
also provided by the state financial corporations, the state industrial development
corporations and commercial banks.

The role of the financial & banking institutions is not merely confined to lending of
funds. They render non fund based facilities as well like opening of letter of credit, issue
of bank guarantees etc. besides there are private investment companies involved in direct
and indirect financing of the projects and also extending lease financing.

Depending on the size of borrowings, the borrower can avail of term loan as well as
working capital limits from either a single or a number of financial institutions and
commercial banks. Hence, mode of finance can be of three types. They are –

1. Sole Banking: Only one bank looks after all the financial requirements of the
borrower.

2. Multiple Banking: Different banks provide finance and different banking facilities
to a single borrower without having a common arrangement and understanding
between the lenders. The practice of multiple banking has increased tremendously
during the last years. This is due to the increasing competition and the bankers
desire to grow in a short span of time.

3. Consortium Financing: Under consortium financing, several banks (or financial

institutions) finance a single borrower with common appraisal, common
documentation, joint supervision and follow-up exercises.

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ABOUT ‘S’ BANK

‘S’ Bank was founded on 26th May, 1938. It became a Public Ltd. Company in
December 1939. In July 1969, ‘S’ Bank Ltd. along with 13 other major banks was
nationalized and is now a Public Sector Bank constituted under the Banking Companies
(Acquisition & Transfer of Undertakings) Act, 1970.

Milestones:

 One among six Public Sector Banks selected by the World Bank for sanctioning a
loan of Rs.72.3 crores for augmentation of Tier-II Capital under Financial Sector
Developmental project in the year 1995.

 One among the few Banks to receive the World Bank loan for technological up
gradation and training.

 Launched a Bond Issue of Rs.92.13 crores in November 1996.

 Maiden Public Issue of Rs.180 Crores in November 1996.

 Introduced Tele banking facility of selected metropolitan centers.

 The first bank to introduce:

• Minor Savings Scheme.

• Credit card in rural India known as "KRISHI SAKH PATRA" (KSP).
• Drive-in ATM counters of Juhu, Mumbai.
• Smart card at selected branches in Mumbai.
• Customer rating system for rating the Bank Services.

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CREDIT FACILITIES PROVIDED BY BY ‘S’ BANK

‘S’ Bank provides financial assistance to the business entities engaged in various
activities of manufacturing, trading and service.

The Bank endeavors to increase credit exposure to all types of customers, Individual,
Proprietorship concerns, Partnership firms, Companies registered under Companies Act,
Association of persons and Undertakings owned by Governments including PSUs.

Bank’s credit is broadly covered under Priority Sector and Non-Priority Sector lending.
Bank adopts the RBI guidelines on Lending targets set under Priority Sector:

In area of corporate segment, Bank extends credit to reputed Corporate in Large and Mid
Corporate categories with Credit rating of good order. Financial services provided by
Bank can be broadly categorized as follows.

Credit Facilities provided

by ‘S’ Bank

Fund based Non Fund based

Term Loan Letter of credit

Working Capital Bank Guarantee

Deferred Payment
Guarantee
A] Fund Based Credit Assistance

The Financial assistance is provided for setting up new projects, acquiring assets and also
for meeting day to day working capital requirements of the constituents. These
assistances are termed as Long Term Finance & Short Term Finance respectively.

1. Term Finance
Term Loan/Finance covers funds required for acquiring means of production such as
land, building and plant and machinery etc. These could be for setting up new projects or
expanding the present activities. Term finance is generally given for a longer period and
is repayable in installments over the period with or without Moratorium. The period and
the installments are determined based on the repayment capacity of the project /
borrower.

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2. Working Capital Finance

Working Capital Finance (WCF) is extended for carrying out normal trading/
manufacturing activities. The working capital finance is provided for a relatively shorter
period generally for a period of 1 year and renewed on yearly basis considering the
performance of the borrower.

The WCF is considered only after project nearing completion and after full tie up of term
loan requirement.

Working Capital finance is in the form of pre-sale and post-sale limits. In Pre-Sale
Finance the advance is granted for acquiring Inventory for production / processing or
trading purpose while the Post-Sale Finance is extended against the receivables. ‘S’ Bank
encourages Post-sale finance in the form of purchase/discounting of bills etc.

Pre Sales Finance:

1. Cash Credit Hypothecation / Pledge against Stocks

2. Packing Credit Hypothecation / Pledge against Stocks
3. Clean Packing Credit Limit
4. Trust Receipts
5. Working Capital Loan (Demand / Term)

Post Sales Finance:

1. Bills discounting / purchase – Inland / Foreign

2. Cash Credit Hypothecation against Book Debts
3. Advances against Export Incentives
4. Purchase of Cheques/Demand Draft

B] Non Fund Based Credit Assistance

The Business units also require Credit Assistance for procurement of Goods, where the
funds are not involved. Such facilities are available against the assured commitments /
guarantee from the Lending Institutions.

‘S’ Bank is extending such Non Fund Based assistance to the eligible units in the form of:

1. Issuance of Guarantee of various types like Performance, Financial, Bid Bond,

Tender Deposit / Earnest Money etc. and
2. Issuance of Letter of Credit
3. Deferred Payment Guarantee

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Mode of finance:

‘S’ Bank provides financial services in the form of sole banking, multiple banking and
also in consortium with other banks. Consequent to withdrawal of the guidelines relating
to the Mandatory formation of consortium during the year 1997 by Reserve Bank of
India, banks enjoy discretion to adopt consortium / syndication / multiple banking routes.
With a view to participating in financing of large borrowal accounts and at the same time
to spread over the risks involved and also to ensure that the regulatory prescriptions on
prudential exposure limits are generally not exceeded, it is proposed to increase Bank’s
participation in consortium advances. In the case of multiple Banking Arrangements, it is
ensured that security is clearly defined to each Bank or else pari-passu charge is created
wherever it is required.

Free flow of credit information is facilitated among the lending Banks as to the additional
credit facilities sanctioned / renewal of the existing facilities, legal actions, symptoms of
weaknesses in the operations of the account etc. For this purpose the bank insists upon
consortium leader to share with all member banks all material information including
"Asset Classification" at each quarter end.

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CORPORATE FINANCE PROCESS

A project report is essential before a decision for setting up of any project is taken. An
entrepreneur must study all aspects of the project including the product to be
manufactured, technical process involved in manufacturing, availability of infrastructure,
plant and machinery, technology, skilled labor, marketing arrangements and prospects of
the product etc. An assessment of the total cost of the project and proposed means of
financing with emphasis on overall profitability of the project is also necessary. Project
report must, therefore, include all these information and cover entire aspect of project to
stand scrutiny by financial institution who shall appraise the project from the following
angles before taking any decision to grant loans.

 Technical feasibility.
 Managerial competency.
 Financial and commercial viability.
 Environmental and economic viability.

It is, therefore, necessary that a proper project report is prepared examining all these
details.

Once the detailed project report is prepared, it is submitted to lending institutions for loan
approval and then corporate finance process starts.

This process mainly comprises of following six steps. They are –

1. Appraisal of the project.

2. Credit Rating
3. Credit Sanction and Documentation
4. Credit Disbursement
5. Credit Monitoring
6. Recovery

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1. Appraisal:

The assessment by the bank is carried almost in the same manner as is done by other
lending institutions. The basic appraisal approach will nevertheless be the same and the
project has to stand scrutiny on its managerial capabilities, techno-economic viability,
marketability of products & services etc.

Since the appraisal of the project is carried on the basis of information given in the
project report, it is pertinent that complete and precise information is given in the first
instance itself so as to avoid any delay in processing. The scope of information to be
furnished in project report is not limited to filling of loan application form but it must be
as detailed as possible covering each and every aspect of the project.

Gist of various particulars required by ‘S’ bank in the project report is given below.

Check list for fresh proposal

1. Application form. All columns duly filled and signed

2. Article of association and Memorandum of association.
3. CMA Data along with the authenticated audited balance sheet of last three years.
4. Tax audit report of last three years
5. Total limits enjoyed by the company/group companies with us/other financial
institutions/other Banks
6. Unsecured Loans-Lenders of short-term loans/advances and subscribers to NCDs and
CPs. Interest rate being paid for the above.
7. Copy of the latest sanction letters, terms, and conditions from the entire consortium
Bankers. Assessment note of the lead bank.
8. Latest stock inspection reports & stock audit report done by any consortium
members.
9. Details regarding Directors & Guarantors such as Name, age, their position, No. of
shares held, etc.
10. Latest personal balance sheet of the promoters and Guarantors along with copy of
Income tax return.
11. Share holding pattern of the company. Name seven major shareholders.
12. Company profile
13. Demand/supply position of your products.
14. Major players in the market and their market share with their website address.
15. Cyclical trends faced by the company
16. Government policies regarding your project.
17. CA certificate regarding the statutory dues.
18. Whether the product is import substitute and if yes-local production cost and import
cost of the product.
19. Availability of raw material, labour and other infrastructure.
20. Internal/External advantages for the technology used by the company.
21. SWOT analysis of the company
22. Production capacity- Licence -Installed and utilised.

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23. Staff Position- Office staff/Factory staff skilled and Unskilled

24. ROC certificate for the authorised capital.
25. ROC registration for the company.
26. Partnership deed if it is a partnership company.
27. Details of Associate/Subsidiary Companies and their Bankers along with address.
28. Name and address of the existing Bankers of the company.
29. NOC for the Pollution Control Department.
30. Present O/s of the company in different Banks.
31. Name of other companies where the promoters and guarantors are Directors or
partners.
32. Latest stock statement.
33. Sales and Purchase figure till date.
34. Age wise Book debts.
35. Detail of contingent liabilities of the company.

‘S’ bank has a predetermined proposal format in which it feeds all the above data. This
helps the bank to follow uniform appraisal system for all types of loans as well as
provides ease to carry on systematic appraisal process. While carrying out appraisal,
importance is given mainly to the following aspects.

A] Status of the concern:

Small scale and ancillary units, export oriented units etc command a priority allocation of
bank’s lendable funds. The unit with a proven track record may get a little preferential
treatment. A concern which is establishing a new connection with some bank may be
required to give full details of its past performance etc. The documents required to be
submitted under this category may include:
º Brief history of the concern which may cover a period since inception, the
line of activity, past record and also throw some light on the future prospects.
The details other associate concerns may also be given.
º Exporter/importer code number.
º Copies of certificates of registration as SSI unit.

B] About the Promoter:

It is the person behind any project who is most important for successful running of any
venture. A great deal of emphasis is, therefore, placed by the bank to assess the
creditworthiness of the promoter, his managerial & entrepreneurial capacities and his
financial status, technical qualification, business experience etc.

C] About the credit facilities:

The present approach of banks is to grant need oriented credit facilities only. The concern
may require different types of credit facilities including non fund based facilities for its
smooth operations. A detailed study of these requirements should, therefore, be
necessary.

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D] Financial Analysis:

One of the foremost considerations for granting credit facilities for any project is the
financial position of a concern. Banks employ various techniques for financial appraisal.
However, there is neither any uniformity in appraisal nor any standard norms are fixed
for such appraisal. Bur there are some important common features of financial appraisal.

Financial appraisal revolves around two important financial statements which are
required to be submitted by the borrower with the loan application. These are Balance
Sheet and Profit & Loss A/C.

‘S’ Bank carries out dynamic financial analysis by scrutinizing the audited accounts for
previous years so as to ascertain the trend of growth in production, sales, profitability and
improvement / impairment in all important financial parameters in order to know the
overall health of the borrowal account.

Ratio Analysis: A ratio is a statistical yardstick that provides a measure of the

relationship between two variables or figures. The appraising official has to steer a
careful course. His experience and objectives of analysis help him in determining which
of the ratios are more meaningful in a given situation. Further, ratios do not provide a
definite answer to financial problems. There is always the question of judgment as to
what significance should be given to the figures. While some standards of reference and
sources of background material may be found useful in this connection, in the final
analysis, one must rely upon one's own good sense in selecting and evaluating the ratios.

The following are the desired / indicative levels fixed by ‘S’ Bank for different classes of
borrowers:

1. Total Debt Equity Ratio: The indicative Debt Equity Ratio for different classes of
borrowers is given below. Adherence to the same will help the Bank in maintaining a
healthy credit portfolio.
Sr. Category of the Borrower Indicative In Case of 100% or more Collateral
No. Total D/E Security
Ratio Indicative Total D/E Ratio
Total Debt Equity Ratio
Industries (Medium &
a) Large) 3.5:1 4.5:1

b) Industries (SSI) 4:1 5:1

c) Traders 5:1 6:1
d) Ship Breaking 6:1 7:1
e) Service Industry 5:1 6:1
f) Infrastructure Sector 5:1 6:1

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2. Current Ratio:

Sr. No. Assessment Method

Ratio (Indicative)
1 Turnover Over Method 1.10:1
2 Modified MPBF Method :-

i)Working capital limit up to Rs.10.00 Crore 1.17:1 #

ii)Working capital limit above Rs.10.00 Crore 1.25:1 #

# While working out MPBF, minimum margin to be taken @ 15% or 20% of total current
assets so that minimum current ratios are maintained at 1.17 and 1.25 respectively.
In case of item no 2 (i) & (ii), where the adequate future cash accruals are envisaged and
the present current ratio is lower than the minimum, the Bank may consider Working
Capital Term Loan (WCTL), repayable over a period of of 3 to 5 years and comply with the
current ratio.
In case of assessment under turnover method
a) Margin requirements are to be maintained upfront.
b) Where upfront NWC is higher than the minimum margin requirements, the MPBF
may be computed by excluding the minimum margin requirement from 25% of the
accepted turnover.

3. Interest Coverage Ratio: Interest Coverage is an indicator as to the number of

times the profit covers the interest liability of the company. This is a risk parameter
and an indicator to the extent to which the interest liability will be serviced on time.
Profit for this purpose would mean the gross profit before interest. Indicatively
Interest coverage will be between 1.50 and 1.75. Companies having term loan
obligations should have higher interest coverage ratio to serve term liability.

4. Debt Service Coverage Ratio (DSCR): The Bank normally considers projects
having average DSCR between 1.50 and 2 as adopted by the FIs. The Bank proposes
to continue with the same policy.

5. Current Assets Turnover Ratio: {Gross Sales/(Debtors+ Inventory)}: This ratio

will indicate the turnover of the current assets in a year. Generally this will be above
1.75.

6. PBIT to Total Assets: To have a better insight about the utilization of assets, this
ratio needs be examined to find out the comparative performance of the unit over a
period of time.

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7. Internal Rate of Return on discounted cash inflow: In case of term loans of

Rs.5.00 crores and above, this needs to be worked out and the same should not be
lower than the cost of funds.

Deviations:
 The sanctioning authorities shall look for sound financial parameters in terms of
prescribed benchmarks. The stipulated parameter benchmarks will serve as
suggestive and indicative tool for the sanctioning authorities to ensure a holistic
credit decision. In case of existing borrowers whose dealings are satisfactory and
limits are fully secured, sanctioning authorities at branch levels may renew the
limits even if two parameters are not as per policy guidelines.

 In case of deviations in respect of more than two parameters where renewal or

enhancement is involved, Regional authority shall consider all the proposals
falling within the powers of branches.

 In all other cases, where proposals fall within the powers of Regional
Managers/AGMs and above, the respective sanctioning authority may permit
deviations with due justification, on the merits of each case and having due regard
to the business expediency, within their respective discretionary powers

 Though the deviations are allowed by the respective sanctioning authorities as

prescribed above, there should be endeavor to ensure that the borrower attains the
benchmark level of ratio/financial parameters with in a specified time frame.

 The explanatory notes for allowing those deviations are mentioned.

Apart from this, pre-sanction visit / inspection will be conducted by the Bank’s branch
level officials to ascertain the facts about infrastructure facilities available at the site of
the unit/ project and assess all other aspects of the project.

In case of multiple/ consortium arrangements close co-ordination with other

banks/financial institutions at the time of the appraisal, disbursement and follow up of
advances should be ensured so that timely exchange of data / information is made for
effective monitoring and control of advance.

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ASSESSMENT OF FUND BASED LIMITS

I} Working capital:

The day to day business operations of a concern of any nature and size involves many
successive steps and final working results would depend on the effective combination of
all these steps. These steps put together form an operating cycle which can be represented
diagrammatically as under.

Purchase of
Cash raw
material

Bills Semi-
receivables/
Sundry
finished
debtors goods

Finished
Sales
Goods

Thus, the operating cycle may be defined as the intervening period from the time the
goods and services enter the business till their realization in cash. The study of this
operating cycle is obviously very important for calculation of working capital
requirement as the actual requirement of the unit may be limited to the funds required to
complete an operating cycle.

The Working Capital limits of the borrower are assessed by adopting various methods
such as Projected Turnover Method (Nayak Committee Recommendation), Permissible
Bank Finance Method, Cash Budget Method etc. depending upon the aggregate working
capital limit required / enjoyed from the banking system, nature of activity, production
cycle etc.

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Methods of assessment

For NBFCs NOF Method

For Credit limits upto Rs.2 crore (Rs.5 crore in case of Turnover Method
SSIs)
In case working capital cycle is higher, the borrower will have the choice to be
assessed under Turnover method or Modified MPBF method.

For Credit limits beyond Rs.2 crore (Rs.5 crore in case of SSIs)
For operating cycle is reasonably uniform and working Modified MPBF Method
capital remains more or less stable
For industries, where operations are seasonal or Cash Budget Method
project based in nature like, Tea, Sugar, Software,
Contractors, Builders & Developers etc.

The ‘S’ bank mostly provides credit facilities of Rs 10 crores & above. Hence, the
assessment method used commonly is ‘Maximum Permissible Bank Finance Method’
also known as MPBF method. The format of MPBF is prescribed below.

Audited Audited Estimated Projection Projection

31-03-2006 31-03-2007 31-03-2008 31-03-2009 31-03-2010

Net Sales
1 Total Current Assets
Other Current Liabilities
(Other than Bank
2 Borrowing)
Working Capital Gap
3 (WCG) (1 - 2)
Min Stipulated NWC 25%
of TCA excluding Export
4 Receivable.
5 Actual/Projected Net WC
6 Item 3 minus 4
7 Item 3 minus 5
MPBF
(Item 6 or 7 whichever is
8 lower)
9 Excess borrowing

Points to be noted:

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 Bank borrowings and term loan installments due within 1 year are not considered
while calculating current liabilities.
 A minimum margin of 25% to be brought in by the unit from its owned funds and
long term liabilities.
 As a measure to give incentive for exports, stipulation of providing margin on
export receivable has been waived.
 The borrowings in excess of permitted bank finance should normally be adjusted
by the unit by arranging funds from long term sources by way of additional
capital etc.

II} Term Loan:

Appraisal of term loan/projects should address managerial capabilities, techno-economic

viability, marketability of products & services etc.

a. Project in brief: The brief idea about the project and purpose for which the term loan
is demanded is mentioned here.

b. Project appraised by: Bank has approved 17 State Level Technical Organizations
promoted by FIs/ Banks/SIDCs engaged in assessing Technical & Economic Viability of
the projects / Market Studies. The sanctioning authority / Appraising official is required
to obtain complete appraisal report from the specified State level Consultancy
Organizations and / or IDBI /FIs. Their appraisal report is used as reference material
while sanctioning the loan

c. Location: The place where proposed project will be set up is mentioned. The relative
advantages and disadvantages of such location are then analyzed.

d. Cost of the project and Means of finance

i. Cost of project: A realistic assessment of project cost is done to determine the source
for its availability and to properly evaluate the financial viability of the project. For this
purpose, various items of cost may be sub-divided to as many subheads as possible so
that all the factors are taken into account while arriving at the total cost. The major items
of cost are as under.
 Land and site development
 Buildings
 Plant & machinery
 Technical know-how fees
 Preliminary and capital issue expenses
 Miscellaneous fixed assets such as furniture, vehicles etc.

ii. Means of finance: After estimation of the cost of project, the next steo is to find out
the sources of funds by means of which the project will be financed. It can be financed by

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contribution of the funds by promoter himself and also raising loans from others
including term loans from banks and financial institutions. The means of financing
includes
 Issue of share capital
 Issue of secured debentures
 Secured long term and medium term loans
 Unsecured loans and deposites from promoters, directors etc.
 Deferred payments
 Capital subsidy from Central/State Government.

If any additional funds have to be raised from an alternative source, the details thereof are
also provided.

e. Utilities: All factors relating to infrastructural needs, technology, availability of

machines, material etc. are required to be scrutinized under this head. Broadly speaking,
the factors that are examined under this aspect include
 Land & its location
 Buildins
 Availability of water and power
 Availability of labour.
 Availability of machinery, raw material and cosumables.

f. Implementation schedule: The details of project implementation schedule are

provided here. It includes month of commencement, scheduled activities, completion
period etc.

g. Repayment Period: repayment schedule of installment and interest is mentioned. Also

moratorium period, if any, is indicated.

h. Pollution Control Certificate issued by State/Central Authority and its tenability:

The performance of project may not only be influenced by the financial factors. Other
external environmental factors which may be economic, social or cultural may have a
positive impact as well. The larger projects should be critically evaluated taking into
account following factors-
 Effect of the project on the environment with particular emphasis on the pollution
of water and air to be caused by it.
 The arrangements for effective disposal of effluents as per the government policy.
 Energy conservation devices etc. employed for the project.
Required certificates for the same should be obtained from concerned authorities.

i. DSCR (Average): Debt service coverage ratio is calculated to find out the capacity of
the project servicing its debt i.e., in repayment of the term borrowings and interest. The
DSCR is worked out in the following manner.
Net PAT + Depreciation + Interest on long term borrowings
DSCR = ------------------------------------------------------------------------------------------------

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Repayment of term borrowings in the year + Interest on long term borrowings

The higher DSCR would impart intrinsic strength to the project to repay its liabilities. A
minimum average DSCR of 1.5:1 is insisted upon by ‘S’ bank and repayment is fixed on
that basis.

j. Break Even Point: The break- even point can be expressed in terms of volume of
production or as a percentage of plant capacity utilization. Lower the break even point,
better, better it would be to carry out the project.

k. Internal rate of return: It is the discount rate which equates the present value of
investment in the project to the present value of future returns over the life of the project.
It is an indicator of earning capacity of the project and a higher IRR indicates better
prospects for the project.

l. Sensitivity Analysis: Sensitivity analysis is carried out to identify elements affecting

the viability of project taking into consideration the different sets of assumptions like
decrease in selling price, production capacity or increase in operating expenses etc. The
impact of such changes on DSCR is analyzed. If the new DSCR, so calculated after
changes, still proves that project is viable, the bank goes ahead in funding the project.

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ASSESSMENT OF NON-FUND BASED LIMITS

I} Letter of credit:
Rs in lac
a Average time taken from date of L/C till the date of shipment
(Days)
b Average time taken from date of shipment to the date of
retirement of the bill (Days)
(A)
c Average rotation of letter of credit in one year (360/A)
(times B)
Projected Purchase
d Level of L/C limit =
{Projected Purchase/Import during the year}/B
Say
Our share
Whether as per Cash Flow statement there will be adequate
cash accruals to retire the bills under L/C on first
presentation/due dates.
Names of the Suppliers/beneficiaries in whose favour L/Cs to
be opened
Whether credit reports on the suppliers obtained from
bankers/outside agencies (especially in case of DA L/Cs)

II} Bank guarantee:

For Fresh / Enhancement limits

Nature & amount of limit sanctioned

Outstanding as on
Whether the existing limit is proposed to be
continued, if so, justification
Name of the beneficiary / ies in whose favour
guarantees to be issued
Nature of the guarantee limit required i.e.
performance/ financial/ Bid Bond etc.
Margin proposed
Security
ECGC cover for export performance guarantees
Justification for the proposed limit
Asset coverage for Non-fund based limits

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2. Credit rating:

Exponential credit growth resulted in increased competition and credit delinquencies,

wherein risk assessment is of critical importance. In this direction, comprehensive credit
information on the credits availed by the borrower along with payment track record is of
utmost importance before assuming exposures.

Hence, Government of India and the Reserve Bank of India established CIBIL - Credit
Information Bureau (India) Ltd to improve the functionality and stability of the Indian
financial system. CIBIL, established in 2000 under aegis of RBI is a repository of
information, which contains credit history of commercial and consumer borrowers. Under
reciprocal basis, CIBIL provides vital information to its members in the form of credit
information reports, which allows its Members to make informed, objective and faster
credit decisions. ‘S’ Bank, being one of its members, uses the services of CIBIL in their
credit decision process.

Based on the guidelines and information provided by CIBIL, following Credit Rating
Model is developed for assessing the creditworthiness of the borrowers.

Credit Rating Model For Fund Based Limits Above Rs10.00 Lacs

Parameters / Risk factors to be Maximum Max.score Score

rated for existing projects /units score of allotted
applicable
parameter
1 External risk /Govt Policy Risk/ 5
Environmental risk

2 Industry / Business / Sector risk 20

2.1 Intensity of Competition 2
2.2 Presence of substitute etc. 2
2.3 Barriers to entry for new players 2
2.4 Industry returns 5
2.5 Cyclicality in earnings, subject to 2
vagaries of nature technological
obsolescence
2.6 Dependence on a few suppliers for 2
raw material
2.7 Borrower’s dependence on a few 2
customers
2.8 Foreign exchange component of total 2
business
2.9 Whether borrower dealing in 1
perishable commodity

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3 Management Risk 15
3.1 Ownership pattern of the borrower 2
3.2 Past track record of the management 3
3.3 Quality of the management personnel 1
3.4 Experience 2
3.5 Payment record with banks 2
3.6 Financial conservatism 1
3.7 Market standing/credibility 2
3.8 Support from group companies 1
3.9 Succession plan 1

4 Security (Prime/Collateral) 5

5 Income value to the bank 5

6 Past operating performance vis-à- 40

vis projection and financial position
represented by ratios/trends.
6.1 Achievement of Sales projections 5
6.2 Current Ratio 5
6.3 Trend Analysis variation in Current 1
ratio (by more/less than 10%)
6.4 Interest Coverage Ratio 5
6.5 Gross Sales 3
Inventory + Receivables
6.6 Total debt-equity ratio 5
6.7 Trend Analysis variation in Debt 2
Equity ratio over the previous year
(by more/less than 10%)
6.8 Achievement of Borrower’s Profit 3
projections
Net profit after tax
Sales
6.9 Profitability to Net worth i.e. Return 2
on Net worth - Net profit / Net worth
6.10 Profitability to sales represented by 2
Net profit / sales
6.11 Contingent Liability 2
6.12 Qualifications in B/s. & P/L audit 1
report
6.13 Diversion of Funds - No diversion 2
6.14 Guarantee to Group companies 1
6.15 Investment in Group Companies/ 1
Associates

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7 Conduct of the account 10

7.1 Timely submission of stock and/or 1
Book debts statements
7.2 Compliance with terms & conditions 2
7.3 Timely submission of renewal / 2
review papers, audited financial
statements and other related papers
7.4 Regularity / Irregularity of the Term 1
loan account (if any)
7.5 Regularity / Irregularity Working 2
Capital facility (Irregularities - Excess
drawings, Returning of Cheques
drawn, Overdue / Returning of bills/
Cheques discounted, Devolvement of
L/Cs opened etc.)
7.6 Submission of FFR-I & FFR-II 1
7.7 Conduct of the group accounts, if any 1

TOTAL MARKS (a) 100 (b) (c)

% age of marks scored (c/b) X 100

Based on the percentage scored in above credit rating model, size & tenure of loan and
sector to which loan will be given; the rate of interest on advances to be charged by bank
has been decided. Presently the banks have freedom to determine the interest rate on the
loans above Rs. 2 lacs, subject to Benchmark Prime Lending Rate (BPLR) guidelines.
While determining BPLR, banks take into consideration various factors like actual cost of
funds, operating expenses, a minimum margin to cover regulatory requirement of
provisioning/ capital charge and profit margin. As per the credit risk rating grade,
additional interest is charged above BPLR. Below table shows the interest slabs charged
by ‘S’ Bank for different credit risk rating grades.

Credit
Marks Risk Interest Slabs
secured Rating Grade Non- SME M.E. SSI
95% and
above AAA High - Prime BPLR BPLR BPLR
Medium –
90% to 94% AA Prime PLR + 0.50 PLR + 0.25 PLR + 0.25
85% to 89% A Low - Prime PLR + 1.00 PLR + 0.50 PLR + 0.50
80% to 84% BBB Excellent PLR + 1.25 PLR + 0.75 PLR + 0.75
75% to 79% BB Best PLR + 1.75 PLR + 1.00 PLR + 1.00
70% to 74% B Better PLR + 2.00 PLR + 1.50 PLR + 1.25
65% to 69% C Very Good PLR + 2.50 PLR + 2.00 PLR + 1.50
60% to 64% D Good PLR + 3.00 PLR + 2.50 PLR + 1.75
55% to 59% E Satisfactory PLR + 3.50 PLR + 3.00 PLR + 2.00

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Important remarks to be considered:

• For existing borrower, if CRR are below 55, no enhancement is considered by any
authority & borrower is advised to make alternative arrangement at the earliest so
as to provide exit route to bank.

• Also, no new account and new project is financed where score obtained is less
than 60 & 70 respectively, except in case of specific permission obtained from
CMD/ED in this regard.

• However, bank offers loans at below BPLR to exporters or other creditworthy

borrowers.

• In case of borrowers availing aggregate credit limits of Rs.5 Crore and above,
credit rating exercise is applicable twice a year, once based on audited financial
accounts and once based on provisional half yearly accounts as per extant
guidelines.

• Even non fund based exposure are rated and all proposals are accompanied by the
Credit Score Sheets duly approved by the Competent Authority.

Concession in interest rate:

With increased competition amongst banks for garnering new business, interest rates
have become a major tool to determine competitiveness of a bank for attracting new
business and to retain the existing clients. Keeping in view business interest, under-
mentioned authorities are empowered to consider relaxation in rate of interest as under,
provided such concession is supported with proper justification in business interest of the
bank and/or overall yield for deployment of resources:

Designated Authorities for extending concessional interest rate

1% below the applicable rate as per Credit Rating and not less than DGM
BPLR within his discretionary powers
2% below the applicable rate as per Credit Rating and not less than GM
BPLR–1% within his discretionary powers
2% below BPLR irrespective of Credit rating and discretionary powers ED
4% below BPLR, irrespective of Credit rating and discretionary powers CMD

Concessional interest rates so sanctioned shall be reviewed with next credit rating based
on audited/provisional financial statements as per the extant policy guidelines. Requests
of companies for frequent reductions in rates should normally be discouraged.

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3. Credit Sanction & Documentation

The appraisal cum proposal memorandum shall be placed before the competent authority
for consideration with specific recommendations as to whether or not to approve the
credit facilities. The recommendation for approval shall include nature and extent of
credit facilities proposed, purpose, securities, margin, rate of interest, commission,
repayment, tenor of bills, guarantee etc. Further, the Bank shall stipulate all necessary
covenants to ensure that:

 The Bank funds are utilised for the purpose it is lent.

 There is no diversion of funds.
 The business entity maintains financial stability.
 Securities stipulated are charged properly.
 The Bank is able to have proper monitoring and control over the
exposure.
 The borrower complies with laid down guidelines of the Bank/regulatory
requirements.

Once the bank is satisfied with all the information given by borrower, it sanctions the
loan. The authority to approve credit, both fund based and non-fund based or a
combination of both, including enhancements in respect of existing borrowers shall be as
per the Bank’s “Delegation of Discretionary Powers for Conducting Bank’s Business” as
approved by the Board of Directors from time to time.

Credit Amount Sanctioning Authority

Up To 10 Crs. General Manager
10 Crs – 45 Crs Executive Director
45 Crs – 60 Crs Chairman & Managing Director
Above 60 Crs Management Committee

After the project has been approved, a formal financial letter of intent is issued in favour
of the applicant in the prescribed form enclosing therein the following other papers-

1. Special terms and conditions as applicable to the financial assistance.

2. General conditions as applicable to the financial assistance.
3. Specimen copy of common loan agreement.
4. Draft of the resolution to be passed by the Board of Directors of the borrower for
accepting the letter of intent.

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On receipt of letter of intent the applicant must scrutinize the papers and may seek any
additional clarification from bank, if necessary. If the terms of sanction are acceptable,
the borrower may simultaneously take the following steps.

1. Convene a board meeting for acceptance of letter of intent, passing the board
resolution and also to approve all the loan documents and to get necessary
authority of the board for execution of documents.
2. Finalize a final drawal schedule depending on the progress of project
implementation.
3. To obtain draft copies of other loan documents such as deed of hypothecation
and/or letter of guarantees etc.
4. All the documents are then to be executed by executed by authorized persons in
the legal department of the lending institution.

Legal Audit – All the documents including mortgages shall be verified and vetted by
legal officer /Panel Advocate to ensure enforceability and validity of the documents as
per the extant guidelines and a certificate to this effect shall be kept on record. Legal
Department will monitor the Legal Compliance.

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4. Credit Disbursement and charging of securities

 The bank gets all the documents executed and then disburses the loan.
Disbursement may be in the stages depending upon the progress in project
implementation and will be subject to compliance of pre-disbursement and other
special conditions. Promoter has to first bring in substantial part of his
contribution before any disbursement of loan by the bank. An auditor’s certificate
may also be required for this purpose.
 A progress report on project implementation giving details of expenditure already
incurred under various heads and a fund flow statement showing therein the
phased requirement of funds for timely execution of the project must also be
submitted to the bank. The bank will evaluate these reports and finalize a
disbursement schedule which will further be subject to review from time to time
on the basis of progress in project implementation.
 All the disbursements are made by cheque drown in favour of the borrower and
the date of cheque is taken as the date of disbursement of loan.
 All these cheques are required to be deposited in ‘special bank account’ to be
maintained for this purpose.
 The borrower must keep proper record of withdrawals from this special account
and also authorize his bank to reveal all the information regarding operations in
this account. The borrower is also required to furnish a statement showing the
manner in which the loan already disbursed has been utilized. The statement is to
be submitted to the bank at the end of each month following the month in which
the loan money is disbursed.
 Entire loan is not disbursed as long as final security is not created. Usually 10 %
of sanctioned loan is withheld and disbursed only when all the formalities in this
regard are completed.

Security:

The Bank will prefer to have its credit exposure covered by tangible security (either
primary or collateral) to the full extent of its liability. All loans by bank are secured
primarily by:

(a) A first mortgage and charge of all the borrower’s immovable properties, both present
and future, in favour of bank
(b) A first charge by way of hypothecation of all borrowers’ movables, including
movable machinery, spares, tools and accessories in favour of lending bank subject to
prior charges created and/or to be created.

Collateral Security will be obtained to cover any shortfall in value of prime security in
case of existing borrowers and in the case of new borrowers. The Bank’s policy with
regard to Collateral securities shall be as under:

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For New Borrowers: The Bank shall endeavor to obtain collateral security by way of
fixed assets/ cash margin / shares etc.
¤ 10% to 20% of Fund based & Non Fund Based limits.
¤ However, in case of PSUs and borrowers with AAA, AA, and A rating as per our
Bank's rating system no collateral may be insisted upon.
¤ In case of Consortium advances, the Bank will follow the decision on the
Collaterals as agreed to by the Consortium bankers.
¤ Bank may insist on collateral security up to 10% in case of medium scale
borrowers.
¤ Collateral Security for tiny sector and Small Scale Sector will be as per HO
guidelines and revision from time to time

For existing Borrowers (upon sanction of enhanced FBL/NFBL limits): The

requirement of collateral security shall be

¤ 10% to 20% of Fund based and Non Fund Based limits

¤ Normally no collateral security may be insisted upon over and above existing
collateral security if any, provided prescribed margins are maintained and the
borrower is having good track record, sound financial position and satisfactory
dealings with the Bank.
¤ In case of PSUs and borrowers with AAA+, AA, A rating as per our Bank's policy
no collateral security needs to be insisted upon.
¤ In case of Consortium advances, the Bank may follow the decision on the
Collaterals as agreed to by the Consortium bankers.

Deviation – Any non-conformity with the security norms may be considered by the
sanctioning authority on merits after duly recording the reasons there for.

Personal Guarantees of promoters:

With regard to obtaining personal guarantee of promoters, the Bank will be guided by
regulatory guidelines issued from time to time. However, the Bank should invariably
insist for personal guarantee of promoters in all borrowal accounts except in PSU, Large
Customer having AAA, AA, A rating and under consortium arrangement. Sanctioning
authority may take a view looking to overall credit worthiness of borrowal account.

Nevertheless the legal department of the bank will communicate to the borrower
regarding final creation of security and the date from which the mortgage is deemed to be
created. On the failure of creation of charge on time, penal rate of interest can be charged
by bank on the entire outstanding loan till the date of creation of charge.

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5. Credit Monitoring

Credit Monitoring is one of the fundamentals in building healthy credit portfolio for
ensuring recovery of interest and principal. Thus, “Maintaining a Constant Watch on the
Conduct & Performance” of the Borrower is essential to initiate proactive measures to
safeguard the asset as well as its earnings. This activity is ‘Credit Monitoring’.

‘Credit Monitoring’ involves ‘Tracking early detection of all warning signals on the
health of the borrower, Threadbare analysis of warning signals, diagnosing the reasons
and initiating timely corrective/remedial actions to prevent loan loss’.

Credit Monitoring Mechanism:

Monitoring of advances is under taken through study/objective analysis of

 Conduct and Operations in the Account

 Statement of Stocks / Book Debts & Audit thereof.
 Inspection / Verification of Assets Charged
 Financial Follow up Reports (FFR)
 Quarterly Review Sheets (QRS)
 Monthly Control Returns (M1-M9) & M2
 D-3 / W-3 Returns
 Credit Rating & Periodical Review / Renewals

Steps in Credit Monitoring:

Compliance Culture:

Compliance to Policy Guidelines, timely submission of various returns without

compromising on quality of updated data/information is to be imbibed as a Culture for
effective and organized monitoring at all levels. Branches, Regional Offices and Other
Departments shall ensure timely submission of various returns with correct and latest
data/information. Data/information received from Borrowers/market shall be subjected
to immediate objective and meaningful scrutiny for eliciting warning signals and
proposing corrective actions.

Early warning Signals:

Early detection of signals shall be picked up from all possible sources viz.
• Conduct of account
• Compliance of terms and conditions of sanction
• Business performance
• Condition of security
• Market reports
• Quality of Management and its Governance

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Pre-emptive /Corrective action:

Analysis of information on borrowers operations and conduct of the account, financial
statements / status, visit to the units, interaction with the borrower and market reports
shall enable the functionaries to identify the cause for the early warning signals and
propose suitable remedial measures. Accounts causing concern are identified as Standard
B Assets for close monitoring purposes.

Remedial action includes allowing cut back operations, phased recovery programme, re-
assessment and alignment of limits to suit Borrowers business profile, restructuring the
limits wherever warranted. Bank would support viable units only with the active
commitment of the borrowers. Nevertheless, all the credit exposure would be subject to
Credit Policy and Credit Risk Management Policy guidelines. In order to safeguard
against the risk of default in principal and interest, Bank may propose the following
action plans

• Stipulating higher margin on primary security

• Asking for more collateral
• Influencing business decisions of the borrower
• Infusion of fresh funds
• Induction of more banks into the consortium

In case of unviable units or where the borrower is non-cooperative in regularizing the

dues, Bank may resort to Exit Option or recalling the advance with recovery action plans.

Credit Monitoring Cell at HO:

‘Credit Monitoring Cell’ (CMC) at Corporate Office presently monitor all Standard
Borrowal Accounts having an exposure (FB + NFB) of Rs. 1 Cr and above, known as
Large Borrowal Accounts. The threshold limit is now reduced to Rs. 0.25 Cr to cover
large number of borrowal accounts. ‘Monthly Monitoring Report’ submitted by branches
every month.

End use of funds should be monitored continuously. All actual drawings by the borrower
for working capital should always be subject to the borrower maintaining sufficient
security which is determined by the level of stocks / book debts and the prescribed
margin. Certificates ensuring end use of funds from competent authorities like Chartered
Accountants /Chartered Engineers etc. shall be obtained, wherever stipulated

Accounts identified as ‘Standard B’ Accounts are also very closely monitored to prevent
slippage into to NPA. For this purpose, a ‘Central Slippage Prevention Committee’
CSPC), headed by GM (Credit) is constituted to review the progress in such accounts, on
fortnightly basis. Similarly, Regional NPA Prevention Cells are also established, at each
of the Regional offices, to review the progress in all Standard B Accounts.

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6. Recovery:

Like any other commercial organization the primary objective of the bank has to be to
earn profit from its operations, generate surplus for ensuring own stability and growth.
This is possible only if the mobilization and deployment process of the funds runs
uninterruptedly, which in turn is possible if the loans lent are recovered. The recovery
process is, hence, vital as it ensures booking of new business, as capital is freed and can
be redeployed profitably in creation of new assets. As long as this cycle operates
smoothly the financial health remains sound.

Continuous monitoring and relentless follow up of advances both borrower wise and
portfolio wise is important for building a strong asset base. Borrowers operating in a
highly competitive environment with swift changes in technology and dynamic macro
economic policies of Government are susceptible to business risk. To insulate the Bank
against such risks, Bank has put in place a system of classifying its Standard Assets into
‘A’ & ‘B’ categories.

º Standard ‘A’ category assets are those which do not exhibit any signs of
weaknesses.
º Standard ‘B’ category assets are those that are exhibiting signs of weaknesses.

At 'S' Bank, the Regional Manager personally verifies and ensures that all accounts,
especially high value advances are properly classified into standard, Sub-std., Doubtful
or loss categories strictly as per prudential norms. It is their responsibility to finalize
and eliminate delay or postponement of identification of NPA. For greater and faster
recoveries on time and minimization of NPAs, 'S' Bank has developed Loan Recovery
Policy, which is reviewed and modified from time to time by the board of directors on
the basis of suggestions and feedback received from field functionaries.

Objective of the policy:

1. Identification of potential NPA / Stressed Assets and initiation of prompt

corrective measures for prevention of their down gradation to NPA category.
2. Measures to maintain Asset quality
3. Management of NPA accounts by addressing related dimensions.
4. To evolve and implement recovery measures through OTS compromise
schemes, recovery camps, lok adlat, securitization, sale of Assets/NPA,
regularization / rehabilitation / restructuring etc. (SC)

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Management of NPA

i) NPA Prevention Cell at Regional Office

Every region will have a NPA Prevention Cell headed by Regional Manager at the ROs
to monitor the Standard - B accounts and to ensure the prevention of their slippage to
NPA. Its functions will be as under -

a. To examine the information received from branches relating to Standard ‘B’ (based on
60 days norms), NPA accounts and identify the accounts for restructuring. The entire
process should be completed within a time frame of 30 days.

b. To review the performance of the existing restructured accounts.

c. The cell will send information on fortnightly basis to CMC, CAD Head Office,

d. Regional Manager to call for the explanation from the Branch Managers whose
performance in recovery is far from satisfactory.

Review and reporting of potential NPA / Stressed Assets:

Step-1: Analysis of reasons of deterioration of health, signs of sickness, problem

character of the A/c.

Step-2: Close interaction with the borrower, visit to the unit, close & frequent
monitoring of the account, drawing the attention of the borrower to the
irregularity / deterioration in the asset quality / signs of weakness in the account.

Step-3: Advice the borrower to correct the irregularity immediately in a time bound
manner and obtain his categorical assurance.

Step-4: Corrective measures for prevention of slippages:

• Review the account and consider sanction of need based working capital limits on
merits, if the present limits are inadequate.

• Identify Stressed Assets accounts and consider restructuring / realignment / re-

scheduling on merits.

• Early warning signal, if any, to be watched and addressed to.

• Verification of (i) the documents for its correctness, enforceability, (ii) correctness
of ROC (iii) insurance covers (iv) value/marketability of prime/collateral security
etc.

• Verification of existence of primary / collateral security of the borrower

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Step-5: Report to the next higher authority, the details on the above aspects and
suggesting specific corrective measures in time.

Step-6: Implement the corrective action & report to higher authority.

ii) NPA Recovery Cell at the Regional Office:

Every region will have a NPA Recovery Cell headed by Dy. Regional Manager at the
Regional Office to monitor / upgrade the NPA accounts for recovery / regularization.

iii) Transfer of part limits to the main branch after the account becomes NPA:

If any part limit of an account is maintained at any branch, the part limit / account should
be transferred immediately to the main branch ( i.e where the main limit exists) as and
when the account is classified as NPA to facilitate centralized monitoring of the account.

iv) Monitoring of newly slipped NPAs by Credit Department:

Once the account turns NPA, it has to be monitored promptly and properly. In terms of
board’s directives all standard B accounts would continue to be handled by the Credit
Dept. at HO / RO even after down gradation of the same to NPA till the Credit Dept.
concludes that there is no scope for rehabilitation / restructuring / regularization etc. and
initiation of recovery action is the only alternative.

v) Up gradation of the NPA account

If overdue interest and principal is paid in a NPA account, the account should be
classified as standard.

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‘S’ BANK’S CREDIT PORTFOLIO AND ANALYSIS OF ITS

CREDIT LENDING PATTERN

“India Vision 2020” of Government of India targets an annual GDP growth of 8.5% to
9% over the next 20 years. Economic development of this magnitude would call for
considerable investments in infrastructure and enormous funding requirements, which
would pose challenge to banking and financial system. Public-private partnership and
commercial funding in infrastructure projects will be more dominant in the years ahead.
Service sector would assume greater importance. SME sector will emerge as a vibrant
sector in view of its employment generation and significant contribution to GDP. India’s
share in international trade is below 1%, accounting for less than 15% of GDP, which is
expected to go up to 35%.

Taking cues from such macro economic scenario, development in the financial sector,
changing market realities, business priorities, Government policies, regulatory
prescriptions, past experience, and to enhance a healthy growth in credit portfolio, ‘S’
Bank has fine-tuned its loan policy.

Specific Industry/Sectoral Limits (Credit Concentration)

With a view to avoid concentration of credit in some particular sectors, the ‘S’ Bank
observes the following ceilings in respect of total exposure by way of fund based limit as
a percent to Gross Bank Credit, industry-wise as under :

Ceiling as percentage to
Sr. Industry / Sector Gross Bank Credit Not to
No. Exceed (of last quarter)
1 Infrastructure Finance
a) Power 15.00%
b) Roads /Bridges /Ports & Dams 7.50%
c) Telecom 7.50%
2 Information Technology & Bio-Tech 5.00%
3 Gems & Jewellery 7.50%
4 Iron & Steel 7.50%
5 Metal & Metal Products 5.00%
6 Sugar Industry 1.00%
7 Advances against Shares & Debentures 1.50%
8 Advances to NBFCs 10.00%
9 Ship Breaking 0.50%
10 Construction including Builders & Developers 7.50%
11 Chemical & Petrochemical 5.00%
12 Pharma 2.50%
13 Textiles 5.50%
14 Educational Institutions 2.50%

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15 Real Estate Sector 25%

16 Others-Advance to any other Particular Industrial
5.00%
Sector

The ceilings as above are indicative only and it is not envisaged that any credit worthy
proposal will be turned down only on the ground that above ceiling may be exceeded. In
the event of such a situation, the Board of Directors or Management Committee of the
Board may, at their discretion, consider such proposals beyond the prescribed ceilings on
merits.

The sector-wise ceilings are monitored at quarterly intervals and compliance thereto,
along with details of deviations if any, shall be placed before the Board of Directors by
Credit Risk Management Department, HO.

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1. Industry wise Analysis:

As a part of this project, I have taken the data of past 2 years i.e. 2006-07 and 2007-08 to
analyze industry wise credit lending pattern. Below is the table indicating the various
industries to which credit facilities are provided by ‘S’ bank and their corresponding
ranks. Rank 1 indicates the highest amount of credit facilities whereas rank 10 indicates
the lowest amount of credit facilities.

Rankings:

Rank Industry
1 Financial Services
2 Infrastructure
3 Steel
4 Telecom
5 Other Service Industry
6 Other Manufacturing Industry
7 Textile
8 Petrochemical
9 Pharmaceutical
10 Individual

Industrywise credit

250000

200000

150000
Amount
in lacs 2006-07
100000
2007-08

50000

0
1 2 3 4 5 6 7 8 9 10
Indusry Ranks

Findings:

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 The industry rankings turned out to be same for both the years. The credit lending
trend shown by ‘S’ Bank is the picture of real economical an industrial changes
happening in recent years.

 The economy of India has proven to be highly conducive in terms of domestic and
foreign investments, in recent years. India Investments have been predicted as the
propelling force towards the country's attainment of self-sustained growth by
rapid industrialization. The effect of this can be seen in credit lending pattern of
‘S’ bank. The above graph shows that ‘S’ bank has provided highest amount of its
credit assistance to the financial service providers which includes NBFCs,
housing finance companies, stock broking companies, other private banks etc.

 The 2nd in the list is infrastructure. Infrastructure Industry in India have been
experiencing a rapid growth in its different sectors with the development of
urbanization and increasing involvement of foreign investments in this field.
According to the India infrastructure Report (IIR), currently 5.5 percent of the
GDP is invested in the infrastructure sector. The ‘S’ Bank has taken initiatives to
develop the infrastructure sector, with major emphasis on construction,
engineering, IT, and utility to name some.

 The Indian steel industry’s progress of late has been encouraging in recent years.
The last two years have seen the deregulated Indian steel industry performing at
its peak level in almost all spheres. Hence, credit assistance to this sector is at the
3rd rank.

 India's 21.59 million-line telephone network is one of the largest in the world and
the 3rd largest among emerging economies (after China and Republic of Korea).
Given the low telephone penetration rate - 2.2 per 100 people of population,
which is much below the global average, India offers vast scope for growth. It is
therefore not surprising that large investment is done by ‘S’ Bank in telecom
sector also.

 Other service industry includes mainly airline, educational institutes,

entertainment etc. and other manufacturing industry includes manufacturers of
electrical equipments, packaging material to name a few.

 The textile, petrochemical and pharmaceutical industries are few of the key
industries in India contributing significantly to both the industrial and economic
growth of the country. Hence, significant investment is made in these sectors also
by ‘S’ bank.

 Few loans are given to individual borrowers for their personal purpose.

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 Corporate Finance

2. Sanctions:

‘S’ bank is experiencing a growth in its operations. It is credit amount is also increasing
over the years. It is maintaining a good credit account of the existing borrowers and at the
same time acquiring new clients every year in order to increase its client base.

In order to analyze the pattern of sanctions, it is divided into 3 categories.

1. Fresh sanctions.
2. Additional Sanctions to existing borrowers.
3. Other existing borrowers with same credit limit.

Below is the pie chart showing percentage and amount of these categories.

Sanctions during 2006-07

73671.00, 14%
111296.00, 22%

Fresh Sanctions

Additional sanctions to existing

borrowers
Other existing borrowers with
same credit limit

325080.00, 64%

Sanctions during 2007-08

162794.00, 25%
Fresh Sanctions
237556.47, 36%

Additional sanctions to existing

borrowers
Other existing borrowers with
same credit limit

263949.00, 39%

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 Corporate Finance

3. Fund wise Analysis:

‘S’ bank provides a large variety of credit facilities to meet all types of needs of its
customers. These are mainly categorized into fund based and non fund based facilities.

A. Fund based facilities –

1. Cash credit/ Overdraft
2. Working capital demand loan
3. Term loan
4. Bills discounting

B. Non-fund based facilities -

1. Letter of credit
2. Bank guarantee.
3. Inland bills
4. Packing credit
5. Export bills.

Fundwise analysis

500000
450000
400000
350000
300000
Amount in Lacs 250000 Fund based
200000
150000 Non-fund based
100000
50000
0
2006-07 2007-08
Year

The above graph shows that bank has provided most of its credit assistance in fund based
category. But along with it significant amount of non-fund based credit assistance is also
provided by bank. Also both the facilities are increasing in amount over the two years. It
shows that the bank has large client base which is growing year by year.

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CREDIT
APPRAISAL
OF ABC PVT
LTD.

42
 Corporate Finance

‘S’ BANK
CORPORATE BUSINESS BRANCH
MUMBAI

Credit Rating ‘D’

Asset Classification New Account

Credit Committee Clearance date 26/06/2008

Banking Arrangement Sole

Name of Borrower: ABC Pvt Ltd.
Branch: CBB Region: Head Office
Submitted to: ED For: Tick (P)

Review / Renewal
CMD
Enhancement
ED
Fresh Sanction 

In-Principle-Sanction
GM
Ratification

Issue of NOC

Reduction in interest rate

Modifications in other
terms
of sanction
Write-off

Compromise Settlement

Noting / Information

Others
Date: 26/06/2008

‘S’ BANK, CORPORATE BUSINESS BRANCH, MUMBAI

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 Corporate Finance

PROPOSAL NO.: 12345 Date:26/06/2008

SANCTIONING AUTHORITY Executive Director

1. PROFILE
Name of Borrower ABC Pvt Ltd.
Branch: CBB, Mumbai Region: Head Office

Proposal Enhancement of credit limit along with takeover of existing Co. Op. Bank
for credit limit consisting
1. Term Loan of Rs 1253.60 Lacs for a period of 5 ½ years @ 12%. (6
months of moratorium and repayment in 5 years, in 60 equal
monthly installments)
2. Working Capital/ Cash credit of Rs. 940.98 Lacs @ 13% rate of
interest.
3. Bank Guarantee of Rs. 100 Lacs.

(Rs. In Lacs)
Nature of limits From To Variation (+/-)
Fund Based
- Term Loan 0.00 1253.60 (+)1253.60
- Working Capital/ Cash Credit 0.00 940.98 (+)940.98
Non Fund Based
- Bank Guarantee 0.00 100.00 (+)100.00
Total Nil 2294.58 (+)2294.58

Banking arrangement Sole / Consortium / Multiple Sole

Lead Bank / Our Share NA

Banking with us since New Account

Account last renewed/reviewed Dtd. NA
Authority : NA
Asset Classification New Account
Whether the company / promoters /directors figure NO
in Caution List defaulters list – RBI, ECGC etc.
(Reasons for recommendation if they are still on
the list)

Date of Establishment / 7th December, 2001

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incorporation
Line of Activity Manufacturer of Plastic & Aluminium Caps &
Closure for Cosmetics Packaging Industry
Addresses
Address of Registered office/ 18 – Nigos Ind. Estate, Kama Estate Road, Kalyan
Principal Office (E), Mumbai – 400 063
Location of business/ factory Survey No. 66, Gala No. 26, 28 & 30, Sativali
Road, Valiv Phata, Vasai (E), Thane – 401 205
Sector Private
Type of Industry Packaging Sector

2. NAMES OF DIRECTORS & NET WORTH

(Rs.in lacs)
Name of Partner/Director Designation Net Worth As on Basis

1 Mr. Praful Bhanji Nandola Managing 126.77 31/03/2007 Personal

Director Balance
2 Mr. Bhanji Bhojraj Nandola Whole time 21.78 31/03/2007 Sheet & IT
Director Returns.
3 Ms Mina Praful Nandola. Whole time 31.58 31/03/2007
Director
Whether Proprietor / Partner/ Director / Guarantor has any NO
relationship with any Senior Official (Scale IV & Above) of the
Bank . If so give details (Refer to Guidelines)

Major Shareholders

The present share-holding of the Company is as under:

Name of Share-holders No of Total Face Value % of Shareholding

Equity
Shares
Meena Praful Nandola 5500 550000 55.0%
Praful Bhanji Nandola 4490 449000 44.9%
Praful Bhanji Nandola HUF 10 1000 0.1%

Total 10000 1000000 100%

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3. PROPOSED LIMIT WITH PRESENT BORROWING ARRANGEMENT WITH

OUR BANK:
(Rs. in Lacs)
Facility Existing Outstanding Irregularity Proposed Variation
a) Fund Based
Term Loan Nil Nil Nil 1253.60 (+)1253.60
Working Capital/ Nil Nil Nil 940.98 (+)940.98
Cash Credit
b) Non - Fund
Based
Bank Nil Nil Nil 100.00 (+)100.00
Guarantee
Total Nil Nil Nil 2294.58 (+)2294.58
(Rs. in Lacs)
With other banks/ Financial Institutions
Details of limits Last sanction Asset
Name Branch FBW Classi-
TL NFB Date Authority
C fication
The XYZ Co-op
Goregaon 2.50 1.20 0.20 31.03.07 DGM Standard
Bank Ltd.

4. DETAILS OF MULTIPLE BANKING ARRANGEMENTS: NA

5. GROUP AFFILIATION: NA
(Rs in Lacs)
B Prudential Exposure Limits As per RBI As per Internal
guidelines Guidelines
Individual 30992 17500
Group 82647 25000
Whether the limits proposed exceed the No No
prudential exposure norms (Individual /
Group)
In case of exceeding, permission from the NA
competent authority

6. CREDIT RATING AND PRICING

Pricing Existing Proposed

Credit Rating New Account D
Interest Rate New Account For Term Loan: 12%
For working capital: 13%
Commission (NFB) New Account Performance Guarantee: 2%
p.a.
Financial Guarantee: 3% p.a.
Upfront fee 0.75%

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A. Factors contributing to the up gradation / slippage

Not Applicable as the proposal is for new account

B. Justification for proposing lower rate of interest/concession in charges/process

fees
 ABC Pvt. Ltd falls under the small scale industry units.
 Their 95% of sales turnover is generated through exports.

7. SECURITY / DOCUMENATION

a) Prime security

a) A first charge by way of mortgage on the immovable and movable assets of the
company (including all receivables and intangibles), both present and future;
b) A first charge on the Company’s book debts, operating cash flows, receivables,
commissions, revenues of whatsoever nature and wherever arising, present and future,
intangibles, goodwill, uncalled capital, present and future;
c) Assignment of all project contracts, documents, insurance policies relating to the plant
& machinery, rughts, titles, permits/approvals, clearances and interest of the company.

b) Collateral Security
(Rs. in Lacs)
Assets Amount
Land & Building 1200.00
Plant & Machinery 500.00
Total 1700.00

i) Percentage coverage of collateral security: 72.23%

ii) Reasons in case of dilution of security coverage: NA

c) Date of creation of Charge:

New Account, charge shall be created on within 30 days from execution of the joint
documents.

d) Date of vetting of documents by legal officer /Panel Advocate:

It will be done after execution of documents as per limits of sanction.

e) Name of Guarantors & their net worth:

(Rs.in lacs)
Name of Guarantors Net Worth As on Basis

1 Mr. Praful Bhanji Nandola 126.77 31/03/2007 Personal Balance

2 Mr. Bhanji Bhojraj Nandola 21.78 31/03/2007 Sheet & IT
3 Ms Mina Praful Nandola. 31.58 31/03/2007 Returns.

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8. A. COMPANY PROFILE, DETAILS OF MANAGEMENT,

PRODUCTS MANUFACTURED, USER INDUSTRIES & COMPANY’S MAJOR
CUSTOMERS (IN BRIEF)

i] Company Profile:

ABC Pvt. Ltd. is a company promoted by Mr. Praful Bhanji Nandola for manufacturing
and export of Perfume cap in Plastic, Aluminium & Wood, Decorative Bottles and
wooden boxes used in cosmetics packaging industry.

Today, ABC Pvt. Ltd is one of the largest cap manufacturer using plastic & aluminium as
raw material. Variety of designs and a stringent quality checks are main features of their
production systems coupled with affordably low cost for bulk and consistent orders.
Their 95% turnover consists of exports to countries like Dubai, Lufthania, Russia, USA
and Middle East.

ABC Pvt. Ltd. has its own design studio and tool room. It has wide range of machine
(injection moulding for plastic and presses for aluminium.). Further it has facilities like
Anodizing, Foiling, Metalising, Spray Painting and Galvanizing which helps in providing
better quality product consistently.

ii] Details of management:

ABC Pvt. Ltd’s core team includes –

NAME Designation
Mr. Praful B Nandola. Managing Director
Mr. Vaibhav Utekar Chief Executive Officer
Mr. Navin V. Gada Chief Financial Officer
Mr. Swapnil Walunj Head – Product Development
Mr. Pravin Sawant Production In charge
Mrs. Anjali Raut Head – Marketing
Mr. Ratnesh Dubey Quality control officer

Promoter’s Background:

The Board of directors is comprised of the following persons.

1. Mr. Praful Bhanji Nandola.
2. Mrs Meena Praful Nandola.
3. Mr. Bhanji Bhojraj Nandola.

Mr. Praful Bhanji Nandola, aged 37 year, is the Chairman & Managing Director of
ABC Pvt. Ltd. He hails from a business family based in Vagad district of Kutch, Gujarat.
He started out with a manufacturing of Aluminium caps in the year 1991, and has more
than a decade experience in the cosmetics packaging business. He promoted ABC Pvt.
Ltd in 2001 to manufacture items of cosmetics packaging. As the CMD, he is actively

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involved in the day to day operations of company and in developing strategies for future
growth and expansion based on his know how on the cosmetics packaging industry.

Due to his keen interest and expert knowledge in technicalities and marketing, today it
has become a reputed name for supply of cosmetics packaging items in the world. His
dedication and strong effort has started backward integration by in housing
manufacturing of moulds & dies which helps a company to consistently maintain its
supply chain. He is also steering new initiatives on a world scale in the field of
aluminium tin, colour cosmetics and creation of luxury brands.

Mr. Bhanji B Nandola, aged 63 years, has started his career by joining small kirana
shop in Mumbai. Today, due to his vision and foresight, he has 5 retail outlets at various
locations in Mumbai and a factory at Kandivali.

He is also actively involved in construction business. Currently, he is constructing

residential complex at Vasai. He joined the company in the year 2004 and helped in
different ways based on his rich experience.

iii] Products manufactured:

ABC Pvt. Ltd’s range of products includes –

• Aluminium cap
• Plastic cap
• Wooden cap
• Actuators
• Ferrules
• Catch Pump
• Decorative Bottles
• Oriental boxes
• Nail polish caps
• Roll-on caps & adaptor

iv] User Industries:

AAA Packaging Inc., USA Letap International

Astral Glass Pvt.Ltd Meso Pvt.Ltd.
Aero Pharma Pvt.Ltd. Modi Revlon Ltd
Allure International LLC,UAE Mahavir Russia
Al-Arnas Perfumes, UAE Pragati Glass Pvt.Ltd.
European Perfumery Works LLC, Polta S.A. Poland
Emicos International LLC, UAE S.F. Patel & Sons (India)
Gujarat Glass Pvt. Ltd. Sterling Perfumes Industries, UAE
V] Major Customers:

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 Corporate Finance

1. European Perfume –
It is one of the leading manufacturers of perfume products in the Middle East
having turnover of about 350 crores. It was established in 1991, in Sharjah, to herald the
beginning of the most modern manufacturing facility to produce on a mass scale, a very
large variety of perfumes, cosmetics and toiletry products.

2. S.F.Patel & Sons (I) Pvt. Ltd. –

This Rs. 200 crores group was established in 1992 and is located in MEPZ-special
economic zone, Chennai. Its main business is manufacture of perfumes, attars and range
of cosmetic products like talc, hair oil, creams and lotions. Few of their brands are very
popular and stand amongst recognized brands in Saudi Arabia and Dubai. They have an
established marketing unit for India, which is involved in distribution of the entire range
of products in the local market. They are having sound infrastructure consisting of shop
floor area of over 50000 sq. ft. and storage area of 25000 sq. ft.

3. Gujarat Glass Limited. –

It is a leading manufacturer of glass packaging for pharmaceutical and cosmetics
products. A dynamic venture of Piramal Enterprises, Gujarat Glass was acquired in 1984.
In 1990-91, the company was merged into Nicholas Piramal India Limited, a major
pharmaceutical company of the group. In 1998, Gujarat Glass was formed as an
independent subsidiary of Nicholas Piramal, with 54% of the shareholding with Nicholas
Piramal and 46% held by a consortium of international investors.

4. Zafarco Industrial S A –
Located in South America, they are leading manufacturer of perfumes and range
of cosmetic products. ABC Pvt. Ltd supplies them aluminium caps & closures.

5. New High Glass –

New High Glass, Inc. is a total packaging supplier for the cosmetic, food and
pharmaceutical markets. With two decades in the business, a perfect knowledge of its
market and a dynamic team dedicated to providing an outstanding service, New High
Glass makes s difference. Based in Miami, Florida, they operate at the crossroads of
North, Central and South America. There distribution network includes convenient
warehouse facilities in Florida, New Jersy, California, Mexico City, Guatemala and
Columbia.

6. Reliance –
Reliance Industries Ltd., India’s largest private enterprise is planning to enter in
Indian retail market in a big way through Reliance Retail Ltd. ABC Pvt. Ltd is selected
by Reliance Retail for their cosmetics product development. ABC Pvt. Ltd has already
started development works.

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B. INDUSTRY SCENARIO

a. Industry Categorisation: Packaging

b. Demand and supply situation of the product – present and projected (source of
information):

Indian packaging industry is one of the fastest growing industries in India. It is estimated at
USD 14 billion and ranks 8th in the world in plastic consumption and by 2010, India is
expected to be the third largest consumer of polymers after the USA and China. The
packaging constitutes estimate 50 % of total polymers consumed today, and is perhaps the
fastest growing segment.

Plastics are seen increasingly replacing traditional glass and metal containers as the favored
packaging material – various forms of which include – pet bottles and jars, co-ex and
multilayer films and rigid containers, retort pouches and aseptic bags and cans etc. a rough
estimate of the quantity of packaging materials used for processed for food packaging, as
informed by industry sources are as follows:

Glass – 800000 MT
Metal – 500000 MT
Paper – 500000 MT
Plastics – 2000000 MT

(Source: Packaging India August 2004)

The Indian plastic industry is growing at a fast pace and the per-capita consumption of
plastics in India has seen a manifold rise, compared to the earlier decades. Though the plastic
consumption showed a sharp increase during the last two decades, the per capita
consumption is still only 4.5 Kgs, as compared to the world average of 20 Kgs. On the basis
of value added, the plastic products sector contributes to around 0.5% of GDP of the country.
The plastic products sector also provides around 1% of the country’s exports.

(Source: Modern Plastics & Polymers – June-July 2006)

The sector has significant presence of the unorganized sector, which accounts for more than
70% of the industry turnover. More than 95% of the firms in the industry are partnership,
proprietorship or private limited companies. The present capacity utilization for industry is
65%, which is an industry future due to presence of small scale units and an indicator of
overcapacity. With domestic demand for plastic products increasing over the medium term,
there would be potential for further growth.

The industry has a few large and mid sized players, and a large number of small players.
Since players are able to scale up capacities owing to low gestation period and low capital
investment, there is no demand – supply mismatch. On the foreign trade front, the packaging

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industry faces no threat from imports and its export presence is relatively low. The packaging
industry is expected to grow at a CAGR of 10-12%.

c. Bank’s exposure in this industry & NPA position (Packaging):

Total exposure- Rs.11.46 Crores

NPA- 0.52 Crores
NPA %- 4.54

d. Cyclical trends : Packaging industry doesn’t exhibit cyclical trends

e. Govt. policies: Government policies do not affect the industry directly, but regulations on
the use of packaging material affect various segments in the industry. Also, there are no
direct incentives to the sector.

f. Whether the product is an import substitute, if so, what is the landed cost of import
and what is the production cost of the indigenous manufacture: No

g. Availability of raw materials, labour, infrastructural advantages: Abundant

C. Production capacity:

Production Capacity of Aluminium Aerosol Can Making Lines No.of Pcs.

Production capacity per minute per line 60
Production capacity per line per day (1 shift = 8 days) 28,800
Production capacity per line per day (3 shift = 24 Hrs) 86,400
Production capacity for 3 line per day (3 shift = 24 Hrs) 259,200

Normal Capacity @ 90 %
Production capacity for Three line per day (3 shift = 24 Hrs) 233,280
Production capacity for Three line per month (3 shift = 24 Hrs) 6,065,280
(1 month = 26 days)

D. MARKET CAP: Not Applicable as company is not listed.

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9. FINANCIAL INDICATORS: (Rs. In Lacs)

Audited Audited Provisional Projection Projection
31.03.200 31.03.2007 30.03.2008 31.03.2009 31.03.2010
6
A. CURRENT
LIABILITIES
i. Bank Borrowings 236.28 263.25 202.58 940.98 1344.26
ii. Term Loan instalments
due within one year
iii. Deposits/Unsecured loans 0.00 0.00 0.00 0.00 0.00
iv. Sundry Creditors 157.29 245.80 671.55 431.01 549.90
v. Provision 16.07 33.34 44.71
vi. Deferred tax liability 11.10 11.10 0.00 11.00 25.00
vii. Advances 27.82 7.24 0.00 25.00 45.00
viii. Other current liabilities 0.00 0.00 0.00 122.94 153.68

Total (A) 448.56 560.73 918.84 1530.93 2117.84

B. TERM LIABILITIES 258.57 249.80 424.31 1204.91 948.47

C. NET WORTH
i. Capital 10.00 10.00 471.25 564.02 642.74
ii. Reserves & Surplus 47.10 67.78 110.14 179.21 279.87
Total (i + ii) 57.10 77.78 581.39 743.23 922.61
Less : Intangible assets 3.90 2.01
Total (C) 53.20 75.77 581.39 743.23 922.61
Revaluation Reserve 0.00 0.00 0.00 0.00 0.00
Net worth Excluding 53.20 75.77 581.39 743.23 922.61
Revaluation Reserve
D. TOTAL LIABILITIES 760.33 886.30 1924.54 3479.07 3988.92
(A+B+C)

E. CURRENT ASSETS
i. Cash & Bank Balance 10.58 3.45 82.70 8.51 20.83
ii. Receivables - Domestic 142.15 121.54 140.24 340.72 416.42
- Export 69.79 176.37 93.50 511.07 624.62
iii. Inventory 167.16 179.75 298.87 932.36 1455.43
iv. Loans & Advances 111.48 117.32 536.70 121.00 130.00
v. Other current assets 0.00 0.00 0.00 0.00 0.00

Total (E) 501.16 598.43 1152.01 1913.66 2647.30

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F. NET FIXED ASSETS 258.92 274.44 699.08 1491.96 1268.17

(Excluding Revaluation
Reserve)
G. ADVANCES / 0.25 13.45 73.45 73.45 73.45
INVESTMENT IN
SUBSIDIARY
ASSOCIATE CONCERNS
H. OTHER NON 0.00 0.00 0.00 0.00 0.00
CURRENT ASSETS
I. TOTAL ASSETS 760.33 886.32 1924.54 3479.07 3988.92
(E+F+G+H+I)

Difference 0.00 -0.02 0.00 0.00 0.00

J. FINANCIAL
PERFORMANCE
i. Gross Sales - Domestic 89.27 126.37 670.25 1645.76 2962.36
Export 578.45 794.07 533.29 2674.35 4813.84
667.72 920.44 1203.54 4320.11 7776.20
Less: Excise Duty 205.72 370.30
Net Sales 667.72 920.44 1203.54 4114.39 7405.90
ii. Gross Profit 50.50 78.87 109.23 480.72 475.44
iii. Depreciation 41.43 45.06 48.70 263.29 223.79
iv. Taxation 4.75 13.71 18.18 130.46 150.99
v. Net Profit 4.32 20.10 42.35 86.97 100.66
vi. Dividend
- Amount
- Percentage
vii. Profit retained in 4.32 20.10 42.35 86.97 100.66
business
ix. Interest 59.29 90.06 75.31 275.05 297.35
x. PBDIT 109.79 168.93 184.54 755.77 772.79

K. RATIO ANALYSIS
i. Current Ratio 1.12 1.07 1.25 1.25 1.25
ii. Total Debt/Equity 13.29 10.70 2.31 3.68 3.32
iii. Gross Profit/Sales 7.56% 8.57% 9.08% 11.68% 6.42%
iv. Net Profit/Sales 0.65% 2.18% 3.52% 2.11% 1.36%
v. Debtors/Sales 3.81 3.88 2.33 2.48 1.69
vi. Creditors/Purchase 4.34 4.96 8.38 1.50 1.00
vii. Interest Coverage 1.85 1.88 2.45 2.75 2.60

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Ratio
viii. Current Asset 1.33 1.54 1.04 2.15 2.80
Turnover
Net Working Capital 52.60 37.70 233.17 382.73 529.46

I. Positive indicators:

 Sales and profitability is showing increasing trend and hence net worth is also
increasing.
 Interest coverage ratio is satisfactory.

II. Negative indicators:

 Total Debt equity ratio is very high in past 2 years.

 Total Current asset turnover ratio is below industry standards.
 Current ratio is in deviation.

COMMENTS ON FINANCIAL INDICATORS IN BRIEF

Sales:

During 2006-07, the company has achieved an increase of 37.85% in net sales over the
previous year and also as per the provisional balance sheet; it has increased by 31%
during 2007-08. This can be justified by the fact that their 95% of turnover consists of
exports to countries like Dubai, Lufthania, Russia, USA & Middle East.

The company has projected increase in sales by installing Aluminium Aerosol Can
manufacturing machinery which is extremely profitable to their line of product due to
phenomenal saving.

Looking at the company’s past record and benefits of the technological up gradation, the
company is expected to achieve the projected sales of Rs. 4114.39 Lacs for the year
2008-09.

Profitability:

Gross profit has been showing an increasing trend over the years and it is projected to
increase considerably during the year 2008-09 with the help of new machinery
installation. The net profit ratio had shown increasing trend in the past but in future it is
projected to decrease. One of the reason is company has to make payment towards
interest on term loan and working capital.

The overall profitability of the company is considered satisfactory and is in line with the
current industry trend.

Current Ratio:

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 Corporate Finance

In the past, current ratio is not as per the industry standards. The current ratio as on
31.03.2007 deteriorated to 1.07 from 1.12 as on 31.03.2006. This is due to company’s
bank borrowings for working capital. Also, company’s debtor’s turnover ratio has shown
an increasing trend in the year 2006-07. That means company has been unable to realize
its sales proceeds on time. Also company might have used short term funds to finance
fixed assets. Because of this, even cash balance has gone down.

However, coupled with improved profitability and plough back thereof, the current ratio
is expected to increase to 1.26 in the year 2007-08

Total Debt Equity Ratio:

The total debt equity ratio has been very high during last 2 years. This is because
company’s share capital was very less as compared to its outside liabilities. But during
the year 2007-08, it stands improved to 2.32:1 as compared to 10.70:1 as on 31.3.2007
due to additional equity.

Current Asset Turnover Ratio:

The current asset turnover ratio was 1.33 times and 1.54 times as of 31.03.2006 and
31.03.2007 respectively, which is well below the minimum benchmark of 1.75 times. The
company maintains huge receivables and therefore needs to improve its receivables
recovery management. In the year 2008, it has decreased to 1.05, mainly due to advance
given for new machinery. But with increase in sales turnover, current asset turnover ratio
is expected to improve to 2.15 as of 2009.

Interest Coverage:

Interest coverage ratio is as per the industry standards i.e. it has been above 1.75 in the
past and it is expected to stay above in future also. This means company has been
achieving good amount of profits to pay off its outside obligations. The company is
regular in servicing its interest obligation to the banks.

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SOURCES AND APPLICATION OF LONG TERM FUND:

Audited Audited Provisional Projection Projection
31.03.2006 31.03.2007 30.03.2008 31.03.200 31.03.2010
9
Sources of long term funds.
Tangible Net Worth 53.20 75.77 579.38 743.23 922.61
Total Term Liabilities 258.57 249.80 426.90 1204.91 948.47
Total Long Term Funds 311.77 325.57 1006.28 1948.14 1871.08

Deployment of Long Term Funds

Fixed Assets ( Net Block ) 258.92 274.44 699.07 1491.96 1268.17
Non Current Assets 0.25 13.45 73.45 73.45 73.45
Net Working Capital 52.60 37.70 233.75 382.73 529.46
Total Deployment of Long Term 311.77 325.59 1006.27 1948.14 1871.08
Funds

Tangible Net worth:

Tangible net worth of the company has increased by 42% during 2006-07 over the
previous year. Also as per the provisional balance sheet, it has increased considerably by
664%.

The company is achieving profits in subsequent years and ploughing back the profits of
each year in the business. Also in the year 2007-08, company has increased its capital
base to Rs. 471.25 Lacs from 10 Lacs. Hence, Tangible net worth is increasing and
expected to increase in the following years.

Liquidity position:

The liquidity is comfortable as the company meets its all commitments towards
repayment of term loan instalments, interest and other payments.

The current ratio is 1.07 as of 31.03.2007, therefore, company has to take proper steps
toward recovery management to realise its large receivables to avoid working capital
crunch.

Solvency Position:

In the past, ABC Pvt. Ltd has been working with thin equity i.e. their total debt equity
ratio was very high. But during the year 2008, it has increased its capital base. This has
resulted in improvement in total debt equity ratio. ABC Pvt. Ltd is projecting to maintain
it in future also. Hence, company's long term solvency position is satisfactory.

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10. ASSESSMENT OF TERM LOAN:

a. Project in brief:

The proposed project pertains to setting up a state of the art hi-tech facility for
manufacturing Aluminium cairn with an installed capacity of 2, 50,000 pcs per day. The
company will install German made cairn making lines with washing machine, internal
lacquer machine, printing machine, and accumulator. The machine will be able to
process cairn on three different production lines with diameter ranging between 20-40
mm, 45-66 mm and up to 55 mm respectively.

The aluminium cairns are made from high quality raw material which results into better
quality of finished products. In terms of product strength, product has several distinct
advantages over the competition. First is its market advancement in technology, which
will give their product much better:

Shape
Surface Finish
Precise Tolerance
Consistent quality
Product efficiencies
Wide breadth of product line.

b. Project appraised by : Chaturvedi Consultancy Services Pvt. Ltd.

319/320, Tulsiani Chambers,
Nariman Point,
Mumbai – 400 021.

c. Location : M/s ABC Pvt. Ltd

Gala No. 2, 3 & 5, Plot No. 26 & 28,
Sr. no. 66, Village – Valiv,
Vasai (E), Dist. Thane. :

d. Cost of the project and Means of finance

i. Cost of project :
(Rs. In Lacs)
Aluminium Can Manufacturing Machinery 1184.00
Custom Duty on Machine @15% 177.60
Installation Cost 150.00

Takeover of existing term loan 120.00

Working capital Margin 300.00

TOTAL 1931.60

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Purchase & installation of machinery:

ABC Pvt. Ltd has identified a lucrative deal of Aluminium Aerosol Can manufacturing
machinery which is extremely profitable to their line of product due to phenomenal
savings. The purchase price of machinery is Rs. 1184 Lacs.

It will be imported from Germany and hence will attract customs duty @ 15%, which
amounts to Rs. 177.60 lacs.

Bookuk T & C Ltd Germany will be responsible for the installation of machine. Its
installation cost amounts to Rs. 150 lacs.

Takeover of existing Term loan:

Currently, ABC Pvt. Ltd is enjoying credit facility from XYZ Co. Op. Bank. Its credit
limit is as follows.
1. Term loan = Rs 120 Lacs
2. Working capital/ Cash credit = Rs. 250 Lacs
3. Bank guarantee = Rs. 20 Lacs.
ABC Pvt. Ltd has requested us to takeover the existing Term loan facility from The XYZ
Co. Op. Bank.

ii. Means of finance :

(Rs. In Lacs)
Own Contribution (on new machine @25%) 378.00
On working capital 300.00
LC cum Bank Term Loan 1253.60

TOTAL 1931.60

The purchase and installation of machinery will be financed partly by own contribution
and remaining from bank finance.
ABC Pvt. Ltd is contributing Rs. 678 lacs from their own funds and borrow Rs. 1253.60
lacs from bank.

e. Utilities:

ABC Pvt. Ltd has existing Manufacturing plant at Vasai, Thane. Accordingly, there will
not be any problem of infrastructure facility. Company also has existing wide range of
machinery such as injection molding machine, machines for aluminium caps/
components, laboratory and testing facilities machine etc.

The proposed term loan will be utilised for the purchase of Aluminium Aerosol Can
manufacturing machinery, which will be imported from Germany. The project includes
installation of cairn making lines with washing machine, internal lacquer machine,
printing machine and accumulator.

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f. Implementation schedule:

Bookuk T & C Co. Ltd. Germany will be responsible for implementing the production
lines and achieving desired results. They shall be responsible for erection, installation,
commissioning of plant, supervision of production, setting up Quality assurance
program, providing latest update technology and training of personnel.

g. Repayment Period specifying moratorium, if any:

Moratorium period will be for first 6 months. From the 7th month repayment will start
which will last for next 5 Years. Repayment will be done in 60 monthly equal
installments.

h. Pollution Control Certificate issued by State/Central Authority and its tenability:

Obtained from Maharashtra Pollution Control Board.

i. DSCR ( Average)

Half year
Particulars 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

A Profit after tax 86.97 100.66 238.98 238.98 238.98 119.49

Interest on Term Loan 150.05 122.35 91.44 60.53 28.33 3.21
Depreciation 263.29 223.79 190.23 161.70 137.45 58.42

TOTAL 500.31 446.80 520.65 461.21 404.76 181.12 2514.85

B Interest on Term Loan 150.05 122.35 91.44 60.53 28.33 3.21

Repayment of Term Loan
(Principal Amount) 125.36 250.72 250.72 250.72 250.72 125.34

TOTAL 275.41 373.07 342.16 311.25 279.05 128.55 1709.49

D.S.C.R. 1.82 1.20 1.52 1.48 1.45 1.41

Average D.S.C.R. 1.47

The average D.S.C.R. comes to 1.47. Looking at the company’s past

repayment performance, it is satisfactory.

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j. Break Even Point

Period ending 31.03.2009 31.03.2010 31.03.2011
Projected Sales [A] 4114.39 7405.91 10368.28

Variable costs

Purchases 3448.09 6598.78 9370.27

Wages 15.31 17.61 20.25
Other direct expenses 143.61 150.80 158.34
Increase or decrease in RM (332.19) (117.26) (227.79)
Increase or decrease in FG (280.29) (405.81) (507.25)
Interest on working capital loan 125.00 175.00 237.50
selling & distribution expenses 37.50 43.12 49.59

Total variable Cost [B] 3157.03 6462.24 9100.91

Contribution [C]=[A-B] 957.36 943.67 1267.37

[ D ] = [ C x 100 / A
Contribution % ] 23.27 12.74 12.22

Fixed Costs
Remuneration to Directors 2.38 2.74 3.15
Administration expenses 221.66 239.91 275.90
Financial cost 108.74 114.06 125.46
Interest on term loan 150.05 122.35 91.44
DEPRECIATION 263.29 223.79 190.23
Total Fixed Cost [E] 746.12 702.85 686.18
Projected BEP Sales [ F ] = [ E / D% ] 3206.36 5516.88 5615.22

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11. ASSESSMENT OF WORKING CAPITAL REQUIREMENTS

A. MPBF Calculation
(Rs. in Lacs)

Provisional Projection Projection

30.03.2008 31.03.2009 31.03.2010

Net Sales 1203.54 4114.39 7405.90

1 Total Current Assets 1150.01 1913.66 2647.40
2 Other Current Liabilities 716.26 589.95 773.58
(Other than Bank Borrowing)
3 Working Capital Gap (WCG) (1 433.75 1323.71 1873.82
- 2)
4 Min Stipulated NWC 20% of 230.00 280.52 529.48
TCA excluding Export
Receivable.
5 Actual/Projected Net WC 233.75 382.73 529.56
6 Item 3 minus 4 203.75 1043.19 1344.34
7 Item 3 minus 5 200.00 940.98 1344.26
8 MPBF 200.00 940.98 1344.26
(Item 6 or 7 whichever is lower)
9 Excess borrowing 0.00 0.00 0.00

Proposed fund based facilities of Rs. 2194.58 Lacs and non fund based limits of Rs. 100
Lacs were assessed on the basis of estimated net sales of Rs.1380.67 Lacs for the year
ended on 31.03.2008. The company has achieved net sales of Rs. 1203.53 Lacs
representing 87% achievement. The same was earlier financed by The XYZ Co-op Bank
Ltd. under sole banking arrangement.

The company’s present request for enhancement in working capital requirements is based
on the estimated sales of Rs. 4114.39 Lacs for the year ended 31.03.2009. The projection
can be justified by the fact that due to technological up gradation, company is expected to
improve its productivity and thus the working capital requirement.

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B. Holding Level

Inventory Audited Provisional Projection Projection

Months Value Months Value Months Value Months Value
31.03.2007 31.03.2008 31.03.2009 31.03.2010

Raw Materials 0.90 72.00 1.48 425.11 0.99 542.37

Finished Goods 3.25 179.75 2.16 226.87 1.81 507.25 1.65 913.06

Receivables
- Domestic 11.54 121.54 2.51 140.24 2.48 340.72 1.69 416.42
- Export 2.67 176.37 2.10 93.50 2.29 511.07 1.56 624.62

Creditors 4.96 245.80 8.38 671.55 1.50 431.01 1.00 549.90

Raw material and finished goods: Company maintains its raw material holdings at a
lower level. Also, finished goods holdings are decreased on account of increase in sales
activity.

Receivables: Company had given larger credit period to its domestic debtors. But it has
been reduced to a considerable extent during year ended 2008. Company plans to employ
better recovery management tools in order to reduce receivable peroid.

Creditors: The holding level of creditors has been increased considerably in the year
2008. The company has used this money for the arrangement of share application money.
But in future, company plans to make prompt payments to creditors.

12. ASSESSMENT OF BANK GUARANTEE: As per statutory obligations.

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13. INTER-FIRM COMPARISON ( PEER GROUP): NA

(In case aggregate limit exceeds Rs.50 crore)

14. INSPECTION IRREGULARITIES PENDING FOR RECTIFICATION:

Not Applicable as New Account

15. A. CONDUCT OF THE ACCOUNT : Not Applicable as New Account

B. Income value of account : Not Applicable as New Account

16. A. DEVIATION FROM RBI / BANK’S CREDIT POLICY:

•Average DSCR of 1.47 against norm of 1.50

•Rate of interest 12% for term loan and 13% for working capital, as against PLR +
3.00% as per credit rating for new project.

•Current asset turnover ratio is 1.54 against standard industry norms of 1.75.

B. JUSTIFICATIONS:

• ABC Pvt. Ltd has a proven track record in this sector. Their 95% of sales turnover
is generated through exports.

• ABC Pvt. Ltd falls under the category of Small scale industries.

• Company has existing large client base. So it has strong order book in hands.

• XYZ Bank's statements of accounts for last one year have been obtained, which
certifies that operations in the account including servicing of interest/installments
are reasonable and satisfactory.

• Company is projecting to keep its inventory at lower level. Also, it is taking steps
to improve its recovery management process so as to collect receivables as early
as possible. These steps will help to improve the current asset turnover ratio in
future.

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C. COMPLIANCE OF TAKEOVER NORMS:

1 Specific reasons for shifting the account from Being a co-op bank, XYZ
Financial Institution/ other Bank to our Bank are to bank is not bothered of a time
be ascertained. It should be ensured that the Bank’s constraint & hence, taking
endeavour to improve credit off take does not long time for providing credit
facilitate interest bargaining by the new borrower facilities. ABC Pvt. Ltd is
or to avoid/circumvent the asset classification growing at a faster rate. To
norms or dilution of securities, etc. avail of the better financial
facilities, they need assistance
from nationalized bank.
2 In case of fresh sanctions/take over of limits, along The same is noted for
with application form for the credit limits, Process compliance and suitably
fee should be recovered before issue of sanction included in terms and
letters conveying the terms of sanction to the conditions.
client. Further, process fees should not be eligible
for refund.
3 The borrowal account should have been classified The XYZ Co-op Bank's credit
as standard asset with satisfactory track record for report has been obtained and
the last One Year. according to which the
account is standard with them
for last one year.
4 The financial ratios should be as per norms with All the ratios are as per bank
the permissible deviations. norms except the deviation in
current ratio and current asset
turnover ratio, which is
expected to be within our
norms by 31.03.2009
5 Such borrowal accounts may be under consortium / Sole Banking
sole banking / syndication / multiple banking
arrangements.
6 In case of taking over of an account from other The XYZ Co-op Bank has
Bank (fund based & non fund based facilities), the given satisfactory credit report
Bank should obtain satisfactory credit report of the of the borrower.
borrower from their bankers. OR Alternatively The
Branch Manager should obtain the Bank’s
statement of accounts for the last one year (atleast
one year) and certify that the operations in the
account including servicing of interest/installments
are satisfactory, which also should be confirmed
by way of a certificate from the borrower’s
chartered accountants. However, Banker’s Credit
Report should necessarily be obtained, before
release of the limits being taken over.

7 Sanction letter from the existing bank/s shall also The same has been obtained

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be obtained for verification of existing borrowing and kept on record.

arrangements of the borrower with detailed terms
of sanction
8 Branch Manager should carry out pre-sanction It will be done before release
visit of the borrower’s factory/office and submit of the limits.
report thereof including market information.
9 Before taking over, our Bank should make an The credit requirements have
independent assessment of the credit requirements been assessed in this process
of the borrower by calling for complete financial, note.
production and the sales data, as also latest annual
accounts of the borrower, so that the borrower’s
genuine credit needs are fully met by our bank.
10 If the names of the company and/or its associate None of the promoter/
concerns, its directors/ promoters etc. appear in the directors appears in the RBI
Defaulters’ / willful defaulters/ Caution List of defaulters' list.
RBI/ECGC/CIBIL etc, the discretion regarding
takeover lies with the Management Committee.

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17. SWOT Analysis:

Strengths:
• The promoters have sufficient experience in the line of the activity
• Raw material & labor is easily available in the domestic market. Hence concern in
respect of availability is low.
• ABC Pvt. Ltd is supported by size, technical know how, financial resources, people,
reputation and business relationship.
• ABC Pvt. Ltd performs a wide variety of specific and demanding task with economy
of scale.
• The company has large customer base for cosmetics packaging products, hence
demand for its products exists already.

Opportunities:
• In the medium term, demand for packaging products is expected to grow at a CAGR
of 10-15 %
• The increase in usage for cosmetics, pesticides etc. in the market are driving the
demand for aluminium cairns.
• The stability of this market segment is solid. The industry forecasts are predicting for
next several years rapid growth and rising profitability.
• Even though the Indian packaging industry is highly fragmented one, it has begun to
attract global attention as its technical revolution gathers momentum, which in turn
sees the country becoming the preferred hub for outsourcing of plastic products
manufacturing.

Weaknesses & threats:

• There are no direct government incentives to this sector.
• The domestic packaging industry is highly fragmented on account of its low entry
barriers. The level of competition is high across the segment, thereby restricting
significant upward price revisions.
• The industry is dependent on and face pricing pressures from other sectors associated
with it and will also remain vulnerable to volatile raw material prices.
• During the year, company has faced the problem of increase in raw material cost
(Aluminium).

Mitigating Factors:
• ABC Pvt. Ltd has installed number of Laboratory and Testing Facilities machines for
product quality management. Men and machines are totally equipped to produce
quality products at each stage of production.
• Company's 95% of sales turnover constitutes of exports.
• Company has existing large client base. So it has strong order book in hands.
• Company has good relation with Supplier Company with whom it has made long
term contract for supply of raw material.

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18. RISK ASSESSMENT:

Industry /Activity risks:

The company is engaged is manufacturing of Plastics Caps used in Cosmetics. Now,
Company is expanding its Work area by entering into Manufacturing of Aluminium Cap
for the Cosmetic Industries Only.
This Industry is very closely related with almost all the Present Players in the Industry. It
is a very small industry with open world and unlimited Scope of expansion. All the
Factories complement each other, rather than competing with each other.
The market for Manufacturing of Caps and other accessories which are must for running
cosmetic industries are always growing upward due to globalisation of cosmetic
industries. India had become the hub of manufacturing of Caps for almost all the brands
spread all over world.
So there is hardly any risk involved in demand part of the industry. Only risk the industry
can face is increase in Raw material price and fluctuations of Rupee.

 Risk mitigating factors:

This Risk can be mitigated by maintaining sufficient buffer stock of Raw material, and
for Export purpose with ECGC cover, Fluctuation risk can be also mitigated.

Borrower/ Business risk:

Both The directors i.e Mr. Praful Bhanji Nandola and Shri Bhanji B. Nandola are
very reputed person and hold a very good goodwill in the market and as well as the
society. Looking at there present standing in industry and society coupled with there
personal net worth, there is negligible amount of Borrower risk.

 Risk mitigating factors:

By taking the personal Guarantee of directors in there personal capacity, will
mitigate this risk also.

Security risk
The Company is providing a sufficient collateral and prime security that will cover the
Loan amount.
The company is providing additional collateral of Factory land and building, that will be
of apx 700 lacs on date and its value will appreciate with passage of time.
Apart from above the company is also giving securities of all existing Plant and
machineries which will be of apx 300 lacs.
Apart from above additional collateral, loan will be secured by Prime security of New
Plant & machineries, Stock, debtors etc.
Looking at the balance sheet of the company, and with the complete and exclusive charge
over all the balance sheet of the company, we can conclude that there is hardly any
security risk.

19. MODIFICATION IN EXISTING TERMS OF SANCTION IF ANY: N.A.

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20. RECOMMENDATIONS:

ABC Pvt. Ltd is a company promoted by Mr. Praful Bhanji Nandola for manufacturing
and export of Perfume cap in Plastic, Aluminium & Wood, Decorative Bottles and
wooden boxes used in cosmetics packaging industry. We propose for take-over and
sanction of the limits as given hereinafter for the following reasons.

1. The advance is under SME sector.

2. The promoters have experience of more than 14 years. Also the financials of the
promoters are sound.
3. The company is profit making company with around 95% export sales and has
overall satisfactory financials.
4. The company is providing reasonable primary security and collateral availability
is 72.23%
5. The Term loan is proposed at 12.00% and working capital at 13%, which is quite
reasonable keeping in view the current competitive market scenario.

In view of the above, we recommend for the sanction of following limits as per terms and
conditions enclosed.

1. Sanction of fresh Term Loan of Rs. 12.54 Crores.

2. Sanction of Cash Credit Limits of Rs. 10 Crores.

3. Bank Guarantee (Performance/Financial) Limits of Rs. 1 Crore.

4. Approval for following deviations from our loan policy.

•Rate of interest 12% for term loan and 13% for working capital, as against PLR
+ 3.00% as per credit rating for new project.

•Current asset turnover ratio is 1.54 against standard industry norms of 1.75.

•Average DSCR of 1.47 against norm of 1.50

5. Permission to take-over these limits as mentioned above from The XYZ Co-op
Bank.

PUT UP FOR APPROVAL

APPRAISING OFFER CHIEF MANAGER

DY.GEN.MANAGER GENERAL MANAGER (CREDIT)

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TERMS & CONDITIONS

Nature of arrangement Term Loan against Machinery

Limit Rs. 1253.60 Lacs
Margin 25%
Interest 12% p.a.p.m.
Security
Hypothecation of the machinery valuing Rs. 11, 84, 00,000/- to be purchased as well as existing
machinery and any future additions. If the company has already charged the existing machinery
to any Financial Institutions/Banks, No Objection Letter for the first charge on specific
machinery to be financed by us in our favour to be obtained from the concerned Financial
Institution/Banks before disbursement.
Other Terms & Conditions
1 Payment should be made by our pay-slip/demand draft directly to the suppliers of
machineries after verification of the original invoice and stamped receipt to be obtained and
kept on record.
2 Loan to be repaid within 5 ½ years inclusive of 6 months moratorium by monthly
installments, first installment falls due 6 months after first disbursement.
3 Machinery to be fully insured against fire, flood, earthquake or natural calamity, SRCC and
break down risk with bank’s clause.
4 Nameplate of the bank to be affixed/painted on the machineries ‘Hypothecated to ‘S’ Bank,
CBB Branch’.
5 Our charge to be registered with Registrar of Companies within 30 days of creation of
charge in case of advance to limited companies (public & private).

Nature of arrangement Cash Credit Hypothecation (Stocks)

Limit Rs 940.98 Lacs
Margin 16%
Interest 13% p.a.p.m.
Security
Hypothecation of stocks of raw materials, semi-finished goods, finished goods, stores & spares,
packing materials used for manufacturing.
Hypothecation of all book debts arising out of the genuine sales transaction.
Other Terms & Conditions
1 Goods to be fully insured against risk of fire, theft, burglary, pilferage, earthquake, flood,
SRCC with Bank clause. Place of storage to be mentioned in the insurance policy.
2 The unit must submit the stock statement by 15th of every month duly signed by authorized
signatory. The Branch to carry out periodical inspection and fix drawing power based on
the valuation of stock.
3 In case of assessment of working capital under modified MPBF method, while computing
drawing power for cash credit hypothecation account, value of goods received under DA-
LC should be deducted from aggregate value of stock and relevant margin be deducted
there from.
4 Our nameplate to be displayed prominently ‘HYPOTHECATED TO ‘S’ BANK CBB
BRANCH’ wherever the goods are stored.

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5 In case of advance to limited companies (Private/Public), Bank’s charge over the

hypothecated stocks to be registered with the Registrar of Companies within 30 days of
creation of charges in Form No 8 & 13 and acknowledgement thereof to be obtained and
kept on record.
6 Where the goods are given for processing ‘NO LIEN LETTER’ to be obtained from the
processors duly endorsed by their Bankers. Prior approval to be obtained from the Bank for
handing over stocks to 3rd party (Processor) for processing. Insurance cover to be obtained
for stocks lying with 3rd party and should cover transit risk thereof.
7 Old & Obsolete stocks should be shown separately in stock statement so as to exclude
them while calculating Drawing Power.
8 Stocks should be stored at a place, which is easily accessible to Bank’s officials for
conducting periodical inspections.

Nature of arrangement Guarantee (Performance/Financial/Bid Bonds)

Limit Rs. 100 Lacs
Margin Performance Guarantee = 10% p.a.
Financial Guarantee = 25% p.a.
Commission Performance Guarantee = 2% p.a.
Financial Guarantee = 3% p.a.
Security
100 % counter guarantee from the proprietor/firm & the partners in their personal
capacity. In case of limited companies, 100% counter guarantee from the company under its
common seal backed by proper resolution. Personal guarantee of the Directors viz Mr. Praful
Nandola, Mrs Meera Nandola and Mr. Bhanji Nandola to be obtained.
Our charge to extend over the stock and receivables to cover the unsecured portion of the
guarantee. In the case of Limited Companies, our charge to be registered with the Registrar of
Companies within 30 days of creation charge.
Other Terms & Conditions
1 The period of the guarantee should not exceed 1year to 3 years.
2 The guarantee should be delivered directly to the beneficiary and should not be handed over
to the party.
3 Guarantees relating to exports to be covered under ECGC performance guarantee to be
obtained specifically.

General Terms & Conditions

1 Our usual documents to be executed by the firm and all the partners/proprietor in their
personal capacity. In the case of limited companies, documents are to be executed under the
common seal of the company backed by proper resolution.
2 Our advances to be guaranteed by the directors viz. Mr. Praful Nandola, Mrs Meera
Nandola and Mr. Bhanji Nandola.
3 In the case of limited companies our charge over the assets of the company to be registered
within 30 days of creation.
4 All the assets charged to the Bank to be fully insured against fare, SRCC, breakdown of
machinery with bank clause.
5 The unit/company to submit stock statement and monthly selected operational data (MSOD)

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every month.
6 The unit/company to submit OIS statement regularly.
7 Our advance is restricted to manufacturing/trading activities.
8 Interest rates are subject revision as per RBI/HO guidelines or as decided by consortium.
9 Process fee to be recovered as per HO guidelines.
10 Branch to ensure that there are no inter-firm transfers of funds except for genuine sales
transactions.
11 Bank will have a right to examine all the times firm’s/company’s books of accounts, assets
etc. and have the company’s workings and operations examined from time to time by the
officers of the Bank/or technical experts and or management consultancy and fees to be
borne buy the firm/company.
12 Bank may charge penal rate of interest over and above the rate applicable under the
following circumstances:-
a. Delay in submission of stock statement, MSID, QIS statements.
b. Delay in submission of renewal papers.
13 Guidelines issued by HO/RA from time to time are to be strictly adhered to.
14 The Borrower is informed of the terms and conditions of sanction and the confirmation be
obtained to the effect thereof in writing.
15 Date of reconsideration – One year after sanction.
16 All terms & conditions stipulated by the lead bank are also applicable.

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‘S’ BANK
FOR EXISTING BORROWERS AND NEW BORROWERS FOR EXISTING UNITS
FOR FUND BASED LIMITS ABOVE RS.10.00 LACS
CREDIT RATING REPORT

Branch and Region Corporate Business Branch, Head Office

Borrower ABC Pvt. Ltd
Sanctioning Authority Executive Director
Date of sanction / renewal 26/06/2008
Credit Rating as on 10.06.2008 Prime-D, Good
Analysis for Credit Rating done Audited Balance sheet as of 31-03-2007
based on the Audited /Unaudited
Balance Sheet and Profit & Loss
A/c. Of the borrower for the
period ending
Credit Facility Enjoyed : Rs in Lacs Rs in Lacs
Nature of Arrangement Sanctioned Limit O/s as on
Fund Non Fund Fund Based Non Fund Based
Based Based

TOTAL 2194.5 100 NA NA

8

Marks secured Credit Grade Interest Slab

Risk
Rating
95% and above AAA High Prime PLR
90% to 94% AA Medium Prime PLR + 0.50
85% to 89% A Low - Prime PLR + 1.00
80% to 84% BBB Excellent PLR + 1.25
75% to 79% BB Best PLR + 1.75
70% to 74% B Better PLR + 2.00
65% to 69% C Very Good PLR + 2.50
60% to 64% D Good PLR + 3.00
55% to 59% E Satisfactory PLR + 3.50
Non Performing Assets
NPA – SS Sub-standard Interest to be calculated at agreed
NPA - D1 Doubtful - 1 rate but not to be charged.
NPA - D2 Doubtful - 2
NPA - D3 Doubtful - 3
NPA - Loss Loss

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SUMMARY SHEET OF CREDIT RATING MODEL

FOR EXISTING BORROWERS AND NEW BORROWERS FOR EXISTING UNITS
FOR FUND BASED LIMITS ABOVE RS.10.00 LACS
Parameters / Risk factors to be rated Maximum Max. score Score
for existing projects /units score of applicable allotted
parameter
1 External risk /Govt Policy Risk/ 5 5 3
Environmental risk
2 Industry / Business / Sector risk 20 20 9
2.1 Intensiveness of Competition 2 2
2.2 Presence of substitute etc. 2 2
2.3 Barriers to entry for new players 1 1
2.4 Business returns 3 3
2.5 Cyclicality in earnings, subject to 2 2
vagaries of nature technological
obsolescence
2.6 Technology adopted by Borrower 3 3
2.7 Dependence on a few suppliers for raw 1 1
material
2.8 Borrower’s dependence on a few 1 1
customers
2.9 Foreign exchange component of total 1 1
business
2.1 Whether borrower dealing in perishable 1 1
commodity
2.11 Demand/supply gap in the business 3 3
3 Management Risk 15 10 7
3.1 Ownership pattern 2 2 2
3.2 Past track record of the Management: -
a. Sales 1 1 1
b. Financial Discipline 1 0 NA
c. Furnishing Information 1 0 NA
3.3 Quality of the management personnel 1 1 0
3.4 Experience of the Management 2 2 2
3.5 Payment record with banks 2 0 NA
3.6 Financial conservatism 1 1 1
3.6 Market standing / credibility 2 2 1
3.7 Support from Group Companies 1 0 NA
3.8 Succession risk/plan 1 1 0
4 Security (Collateral) 5 5 3
5 Income value to the Bank 5 0 0

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6 Past Operating performance vis-a-vis 40 40 29

projections and financial position
represented by ratios/trends
6.1 Achievements of borrower’s projections 5 5 5
of sales / gross receipts
6.2 Current Ratio 5 5 2
6.3 Trend analysis - variation in Current 1 1 1
ratio
6.4 Interest Coverage ratio 5 5 5
6.5 Current Asset to Turnover Ratio 3 3 2
6.6 Debt Equity Ratio 5 5 0
6.7 Trend analysis - variation in Debt 2 2 2
Equity ratio
6.8 Achievement of Profit Projections 3 3 3
6.9 Profitability to Net worth (Net 2 2 2
Profit/Net worth) i.e. Return on Net
Worth
6.1 Profitability to sales (Net profit/sales) 2 2 0
6.11 Contingent Liabilities of the Borrower 2 2 2
(Total contingent liabilities to Tangible
net worth)
6.12 Qualifications in Audit Report of the 1 1 1
borrower’s Balance Sheet and Profit &
Loss A/c.
6.13 Diversion of funds - No diversion 2 2 2
6.14 Guarantee to Group Companies 1 1 1
6.15 Investment in Group Companies 1 1 1
7 Conduct of the Account 10 0 0
7.1 Timely submission of stock and/or Book 1 0 0
debts statement
7.2 Compliance with terms and conditions 2 0 0
of sanction
7.3 Timely renewal/review of the account 2 0 0
7.4 Regularity/irregularity of Term Loan 1 0 0
A/c.
7.5 Regularity / irregularity of the working 2 0 0
capital facilities
7.6 Submission of FFR-I & FFR-II 1 0 0
7.7 Conduct of the Group Account, if any 1 0 0
TOTAL MARKS (a) 100 80 51
% age of marks scored (c/b) X 100 63.75%

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 Corporate Finance

LEARNING

The subject of Corporate Finance is very vast and covers so many aspects. We can get
theoretical knowledge of this by reading the books on it. But this project gave me an
opportunity to get a practical knowledge of the whole process. It helped me to get clear
idea of the basic concepts of corporate finance.

One of the most important things I learnt during this project is that you do not have to be
a numerical person to do well in Finance. You do need to think logically and clearly,
consider all alternatives, communicate persuasively and then be flexible with the
implementation of the decisions.

Also this project helped me to –

1. Forecast financial statements, using a firm’s current financial data and

assumptions about future choices made by the firm
2. Understand and apply time value of money principles in a variety of contexts
3. Understand and apply risk-return principles in a variety of contexts
4. Evaluate project appraisal techniques for various kinds of credit facilities to
identify potential investment opportunities that add value to the bank.

Hence, this project work gave me an opportunity to learn all nitty-gritty of corporate
finance, which will definitely be useful for me in future.

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 Corporate Finance

REFERENCE

 Persons:

– Mr. V Ramchandran ( Dy. General Manager)

– Mrs. Pranoti S. Nene. (Relationship Manager)
– Mr. Kaustubh Dwivedi (Financial Analyst)
– Mr. Nandlal Tripathi (Credit Analyst)

 ‘How to borrow from Banking & Financial Institutions.’

– Book published by Nabhi Publications.

 Bank’s policy documents

– Loan Policy, 2008

– Loan recovery Policy, 2008

– Other internal reference material.

 Bank’s website.

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