A REPORT ON CREDIT APPRAISAL OF INDUSTRIAL FINANCE FOR SME’s SUBMITTED BY: Kulbir Singh Class roll no-2026, Examination roll no-581 Session 2006-2008 A report submitted in partial fulfillment of the requirements of MBA Program of Institute of Management Studies Under the guidance of: Dr. Parmod Sharma Senior Lecturer INSTITUTE OF MANAGEMENT STUDIES 1
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
A REPORT ON
CREDIT APPRAISAL OF INDUSTRIAL FINANCE FOR SME’s
SUBMITTED BY:Kulbir Singh
Class roll no-2026, Examination roll no-581Session 2006-2008
A report submitted in partial fulfillment of the requirements of
MBA Program of Institute of Management Studies
Under the guidance of:Dr. Parmod Sharma
Senior LecturerINSTITUTE OF MANAGEMENT STUDIES
HIMACHAL PRADESH UNIVERSITY SHIMLA
1
TO WHOM IT MAY CONCERN
This is to certify that Miss. Mamta gaur of MBA, Institute of Management
Studies has undertaken a project on “CREDIT APPRAISAL OF
INDUSTRIAL FINANCE FOR SME’s.” under my guidance. To the best of
my knowledge that project is neither submitted nor published elsewhere”.
Project GuideDr.Parmod Sharma
ACKNOWLEDGMENT
2
I sincerely feel the credit of the project work could not be
narrowed to only one individual. This work is an integrated effort of all
those concerned with it, it would have been quite difficult without their
direct & indirect co-operation. I wish to express my appreciation and
gratitude to all the concerned people.
First and the foremost my intellectual debt is to Dr.Parmod
Sharma(Senior Lecturer Institute of Management Studies) and Mr.A.K
Sharma (Chief Manager Loan Department Union Bank of India, Shimla)
who have contributed significantly towards the completion of the project.
They have provided the guidelines on which this project was made.
I am thankful to all the people who have given their precious time
and provided me with requisite data without which this project would not
have completed .I also thank them for giving their valuable suggestions
during the entire period of research.
However, I accept the sole responsibility for any errors of omission
and commission.
Mamta gaur
Roll no-
3
Table of Contents
CONTENT PAGE NO.
1 Introduction
1.1 Objectives of the Study 5
1.2 Purpose of the Study 5
1.3 Limitation of the Study 6
1.4 Proposed Methodology 6
1.5 Abstract 7,8
2. Main Text
2.1 Overview of Indian banking industry 9,10,11
2.2 union bank of India 12,13,14
2.3 small scale industry 15,16,17,18,19,20
3 credit appraisal procedure and process21
3.1 assessment of credit need 22
3.2 financial statement analysis 23,24,25,26,27
3.3 risks in bank lending 27,28
3.4 financial ratio analysis 32,33,34
3.5 credit rating 35,36,37,38
4 loan facility
4.1 working capital loan 39,40,41,42,43
4.2 term loan 44,45,46,47,48,49,50
4
Table of Contents
CONTENT PAGE NO.
5 Documentation and formalities 51
5.1 NPA classification and recovery 52,53,54,55
Annexure
Annexure-I 56,57,58,59,60,61,62,63,64
Glossary 65,66
References 67
5
OBJECTIVES OF THE STUDY
The objective of research is to study the Corporate Banking in
Union Bank of India. The area of study in Corporate Banking in Union
Bank of India would include-
Working Capital Financing and Term loan financing- To support
extended both as Fund based and Non-Fund based facilities to
Corporate, Partnership firms, Proprietary concerns. Working Capital
finance extended to all segments of industries. The project research
focuses on determining the various factors considered in analyzing the
financial needs (working capital) of their clients and determining the
limit of finance. The objective of the project is also to study the well-
documented loan policy.
The study would involve following-
Assessment of the advances.
Processing of the advances.
PURPOSE OF THE STUDY FOR THE ORGANISATION
This study would involve working out and interpreting the
financial ratios in case of working capital financing and term
loans.
The study also involves the study of procedural formalities
included in sanctioning the finance to its clients.
This study would involve analyzing the balance sheets of their
clients in determining their financial needs.
6
LIMITATIONS OF THE STUDY
Every study or research is conducted under some limits and there are
some restrictions which have some impact on the project.
Limitations of this project are–
Coverage: The study aims at covering the corporate banking of
Union Bank of India only.
The study aims at gaining the practical knowledge by taking
help of bank personals. So there might have been tendencies
among the personals to amplify or filter their responses due to
time limitation.
Credit appraisal for working capital finance is study that needed
specialized knowledge of the area, so there is chance for
interpretational error on my par
PROPOSED METHODOLGY
Since the research carried out for this project is descriptive in nature, the
various documents and official files would require for understanding the
methodology used by the banks. The data collection can be done by
personal interview or direct observations. At the same time, related
articles, newspapers, magazines, in-house journals of banks, etc were
referred. The information on the project under consideration can be
obtained by the bank employees and officials. Also I went through various
files and the official correspondence of the bank for better understanding
the topic under the study. The methodology also include finding out the
financial ratio, understanding the credit rating and assessment of working
capital and term loan of the companies by making the fresh proposal for
working capital and term
ABSTRACT
7
The project undertaken is credit appraisal of industrial finance for
SMEs. The project emphasis on understanding the procedure and process
used by union bank of India to assess the credit worthiness of the borrower.
Small scale industry in India is booming and contributing to 40% of GDP,
many banks are focusing their attraction towards this sector.
The credit appraisal process is the scientific way of
giving the credit to corporate client by analyzing the credit worthiness of
the company through different parameters. The first step in credit appraisal
project is to understand the Indian banking industry and the performance
of the few Indian banks in the previous financial years since project
undertaken is in banking industry a glance on union bank of India and
small scale industry in India is given and the steps taken by the banks to
development and welfare of SSI.
The credit appraisal for SME starts with
Understanding the need of loan to the borrower i.e. for which purpose the
loan is required. After this next step is to analyse the financial statement of
the company to whom the loan is to be sanctioned. The main things which
are taken into consideration while analyzing the financial statement are
type of statement, nature of activity ,accounting policy, qualities of assets
and liabilities , unit wise performance result of the company & director’s
report.
After analyzing the financial statement the second
step is to study the principle given by Basel committee on banking
supervision which basically Indian banks have to be follow as per the order
by Reserve Bank of India.The third step is to analyse the key financial ratios
Since Indian banking sector is experience exponential growth, the profit
made by public sector and private sector banks are given below.
BANK MAR.-05 MAR.-06 % CHANGE
PRIVATE SECTOR BANK
ICICI BANK 20,052.00 25,400.70 26.67
HDFFC BANK 6,655.60 8,707.80 30.83
UTI BANK 3,345.80 4,850.80 44.98J& K BANK 1,150.70 1,768.40 53.68
KARUR VYSYA BANK 1,053.40 1,353.50 28.49
FEDRERAL BANK 900.90 2,252.10 149.98
KOTAK BANK 848.90 1,182.31 39.28
YES BANK NA 2,700.00 NA
INDUSIND BANK 2,101.50 368.20 -82.48
ING VYSYA BANK -381.30 90.60 NA
PUBLIC SECTOR BANK
STATE BANK OF INDIA 43,045.20 44,066.70 2.37
BANK OF BARODA 6,768.40 8,269.60 22.18
BANK OF INDIA 3,400.50 7,014.40 106.28
CORPORATION BANK 4,021.60 4,444.60 10.52
IDBI LTD. 3,072.60 5,608.90 82.55
DENA BANK 610.00 729.90 19.66
CANARA BANK 11,095.00 13,432.20 21.07
ALLAHABAD BANK 5,417.90 7,061.30 30.33
PUNJAB NATIONAL BANK 14,101.20 14,393.10 2.07
VIJAYA BANK 3,805.70 1,268.80 -66.66
BANK OF MAHARSHATRA 1,771.20 507.90 -71.32UNION BANK OF INDIA 3,015 3,610.00 19.7
NET PROFIT OF COMMERCIAL BANKS IN INDIA (MN) Rs.
Source: reserve bank of India
12
Corporate Mission:
A logical extension of the Vision Statement is the Mission of the Bank, which is to gain market recognition in the chosen areas.
To build a sizeable market share in each of the chosen areas of business through effective strategies in terms of pricing, product packaging and promoting the product in the market.
To facilitate a process of restructuring of branches to support a greater efficiency in the retail banking field.
To sustain the mission objective through harnessing technology driven banking and delivery channels.
To promote confidence and commitment among the staff members, to address the expectations of the customers efficiently and handle technology banking with ease.
13
ABOUT UNION BANK OF INDIA
“We should have the ability to carry on a
big bank, to manage efficiently Crores of rupees in the course of our
national activities. Though we have not many banks amongst us, it does
not follow that we are not capable of efficiently managing Crores and tens
of Crores of rupees."
MAHATMA GANDHI
Union Bank of India, a public sector bank was incorporated
in 1919.After the inauguration by father of nation “mahatma Gandhi” bank
has travelled a long successful journey of 88 yrs of banking. Union Bank of
India is committed to maintain its identity as a leading innovative
commercial Bank, alive to the changing needs of the society. Union Bank
has offered vast and varied services to its clientele taking care of their
needs. Today, with its efficient customer service, consistent profitability &
growth, adoption of new technologies and value added services, Union
Bank truly lives up to the image of, “GOOD PEOPLE TO BANK WITH”.
The key business areas of the bank are retail banking,
international banking, corporate banking & treasury. As Retail banking is
growing very fast in Indian banking industry union bank of India is also
showing strong growth in this sector. The bank provide housing, retailing
trade, automobile, consumer, education and other personal loans and
deposits services such as fixed , saving and demand deposits for the
valuable clients. The bank has increased forgeion exchange turnover from
361.02 bn in 2004-05 to408.94 bn in 2006-07 with annual growth rate of
13.27%. The corporate banking sector offers various loan and free based
products and services to its small and medium enterprises, agriculture
sector.
To boost SME Segment the bank has set up separate SME
cells .the total employee strength of bank are 25,421.
14
Union bank of India is targeting a 25% growth in its SME portfolio. The
bank SME portfolio in 2005-06 was 6,839 crore and its target in 2006-07
is 8,540 crore. Union bank of India has made an agreement with SIDBI to
provide loan to SMEs. The bank is converting 32 small scale industry
branches to SME branches. Union bank of India and SIDBI are also in the
process of putting up marketing teams in 15 centers for identifying and
appraising SMEs units and lending them.
Union bank of India has a network of more than 2100 branches
all over India. The Bank came out with its Initial Public Offer (IPO) in
August 20, 2002 and govt.of India holds 55.4% of the bank followed by
FII 19.9% & Indian public hold14.8% of the bank. The Bank has over the
years earned the reputation of being a techno-savvy Bank and is one of
the front runners amongst public sector bank in the field of technology. It
is one of the pioneer public sector banks, which launched Core Banking
Solution in 2002. Online Tele banking facility is available to all its Core
Banking customers. The multi facility versatile Internet Banking Solution
provides extensive information in addition to the on line transaction
facility to both individuals and corporate banking with the Core Banking
branches of the Bank. In addition to regular banking facilities, today
customer can also avail variety of value added services like cash
management service, insurance, mutual funds, Demat from the Bank.
SMALL SCALE INDUSTRY: With the advent of planned economy from 1951 and the subsequent industrial policy
followed by Government of India, both planners and Government earmarked a special
role for small-scale industries and medium scale industries in the Indian economy.
Due protection was accorded to both sectors, and particularly for smallscale industries
from 1951 to 1991, till the nation adopted a policy of liberalization and globalization.
15
Certain products were reserved for small-scale units for a long time, though this list of
products is decreasing due to change in industrial policies and climate.
SMEs always represented the model of socio-economic policies of Government of
India which emphasized judicious use of foreign exchange for import of capital goods
and inputs; labour intensive mode of production; employment generation;
nonconcentration of diffusion of economic power in the hands of few (as in the case of
big houses); discouraging monopolistic practices of production and marketing; and
finally effective contribution to foreign exchange earning of the nation with low import-
intensive operations. It was also coupled with the policy of de-concentration of
industrial activities in few geographical centers. It can be observed that by and large,
SMEs in India met the expectations of the Government in this respect. SMEs
developed in a manner, which made it possible for them to achieve the following
objectives:
High contribution to domestic production
Significant export earnings
Low investment requirements
Operational flexibility
Location wise mobility
Low intensive imports
Capacities to develop appropriate indigenous technology
Import substitution
Contribution towards defense production
Technology – oriented industries
Competitiveness in domestic and export markets
At the same time one has to understand the limitations of SMEs, which are:
Low Capital base
Concentration of functions in one / two persons
Inadequate exposure to international environment
Inability to face impact of WTO regime
Inadequate contribution towards R & D
Lack of professionalism16
In spite of these limitations, the SMEs have made significant contribution towards
technological development and exports.
SMEs have been established in almost all-major sectors in the Indian industry such
as:
Food Processing
Agricultural Inputs
Chemicals & Pharmaceuticals
Engineering; Electricals; Electronics
Electro-medical equipment
Textiles and Garments
Leather and leather goods
Meat products
Bio-engineering
Sports goods
Plastics products
Computer Software, etc.
An industrial undertaking in which the investment in fixed assets in plant
and machinery whether held on owner ship term on lease or on hire
purchase does not exceed rs. 10 million.It is estimated that in terms of
value, the sector accounts for about 39% of the manufacturing output and
around 33% of the total exports of the country.As per available statistics,
this sector employs an estimated 31 million persons spread over 12.8
million enterprises and the labour intensity in the MSE sector is estimated
to be almost 4 times higher than the large enterprises.
In India 2.30 lakhs units are only registered in Gujarat providing
employments to 39 lakhs people in Gujarat, which contributes to 24% of
total employment provided by SSI in India.
Small Scale and ancillary units (i.e. undertaking with investment
in plant and machinery of less than Rs. 10 million) should seek registration
with the Director of Industries of the concerned State Government. The
govt. of India established ministry of small-scale industry in 2001.the role of
17
ministry of small scale industry is to mainly assist the state in their effort to
promote the growth of SSI, increase the competition and gernation of
Since by changing the three variables the DSCR of the project is less than 1.55 is only in two years, other wise it is more than 1.5. so the project should be accepted .
49
SCENARIO -3
DOCUMENTATION FORMALITIES
Once the credit limits are sanctioned main documents are obtained from
the client concerned. The nature of documents varies depending upon the
type of facility sanctioned and terms of sanction. They may include one or
more of the following-
Loan agreement conveying in terms and conditions of loan.
A comprehensive credit agreement.
Agreement of hypothecation of book debts.
Power of attorney to receive the business receivables.
Pledge letters of agreement in respect of documents of title to goods
covering credit limits.
Insurance / contingency insurance policy.
Appropriate standard policy or specific policy.
Corporate and personal guarantee.
Documents conveying equitable mortgage on primary security i.e.
fixed assets pertaining to the project and on the additional security
(collateral)
Personal guarantee of the borrower and guarantor (if any)
50
Compliance of registration of charge formalities.
Search report form an Advocate indicating a clear title for the last
fifteen years as per the land records; and
Approved building plans incase of constructed property.
This would involve submission of the relevant documents by enterprise.
The legal department in the financial institution would scrutinize these
documents for their validity and completeness.
Non Performing Asset:
Non Performing Asset means an asset or account of borrower, which has
been classified by a bank or financial institution as sub-standard, doubtful
or loss asset, in accordance with the directions or guidelines relating to
asset classification issued by RBI.
With a view to moving towards international best practices and to ensure
greater transparency, it has been decided to adopt the '90 days overdue'
norm for identification of NPAs, form the year ending March 31, 2004.
Accordingly, with effect form March 31, 2004.
A Non performing asset (NPA) shell be an advance where
i. Interest and /or installment of principal remain overdue for a period
of more than 90 days in respect of a Term Loan,
ii. The account remains 'out of order' for a period of more than 90 days,
in respect of an overdraft/ cash Credit(OD/CC),
iii. The bill remains overdue for a period of more than 90 days in the
case of bills purchased and discounted,
51
iv. Interest and/ or installment of principal remains overdue for two
harvest seasons but for a period not exceeding two half years in the
case of an advance granted for agricultural purpose, and
v. Any amount to be received remains overdue for a period of more
than 90 days in respect of other accounts.
Reserve Bank of India (RBI) has issued guidelines on provisioning
requirement with respect to bank advances. They are classified mainly into:
Standard Assets: Such an asset is not a non-performing asset. In other
words, it carries not more than normal risk attached to the business.
Sub-standard Assets: It is classified as non-performing asset for a period
not exceeding 12 months.
Doubtful Assets: Asset that has remained NPA for a period exceeding 12
months is a doubtful asset.
Loss Assets: Here loss is identified by the banks concerned or by internal
auditors or by external auditors or by Reserve Bank India (RBI) inspection.
It should be noted that the above classification is only for the purpose of
computing the amount of provision that should be made with respect to
bank advances and certainly not for the purpose of presentation of
advances in the banks balance sheet.
After the implementation of Securitization Act, 2002 banks issue notice to
the defaulter to either pay back the dues to the bank or give the ownership
of the secured assets mentioned in the notice. However, there is a potential
52
threat to recovery if there is substantial attrition in the value of security
given by the borrower or if borrower has committed fraud with the
concerned bank. Under such a situation it will be prudent to directly classify
the advance as a doubtful or loss asset, as appropriate.
DRT
The bank can file a suit against the clients in court to recover its due. It is
filed in court so that the dues can be recovered through the Debt Recovery
Tribunal. The DRT came into existence in 1993 for debts with outstanding
of Rs.10 lakhs and more.
The other courts will not have authority to hear cases falling under this
jurisdiction, once the case is referred to DRT. The DRT has the powers to
attach and sell, to arrest and detain in jail.
DEBT ASSET SWAP
It is the takeover of unproductive / non core assets by mutual agreement.
Absence of legal problems in taking over is a precondition. Minimum value of
asset should be Rs.5 Crores.
ONE TIME SETTLEMENT (OTS)
One time settlement is one the resource for the bank to recover its debts.
The settlement amount is arrived at by the bank and borrower in order to
settle the loan account. The doubtful or loss account as on 31.03.2000, the
settlement amount is minimum 100 % of O/s as on the date it became NPA.
Sub standard as on 31.03.2000, which later became Doubtful/loss, the
settlement amount is minimum 100% O/s on date it became Doubtful/ Loss
+ interest at PLR from 01.04.2000 to date of settlement. Amount is to be
paid in lump sum. And if it is payable in installments, the minimum no of
installments are 12. The minimum amount to be paid immediately is 25%,
Interest at PLR from date of settlement to date of payment.
CORPORATE DEBT RESTRUCTURING
53
Corporate debt restructuring is a viable and transparent mechanism for
ailing but viable corporate outside the structure of BIFR/legal proceedings.
It is applicable for only sub standard assets. Only manufacturing companies
are covered under the scheme. In corporate restructuring scheme only the
accounts of Rs. 20 Crores and above are covered. It is a three tier
structure- CDR Forum, CDR Empowered Group, and CDR cell CDR Forum
frames policies and guidelines. CDR Empowered Group makes sanctions,
approvals, commitments, etc. CDR cell scrutinizes, assesses, and monitors.
Features of the scheme are:
1. Revival plans is to be ready in 90 days
2. Lenders cannot exit from the agreement
3. Creditors with 20% or more exposure can approach the CDR
4. Restoration plan approved by 60% of value of creditors is binding
5. Amount of sacrifice is the amount of interest measured in P V terms,
which is provided fully or written off
54
Annexure -1UNION BANK OF INDIA
Credit department: central office
PROPSAL FOR ENHANCEMENT OF NON FUND BASED AND FUND BASED LIMIT
1 a) NAME OF THE ACCONT :
b) BRANCH/ ZONE :
c) DATE OF INCORPORATION :
2 CONSITUTION :
3 ADDRESS- Registered office :
Corporate office
Unit/ works :
4 NAMES OF DIRECTORS AND :
THEIR MEANS
5 BACKGROUNDS OF THE PROMOTERS/ DIRECTORS:
55
GROUP :
BANKING : LEAD BANK :
MONTH OF REVIEW : OUR SHARE :
ASSET CLASSIFICATION : FB
INTERNAL CREDIT RATING : NFB – 3.94%
STATUS OF ACCOUNT :
AS OF 31.03.2007 AMOUN AMOUNT (RS.)
6 CAPITAL
STUCTURE
Authorized capital
Paid up capital
Book value
Market value
6. (a) SHARE HOLDING
PATTERN
Particular No. of shares Face value % holding
Promoter
Institutional
Pvt.corp.bodies
NRIs and OCB
Clearing members
I Individuals
56
TOTAL
7 IN CASE OF PARTNER SHIP FIRMS INDICATE CAPITAL : NA CONTRIBUTED BY EACH PARTNER SEPRATELY
8 LINE OF ACTIVITY :
9 SECTOR/ BSR CODE :
COMMENTS ON LATEST CREDIT:
10 WHETHER A/C IS TAKEN /TO BE TAKEN OVER. IF SO NORMS FOR TAKE OVER ARE FULLFILLED 11. a) DEALING WITH BANK SINCE:
b) CREDIT FACILITIES SINCE:
12 TOTAL INDEBTNESSNON –FUND BASED FUND BASED TOTAL
b) COMMENTS ON OPERATION / OVERDUES(1) Turnover in the account is commensurate
58
No. of statement/ return received during the year
Last statement /return received
With the limit
(2) Frequent excesses are given
(3) Cheques are returned frequently
19 COMLIANCE TO TERM OF SANCTION: a) Completion of mortgage formalities : b) Registration of charges with ROC c) Whether document valid and in force d) Compliance of RBI guidelines e) Whether consortium meeting held At a prescribed periodic intervals Where the bank is the leader
20 a) DATE OF INSPECTON:DURING THE FINANCIAL YEAR
20 b) NATURE AND VALUE OF COLLETERAL SECURITY:
Nature / description of collateral security indicating area & location of property
Value (rs. )
Date of valuation Along with name of the valuer
Insurance Amount and date of expiry
c) PERSONAL GUARNTEE/ CORPORATE GUARNTEE
21a) WHETHER THE NAME OF THE COMPANY/ DIRECTORS FIGURE IN RBI DEFAULTER / CAUTION LIST / ECGC. IF YES, PLEASE FURNISH DETAIL
b) WHETHER DIRECTOR/ PARTNER / PROMOTERS IS A DIRECTOR IN OUR / OTHER BANK OR IS RELATED TO THEM
c) ANY LITIGATION IN FORCE AGAINST THE FIRM/COMPANY OR AGAINST THE PARTNER
59
/ DIRECTORS. IF SO MENTION DETAILS & PRESENT POSITION
22 AUDIT OBSERVATIONS a) Internal b) Concurrent c) Statuaryd) RBI inspection e) Stock audit 23 ANY IRREGULAR FEATURE OBSERVED IN THE MONITORING REPORT
24 EXPOUSRE DETAILS FROM OUR BANK
Limit existing
Limit recommended
D.P. o/s as on
date of inspection
Value of security
Irregularities
A} non fund based limit Import/inland/L/CLetter of guarantee
SUB LIMIT {a} B} fund based limitsWcdl/FclCc/pc/FdbpSUB LIMIT {b}C} TERM LOANTERM LOAN SUB LIMIT {C}GRAND TOTAL
{A+B+C}
b) DETAILS OF EXCESS ALLOWDED DURING THE YEAR:
c) OTHER EXPOUSRE, IF ANY, INCLUDING INVESTMENTS:
d) OTHER LIABILTIES OF DIRECTORS (IN THEIR INDIVIDUAL CAPACITY)
25a) EXPOUSRE DETAIL FROM BANKING SYSTEM
60
NAME OF THE BANK
NON FUND BASED%Share Amt. % share Amt.
b) CONDUCT OF THE ACCOUNT AND EXPOUSRE DETAIL FROM FINANCIAL INSTITUTIONS: c) VALUE OF ACCOUNT d) DETAILS OF FOREIGN CURRENCY EXPOUSRE COMMITMENTS AND UNHEDGED POR
Amt. in USD
Name of the corporate Amount of exposure Unhedged portion
Due dates for payment (range)
1.External commercial borrowing
2. Importance usance bills received on collection basis duly accepted and outstanding
3. L/Cs & PAD for import of goods capital equipments.
4. Others exports Receivables
5. Other import obligation
6. Foreign currency loan availed from authorized dealers in India
7. Any other exposure, please specify
26 OPERATIONAL EXPERIENCES a) WITH RESPECT TO SISTER/ ALLIED CONCERN
b) COMMENTS ON OTHER BANKS CREDIT REPORT ON SISTER CONCERNS
61
27 OMMENT ON ASSESMENT OF LIMITS
INVENTORY AND RECEIVABLE NORMInventory Previously
accepted level
Actual on the assessment year
Estimates Indicative Norms
Month value month value
RM-IMPORTRM-INDIGENOUS
WIP/ FIG
RECIEVABLE-LOCAL
RECIEVABLE EXPORTS
SUNDRY CREDITORS
OTHER CA
OTHER CL
raw material
stock in progress
Receivable ( domestic)
Receivable( exports)
Working capital assessment2005(act.) 2006(est.)
Total current assetsOther current liabilities ( other than bank borrowing )Working capital gap
Actual/ projected NWC
FBF
ASSESSMENT OF NON – FUND LIMITS A inland / import l/c
For purchase of raw material / stocks Imp. indigenous
Purposed purchase (% of total purchase) Purchase Purchase under l/c
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 under l/c (days) Total A (a+b)
C Average rotation of letter of credit in one year 62
(365/a) timesD Level of l/c ( projected purchase/import during the
year )/cContingencies (IF ANY)
Limit requiredTotal l/c requirement =
Our share –
Limited recommended
Bank guarantee
a. Year FY- FY-Total score obtained Grade
Parameter
Borrower ratingBorrower rating
Facility rating
Risk mitigators
Business aspects Total marks with grade
29. Credit rating
30. industry
31. industry scenario
32. out look
33. recommendation
Approved
63
GLOSSARY
Acid testA stern measure of a company's ability to pay its short term debts, in that stock is excluded from asset value. (liquid assets/current liabilities) Also referred to as the Quick Ratio.
Cost of goods sold (COGS)
The direct costs attributable to the production of the goods sold by a company. The directly attributable costs of products or services sold (usually materials, labour, and direct production costs). COGS = net sale -gross profit.
Cash flow statementThe statement showing the movement of cash in and out of a business from day-to-day direct trading and other non-trading or indirect effects, such as capital expenditure, tax and dividend payments.
Capital employed The value of all resources available to the company, typically comprising share capital, retained profits and reserves, long-term loans and deferred taxation.
Cost of debt The rate that has to be received from an investment in order to achieve the required rate of return from the creditors
Coverage ratios A group of ratios that measures a firm’s ability to meet its recurring fixed charge obligations, such as interest on long term debt, lease payments, and/or proffered stock dividends
Average collection period
This represents the no. of days’ worth credit sales that is locked in debtors.
Current liabilities Liabilities that is normally payable within a year and are not for along term.
Current ratio A liquidity measures defined as current assets divided by current liabilities.
Default risk
The uncertainty of expected returns from a security attributable to possible changes in the financial capacity of the security issuer to make future payments to the security owner. Treasury securities are considered to be default free. Default risk is also referred to as “financial risk” in the context of marketable securities management.
Inventory turnover The ratio of net sales to inventory.
64
Letter of credit A letter from a bank mentioning that it has established a line of credit in favor of a certain party
Letters of guarantee
letters of guarantee are concerned with providing safeguards to buyers that suppliers will meet their obligations or vice-versa, and are issued by the supplier's or customer's bank depending on which party seeks the guarantee.
Net working capital Net working capital is the difference between total current assets total current liabilities.
Operating cycle The operating cycle of a firm begins with the acquisition of raw materials and ends with the collection of receivables.
Sensitivity analysisA technique of risk analysis which studies the responsiveness of the criterion of merit like net present value or internal rate of return to variations in underlying factors like selling price, quantity sold, etc.
Term loan A loan which is generally repayable in more than one year and less than ten years.
Turn over ratiosTurn over ratios, also referred to as activity ratios or asset management ratios, measure how efficiently the firm employs the assets.
Working capitalThere are two measures of working capital- gross working capital and net working capital. Gross working capital is the total of current assets. Net working capital is the difference between the total current assets and the total current liabilities.