Credit Delivery

7/27/2019 Credit Delivery

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Credit Delivery


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Types of Credit

Fund Based facility

Term Loan- for creation of fixed assets

Cash Credit/Working Capital -based on DP

Bill Purchase

Post sale-operating cycle

Non Fund Based facility

Bank Guarantee -contract to perform ordischarge a liability of a third person

Letter of Credit -assuring payment to seller ofgoods/services


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Credit Delivery

Term Loans

Green Field Projects

Brown Field Projects


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Green Field Projects- Projected

Knowledge of the Person in the Field

Project Report

Promoter Details

Promoter Experience

Techno Economic Viability

Project Report

Type/nature of business Raw Material source/distribution source

Target Market/Arrangements

SWOT Analysis


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Term Loan

Implementation schedule

Project cost break up

Means of finance

Investment items Sanction Terms and Conditions

Pre disbursement conditions

Promoter contribution

Unsecured loans if anySubsidy if any

Term Loan - First Disbursement


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Term Loan

Cont

Compliance during Disbursement

End use verification/ Inspection

Review of project implementationAsset creation

Further disbursement Project completion

End use verification/ InspectionProject completion certificate

Trial run/ commercial operation


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Term Loan

Cont

Any Non Fund based facility as sub limit toTerm Loan

LC for Import of machinery if any BG or LC to Suppliers/ EPC Contractors


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What is Working Capital ?

Funds required to acquire currentassets to enable business/industry

to operate at the expected levels


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What are Working Capital Sources?

Own funds

Bank borrowings

Sundry CreditorsAdvances from customers

Deposits due in a year

Other current liabilities


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FACTORS INFLUENCING WORKING CAPITAL

REQUIREMENT

Nature of business service/trade/manufacturing.

Seasonality of operations peak/non peak

Production Policy Constant/seasonal

Market conditions- competition/credit terms

Conditions of supply of RM/stores/spares etc.

Quantum of production/Turnover(level of activity)

Operating Cycle

Current Assets to be maintained


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DATA TO BE OBTAINED

Application.

Financial Statements of Previous years

Estimates/ Projections (withquantitative details)


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Working Capital Finance

A) Fund BasedInventory finance and

Bill Finance ( Post Sales Finance).

B) Non Fund BasedLetter of Credit (LC)

Bank Guarantee.


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Assessment Methods- Fund Based

Operating Cycle MethodService Sector

TradersManufacturing Activity.

Drawing Power Method.

Turnover Method.


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Assessment Methods

MPBF method (II method of lending) for limits ofRs 5.00 crores and above

Cash Budget method

(Reason: Based on procurement and cashinflow) Seasonal Industries (Sugar/ Rice

Mills/Textiles/Tea/Tobacco/Fertilizers)

Contractors & Real Estate Developers

Educational Institutions


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Operating Cycle Method

Working capital requirement

Operating expenses

---------------------------------------No. of operating cycles in a year


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Operating Cycle Method-

Length of operating Cycle

a. Procurement of Raw Material 30 days

b. Conversion / Process time 15 days

c. Average time of holding of FG 15 days

d. Average Collection Period 30 days

e.Operating Cycle (a+b+c+d) 90 days

f. Operating Cycle in a year (365days/e) 4 cycle


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Operating Cycle Method

B. Total Operating Expensesper annum

Rs 60.00 lakh

C. Total Turnover per Annum Rs 70.00 lakh

D. Working Capital

Requirement= Total Operating

Expenses (B)/ No. ofoperating Cycle (f as said

earlier

Rs 15 lakh


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Drawing Power Method

(for units with small limits)

Particulars Stock value (in lacs) Margin DP(in lacs)

Paid stocks (RM-Creditors) 4 25% 3

Semi Finished goods 4 50% 2

Finished goods 4 25% 3

Book debts 4 50% 2

Total 16 10


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Turnover Method

(originally suggested by Nayak Committee for SSI units)

A Sales Turnover 100

B 25% of sales Turnover 25

C 5% of Sales Turnover projected as margin 5

D Actual NWC existing as per Last Financial Statement 4

E BC 20

F BD

21G MPBF (E or F whichever is less) 20

H Additional margin to be brought in (C-D) 1


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MPBF MethodTandons II method of lending)

A Current Assets 1000

B Current Liab. other than Bank Borrowings 400

C Working Capital gap (A-B) 600

D Minimum Stipulated NWC

(25% of CA excluding export receivables)

250

E Actual/projected NWC 200

F PBF (CD) 350

G PBF (CE) 400

H MPBF (F or G whichever is less) 350


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Important Aspects of MPBF method

Production/Sales estimates

Profitability estimates

Inventory/receivables norms

Build up of Net Working Capital


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Justifications of the Performance Projection

(Inventory/Receivable Norms Comparison)

Intra firm Comparison

Comparison of estimates with previous years

Actuals.

For New Units

Comparison of estimates with similar units in the

area of operation. Higher projections shall be justified.


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Cash Budget

Statement showing forecast of cash receipts, cash payments and

net cash balance over a period of time

Months-> 1 2 3 4 5 6 7 8 910 11 12

Cash Receipts

Cash Payments

Surplus/deficit

Cash credit OB

Cash credit - CB

Peak deficit is financed and drawings regulated by monthly budgets


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Cash Budget

Advantages:

Suitable for seasonal industries, contractors, software exporters etc.

Limitations:

Will not reflect changes in various current assets and liabilities.

Will not give a clue whether a company is earning profit or not.

Funds flow statement is required to detect any diversion of funds


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Working Capital Finance

New Unit/Existing unit / Running business

Type of facility (Fresh Sanction or Takeover or

enhancement)

Pre disbursement conditions Working capital cycle

Estimate/ Projections of CFY

Stock statement, availability of DP

Insurance of stocks

Unit inspection

If export Credit

Type of export credit viz. EPC/ PSC


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Bill Finance -Post Sales Finance(For Genuine Trade & Manufacturing Transactions)

A. DP Bills : Bills of Exchange accompanied with:

i. Invoice and

ii. Documents of title of the Goods - LRS/RRS

A. DA Bills : Bill of Exchange accompanied withInvoice /LRS / RRS Maximum Tenor 180 days

A. CUBD : Bill of Exchange / Promissory Notes( for Good NetworthClients)

- Eligibility Carved out of MPBFB. Export Bills : FBP/FUBD

- Security Export Documents drawn against confirmed orders /LCs.


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Non Fund Based Limits

Letter of credit

ILC/FLC

Usance/Sight

Bank Guarantee

Performance

Financial Bid Bonds/Security Deposits/

Mobilisation advance/retention money

Deferred Payment Guarantee


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Thank You