Final Project rfc

RAJASTHAN FINACIAL CORPORATIONHO Udyog Bhawan, Tilak Marg, C-Scheme, Jaipur-302 005

A PROJECT REPORT

ON

COMPREHENSIVE STUDY OF RFC &

ITS FUND MANAGEMENTSubmitted in the fulfillment of the Requirement of the

Award of the Degree of

Master of Business Administration

(YEAR 2011-2012)

Supervised to: Submitted by:(Mr. M.R. Chhinwal) (Bhawana Dadhich)Dy. Gen. Manager (HRD) MBA IInd SEM

BANASTHALI VIDYAPITH, WISDOMJAIPUR CAMPUS (RAJASTHAN) 302 001

BANASTHALI UNIVERSITY RAJASTHAN FINICAL CORPORATION

ACKNOWLEDGEMENT

At the outset, I would like to place on record my heartfelt gratitude to the management of the Rajasthan Financial Corporation for allowing me to undertake training. The training project in Rajasthan Financial Corporation was a very wonderful experience for me and certainly contributes in my career.This project is a sincere effort to have an in-depth knowledge of loan procedure and various schemes. With profound sense of gratitude and regards I convey my sincere thanks to Shri Chinnwal Dy. General Manager (HRD), Shri S.S. Agarwal, Manager & Shri Govid Singh, Dy. Manager and other officers of different section in general for their valuable advice and supervision as otherwise it would be very difficult to prepare the project report.I would also like to thank all the persons concerned in the various department that made that learning process all the more easier and fun to have. Last but not least I want to thank my all colleagues for not only giving me an opportunity to pursue this project but also helping and guiding me throughout my project. I hope to build upon this experience and knowledge that I have gained here and will be able to make a valuable contribution towards this Corporation.

BHAWANA DADHICH


PREFACE

Rajasthan today stands on the threshold on of individual development. A new Industrial culture is fast developing in the State. RFC a Leading State Level Financial Institution is also committed to playing its expected role. The main object of the State Financial Corporation is to provide medium and long term financial assistance for setting up new industrial projects or for expansion diversification, modernization or revival of the existing industrial units. The whole economy of the Corporation lies on the financing of good project and its appraisal. The author has carried out this study during 45 days of Summer Training at Rajasthan Financial Corporation. The first part of the report contains introduction of Institution, its objectives and functions. Further, the various loan schemes have been discussed in detail. The main body of the report contains various loan schemes on which RFC is financing.In the last part of the report, the author has also given some suggestions about the corporation.


Table of ContentsS. No. Particulars Page No.

1 Acknowledgement :2 Preface :3 Financial institution- An

Introduction:

4 Rajasthan Financial Corporation- Overview

:

5 Organizational Set-Up :6 Aims & Objectives :7 Functions of RFC :8 Administrative Set-Up :9 Board of Directors :

10 Organizational Hierarchy :11 Role as an Agent of the

State Government:

12 RFC-The Changing Scenario

:

13 Departments of RFC :14 Special Loan Schemes :15 Schemes for Good

Borrowers:

16 Steps to Avail Loan :17 Fund Management & its

Objectives:

18 Sources of Funds :19 Utilization of Funds :20 Operational Performance :21 Profitability Report :22 Banking System of RFC :23 Idle Funs with RFC :24 Balance Sheet as on 31st

March 2012:

25 Profit & Loss A/c for the year ending 31st March 2012

;

26 Year wise Targets & Achievements from 2002-03 to 2011-12

:

27 Financial Analysis :28 Suggestion :29 Conclusions :


30 Bibliography :

FINANCIAL INSTITUTIONS – AN INTRODUCTION

Financial Institutions are the backbone of any economy. They provide means and mechanism of transferring resources from those who can make use of same with a view of adding to the volume of the productive capital.Since Commercial Banks in India have traditionally confined themselves to finance capital requirements of the trader industry, it was felt necessary to set up financial institution to ensure an adequate outflow of funds to industrial projects.The first step towards building up the structure of development of financial institutions was taken-up with the establishment in 1948 of the Industrial Finance Corporations of India (IFCI).In view of the mammoth of the task involved and the vast size of the country and to cater to the needs of small and the medium sized enterprises in 1951, the Indian parliament passed the SFC’s Act, under which the State Government established the SFCs for the respective regions. The SFCs provide finance mainly to the small and medium sized enterprises usually in the form of medium and short term credit. The SFCs had more of development role by advancing loans to first generation entrepreneurs and entrepreneurs from weaker sections of the society.


Advantages:1.They help in the growth and development of

backward areas by providing them financial assistance on easier terms and subsides.

2.They give top priority to projects of public interest and infrastructural development.

3.They lay considerable stress on modernization and renovation of industry.


RAJASTHAN FINACIAL CORPORATION - OVERVIEW

The Rajasthan Financial Corporation (RFC) was constituted under a notification of the State Government dated 17th January, 1955 under the SFCs Act, 1951, for providing long term financial support to tiny, small scale and medium scale industries in the State of Rajasthan.

The Corporation is continuing to work as a Catalyst of development for translating into practice the industrial policies and priorities of the Central and the State Governments as also for providing and improving upon immediate assistance in the planned and balanced development of industries in the State, particularly in the small and tiny sectors. Since, its very inception, the Rajasthan Financial Corporation has been striving incessantly towards its Goal that of extending a helping hand to varied entrepreneurial section of society for their financial requirements. A Goal, ultimately aimed at spurring up the process of industrialization of its parent State.

For the fulfillment of its prime objective it operates various loan schemes for the tiny, small and medium scale industries, many of them tailor- made for specific entrepreneurial classes.

Ever prepared to adopt as well as to adapt itself to the changing industrial needs, RFC has over the period, widened its network, multiplied its numerous schemes and added multifold to its policies and incentives, liberalizing them with the need of the hour.

RFC has completed 57 years of service to the industries in the State. The Corporation also persisted with its efforts to seek good quality assets by lending to entrepreneurs having sound credentials and viable business proposals. RFC envisages appreciable improvement in its performance and facing stiff competition from banks and other financial institutions. As a result, RFC proudly ranks first in Northern India and amongst the top four SFCs of the country.


ORGANISATIONAL SET-UP

The general superintendence, direction and management of the affairs and business of the Corporation vests with the Board of Directors, consisting of representatives of the State Government, SIDBI, Public Sector Banks, LIC, Insurance companies and other Institutions owned and controlled by Central Govt./ State Govt. and other genuine share holders. The policies of the Corporation are executed by the Chairman & Managing director aided by Executive Director, General Managers, Dy.General Managers & Departmental heads in HO. and Branch Managers in the field.

(1) The Spread :

The Corporation has expanded into 37 Branches and 5 Sub Offices in 33 Districts of the State. These Branches are duly equipped to function as entrepreneurial guidance centers and exercise considerable delegated authority in regard to sanction, documentation and disbursement of financial assistance.

The Corporation has established a Business Promotion Cell and an entrepreneurs Guidance Cell at HO which provides assistance and guidance to the entrepreneurs.

(2) Services Rendered :

The Corporation grants term loan upto Rs. 2000 lacs to limited companies and Co-operative societies and upto Rs. 800 lacs to proprietory and partnership concerns.

Existing industries having Net Worth upto Rs. 30.00 Crores (paid up capital + Free reserve) are eligible for financial assistance under the provisions of the SFC's Act.

The Corporation also provides short term line of credit facilities to good borrowers for acquiring fixed assets and to meet out their


working capital requirements.

(3) What is an Industrial concern ?

“Industrial concern” means any concern engaged or to be engaged in:

The manufacture, preservation or processing of goods.Mining or development of mines.

The hotel industry. The transport of passengers or goods by roads or by water or

by air, or by ropeway or by lift. The generation or distribution of electricity or any other form

of power. The maintenance, repair, testing or servicing of machinery or

any description of vehicles or vessels or motorboat or trailers or tractors.

Assembling, repairing or packing any article with the aid of machinery or power.

The setting up or development of an industrial area or industrial estate.

Fishing or providing shore facilities for fishing or maintenance thereof.

Providing weight bridge facilities. Providing engineering, technical, financial, management,

marketing or other services or facilities for industry. Providing medical, health or other allied services. Providing software or hardware services relating to

information technology, telecommunications or electronics including satellite linkage and audio or visual cable communication.

Setting up or development of tourism related facilities including amusement parks, convention centers, restaurants, travel and transport (including those at airports), tourist services agencies and guidance and counselling services to the tourists.

Construction. Development, maintenance and construction of roads. Providing commercial complex facilities and community

centres including conference halls. Floriculture.


Tissue culture, fish culture, poultry farming, breeding and hatcheries.

Service industry, such as altering, ornamenting, polishing, finishing, oiling, washing, cleaning or otherwise treating or adapting any article or substance with a view to its use, sale, transport delivery or disposal.

Research and development of any concept, technology, design, process or product, whether in relation to any of the matters aforesaid, including any activities approved by Small Industries Bank or process or product in relation to any of the matters aforesaid.

Such other activity as may be approved by the SIDBI.

Explanation-I: The expression processing of goods includes any art or process for producing, preparing or making an article by subjecting any material to a manual, mechanical, chemical electrical, or any other like operation.

Explanation-II: If any doubt arises as to whether a concern is an industrial concern or not, the same shall be referred to the Small Industries Bank for its decision and the decision of the Small Industries Bank thereon shall be final.

(4) Industries Eligible for Assistance :

In addition to the activities narrated above, the financial assistance is also made available by the Corporation for the following activities which have been approved by IDBI under the provisions of Section 2(c) (XIII) of the SFC's act.

* Acquiring Electro-medical equipment for professional use by medical practitioner.* Hospitals and Nursing Homes.* Hotels, Restaurants and tourism related activities.* Setting up consultancy ventures by qualified professionals.* Quality control facilities.* Service Industries like Washing, Cleaning, Ornamenting etc.* Providing engineering, technical, financial management, marketing or other services or facilities for industry.* Providing medical, health or other allied services.* The research and development of any concept, technology, design process or product.* Development, maintenance and construction of roads.* Construction of commercial complexes, sales outlets and


show rooms and community centers (including marriage halls) as a part of the hotel business.* All activities related to information technology sector including Cyber Cafe E-telecommunication portal services etc.

AIMS AND OBJECTIVES RFC was setup with the objective of performing economic growth, balanced regional development and widening of entrepreneurial base by financing medium, small and tiny industries. Operating at the grass-root level, it has played a significant role in bringing about decentralized economic development, disbursal of industrial activities and means of production, development of backward regions etc. In order to fulfill its social committees and developmental role, it has made financing to first generation entrepreneurs on liberal terms and condition rather than asserting on security aspects. With a view to implement government policies for upliftment of backward classes and balanced regional development, it has made financing in remote areas with negligible infrastructural facilities.

The main aims of the Corporation are :-

To provide medium and long term financial assistance for setting up new industrial projects for expansion, diversification, modernization or revival of the existing industrial units.

To act as an agent of the state government for providing concessions and incentives announced by the government.

To implement the policies of the government of India and State Government in regard to industrialization.


FUNCTION OF RFCRFC authorized to carry on and transact any of the following kinds of business to achieve the objectives of RFC:

1. Guaranteeing of such terms and agreements as may be agreed upon. Loan raised by industrial concerns, which are payable in a period not exceeding 20 years, and floated in the public market.

2. Guaranteeing on such term & conditions as may be agreed upon, defer payment due from any industrial concern in connection with its purchase of capital goods within India.

3. Underwriting of the issues of stocks, shares, bonds and debentures issued by industrial concerns transferring for considering any instrument relating to loans and advances granted by it to industrial concern.

4. Acting as agent of the central government, state government or the developmental banks or the industrial financial Corporation of India established under the IFCI Act, 1948 or any other financial institution notified in this behalf by the central government with respect to any other matter connected with or arising out of the grant loans or advances to an industrial concern subscription to the debentures of an industrial concern.

5. Subscription of the stocks, shares, bonds, debentures of an industrial concern out of the funds representing the capital subscribed in accordance with the provision of Section - 4A.

6. Receiving in consideration of the services mentioned in the preceding clauses, such commission as may be agreed upon.

7. Relating as part of its assets any stocks, shares, bonds or debentures of an industrial concern which it may have to take in fulfillment of its underwriting liabilities. However, The


Corporation has to dispose of stock, shares, bonds or debentures so acquired as early as practicable, but in no case the stocks, bonds, shares and debentures so acquired shall be retained beyond a period of 7 years from the date of execution except with the prior permission of the IDBI.

8. Doing all such acts and things as may be individual to or consequential up to the exercise of its power or the discharge of its duty under this Act.

ADMINISTRATIVE SET-UPThe Corporation functions through its Board of Directors having 10 Directors and an Executive Committee. Management is done by Board of Directors chaired by Chairman & Managing Director, IAS officer on deputation. After the CMD, next in hierarchy is the Executive Director. There is two General Manager and then come Dy.Gen. Managers and Managers.


LIST OF BOARD OF DIRECTORSS.No.

Name of Directors Status

1* Shri Yaduvendra Mathur, IASChairman & Managing Director, Rajasthan Financial Corporation, Udyog Bhawan, Jaipur

Nominated by the State Govt.


2* Shri Sunil Arora, IASPrincipal Secretary Industries Udyog Bhawan, Tilak Marg, Jaipur.


3 Shri Akhil Arora, IASSecretary Finance (Budget) Govt. of Rajasthan,Jaipur.


4 Shri K.G. Alai Chief General Manager, SIDBI, NZO, Delhi.

Nominated by SIDBI

5* Shri M.K. Sharma GM, SIDBI, Jaipur

Nominated by SIDBI

6 Shri H.K. RaiCircle Head,Punjab National Bank, 2, Nehru Place, Tonk Road, Jaipur

Nominated by PNB

7 Shri S.S. MohiteSr.Div.Manager, LIC, Jaipur

Nominated by LIC

8 Shri Vishwas JainCEG Tower, B-11(G),Malviya Industrial Area,Jaipur-302 017.

Co-opted by Board

9* Shri Kamal MehtaD-43,Janpath, Shyam Nagar,Jaipur

Representative of Shareholders

10.

Shri Vinod JunejaC/o Binani Industries Ltd.,Mercantile Chambers,12.J.N.Herdia MargBalarad Estate Mumbai

Representative of shareholders

* Executive Committee Members


ORGANISATIONAL HIERARCHYRFC is divided into three classes namely, Class ‘A’, ‘B’ & ‘C’ :-

Class ‘A’

Board of Directors

Chairman & Managing Director

Executive Director

General Managers

Dy. General Managers

Managers

Dy. Managers

Asstt. Managers / Stenographer Gr-I

Class ‘B’

Sr. Asstt./Stenographer-II

Assistant / Steno-typist

Jr. Asstt. / Typist

Class ‘C’

Jamadars

Messengers

Drivers


Role as an Agent of the State GovernmentThe Corporation has been acting as an agent of state government for operating certain special schemes of the state which aim at providing subsides and other incentives to the entrepreneurs for the purpose of accelerating growth of the state.

Key areas of operation

The corporation has performed well during the year under review in all the three key areas of operation namely,

1. Sanction2. Disbursement3. Recovery

In spite of less inflow of loan applications, the Corporation has been able to maintain the steady pace of progress in this area of operation.

Emerging as a diversified and multi-product lender, the corporation continues to lay emphasis on quality services, both in terms of loan sanction as well as loan disbursement. Exploring new avenues to achieve this objective, the corporation introduced some new and exemplary schemes such as

1. Scheme for financing Wind Power Projects2. Scheme for financing against assets (Short Term Loans)


RFC – THE CHANGING SCENARIO

Keeping in view the more competitive environment that has emerged with both banks and SIDBI seeking business more actively in the field of direct term lending in the small and medium sector, the emphasis during the year has been to streamline the procedure for rendering better customer services so that RFC retains its pre-eminent position with regard to term lending to small industries to Rajasthan. In addition to streamlining procedures for existing schemes, attempts have been made to improve irritants, settle long pending disputes and introduce new and innovative schemes to attract the customers.

RFC having got itself registered with SEBI as Category ‘A’ Merchant Banker has started the work of appraisal of public issues and underwriting work.

Thus, new schemes for attracting the existing good borrowers of the Corporation, namely

Good Borrower Schemes for Short Tem Assistance Working Capital Loan to Good Borrowers

Were introduced and have attracted a very favourable response their operation since the last quarter of 1995-96.

Other steps include a direction to ensure disbursement within 24 hours of completion of valuation and sanction of loans as far as possible within a month of registration of loan applications.

The Corporation has formulated a new policy in 1995-96 for assisting units, having difficulties but not falling with RBI parameters of sickness. The ideas was that assistance at the stage of recipient sickness would be less costly and more likely to be successful than attempts revival after a unit has become sick. Even more important was the shifting in


emphasis towards quality loaning for the purpose of minimizing sickness and creation of non-performing assets.

DEPARTMENTS OF RFC

(1) Loans :

This Section is virtually responsible for the whole appraisal process. It register application for the loans in the prescribed Register RIA. After registration, the loan cases are assigned to a particular appraisal group, which examine the case within 10-15 days and prepares a note on key factors (NKF). This NKF is put up by the appraisal group before the project clearance committee (PCC). After clearance by PCC and having determined the key issues, detailed processing of the case is taken up by appraisal group. After processing is complete and the case is considered worth financing the proposal is finalized by appraisal group in consultation with DGM(OP.) Mangers and put before ED/MD for sanction.

(2) Law :

This Section can be divided into two parts :-

Convincing – concerned with the title of document, preparation of loan agreement, advising to the Branch Offices.

Litigation – looks after all types of suits filed by the Corporation or the borrowers. It works at three levels :-

District Head Level High Court Level Supreme Court Level

(3) Finance & Disbursement :


Finance Division has five functions:-

Mobilization of resources of the Corporation by the means of fund and cash management.

Dispersal of funds by way of release of sanctioned loans / subsidy, administrative expenditure, other payments of statutory liabilities of general establishment.

Project Implementation: There is a Project Monitoring Cell that monitors the performance for all projects sanctioned in Rajasthan.

State Govt. has started different subsidy Scheme. RFC is an agent for releasing these subsidies in those cases financed by the Corporation.

Refinance availment of funds from SIDBI.

(4) Accounts and Computers :

Accounts are the backbone of any commercial organization. The decision making process depends upon the information provided from the books. From April, 1983 the Corporation adopted an integrated computerized system, which consists of financial accounting as well as management system. Main function of this Department is to maintain bank accounts and their operations, charging of interest from the loanees, commitment interest on un-availed sanctions.

(5) Follow-up & Recovery :

The activity of follow-up starts immediately after sanctioning of loans. It continues while the project is being implement and after it has been implemented. It deals with all the problems of implemented and abandoned projects. Defaulters may be genuine or willful. For genuine


defaulters, there are provisions for re-fixation of installments, postponement, deferring and rescheduling. If the unit is willful defaulter, legal take over and disposal of assets can take place.

(6) Personal & Administration:

P&A is concerned with employees welfare and efficiency. It aims at providing best assistance to the entrepreneur by coordination and integrating RFC branches and DICs. Look after the personal matters like delegation of power, transfer appointments, sanction of annual increment, loan to employees etc.

(7) Human Resource Department:

The main objective of HRD section is to provide training to the trainees. The training is given to the trainees from various fields like management, engineering and accountants etc. the HRD section was particularly made to make awareness among the students about RFC. This section keeps a close look over the activities performed by the trainees till their training period is over.

(8) Audit & Inspection:

The scope & objective of internal audit should not be limited to accounting but also management audit involved control of operations and evaluation of functional performance so that in addition to the internal checks and control such an audit can provide a meaningful feedback to the management for taking remedial and innovative measures.


LOAN SCHEMES & IMPORTANT PARAMETERS

MAIN LOAN SCHEMES

1. GENERAL TERM LOAN SCHEME

Term loan upto Rs. 20 crore for acquisition of land, building and plant & machinery for any eligible industrial activity defined under the SFCs Act for setting up a project in the manufacturing sector including mining, wind farm and individual wind turbine generator.

2. SCHEME FOR SERVICE SECTOR

A . HOSPITALS AND NURSING HOME :

Loan to cover investment in land, building, electro-medical equipments, instruments, furniture, air- conditioners, small generators etc. for Hospital l/ Nursing Homes.

B. TOURISM SECTOR :

Loan for Hotel, Restaurants, Resorts, Amusement Park, Guest Houses, Drive-in-Cinemas, Multiplexes and Tourism related activities in Rajasthan for acquisition of Land, Building, Kitchen equipments, Office equipments, AC, Interior decoration, Furniture & Fixtures, Health Club, Swimming Pool, etc.

C. INFORMATION TECHNOLOGY :

Loan may be sanctioned to promote all type of projects/activities related to Information Technology. However, Educational/Training Institutes shall be outside the purview.

3. SCHEME FOR TEXTILE INDUSTRY UNDER TECHNOLOGY UPGRADATION FUND (RTUF):

To provide encouragement to textile industrial units in the small scale/medium scale sector for taking up technology up-gradation.


The scheme envisages interest incentive of 5% points on the loans availed by SME, however, for the spinning machinery the reimbursement will be 4% points only.

4. SARAL SCHEME FOR SME SECTOR (EXISTING INDUSTRIAL RUNNING UNITS ) ::: :::

Loan from Rs. 2 lacs to Rs. 10 crore (upto the extent of 60% of MRV of land and building for FY 2011-12) is available to the existing industrial running units in the micro, small and medium scale sectors and all existing running hotels located at District Head Quarter

5. SINGLE WINDOW SCHEME :

A scheme for small borrowers to ensure adequate finance by providing single window facility for availing of Term Loan for fixed assets and Working Capital finance from one institution only. Project cost should not exceed Rs 200 lacs.

6. SCHEME FOR FINANCING AGAINST ASSETS :

Loan upto Rs 10.00 crores to industrial concerns of MSME and CRE Sector for meeting their industrial financial requirements provided the prime security is mortgaged to the Corporation under first charge is free from all encumbrances.

7. SCHEME FOR CRE PROJECTS :

A. Loan for construction of commercial complexes, showrooms and sales outlets independent of hotel business.

B. Financial assistance may be granted to eligible borrowers for cost of land, construction of building for housing complexes / apartments (commercial cum residential complex), acquisition of required plant and machinery / equipment like lifts, air conditioning plant and fire fighting equipments, other safety devices and also other plants and equipments required for modern type of housing complexes and flats.

8. SCHEME FOR QUALIFIED PROFESSIONALS :

Assistance to qualified professionals in the field of management, accountancy, medicine, architecture, engineering, law etc. for setting up professional practice/consultancy ventures for the first time. The cost of the project should be need-based and not exceeding Rs.20.00 Lac.


9. TOP-UP LOAN SCHEME FOR EXISTING BORROWERS :

Top-up loan on easy terms and conditions and with simplifies procedure, is available for existing financed and running units (excluding Good Borrowers and Real Estate cases) which are having standard account and repaid at least 4 quarterly installments regularly. 10. LOAN TO UNITS INTENDING TO SWITCHOVER THEIR

LOAN ACCOUNTS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS TO RFC :

Loan for repayment of outstanding loan of the other FIs/ Banks and for acquisition of further fixed assets for modernization, diversification, expansion etc.

11. SCHEMES FOR GOOD BORROWERS :

Attractive loan schemes for existing Good Borrowers of the Corporation and Good Borrowers of other Financial Institutions on very liberal terms and conditions. The main schemes are as under:-

A. SHORT TERM LOAN : Speedy sanction and disbursement for expansion, modernization, replacement, diversification and purchase of balancing equipments.

B. UNIT PROMOTED BY GOOD BORROWER: Financing for new unit promoted by the existing good borrower on attractive rate of interest.

C. WORKING CAPITAL TERM LOAN: For providing working capital term loan to meet out the gap in their working capital requirement and the available bank limit.

D. WORKING CAPITAL TERM LOAN TO NON ASSISTED UNITS: For providing working capital term loan to meet out the gap in their working capital requirement and the available bank limit.

E. SPECIAL WORKING CAPITAL TERM LOAN : For acquisition of diamond blades and / or segments, Back-up roll, work-roll and bearings, replacement of card clothing, replacement of machinery part of textile unit and SS rolling mills etc.

F. GOLD CARD: Speedy and easy sanction for acquisition of fixed assets and/ or meet out working capital requirement.


G. PLATINUM CARD: Speedy and easy sanction for acquisition of fixed assets and/ or meet out working capital requirement.

H. FLEXI LOAN : A unique scheme for the good borrowers where Corporation shall provide financial assistance totally flexi in nature i.e. the loan sanctioned can be withdrawn and deposited within LDR any number of times to meet immediate requirement either for acquisition of fixed assets, working capital or for both without going into detail appraisal.

I. FLEXI LOAN FOR NEW BORROWERS : A unique scheme for the non assisted having proven track record, where Corporation shall provide financial assistance totally flexi in nature i.e. the loan sanctioned can be withdrawn and deposited within LDR any number of times to meet immediate requirement either for acquisition of fixed assets, working capital or for both.

Note: Above contents are for general information and may not be considered as norms for sanction of loan

IMPORTANT PARAMETERS

HIGHLIGHTS:

Financial assistance ranging from Rs 2000 to Rs. 20.00 crore.

Joint projects with other FIs, Commercial Banks and RIICO

LOAN LIMIT:

Proprietary and Partnership Units/ Trusts Upto Rs 8.00 croreCompanies & Co-operative Societies having net worth not exceeding Rs 30.00 crore

Upto Rs. 20.00 crore

IMPORTANT PARAMETERS:

Promoter’s Contribution Min.33% of project cost

Debt Equity Ratio Not more than 2:1Debt Service Coverage Ratio Not less than 1.7:1

SECURITY MARGIN

In General 30%


On fabricated items, dies, moulds, furniture etc. 50%

REPAYMENT PERIOD:

Normally 5 to 7 years, including moratorium period of 6 to 18 months, depending upon the cash generation of the project.

INTEREST: As applicable from time to time

COLLATERAL SECURITY: As per the guidelines and risk factor.

Note :

1. The rates of interest are as applicable from time to time and are subject to change as per norms/notification.

2. The information detailed herein is of general nature and should not be taken as the norms/rules of the Corporation for grant of loan and is subject to change without prior notice.


STEPS TO AVAIL THE LOAN Constitute the firm/company and get it registered with

concerned authority. Identify/Select the project. Acquire a piece of land after selecting the site from RIICO or

other concerned agency. If the land is agriculture, conversion order for industrial purpose may be obtained from the competent authority.

Prepare project report. File the application for loan in the prescribed format along

with requisite fee and required information/documents as detailed in the application form. The application may be obtained from Branch offices situated throughout Rajasthan, HO at Jaipur, Public Relation Office, Bikaner House, Delhi.

Attend the PC&CC /IPC meeting on receipt of information from the Corporation. This meeting is convened almost every week preferably on Wednesday.

Principle clearance on loan proposal is given within a week’s time during discussions in the PC&CC/IPC.

Detailed appraisal is taken up by the appraisal team quickly after principle clearance of the case from PC&CC/IPC and loan is sanctioned normally within one month’s time. However, Co-operation from the entrepreneur with regard to furnishing the information/documents is expected for quick appraisal.

After appraisal, the case is sanctioned and sanction is conveyed after deposition of service charges.

Comply with the conditions stipulated in the sanction letter and complete the formalities for execution of loan documents.

After execution of loan documents, disbursement of token amount and loan against land is released.


Disbursement of loan would be released in instalments on creation of fixed assets and after verifying the investment made; by the Technical Officer of the Corporation.

Note: The entrepreneur/promoter may personally represent the case or otherwise may authorize any person/consultant to represent the case on behalf of promoter by furnishing power of Attorney in the prescribed format. However, presence of promoter in person is required while discussing important issues and finalizing the case in the project clearance and consultative committee (PC&CC) and while executing the documents.

INTEREST RATE STRUCTURE EFFECTIVE FROM 09.09.2011

APPLICABLE TO MSME /NON MSME SECTOR IRRESPECTIVE OF COST OF PROJECT

S.No.

NAME OF THE SCHEME RATE OF INTEREST

1. MSME Sector Units (Industrial & Service Sector) Upto Rs. 50,000/.

11.25%

2. MSME Sector Units (Industrial projects) above Rs. 50,000/- & upto Rs. 20.00 Crores.

13.50%

3. MSME Service Sector projects (including Hotels projects, Technical/ Professional Educational Projects/Guest-House projects, Tourism Projects, Hospitals/ Nursing Home Projects and Medical Equipment Scheme cases)

14.25%

4. a) Scheme for Financing Against Assets

b)Scheme for Financing for Builders/commercial /residential complexes/ Multiplexes, Hotels, Hospitals etc. for purchase of land & building c)Saral Scheme for SME sector

16.50%

18.50%

15.50%


5. Projects for Construction of Commercial /Residential Complexes

16.25%

APPLICABLE FOR GOOD BORROWER SCHEMES :

S. No

NAME OF THE SCHEME RATE OF INTEREST

1. a) Short Term Loan Scheme (STL), Working Capital Term Loan Schemes (WCTL), Special Purpose Working Capital Term Loan Scheme (SPWCTL).

b) Units Promoted By Good Borrower (UPGB)

13.00%

12.75%

2. Working Capital Term Loan to Non Assisted Units

14.50%

3. Platinum Card Scheme

13.00%

4. Gold Card Scheme

13.25%

5. Flexi Loan Scheme 13.50%


FUND MANAGEMENT AND ITS OBJECTIVE

The main function of RFC is to provide financial assistance to entrepreneurs.Therefore, ready availability of funds is very important. Because of uncertainty in procurement and demand of fund management is very tedious work.The objective of Fund Management includes:

To meet the disbursement needs and repayment oblivious of the Corporation.

To maintain funds at optimum level so as to avoid idle cost as well as short cost

To raise funds at cheaper costTo achieve the above objectives, it is imperative for the Corporation to keep an eye on all the aspects of fund management, which include procurement, disbursement, follow-up and recovery of funds.


There are two main aspects of fund management activities in RFC:

Source of fund Utilisation of funds

SOURCES OF FUND

The traditional sources of funds for RFC are as under:

1. Loan from Government :

The state government provides financial assistance in the form of loan or share capital. It formed about 15% of the Corporation’s disbursement needs. The Corporation preferred assistance in the form of loans for it could avail the benefit of tax by way of deduction of internal loan. During the year 1990-2000, the state government did not contribute any loan to the RFC. No contribution from the state government in the form of quasi-equity/soft loan was received during the year 2004-2005. The state government kept a token provision of Rs.1000 only under its annual plan.

2. Refinance from IDBI and SIDBI :


The Corporation got finance from IDBI and SIDBI. It was most expeditious source of finance. About 55% of the fund needs was fulfilled from IDBI and SIDBI. 3% was added to the interest rate at which the refinance was provided and advances were made to the borrowers by RFC at this rate. The Corporation had to prepare BPRF, a statement of the estimated and projected sources of funds and utilization of funds thereof. It was discussed with and approved by SIDBI accordingly.

3. Short Term loan from SI DBI:

The short term loan was utilized for disbursement of loan against schemes not covered under general finance.

4. SLR Quota Bonds :

The Corporation also issues market bonds to satisfy its resource needs. Bonds constitute about 15-20% of the requirement. They are guaranteed by generally state government banks subscribe to these bonds. LIC insurance company and PF trust may also subscribe.

The major problem with source is its uncertainty. First, it needs to be approved by SIDBI, and then SIDBI and RBI fix the date of bond flotation.These bonds are transferable by endorsement. The maturity period is 10-20 year sand interest is paid


half-yearly. Bond quota is also taken need basis. The Corporation has to pay guarantee commission on bonds so cost of this source is more. Therefore, it is less preferred.

5. Plough Back:

This source constituted about 15% of the disbursement need of the Corporation. Plough back is the sum of surplus of principal recovery less repayment obligations (made) and cash surplus, thus cash surplus and recovery of principal (after subtracting the repayment obligations)

a. Interest Income

Less : Interest Payable Administration Expenses Cash Surplus I

b. Recovery of Principal

Less: Repayment of SIDBI Bonds Redeemed Repayment of loan from State Government Net Recovery ___________________ IIPlough Back= I+II

Plough Back is the main face of RFC’s financing scenario. It is constituted by cash surplus and net recovery. If cash surplus increases, plough back increases. This indicates the increase in the profitability of the Corporation. But,


ultimately, plough can be increased only by increased by recovery. Sustained efforts of the Corporation policy have contributed in achieving all time results.

6. Reserves:

The Corporation uses reserves as a source of funds.

7. Borrowings from Banks :

With a view to board-base its resources, the Corporation availed a short term loan from the Bank of Rajasthan Ltd.

8. Recoveries :

During the year 2011-2012, the Corporation has recovered Rs. 430.64 crore as against Rs. 469.51 crore in the preceding year i.e. 8.28% lower than last year. Main reason of lower recovery is sluggish economy, tight liquidity and reduction in disbursement.

Follow up and recovery of loans :The follow-up recovery activity is very important. The activity of follow-up starts immediately after disbursement of loans. This activity consists of two stages:

Follow-up during project implementation stage, where it is called “Project Monitoring”.

Follow-up in post implementation stage where it is called “Follow-up”.


The SFC’s Act, 1951 is very powerful in regard to recovery u/s 29,30 and 32(G). SFC’s Act, has provided to the SFC special edge over other financial institutions in case of follow-up & recovery.Recovery Targets :

In the month of April every year recovery targets are fixed on the regional basis and then within the region for each branch.To facilitate fixing of targets on realistic basis each branch sends following information to F&R section by 10th April every year.

Amount overdue at the end of preceding year. Balance outstanding as on 31st March of the

preceding year. Principal amount expected to fall due at the end of

year from industrial units. Interest expected to fall due during the year on the

above balance outstanding from industrial unit. Amount expected to fall due in transport and DG set

loan. Case amount of which will fall due in the loan

accounts in which as per the assistance scheme of the Corporation monthly payment is expected.

Amount expected to be disbursed during the year (current year) and interest income from the same.

Recovery of funds is a major problem for financial institutions.The success of institution depends on success of recovery activities.Few measures for encouraging payments :


The following measures have been adopted to encourage payments:

In order to encourage regular payment by assisted units, a rebate in the state of interest charged may be allowed. Draft or banker cheque or local cheque can be used to pay the amount due.

If the payment of amount due is not made on due date but paid within the same quarter in which the amount fall due, then the penal interest would be charged at reduce rate 3.55% above the effective rate instead of 7% or 5% as the case may be.

Benefit as at (1) and (2) above shall be given by Branch Manager as and when required to do so at the end of each financial year by manually calculating rebate.

Follow-up and Recovery Committee:

To ensure promptness in F&R achieve the recovery targets, an F&R committee is set up in every branch. The committee shall consist of:

Branch Manager Deputy Manager/Assistant Manager (F&R) at branch

(i.e. officer responsible for follow-up and recovery)Note : RFC shall also function as PMC for review of cases and matters relating to projects under implementation.Recovery Performance : The Corporation recovered Rs. 430.64 crores as against Rs. 469.51 crores the preceding year which registered an decrease of 8.28% lower than the last year. Main reason of


lower recovery is sluggish economy, tight liquidity and reduction in disbursement.The Performance of the recovery portfolio is summarized in the table given:

(Rs. In crores)S.No.

Particulars Recovery Performance(2011-12)

Prin. Intt. Total1 Arrears at the

beginning of the year (Running units)

29.61 117.56 147.17

2 Amount fallen due during the year

327.82 190.31 518.13

3 Gross amount due for recovery

357.43 307.87 665.30

4 Net collectable amount

328.28 326.62 554.90

5 Recovery effected :6 i) Recovery

against current demand

287.61 113.34 400.95

7 ii) Recovery against over-dues

17.47 12.22 29.69

8 Arrears at the end of the year (Running units)

23.20 101.06 124.26

One Time Settlement Schemes for NPAs:


In order to get rid of age old sticky accounts and reduce NPA portfolio of the Corporation, OTS scheme for settlement of NPA accounts (except DDW cases) was also launched during the year 2011-12. As a result of of vigorous and concerted efforts, the Corporation finally settled 531 cases, for a sum of Rs. 1.59 crore.Besides above 35 cases for Rs. 2.07 crore were also decided at HO by Settlement Committees.NPA status :

Despite a sluggish economy, tight liquidity and steep rise in prices that should have all added to the NPAs, the Corporation was able to considerably reduce NPAs from 23.04% to 21.06%. This was made possible through strategic recovery measures, liberal reschedulements, maximum squeezable settlement amounts and closing of smaller accounts, particularly those having loan sanctions upto Rs. 2.00 lakh.Recovery from Deficit/Decreetal/Write of cases :During the year 20111-2012, targets for recovery in deficit, decreetal and written off cases were fixed at Rs. 27.50 crores against which 6.21 crore only was recovered. One Time Settlement Scheme for Deficit / Written off cases was introduced so as to settle maximum cases from this category. Out of a total of 3647 cases, 638 cases were finally settled during the Financial Year : 2011-12.However, Since FY 2002-03 the bond quota has been discounted and no financial support is being received from SIDBI, the Corporation is basically dependent on refinance and bank borrowings. The banks have been approached for the term loan as an alternate source to augment the total requirement of RFC.RESOURCES MOBILISATION :


The Corporation’s resource base mainly comprises of recovery, equity and refinance.

(a) Share Capital Contribution : The Authorized Capital of the Corporation is Rs. 200 crore. No fresh capital contribution was received during the year and the paid capital of the Corporation remained Rs. 110.08 crore as on 31.03.2012.

(b) Loan from State Govt :No contribution from the State Govt. in the form of quasi-equity / soft loan was received during the year 2011-12.

(c) Refinance :

During the current financial year, SIDBI provided refinance of Rs. 75 crore @10.50% p.a.

(d) Reserves :

Reserves, as on 31.03.2012, were of Rs. 62.70 crores as against Rs. 61.70 crores as on 31.03.2011.

(e) Recovery as a source of funding:

During the year 2011-12, the principal amount recovered was Rs. 305.08 crore. After meeting the repayment liabilities, 142.53 crore was ploughed back in the business.

(f) Bonds:


No Bond Quota was allocated by SIDBI during the year. Six series of bonds amounting to Rs. 43.45 crores were redeemed by the Corporation. The outstanding balance in respect of bonds as on 31st

March, 2012 was Rs. 31.50 crores.

UTILIZTION OF FUNDS

The major use of resources of Corporation is disbursement of loan, which is also main function of the Corporation. Following are the uses of resources of the Corporation:

1. Disbursement of loan2. Repayment of loan3. Day to day expenses

1. Disbursement of loan:

Disbursement of sanctioned loan will start only after execution of loan documents. Disbursement in all loan cases irrespective of loan amount except joint finance case is made from branch offices. In joint finance case, the disbursement is made at Head Office.Procedure for disbursement of loan:


Disbursement of loan is made after ensuring capital contribution and unsecured loans have been raised in full by the promoter which is corroborated from C.A. certificate.

I. Disbursement against Land:-

Disbursement of loan against land is made on the basis payment receipts submitted by the loanee unit for purchase of land/conversion charges paid to State Govt. /RIICO.II. Disbursement against Building:

Disbursement of loan against construction of building is made on the basis of valuation of building and construction material lying at factory site.

III. Disbursement against Plant & Machinery:

Disbursement of loan against Plant & machinery and MFA is made on the basis of valuation of assets created at factory site after submission of bills, payment receipts etc.

The bills and payment receipts for petty items valued up to Rs. 250/- for each item subject to maximum of 5% of the cost of the plant & machinery is not insisted upon.Individual bills and payment receipts for expenditure incurred on erection and installation of plant & machinery, electrification and misc. items like tools, jigs etc. are not required but a statement of expenditure showing item-wise details in this regard duly certified by a C.A. to the


extent of provision made in approved scheme are required to be submitted by the loanee.

Cash payment exceeding Rs. 10,000/- against single bill/invoice except statutory payment to RICO, RFC, RSEB, commercial bank etc. is disallowed for the purpose of disbursement of loan.

In case of company, disbursement of loan exceeding 50% or second disbursement is made only after the company submits copy of returns under section 125 of the companies Act along with copy of receipts of filing fee deposited with Registrar of companies concerned to the Corporation.In case of imported Plant & Machinery, the Corporation may provide letter of Comfort to designated bank for opening letter of credit on the request of the loanee unit. The Corporation may provide letter of assurance to the supplier of Plant & Machinery on the request of party for making earmarked amount of payment against machines to be supplied by the supplier.

In case of change in supplier of plant & machinery, Corporation may consider approval of change in supplier/ specifications of plant & machinery if changes are made for genuine reason.

Corporation may also consider necessary excess saving adjustment against building, plant & machinery, MFA.


Disbursement of loan is also made for retiring bank documents again dispatch of Plant & machinery from the approved manufacturer/supplier on production of bank intimation, copy of invoices, transport receipts, transit insurance and after verification of goods and transporters site. Procedure for quick disbursement

Disbursement in all company cases or the cases other than company where party has offered minimum 50% collateral security of the sanctioned loan, Corporation may release three advance instalments of disbursement but each such instalment would not be more than 25% of the sanctioned loan amount. First instalment is released on the basis of CA Certificate provided the unit has raised its entire paid-up share capital and unsecured loan envisaged in the approved scheme, complete the requisite terms and condition of sanction letter and submitted and undertaking that investment on land, building, plant & machinery has been made in accordance with the title of land, approved building plan, approved supplier of plant & machinery. The subsequent advance instalment is made only after watching proper utilization of earlier advanced instalment of loan.

Disbursement of loan may be made on the basis of Performa invoice in respect of plant & machinery supplied by the reputed


supplier specifically approved by the Corporation.

Disbursement of loan in case of existing marble units going for expansion of project, disbursement to the maximum extent of 50% of sanctioned loan against plant & machinery may be made in advance after compliance of certain formalities/norms.

In case of tourism related projects, Disbursement of loan is made in 4 equal instalments. Advance disbursement may be considered provided disbursed amount is adequately secured by existing assets. Subsequent advance disbursements are made only after watching utilization of earlier advanced instalment of loan made to the unit.

2. Repayment of Borrowings:

Corporation repays the borrowings to SIDBI and IDBI is monthly Instalments. In may 1997, the Corporation signed agreements with SIDBI and IDBI.According to the agreement between the Corporation and SIDBI:-

The Corporation shall pay a fee calculated at the rate of 1% on each disbursement made under Line of Credit (LOC).


Unless otherwise agreed to with SIDBI, Line of Credit shall be repayable by the financing institution within 24 quarterly instalments on 1st March, 1st June, 1st September and 1st

December each year from the date of first withdrawal under line of credit.

In the event of default in the repayment of the instalments of principal or payment of interest and others money payable by the financing institutions to SIDBI. SIDBI should be entitled to:

o Additional interest on defaulted instalments at the rate of 2% p.a. over and the rate of interest at which the line of credit has been disbursed.

o Any default in payment of interest under Line of Credit(LOC) scheme would attract interest at the rate of 2% p.a. over and above normal lending refinance rate of SIDBI prevailing on the date of default or the rate at which the LOC is disbursed, whichever is higher.

The additional interest recoverable from the financing institutions is to be reckoned for the entire period of the default i.e. from the date(s) on which the amount fall due for payment till the same are actually paid.

3. Day to Day Expenses:

The Corporation follows the cash system of accounting. Therefore, cash transactions are recorded in the principal books considering the limitations of the cash system of accounting in


providing figures of interest, accrued memorandum ledgers of individuals loanees are also maintained to overcome this limitation. The books of the Corporation are divided into two parts:

1. Principal Books2. Memorandum Books

The vouchers are also accordingly classified into two broad categories:

1. Voucher relating to loanee accounts:

a) Debt voucher loanee for disbursement and other debits

b) Rectifications voucher loanee for rectification c) Interest update voucher for changing interest

rated) Receipt voucher for recovery

2. Other Vouchers:

a) Debit voucher for general paymentsb) Credit voucher for general receiptc) Journal voucher for adjustmentsd) Memorandum journal voucher (only for

memorandum books)


OPERATIONAL PERFORMANCE

The Corporation was constrained by a serious liquidity crunch due to inadequate refinance support from SIDBI and accordingly, had to revise its target for sanction and disbursement. In spite of several odds, the Corporation recorded sanctions, disbursement and recovery to the tune of Rs. 283.63 crore, Rs. 259.78 crore and Rs. 430.64 crore respectively, which is 103.14%, 99.92% and 101.33% respectively of the assigned target.The comparative performance during the year 2010-2011 and 2011-2012 may be judged from the table below:

(Rs. In crore)


Key areas Target 2011-12

Achievement Percentage Achievement2010-

112011-12

Sanction 275.00 469.93 283.63 103.14%Disbursement 260.00 328.96 259.78 99.92%Recovery 425.00 469.51 430.64 101.33%

1. Sector Wise Analysis :

Despite the economic slowdown, the Corporation succeeded in financing the SME sector a fair scale. Financing in the SME sector was made to 769 units which was 96.61% of total 796 units financed during current financial year 2011-2012.The summary of assistance to SME and other than SME sector, was as under :-

Nature of Sanction 2010-2011 2011-12

No. Amt. No. Amt.


(i) Small & Medium units

826 322.27 769 249.59

(ii) Others 67 147.66 27 34.04Total 89

3469.93 796 283.63

2. Area Wise Analysis :

The Corporation fulfilled its objective that backward areas are given priority as per national and State industrial policies. The break-up of assistance sanctioned and disbursed to the entrepreneurs of the backward and other districts by the Corporation during the year 2010-2011 and 2011-2012 was as under:

(Rs. In crore)District Sanction Disbursement

2010-11 2011-12 2010-11

2011-12

No. Amt. No. Amt. Amt. Amt.Backward 478 205.62 421 140.0

2143.98 128.26

Others 415 264.31 375 143.61

184.98 131.52

Total 893 469.93 796 283.63

328.96 259.78


3. Scheme Wise Sanctions:

Keeping pace with the changing needs of entrepreneurs, the Corporations has devised schemes to meet these needs. Sanctions accorded under some of the entrepreneur/industry specific schemes are as under:

S.No.

Major Schemes

2011-12 Total(SinceInception)

No Amt. No. Amt.1 Composite Term

loan- - 2606

855.43

2 SC/ST entrepreneurs

43 5.61 10389

91.35

3 Nursing Home / Hospital

- - 297 52.22

4 Single WindowScheme :

(i) Term Loan 21 04.56 1531 62.22(ii) Working

Capital loan

- - 1357 27.40

5 Hotel & Resorts 38 36.05 1237 508.796 Good Borrowers

Schemes349 101.0

74383 872.15

7 Commercial 27 34.04 2768 1309.4


complex-cum-residential

6

8 Assets Financing Scheme

03 01.89 340 57.48

9 Financing against assets

40 21.51 1248 735.81

PROFITABILITY REPORTIt is pertinent to mention that the Corporation is maintaining accounts on cash basis where the expenditure incurred are recorded at the time of its payment and receipts are recorded at the time of its realization, whereas the other financial institutionsAre treating accrued interest in standard accounts as their income. Still the Corporation has earned profit and the position of profit after tax in last 6 years as below:


Profit After tax before provisioning(Rs. In lacs)

2011-2012 452.282010-2011 1196.892009-2010 205.292008-2009 851.142009-2008 1149.442008-2007 1113.54

2011-201212%

2010-201131%

2009-20105%

2008-200922%

2009-200830%

Sales

BANKING SYSTEM OF RFC

The Corporation has a unique arrangement with its bankers. This system is developed in Rajasthan only. Other state Financial Corporation has shown interest and has sought help of the Corporation of developing it in their State.Under this arrangement the Corporation has got its account at the Head Office of 9 banks in Jaipur. Out of


these 9 banks there are 6 banks, in which the Corporation has opened accounts with the Branches also.There are two types of accounts i.e. collection account and withdrawal account. They are two types of accounts:

1. Collection Account2. Withdrawal Account

They are opened with 39 branch offices at the different cities (Jaipur 1st and Jaipur 2nd branches do not have these accounts)

1. Collection Account

All the branches deposit recovery in this account. All the recovery than transferred at par to central account Head Office. Collection is transferred in a week without any MT and TT (Transfer by mail and Transfer by telegram charges). Any other receipt is also deposited in this account. Banks credit the central account on receipt of collection from branches. Banks do not credit the individual branch account.

2. Withdrawal Account

All the disbursement is made through this account. Branches can withdraw amount for disbursement of loans, administrations expenses and for day to day expenses. Banks debit the central account at the Head Office.Banks provide these services without changing anything from the Corporation. Central Account banks issues cheque books to the branches. All the officers who can withdraw amount are authorized by the Head Office. Head Office also sends their name and signature to the main


branch and to all the branches of the bank where branches of the Corporation exist.The system is very beneficial to the Corporation. When the Head office issues a cheque for disbursement of loan to a unit established in other city, the unit can get amount from the branch of bank in that city. The branch of the banks sends information of the payment made to the main branch at Jaipur. Then the bank debits the central account of the Corporation. It generally takes 5-8 days. Thus, in other way the Corporation gets the credit for the same period. In other words, when branch office issues a cheque, payment is immediately made by the respective branch of the banks but the amount is debited at the central account of the head office. Afterwards, head office is able to control the funds in the better way, because the transaction takes place through central accounts.Thirdly, the Corporation always knows its current position of funds and its requirement. Thus, it can efficiently manage its funds.

IDLE FUNDS WITH RFC

Every organization, financial institution etc. which works in the development of funds has to deal with idle funds. It is very difficult to synchronise disbursement and recovery funds.RFC has to face such problems. There are two factors which cause problems:


1. Default in Payment :

It is caused by following factors:a) Social Obligationsb) Recovery from entrepreneurs in timec) Unskilled managementd) Difference in interest rate of RFC and market

structure.Under social obligations, SFCs are instructed that they are to accelerate not only industrial development also, when enterprises get to much promotion schemes, they become less concerened about their projects and it causes defaults and many times bad debts.RFC provide loans to enterprise to set up projects. There are instances that project cost raised during its construction period because of misinterpretation of facts. They may not be skilled in managing their concerns.

2. Operation of RFC:

This aspect is related with the basic functioning of upraising projects to sanction loan. After investment of promoter contribution, disbursement is made in installment policy. According to this policy when promoter comes to RFC for disbursement of installment, the technical appraisal is made to conform about investment about promoters. There are two types of contingencies:

a) Uncertainty in disbursement timeb) Uncertainty about the amount of disbursement

Due to uncertainty of disbursement, it has to keep its funds in current account.Development of Idle Funds


The trend of development of short term funds into various investments to get some return is very narrow; therefore, idle or surplus funds are developed in:

Current Account Short term deposit receipts (STDRs)

STDRs are short term deposits provided by banks to investors to privilege liquidity in their term deposits.The minimum maturity available in STDRs is 15 days. So only after this prior, an investor can earn a specified return on investment made. But if the investment is withdrawn prior to maturity no return will be given.After maturity of 15 days, RFC is able to earn 5-9% on its investment made. On the other hand it is earning around 17.5% on its advances.Consequently, it prefers loan on STDRs.




FINANCIAL ANALYSIS


A financial ratio is a relationship between two financial variables. It helps to summarize the large judgment about the forms financial performance. With the help of ratios, one can determine -

1. The ability of the firm to meet its current obligations2. The extent to which the firm has used its long term

solvency by borrowing funds3. The efficiency with which the firm is utilizing its

assets in generation sales revenue4. The overall operating efficiency and performance of

the firm

1. Liquidity Ratio :

Liquidity refers to the ability of the concern to meet its current obligations as and when these become due. The short term obligations are met by realizing amounts from current, floating or circulating assets. The current assets should either be liquid or near liquidity. These should be convertible into cash for paying obligations soft short term nature. The sufficiency of current assets should be assessed by comparing then with short term liabilities. If current assets can pay off current liabilities, then liquidity position will be satisfactory. On the other hand, if current liability cannot be easily met out of current assets then liquidity position will be bad. To measure the liquidity of the firm, following ratios can be calculated:

A. Current RatioB. Quick/Acid Test/Liquidity Ratio


1.1 Current Ratio:

Current ratio can be defined as the relationship between current assets and current liabilities. This ratio is also known as ‘Working Capital’ ratio. It is a measure of general liquidity and it is most widely used to make the analysis of short term financial position. It is calculated as follows:

Current Ratio =

Current Assets

Current Liabilities

Current assets include cash and those assets which can be easily converted into cash within a short period of time generally one year, such as marketable securities, bills receivables, sundry debtors, inventories etc. Prepaid expenses should also be included in current assets. Current liabilities are those obligations which are payable within a short period generally within a year and include outstanding expenses, bills payable etc. The current ratio for the last 4 years as follows:

(Rs. In lakh)FY ended on 31st March

Current Assets

Current Liabilities

Current Ratio

2009-10 95620.83 77895.37 1.232010-11 94708.98 76574.03 1.242011-12 90944.77 67100.57 1.35


Interpretation:

An increase in the current ratio represents improvement in the liquidity position of a firm, while a decrease indicates that there has been deterioration in the liquidity position of the firm. A ratio equal or near to 2:1 is considered to be satisfactory, but the performance of RFC in the last three years shows that it has maintained a current ratio of above 1 expect for the current financial year. Thus, RFC does not meet the standard of the 2:1 in items of liquidity position (short term). However, in the present scenario where the market is competitive, the standard current ratio considered is 1:1. RFC fulfills this condition for all the years expect for the current year 2011. According to this, RFC is doing a fairly good job in terms of liquidity position considering the current competitive market.But current ratio is not a good measure for analyzing liquidity position of a financial institution like RFC, which mainly deals with providing long term loans. Its owns borrowings are also for long term. So, a clear cut distinction of fixed assets and current assets is difficult. The cash balance also keeps on fluctuating from time to time. The current ratio is a test of quantity and not quantity. Liabilities are not subject to any fall in value. They have to be paid but current assets can decline in value, if the firm’s short term solvency is threatened. Thus, too much reliance should not be placed on the current ratio. Further investigations of items of current assets is necessary.


The classifications of loans and advances of RFC as performing and non performing assets is as follows:Category 2010-

20112011-2012 %(+/-) over

corresponding period

Performing Assets

766.95 752.32 (-)1.91%

Non-PerformingAssets

229.65 200.65 (-)12.63%

Total 996.60 952.97 (-)4.38% As clear from the table above, the performing asset and the total amount of assets have shown a negative change when compared to previous year, while the NPA have shown a declining trend. This clearly depicts the no improved quality of RFC’s assets, which is a healthy indicator for a financial organization like RFC.

1.2 Quick Ratio or Acid Test Ratio:

Quick ratio is a more rigorous test of liquidity than the current ratio. Current assets include inventories and prepaid expenses which are not easily convertible into cash within a short period. Quick ratio may be defined as a relationship between quick/liquid assets and current/liquid liabilities. An asset is said to be liquid if it can be converted into cash within a short period without loss of value. In that sense, cash in hand and cash at bank are the most liquid assets. Inventories cannot be termed to be liquid asset because they cannot be converted into cash immediately without a sufficient


loss of value. The quick ratio can be calculated as shown below:Quick Ratio= Quick asset / Current Liabilities

RFC is a financial institution and so they do not have any inventory. So quick assets are same as current assets.Thus, Quick Assets= Current Assets

Interpretation:

Generally a quick ratio of 1:1 is considered to represent a satisfactory financial condition. This indicates that the Corporation has just sufficient resources to meet its current liabilities. However, when compared the standard 2:1, the interpretation that can be placed on the current ratio and acid test ratio is that a large part of the current asset of the firm is tied up in slow moving and slow paying debts. The firm might face some difficulties in paying its current liabilities. The acid test ratio provides, in a sense, a check on the liquidity position of the firm.In general it is not good to have a very high cash position that may keep cash reserves should not be too low. Too low cash position may create cash crisis and effect day-to-day operations. The cash position is maintained according to the requirement by finance department. As per these guidelines, RFC is doing a fairly good job on the liquidity front.2. Capital Structure Ratio or Leverage Ratio :


Capital structure of a business consists of long term funds, which are not repayable in the short run. Here the term ‘short run’ is taken as one year.

Capital structure of business consists of three elements:

1. Share Holder Funds2. Long Term Funds3. Short Term Loan funds, Current Liabilities and

provisions

2.1 Debt-Equity Ratio: Debt-equity ratio is calculated to measure the relative claims of outsiders and the owners (shareholders) against the firm’s assets. This ratio indicates the relationship between the external equities or the outsiders funds and the internal Equities or the shareholders funds. Thus:

The outsider’s funds include all debts/liabilities to outsiders, whether long term or short term or whether in the form of debenture bonds, mortgages or bills. The shareholders funds consist of equity share capital, capital reserves, revenue reserves and reserves representing accumulated losses and deferred expenses if any should be deducted from the total to find out shareholders funds. When the accumulated losses and deferred expenses are deducted from the shareholders funds, it is called the net worth and the ratio may be termed as debt to net worth ratio:

Debt-to-Equity Ratio = Total Debt / Total Equity


67010.57/1727790=3.87

Note: Equity loans have been included in equity, as it has to be converted into share capital sooner or later.Interpretation:

As per the guidelines framed under capital issues (control) act, 2:1 debt equity ratio norm was suggested. However, RFC has a debt-equity ratio norm was suggested. However, RFC has a debt-equity ratio of which is much higher compared to the norm suggested. It implies a higher contribution from lenders compared to owners, This indicates a higher risk, also known as financial risk. Most of the profits earned will go towards paying interest on the borrowings.According to SFC’s Act 1951 the authorised capital for SFC’s is 100 crores. So the share capital of RFC cannot exceed 100 crores. Its major source of finance is refinance from SIDBI. Thus, the debt is on the higher side.

2.2 Coverage Ratio:

The interest coverage ratio is one of the most conventional coverage ratios used to test the firm’s debt servicing capacity.The interest coverage ratio shows the number of times the interest Charges are covered by funds that are ordinarily available for their payment. This ratio is computed by dividing earnings before interest and taxes (EBIT) by interest charges.Interest Coverage= EBIT / Interest


Interpretation:

This ratio indicates the extent to which the earning may fall without causing any embarrassment to the firm regarding the payment of the interest charges. A higher ratio is desired but too high ratio indicates that the firm is very conservative in using debts. It includes the number of times the interest is covered by the profits available to pay the interest charges. Long term creditors of a firm are interested in knowing the firm’s ability to pay interest on their long term borrowings. Generally higher the ratio safer are the long term creditors because even if the earnings of the firm fall, the firm shall be able to meet its commitment on fixed interest charges. But a too high interest coverage ratio might not be good for the firm because it may imply that the firm is not using debts as a source of finance so as to increase per share.The interest coverage ratio does not take into consideration other fixed obligations like payment of preference dividend and repayment of loan installments.3. Profitability Ratios

The profitability ratio is calculated to measure the operating efficiency of the firm. Besides management of the firm, creditors and owners are also interested in the profitability of the firm. Creditors want to get interest and repayment of interest regularly.Owners want to get a reasonable return on investment.


3.1 Return On Investment:

Common shareholders are entitled to the residual profits. The rate of common dividend is not fixed; the earning may be distributed to them or retained in the business. Nevertheless, the net profit after taxes represents their return. A return on shareholders’ equity is calculated to see profitability of owners investment.The ratio is generally calculated as a percentage by multiplying the above by 100. The two basic components of this ratio are:1. Net Profit2. Shareholders FundsShareholders funds include equity share capital, preference share capital, free reserves such as share premium, revenue reserves, capital reserves, retained earnings and surplus. Less accumulated losses, if any. Net profits are visualized from the viewpoint of owners, i.e., shareholders. Thus net profit are arrived at after deducting interest on long-term borrowings and income tax, because those will be the only profits available for shareholders.To sum up:Shareholder’s Investment = Equity share capital+ Preference share capital+ Reserves & Surplus – (Accumulated losses, if any)

Net Profit = Net profits after payment of interest and taxes

ROI=PAT/NW

ROI indicates how well the firm has used the resources of owners. This ratio is thus of great interest to the parent as well as perspective shareholders and also of


great concern to management, which has the responsibility of maximizing the owners welfare.

Interpretation:

This ratio is one of the most important ratios used for measuring the overall efficiency of the firm. As primary objective of the business is to maximize its earnings, this ratio indicates the extent to which this primary objective of business is being achieved. Thos ratio is of great importance to the present and prospective shareholders as well as the management of the company. As this ratio reveals how well the resources of the firm are being used, higher the ratio, better are the results. The return on shareholders investment should be compared with the return of other firms in the same industry. The inter-firm comparison of this ratio determines whether the investments in the firm are attractive or not as the investors would like to invest only where the returns are high.The increasing trend in the ROI values for RFC indicates the improving returns on investment for the shareholders and therefore, represents a healthy financial state of the firm.


SUGGESTIONS

1. As RFC is working for social welfare and state government is the major shareholder in RFC, state government should provide free funds for financial restructuring.

2. Corporation must strive to get international sources of financing with the help of national level of institution like IDBI and SIDBI.

3. The Corporation should insist on higher promoter contribution where promoter’s commitment in the project and ensuring adequate security cover.

4. The Corporation’s margin is under pressure due to higher cost of funds, which is required to be reduced. State government can also help out by providing more funds at less cost.

5. Though the management in RFC is efficient, there is scope of further improvement which can be brought up by efficient computerization.

6. RFC must redesign its strategy of operation :-

a) To distribute loan only to such applicants who have a potential and technically sound scheme coupled with viable and matching source of


finance to take care of its revenue requirements so that applicants and entrepreneurs are discouraged to misuse.

b) To ensure maximum refund back of its loan to various entrepreneurs, the strategy must focus on substituting acceptance of sub-standard assets as security and third guarantee to payment.

c) To ensure maximum attention and monitoring its loan utilization and realization operations, any misuse of utilization of funds or any probability developing an effective and timely realization must be detected in time and effective measures should be taken.

7. RFC should improve in developing better source of funding. It should float its equity share to public to enrich its funding on basis of minimum dividend at a lesser rate than rates of interest which RFC pays to IDBI, SIDBI and government.


CONCLUSIONS

Term lending institution faces problem in managing funds because of the unpredictability of the disbursement and recovery of funds.The Corporation during its 57 years of experience has sanctioned term loans of more than RS. 2100 crores and disbursed more than Rs. 1450 crores where banks and private financing companies are still having perception that Rajasthan is a backward state with poor infrastructure but RFC has played key role in developing industrial potential State.The Corporation needs a clear policy about defaulting units. RFC has to bring change in client expectation from being an easy going institution with habitually agree to reschedule loans to a more modern organization which is less to learnt defaults but render more efficient and wider range of services.


Bibliography

The SFC Act, 1951 RFC- Procedures and Guidelines Manual RFC-57nd Annual Report Of 2011-12 RFC- Statistical Report Of 2011-12 Various Brouchers & Literature Related to RFC Khan, M.Y. With Jain, P.K. Financial

Management, Tata Mc Graw Hill

Web Bibliography

http://www.rfconline.org http://www.google.com http://en.wikipedia.org http://www.investopedia.com


http://www.investopedia.com/

http://en.wikipedia.org/

http://www.google.com/

http://www.rfconline.org/

Final Project rfc

Documents

state financial corporation

training project

various loan schemes

various schemes

functions of rfc

special loan schemes

financing of good project

departments of rfc