From a Creeping Economy to a Strong Economy in a Decade and a Half is What the Story Being Experienced by India

8/8/2019 From a Creeping Economy to a Strong Economy in a Decade and a Half is What the Story Being Experienced by In

1/72

1

CHAPTER-1

INTRODUCTION

1.1 INTRODUCTION pg-2

1.2 RATIONALE OF STUDY pg-3

1.3 OBJECTIVE OF STUDY pg-3

1.4METHODOLOGY ADOPTED pg-4

1.5CHAPTER PLAN pg-5


2/72

2

1.1 Introduction

At INDUSIND bank an era of renewed vigour has been ushered by a new management,the managements enhanced strategic clarities and execution capabilities are reflected in constant

uptick in the banks operating metrics for the last six quarters. Shrugging off past turbulations

INDUSIND now has streamlined systems and processes to grow ahead of the industry average.

As per the rescent business highlights published in the banks website the net NPA has come

down to 0.50% as compared to 1.14% in the previous year. This gives enough reason for a study

to be conducted on a bank like INDUSIND bank.

Pre liberalization era has seen many a financial institutions closed down their businessesdue to white elephants growth. White elephants here are referred to the growing level of non

performing assets(N.P.As). pulic sector banks were not facing much problem as the government

was always coming for their rescue. But many a private sector banks were not to be seen in the

scene due to the so called white elephants as there was nobody for their rescue. Therefore in

order to lend to the efficient borrowers who are capable and willing enough to pay back the loan

amount as per the conditions specified, credit scoring has assumed a great significance. In the

present scenario efficient credit scoring because of its ability to check induction of weak

accounts to the loan portfolio i.e NPAs, so CREDIT SCORING is a tool to find out the credit

worthiness of an individual or an organization and checking out for the feasibility of lending to

the same by virtue of his past record, future cash flows and his securities as contingencies.

This study aims at finding out the procedure and effectiveness of the credit scoring

system prevailing in the Bhubaneswar branch of the INDUSIND bank with the help of a case

study.


3/72

3

1.2 Rationale of study

Indian banking system , before the financial reform was mostly dominated by the

public sector banks and there were constraints for the private parties. Previously the scope of

banking activities was limited to borrowing and lending money. After the reform process private

sectors were encouraged to participate in the financial race. As a consequence it resulted in an

intense competition among the banks to fulfill the customer preferences.

Prime functions of Bank is to take deposit and lend credit. Due to LPG common people

as well as the corporates are benefited by low cost fundings. Immense competition in this

segment started forcing banks to credit its customer at a reasonable low rate. Banks have

developed a customer friendly approach as the later becomes the king. The fast technology has

brought a customer-centric approach to the banking industry.

Customer became an important integrated element in the market-oriented activity. It is

very much essential to know the customers attitude regarding the banks services. My study

mainly focuses on collection of information to evaluate the CREDIT SCORING system in

INDUSIND BANK, which is well known among the corporate world regarding its friendly credit

approach.

1.3 objective

The present study has been undertaken with the specific following objectives:

To get an overall view of the working and performance of indusind bank.

To get a thorough knowledge about credit scoring

In this project I got the chance to practically fill in inputs of a sole proprietorship concern

in the case of renewal of working capital loan.


4/72

4

To pursue an overall idea of the whole banking sector and its activities this project was

very helpful.In this project I came to know about various factors that influence the

working capital loans

In this project I came to know about assessment of various risks associated while granting

loans .

1.4 METHODOLOGY ADOPTED

The following methodology has been adpted during undertaking the present study.

Data collection

The data has been collected from both primary and secondary sources.

Primary sources:

The primary data was collected from the bank employees, the scoring parameters were

also given by the bank employees, interaction with the customers who came to apply for

short term loans.

Secondary sources:

The secondary data was collected from the bank website, journals, circulars, some books

on credit appraisal and credit scoring, from various other websites, from newspapers and

also from some magazines.

Presentation of data:

The data collected has been processed and presented in such a manner so as to make the

study more interesting and understandable

Data has been edited for more completeness and easy understability.

Specific purpose tables has been used.

Tables have been used to make the study more interesting.


5/72

5

LIMITATION OF THE STUDY

Each and every object, system, study has its brighter side as well as darker side also. The

darker side in my study on the credit scoring system carried out in the bank are:

y The study mainly depends upon reliability of the data and the information collected from

the secondary sources.

y The study could not be made comprehensive due to time factor and limited information at

hand.

y Being new to the concept of credit scoring and credit appraisal , the study by me has been

affected by my unawareness about various technical intricacies about the subject.

y The scoring system followed in the case study is a software based gradation and is

subject to limitations.

Inspite of my study being marred by all above limitations a whole hearted and committed

effort was given from my side to make this project and successful one. I am hopeful my

sincere effort to design the report to its present state would be a good learning experience

for those who do have no or very little idea about CREDIT SCORING.

1.5 CHAPTER PLAN:

The whole study has been divided into five chapters which facilitates easy understanding.

CHAPTER 1

It deals with the problem statement,objective, and research methodology of the present

study

CHAPTER 2

It gives a birds eye view of the Indian banking industry and INDUSIND bank

CHAPTER 3

It presents a conceptual study about credit scoring, its origin, importance, present

scenario and future growth aspectCHAPTER 4

This chapter gives an insight into the case study of a sole proprietorship

oganisation(name not disclosed)

CHAPTER 5

This chapter deals with the findings ,suggestions and conclusion of the present study


6/72

6

CHAPTER 2

COMPANY PROFILE


7/72

7

2.1 INDUSTRY PROFILE

The Indian banking can be broadly categorized into nationalized (government owned) private

banks and specialized banking institutions. The reserve bank of India acts a centralized body

monitoring any discrepancies and shortcoming in the system.

Since the nationalization of banks in 1969, the public sector banks or nationalized banks have

acquired a place of prominence and has since has seen tremendous progress. The need to become

highly customer focus has forced the slow moving public sector banks to adopt a fast trackapproach. The unleashing of products and services through the net has galvanized player at all

level of banking and financial institutions market grid to look a new at their existing portfolio

offering.

The Indian banking has finality worked up to the competitive dynamic of the new Indian market

and is addressing the relevant issue to take on the multifarious challenges of Globalization. Banks

that employs IT solutions are perceived to be futuristic and proactive players capable of meeting

requirements of the large customer base. Private Banks has been fast on the uptake and is

reorienting their strategic using the Internet as a medium. The Internet has emerged as the new and

challenging frontier of marketing with the conventional physical world tents being just as

applicable like in any other marketing medium. The Indian banking has come from a long way

from being a sleepy business institution to a highly proactive and dynamic entity. This

transformation has been largely brought about by the large dose of liberalization and economic

reforms that allow banks to explore new business opportunities rather then generating revenue

from conventional streams (i.e. borrowing and lending) Indian nationalized banks to be the major

lender in the economy due to their sheer size and penetrative networks which assures them high

deposit mobility.


8/72

2.2 BANKING INDUSTRY

2.2.1 BANKING HYPERM

ARKET

Banks have now recognized the important of retail banking along with corporate banking.

Now-a-days hyper banking is the major banking activity to attract the customer. The purpose of

hyper banking is to

Provide all type of financial product under one roof.

Reduce the customer acquisition costs

Save the time of customer

To attract more customer

Hyper banking has been acknowledged as a logical marketing approach to expand retail segments.

This allows the banking sector to get 360 degree view of its entire customer base. Under the

banking hypermarket all type of financial product likes saving, loan, current a/c, locker, tax saver,

life insurance, health insurance, mutual fund etc are available. Hyper banking as opposed to most

other initiative offers a truly WIN-WIN scenario for banks and their customer alike.

2.2.2 BANKING STRUCTURE IN INDIA

The commercial banking system in india may be broadly distinguished into:

1. PUBLIC SECTOR BANKS

State bank of India and its associate banks called the state bank group

20 nationalized banks, Regional rural bank mainly sponsored by the public sector banks.

2. PRIVATE SECTOR BANKS

Old generation private sector banks.

New generation private sector banks.

Foreign banks in India Scheduled co-operative banks.

Non-scheduled banks


9/72

9

2.3 PROFILE:

IndusInd Bank, which commenced its operations in 1994, caters to the needs of both Consumer

& Corporate customers. It has a robust technology platform supporting multi - channel delivery

capabilities. The Bank enjoys a patronage of 2 million customers and has a network of 210

branches and 497ATMs spread over 168 geographical locations in 28 states and union territories

across the country. The Bank also has Representative Offices in Dubai and London. The Bank is

driven by the state-of-the-art technology since its inception. It has multilateraltie-ups with other

banks providing access to more than 21000 ATMs for itscustomers. It enjoys clearing bank

status for both major stock exchanges - BSE and NSE - and three major commodity exchanges in

the country - MCX, NCDEX, and NMCE. It also offers DP facilities for stock and commodity

segments. The Bank has been bestowed with the mandate of being a Settlement Banker for tea

auctions at Kolkata, Siliguri, Coonoor, Coimbatore and Guwahati. In a pioneering initiative in

'Green Banking' project, the Bank became the first bank in Maharashtra to open a solar-powerATM. Subjects like sustainable development, social responsibility and climate change are fast

becoming part of the corporate vocabulary and IndusInd is at the forefront of this change in the

Indian banking sector. In Q4, the Bank received a series of awards commencing with the

prestigious Technology Bank of the Year-2009 award in the private and foreign bank category

from the Indian Banks Association (IBA). The State Forum of Bankers Clubs, Kerala, bestowed

the Excellence Award, as the second best new generation Bank in Kerala. Recently, it has also

been recognized as the Bank with the Best Credit Quality in FE Indias Best Banks, a publication

brought out in support by Ernst & Young, reflecting the robustness of Banks credit assessment

systems.


10/72

10

2.3.1 GENESIS:

IndusInd Bank derives its name inspiration from the Indus Valley civilization- a culture

described by National Geographic as one of the greatest of the ancient world combining a spirit

of innovation with sound business and trade practices.

Mr. Srichand P. Hinduja, a leading Non-Resident Indian businessman and head of the Hinduja

Group, conceived the vision of IndusInd Bank the first of the new generation private bank in

India - and through collective contributions from the NRI community towards Indias economic

and social development, brought the bank into its being.

The Bank, formally inaugurated in April 1994 by Dr. Manhmohan Singh, Honorable Prime

Minister of India who was then the countries Finance Minister, started with a capital base of Rs

1000 million (USD 32 million) of which 600 million was raised through private placement from

the Indian residents while the balance Rs 400 million (USD 13 million) was contributed by Non

Resident Indians.

All the outlets of the Bank, including its branches and ATMs, are connected via satellite to its

central database that operates on the latest version of IBM,s AS400-720 series hardware.

IndusInd Banks broad lines of business includes Corporate Banking, Retail Banking, Treasury

and Foreign Exchange, Investment banking, capital Markets, (NRI)/ High Netwoth individual

(HNI) banking , and (through a subsidiary) information technology.

INDUSIND bank provides multi-channel facilities including ATMs , Net banking,mobile

banking, Phone banking, Multi-City banking, and Internaitional Debit Cards. It was one of the

first banks t become a part of RBIs real t ime gross settlement(RTGS) system. It has implemented

an enterprise-wide risk management system encompassing global based practices in the area of

risk management, with help from KPMG. This has enabled he bank to remain in the forefront in

complying with the requirements of BASEL II. It is the first bank in india to receive ISO9001:2000 certification for its office and entire branches. With its route in Indian tradition and

emphasis on customer care, INDUSIND banks service philosophy is well reflected in the

communication tagline WE CARE DIL SE


11/72

11

2.3.2 BOARD OF DIRECTORS:

Mr. R. Seshasayee Managing director,Ashok Leyland ltd.

Mr. R. Sundararaman Former Dy Managing Director of SBI

Mr.T.AnanthaNarayanan

Chartered Accountant and Expert in agriculture and rural economy

Dr. T. T. RamMohan Professor, Finance & Accounting, IIM, Ahmedabad

Mr. Premchand Godha M.D. of Ipca Laboratories Ltd., having practical experience of SSI

& Agriculture

Mr. Ajay Hinduja Businessman

Mr. Sushil Chandra

Tripathi

I.A.S (Retired), Advocate

Mr. Ashok Kini Former Managing Director of SBI

Mr. Romesh Sobti Managing Director & CEO

2.3.3MISSION:

To emerge as an international Bank, acquiring global capabilities, providing world-class services

and maintaining the highest standards of professionalism & integrity.

Effectively the mission of INDUSIND bank is:

To emerge as an international bank with traditional root.

To acquire global capabilities

To provide world class service

To maintain the highest standards of professionalism and integrity

2.3.4 BRAND :

Trust, clarity of vision, Calmness, Communication, Truth, Stability, Harmony, Modernity

Creativity, Imagination, Expression, Energy, Expansiveness, Innovation, Warmth,

Friendly, Approachability

Strength, Power, Passion, Authority, Reliability, Dependability, Efficiency


12/72

12

2.3.5 QUALITY POLICY:

IndusInd Bank is committed to meet and strive to exceed customer requirements through

timely, error free and courteous service. We shall continually improve the effectiveness of our

work process through training, customer feedback and review of systems.

2.3.6 A TURNAROUND:

The managements enhanced strategic clarity and execution capabilities are reflected in

consistent uptick in the banks operating metrics for the last six quarters. Shrugging off past

tribulations, IndusInd now has streamlined systems and processes to grow ahead of the industry

average. Network expansion, improvement in CASA & retail deposit share, traction in fee

income and stable provisioning requirements are expected to converge into margin expansion

and strong earnings growth in the near term.

2.3.7 AFTER A TURBULENT HISTORY:

IndusInd commenced operations as a corporate bank in 1994 with presence restricted to metro

cities. Given its limited reach, the bank had to borrow through CDs and from cash-rich

corporates, which led to high cost of funds and thereby had little scope to book profits. In the

aftermath of the economic slowdown of late 1990s, NPAs soared from 2% in FY97 to 7% by

FY99, while NIM plummeted from 4.1% in FY96 to 1.9% by FY00 and RoA from 3.3% to a

measly 0.8%. OverFY00-04, the bank focused on consolidation and made cumulative provisions

of Rs6.75bn to clean up its books using the gains on the investment portfolio. Subsequently in

FY04, IndusInd amalgamated with Ashok Leyland Finance (ALFL) to gain a retail distribution

and asset franchise. However, the bank was still dependent on low-maturity bulk deposits to fund

a largely fixed rate book. Exposed to the vagaries of market conditions, NIM further dipped to

~1.4% and RoA to ~0.3% overFY07-08.


13/72

13

2.3.8 MARKED IMPROVEMENT IN FUNDAMENTALS OVER THE PAST SIX

QUARTERS

With induction of a new management, the focus has shifted to profitability as also balance sheethealth (correction of pricing anomalies in the balance sheet). Over the past six quarters, IndusInd

has seen a consistent expansion in profits, strong rebound in CASA and margins, traction in fee

income and decline in NPAs.

2.3.9 ROBUST ASSET BOOK WITH STRONG COMPETENCIES IN VEHICLE

FINANCING

IndusInds loan book is split largely evenly into corporate and retail. This balance provides a

natural hedge to yields in case of rapid movement in interest rates. The consumer finance

division finances a range of vehicles along with some construction equipment. Being an offshoot

of ALFL, the division has huge competencies in the form of strong domain knowledge, a wide

distribution network, personal contact with customers and good understanding of the dynamics

of the CV business.


14/72

14

2.4 EXPANSION IN BRANCH NETWORK

Over the past few years, IndusInds network had remained stagnant at 180 branches. The bank

has opened 30 new branches, in H2FY10. IndusInd has further applied for a substantial number

of additional licensesand expects to receive these in due course of time. Expansion in branch

network(expected to touch ~300 in FY11) is likely to expedite retail deposit accretion and bolster

margins.

2.4.1 INCREASING THE SHARE OF CASA

To drive margin expansion, IndusInds new management is striving to enhance the share of low-

cost CASA deposits. The bank has launched new products to accelerate the CASA momentum.

Further, the bank has focused on self-employed and small businesses for shoring up its CASA

deposit base.


15/72

15

2.4.2 FINANCIAL RESULTS FOR YEAR ENDING 31ST

MARCH 2010

particulars 2009-10 2008-09 y-o-y growth

interest earned 2706.99 2309.47 17%

Interest expended 1820.58 1850.44 (2%)

NII 886.41 459.03 93%

Non interest income 553.48 456.25 21%REVENUE 1439.89 915.28 57%

Payment to staff 290.56 187.14 55%

Other expenses 445.44 359.89 24%

OPERATING EXP 736 547.03 35%

OPERATING

PROFIT

703.89 368.25 91%

Other prov and cont. 170.84 140.76 21%

PBT 553.05 227.49 134%

Prov for taxes 182.74 79.15 131%

NET PROFIT 350.31 148.34 136%


16/72

16

2.4.3 SHAREHOLDING PATTERN AS ON 31ST

MARCH 2010:

2.4.4 PERFORMANCE HIGHLIGHTS FOR THE QUARTER ENDED 31ST

MARCH

2010:

Net Interest Income (NII) was Rs 272.79 crore as compared to Rs 144.27 crore In thecorresponding quarter of the previous year, registering a robust growth of89%.

Operating Profit for the quarter was Rs 200.48 crore as against Rs 151.29 crore in thecorresponding quarter of the previous year, up by 33%.

Net Profit for the quarter was Rs 97.96 crore as against Rs 50.52 crore in the corresponding

quarter of the previous year, spectacular jump by 94 %. Net Interest Margin (NIM) for the current quarter was 3.19% as against 2.33 % in thecorresponding quarter of the previous year.

Capital Adequacy Ratio as on March 31, 2010 was 15.33 % as against 12.55 % at the end ofMarch 31, 2009.

2.4.5 PERFORMANCE HIGHLIGHTS FOR THE 12 MONTH PERIOD ENDED 31ST

MARCH 2010:

Net Interest Income (NII) was Rs. 886.41 crore as compared to Rs 459.03 crore in the

corresponding period of the previous year, up 93

%. Operating Profit for the 12-month period ended March 31, 2010 was Rs 703.89crore as

against Rs 368.25 crore in the corresponding period of the previous year,up 91%.

Net Profit for the year ended March 31, 2010 was Rs 350.31 crore as against Rs148.34 crore

in the corresponding period of the previous year, recording a jump of 136 %


17/72

17

The CASA (Current Accounts-Savings Accounts) ratio improved to 23.67 % as against

19.24% in 2008-09.

The Net NPA of the Bank was 0.50% as compared to 1.14 % as on March 31, 2009.

The Total Deposits of the Bank increased from Rs 22,110 crore as on March 31, 2009 to

26,710 crore as on March 31, 2010 recording a growth rate of21% for the year.

Total Advances for the year stood at Rs. 20551 crore, recording a growth of30%as against

The full year EPS works out to Rs 9.01 as against Rs 4.28 in the previous year.

Net worth moves to Rs 2165.60 crore

In Q4, FY 2009-10, the Bank raised Rs 420 crore through Tier II bond issue.

In 2009-10, the Bank continued to improve on all fronts. Profits, Net Interest Margins, CASA,

CAR have all gone up even as the net NPA level was brought down to 0.5% from 1.14% as on

March 2009. A successful QIP issue in Q2 and a bond issue in Q4 have enabled IndusInd Bank

to post a healthy Capital Adequacy Ratio of 15.33% as per Basel II Guidelines, which will

enable the Bank to sustain its growth momentum.

2.4.6 LATEST PROJECTS- INDUSIND BANK TIES-UP WITH TATA MOTORS FORDEALER FINANCING

IndusInd Bank Ltd. and Tata Motors have entered into an agreement, where IndusInd Bank will

provide channel finance facilities to Tata Motors dealers. The dealers of Tata Motors will now

have access to ready upstream finance from IndusInd Bank to meet their working capital

requirements in addition to the existing retail finance arrangements. IndusInd Bank ranks in the

top retail financiers for Tata Motors commercial vehicle segment today. This tie up is a part of

the strategic focus of IndusInd Bank in developing the supply chain business.

2.4.7 FIRST SOLAR POWERED ATM INMUMBAI

IndusInd Bank Ltd inaugurated Mumbais first solar-powered ATM as part of its Green Office

Project campaign Hum aur Hariyali. It also unveiled a Green Office Manual -A Guide to

Sustainable Practices, prepared in association with the Centre for Environmental Research and

Education (CERE).


18/72

18

CHAPTER-3

CREDIT SCORING

A CONCEPTUAL STUDY


19/72

19

3.1 WHAT IS CREDIT SCORING?

Credit scoring as the name itself suggests is a scoring tool to find out the credit worthiness of an

individual or an organization and checking out the feasibility of lending to the same by virtue of

his past record, his securitites as contingencies, it is the process of valuing and appraising the

credit worthiness of a perspective borrower on basis of the terms and conditions of lending of a

particular organization.

3.2 HISTORY OF CREDIT SCORING

The credit score system used today has evolved since the 1950s. It was originally designed to

provide lenders with financial profiles on consumers who wished to borrow money. The lenders'

biggest concern was whether or not an individual had the ability to repay a loan, and establish

what percentage of risk might be involved. This concept first evolved in USA and was gradually

adopted by lending institutions especially banks of all other developing countries, to emphasise

on building a good credit portfolio and hence increase their profitability (lending being the most

profitable activity of a bank), and evaluating the risk involved to take a sound decision regarding

the borrowers repaying capacity. CREDIT SCORING has been vital in allowing the

phenomenal growth in lending over the last forty years. Without an accurate risk assessment tool

lenders of credit could not have expanded the loan book in the way they have.

3.3 SIGNIFICANCE OF CREDIT SCORING:

Effectiveness of the credit management of a bank is assessed by the quality of its loan portfolio.

Each and every bank likes to have a healthy credit portfolio, but at the same time needs to have

its NPA at the lowest possible level . Both credit portfolio and NPA do have a direct impact on

the performance and profitability of the bank. Therefore in order to lend to the efficient

borrowers who are capable and willing enough to pay back the loan amount as per the conditions

specified, credit scoring has assumed great significance. In the present scenario efficient credit

scoring has assumed immense importance because of its ability to check and prevent induction of

weak accounts to the loan portfolio that is NPAs.


20/72

20

3.4 NEED FOR CREDIT SCORING:

A bank needs to do credit scoring to check for or to know:

Loan is advanced to a person of good character, having good business acumen and the

ability to manage the business well.

Loan is provided to a productive unit where:

I. Employment is generated

II. ROI(return on investment is good).

III. Funds to be lent are going to be used optimally for enhancing the business

Loans are not given for speculative purpose

Loans are secured by primary as well as collateral security

Loans are given to business that has a good track record and also has a bright future.

3.5 5C FACTOR INFLUENCING THE CREDIT SCORING:

Character

It refers to the reputation of the perspective borrower in meeting his obligations to

the bank. This includes credit morale and mental qualities of integrity, fairness,

responsibility, trustworthiness and the like. It is difficult to measure a persons credit

character exactly, however information can be collected about the persons

reputation so far as the payment of his obligation is concerned, which sets light on

his credit character.

Capacity

It refers to the ability of the potential borrower to repay the debt when it falls due

andis indicativeof the borrowers competence to utilie the loan effectivelyand

profitably.customers capacity to repay the loan is primarily dependant upon his

earning capacity.


21/72

21

Capital

It represents the general financial position of the potential borrowers firm with

special emphasis on tangible net worth and profitability(which indicates the ability

to generate funds continuously overtime). The net worth figure is the key factor of

the business enterprise which determines the amount of credit that is made available

to the borrower.

Collateral

It represents the assets that may be offered as a pledge against the loan. It serves as a

shock absorber if the above three factors fail to assure the repayment of loan on

maturity.

Conditions

This term refers to the economic and business conditions which affect the

borrowers ability to earn and repay the debt and which may be beyond the control

of the borrower, economic conditions includes all those factors which have a bearing

on the economic process of production, distribution and consumption.

3.6 CONSTITUENTS OF CREDIT SCORING:

loan application:

It is the primary source f information given to the banker by the applicant for giving

details of its firm and the loan sought for. The information that is quite common in all

type of loans is name of the borrower, constitution of the firm, address of the firm,

qualification and experience of the enterpreneaus, past dealings etc

Interview:

Banker tries to find out the right borrower by way of interviewing and trying to extract

the actual facts and figures. An interview gives a clear understanding of the borrowers

nature to the banker by which the banker can decide whether or not to give the loanamount.


22/72

22

Pre sanction credit visit:

It gives a clear and first hand report to the banker on the actual situation, credit visit

uncovers much more hidden facts genuine impression. Facts like convenience of location,

layout, condition of plant and machinery, infrastructure available, employees strength and

quality, future scope of expansion, types of products and their quality etc are disclosed,

apart from this the banker also finds out various hidden facts and figures about the

collateral security offered by the borrower.

Enquiries

Market enquiries are done from the related businessmen who do have a better idea about

the market and about the top rank players, enquiries can also be done with the firms

customers and knowing about their response about the firm.

Transaction with previous banks

The banker can get idea about the client by means of getting the detailed transaction list

the borrower was having with the previous bank by analyzing the dealings banker can get

a clear view about the intentions and motives of the borrowing client.

Risk assessment:

There are various types of risks associated with the borrower which the banker has to

evaluate while scoring the customer, different banks follow different parameters on

which they score a customer on basis of various risks associated with the borrower.

Such risks are:

Transaction risk:

A borrower is eavluated on various parameters regarding his transaction history with the

lending bank, like:

i. Inward cheque bounce due to insufficient funds

ii. Credit summations annualized as a percentage of yearly sales

iii. Funded exposure utilization levels.

iv. Number of credit transactions in last six months.

v. Number of times o.d/t.l is irregular over limit in last six months.


23/72

23

Financial risk:

In this case the borrower is evaluated on basis of the strength of his p/l a/c and balance

sheet. In case of extending working capital loans the liquidity position of the borrower is

given more importance, ratio analysis plays a very important role in assessing the

financial position of the borrower, various ratios are found out and interpretation is

derived. Some important ratios are discussed below.

y Interest coverage ratio

This ratio is used to determine how easily a company can pay interest on outstanding

debt.it asseses the repayment capacity of the company. Generally higher the ratio more

safe are the creditors. The lower the ratio the more the company is burdened by debt

expense and its ability to meet the interest expenses may be questionable.

It is calculated as (EBITDA/INTEREST CHARGES), where EBITDA stands for

earnings before interest tax depreciation and amortization.

y Leverage ratio

This ratio is used to calculate the financial leverage of a company to get an idea of the

company's methods of financing or to measure its ability to meet financial obligations.

There are several different ratios, but the main factors looked at include debt, equity,

assets and interest expenses.

y Activity ratios:

A banker is also interested to know how efficiently funds are managed by the firm. These

ratios express the relationship between level of sales and investment in various

assets.important activity ratios evaluated by banks are debtor turnover ratio, creditor

turnover ratio and stock turnover ratio.

y

Gearing ratio:Gearing ratio refers to the financial ratio that compares some form of owner's equity (or

capital) to borrowed funds. Gearing is a measure of financial leverage, demonstrating

the degree to which a firm's activities are funded by owner's funds versus creditor's

funds. Some other factors which are analysed while assessing the financial risk of a


24/72

24

concern are the sales ternd, the total debt to net cash accrual and the liquidity position of

the borrower.

Business risk:

Here the bank asseses the scope, nature and type of business in which the borrower is

involved, various factors analysed while assessing the business risk are:

y Product range

Product range defines the number of products in which the borrowing concern deals and

the amount of their contribution to the topline of the organization. product range may

either be wide, limited and single product. In case of INDUSIND bank the products that

are substitutable or do not contribute more than five percent to the topline and same

products with multiple brands are excluded from the scoring parameters. In case of

manufacturer and wholesale dealer of any particular product, a justified score is given.

y Supplier risk

Here the bank finds out the key suppliers of the firm, their relationship period with the

borrower, a high score here minimizes the supplier concentration risk and ensures that the

production of a manufacturing concern or trading activities of a wholesale or retail

concern is not affected due to shortage of materials.

y

Customer concentration:Customer concentration reflects the customer base of the borrowing concern, a good

customer base ensures sustainability of the concern in generating income and consistency

in topline at different times and as such it reflects the loan repaying capacity of the

concern.

y Product/market environment:

The bank here evaluates the market environment for the product in which the borrowing

concern deals, the parameters specified by INDUSIND bank evaluates the product or

market environment of the borrower on basis of monopoly and stable market, competitive

yet stable market and highly competitive unstable market. High scores are allotted to

borrowers who have stable market for their products.


25/72

25

Management evaluation:

A very important constituent of credit scoring is the management evaluation, the working

f the managemet has a direct impact on the performance of the firm. The bank asseses the

capability and capacity of the person who are heading the firm. Bank wants to know the

risk bearing ability of the management and their ability to handle them, if any at all

comes. Bank investigates about the persons credibility, credit worthiness, his character,

attitude, market response towards them andoverall his commitment towards past deals

and transactions. Banker always looks out for a well known, intelligent and a person

having good business acumen before providing loan to the organization or firm.

Technical aspects:

In a dynamic environment where each and every feature of an organization does play a

part, the bank needs to asses the borrower in terms of various technical aspects as well.

The technical aspects can be:

a. Location of site of operation

The location or the site of the firm has its own advantages and disadvantages. The bank

needs to appraise the firm in terms of its physical facilities and see whether they are

sufficient enough for running the business. It is to be seen that the site selected for the

unit has adequate infrastructure availability i.e power, transport, communication, state of

art information technology, water and the structure is in coherence with the government

regulations the adequacy of the site of land and building for carrying out its present/

proposed activity with enough for accommodating future expansion needs to be judged.

b. Raw material availability

The cost of essential raw materials and consumables required and checking out for their

availability, is done by the bank

c. Plant and machinery

The bank here needs to check for the availability of the required plant and machinery

needed for the smooth working of the enterprise. Bank ahould look out for the

availability of best of plant and machinery so that each and every operational process is

done smoothly.


26/72

26

d. Expansion capacity

The capacity of the firm need to be studies well before any of the decisions regarding

lending is taken. Firm that has no scope for expansion cannot be given loan on the pretext

of expanding the business.

e. Manufacturing process

In case of a manufacturing concern the detailed process need to be studied well before

any decision regarding lending is taken, as manufacturing process in itself can become

the greatest asset ro liability for any firm.

CIBIL CHECK

CREDIT INFORMATION BUEARAU OF INDIA LTD.(CIBIL) was incorporated in

2000, The establishment of CIBIL is an effort made by the Government of India and the

Reserve Bank of India to improve the functionality and stability of the Indian financial

system by containing NPAs while improving credit grantors portfolio quality. CIBIL

provides a vital service, which allows its Members to make informed, objective and faster

credit decisions.

CIBILs aim is to fulfill the need of credit granting institutions for comprehensive credit

information by collecting, collating and disseminating credit information pertaining to

both commercial and consumer borrowers, to a closed user group of Members. Banks,

Financial Institutions, Non Banking Financial Companies, Housing Finance Companies

and Credit Card Companies use CIBILs services. Data sharing is based on the Principle

of Reciprocity, which means that only Members who have submitted all their credit data,

may access Credit Information Reports from CIBIL. The relationship between CIBIL and

its Members is that of close interdependence.

CIBIL's Commercial Credit Bureau benefits the industry and the economy overall, by

helping minimize instances of concurrent and serial defaults through providing credit

information pertaining to non-individual borrowers such as public limited companies,


27/72

27

private limited companies, partnership firms' proprietorships, and others. CIBIL

maintains a central database of information as received from its Members. CIBIL then

collates and disseminates this information on demand to Members, in the form of

Commercial Credit Information Reports (CIR) to assist them in their loan appraisal

process. In its initiative to improve Credit flow to SMEs, CIBIL is being supported under

SME Financing and Development Project implemented by Project Management Division,

SIDBI, with an aim to facilitate flow of credit to the under penetrated SME sector while

increasing banks profitability and market penetration (via sound credit decisions) and

reducing non-performing loans (via credit information tools).

The software for the Commercial Credit Bureau is developed and licensed by Dun &

Bradstreet, a world leader in commercial credit information and one of CIBIL's equity

and technical partners.

COLLATERAL SECURITY

The collateral security of the borrower is also taken into account in the process of credit appraisal. This

would help to know about the asset worthiness of the borrower. Accordingly the bank will provide

credit against the security of its collateral property.

Location- Metro/Urban/Rural Entity type- Agricultural/Residential/Industrial

Owner- Borrower Company or 3rd

Party Free Hold or Lease hold Self occupied/tenanted 1st Charge or 2nd charge (Residual Value) Company Property

Registration of Charge with ROC

Resolution

MOA to permit creation ofEM favouring 3rd parties

Inspection of propoerty Valuation Once in 3 years

2 Valuation Reports where value exceeding Rs 25 crores

Use different Valuers

Insurance Buildings, P&M etc


28/72

28

Calculation of maximum permissible bank finance:As regards the new approach to bank lending, the TANDON committee appointed by

RBI maintained that the banks main role as a lender would be to supplement the

resources carrying a reasonable level of current assets in relation to his production

requirements. It therefore argued that the total current assets would be carried purely by a

certain level of credit for purchases and current liabilities. The funds required to carry the

remaining current assets were termed as the working capital gap, which had to be partly

filled by he borrowers own funds and long term borrowings and partly by bank

borrowings. In the context of the above approach the committee developed three

alternatives for working out the maximium permissible level of bank borrowings:

(i) Under the first method the bank would finance a maximum of 75 % of the working

capital gap, i.e , the total current assets minus current liabilities other than ank

borrowings, and the balance was to come out of long term funds, i.e owned funds and

term borrowings.

(ii)In the second alternative the borrower would have to provide for a minimum of25 % of

the total current assets out of long term funds and the bank would provide the balance.

The total current liabilities, inclusive of bank borrowings would not exceed 75% of the

current assets.

(iii)The third alternative was almost the same as the second one except that it excluded the

core current assets(permanent portion of current assets) from the total current assets to be

financed out of long term funds.

In the case study attached in the fourth chapter the permissible bank finance of the borrower has

been calculated by indusind bank as per the second method as suggested by the TANDON

committee.

General guideline on credit appraisal:Appraisal report should critically analyze and comment on various important functional

areas like technical, marketing, financial management, etc and comment on their strength

and weaknesses. The report should answer objectively to various questions which can

arise in the appraisal process like what, where, when, how,who relating to the above


29/72

29

functional areas. The report should be conclusive as far as possible and the assumptions

should be realistic.

The report should always have the understated 3 cardinal rules:

Accuracy

Brevity

Clarity

AccuracyThe report should be accurate and based on facts & figures. All the facts and figures. All

the data provided in the report should be accurate and up to the date. The information that

is given by the report should be very much factual and based on the information

available.

Brevity :The credit appraisal report should be very much concise and to the point. The report

should not be haywire and should be to the point. The details provided should be very

much precise and short.

Clarity :The report should be very much clear and user friendly. The report should be presented in

such a way that each and every user could understand the information provided in a clear

way.

All the above criteria are a must to have a well defined report that can provide all the

information regarding providing loan to the borrower or not. The credit appraisal report

should be able to give out the technical feasibility and economic viability of giving loan

to any person.

Information included in the loan proposal:

While examining or assessing a customer, it is observed that the loan proposals submittedto the bank at many times do not contain the requisite information needed for the

providing of the loan amount. Therefore in order to eliminate such kind of faults we need

to have a pre sanction checklist for minimizing delays and maximizing efficiency. So to

eliminate avoidable correspondence and facilitate prompt decision, banks should

scrutinize loan proposals carefully, especially in respect of the under noted points.


30/72

30

LIST OF DOCUMENTS:

For Proprietorship Concerns

1. Detailed profile of the Company/Firm alongwith the group details, if any.2. Last 3 years audited financials and unaudited for the last year and projections for the

current financial year. Break up of those items of PL & B/S to be provided whoseschedules aren't there or are inconclusive. (i.e Debtors list, Creditors list, USL, Loans &

Advances etc.)3. Last two years ITR, PL & B/S, Tax Comp of the proprietor/guarantors.4. List of top five buyers and suppliers of the company/firm with name, contact person and

contact numbers.

5. Last 6 months bank statements of the main banker(s).6. Last 6 months figure of stock, debtors and creditors.7. List of debtors and creditors for the last two financial year.8. Monthly sales figure for the last 12 months

9. VAT returns copy for respective quarters.10.Sanction letter copy of any working capital facility/other loans availed from any bank or

FI's. Repayment track record is a must, in case of TLs.11.Latest trade license copy and VAT registration copy.12.Pan Card and Voter ID card of the proprietor/guarantors.13.Details of the collateral security.14.Copy of the property documents (Deeds), mutation certificate and tax receipt.

For Partnership Firms (Apart from the above documents)

1. Firm's registration certificate.2. Registered Partnership deed.3. ITR of the firm for the last 3 years.4. Pan Card of the firm and KYC of all the partners/guarantors.

For Companies (Apart from the above documents)

1. List of directors and shareholding pattern of the company.2. MOA & AOA of the company.3. Latest annual return and ITRs of the company for the last 3 years.4. Form 32, wherever applicable.5. Pan Card of the company and KYC of all the directors/guarantors.


31/72

31

Chapter 4

CASE STUDY


32/72

32

BUSINESS BANKING LOAN

EXISTING RELATIONSHIP PROPOSAL FOR APPROVAL OF CREDIT FACILITIES

4.1 BASIC INFORMATION:

Name M/s XXXXXXXXXXXXXXXXXXXXXX

Constitution Sole Proprietorship Firm

Name of the Proprietorship Mr. Pankaj Kumar Singh

Line of ActivityTrading of Hardware items for Heavy Vehicles Body building &

Furnishings

Industry Hardware

External Rating NA

Internal Rating/Scoring BB3/71(Cat-1)

Group Does not belong to any specific group

Segment Business Banking

Priority Sector Non Priority

Location Ranchi

Date of Last Sanction and

AuthorityRCC,Jharkhand

Due Date for Next Review Renewable annually

Nature of Banking Arrangement Sole Banking


33/72

33

4.2 BACKGROUND OF THE COMPANY AND PROMOTERS:

4.2.1THE GROUP & COMPANY:

M/s P.K.Hardware is a sole proprietorship firm owned and managed by Mr.Pankaj Kumar Singh.

TheF

irm was established in the year 1999 and doing the business of wholesale as well as retailtrading of hardware items. The Firm is located at Itki Road, Piska More, Ranchi and the area is

well known for bodybuilding establishments in which the firm deals. These hardware items are

basically used for bodybuilding of heavy vehicles. The firm has grown its business steadily over

the years and its business volume has been manifold.

4.2.2EXPANSION PLANS:

The Firm is contemplating of opening of one more shop in the nearby locality to meet customers

demand.

4.2.3THE PROMOTERS/MANAGEMENT:

Mr. Pankaj Kumar Singh, Proprietor of the firm is a graduate by educational qualification and

has immense experience in doing business as he belongs to a reputed business family.

4.2.4 SHAREHOLDING PATTERN AS ON 31-03-2010:

This is a sole proprietorship concern owned by Mr.Pankaj Kumar Singh.

4.3 PRODUCT LINE OF THE FIRM

The product lines of the firm are hardware materials. It includes products like Iron Sheet, Ply

board, Laminates, Adhesive, Mattress etc.

4.4 OVERVIEW OF BUSINESSMODEL

4.4.1 BUSINESSM

ODEL:

M/s P.K.Hardware is doing the business of hardware trading since the year 1999.The firm

procures materials from all parts of India and sell them in the local market. The major suppliers

are Godrej, Libra Mattress Pvt. Ltd, Pragati Hitech etc.The suppliers generally allows credit

period of7days to 1month on average. Also they allow cash discount upto 5% in case of early

payment. Similarly the firm allows credit Sales to its customers for a period ranging from 21


34/72

34

days to 45 days. Major clients include names like Usha Martin, Bharat Tools, Bijay Industries

etc.

4.4.2 PRODUCTS:

The product lines of the firm are hardware materials. It includes products like Iron Sheet, Ply

board, Laminates, Adhesive, Mattress etc.

4.4.3MARKETING & DISTRIBUTION NETWORK:

The Firm is doing business for a decade and has earned good reputation in the local market.

Apart from the vintage of the customer, it has a good Sales team of around 15 to look after the

marketing activities. Also the supplier representatives help in these marketing activities. So the

firm has a good marketing and distribution network.

4.4.4 KEY SUPPLIERS:

Name of Supplier

Relationship

vintage

% of Total

Purchases

Godrej Steel Ltd. 3 years 15%

Libra Mattress Pvt. Ltd. 4 years 20%

Pragati Hitech 8 years 10%

The above data depicts the strong relationship with its supplier and there is no supplier

concentration risk


35/72

35

4.4.5 KEY CUSTOMERS:

Name of Customers

Relationship

vintage

% of Total

Sales

Usha Martin Ltd 3 years 10%

Bharat Tools Ltd. 5 years 10%

Bijay Industries 4 years 10%

4.4.6 RESOURCES

y The firm was incorporated on 1999 with its registered office at Itki Road, Pisa More,

Ranchi-834001

y The firm is currently running its business through one multibrand showroom &

warehouse

y The company has staff strength of 18 people; 15 are deployed as sales/marketing/brand

building and 03

are in accounts & finance, procurement and operations.y The Firm has a good market reputation in local market.

4.5 UNIT VISIT:

The unit was visited by Amit Dahra-Relationship Manager on 16-06-2010 and found satisfactory

set up. The properties being mortgaged have been inspected and found satisfactory.

4.6 REQUEST AND RATIONALE

The firm is availing credit facilities from us since 17/09/2005 and have requested for renewal

cum enhancement in credit facilities as under:-


36/72

36

Facility Renewal Enhancement Proposed

Total

Proposed Pricing

Fund Based

Term Loans - - -

Cash Credit 15.00 lakhs 8.00 lakhs 23.00 lakhs 14.00%

WCDL (As sub limit of cash

credit)

Others (specify) - - -

Sub-total - A 15.00 lakhs 8.00 lakhs 23.00 lakhs

Non Fund Based

Letters of Credit (LC) - - -

Financial Guarantee - - -

Performance Guarantee - - -

Stand-by LC - - -

Others (specify) - - -

Sub-total B 0.00 0.00 0.00

Derivatives - - -

Sub-total C 0.00 0.00 0.00

Total (A+ B+C)

15.00

lakhs8.00 lakhs

23.00

lakhs14.00%

4.7 NATURE OF THE FACILITY:

Uncommitted and Payable on Demand.

4.8 PURPOSE:

To meet its working capital requirement.


37/72

37

4.9 DRAWING POWER:

Drawing Power for last six months given below :( Figures in Rs. lakhs)

Months Stocks Creditors

Paid

Stock

Net

Stock(a) Debtors

Net

Dtrs.(b) DP(a+b)

Dec'09 69.23 32.03 37.2 27.9 0.63 0.315 28.22

Jan'10 56.42 30.3 26.12 19.59 5.02 2.51 22.10

Feb'10 48.25 25.6 22.65 16.9875 2.6 1.3 18.29

Mar'10 45.11 37.65 7.46 5.595 9.11 4.555 10.15

Apl'10 49.60 25.18 24.42 18.315 2.6 1.3 19.62

May'10 42.11 12.15 29.96 22.47 1.5 0.75 23.22

4.10 RATIONALE

There is significant growth in business of the customer in FY10.Sales of the Firm has almost

doubled in FY10 as compared to FY09 & the Same trend will be continued in ensuing years as

projected. Considering its growth trend, the firm needs more working capital to fuel its business

growth.

4.11 ELIGIBILITY CRITERIA:

The firm meets all bank policy guidelines as per latest audited financial 2009.

Particulars 2008-09 (Audited) Eligibility Status

Gearing 0.84 = 1.25 Complied


38/72

38

4.12 RATING FOR THE CLIENT:

Rating BB3 based on audited financial statements for31-03-2009. The rating sheet is attached

as annexure. The borrower falls under Catagory 1.

4.13 DETAILS OF SECURITIES OFFERED

Primary Security:

First and exclusive charge on entire current assets and Fixed assets of the company

both present and future.

INR 55.00

Lakhs

Collateral Security:

Equitable Mortgage of following properties :

Address :Plot no.270/A,Near Pandra Petrol Pump,Ratu Road,Ranchi

Type :Residential

Owner : Smt. Jayadevi

Area : 2830 sq. ft.(appx.)

Usage : Tenanted

** Estimated market value by RM in consultation with valuer.

Total Value of collateral

INR 45.00

lakhs**

INR45.00

lakhs


39/72

39

Personal Guarantees of all the directors /shareholder and property owners

which necessarily include personal guarantee of :

(i) Mr.Pankaj Kumar Singh

(ii) Mrs.Jayadevi

4.14 VALUATION DETAILS AS PER LAST APPROVAL:

Details of Properties (Commercial)Valuation

1

Valuation

2Average Value

Lower

Value

Residential Building at Plot no.270/A,Near

Pandra Petrol Pump,Ratu Road,Ranchi

Rs.20.14 lakhs

Valuation

dated:03.08.2005

4.15 COMPUTATION OF UNSECURED EXPOSURE:

Sr.

No Collateral Offered Gross Value Haircut DSV

1 Residential Properties 45.00 20% 36.00

2 Commercial Properties

5 Cash Margin / Stand by LC / BG

6 Equity Shares


40/72

40

Total(B) 45.00 20% 36.00

Total Limit 23.00

DSV of Security 36.00

% of limit covered 157%

Net Asset At Risk ( Total Limit less DSV of

security) NIL

4.16 BANKING AND CREDIT HISTORY:

Bank statement analysis:

We have assessed last 6 months bank statements of cash credit limits with IndusInd Bank and

other bank statement if any and below mentioned is the summary:

Sr.

No.Month

Debit

Summation

Credit

Summation

Outward

Cheque

Return

Inward

Cheque

Return

Monthly Utilisation

1 Dec09 15.34 11.46 NIL NIL 12.91

2 Jan10 15.79 24.60 2 NIL 10.60

3 Feb10 15.94 13.47 NIL NIL 9.61

4 Mar10 13.32 7.87 NIL NIL 10.17

5 Apl10 13.77 17.33 1 NIL 10.70

6 May10 13.11 9.39 NIL NIL 11.48

Total 87.27 84.12 3 NIL (Average)10.92


41/72

41

Interpretations:

y Total credit summation (combined) as per the last 6 month is ~ INR84.12 lakhs and the

same is 78.50% of the turnover for the same period.

y The average utilisation of limits was INR 10.92 lakhs.

y There are 3 outward returns and NIL inward returns as reflected in last 6 months

statement which is 1.26% of the turnover and 0% of the turnover respectively during last

6 months.

y Overall account conduct is satisfactory and there are no incidences of non service of

interest seen.

4.17 CIBIL CHECK

Type of CIBIL CheckMatch

Found

Enquires

reportedRemarks

Consumer

Mr. Pankaj Kumar Singh Yes Enclosed

Overdue in CIBIL of

Rs.6641 is due to Vehicle

loan with SBI.Statement

attached for reference. The

overdue shown because of

auto debit instructions but

the account is regular.

Mrs. Jayadevi Yes Enclosed

Commercial :

M/s XXXXXXXXXXXXXX Yes Enclosed


42/72

42

Whether company /any directors appears on the latest RBI defaulters

list or SAL of ECGC

Whether company/any of its directors face litigation from Banks/FI No

Whether the directors /partners /senior executives of the company or their

relatives are connected with the bank or directors in any other bankNo

Whether commission has been paid to guarantors for extending their

guarantee for the advanceNo

Whether the company/firm/directors /guarantors appearing in watch out

investors.comNo

Auditor qualification : No adverse comment found.

COMPLIANCE

Remarks

Whether all terms of sanction complied with Yes/No Yes

Whether all prescribed documents obtained? Yes/No Yes

Whether necessary exchange of pari passu letters/inter se

agreement has been completed

Yes/No NA

Whether our charge with ROC has been filed Yes/No NA


43/72

43

Whether stock statements/QIS forms are regularly submitted Yes/No Yes

If not, whether Penal interest is charged for delayed submission Yes/No Yes

Whether Insurance is available for all the securities charged to

the Bank and the same is valid as on date and adequate

Yes/No Yes

Whether branch is carrying out unit inspections at the prescribed

periodicity and preparing unit visit reports

Yes/No Yes

Whether any adverse observations during inspections, if so,

details.

Yes/No No

Whether irregularity reports have been submitted to Corporate

Office in time?

Yes/No NA

Name of the Borrower :M/s P.K.Hardware

Rs. In lacs

Parameter 2007 2008 2009 2010 2011

Audited Audited Audited Provisional Projections

No. of months 12 12 12 12 12

Profitability

Analysis

FINANCIAL INDICATORS


44/72

44

Net Sales

54.05 102.32 85.63 168.78 231.80

Other Operating

income - - - - -

Total Operating

Income 54.05 102.32 85.63 168.78 231.80

Top line Growth Rate

(%) - 89.33 (16.31) 97.11 37.34

CAGR ofnetsales

(%) - - 16.58 18.16 39.37

Gross Profit

4.52 7.99 7.66 9.66 14.46

Gross Profit/TOI( %) 8.36% 7.81% 8.94% 5.73% 6.24%

EBIDTA

3.30 4.53 5.33 6.57 10.08

EBIDTA /TOI(%)

6.10 4.43 6.22 3.89 4.35

Depreciation/

Amortisation 0.68 0.58 0.51 1.28 0.74

Interest

1.25 1.72 1.65 1.28 3.00

Operating profit

before tax 1.37 2.23 3.17 4.01 6.34

Non Operating - - - - -


45/72

45

income

Non Operating

expenses - - - - -

Prior period

adjustment/

extraordinary items - - - - -

PBT

1.37 2.23 3.17 4.01 6.34

Tax - - - - -

Minority Interest - - - - -

PAT

1.37 2.23 3.17 4.01 6.34

PAT/TOI(%)

2.53 2.18 3.70 2.38 2.74

Net CashAccruals(NCA) 2.05 2.81 3.68 5.29 7.08

ROCE%

10.59 22.08 35.36 19.17 21.04

Balance Sheet

Analysis

Gross Fixed Assets

(net of revaln

reserves) 9.25 7.89 9.59 8.60 7.30


46/72

46

Net Fixed Assets

7.89 6.73 8.60 7.32 6.22

Capital WIP - - - - -

Tangible

Networth(TNW) 5.86 6.41 7.40 9.76 14.40

Subordinated loans - - - - -

Interestbearing - - - - -

Non Interestbearing - - - - -

MinorityInterest - - - - -

Adjusted ATNW

(including

subordinated loans) 5.86 6.41 7.40 9.76 14.40

Long Term Debt(

LTD) -Interest

bearing (other thansubordinated loans) - - 1.26 3.40 -

Other Long Term

Debt - - - - -

Deferred Tax liability - - - - -

Short Term

Debt(STD) - Interest bearing - - - -

Working Capital

BankFinance 18.83 11.49 4.97 14.45 30.00


47/72

47

Total Debt (int.

bearing debt) 18.83 11.49 6.23 17.85 30.00

Total Current Assets

35.86 34.15 50.31 58.13 58.39

Total Current

Liabilities 37.89 34.47 50.25 52.29 50.21

Net Working Capital

(2.03) (0.32) 0.06 5.84 8.18

Other Long term

assets/ non current

assets - - - - -

Leverage Ratios

Total Debt / TNW (

Gearing ) 3.21 1.79 0.84 1.83 2.08

LTD(including

subordinated)/ TNW - - 0.17 0.35 -

TOL / TNW (

Leaverage) 6.47 5.38 6.96 5.71 3.49

Total Debt / ATNW (Gearing ) 3.21 1.79 0.84 1.83 2.08

LTD / ATNW

- - 0.17 0.35 -


48/72

48

ATOL / ATNW (

Leavergage) 6.47 5.38 6.96 5.71 3.49

Coverage Ratios

Total Debt / EBIDTA

5.71 2.54 1.17 2.72 2.98

Total Debt / NCA

9.21 4.09 1.69 3.37 4.24

LTD / NCA

- - 0.34 0.64 -

Repayment

Capacity Ratios

Current Ratio

0.95 0.99 1.00 1.11 1.16

Interest Coverage

Ratio 2.64 2.63 3.23 5.14 3.36

DSCR

2.64 2.63 3.23 5.14 3.36

Activity Ratio

Debtors Amount

0.32 0.29 - 9.11 8.00


49/72

49

Debtors (months)

0.07 0.04 0.02 0.32 0.44

Raw Materials - - - - -

RMholding in

months

0 0 0 0 0

WIP - - - - -

WIPholding in

months

- - - - -

Finished goods

35.27 33.79 50.23 45.11 50.00

FG holding in month s 6.40

4.37 6.42 3.57 2.62

Creditors

18.79 22.24 44.82 37.66 20.00

Creditors months3.39 2.65 4.26 3.21 1.56

Net Working Capital

Cycle (in months) 3.08 1.75 2.18 0.68 1.50

Working Capital

finance to turnover

2.87

8.91 17.23 11.68 7.73

YTD Performance (As on 31.03.2010):

Particulars YTD Corresponding YTD

(Previous Year)

Net change


50/72

50

(present year)

Net Sales 167.20 85.23 +81.97

EBITDA 6.57 5.33 +1.24

Net profit 4.01 3.17 +0.84

INTERPRETATIONS

Turnover Growth:

Turnover of the Firm has increased from Rs.53.92 lakhs in FY07 to Rs.167.20 lakhs in FY10.It

has almost doubled in FY10 as compared to FY09.Sales figure as per provisional financials in

FY10 is in line with VAT returns submitted. But there was a dip in Sales in FY09 due to

sluggish demand. However the same has been recovered in FY10 and its projected that the

same trend be continued in ensuing periods. So turnover growth seems positive in current

situation.

Profitability Margin:

There is overall improvement in gross profit margin as well as net profit margin of the firm.

Gross profit margin forFY10 has decreased as compared to earlier years due to higher input

costs. Still the margin is around 5% and is acceptable. Similarly net margin has increased

steadily over the years with little fluctuations and its being maintained on an average at 2.40%

which may be considered acceptable in trading business.

Promoters Equity:

Tangible networth of the firm has increased consistently from Rs.5.86 lakhs in FY07 to Rs.9.76

lakhs in FY10 due to plough back of profit in business. The Firm is earning profit over the years

and this has improved the tangible networth.So this is a good sign from business point of view.


51/72

51

Gearing & Leverage:

Gearing & Leverage of the firm is at 0.84 & 6.96 as on 31.03.2009.Leverage is at higher side and

expected to reduce due to lower outside liabilities in ensuing year. But gearing for the firm is

expected to increase due to higher bank borrowing proposed. Still the financial leverages of the

firm are at acceptable level.

Repayment capacity:

Current ratio, ICOR & DSCR are above the prescribed minimum. ICOR & DSCR ratios will

reduce in ensuing years due to higher interest burden because of higher bank borrowing

proposed. Still it will be above the prescribed minimum and this seems acceptable.

Activity Ratio

Debtors Turnover Days:

Debtors turnover is minimal over the years.FY10 onwards its being maintained in the range of

15 days to 30 days. This is in line with the credit period allowed to customers and industry

average.

Creditors Turnover Days:

Creditors turnover was at 4.26 months as on 31.03.2009 and it has improved in FY10 to 3.21

months and 1.97 months in Fy11.So it implies the prompt repayment of creditors.

Stock Turnover days:

Stock turnover was at higher level at 6.42 months in FY09 and it has improved to 3.57 months

in FY10.Its expected that it will further decrease in ensuing years. Considering the nature of

hardware business, the stock turnover (3-4 months) seems acceptable.


52/72

52

Assessment of Cash Credit Facility:

MPBF as per 2nd

Method of lending

Financial Years FY07-08 FY 08-09 FY09-10 FY10-11

Particulars Audited Audited Provisional Projected

I) Total Current Assets 34.15 50.31 58.13 58.39

II] Current Liabilities other than Bank

Borrowings22.98 45.28 37.84 20.21

III. Working Capital Gap ( I - II ) 11.17 5.03 20.29 38.18

IV. 25% Margin on TCA 8.54 12.58 14.53 14.60

V. Actual/Projected Net Working Capital -0.32 0.06 5.84 8.18

VI. Permissible Bank Finance {[III-IV]

or [III-V] whichever is lower}

2.63 -7.55 5.76 23.58

VII. Excess Bank borrowings * 8.86 12.52 8.69 6.42

Our Proposed/ Recommended FB Limit 23.00

FB limits from other banks 0.00


53/72

53

TurnoverMethod

Permissible Bank Finance as per turnoverMethod

Financial Year Provisional

31.03.2010

ProjectedTurnover(accepted

by Credit)

Net Turnover 167.20 230.00

20 % of the above 33.44 46.00

Lower of Two (PERMISSIBLE LIMIT):

Lower of the above two permissible limit is Rs.23.00 lakhs as proposed.

INDUSTRY OUTLOOK ANDMARKET SCENARIO

Heavy Vehicles Industry:

Heavy vehicles industry in India has reflected a steady growth over the last decade by constantly

trying to upgrade their technology and production processes. Heavy vehicles in India are mostly

made by companies like Tata motors and Ashok Leyland. Heavy Vehicles or (HCVs) however

form an indispensable part of the Indian automobile industry.

Over the years the Indian market has witnessed many new heavy vehicles on the Indian roads,

the Volvo is one such example which is a luxury heavy vehicle. The demand for heavy vehicles

in India is increasing by the day due to the expansion and the growth of the Indian economy as a

whole. This demand for heavy vehicles has in turn resulted in the manufacture of a series of

heavy vehicles by the heavy vehicle manufacturing companies.

DECLARATION:

1. The proposal is recommended under WC PDD, which is valid up to.

2. We have gone through the DOP and WC PDD as currently in force and having done so,

confirm that the approval of the above proposal falls within the authority of COCC-I.


54/72

54

RECOMMENDATION FOR ROPOSAL

y Ay By Cy Dy E

In view of the above, we recommend sanction of following limits to M/s P.K.Hardware on the

terms and conditions mentioned in Annexure-I:

Facility Existing Additional Proposed

Total

Proposed Pricing

Fund Based

Term Loans - - - -

Cash Credit 15.00 8.00 23.00 14.00%

Sub-total - A 15.00 8.00 23.00

Non Fund Based

Letters of Credit (LC) - - - -

Financial Guarantee - - - -

Performance Guarantee - - - -

Sub-total B 0.00 0.00 0.00

Derivatives - - - -

Sub-total C 0.00 0.00 0.00 -


55/72

55

Facility Existing Additional Proposed

Total

Proposed Pricing

Fund Based

Total (A+ B+C) 15.00 8.00 23.00 14.00%

Annexure-I

Standard Terms & Conditions

Type of Facility Cash Credit

Amount Proposed Rs.23.00lacs (Renewal Cum Enhancement)

Purpose To meet working capital requirements

Rate of interest 14.00% P.a. i.e.2.75% below IBL BPLR, rising or falling therewith.

The Bank has the right to change the basis and spread over BPLR, at its

discretion, or as may be required by RBI/ statutory directive.

Period of Sanction Repayable on demand, subject to review at annual intervals or as may

be decided by the Bank.

Margin Minimum

Stocks 25 %


56/72

56

Book DebtsMargin 50 %

(Cover period for book debts)

90 (days). Drawing Power will be computed by applying the above

margins to declared value of stocks after excluding Advance payment

guarantees, Sundry Creditors and stocks acquired under Usance LCs,

Buyers Credits (whether guaranteed or not by us) and procured on

credit under Stand by LCs

Primary Security

Hypothecation of the entire current assets of the company comprising ,

inter alia, of stocks of raw material, work in progress, finished goods,

receivables, book debts and other current assets (on pari passu basis

with working capital bankers in case of Multiple/Consortium accounts)

Collateral Security

Mortgage by deposit of title deeds:

Residential Building at Plot no.270/A,Near Pandra Petrol Pump,Ratu

Road,Ranchi in the name of Smt. Jayadevi measuring an area of

2282.78 Sq. Ft.Estimated Market value of the property Rs.45 lakhs.


57/72

57

General Covenants Applicable To All Facilities

Common collateral security:

Fixed assets: NIL

Property: EM/ Extension of EM of following properties-

Nature of Property Residential Building

Name of owners Smt. Jayadevi

AddressPlot no.270/A,Near Pandra Petrol Pump,Ratu

Road,Ranchi

Area/Market value2830 sq

ft.(appx.)Rs.45.00 lakhs(estimated)

Any Other Security NIL

Personal Guarantee of promoters/guarantors /property owners:

Name of Guarantors S/O W/O Designation NW(31.03.10)

Pankaj Kumar Singh Binod Kumar Singh Proprietor Rs.9.76 lakhs

Smt. Jayadevi Binod Kumar Singh Guarantor Rs.35.00 lakhs


58/72

58

Others Terms and Conditions

Processing Charges 0.50% + service tax, to be paid upfront.

Validity of Sanction Three months

Penal interest rate Applicable rate + 2%: For non-submission of Stock statement and other

information.

BPLR+2%: For other irregularities rendering the account overdue, shortfall

in drawing power, devolvement of LCs etc.

Documentation As per Banks internal policies/ guidelines.

Inspection Quarterly. Cost to be borne by the company.

Insurance All assets charged / financed by the Bank to be fully insured for 110% of

the value in the name of the borrower with the Bank Clause.

In the event of non compliance of the same, the Bank reserves the right to

debit the CC a/c for the insurance premium and get the policies assigned in

favour of the bank.

Valuation Two valuations shall be done of collaterals independently by the Banks

approved valuers, and Title Clearance report from Bank approved

advocates/ solicitors. The cost of these will be on Borrowers account.

Prepayment Charges The facility shall attract prepayment charge at 2% (as may be revised by

the Bank from time to time) on the Facility limits granted to the Borrower

in the event of:

1. Repayment by the Borrower to the Bank of any amount ahead of


59/72

59

Others Terms and Conditions

previously agreed repayment schedule or tenor or terms of dates of

repayment or renewal as contained in the facility letter: or

2. The Borrowers not availing of the facility or any part thereof within60 (sixty) days from the date of its grant.

Statement(s)

Submission

Stock &

B/D

Stock Statement and Book debts Statement on

monthly/Quarterly basis within 10 days from the end

of current month/Quarter.

Audited

B/L & P/L

Within -10- days of completion of Audit

Renewal

Papers

At least one month before the due date of renewal.

Specific Conditions

applicable

1. Unsecured Loans Undertaking

2. Maximum permissible deviation in provisional from audited

Other General Covenants

The borrowing arrangements would be subject to the following terms and conditions:

1. The Firm shall avail working capital facilities with us under sole banking arrangement.

Without written permission of the bank the firm shall not avail any working capital


60/72

60

facility with any other bank. All other current accounts with other banks to be closed and

certificate to that extent be kept in record by the branch.

2. The Bank will have the right to examine the books of accounts of the borrower and to

have their factories inspected from time to time by officers of the Bank and/or outside

consultants and the expenses incurred by the Bank in this regard will be borne by the

borrower.

3. The Bank may at its sole discretion disclose such information to such institution(s) in

connection with the credit facilities granted to the borrower.

4. During the currency of the Banks credit facilities, the borrower shall not without the

prior approval of the Bank in writing: -

i) Effect any change in their capital structure.

ii) Shall not pledge the shares held by the promoters, group beyond 10%

of holdings, for raising any loan or for securitizing any loans or

advances availed/to be availed by them from any bank/FI/ lender.

iii) Formulate any scheme of amalgamation/reconstitution.

iv) Undertake any new project/scheme without obtaining the Banks prior consent

unless the expenditure on such expansion etc., is covered by the borrowers net

cash accruals after providing for dividends, investments, etc., or from long term

funds received for financing such new projects or expansion.


61/72

61

v) Invest by way of share capital in or lend or advance funds to or place deposits

with any other concern. Normal trade credit or security deposits in the usual

course of business or advances to employees, etc., are, however, not covered by

this covenant.

vi) Enter into borrowing arrangements either secured or unsecured with any other

Bank, financial institution, borrower or otherwise save and except the working

capital facilities, granted/to be granted by other consortium /member banks, under

consortium/multiple banking arrangement and the term loans proposed to be

obtained from financial institutions/Banks for completion of the replacement-

cum-modernization programme.

vii) Undertake guarantee obligations on behalf of other companies/ associates/

affiliates

viii) Declare dividends for any year except out of the profits relating to that year

2. Moneys brought in by principal shareholders/ directors / depositors / depositors will not

be allowed to be withdrawn without the Banks permission.

3. The borrower should not make any material change in their management set up without

the Banks permission. No material change in the shareholding pattern of the company

which has an effect of a possible change in the management control of the company shall

be made without prior approval of the Bank.


62/72

62

4. The borrower will keep the Bank informed of the happening of any event, likely to have a

substantial effect on their production, sales, profits, etc., such as labour problem, power

cut, etc., and the remedial steps proposed to be taken by the borrower.

5. Banks Sign Board(s) be displayed/ painted at some conspicuous place at the

shop/Godown of the borrower, mentioning our Banks Charge on the goods lying threat

6. The Borrower will inform the Bank if any winding up petition is filed against the

Borrower.

7. The borrower will keep the Bank advised of any circumstances adversely affecting the

financial position of their subsidiaries including any action, taken by any creditor against

any of the subsidiaries.

8. The borrower shall submit the declarations as regards:

a) Not to use the funds for capital market activities,

b) That neither the Company nor the Directors face any litigation.

c) The Directors / senior executives of the company, and/or their relatives are not

connected with the Bank (IBL) and are not directors in any other bank.

d) No commission has been paid to guarantors on extending their guarantee for the

advance

9. The Bank would charge the standard service charges in respect of different items of

service as in force from time to time.


63/72

63

10.The borrower to furnish to the Bank every year two copies of audited/printed balance

sheet and profit and loss account statements of the borrower immediately on being

published / signed by the auditors, along with the usual renewal particulars.

.

11.To forward half-yearly balance sheet and profit and loss account statements within two

months from the end of the half-year and annual audited accounts within 3 months.

12.To maintain a minimum net working capital of25% of current assets.

13. Negative Lien:

The borrower /Promoters should not create, without prior consent of the Bank, charges on

their any or all properties or assets during the currency of the credit facilities granted by the

Bank.

14.Insurance: -

All stocks and collateral securities like immovable properties should be kept fully insured

against all risks including fire, strikes, riot, malicious damages & natural calamities etc., with

the incorporation of Banks Hypothecation clause and the policies retained by the borrower.

A copy of this policy should be submitted to the Bank for their record.

A list of the current insurance policies should be submitted to us with the monthly stock

statements detailing therein th

From a Creeping Economy to a Strong Economy in a Decade and a Half is What the Story Being Experienced by India

Documents