Industrial Finance Project

8/8/2019 Industrial Finance Project

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A

PROJECT REPORT

AT

ABHYUDAY CO-OPERATIVE BANK LTD.

(SCHEDULED BANK)

ON

INDUSTRIAL FINANCE

SUBMITTED

BY

--------------------------

MMS FINANCE

2009-2011

College name

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CERTIFICATE

To whom so ever it may concern

This is to certify that Mr.----------------- student of first year MMS

from---------------------------------------- has successfully completed his project on

Industrial Finance under the guidance of Mr.------------- Sr. Manager, Industrial

Finance Department from 03.05.2010 to 30.06.10.

During the project he was found sincere, diligent, punctual and dedicated towards work.

We wish him all the success in his future.

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INDEX

Chapter

No.

Contents Page

No.1 Research Design

1.1 Introduction 1

1.2 Objectives of study 2

1.3 Limitations of study 3

1.4 Methodology 3

2 Organizational Profile2.1 About the Bank: A success story 4

2.2 Bank Chronicle 7

2.3 Organization Chart 9

3 Conceptual Background of study3.1 Analysis of Financial Statement 10

3.2 Ratio Analysis 10

3.3 Working Capital Management 15

3.4 Loan Process 19

3.5 Industrial Finance Department Scrutiny Note 33

3.6 Zonal Office report 36

3.7 Guidelines for Credit Rating 42

3.8 Time Frame for disposal of loan proposal 49

4 Analysis and Representation of Data 53

5 Findings and Suggestions

5.1 Findings 59

5.2 Suggestions 60

Bibliography 62

Annexure 63

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ACKNOWLEDGEMENT

I have immense pleasure in presenting the synopsis report for my

project entitled-------------------------------------------- . I would like to take this

opportunity to express my gratitude to a number of people who have been

sources of help and encouragement during the course of this project.

I am very grateful & indebted to my project guide Prof.-------------------

for providing his enduring patience, guidance and invaluable suggestions.

He was the one who never let my moral down and always supported me. He

was a constant source of inspiration for us and took utmost interest in our

project.

I express my sincere thanks to our Director --------------------. I would also

like to thank all the Staff members for their invaluable co-operation.

Without their willing support this work would not have been possible.

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CHAPTER NO. 1

RESEARCH DESIGN

1.1 Introduction

Abhyudaya Co-op. Bank Ltd., one of the leading co-operative banks in India, in its

outlook and approach, has the objective of progress and prosperity of all. From a humble

beginning in January 1964 as a Co-operative Credit society with a share capital of a

merely Rs.5,000/- held by 83 members, today Abhyudaya Co-op bank has become one of

the largest urban co-operative banks with a "Scheduled Bank" status in Maharashtra.

The Bank has launched different loan schemes tailor-made to suit the needs of various

customers. The schemes aim at providing loans for purchase or construction of residential

premises, repair/renovation of house property, purchase of car, seeking higher education

and for purchase of household consumer durable. One of the loan schemes, viz. "Udyog

Vikas Yojana" is specially designed for the benefit of small entrepreneurs and

businessmen. The procedure for sanctioning of loans under the schemes has been

simplified and relaxed with a view to attract new customers and facilitating speedy

sanction of loans.

1.2 Objective of Study

To study the concept of Industrial Finance.

To study the loan procedure and scrutiny procedure of the bank.

To study the ways to reduce the risk of bad debts

To study the analysis of financial statement for different loan proposals.

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1.3 Limitation of study

Many records related to my project is very confedential and hence bank records are

not fully disclosed.

Some of the records regarding my project were available at branches, so that records

were not available to me for refernce.

Data availability according to time was infrequent.

Though some data was provided to me, but due o company secrecy policy I am

unable to put it in my project.

1.4 Methodology:

Various fact finding technique used in system are:

1. Primary Source:

2. Secondary Source:

Library: Various project related books were referred especially to analyze the

system. Also various books from college library referred.

Company in-house documents such as branch scrutiny, credit rating report, zonal

office report were referred.

Visted the site: http://www.abhyudaya.com/

Credit Policy, and Rules & procedure of year 2010-11

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http://www.abhyudaya.com/http://www.abhyudaya.com/


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CHAPTER NO. 2

Achievements since 1964

2.3 Organization Chart:

Organization Chart

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CHAPTER NO. 3

CONCEPTUAL BACKGROUND OF STUDY

3.1 Analysis of financial statement:

A basic limitation of the traditional statements comprising the Balance sheet and the

profit and loss account is that they do not give all the information related to financial

operation of the firm. Neverthless, they provide some extremely useful information to the

extent that the balance sheet mirrors the financial statementon a particular date in terms

of structure of assets, liablities and owner,s equity, and so on and the profit and loss

account shows the resultsof operations during a certain period of time in terms of the

revenues obtained and the cost incurred during the year. Thus, financial statements

provide a summarized view of the financial position and operations of a firm. Therefore,

much can be learnt about a firm from a careful examination of of its financial statements

as invaluable documents/ performance reports. The analysis of financial statements is,

thus, an important aid to financial analysis.

The focus of financial analysis is on key figures in the financial statementsand the

significant relationship that exists betwee them.The analysis of financial statements is a

process of evaluating the relationship between component parts of financial statements to

obtain better understanding of the firms position and performance. The first task of the

financial analyst is to select the information relevant to the decision under consideration

from the total informationcontained in the financial statements. The second step is to

arrange the information in a way to highlight significant relationships. The fnal step is

interpretation and drawing of infernces and conclusions, In brief, financial analysis is the

process of selection,relation and evaluation.

3.2 Ratio Analysis:

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3.3 Working Capital Management

Working Capital Management is concerned with the problems that arise in attempting to

amnage the current assets, the current liabilities and the interrelationship that exists

between them. The term, current asset, refer to thse asset which in ordinary course of

business can be, or will be, converted into cash within one year without undergoing a

dimunition in value and without disrupting the operations of the firm. The major current

assets are cash, marketable securities, accounts receivable & inventory. Current

Liabilities are those liabilities which are intended, at their inception, to be paid in the

ordinary course of business, within ayear, out of the currnt asstes or earnings of the

concern. The basic current liabilities are accounts payaable, bills payable, bank overdraft

and outstanding expenses. The goal of working capital management is to manage the

firms current assets and liabilities in such a way that a satisfactory level of

Working Capital is maintained. This is so because if the firm cannot maintain a

satisfactory level of working capital, it is likely to become insolvent may even forced into

bankruptcy.

There are two concepts of Working Capital : gross and net

The term gross working capital means the total current assts and the term net workingcapital means the differnce between current assets and current liabilities.

Calculation of Working Capital requirements/ Term Loan above Rs. 10.00 lacs

Branches should calculate all types of Working Capital requirements for next one year. It

should be based on projected Profit and Loss account and Balance submitted by the

applicant. The projected figures should be compared with the actual figures based on

Audited Balance sheets submitted by the party. The projection to be acceptable to the

Bank must be realistic/ achievable. If there is major deviation on Sundry Debtors,

Creditors, stock etc., proper explanation should be obtained from the applicant and

branches should satisfy themselves about the genuineness of the projections. If the

branch/ Zonal office are not satisfied with the given projections, they should recalculate

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the projections based on past trend and their perception and decide actual working capital

requirement. The requirements of CC, bills facility, against clearing and cheque

discounting should be within the projected the projected maximum permissible Bank

finance limit. Normally, no separate Against clearing and Cheque Discounting facility to

be sanctioned and this should be part of working capital facility sanctioned to the

borrower. As per RBI guidelines, Bank may consider the total working capital limit to a

borrower up to 20% of the projected Sales Turnover. However, the bank to allow

operations always within Drawing Power based on the monthly stock and Book Debts

less Credit Purchases (Creditors for goods) after maintaining a margin of 40%/25% for

traders and manufacturers respectively. To make the facilities sanctioned under Against

Clearing and Cheque Discounting secured it should be ensured that the borrower

should have sufficient Drawing Power to cover them alongwith the Cash Credit and DBD

limits. It shall be noted that all credit limits for working capital purpose like Cash Credit,

Bills Discounting, Letter of Credit for purchase of raw material on continuous basis etc.

will form a part of MPBF.

I. Working Capital:

For Traders and Manufacturers:

a. Under Method-I

Working Capital Gap (WCG)= Current Assets Current Liabilities

Eligible MPBF = WCG 25% of WCG

b. Turnover Method

For SSI, SMEs and Industrial Units enjoying total limits above Rs. 50.00 lacs and for

new accounts with existing business applying for total limits above Rs. 50.00 lacs, in

addition to Method-I above, working capital will be calculated under Turnover Method.

MPBF = 20% of realistic projected Sales Turnover.

Turnover method is not applicable to Trading Accounts.

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c. Production/Processing Cycle Method

Sr. Manager/ Manager Industrial Finance Dept. will visit the industrial unit and work

out requirement of working capital based on the existing production/ processing cycle.

He will take into account credits received on purchase of raw material, credits

allowed on sales, inventory levels of raw materials, work in process, finished goods etc.

In order to arrive at the future requirements of the unit, he will scrutinize the projected

sales for next two years and work out the requirement of the working capital. It is

necessary for him to discuss with the loanee/ officials of the unit and ascertain need

based working capital limit. He will also compare the working capital ascertained under

Method-I and Turnover method and give his recommendations.

d. For New Projects:

Working Capital for new projects will be worked out on the basis of projections,

production/ processing cycle. Hence, DGM and IF Dept. will take into account realistic

projections, industry standards etc.

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3.4 Loan Process:

The following flow chart shows the process of loan:

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Loan Proposal from the borrower

Acceptance, Scrutiny and Recommendation of Loan Proposal

Sanction of credit facilities

Documentation & Release

Monitoring, Review and Post Sanction follo-up


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Let us discussed it in detail:

I. Loan Proposal

The first step in the loan proposal is borrower will approach the bank and he has to

submit preliminary documents to branch. Branch will scrutinize that the borrower

provides following documents for CC/TL/WCTL facilities: -

1. Check List / Index.

2. Cash Credit security note.

3. Visit report of Branch Manager.

4. Liability Information sheet of Applicant.

5. Liability Information sheet of Surety.

6. Account Information of Applicant.

7. Account Information of Surety.

8. CC Sanction sheet/ Scrutiny note of previous year.

9. Copy to previous year Disbursement Advice.

10. Copy to insurance policy.

11. Cash Credit Application form duly filled in and signed by all

Partners/Directors/Proprietor of the firm/company.

12. Proof of business place- office /go down/ factory:

Copy of Agreement for sale/lease and license. Agreement/ Rent Receipt/ electricity

bill etc.

13. Proof of residence. Proprietor/partner/Director:

Ration card/ electricity bill / Rent Receipt.

14. Trade Licenses: -

A) Shop and establishment

B) SSI Registration Certificate.

15. Copy of Partnership Deed/ Memorandum and Articles of Association etc.

16. Board Resolution for availing credit facility from bank in case of Private and

Public Limited companies.

17. Bio-Data of Proprietor/ Partner/Director. In case of new application.

18. Statements of Collateral Securities Certified by manager.

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19. Mortgaged Registration receipt/ Mortgage Deed, if property is already mortgaged.

20. Original documents of property; if offered for mortgaged.

21. ROC change registration certificate (in case of Private and Public Limited

companies).

22. Stock statement and age wise Book Debt statement of latest visit date.

23. Statement of account for current year and previous year Audited Statement of

account; if

Sales /turnover is more than Rs. 40.00 lacs.

Facility applied is more than Rs. 10.00 Lacs.

In case of Private and Public Limited companies.

24. Up-to-date sales and purchase figures subsequent to last balance sheet on record.

25. Sale tax challan copy / assessment order copy.

26. Income tax challan for current year and previous year assessment order or

acknowledged copy of return.

27. Computation of Income/TDS Certificate.

28. Copy of professional tax challan.

29. Credit from other bankers

30. Any other documents as per the proposal.

Documents of Surety: -

1. Surety consent letter duly filled in and signed by all partner/proprietor of surety

firm /company.

2. Board resolution to stand as surety (if surety firm is ltd./private ltd. companies).

3. Proof of business place.

4. Proof of residence.

5. Copy of Partnership Deed/ Memorandum and Articles of Association etc.

6. Shop establishment license/ SSI registration certificate.

7. Statement of account for current year.

8. Sales tax / Income tax papers.

9. Credit from the bank if surety is operating account with some other bank.

10. Any other documents as per the proposal.

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Borrower should provide at least one surety for loan proposal upto Rs. 5 lacs and two

sureties above R. 5 lacs with their documents mentioned above.

I] Primary Documents

These determine our rights to recover the amount lent by us together with interest

thereon.

1. Demand Promissory Note

2. Loan Agreement.

3. Letter of guarantee.

4. Counter guarantee.

II] Security Documents

These are obtained for changing the property of the borrower to the bank as security.

1. Hypothecation Deed.

2. Bills Agreement.

3. Letter of Lien.

4. Mortgaged Deed and its original registration receipt/ Memorandum of equitable

mortgage.

III] Auxiliary Documents

These are supplementary to the primary and security documents.

1. Application for facility.

2. Consent letter of surety.

3. Partnership Deed, duly registered/ Memorandum and Articles of Association/

Trust Deed.

4. Irrevocable power of attorney.

5. Resolution of company/trust.

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6. Permission from charity commissioner etc.

Attestation

The following documents are to be compulsorily witnessed by at least two witnesses.

1. Assignment on the instrument itself (e.g. LIC policy)

2. Assignment on separate instrument.

3. Sale Deed.

4. Mortgage Deed.

5. Any other documents requiringAd-valorem stamp duty.

6. A gift Deed of immovable property.

7. A will.

Following documents do not require to be witnessed:

1. Demand Promissory Note.

2. Letter of Lien.

3. Agreement for hypothecation of goods and book debts, vehicles, plant and

machineries etc.

4. Letter of guarantor.

5. NSC/ Gold loan agreement.

6. B.D./B.P. Agreement.

After scrutinizing the documents branch will make the visit and submit scrutiny note.

II. Acceptance Scrutiny and Recommendations of loan proposal

1. All the loan proposals continue to be accepted by the branches and scrutinized at

branch level except loans and advances application from new applicants of above

Rs.50.00 lacs.

2. Whenever prospective borrowers ask for loan application, they should be properly

guided and correct set of application forms/Annexure be given to them and properly

briefed/guided about the documents to be submitted along with the application.

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3. On receipt of the application duly filled-up, the loan receipt should be fully

scrutinized and required documents to be obtained and file to be sent to next higher

authorities within 30 days from the receipt of the file in the branch. In case, the file is

kept pending for more than 30 days, the reasons for doing so along with the detailed

explanation giving reason for keeping the file pending be sent to next higher

authorities. Existing guidelines for scrutinizing be followed like required documents

and compulsory visit to the applicants residence and business places etc. as advised

from time to time. Inordinate delay in file processing will not be tolerated. Details of

requirements to be informed within 3 working days. On receipt of the application

duly filled-up, branch should inform all details of requirements to the loanee in

writing within 3 working days.

4. Whenever the file is received with incomplete documents, the file should be

accepted and requirements of documents should be informed to the applicant in

writing giving time limit of 7 days within which they should be submitted. In case the

documents are not received within 7 days, reminder should be sent giving further time

of 7 days. Thus loanee will be given period of 14 days for submission of documents

from the date of receipt of loan application. If loanee fails to submit the same, the file

should be forwarded to next higher authority for rejection within 20 days from the

receipt of application with detailed reasons. It should be our endeavor to also contact

loanee over telephone, guide him and ensure that loan is granted to applicants on the

basis of repayment capacity.

5. Proposals upto the delegated power of the branch-in-charge be sanctioned at

branches. Proposals beyond branch-in-charge delegation but upto delegated powers of

DGM (Zones) be sent to zonal offices for sanction. The loans and advances proposals

beyond the delegated powers of DGM and upto Rs.10.00 lacs would continue to be

sent to Head Office directly. The proposals above Rs. 10.00 lacs would be routed

through Zonal offices for scrutiny and recommendations of the Dy. General Manager.

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6. The Zonal offices should scrutinize the loans and advances proposals with limits

of above Rs. 10.00 lacs, and forward the same to Head office along with their

scrutiny, recommendations and grading of the accounts.

7. Branches should use the proper application forms as well as scrutiny forms for

different types of advances. There are different forms for loans upto Rs. 10.00 lacs,

CC facility upto Rs. 10.00 lacs and facility above Rs. 10.00 lacs. In the form for the

facilities above Rs. 10.00 lacs, there are separate forms of fund based limits, for Term

Loan, loans for contractors and manufacturing units. Branches should fill-up the

appropriate scrutiny forms while scrutinizing the application.

8. Normally the bank to discourage financing new units located outside the control

area of the branches (located outside Mumbai, Thane, Raigad and Pune districts at

this juncture). This taking into account bad experience of the bank in controlling the

units, which require constant monitoring particularly in case of working capital

requirements. However, Zonal Office should place before the board submission in the

matter seeking approval for acceptance of such proposals. The above conditions do

not apply to the existing borrowers of the Bank with good track record.

9. A borrower enjoying fund based limit above Rs. 100.00 lacs and fund plus non-

fund based limit of Rs. 200.00 lacs have to be a Private Ltd./ Ltd. Company. Hence

Proprietary/Partnership firms should take necessary steps to convert them into Pvt.

Ltd./Ltd. Companies in due course.

10. For obtaining credit information of party and CR from other banks, verification of

Audited Balance Sheet, Income Tax Returns etc. for new proposals above Rs. 2.00

Crore, Bank may take the help of Professionals by fixing the fees if any and as

decided by the Managing Director.

11. If it is observed from the balance sheet that the finance given by the bank is

diversified for any purpose other than for business purpose or the capital is withdrawn

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substantially affecting the debt equity ratio adversely, enhancement of facility should

not be considered unless the said diversion or withdrawn funds are restored.

The loans and advances proposals above Rs. 50.00 lacs from associate firm of our

existing borrower account will be accepted and scrutinized at branches and forwarded to

zonal offices for further scrutiny and onward submission to Head Office. Thus, these

proposals will not require in principle scrutiny.

III. Sanction of Credit Facilities

1. All the applications for credit facilities above Rs. 15.00 Lacs will be sanctioned/

rejected by the Board as per the existing practice.

2. Delegation of Powers: The board has delegated the powers to sanction facilities

upto Rs. 15.00 lacs to the Managing Director, Rs. 10.00 lacs to the General

Manager/Addl. General Manager, Rs. 7.00 lacs to the DGMs of Western, Central and

Navi Mumbai Zones. Similarly, Board has delegated the powers to the branch AGM,

Sr. Managers and Managers to sanction surety loans upto Rs. 2.00 lacs Cash Credit

limit and Secured Loans upto Rs. 4.00 lacs, Rs. 3.00 lacs, Rs. 2.00 lacs respectively

including housing loans, vehicles, consumer durables, furniture/ fixtures, repairs and

maintenance etc.

3. The statement of the loans and advances sanctioned by the Branch Managers

should be sent to Zonal Office on monthly basis, which in turn will consolidate the

same and send to Head Office for placing the same before the Board. Zonal Offices

should also send monthly statement of loans/CC facilities/ other facilities sanctioned

by them to Head Office for placing the same before the Board. Head office will also

place the statement of credit facilities sanctioned by Addl. General Manager/ General

Manager / Managing Director on monthly basis before the Board.

4. The practice of Noting of sanction of loans was done away with from August

2005. Instead, it was decided to report the sanction made by officials in exercise of

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delegated powers during the month to the next higher authority in the form of a

monthly report. Zonal Offices will check the sanction of loans by In-charge of

Branches. They would do random checking of 10% of loans sanctioned upto Rs.2.00

lacs and 20% of the loans above Rs. 2.00 lacs. Zonal offices to submit report of

exercise of powers by them together with consolidated statement of loans and cash

credit sanctioned and cash credit accounts reviewed by the branches in their zone to

Loans and Advances Dept., Head Office.

5. If the sanctioning authority sanctions amount mare than the recommendation,

specific reasons for the same should be mentioned in the sanction note.

6. Sanctioning authority is responsible for sanction of loans and advances based on

the facts given by the scrutinizing and recommending authorities. The scrutinizing

officials are responsible for giving full facts in the Scrutiny note. Any hiding of the

facts in scrutiny and subsequent loss to the Bank will attract disciplinary action

against the concerned recommending officials.

7. The sanctioning authorities are also authorized to make subsequent alterations in

the sanction within sanctioning power like change of sureties, change of quotations,

suppliers, exchange of securities etc. as per prevailing practice.

8. The Addl. General Manager/ General Manager / Managing Director at the Head

Office are authorized to make deviations even for the loans sanctioned by the Board

considering the urgency of situation, but it should be later ratified by the Board.

9. The sanction and renewal of fund based and non-fund based Working Capital

limits are valid for a period of 1 year.

10. The applications for reconsideration for sanction or enhancement of facilities are

normally to be entertained after a period of six months from documentation.

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11. Branch Managers are authorized to exchange the collateral securities of

equivalent amount. The decision shall be noted by the Zonal DGMs. Other cases

should be referred to Head Office where Addl. General Manager/ General Manager /

Managing Director are authorized to take decision based on merit of each case.

IV. Documentation and Release

1. The sanction letter should be prepared and sent by the disbursement authorities

giving all the Terms and Conditions of sanction. The borrower and the sureties should

give a letter accepting unconditionally all the terms and conditions of sanction and it

should be kept alongwith other documents. The copy of sanction letter should be sent

to all sureties.

2. All documents should be executed as per the manual of documentation. It should

be ensured that proper documents are executed with right amount of stamp duty as

per H.O. guidelines issued from time to time. It should be ensured that loanee fulfills

all terms and conditions stipulated by the Board/ sanctioning authorities.

3. All the credit facilities upto Rs. 50.00 lacs will be disbursed at he branches.

Documentation of Pvt. Ltd./Ltd. companies/ Trusts will also be done at branches with

limit upto Rs. 50.00 lacs. Branches shall submit copies of documents for creating

charge with ROC to loans and Advances Dept. within 5 days of execution of

documents.

4. All other facilities will be documented and released at Head office after

compliance of terms and conditions of sanction and adhering to the guidelines issued

from time to time.

5. The releasing of loan should be after the borrower brings the proportionate margin

in the account.

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6. The releasing officials should make the payment directly to the suppliers and

obtain the stamped receipts for the same. Wherever the borrowers have already paid

to the suppliers, the details of such payment should be verified like whether cheque is

debited in the account etc. and satisfy themselves that suppliers have already received

the payment against the order for supply of articles/machinery etc. Cash payment

above Rs. 50,000/- to the supplier cannot normally be treated as payment to the

supplier unless their Chartered Accountant certifies that such payment is made and it

will be accounted in the Books of account of the borrower to be prepared for the year.

The Pay Order should be drawn in favor of Bank, Branch name of the supplier

Account No..

The pay Order of payment to the supplier should not be given to the loanee. It should

be sent by Regd. A.D./ Speed Post or By deputing staff. The copy of Pay Order be

handed over to the loanee.

7. For Vehicle/Shop/Gala/Machinery loan, reimbursement is allowed if application

is made within one year from the date of purchase only to the extent of payment made

by cheque/ eligible amount. No reimbursement against cash payment is allowed.

8. Normally no payment shall be made to the borrower directly. If the Bank is fully

satisfied that they have made payment to the supplier and the supplier and the

suppliers have already supplied the goods in good condition, the Bank may consider

reimbursement to the borrower after verification of the above.

9. All the Documentation done at Head office will be verified by the Legal Dept. at

Head Office. However, in case of complications, the documentation be prepared and

approved by the Banks approved Advocates and Solicitors.

10. The branches and disbursement staff at Head Office should prepare and keep a

certificate in the file duly signed by the Documentation clerk, In-charge of

Disbursement Section as well as the Manager/Sr. Manager/ Asst. General Manager

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certifying that all the documents are executed as per the terms of sanctionand specify

if any further compliance is required to be done in this regard. Such further

compliance should be done within reasonable time to ensure that Documentation is

complete and up-to-date in all respect.

11. Branches should at the time of renewal / reviews verify the security documents

and confirm themselves that all security documents are available in the branch.

12. Branches should obtain Letter of Acknowledgement of Debt for all the facilities

including Term Loans atleast once in a year. If only Term Loan is availed, LAD

should be obtained every year preferably for 31st March of the year during the month

of April.

The Legal Dept. shall make necessary changes in the Documentation in consultation

with Banks Advocates considering the changes in the Loan Policy.

V. Monitoring, Review and Post Sanction Follow-up:

1. The branches are prime centers for monitoring, review and post sanction follow-

up of all the loans. They will be guided and supported by respective zonal offices.

2. For CC accounts, the branches should obtain the Stock and Debtor statement on

monthly basis and workout DP for all borrower accounts and allow withdrawal in the

account within DP.

3. Where the client has been sanctioned sub limit against FDR within the overall

cash credit limit then branch should add the sub limit against FDR to the DP to

ascertain total DP available to the borrower. It may be noted that when the bank

considers sub limit against FDR, the later becomes a Prime Security for Cash Credit.

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4. While executing cheque discounting/ against clearing and allowing withdrawals

in the account, the DP shall be observed by the branches so that the facilities does not

go unsecured.

5. The branches should restrict cash transactions in the account as much as possible

as per various guidelines issued in this regard.

6. The branches should renew all the CC accounts atleast one month before expiry

of limit.

7. Branches should visit all loans and CC accounts atleast once in a quarter and

identify the problem areas if any and keep the record in the file/report to higher

authorities.

8. If any of the account going bad is observed immediate steps should be taken in

consultation with the zonal office to rectify the problems in time.

9. In case, stock/debtors statements are not submitted, the branches should visit to

the borrower and get the stock/ book debt statements from the borrower prepared and

work out DP accordingly.

10. The Branches will prepare NPA statements as required by the R.B.I. and advised

by Legal and Recovery Department from time to time.

11. After disbursement of the Term Loan, the branches should visit and verify

whether the machinery/equipment for which the loans are sanctioned are installed and

as per the specification given by them within three months from the date of last

disbursement and keep a certificate in the file. If there is discrepancy immediate

corrective action should be taken. Such visit report should be available in each file

duly signed by the person visited and the In-charge of the Loan Dept. alongwith

Branch Manager.

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12. The branches should also closely watch the gradation of standard accounts and

movement of the accounts from one grade to another in the branch and try to have

maximum higher-grade accounts.

13. The present system of review of borrower accounts above Rs. 5.00 lacs will

continue to be done by Zonal Office atleast twice a year.

14. The present system of review of borrower accounts above Rs. 100.00 lacs will

continue to be done Head Office level by Industrial Finance Dept. on quarterly basis.

15. All the accounts outstanding above Rs. 10.00 Lacs at Recovery Dept. shall be

reviewed atleast twice a year and a report should be placed before the Board.

The Board shall constitute a Loan Monitoring Committee consisting of some members

of Board and/or all Sr. Executives of the bank who should meet twice a month at the

Head Office, preferably after 2.00 p.m. on alternate Saturdays at the Head Office and

review all such problematic accounts both at recovery dept. and branches and initiate

necessary corrective action. In addition to total review of each account, the committee

would ensure regular submission of stock and book debt statement, drawings within DP

limits, verification of securities by periodical inspection etc.

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3.5 Industrial Finance Department Scrutiny Note

Industrial Finance Department at head office is taken care of by senior manager/

managers. Their duties in brief in respect of the report and monitoring of loans and

advance are as under: -

A) Determination of working capital for SSI and other manufacturing units new

proposals with limits above Rs.25.00 lacs and renewal/enhancement above 50.00 lacs.

B) For all Term Loans above Rs.10.00 lacs, projected cash flow statement should be

obtained to ensure generation of adequate funds for repaying the loans and interest

thereon. In case of new term loan in addition to existing term loans, average DSCR to

be calculated to confirm satisfactory repayment as per schedule.

C) For loans for purchase of machineries above Rs.15.00 lacs, Industrial Finance

Department will verify the genuineness of quotation, competitive rates and available

better alternate machineries at cheaper rate as well as better qualities.

D) The eligibility Term Loan for the project/machineries etc. should be calculated as perthe margins prescribed by the Bank and proper scrutiny by the Industrial Finance

Department independently.

E) Genuineness of supplies and reasonable rates quoted by them shall be certified by the

Industrial Finance Department. Industrial Finance Department should also check

infrastructure facilities like electricity, water etc. available with the factory, all

government dues are paid or not etc.

F) Industrial Finance Department shall always update themselves in respect of various

types of supplies of machineries/equipments, pricelist through market

contacts/internet.

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G) Technical report by Industrial Finance Department is to be given before

branch/zonal offices recommendations in all term loan accounts with limit above

Rs.10.00 lacs.

H) Industrial Finance Department should also give list of machinery observed during

visit. If required, valuation report may be obtained from approval valuer. In case of

new large proposal /existing large borrower, the valuer should accompany the zonal

office DGM/ Industrial Finance manager during the visit.

I) Industrial Finance Department should mention the current market position,

competition to the borrower and his products.

J) Industrial Finance Department should given recommendations based on eligibility,

technical viability, security, project viability, etc.

K) At the time of each disbursement of Term Loan/CC facility above 10.00 lacs,

Industrial Finance Department has to visit site of the borrower for assessment of

progress of work done along with photographs of the site and how much amount to be

disbursed accordingly.

L) In respect of determination of working capital, he will study the production process

cycle of the industrial unit and decide working capital limit based on credit purchases,

credit allowed on sales, minimum inventory levels, raw material, work in progress,

finished goods, etc.

M) Industrial Finance Manager should work out the working capital requirement based

on the production/processing cycle of the SSI and manufacturing units

enjoying/applying limit above Rs. 50 lacs. He should also arrange for photographs of

the unit/machineries.

N) Monitor loans and advances above Rs. 1.00 crore independently by visit on half

yearly basis (twice in a year) and to submit detailed report.

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O) Analytical study of each sector of the industry in respect of the following:

Sanction of Industry-wise new loans and advances.

Movement of NPAs and overdue in each industrial sector and the reasons for

increasing NPAs/overdue in particular sector.

Similarly, industry-wise reduction in NPAs and overdue report is prepared and if

there is revival of any particular sector/industry, then it should be highlighted.

Sectorial deployment of credit during the year as well as position as on 31.03.06.

General report highlighting revival/better prospects in some industrial sectors for the

current year so that bank may take necessary steps for deployment of more funds in those

sectors.

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3.6 Zonal Office report

Zonal office should comment in respect of the following as per the guidelines given inAnnexure-I

1. Capital

Increase: over last year-whether plough back of profit? Addition by introduction of

fresh capital by proprietor/ partner-CAs certificate- Source of capital (additional).

How they intend to increase it to certain level to make debt equity ratio favorable.

Reduction: whether by main partner-reasons for withdrawal-discrete enquiry to be

made.

2. Reserves

Whether increased or decreased with details.

3. Unsecured Loans

a) Long term loans by family members / relatives / directors and

associates, undertaking from them not to withdraw these loans without

written permission from the bank. These loans would be treated as Quasi

Capital and excluded from current liabilities.

b) Other short term unsecured loans- Repayable on demand to form

current liabilities.

4. Other Liabilities

Whether they include Government dues payable.

5. Fixed Assets

Whether Fixed Asset are finance through working Capital (Diversion of Funds).

6. Current Asset

Command on quality of assets- stock and book debts upto 90 days will only qualify

forDrawing Power (DP).

7. Losses

Reasons for Losses whether chances of profit making Is net worth affected.

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8. Diversion of Funds

Whether funds transferred to associate accounts for genuine business/ commercial

purpose or utilization for business of associate Account. When these funds were

bought back, If not, whether they would be bought beck or chances for the same are

remote due to siphoning off. CAs Certificate of bringing funds back to business to be

obtained.

9.

Performance of the borrower/individual unit compared to past

achievement and projected sales, Gross Profit, Net Profit, Profitability, etc.

State about achievement of past year with previous year- performance till current year

till review- whether they would be in a position to achieve projected sales, gross

profit, net profit, etc.- new work orders, new products, increase in capacity of output/

product-new technology- cost reduction measure, government policies, import

substitutes, of another unit, etc.

Sales and Purchase from the date of last balance sheet till last month.

Certified by the borrower and also their Chartered Accountant. Whether current year

sales indicate improvement in performance of the unit and tentative sales they would

achieve by the current year-end.

10. Analysis of Balance sheet and Profit and Loss account and interpretationof ratios

Current Ratio

Current Asset

Current Ratio =

Current Liabilities

The ratio 2:1 shows excellent liqudity position.

The ratio between 1:1 to 2:1 shows satisfactory liqudity position.

The ratio less than 1:1 shows no liqudity at all.

For Ssi units it should be atleast 1.33:1.

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Debt Equity Ratio

All outside borrower funds

Debt equity Ratio =

Net Worth Intangible Assets

The follwing benchmark denotes good solvency

2 : 1 ----> Manufacturing units.

3 : 1 ----> Trading units.

3 : 1 ----> SSI units.

Credit availed on Purchases or Creditors Ratio

Creditors X 365

Creditors Ratio =

Purchase

Credit allowed on sales or Debtors Ratio

Debtors X 365

Debtors Ratio =

Sales

Sundry debtors beyond 90 days should not be reckoned for calculation of Drawing Power

(DP).

11. Payment of Statutory Dues

Whether audit report to Balance sheet and Profit and Loss account contains

information about non-payment of dues like sales tax, Income Tax, Excise duty,

electricity charges and other statutory dues etc. Branches should make reference to

various authorities on quarterly basis in this matter and ascertain position by visits to

take authorities.

12. Utilization of cash credit limits

DBD/SBD Limits

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No. of bills drawn- Amount during last 12 months. Whether bills are returned/

dishonored. If yes, give details-whether bills drawn on such partner are further

discounted? Are payments of these bills received from drawee?

Utilization of BG Limit

No. of BGs issued- Amount of BGs. Details of invoked BGs- payment made by

borrower and details of outstanding invoked BG.

Utilization of Letter of credit Limit (Import/Inland)

No. of L/C developed (payment made by debiting to forced loan under L/C). Payment

made by borrower-Details of outstanding forced loan under L/C.

Repayment of existing Term Loan

13. RBI Inspection report observation and compliance thereof (if applicable)

Compliance of deficiencies by client

Compliance of deficiencies by Branch/Zonal office.

Reasons for non-compliance.

Progress/latest position in compliance.

14. Internal and concurrent audit observation and compliance thereof (if

applicable)

Compliance of deficiencies by client

Compliance of deficiencies by Branch/Zonal office.

Reasons for non-compliance.

Progress/latest position in compliance.

15. Non-compliance of sanction stipulations of board

Reasons for non-compliance by client.

Non-compliance by staff/official reasons for deviations by staff/ officials

and what action zonal office / Head office initiates in the matter.

16. Insurance of stock/machineries hypothecated etc.

Whether adequate insurance is obtained? Whether place of storage of goods is the

same incorporated in insurance policy.

17. Credit Rating/Gradation

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On the basis of Audited Balance Sheet and Profit and Loss account as on ____

What are the reasons for upward/ downward gradation? What steps the borrower has

promised to take to improve the gradation.

18. Reconstitution of partnership

Whether there is a dispute among partners. Whether the remaining partners are all

family members/ close relatives- whether main partner has retired/ resigned what

would be impact on business- whether our finance is secured? What is change in

capital- whether retiring partner is willing to stand as surety at least for 2/3 years?

Whether he would continue his capital as unsecured loan on long-term basis?

19. Mortgage of Immovable properties

Full details like flat/gala etc. No. in building/ society- area- market value by

(valuer) Branch In charge / by whom it is occupied- mortgaged on _______. Whether

mortgage change is recorded with society builder- to affix/ paste mortgage poster-

Present market value as per O.C. No. 66- The description and area should be based on

title Deeds and it should be correctly reported in branch scrutiny note, Branch visit

report and zonal office report.

20. Group Exposure

Enclose combined group Balance sheet to loan policy- 2004-06 and work out

Maximum Permissible Bank Finance (MPBF) of the group to detect diversion of inter

firm / company funds to ensure that banks total credit limit to all group accounts are

within group M.P.B.F.

21. Special request of the borrower (if any)

22. Need of working capital Term Loan

23. DSC ratio (for Loans)

Brief particulars of weak financial deviations/deficiencies/ irregularities in the

proposal.

24. Zonal Office Recommendations with justification in details

Justification of each funded and non-funded limits.

25. In view of the above, we recommend following credit limits/ we do not

recommend following credit limits.

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Amount Margin

Rs. %

1. Cash Credit ___________________ _______________

2. DBD/ SBD ___________________ _______________

3. Bank Guarantee ___________________ _______________

4. Letter of credit

5. (Import/ Inland) ___________________ _______________

6. Term Loan ___________________ _______________

7. W.C.T.L. ___________________ _______________

Note: - The DGM should not omit any one of the above 1 to 24 points. There must be

specific comment saying that this point is not applicable to borrower or specific comment

be given. Report of all zonal office should be identical and there should not be any

change as far as the standard format of this report. The manner of reporting should be

strictly in conformity with the guidelines given in annexure. Though observations will

differ from case to case, the method of reporting has to be identical. Hence annexure

should be strictly adhered to.

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3.7 Guidelines for Credit Rating

The weight ages for different parameter are given as under

S.No. Marks

1 Financial Parameters 36

2 Security Prime and Collateral 153 Conduct of Account 28

4 Management 10

5 Business and Other Parameters 11

Total 100

A] Financial Parameters

For the reference and Clarifications of financial ratios following clarifications are given

Current Asset

a) Current Ratio =

Current Liabilities

Current Asset - Stock

b) Quick Ratio =

Current Liabilities

All outside borrower funds

c) Debt equity Ratio =

Net Worth Intangible Assets

d) Net Worth = Capital + Reserves + Accumulated profit Revaluation Reserves.

e) Capital = Fixed Capital + Current capital + Quasi capital

f) Quasi Capital = that portion of long term loan taken from Directors/Partners and their

family members where undertaking is given that they will not withdraw

the same without the consent of the bank.

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g) Diversion of funds = Loans and advances given to Directors, their family members,

sister concerns and others for any purpose other than for business purpose out of Banks

borrowers funds.

h) Debt Services Coverage ratio (DSCR)

Net profit + Depreciation + Payment towards interest

(Including CC/TL/BD etc.)

DSCR =

Installments + Interest on the loan CC/TL/BD etc. in the year

i) Retention of Profit = Net Profit after Tax Drawings and dividends

1. For Companies:

Retained Profit = NPAT Drawings and Dividends

2. For proprietorship & Partnership Concerns:

Retained Profit = Closing Capital Opening Capital I.T. of firms and

partners

3. Retention of Profit ( %)

Retained Profit X 100

Net PAT

Debtors X 365

j) Debtors Ratio =

Sales

Creditors X 365

Creditors Ratio =

Purchase

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Marks

Financial Parameters (maximum marks 40)1 Current Ratio 1.33 or above 4

1.17-1.32 3

1.10-1.17 2

Less than 1.10 0

2 Debt Equity Ratio Less than 2.00 4

2.01-3.00 3

3.01-4.00 2

4.01-5.00 1

5.01 or above 0

3 Total Liabilities/TNW

Less than 3.00 43.01-4.00 3

4.01-5.00 2

5.01 or above 0

4 Sales achieved

(compare with targets

accepted by bank as

per projections)

Net or exceeded 4

Upto 90% 3

80%-89% 2

70% - 79% 1

Less than 70% 0

OR(compared with

increase over

previous year if no

projections given )

Above 25% 4

Above 15% upto 25 % 3

Above 5% to 15% 2

Upto 5% 1

Constant or Negative 0

5 Net Profit as % of

sales (projected and

actual)

Above 5% 4

Above 3% to 5% 3

Above 2% to 3% 2

Upto 2% 1Loss 0

7 Retention of profit

(Avg. 2 years)

70%-100% 4

40%- 69% 2

20%- 39% 1

Less than 20% 0

8 Greater than 2.00 4

1.50 to 1.99 3

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a)DSCR(Every

projected year for

project finance)

1.25 to 1.49 1

Less than 1.25 0

b) Diversion of funds

(For working Capital

facilities)

No Diversion 4

Minor Diversion 1Huge Diversion 0

Note: If both are applicable, avg. Marks be given

9 Trend in sales Consistently increasing 4

More or less stable 2

Decreasing 0

1

0

Trends in Profits

(Amount)

Increasing Profits 4

Stable Profits 3

Decreasing 1

Losses 0

Security Prime and Collateral (Maximum Marks-15)1 Security Prime (in

relation to DP)

More than D.P. 8

Just adequate=D.P. 6

Upto 10% Below DP 4

Below DP 0

2 Collateral Cover (As

per the present

market value)

100% and above 7

50%- 99% 5

20% - 49% 3

Less than 20% 1

No Collateral 0

Conduct of Account (Maximum Marks-27)

1 Submission of

monthly security

statements (last12

months)

Prompt/Regular 4

Late but not less than 1 month 3

Late but > 1 month to 3 months 1

Late but > 3 months 0

2 Repayment of

Installment and

Interest

(CC/TL/WCTLetc.)

Timely- on or before due date (15th of

succeeding Month)

4

Within 15 days from due date(Last day

of succeeding month)

3

After last date of succeeding month 03 Overall Operation of

the A/c(like regular

overdrawing against

clearing, cheque

returns, etc.)

Excellent 4

Good 3

Satisfactory 2

Poor 0

4 Sales greater than 90% 4

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Sales and other

business routed

through us

Sales 80%-89% 3

Sales 70% to 79 % 2

Sales routed below 70% 0

Note : If CD A/c with other Bank is permitted , the turnover with other

banks to be clubbed with turnover in our Bank.5 Recoveries of bills

purchased/LC Bills/

others/ guarantees

Invoked

No overdue 4

Overdue regularized within 10 days

from due date

3

Overdue regularized within 1 month

from due date

2

Overdue regularized beyond 1 month

from due date

1

Overdue not regularized 0

6 Compliance of Audit

and inspection

requirement/Statutory

Auditors

observations

No compliance required 4Major Items Complied 2

Compilance Pending 0

7 Security

Documentation

(Mortgage, Noting,

Power of Attorney

etc.)

Complete and in order 4

Documents incomplete due to valid

reason

3

Incomplete or pending 0

Management (Maximum Marks-10)

1 Promoters Professionally/Technically

competent/experienced

5

Professionally/Technically competent

persons employed

3

Absence of Professionally/Technically

competent persons

1

Active Management Stable-no change in past 3 years (except

within family)

5

Stable-but not more than one change in

last 3 years

3

Frequent change in recent past 1

Business and other parameters (Maximum Marks-11)

1 Business parameters Core/ Approved sectors 2

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Sensitive sectors 1

2 Satisfactory Account

relationship

Above 5 Years 3

3 to 5 years 2

1 to 3 years 1

New or less than 1 year 0

3 Ind./business

prospects

Excellent 4Good 3

Poor 1

4 Irregular Direct/

Indirect Liabilities

No Irregular Direct/ Indirect Liabilities 2

Irregular Indirect Liabilities 1

Irregular Direct Liabilities 0

Note:1. The above grades are on liberal terms and will be improved upon in future.

2. If any of the item is not applicable, then mark NA and total marks should be

calculated on proportionate basis i.e. actual marks given have to be divided by

maximum total marks applicable multiplied by 100.

The account shall be graded as under

Grade Marks

AAA Above 90

AA 81 90

A 71 80

BB 61 70

B Upto 60

Secured loans/ cash credit facilities upto Rs. 10.00 lacs

a. Priority Sector Advances 11.00 % p.a.

b. Non-Priority Sector Advances 12.00 % p.a.

Secured Loans/ Cash Credit facilities (above Rs. 10.00 lacs):

The applicable interest rate will depend on the credit rating given to the borrower/

account as indicated in the table given below

Grades SSI and other Builders and Other ( including

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manufacturing units

(% p.a.)

Developers/contractors

(% p.a.)

traders)

(% p.a.)

AAA 10.5 11.00 11.00

AA 10.75 11.50 11.50

A 11.00 12.00 12.00

BB 12.50 13.00 12.50

B 13.00 14.00 13.00

Notes: -

a. The interest rate for CC and TL will be the same on the basis of gradation.

b. The new clients will be charged interest at 12% p.a. for the first year for both cash

credit and Loan Facilities. Normal gradation will be applicable for the account from the

second year, based on final year balance sheet and profit and Loss Account, etc.

c. In case of default, interest will be charged 14% p.a. till the default continues.

d. For Defaulters in builders/developers/contractors category with B grade rating, the

interest chargeable for the period of default will be 15% p.a.

3.8 Time Frame for disposal of loan proposal

The prospective borrower approaching the branch should be advised in detail the

procedural formalities required to be completed by him at the time of issuing the loan

application itself. A list of documents required alongwith loan application form should be

handover to him.

Branch should accept all loan/cash credit application and issue receipt of

acknowledgement immediately. Advise staff not to issue on-dated receipt. Further no

loan file should be returned back to the applicant even though it is not complete in all

respects.

The Timeframe for disposal of proposals is as under:

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1. After receipt of application, branch should write to the applicant about the

requirements within 3 days of receipt of the application giving him a period of 10

days for completing the requirements.

2. In case of non-receipt of documents within 10 days from despatch of the first letter, a

further period of 10 days be given to complete all the requirements. Thus, a total

period of 23 days will be available to the branch and the applicant. The last date for

compliance by the applicant should be syated specifically in the letters to the

applicant instead of mentioning only 10 days.

3. If the loan could not be sanctioned or rejected by the branch by 23rd day, file should

be forwarded to the zonal office for further action on 24 th day.The zonal office will

examine scrutiny notes etc. of the branch and ensure that only genuineand minimum

requiremnts are raised. If found necessary the zonal office will advise the concerned

branch to delete/waive some of the requirements, provided that in the latters view

such deletion/waiver may not have material importance from the point of safety and

security of the banks advance.

4. After verification of the loan proposal file in respect of the actions initiated by the

branch and response of the applicant, zonal office will write to the borrower to

comply with all the remaining requiremnts within period of 7 days. The zonal office

will thereafter return the file back to the branch for further compliance within 10 days

of receipt.

5. After receipt of the file from the zonal office, the in-charge of the branch will arrange

for further follow-up with the applicantand ensure that all requirements as advisedby

the zonal office are compiled with by the applicantat the earliest. He will thereafter

recommend sanction or rejection of the proposal and send the loan proposal file to

zonal office. Thus, loan proposal fallimg within the delegated powers of the branch-

in-charge. I.e. upto Rs. 4.00 lacs as also upto Rs. 10.00 lacs and falling within the

powers delegated to the zonal Dy. General Manager which have remained pending

beyond the prescribed time limit of 23 days from the receipt of application and in

respect of which the aforesaid procedure has been followed will be sanctioned/

rejected by the zonal Dy. General Manager.

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6. A similar procedure as to the timeframe for disposal of loan application, will be

followed by branches and the Loans and advances Dept. In respect of proposal for

amount above Rs. 7.00 lacs and upto Rs. 10.00 lacs.

7. The applications/proposals for facilities of higher amounts will continue to be

approved/ rejected at appropriate higher levels i.e. Addl. General Manager/ Managing

Director as at present.

8. Sanctioing of Loans and Advances proposals pending beyond 23 days at branch level

will be viewed as violation of delegated authorities attracting disciplinary action

against the in-charge of the branch.

9. If it is found by the zonal office that branches are not complying even with the

relaxed time schedule as above and there is delay on the part of any branch, the DGM

should write to concerned branch-in-charge and seek his explanation by issuing

memo / showcause.

Benchmark parameter for the purpose of scrutiny/ recommendations and sanction of CC,

TL etc. above Rs. 10.00 lacs.

For Core and

General Sector

For sensitive Category

For Builders and

Developers

For Civil

contractors,iron

and steel traders

etc.

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Current Ratio 1.33 1.33

Quick Ratio 1.00 1.00 1.00

Debt Equity Ratio 4:1 2:1 3:1

Total Liabilities/TNW 5:1 3:1 4:1

Act.sales/ proj.sales Minimum 90%

DSCR 1.5 or above but not less than 1.25Margin on prime security As given 50% 40%

Total security 160% 300% 200%

Debtors ratio Maximum 90 days

Creditors ratio Should be less than Debtors ratio

Profit sale > 10% > 10% > 5%

The existing margins as under should continue:-

I. Stock and Book Debts

(Older than 3 months do not qualify for DP stock should be paidstocks.)

a. For Ssi and Manufacturing and other Priority

Sector including retailers and commission

Agents.

b. For others

25

40

II. a.New machineries and Imported Reconditioned Machineries not

used in India ( Import documents required for assessing the value for

TL)

b.Secomd Hand Indian Machines/ Second hand imported machines

used in India (Valuation Report by contract engineer is required giving

present value)

c. Big host moulds

d.New Contract Equipments

25

50

40

25

III. Gold/Jewellery ornaments 25

IV. Purchase of real estate

a. Shop/ Gala/ Commercial/ Factory

b. Land and Building ( Construction) ( In case of

25

25

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manufacturing project only.)

c. Renovation/ repairs of shop/ factory 25

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CHAPTER NO. 4

ANALYSIS AND REPRESENTATION OF DATA

Cost of Project and Means of Finance

Cost of Project Rs. Lacs

Land and building development 600.00

Equipment and vehicles 252.50

Furniture and Fitting 45.20

Muncipal Taxes and deposit 18.00

915.70

Means of Finance

Promoter's Contribution 25% 228.93

Loan 75% 686.78

915.70

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Projected Profit & Loss For the year ended

Rs. In lacs

Year 1 Year 2 Year 3 Year 4 Year 5

Pecent Capacity Utlilization 30 60 65 70 80

Income

Sales & Other Income 2750.00 5000.00 6000.00 6500.00 6800.00

Less:Expenses

Material purchases 1045.00 1900.00 2280.00 2470.00 2584.00

Wages 660.00 1200.00 1440.00 1560.00 1632.00

Factiry overheads 302.50 550.00 660.00 715.00 748.00

Selling & Distribution Expenses 275.00 500.00 600.00 650.00 680.00

Administration Expenses 302.50 550.00 660.00 715.00 748.00

Profit Before Interest &Depriciation and Tax 165.00 300.00 360.00 390.00 408.00

Less:

Interest 47.30 47.30 47.30 47.30 47.30

Depriciation 119.54 101.63 86.71 74.22 63.75

Profit Before Tax -1.84 151.07 225.99 268.48 296.95

Less: Tax 0.00 45.32 67.80 80.54 89.09

Profit after Tax -1.84 105.75 158.19 187.94 207.87

Balance Forward from last year 0.00 -1.84 53.13 119.06 170.59

Profit available for appropriation -1.84 103.91 211.32 306.99 378.46

Appropriations

Dividend 0.00 20.78 42.26 61.40 113.54

Transfer to reseves 0.00 30.00 50.00 75.00 75.00Total Appropriations 0.00 50.78 92.26 136.40 188.54

Balance carry forward -1.84 53.13 119.06 170.59 189.92

Balance sheet as on Rs. In lacs


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Sources of Funds

Share capital 228.88 228.88 228.88 228.88 228.88

Reserves 0.00 30.00 80.00 155.00 230.00

Net Profit -1.84 53.13 119.06 170.59 189.92

Secured Loans 686.78 549.42 412.07 274.71 137.36

Total 913.82 861.43 840.00 829.19 786.16

Application of funds

Fixed Asset 897.70 778.16 676.53 589.82 515.60

Less: Depriciation 119.54 101.63 86.71 74.22 63.75

Net Fixed Asset a> 778.16 676.53 589.82 515.60 451.85

Current Asset

Sundry Debtors 220.00 350.00 432.00 525.00 561.00

Stock 275.00 484.90 598.18 647.39 657.31

Cash 137.50 250.00 300.00 311.20 340.00

i> 632.50 1084.90 1330.18 1483.59 1558.31

Less:Current Liabilities

Sundry Creditors 166.84 300.00 360.00 390.00 408.00

Bills payable 220.00 400.00 480.00 520.00 544.00

Other Current Liabilities 110.00 200.00 240.00 260.00 272.00

ii> 496.84 900.00 1080.00 1170.00 1224.00

Net Current Asset (b=i-ii) 135.66 184.90 250.18 313.59 334.31

Total (a+b) 913.82 861.43 840.00 829.19 786.16

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DSCR Calculation Rs. In lacs


Profit after tax (1) N.A. 105.75 158.19 187.94 207.87Depriciation (2) N.A. 101.63 86.71 74.22 63.75

Interest on Term Loan (3) N.A. 47.30 47.30 47.30 47.30

Cash Accruals (4) = (1+2+3) N.A. 254.68 292.20 309.46 318.92

Term Loan Installment (5) N.A. 137.36 137.36 137.36 137.36

Interest on Term Loan (6) N.A. 47.30 47.30 47.30 47.30

Total Repayment (7)= (5+6) N.A. 184.66 184.66 184.66 184.66

DSCR (4/7) N.A. 1.38 1.58 1.68 1.73

Average DSCR 1.59

Remark: DSCR is above 1.5. It is acceptable.

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Ratio Calculation

Year 1 Year 2 Year 3 Year 4 Year 5 Remark

Net Profit Ratio=

(PAT / sales)*100N.A. 2.11 2.64 2.89 3.06 Increasing

Return on Capital

Employed = Net

profit/ capital

employed

N.A. 0.12 0.19 0.23 0.26 Increasing

Return on

Proprietors' capital =

Net profit/ (capital

+Reserves)

N.A. 0.34 0.37 0.34 0.32More or less

stable

Total Liabilities/

Total Net Worth5.21 4.65 3.49 2.61 2.10 Decreasing

Debt Equity Ratio 3.02 1.76 0.96 0.50 0.21 Decreasing

Debtors Ratio29 26 26 29 30

Less than

90 days

Creditors Ratio24 23 23 23 23

Less than

DTR

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Working Capital Eligibility Rs. In Lacs


a. Under Method ICurrent Asstes 632.50 1084.90 1330.18 1483.59 1558.31

Less: Current Liabilities 496.84 900.00 1080.00 1170.00 1224.00

Net Current Asstes 135.66 184.90 250.18 313.59 334.31

Less: 25% Net current assets 33.92 46.23 62.55 78.40 83.58

Eligible MPBF 101.75 138.68 187.64 235.19 250.73

b. Under Method II

Current Asstes 632.50 1084.90 1330.18 1483.59 1558.31

Less: Current Liabilities 496.84 900.00 1080.00 1170.00 1224.00Net Current Asstes 135.66 184.90 250.18 313.59 334.31

Less: 25% current assets 158.13 271.23 332.55 370.90 389.58

Eligible MPBF -22.47 -86.32 -82.37 -57.31 -55.27

c. Under Method III

Sales 2750.00 5000.00 6000.00 6500.00 6800.00

20% of the realisic projetedsales turnover 550.00 1000.00 1200.00 1300.00 1360.00

Remarks:

The decision of choosing the method is taken by the bank depending on the sector. The

method II is not applicable in this case.

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CHAPTER NO. 5

FINDINGS AND SUGGESTIONS

5.1 Findings:

1. The credit rating is not done for new proposals, as there is no financial statements are

available for the same.

2. If the party is constently achieving the highest grade say, AAA grade for

continuosly 3-4 years, there is no benefit available for the party apart from the lower

rate of interest.

3. The margin taken for CC,TL is different for different loan proposals. In the branch, it

is printed as 25% only as a general. There is no reference of margin to ensure that it is

taken correctly.

4. In the analysis of financial statement, it is found that the ratio Return on capital

employed is not included in the analysis. This ratio shows the overall profitability of

the firm.

5. In some cases it is found that the method of depriciation and rate of depriciation is

different for same item in different proposals by the different party.e.g. for copmuter

the rate and method of depriciation varies from customer to customer. Due to this, the

customer is manupulating the projected figures in their projected financial statements.

Also it is found in some cases that the item depriciated is not realistic.

6. It is found that, all the documents related to particular loan proposal is kept in one

file. But this may find difficult to access the reports to top management.

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7. It was found in some cases that the figures of projected sales shown are not realistic

without any investment. The borrower exaggerate the sales figure without any

additional investment for the only purpose of manupulating the figures.

5.2 Suggestions:

1. The bank should done gradation for new proposals also. If the financial statements are

not available, the bank can give rating on the basis of other parameters like security

prime and collateral, Management, business and other parameters etc. This rating may

not be useful for fixation of rate of interest. But on the basis of this the bank can keep

records of the party and can judge these parameters for the next gradation for any

deviation.

2. As the party is consistently achieving highest grade, it reduces the risk of bankruptcy.

This, in turn, reduces the bad debts of the bank. The bank should provide some

concessions to the party apart from the lower rate of interest like some gift vouchers

at the end of last installment, some concessions for next loan etc. This will help the

bank to increase the value of the bank in the minds of cutomers. This may act as a

marketing tool.

3. The magin for CC,TL proposals is different for different proposals. There should be

provided some reference for the margin to ensure that the particular margin is taken

from policy no._______ under the clause no._______. This will help both i.e. top

management to ensure that the paricular margin taken by the executive is correct and

junior management who actully take from the correct source.

4. The ratio Return on capital employed is one of the important ratio which shows the

overall profitability of the firm. This also indicates that how efficiently the firm

utilizes its capital. This ratio should give some weightage in the analyisis of financial

statement.

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5. The depriciation is a non cash expense. Therefore, it may use to manipulate the

projected figures. There should be some restrictions for selecting the method of

depriciation as well as rate of depriciation.

6. There should be separate files for documents or reports required for top management

for easy accesibility and rapid decision-making.

7. There should be strict control on the projected sales figures by considering the factors

like future investment projected etc.

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BIBLIOGRAPHY

Financial Management (4th Edition)

Authors: - Prasanna Chandra

Credit Policy 2010-11

Abhyuday Co-op. Bank Ltd. (Scheduled Bank)

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ANNEXURES

I] Credit Rating:

S.No.

Particulars Actual Marksby

Zone

H.O.Remarks

Financial Parameters (maximum marks 40)

1 Current Ratio

2 Quick Ratio

3 Debt Equity Ratio

4 Total Liabilities/ TNW

5 Sales achieved (comparewith targets accepted by

bank as per projections)

6 Net Profit as % of sales(projected and actual)

7 Retention of profit

(Avg. 2 years)

8 a)DSCR(Every proj.year for project finance)

b) Diversion offunds (For working

Capital facilities)

No Diversion

Minor Diversion

Huge Diversion

Note: If both are applicable, avg. marks be given

9 Trend in sales Consistently increasingMore or less stable

Decreasing

10 Trends in Profits

(Amount)

Increasing Profits

Stable Profits

Decreasing

Losses

Security Prime and Collateral (Maximum Marks-15)

1 Security Prime in

relation to DP

More than adequate

Just adequate

Inadequate

2 Collateral Cover (As per the present

market value)

100% and above50%- 99%

20% - 49%

Less than 20%

No Collateral

3 Collateral Cover

Type

Cash Security/FD/Bonds/Insu policy

Equitable Mortgage of Busi. premise

Equitable Mortgage of Resi. premise

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Second Charge on fixed assets/ mortgage

of open land etc.

No collaterals

Note: In case of multiple sec., give proper weight age as per present M.V.

Conduct of Account (Maximum Marks-27)

1 Sub. of monthly

security statements(last12 months)

Prompt/Regular

Late but not less than 1 month

Late but greater than 1 month

2 Repayment of

Installment Interest(CC/TL/WCTL

etc.)

Timely within 10 days from due date

Within 30 days from due date

Beyond 30 days from due date

3 Overall Operation ofthe A/c(like regular

overdrawing againstclearing, cheque

returns, etc.)

Excellent

Good

Satisfactory

Poor

4 Sales and other business routed

through us

Sales greater than 90%Sales 80%-89%

Sales less than 80%

5 Recoveries of bills

purchased/LC Bills/others/ guarantees

No overdueOverdue regularized within 10 days from

due date

Overdue regularized within 1 month from

due date

Overdue regularized beyond 1 month from

due date

Overdue not regularized

6 Compliance of

Audit and

inspectionrequirements

No compliance required

Prompt within 10 days

Within 1 month

After 1 month

Not complied since initiated

7 SecurityDocumentation

(Mortgage, Noting,

Power of Attorney etc.)

Complete and in orderDocuments incomplete due to valid reason

Incomplete or pending

Management (Maximum Marks-8)

1 Promoters Professionally/Technicallycompetent/experienced

Professionally/Technically competentpersons employed

Absence of Professionally/Technically

competent persons

Active

Management

Stable-no change in past 3 years

(except within family)

Stable-but not more than one change

in last 3 years

Frequent change in recent past

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Business and other parameters (Maximum Marks-10)

1 Business

parameters

Core/ Approved sectors

Sensitive sectors

2 Satisfactory

Account

relationship

10 years and above

6 to 10 years

1 to 5 yearsNew or less than 1 year

3 Ind./business prospects for and

effect of expected

Govt. changes in

policy

Excellent

Good

Poor

4 Irregular Direct/Indirect Liabilities

No Irregular Direct/ Indirect Liabilities

Irregular Direct/ Indirect Liabilities

Prepared By Accountant/Asst. Accountant Branch Manager

For Zonal office UseReceived on ________________

S.No. Marks Marks

obtained

Grade Rate of

Interest

1 Financial Parameters 40

2 Security Prime and Collateral 15

3 Conduct of Account 27

4 Management 8

5 Business and Other Parameters 10Total 100

Accountant Dy. General Manager ________________zone

sent to Head Office on_____________________

For Head Office UseReceived on:_________________

Remarks :____________________Rate of Interest fixed: __________

Reason for deviation if any:

Asst. General Manager Addl. General Manager Managing Director

Loans and Advances

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II] Zonal Report

M/S Branch

Zonal Office report

1. Brief History of Proprietor / Partner / Director & Firms: _______________________

________________________________________________________________________________________________________________________________________

____________________________________________________________________

___2. Details of Associate Accounts______ ______________________________________

____________________________________________________________________

____________________________________________________________________

____________________________________________________________________

___3. Product Dealt/ Manufactured______ _______________________________________

________________________________________________________________________________________________________________________________________

____________________________________________________________________

___4. Capital ______________________________________________________________

____________________________________________________________________

________________________________________________________________________________________________________________________________________

___

5. Reserves ____________________________________________________________________________________________________________________________________________________________________________________________________

__

6. Unsecured Loans __________________________________________________________________________________________________________________________

____________________________________________________________________

__7. Other Liabilities ______________________________________________________

____________________________________________________________________

____________________________________________________________________

__8. Fixed Assets _________________________________________________________

____________________________________________________________________

______________________________________________________________________

9. Current Asset ________________________________________________________

________________________________________________________________________________________________________________________________________

__

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10. Losses ______________________________________________________________

____________________________________________________________________

______________________________________________________________________

11. Diversion of Funds _____________________________________________________

________________________________________________________________________________________________________________________________________

__

12. Performance of the borrower _________________________________________________________________________________________________________________

____________________________________________________________________

__

13. Analysis of Balance sheet and Profit and Loss account and interpretation of ratios

Current Ratio ___________________________________________________

______________________________________________________________

______________________________________________________________

__ Debt Equity Ratio _______________________________________________

____________________________________________________________________________________________________________________________

__

Creditors Ratio _______________________________________________________________________________________________________________

______________________________________________________________

__

Debtors Ratio ________________________________________________________________________________________________________________

________________________________________________________________

14. Comment on report of Industrial Finance Department _________________________

____________________________________________________________________

______________________________________________________________________

15. Payment of Statutory Dues ______________________________________________

________________________________________________________________________________________________________________________________________

__

16. Utilization of cash credit limits ___________________________________________

________________________________________________________________________________________________________________________________________

__

17. RBI Inspection report observation and compliance thereof ________________________________________________________________________________________

____________________________________________________________________

__18. Internal and concurrent audit observation & compliance thereof _________________

____________________________________________________________________

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____________________________________________________________________

__

19. Non-compliance of sanction stipulations of board ________________________________________________________________________________________________

____________________________________________________________________

__20. Insurance of stock/machineries hypothecated etc. _____________________________

____________________________________________________________________

______________________________________________________________________

21. Credit Rating _________________________________________________________

____________________________________________________________________

________________________________________________________________________________________________________________________________________

___

22. Reconstitution of partnership _____________________________________________

________________________________________________________________________________________________________________________________________

__23. Mortgage of Immovable properties _______________________________________

____________________________________________________________________

____________________________________________________________________

__24. Group Exposure ______________________________________________________

____________________________________________________________________

______________________________________________________________________

25. Special request of the borrower (if any) ____________________________________

________________________________________________________________________________________________________________________________________

__

26. Need for working capital Term Loan __________________________________________________________________________________________________________

____________________________________________________________________

__

27. DSC ratio _______________________________________________________________________________________________________________________________

____________________________________________________________________

__28. Zonal Office Recommendations with justification in details ____________________

____________________________________________________________________

________________________________________________________________________________________________________________________________________

________________________