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Summer Internship Project
Reportnalysis of credit appraisal System of
the Products of SI!"I and Its Impact on#S#$
Shakti #ishra
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Project Under The guidance
of
Prof. Arindam Banarjee (Internal
Faculty Guide)
And
Mr. Amit Kumar AGM
!entral "oan Proce##ing !ell $I%BI
Project $u&mitted By'
ame $ha*ti Mi#hra+oll o' ,-%M,/
Batch /0,-',1
%
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&
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!2+TIFI!AT2
'his is to certify that Mr. Shakti Mishra( Roll )o. 14DM192( has completed
his summer internship at Small Industries Development Bank Of
India(SIDBI) , and has submitted this project report entitled *nal!sis of
"redit appraisal S!stem of the #rodu"ts of SIDBI and Its Impa"t on
MSM$+ towards part ful,llment of the requirements for the award of the Post
-raduate !iploma in #anagement %./01%./23
'his Report is the result of his own work and to the best of my knowledge no
part of it has earlier comprised any other report( monograph( dissertation or
book3 'his project was carried out under my overall supervision3
!ate4 /56.26%./5
Place4 7ucknow
8888888888881 9ompany Project -uide
0
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!2+TIFI!AT2
'his is to certify that Mr. Shakti Mishra( Roll )o. 14DM192( has completed
his summer internship at Small Industries Development Bank Of
India(SIDBI) , and has submitted this project report entitled (nal!sis of
"redit appraisal S!stem of the #rodu"ts of SIDBI and Its Impa"t on
MSM$+ towards part ful,llment of the requirements for the award of the Post
-raduate !iploma in #anagement %./01%./23
'his Report is the result of his own work and to the best of my knowledge no
part of it has earlier comprised any other report( monograph( dissertation or
book3 'his project was carried out under my overall supervision3
!ate4
Place4 -reater )oida
8888888888881Internal :aculty
-uide
5
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2
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Ac*no3ledgement
I have been grateful to the Small Industries !evelopment "ank of India
*SI!"I+ for providing me an opportunity to go be a part of their functionality3
It has been an experience which has improved my knowledge( enhanced my
ability to withstand work environment and an opportunity to learn about the
role of most important sector in the country1 banking and ,nancial
institutions( in uplifting the sections of the economy that contribute majorly
to the economic development of the country3
I would like to extend my sincere gratitude to the management of SI!"I for
providing me the enriching opportunity of working with the organization and
its team for a period of % months3 In particular( I would like to thank my
9ompany -uide( #r3 mit ;umar for sparing the time to provide me with
necessary guidance and advice from time to time( with utmost patience( in
spite of his extremely busy schedule3 I would also like to express my sincere
gratitude to #r3 ;aushlendra ;umar( #r3 #ukesh
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"atch4 %./01/2
"irla Institute of #anagement 'echnology
242!UTI52 $UMMA+6
'he project titled ?nal!sis of "redit appraisal S!stem of the #rodu"ts
of SIDBI and Its Impa"t on MSM$%is concerned with the analysis of the
various aspects of project appraisal under various products of SI!"I and the
impact of these products on #S#$3
Since micro( small and medium enterprises are important drivers for the
economy of the country therefore it is important for nodal agencies like SI!"I
to assist them with the credit requirement at a cost e@ective and timely
manner3 So the aim of the study is to study thoroughly the various
aspects*technical( economic( ,nancial and commercial aspects+ of credit
appraisal and to study the various norms which are followed by SI!"I
towards disbursement of loans3 n e@ort has also been made to understand
the risk assessment process of SI!"I to understand how SI!"I recognizes
risks involved and the impact it has on lending decisions3
#oreover SI!"I assists the #S#$As with various subsidy schemes which
cover various sectors like textile( leather( food etc where technology
B
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upgradation is important for the growth of the sector3 So an attempt has
been made to study the various subsidy schemes provided by SI!"I3
Ta&le of !ontent#
Ac*no3ledgement 5
27ecuti8e $ummary1
Ta&le 9f A&&re8iation#
/3 Introduction ,0
1.1. Industry Introduction 11
1.2. Introduction To SIDBI 12
%3Methodology ,:
2.1. Objective Of The Project 19
2.2. Scope Of The Project 19
2.3. Reserch !ethodo"o#y 2$
&3 Introduction To !redit A;;rai#al //
3.1. Description of %ppris" 2&
3.2. 'entr" (on Processin# 'e"" 2)
3.3. Deti"ed %ppris" *ote29
3.&. Ter+ (on 31
&303/3 9ase Study &/
&303%3 9onclusion 0.
or*ing !a;ital "oan -,
C
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&353/3 9ase Study 0&
&353%3 9onclusion 52
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TAB"2 9F ABB+25IATI9$
M$M2 MI!+9 $MA"" A% M2%IUM $!A"2 2T2+P+I$2
A$$9!@AM A$$9!IAT2% !@AMB2+ 9F !9MM2+!2
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ABA+% ATI9A" AG+I!U"TU+A" BAK 9F +2$2A+!@ A%%252"9PM2T
A!+ A$$2T !952+AG2 +ATI9
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I!A APA IT2+ATI9A" !99P2+ATI9 AG2!6
PA 9'P2+F9+MIG A$$2T
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T9" T9TA" 9UT$I%2 "9A$
+9! +2TU+ 9 !APITA"
4B9 24T2$I9 B+A!@ 9FI!2
+9!2 +AT2 9F !APITA" 2MP"962%
9+M 9P2+ATI9A" +I$K MAAG2M2T
+iM5 +I$K MAAG2M2T 52+TI!A"
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//
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!ha;ter
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Introduction
,.,. Indu#try Introduction
'he #icro( Small and #edium $nterprises *#S#$s+ play a key role in the
economic and social development of the country3 'hey also play a major role
in the development of the economy with their e@ective( eDcient and Eexible
entrepreneurial spirit3 'he #S#$ sector contributes to the countryAs
manufacturing output( exports and employment and is credited with
generating the highest employment growth3
'he #S#$ sector in India is highly heterogeneous in terms of the size of the
enterprises( variety of products and services( and levels of technology3 'he
sector not only plays a critical role in providing employment opportunities at
comparatively lower capital cost than large industries but also helps in
industrialization of rural and backward areas( reducing regional imbalances
and assuring more equitable distribution of national income and wealth3
#S#$s complement large industries as ancillary units and contribute
enormously to the socioeconomic development of the country3 'he
continuous increase in the #S#$ industries and the employment in the
sector shows the importance and credibility of this sector3
$nterprises are classi,ed into micro( small and medium category
2nter;ri#e
(Ty;e)
In8e#tment in
Plant C Machinery
(Manufacturing)
In8e#tment in
2Dui;ment
($er8ice)
Micro U; to /= "a*h# U; to ,0 "a*h#$mall A&o8e /= "a*h#
u; to = !rore
A&o8e ,0 "a*h#
u; to / !rore
Medium A&o8e = !rore u;to ,0 !rore
A&o8e / !rore u;to = !rore
/&
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Introduction to $I%BI
Small Industries !evelopment "ank of India is an independent ,nancialinstitution aimed to aid the growth and development of micro( small andmedium1scale enterprises in India3 Set up on pril %( /CC. through an act of
parliament( it was incorporated initially as a wholly own subsidiary ofIndustrial !evelopment "ank of India3 'he current shareholding is spreadamong many government1owned "anks( Insurance 9ompanies and :inancialInstitutions3
SI!"I began as a re,nance agency to banks and ,nancial institutions fortheir credit to small industries3 Since then it has expanded its activities(including direct credit to the S#$ through /.. branches in all major industrialclusters in India3 "esides( it has been playing the development role in severalways such as support to micro1,nance institutions for capacity building andon lending3 Recently it has opened seven branches christened as #icro
:inance branches( aimed especially at dispensing loans up to 5 lakh3
Some of the products of SI!"I are4
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gypggggqpgppygpygypgggggpqygpSI!"I has extended ,nancial help to many companies and organizations inoperating in the #S#$ sector through its diverse line of products3 'he total#S#$ outstanding credit of the "ank increased by 03% to 52(.2. crore ason #arch &/( %./&3 'he cumulative disbursement by SI!"I to the #S#$sector since inception stood at over %3B5 lakh crore( bene,tting more than&%B lakh persons in the #S#$ sector3
%iEerent tool#$cheme# u#ed for ;ro8iding credit
!redit Guarantee Fund Tru#t For Micro And $mall 2nter;ri#e#(!GTM$2)
9&jecti8e
/5
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9redit to micro and small enterprises sector is generally perceived as high
risk lending( more so( when there is absence of any collateral3 In order to
encourage banks to lend more to this sector( -overnment of India and SI!"I
have set up the 9redit -uarantee :und 'rust for #icro and Small $nterprises
*9-'#S$+ in
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'he guarantee cover available under the scheme is to the extent of >5 per
cent of the sanctioned amount of the credit facility3 'he extent of guarantee
cover is B. per cent for *i+ micro enterprises for loans up to Rs35 lakhL *ii+
#S$s operated and6or owned by womenL and *iii+ all loans in the )orth1$ast
Region3
!redit "in*ed !a;ital $uidy $cheme(!"!$$)
9&jecti8e
'he objective of this subsidy is to facilitate technology up gradation of SSI
units in the speci,ed products 6 sub1sectors by providing /5 capital
subsidy for induction of well established and improved technologies3
2ligi&ility
Fnits going for upgradation with state of the art technology with orwithout expansion3
)ew units setting up facilities only with the appropriate and proventechnology approved by -'"3
'he units registered with State !irectorate of Industries3
Ma7imum !eiling of loan eligi&le for #u;;ort
/5 of the investment in eligible plant M machinery
9eiling on 7oan1 Rs3/.. lakh
9eiling on subsidy1Rs3 /5 lakh
$I%BI Financing $cheme For 2nergy $a8ing Project#
'he
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expected to encourage #S#$ units to undertake energy saving investments
in plant
M machinery 6 production process to reduce energy consumption( enhance
energy
eDciency( reduce 9G% emissions and improve the pro,tability in the long
run3
'he ,nancial assistance to #S#$s will be through SI!"I( as well as through
re,nance
to banks 6 State :inance 9orporations *S:9s+ and )on "anking :inancial
9ompanies
*)":9s+3 Fnder the 7ine technical assistance is also provided to ,nancial
institutions
and #S#$ units for dissemination of information and successful
implementation of
$nergy Saving projects in #S#$ Sector3
Financial Parameter#
'he ,nancial parameters for assistance under the Scheme are4
PR#$'$R )GR#
#inimum ssistance Rs3 /. lakh
#inimum Promoters
9ontribution
%5 for existing units
&& for new units
!ebt1$quity Ratio #aximum %354/
Interest Rate 'he interest rate is based on internal risk rating
within the band given below4
:ixed rate 4C351/. p3a
:loating rate4C3>51/.35 p3aSecurity :irst 9harge over assets acquired under the
schemeL
,rst6second charge over existing assets and
collateral security
as may be deemed necessary3
sset coverage #inimum ssets 9overage should be /304/ for
/B
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new units and /3&4 / for existing units3
Repayment
Period
)eed based3 )ormally( the repayment period
doesnAt extend
beyond > years3 Kowever( longer repaymentperiod of more
than > years can be considered under the 7ine
if considered
necessary3
Technology U;gradation Fund $cheme'Te7tile $ector(TUF$)
'he Scheme was launched by the #inistry of 'extiles( -oI on pril /( /CCC
and its objective is to upgrade M modernize the Indian 'extile Industry by
encouraging it to undertake M adopt modern technological process or
undertake capacity expansion3
SI!"I is the nodal agency for the SSI in the textile and cotton ginning and
pressing sector3
TUF$ 9&jecti8e C Incenti8e#i+ reimbursement of 5 on the interest charged by the lending
agency on a project of technology upgradation in conformity with
the Scheme3 Kowever( for spinning machinery the scheme will
provide 0 for new stand alone 6 replacement 6 modernization of
spinning machineryL and 5 for spinning units with matching
capacity in weaving 6 knitting 6 processing 6 garmenting3
ii+ dditional option to the powerlooms units and independent
preparatory units to avail %. #argin #oney subsidy under
Restructured 'F:S in lieu of 5 interest reimbursement oninvestment in 'F: compatible speci,ed machinery subject to a
capital ceiling of Rs3 5.. lakh and ceiling on margin money subsidy
of Rs32. lakh3 Kowever( for brand new shuttleless looms the ceiling
on margin money subsidy will be Rs3/ crore3 minimum of /5
equity contribution from bene,ciaries will be ensured3
/C
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iii+ n option to SSI textile and jute sector to avail of /5 #argin
#oney subsidy in lieu of 5 interest reimbursement on investment
in 'F: compatible speci,ed machinery subject to a capital ceiling of
Rs3 5.. lakh and ceiling on margin money subsidy of Rs305 lakh3
minimum of /5 equity contribution from bene,ciaries will be
ensured3
iv+ 5 interest reimbursement plus /. capital subsidy for speci,ed
processing( garmenting and technical textile machinery33
v+ 5 interest reimbursement plus /. capital subsidy for brand new
shuttleless looms3
vi+ %5 capital subsidy in lieu of 5 interest reimbursement on
purchase of the new machinery and equipments for the pre1loom M
post1loom operations( handlooms6up1gradation of handlooms andtesting M Huality 9ontrol equipments( for handloom production
units3
vii+ %5 capital subsidy in lieu of 5 interest reimbursement on
benchmarked machinery of silk sector as applicable for Kandloom
sector3
%.
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/., 9&jecti8e 9f The Project '
'he project focuses on the in1depth study and analysis of the appraisal
system of four important products of SI!"I viz3 term loan( working capital
loan( risk capital loan and micro credit loan3 ppraisal plays an important role
in lending decision of any organization planning to lend money3
'his project report will focus mainly on the following points41
%%
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'o understand the working of SI!"I
'o understand the features of di@erent products of SI!"I
'o understand the process of appraising a project and understanding the
various risk involved3 Fnderstand the impact of SI!"I on the #S#$ sector
/.,. $co;e of The $tudy '
Small and medium enterprises credit appraisal process as done in $I%BI
!"P! de;artmentL 7ucknow is covered under the report3 Suitable cases are
taken to understand four of the most important products availed by the
customer and the credit appraisal of these products of SI!"I3 'hrough this
study detail analysis of appraisal process is illustrated3 9omparison between
the appraisal processes of these products is based on my general
observation( understanding and interviewing with oDcials during the two
months internship3
/./. +e#earch Methodology
"9!A"2 9F T@2 $TU%6'he locale of the study has been narrowed downto the Kead GDce( 7ucknow oDce of Small Industries !evelopment "ank Gf
India3 'he study is categorized into many departments of the SI!"I but itmainly deals with the 9entral 7oan Processing 9ell Gf SI!"I3
$ource# of %ata4 #ost of the data collected is primary data as 97P9
provides its clients with a checklist of documents required for further
processing of the proposed loan3 'his checklist includes documents like legal
documents( I' returns( ,nancials etc3 'hese documents come directly from
the client and do not require ,eld visits3 :ield visits are done only to have
meeting with the client or to examine the available assets and security3
Secondary data like industry informationL industry trend etc3 will becollected from online sources3 udited "alance Sheets and =aluation report
of existing assets and securities of the project are collected from their
respective sources3
%&
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$am;le $ie I have taken one case for term loan( working capital loan(
micro credit loan and risk capital loan each and explained loan appraisal
process end to end3 Kence my sample size is 03
%ata Analy#i#ctual proposals were done to get hands on experience onthe procedure of Project ppraisal3 $xcel statistical tools have been used for
analyzing the data3
:ollowing steps were taken for analysis *appraising the project+4
!oing a management appraisal1checking the promoterAs contribution(
credentials and years of experience in the business3
!oing a technical appraisal1visiting the locality of the project and
checking whether the machines and other utilities for the plant are
suDcient to sustain the project3 !oing a ,nancial appraisal1!oing a ratio analysis and checking whether
the ratios adhere to the prescribed norms3 9alculating !ebt Service
9overage Ratio( IRR( )P= and doing a sensitivity analysis3
!oing a commercial appraisal1 9hecking the demand and supply of the
project3
TechniDue U#ed 9omparison is done through understanding detail credit
appraisal process for all the mentioned products3 "y explaining project
appraisal case of each I have tried to bring comparison between them3
%0
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%5
9KP'$R &
Introduction to9redit ppraisal
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@o3 a &orro3er a;;roache# &an* for a $mall Bu#ine##
"oanH
Gbtaining a small business loan has been diDcult for entrepreneurs over the
past few years( as lenders instituted stricter credit standards and investors
tightened their purse strings following the ,nancial crisis3
$te; , Ta*e #toc*
Nhen approaching a bank about a potential lending opportunity( itAs crucial
to have a solid business plan that shows how you plan to use the money3
loan application package will need to include hard numbers to back up the
viability of the plan( and should support a case for how your business will be
able to pay back the loan3
Reviewing ,nancial statements in advance of approaching a lender is alsowise because it will give you a chance to take stock of potential collateral for
the loan( which may include hard goods( real estate( stocks or bonds and
personal assets or guarantees3
$te; / !on#ider re#ource#
'here are many local and national organizations that provide support and
services to S#$ for seeking loans3 "efore approaching a lender( an
entrepreneur can reach out to these organizations3
$te;
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Ban*er# Perce;tion banker will focus on evaluating the credit
worthiness of the borrower and will see whether the proposed project has the
potential to generate pro,ts or not3 'his ensures the safety of the money3 :or
this( a banker uses a special tool called credit appraisal3
9redit appraisal is the assessment of credit worthiness of a borrower3 It
involves assessment of the various risks that can have an impact on the
repayment of loan3 'his assessment gives a very good idea of the borrowerAs
repayment capability and plays a major role in the lending decisions of the
lender3 !uring this whole process( the repayment capacity of the customer is
established( mainly based on Income( ge( Huali,cations( $xperience(
$mployer( )ature of business *if self employed+( Security of tenure( 'axation
history( ssets owned( lternative 6additional sources of income( Gther loan
obligations( Investments( Gther present and future liabilities3
'he appraisal system also aims to determine the credit needs6requirements
of the borrower taking into account the ,nancial resources of the client3 It is
to ensure that there is no under 1 ,nancing or over 1 ,nancing3
"elow is the pictorial summary of factors scrutinized in appraising a project
proposal3
%>
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checked to see if the borrower has ever defaulted on repayment3 "ytalking to borrower( its suppliers and customers( the character6goodwillof borrower is con,rmed3
)ext important thing is capital3 "ecause if borrower has suDcient
capital he can run his company in adverse situation easily( his stake inthe company increases so his exposure increases and bank exposuredecreases3 In short capital helps bank to reduce their exposure andincreases the credit worthiness of borrower3
Repayment capacity of the borrower is also major factor inchecking the feasibility of the project3 :or checking repayment capacity!S9R*debt service capacity ration+ is used3 verage of ,ve years of!S9R is checked for term loan and Interest coverage ratio is checkedfor working capital3 "orrower should be capable of repaying the loanfrom his projectAs pro,t or cash Eow3 min !S9R should be attained by
the lenderAs project to be eligible for a loan3 "ut sometimes if thelender has good record in other areas( relaxation is sought in theminimum !S9R requirement3 Nhether borrower is bringing suDcientsecurity to cover his assets is a concern for the bank3 "ecause( ifborrower fails to return money( security is the only shield whichprotects bankAs money3 Security should be checked and all the papersrelated to valuation of assets should be checked before proceeding forcalculation of asset coverage ratio and security margin3
9loseness means how much the borrower is attached to hisproject6company3 'his is the study of the stake of the promoter in the
project( whether he is positive about his project and sees a long termcommitment6prospects towards6for the project6company3
/. Financial Analy#i#'he ,nancial analysis is necessary to understand the projectAs ,nancialfeasibility3 ll the required documents are collected from the borrowerfor carrying out analysis of important parameters3 Importantdocuments6,nancials which are checked are4
9ash Eow
:und Eow
"alance sheet
Ratio analysis
9ash Eow statement analysis is done to understand whetherborrower have6will have suDcient funds for carrying out his businessproperly3 9apability of the project to generate suDcient cash to repaythe bankAs funds is also checked3 If the ,rm is an existing one then last& years actuals( current year estimates and next year projected cashEow and other ,nancials are analyzed3 If the ,rm is new only estimated
%C
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,nancials sheets are asked from the borrower and then those areanalyzed3 7oan oDcer checks for any discrepancies in the ,nancials ofthe company which may raise suspicions regarding the conduct of thecompany3
"alance sheet of the existing ,rm gives the idea about the fundmanagement( ,nancial position( current asset and liabilitymanagement and position of the ,rm3 7oan oDcer analyses thebalance sheet by checking the asset liability management of funds(checking the entries and forming his own corrected copy of balancesheet *writing the entries under relevant heads for example theborrower may have written some expenses under ,xed assets but bankconsider them as only expenses not assets+3 In case of working capital,nance bank calculates #aximum permissible bank ,nance *#P":+with the help of total current assets( total other current liabilities andalso promoterAs minimum contribution3 'hese are calculated from the
estimated balance sheet prepared by banks so balance sheet analysisis done thoroughly3
SI!"I and other banks have loan policy which says thatborrowerAs project must ful,ll some important ,nancial ratiolimits6norms for allowing bank to give loans to the borrower3 Importantratios are 9R( !$R( 'G76')N( !S9R( interest coverage( current ratio(etc3 'he ratio plays important tool in deciding the loan appraisalproposal3 Some more factors are debtor and creditor days which shouldbe within maximum days limit3 'hese are very important in workingcapital appraisal3
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understand authenticity and feasibility of the project3 So securityanalysis becomes very important for new ,rms3
"ank has their experts who evaluate the legal authenticity of thepapers of land6machinery etc given as security by the promoter3 "y
obtaining legal opinion of the experts bank can ascertain theauthenticity of the security3
'he valuation of the property6security as given by borrower iscrossed check by the bank with the help of internal valuation team3'hese measures are important because securityAs correct value shouldbe known for ascertain asset coverage ratio which is also a norm whichshould be ful,lled by the borrower3 lso it is important to know whethersecurity o@ered are at ,rst charge or not3 If the security is sharedbetween two or more banks then the valuation as obtain by one bankshould be acceptable to all banks3
-. +i#*"efore proceeding for detail credit appraisal( risk assessment of theborrowerAs project is very important3 'his is ,rstly because projectshould ful,ll rating norms of banks *to understand riskiness of theborrowerAs project+ and secondly because risk is directly related toreturn for the bank3 Kigher the risk higher will be interest rate chargedby the bank to the borrower3 Risk assessment includes assessment andrating of the following kind of risks4
Indu#try
+i#*#
Industry risk includes risks associated with
-overnment regulations and policies( availability ofinfrastructure facilities( Industry Rating( Industry
Scenario M Gutlook( 'echnology Fpgradation(
availability of inputs( product obsolescence(
reach6penetration of the ,rm( position of ,rm in target
market( competitors in the market( competitorAs price
strategies( industry risk( etc3
Bu#ine##
+i#*#
Gperating eDciency( competition faced from the units
engaged in similar products( demand and supply
position( cost of labor( cost of raw material and other
inputs( pricing of product( surplus available(
marketing( dependency on suppliers and customers(
quality of the product manufactured etc3
&/
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Management
+i#*#
"ackground( integrity and market standing6
reputation of promoters( organizational set up and
management hierarchy( expertise6competence of
persons holding key position in the organization(
delegation and decentralization of authority(
achievement of targets( track record in execution of
project( debt repayment( industry relations etc3
Financial
+i#*#
:inancial strength6standing of the promoters(
reliability and reasonableness of projections( past
,nancial performance( reliability of operational data
and ,nancial ratios( adequacy of provisioning for bad
debts( qualifying remarks of auditors6inspectors etc3
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97P9 team may directly negotiate with the promoters for improvement
in terms of sanctions and for speeding up the process3
97P9 may hold discussions with various parties to supplement the
information given by the branch and to improve quality of theappraisal3
97P9 is required to ,nalize the appraisal in not more than %. days from
the date of receiving of complete information from "G *SI!"I
guideline+3
&&
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% i # c u # # io n 3 it h t h ec u # t o m e r a & o u t th e
; r o ; o # a l
+ e c e i; t o fA ; ; l ic a t io n a l o n g
3 i t h
P r e ' # a n c t io n # i te 8 i # it& y & a n * o J c e r#
P r e ' # a n c t io n # i te 8 i # it
& y & a n * o J c e r#
! h e c * f o r + B I d e f a u lt e r # l i# t 3 i lf u l d e f a u l t e r #
li # t ! I B I " d a t a 2 ! G ! c a u t io n li# t e t c9 & t a i n5 a l u a t i o n
P a ; e r " $ + .
P r e ; a r e + M r e ; o rt a n d# e n d t h e ; r o ; o # a l to
! " P !
$ c r u t in i in g o f t h e d o c u m e n t # in f o r m a t i o n r e c e i 8 e d . Ifr e D u i re d a d d it io n a l in f o r m a t io n d o c u m e n t # c a l le d f o r
F i n a n c i a l
A ; ; r a i # a l
P r e l i m i n a r y
r a t in g u n d e r+ A M
P r e ; a r a tio n o f % A ( % e t a il e d A ; ; r a i # a l
o t e )
F ina l i ingt h e r a t i n g
F o r 3 a r d th e % A n a n c ia l a ; ; r a i# a lr e ; o r t to + i # * M a n a g e m e n t 5 e r tic a l
( + i M 5 ) .
P r e ; a r in g a d d e n d u m a d d r e # # in g
m i ti g a t in g t h e o & # e r 8 a t io n # ri # * o f+ i M 5
F o r 3 a r d th e ; r o ; o # a l to
c o n c e r n e d c o m m it te e fo rc o n # i d e r a t i o n .
! o m m it te e m a y c o n # id e r th e c a # e a n d
t a * e # t h e d e c i # io n o n t h e m e r it o f t h e c a # e .F o r 3 a r d th e a ; ; r a i # a l 3 it h t e rm # a n d c o n d it io n #t o t h e c o n c e r n e d & r a n c h fo r f u r th e r a c t io n
Project A;;rai#al Proce## in !"P!
&0
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%etail a&out indu#try (e7i#tingor ;ro;o#ed)
Kotel *service industry+
Product# Kospitality
In#talled ca;acity &B rooms
o. of day##hift# &25 days6%0x>
2nd u#e Service
27;ort orientation )one
B03%% 7akh /%&&305 7akh
IT >ealth Ta7 #tatu# I' Payee I' PayeePA !ard o. "9!/%&05$ NOQ/%&05P
9ther com;anie#intere#t# ca;acity
#6S Kanuman Kardwareand 'yres
#6s Saxena and 9o3
Since( term loan is a long term loanL the projectAs viability in the long run is
given the utmost importance3 9redit appraisal of a term loan focuses more
on the following points4
Nhether the project is feasible3 Nhether the project will be pro,table enough3
If the promoter will be able to repay the loan from the pro,ts earned3
&>
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i
l
r o n tD c e 6
c c o m oa t o n
n d
e c r e a t in
i
i
i
i nn c
u
di n
i s t r
t o
!a#e %etail#
'he overall business operation of proposed hotel would be supervised
directly by two directorAs viz3 Shri =ivek Sethia and Shri Saransh Saxena3 In
addition( the company will hire professionals to look after the day to day
running of the proposed hotel3 'he operational head of the hotel will be the-eneral #anager( who will be hired after considering the experience of such
person in running a hospitality business3 Gnce operational( the hotel
operations will be divided into ,ve sections as shown below4
$hare'holding Pattern4
$. o. ame um&erof $hare# Face8alue(+#.)
Amount(+#.) $hareholding()
/ =ivek Sethia /55... /. /55.... &23%/
% SaranshSaxena
55... /. 55.... /%3B5
& Relatives of !irectors
/..... /. /...... %&3&2
0 Gthers %/B... /. %/B.... %>35BTotal -/:000 -/:0000 ,00
In the technical aspects of the appraisal process( feasibility of the
project is checked by considering the technical factors a@ecting the
project3 Scope of the project( location of the project( Industry experts
involved with the project( availability of various resources( availability
&C
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of utilities *electricity( water( waste disposal+ and implementation
schedule are some of the factors taken into consideration3
!a#e %etail#
ll the available documents were scrutinized and the provided informationwas found satisfactory3
'he next step in the appraisal process is the study of cost of project
and means of ,nancing of the project3 'his is an important step in
every appraisal as this helps in estimating the cost of the project and
the actual loan requirement of the borrower3 It ensures that no under1
,nancing or over1,nancing takes place3
!a#e %etail#
The &road &rea*'u; of co#t of ;roject*lakh+
$.o Particular# Amount/ 7and %5/3&.% Site development >>355& "uilding and civil works B>B3>.0 Plant and machinery /223%&5 #isc3 ,xed assets /5/3B02 Preliminary and preoperative expenses /C>322> 9ontingencies 2&3>%B Norking 9apital 5B3..
Total ,:-=.00
Preliminary C Pre'o;erati8e 27;en#e#1 "eing a green ,eld unit( a sum of
Rs /C>322 lakhs has been provided in the project towards preliminary and
preoperative expenses3
!ontingencie# L sum of Rs 2&3>% lakhs has been provided towards
contingencies to take care of increase in the other heads of the project and
also towards meeting any unforeseen expenses related to the project3
Mean# of nance
Particular# Amount in "a*h
lready 'o be incurred 'otal
0.
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incurred
Share 9apital 5/3&. &2&3>. 0/53..
Interest free unsecured loans %..3.. .3.. %..3..
PromotersA 9ontribution /=,.
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*iii+ Gverall $xposure
*$xisting V proposed+
Rs /%&. lakhs
*iv+ !$R *for proposed
project+
-enerally not
exceeding %4/ for the
company6,rm as a
whole3Relaxable to &4/
foe #S$s
%4/
!$R *for the company
as a whole+
%4/
*v+ Primary Security
=alue6margin
Rs /5BC3&0 lakhs
*vi+ 9ollateral Security
=alue
Rs %%>3>. lakhs
*vii+ Gverall Security
value6#argin
Rs /B/>3.0 lakhs
viii Gverall sset
9overage Ratio
#inimum overall asset
coverage of /3& for
existing companies
and /30 for new
projects should be
ensured3
/30B times
*ix+ !S9R *#aximum+
*#inimum+
*average+
#inimum /35 %3.B
/3%&
/35%
*x+ "reakeven point *+9ash "$P *+
&%3C/%>320
*xi+ RG9$ %53./xii IRR /2322xiii 9ost of capital //3B2
long with ,nancial analysis( industry6 market analysis is also done to
check if the current business plan will be able to survive in the market3
9urrent scenario and past trend of the industry is taken intoconsideration to estimate future possibilities3 SNG' analysis and
sensitivity analysis of the company is done3 :inancial and economic
viability of the project is also checked3 Status of government approvals
are taken into consideration and as well as a project cannot operate
without them3
0%
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Risk categorization is done for risk assessment and to give a rating to
the company and project3 Risks are recognized and listed under the
heads of high risk( medium risk and low risk3 'he rating of the project
and the company is done on the basis of this list3
!a#e %etail#
'he favorable and risk factors of the projects are determined with the help of
SNG' analysis4
$trength
'he promoters are resourceful and having good net worth3
Involvement of professional agency in implementation of the project3
'he proposed star category would help the hotel in attracting good
number of clients3>ea*ne##
Promoters do not have any experience in running hotel3
9ompetition from existing hotels and from new entrants3
)o tie up with the established brands of the sector3
9;;ortunitie#
bsence of star category medium level hotel in the area3
-ood business opportunity for the banquet hall during marriageseasons3
Strategically located as the proposed hotel is in the area which is
having large number of business establishment3
Threat#
$ntry of big corporate with international tie up like #arriot for mid
segment hotels3 Kowever the demand outnumbers the supply in the
segment and this allow number of other establishment to enter and
Eourish3 'he increase in no3 of available rooms may dampen the business of the
overall hotel industry3
$en#iti8ity Analy#i#
0&
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:rom the above sensitivity analysis( the position of the ,rm may be
considered strong enough to handle any adverse situation3
Rating of the project was done using the Risk ssessment model of 9RISI73'he company obtained a score of S#$069R03
:inally the Schedule of repayment and security valuation is done3
!a#e %etail#
$chedule 9f %ra3al And +e;ayment 9f The "oan
'he entire term loan of Rs /%&. lakh shall be paid in /.B monthly
installments after a moratorium of &2 months3
o. of In#tallment# Amount of each
in#tallment
Amount of re;ayment
/.> //(&C(... /%(/B(>&(...
/ //(%>(... //(%>(...
Total ,/
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:irst charge by hypothecation of all moveable *except book debt+
assets including plant( machinery( furniture and ,xtures( oDce
equipment( computers( tools and accessories35alue' &B/3>C 7akh
Total 5alue of ;rimary #ecurity N ,=:.
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or*ing !a;ital "oan
Norking capital is de,ned( as the funds required for carrying the required
levels of current assets to enable the unit to carry on its operations at the
expected levels uninterruptedly3 It is utilized for operating purposes( resulting
in creation of current assets *such as inventories and receivables+3 'his is in
contrast to term loans which are utilized for establishing or expanding of
,xed assets3
-ross Norking 9apital refers to the fund required for ,nancing total current
assets of a business unit3 )et working capital no other hand is the di@erence
between current assets and current liabilities *including bank borrowings+
that is nothing but the surplus of long term sources over long term uses as
such it is known as the liquid surplus available in a unit that can be either
positive or negative3 positive )N9 is always desirable because of the factthat it provides not only margin for the working capital requirement but also
improves ability of the borrower to meet its short term liabilities3
$very business unit has an operating cycle which indicates that a unit
procures ?raw materialA from its funds( convert into ?stock in processA which
again is converted into ?,nished goodsA which can be sold for cash and thus
transformed into ?fundA3 lternatively it can be sold on credit and on
realization thereof gets converted into fund3
'hus every rupee invested in current assets at the beginning of the cycle
comes back to the promoter with the pro,t element added( after the lapse of
a speci,c period of time3 'his length of time is known as operating cycle or
working capital cycle3
SI!"I o@ers working capital loans for ,nancing the 9G#PGSI'$ 7G)
S9K$#$ as assistance for equipment and6 or working capital as also for work
sheds( with a loan limit of maximum %57akh3
It also o@ers the SI)-7$ NI)!GN S9K$#$ to provide both term loan for
,xed assets and loan for working capital through a single agency3 'he total
working capital requirements of such units( inclusive of all fund basedfacilities are to be taken into account for determining the working capital
facility eligible for re,nance3 $ntrepreneurs setting up new projects in the
#S$ sector( new promoters acquiring unencumbered ,xed assets of existing
#S$ concerns from P7Is and also existing well run units undertake
modernization6 technology up 1gradation and potentially viable sick units
0>
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undertaking rehabilitation schemes are eligible for this Single window
scheme3 'he loan amount under this scheme does not exceed Rs3 %..lac3
!redit A;;rai#al of >or*ing !a;ital "oan#
'he appraisal of working capital loans is done in the same way as the term
loans( except the norms6 benchmark for sanction applicable to working
capital loans are di@erent( so is the calculation of the sanction limit of
working capital3
'he working capital limit is assessed by two methods4
s per 'urnover #ethod *)ayak 9ommittee+
s per Second #ethod of 7ending
The aya* !ommittee Method
'he )ayak 9ommittee method is where the limit of working capital to be
sanctioned is calculated on the basis of the gross sales( i3e3( %5 of gross
sales is the working capital requirement of that company3 'he turnover
method is used for companies with a turnover up to 5crore3 'here is a
minimum stipulated margin for working capital( which is the minimum
amount necessary for the business *which has to be present in the business+3
'he minimum stipulated margin money for working capital is calculated at
the rate of 5 of gross sales3 'hen( the actual or the projected net working
capital is calculated( wherein the proposed loan amount is added to the
liabilities of the company( as wound be the case when the loan would be
sanctioned3 'his is done to come to the projected net working capital that
would be needed3 Kence( the net working capital would then be decided from
among the minimum stipulated margin money for working capital or the
actual6projected net working capital( whichever is higher3 Ideally( the actual
or the projected net working capital always has to be more than theminimum stipulated margin money for working capital3 In cases where the
actual net working capital falls short of the minimum stipulated margin( the
promoter6 borrower is expected to raise the de,cit amount through
unsecured loans or through equity3 fter the calculation of the net working
capital( the permissible bank borrowing is calculated which is the di@erence
0B
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27i#ting ;roduct# and in#talled
ca;acity of each ;roduct
#anufacturing of
printed6plane laminated
Rolls and pouches6/5.
#' p3a3
Factory xxxxx
,.1 %i#tance from Branch oJce /. kms3
Indu#try $tatu#
Indu#try Product# In#talled
!a;acity
o of
day#
$hift#
2nd u#e# 27;ort
orientat
ion
#anufacturing
of Printed 6
plane laminated
Rolls and
pouches
Rolls and
Pouches
&.. #' p3a &..6/
shifts
Printing
and
Packaging
Industry
)33
Bio'data of the e7i#ting and ;ro;o#ed ;romoter#%irector# i# gi8en
&elo3
, / hether 27;ort9riented
'he company exports a portion of its,nal product3 Kowever( it may not betermed as export oriented3
/3/.
%i#tance of the unit Registered oDce 1 pprox & ;3m3 fromSI!"I ;anpur oDce3Fnit I pprox /> ;m from SI!"I oDce3Fnit1II 1pprox %5 ;m from SI!"I oDce3
/3/%
Nhether the unit has gotborrowing powers as perrticles of ssociation6partnership deed4
Oes( as per memorandum of associationpoint number B on page number %3
2>
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Bio'data of the e7i#ting and ;ro;o#ed ;romoter# i# gi8en &elo3
:irst thing that is done is checking of willful defaulter6 caution list to ,nd
matches3 9ompany( its promoters and associates are looked up in the list for
matches3 'his is done to ,nd out about the character of the borrower3 'his is
the most important step of the appraisal process of Sub1ordinated lending
because this is a collateral free lending and is not backed by any security3
Kence character of the borrower is the most important factor in this case3 It
is important to ,nd if the borrowerAs willingness to repay the loan3
!a#e %etail#
!IBI" !ommercial and !on#umer !redit Information +e;ort#
9I"I7 consumer41
$. ame of !i&il $core
2B
ame of the;romoter
Guarantor#
Shri Sandarbh -oyal Smt3 Ruchi -oyal
%oB Age .C6.>6/C>. 6605 years %&6.C6/C>5 66 &/ yearsFather @u#&andname(+elation#hi;)
Shri Prakash -oyal*:ather+
Shri Sandarbh -oyal
Addre## 2ducational ly. " com -raduate+elation#hi; 3ith!hief Promoter
Self Spouse
27;erience' in3hat ca;acityindu#tryyea+#
%/ years C years
et 3orth a# on,003>0 lakh3
IT >ealth Ta7#tatu#
I' assessee I' assessee
PA !ard o.
9ther concern# intere#t#ca;acity
Raja International 6Partner 6 5.
Raja International 6Partner 6 5.
$hareholding in
the com;any
>&3%> /230>
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$hare'holding Pattern
$hareholding in the company as under1
$.o
.
ame of the director
#hareholding
,. Shri Sandarbh -oyal 5C30&
/. Smt3 Ruchi -oyal /&3&2
3%/
'he total shareholding of the two promoter directors is aggregating to
>%3>C( i3e3 the promoters would be having controlling shares in the
company3
The detail# of facilitie# enjoyed &y the &orro3er com;any and itS#a##ociate# are gi8en &elo3'
ature of facility(&an*3i#e)
ameof&an*in#titution
Amount (la*h)
+ateofintere#tin
ature of $ecurity and8alue
$xclusive and,rst charge onentire currentassets( present
as well as futureincluding entirestocks( bookdebts( loan andadvances etc3
Kypothecation of
$anc.
9# a#on0,0-/0,=
(a) Fund Ba#ed"imitTerm "oan Punjab
)ational
"ank3
B%3B
C
>/355 /&3>5
Term "oan Punjab
)ational
%>3.
.
%032. /&3>5
>.
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"ank3 entire stock of Raw material(stock in process(,nished goods(stock in transit(
or any othersecurity requiredfor the purpose ofexecution of export ordersreceived of6 to bereceived by thecompany3 !epositof con,rmedorders and6ororiginal
irrevocable 79s ofapproved foreignbanks3
:irst exclusivecharge by way ofhypothecation ofall the movables*save and exceptbook debts andstock+ including(
plant( machinery(spares( tools andaccessories(oDceequipments(computers(furnitures and,xtures acquired6to be acquiredunder the project6scheme( of P>C3>B 1
>/
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Pa#t Performance
'he performance of P.3C. /.&35B %%/3%%
!urrent "ia&ilitie# 0B%3%0 >&/3B& C>%35/ /.&.3.C
Total "ia&ilitie# BBB3&. /%%&3C. />0.3&
.
/>2.3B0
et Bloc* &&/3%2 &5C3B5 05>3%% 5>535.
!urrent a##et# 50&3C% B2>3.& /%B&3.
B
//B53&0
!urrent +atio /3/& /3/B /3&% /3/5
%2+ .35C .32. /3&0 .3C>
PM &3%0 .3.C /3%B %3/C
et !a#h accrual B/3&2 5%3CC >/3./ C.3/C
>or*ing !a; Turno8er
ratio (Time#)
B3.5 /3B2 /35& /3>2
>&
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%e&tor# %ay# %
&
//2 /25 /0&
!reditor# %ay# %2 /&5 /&C
/&5
T9"T> %30B %3CC 03%B &3>2
Intere#t !o8erage &32& %35& %3%C %3.B
'he company has registered rise in the sales over the last three years3
It has registered the increase in sales around 523C& in the year %./&
over %./% and %.3&& in the year %./0 over %./&3
'he company recorded marginal growth rate of approximately 03B5 in
the year %./5 *provisional+3
'he Interest amount is increasing on account of increase the borrowing
exposure year by year3
'here has been a signi,cant increase in capital from >5 lakhs in %./&
to C23/5 lakhs in %./0 which implies the business growth3 'he
company increased share capital by way of issue of %//5. shares X
/.. each3
'he current ratio of the company increased has rose from /3/B in %./&
to /3&/ in %./0( indicating satisfactory liquidity position3
'he net pro,t of the company has witnessed a signi,cant fall from
&.3%B lakhs to /3%5 lakhs in the year %./& on account of the increase
the indirect expenses3 Kowever the company has recovered and
registered the pro,t to &%3>B lakhs in %./0 due to increase in sales
and manage to purchase raw materials at low price3
'hough the sales of the company are increasing signi,cantly but still
company has recorded the lower )P# because of the high cost of raw
materials and sti@ competition3 Kowever( )P# has improved to /3%B
in :O %./03
>0
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'he debtors days of the company has been increased because
company is taking more time in realizing cash from its debtors3
Similarly creditors days of the company also increased as company is
taking more time in paying its creditors3 'he increase in creditors and
debtors( both has resulted in increase in current ratio3:inancials of the associates was also checked and was found to be
satisfactory3
)ext the eligibility of the borrower is checked for eligibility under any
scheme of SI!"I3 If found eligible( suitable factors are taken into
consideration3
!a#e %etail#
'he unit is eligible for 'F:S subsidy under RR1'F:S for capital subsidyX/.
and reimbursement of interest up to maximum extent of 5 vide ministry of
textile circular3
'he unit is also eligible under -rowth 9apital and $quity ssistance Scheme
for #S#$s (G2M# ). 'he proposal is for ,nancing the companyAs #argin
money for working capital3 'he company is having working capital facilities
from Punjab )ational "ank3 'he proposed assistance would be ,rst sub1debt
assistance to the company3
fter the eligibility of the proposal is checked( the appraisal process
continues with analyzing the competency of the management of the
project3 'he structure of the management( its experience and expertise
is taken into consideration to understand the competency of the
management employed for the project3
!a#e %etail#
'he company has been operational for more than %. years with its chief
promoter having experience of %/ years in the same line of activity3
'he company is being run professionally with individual departments for
manufacturing( marketing( production and administration and being handled
by separate spearheads3
>5
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'he company employs around /5. people in production sta@s including
skilled 6un1skilled labor( supervisor and technical people on roll of the
company3 9ompany shall require around /. additional semi skilled 6skilled
workers after operationalisation of proposed machineries3 "eing an industrial
area( labor is readily available in the market3
fter going through the management of the company( 'echnical
spects of the project is studied to check the feasibility of the project3
:actors like availability of raw material( essential resources like water(
electricity( manpower etc3 are checked to see if the project can be
successfully started without any problems3
!a#e %etail#
'he proposed projectAs location is in an industrial area and all the needed
resources are easily available3 'he project should not face any diDculty in
availing required resources for the project3
'he next step in the appraisal process is the study of cost of project
and means of ,nancing of the project3 'his is an important step in
every appraisal as this helps in estimating the cost of the project and
the actual loan requirement of the borrower3 It ensures that no under1
,nancing or over1,nancing takes place3
!a#e %etail#
Broad &rea* u; of co#t of ;roject
'otal cost of the project is estimated at >&32. lakh as given below
Particular# Amount in "a*hPlant M machinery >&32.#argin money for working capital /..Total ;roject co#t ,?2
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Promoter#S !ontri&ution / onwards3
s per the last there year audited balance sheet of the company and
provisional balance sheet of :O %./5( the total margin( as per second
method of lending works out to &0C3.& lakh based on projected
,nancials for :O %./23 'he company has applied for Sub debt of /..
lakh which works out to %B325 of the total ##N93
'he proposed assistance would help the company in augmenting its
operations3
)ext in the appraisal process is the analysis of the ,nancials of the
company3 'his step involves ,nancial analysis of the past performance
>>
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of the company as well as analysis of the projected performance of the
company to estimate the ,nancial health of the ,rm in the past as well
as in the coming future3 lso( the industry analysis is done to
understand the various risks involved3 'hese risks are then rated and
an overall risk rating of the company is obtained3
!a#e %etail#
$l.
o.
Particular# Parameter ' +atio ;ercentage
i Promoter#O
contri&ution
(as & of total
pro'e"t "ost)
For term loan /
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mount
recommend
ed
/.. lakh Sub debt
Rate of
interest
/03>5 p3a3 payable monthly *:ixed+
Fpfront fee /3 of the Sub1debt assistance V applicable taxes
Penal
Interest
% p3a3 over and above the applicable rate on the defaulted
amount of principal and interest installments for the period
of default3
Repayment
period
'he assisatnce shall be repaid in 0B monthly installments
comprising of ,rst 0> monthly installments of %3.B lakheach and 0Bthinstallment %3%0 lakhs commencing after a
moratorium of &2 months from the date of ,rst
disbursement3
Security 'he assistance( together with interest( costs( expenses(
penal interest and all other monies dues and payable by the
borrower shall be secured by the immovables and movable
assets of the company *including current assets+ as under4
a+ Residual charge by way of mortgage of all immovable
properties owned by P
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guarantors3
9ombined )etworth as on /.6.&6%./5 W 52.350 lakh3
)ext comes the repayment schedule of the loan that is drawn for the
borrower3 'his is the detailed plan of repayment with details of the
duration and the amount of installments to be paid by the borrower3
!a#e %etail#
$chedule of dra3al and re;ayment of the loan
'he project involves acquisition of plant M machinery( for which the
foundation is reported to be almost ready3 s such the implementation
schedule for the project is of a short period3 'he loan is expected to be
availed during
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o of
month#
Monthly +e;ayment (in
)
o. of
month#
Total amt in
/st
0>th
monthly
installment
%.B...61 0> C>>2...
0Bth
installment
%%0...61 0B %%0...
-rand 'otal /.......61
In the end come the recommendation and terms and conditions of the
loan3 Recommendation summarizes the key areas6 concern of the !)
and recommends steps to be taken3
!a#e %etail#
'he proposal is for term loan of 5. 7akh under 'F:S and Sub debt of
/.. 7akh under -$#s3
'he net pro,t of the company has witnessed a signi,cant fall from&.3%B lakhs to /3%5 lakhs in the year %./& on account of the increase
the indirect expenses3 "ut the company has recovered well in the year
%./0 and %./5 registering )et pro,t of &%3>B 7akh and 0.325 7akh
respectively3
P
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'he company has already achieved turnover of /B300 crore as on
&/3.&3%./5 *prov3+ and expected to cross turnover of %/ crore in :O
%./23
'he company scored R# rating of S#$&69R&3
It is proposed to charge rate of interest as per rating3 9onsequently the
applicable RoI for term loan under !9S RR1'F:S of 5. lakh would be
P7RV.3%5 i3a3 /%35. p3a3 and for sub1debt of /.. lakh the
proposed RGI is P7RV%35. i3e3 /03>5 *,xed+ *presently P7R being at
/%3%5+3
'he proposal envisage purchase of additional equipment and the unit
eligible for RR1'F:s subsidy of 0/3&/ lakh3
'he proposal is support1worthy and recommended for sanction of term
loan of 5. lakh under !9S1RR1'F:S for purchase of additional
equipment( Sub1!ebt of /.. lakh toward margin money for working
capital under -$#S and RR1'F:S subsidy of 0/3&/ lakh to P
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funding portfolio and "usiness
9orrespondent #odel3 Ke was also part of
R"IAs working group on business
correspondence3v3 )ame of Statutory
uditors
9 S R and 9ompany(
9hartered ccountants(
9hennai 2.. ...vi3 -roup concern( if
any
)il
vii3 )ominee !irector( if
any
)il3
$hareholding ;attern a# on March /(C.5 &0(>/C(.5. /&30%
Intellofund #icro :in3
)etwork 9o3Pvt37td3
05(... 05.(... .3/>
kash $SGP Nelfare 'rust /(/&2(... //(&2.(... 03&C
avar -oodwell >(C50(.52 >C(50.(52. &.3>5
International :inance
9orporation *I:9+
&(>5>(B%0 &>(5>B(%0. /035&
)#I *)#I :rontier :und
;S+
2(2.%(C>B 22(.%C(>B. %535&
Total /=:1
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3B out of /. *Kigh
level of adherence+ to #:P73 Nhich given its strong focus on articulatingand implementing processes and policies that adequately reEects the
,rmAs focus on achieving its dual objectives 4 ,nancial and social from its
operations3 :urther( the company has been fairly successful in
disseminating and ensuring adherence to its documented processes and
policies at the ground level3
C.
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.Intere#t rate to end u#er a# certied &y a !A
Interest Rate *reducing balance+ %5 for #icro :inance
7oan M %C for #icro
$nterprise 7oan3
Processing fee( if any / Vapplicable servicetax
Insurance 9harges( if any *ctual basis+ Gn actual basis
Gther charges( if any )il
Interest margin B3/%
Prepayment 6 delayed penalty being
levied
)o
Security !eposit 6 #argin being taken )o
!omment#
bove charges are in compliance with R"IAs stipulation on interest rate(processing fee( insurance charges( security deposit( etc3 for the
qualifying assets3
In terms of R"I guidelines issued vide noti,cation dated #ay &/( %./&(
margin cap for all )":9s irrespective of their size was to be /% till
#arch &/( %./03 Kowever( with e@ect from /st pril( %./0( margin caps
as de,ned by #alegam 9ommittee are not to exceed /. per cent for
large #:Is *loans portfolios exceeding /.. crore+ and /% per cent for
the others3
s per the 9 certi,cate dated September /B( %./0( #:I is charging
%5 to %C per annum3 *%5 for #icro :inance 7oan and %C for #icro
$nterprise 7oan+3 It has been clari,ed by #:P7 that #icro $nterprise
7oan is outside the micro,nance scope and is under /5 non micro
,nance portfolio allowed for )":91#:I3 'he above charges are in
compliance with the pricing guidelines of R"I3
)ext( :inancial appraisal is done to check the ,nancial health of the
#:I and to see if the ,rm will be able to repay the loan amount3 'his is
a very important step as this loan is a collateral free one and the ,rmmust be ,nancially stable to be able to repay3
!a#e %etail#
Brief #ummary of nancial#
i3 Income from operations has increased from %>3BB crore during :O %./&
to 2&302 crore during :O %./0( i3e3( an increase of /%>32/ over the
C/
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#:I Rating mfR0 #%V Oes
SI!"I share of Gverall
"orrowings of the #:I
%. //3%0 Oes
2ligi&ility orm# Parameter# For $u&ordinated de&t
2ligi&ility !riteria !om;liance +emar*#!or;orate $tructure
-enerally )":9s having
a valid registration as
)":91#:I and havingasset size above /..
crore i3e3 Systemically
Important3 Should meet
all R"I prescribed
criteria for )":91#:Is3
9omplied with #:P7 is registered as
an )":91#:I having
asset size more than
05. crore and meetsall R"I prescribed
criteria for )":91#:Is3
Portfolio Ton and o@
balance sheetU as per
last audited annualaccounts should be
more than /.. crore3
9omplied with Portfolio Ton and o@
balance sheetU as per
audited annualaccounts as on #arch
&/( %./0 was &55322
crore3
lready assisted by
SI!"I with a satisfactory
repayment track record3
9omplied with #:P7 has been
associated with SI!"I
since year %./& and
the repayment track
record is satisfactory3
C0
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grade of mfR& or
equivalent
indicating #:IAs ability to
manage its micro,nance
activities in a sustainable
manner is high39;erating $elf
$uJciency 1 #inimum
/.. for the last % years
9omplied with GSS of F#:P7 in :O %./0
was /.B3 'he GSS of
the company in :O %./&
was /./3PR Z&. days 1 "elow & 9omplied with PR as in #arch &/( %./0
Z &. was .3.. !a;ital AdeDuacy +atio
1 #inimum /5 for )":91
#:Is or as prescribed by
R"I from time to time3
9omplied with 9RR as on #arch &/(
%./0 was %%305
$ecurity 1 Fnsecured ifprovided for 'ier II capital
support3 Gtherwise(
exclusive ,rst charge by
way of hypothecation of
book debts6 receivables
created out of the
assistance availed from
SI!"I 6 any other
prescribed security3
9omplied with Fnsecured to provide 'ierII support as per R"I
guidelines3
Nhile appraising the #:Isunder this product( special
attention should be paid to
the concentration of the
#:Is in di@erent
geographical regions and
wherever rather large
sized #:Is still do not have
a credible plan to address
this concentration riskover a medium term(
reduced support may be
considered from the
maximum eligible levels3
9omplied with #:P7 is presentlyoperating in B states with
its /22 branches3
Kigher level of support
may be considered only in
9omplied with #:P7 has rating grade of
#%V by I9R( valid till
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case of those #:Is which
enjoy top %6& notches of
9redit ssessment Rating
*9R+3
%./0( which is an eligible
investment grade as per
SI!"IAs guidelines
eed for $u&ordinated %e&t
It may be mentioned that post P crisis( various steps have been taken
by the stake holders and there is resurgence in the #:I sector on account
of regulatory framework put in place by Reserve "ank of India *R"I+3
F#:P7 raised %5 crore within one year of ndhra Pradesh crisis(
including investment by a new investor3 Sub1ordinated debt would be
bene,cial for #:P7 to increase the capital base through tier II support
and help it to leverage more lending for its diversi,cation as well as to
maintain a healthy asset liability management3
Introduction of the above product would also help address the concernsof Norld "ank and -overnment of India who want SI!"IAs engagement in
the sector scaled up3
U;front Fee Intere#t +ate and Per#onal Guarantee
(i) For Term "oan of /0 crore
F#:P7 has scored >>3.5 under the score chart corresponding to an
interest rate of /& p3a3
9onsidering the interest rate charged by other banks 6 :IIs and the recent
association with #:Is of one year( it is proposed to charge interest rate at/&35. p3a3 for the term loan assistance3
In addition( non1refundable upfront fee of /3.. of term loan along with
applicable service tax( cess( etc3( is proposed3 It may be mentioned that
several banks are charging the upfront fee upto /3%5 of the sanctioned
amount3
It is also proposed to stipulate a repayment tenure of &. months including
a moratorium of & months for the term loan of %. crore3
(ii) $u&ordinated de&t 9onsidering the longer tenor( it is proposed that the assistance shall carry
,xed interest rate of /5 p3a
In addition( non1refundable upfront fee of /3.. of sub debt along with
applicable service tax( cess( etc3 is proposed3
C>
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It is also proposed to stipulate a repayment tenure of 5 years for the
subordinateddebt of /. crore3 'hereafter( the assistance would be
repayable in one installment3
"rief details of the security that are collected from the borrower
against the loan( are mentioned and their value assessed3
!a#e %etail#
!ollateral #ecurity &y 3ay of F%#
s per extant guidelines( '!Rs equivalent to 5 of the term loan is
proposed as collateral security for the proposed term loan of %. crore3
In case of availability of Portfolio Risk :und *PR:+( '!R equivalent to %35
shall be applicable3
Security 6:!s for subordinated debt is )il *being unsecured+
Per#onal guarantee
It is proposed that the 9hief Promoter 6 !irector( holding signi,cant
shareholding in the company will give in written( personal guarantee for
the term loan and sub1ordinate debt3
:inally the main points of the appraisal are highlighted and conclusion
is drawn3 "ased on these points( recommendations for the loan arealso given3
!a#e %etail#
!onclu#ion and +ecommendation#
#:P7 has been associated with SI!"I for the past / year with
satisfactory conduct of account and satisfactory repayment record3
'he company is adequately capitalized( governed by an experienced
"oard and management and demonstrated commitment to
implementation of strong processes and systems3 It has demonstrated its ability to raise adequate private capital to meet its
capital requirements3
It has consistently recorded surpluses3
'here are %/ other reputed 7enders to #:P7(
'he proposed term loan of %. crore will enable #:P7 in expanding and
strengthening its operations in the underserved States( besides
CB
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diversifying its portfolio and the Subordinated !ebt of /. crore would
increase the capital base of the company to leverage more lending in the
larger measure3
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frameworks which spells out national economic objectives and broad
allocation of resources3 'he social cost is quanti,ed in terms of
employment generation( railways( road( forex etc3 It is done by certain
banks like Norld "ank etc3
9ompany?s operating cycle and other key ,nancials should be
compared with that of competitors and peers in the same industry3 'his
is to check ineDciency on the part of company if any3 :or eg4 the
borrower company has operating cycle of 5 months but peer
companies have that of & months3 'his shows the ineDciency of the
borrower company which can only be highlighted if we compare it with
peers3 Similarly 9ost comparison should be done with peers3
:or working capital assessment( )N96 Sales ratio can be added3
NWC/ Sales=Actualprojected NetWorking Capital
Net Sales
Ideally this ratio should be around B 1 /%3 If this ratio is low( it
indicates that the business is growing too fast without building an
adequate cushion in the form of )N93 It indicates symptom of
overtrading and undue reliance on borrowed short term funds3 :alling
ratio is indicative of overtrading and serious liquidity problems and it
needs to be investigated3
:aster dispersion of credit is of paramount importance3 proposal has
to pass through various channels and none touch points( which lead to
delay in the dispersal of credit3 "etter tier system may be put in place
which will reduce the time taken and improve the performance of the
97P9 as well as lead to customer satisfaction3
SI!"I is the apex ,nancial institution( responsible for providing ,nancial
support and promoting activity in the #S#$ sector3 #S#$ is an importantpillar of an economy employing millions of people and contributing
signi,cantly to the -!P of the country3 "ut despite its unquestionable
importance( this sector has struggled to avail credit facilities due to its highly
unorganized structure3 9redit appraisal has played an important role in
determining the credit worthiness of these otherwise small enterprises3
Nithout credit appraisal( providing ,nancial aids to these small enterprises
/./
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would have been next to impossible as these enterprises face a lot of
challenge and look a lot more risky3 9redit appraisal has helped SI!"I ,nd
potential in the otherwise troubled sector and impact the growth of the
sector in a big way
/.%
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9KP'$R 0
I#P9' G: SI!"I G) #S#$
/.&
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-., Im;ortance of M$M2
#S#$s have been globally considered as an engine of economic growth and
as key instruments for promoting equitable development3 'he major
advantage of the sector is its employment potential at low capital cost3 'he
labor intensity of the #S#$ sector is much higher than that of large
enterprises3 #S#$s constitute more than C. of total enterprises in most of
the economies and are credited with generating the highest rates of
employment growth and account for a major share of industrial production
and exports3
'he #S#$ sector in India is highly heterogeneous in terms of the size of the
enterprises( variety of products and services( and levels of technology3 'he
sector not only plays a critical role in providing employment opportunities at
comparatively lower capital cost than large industries but also helps in
industrialization of rural and backward areas( reducing regional imbalances
and assuring more equitable distribution of national income and wealth3
#S#$s has shown constant growth rate around // every year till %./.1//3
'he highest growth in recent time was recorded during %.//1/% */B305+
whereas during year %./%1/& and %./&1/0 growth rate was around /0 and
/%( respectively3
.
5
/.
/5
%.
//3>> /.305 //3B&
/B305
/03&/%300
Gro3th +ate
6ear#
Percentage
$ource#inistry of #icro( Small nd #edium $nterprises
/.0
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'he #S#$ sector contributes signi,cantly to the number of enterprises(
employment and output of the country3 It has a signi,cant contribution to the
-!P of the country3 'he performance of the #S#$ sector is summarized
below using the data sets of the third and fourth ll India 9ensus during the
year /CCB and %..5 respectively3
P2+F9+MA!2 9F $$I M$M2 2MP"96M2T I52$TM2T$
Total WorkingEmployment
Market Value of
Year Enterprises Fixed Assets(in Lakh)(in Lakh) (Rs. in Crore)
II III IV V
2001-02 105.21 249.33 154,349.00
2002-03 109.49 260.21 162,317.00
2003-04 113.95 271.42 170,219.002004-05 118.59 282.57 178,699.00
2005-06 123.42 294.91 188,113.00
2006-07 361.76 805.23 868,543.79
2007-08# 377.36 842.00 920,459.84
2008-09# 393.70 880.84 977,114.72
2009-10# 410.80 921.79 1,038,546.08
2010-11# 428.73 965.15 1,105,934.09
2011-12# 447.66 1,011.80 1,183,332.00
2012-13# 467.56 1,061.52 1,269,338.02- In!"#in$ a%i&i%ies o' ho!esa!ere%ai! %ra#e, !e$a!, e#"a%ion * soia! ser&ies, ho%e! * res%a"ran%s, %rans+or% an# s%ora$e *
areho"sin$(ee+% o!# s%ora$e) 'or hih #a%a as e%ra%e# 'ro onoi Cens"s 2005, Cen%ra! /%a%is%is ''ie, /I.
M$M2 !ontri&ution to the G%P
/.5
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In the year %./%1/& there were about 02>352 7akh enterprises operating in
the #S#$ sector employing approximately /.2/35% people3 It has increased
from /.53%/ 7akh enterprises employing %0C3&& lakh people in the year
%../1.%3 'here are over 2... products ranging from traditional to high1tech
items( which are being manufactured by the #S#$ sector with total gross
output amounting to Rs3 />C.B.032> crore in the year %.//1/% which was
around >3%B percent of the total -!P of the country3
#S#$ is one of the key pillar of the Indian economy3 It has been hugely
responsible for providing employment and development of the rural India3
ccording to the census of %..5( out of total units of &2/3>2 7akh in the
#S#$ sector( %..3/B 7akh units operate in the rural parts of the country
employing approximately 00. 7akh people3
-./ Pro&lem# Faced By M$M2
!espite its unquestionable importance( #S#$ has been facing a lot of
challenges3 $nterprises operating in the #S#$ sector face a lot of challenges
in their day1to1day operations like production and marketing of their
products3 'hese small and medium enterprises face sti@ challenge from large
enterprises3 Small budget prevents these enterprises from spending much on
/.2
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Gther than the normal assistance provided to #S#$ sector by most banks(
some of the niche ,nancial gaps being addressed by SI!"I are risk capital
equity assistance( sustainable ,nance( receivable ,nance( services sector
,nancing( etc3 'hese are the requirements of #S#$s which are not generally
catered to by the banking system3 Simultaneously( SI!"I acts as a nursery
for new ,nancial products( which can eventually get mainstreamed in the
banking industry3 "rief highlights of some of the important initiatives of SI!"I
as given below4
,. +i#* !a;ital Fund
Gne of the major problems faced by #S#$ entrepreneurs is lack of adequate
equity required for raising funds from banks and institutions3 'here is
limited availability of venture capital for smaller companies due to a host
of factors( valuation complexities( limited exit options( corporate governance
issues( rating( transparency( etc3 'hus( a large number of entrepreneurs
resort to borrowings from informal sources at a very high cost to meet their
requirements3 :urther( a large number of #S#$s are partnership6
proprietorship ,rms which do not have the required capital
structure to absorb external equity investments3 Nith a view to ameliorating
the problems faced by the #S#$s in accessing capital and facilitating
extension of bank ,nance to #S#$s( SI!"I had started the risk capital
operations in :O %..B1.C under the #S#$ Risk 9apital :und
*#S#$1 R9:+ with a committed corpus of %(... crore3 n amount of
/(5.. crore has been drawn out of #S#$1R9: so far3
'he risk capital assistance is o@ered on the backing of future cash
Eows and prospects of the unit rather than asset coverage6 collaterals
applicable under conventional loans3 Risk capital assistance( therefore(
has signi,cant bene,ts for #S#$s whose growth plans get
constrained due to shortage of capital and limitations in o@ering
collaterals3 'he assistance has supported the growth requirements of a
number of #S#$s including leveraging of senior loans( funding intangible
requirements like expenditure for RM!( marketing6 brand building( technical
knowhow( energy eDciency( quality control( working capital *N9+ margin(etc3 where bank loans are generally not available as such investments are
non1asset creating3
/. TIFA!'$I%BI Technology Inno8ation Programme
/.B
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In order to support #S#$s towards development( up1scaling( demonstration
and commercialization of innovative technology based project( SI!"I
executed a #emorandum of Fnderstanding *#oF+ with 'echnology
Information( :orecasting and ssessment 9ouncil *'I:9+( #inistry of
Science M 'echnology( -ovt3 of India for implementing the 'echnology
Innovation Programme *Srijan Scheme+3 revolving innovation fund of &.
crore has been created by 'I:9 under the scheme3
'he Scheme provides developmental loan at Eexible terms and interest
rate to encourage6 promote development6 innovation of new technology6
process6 product and its commercialization3 Fnder the scheme( assistance is
provided up to / crore at a softer interest rate not more than 5 p3a3 s on
#arch &/( %./0( an amount aggregating to B30& crore has been committed to
/. innovative units under the Scheme3
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objective of providing equity and quasi1equity to smaller #:Is to help them
maintain growth and achieve scale and eDciency in their operations3 s at
the end of #arch &/( %./0 the outstanding under I#$: stood at C%3%5 crore3
Ta&le Bu#ine## 9;eration of $I%BI*Rs3 In9rore+
$cheme#
F6 /0,,',/ F6 /0,/',53B5 &%&3.& /(/&%30C
Resource Support toInstitutes6gencies
/(2%.3.. /(B&B3/. 0(%0%35. 5(02B3>>
$u&'Total /1,,,.?/ -/-1.-- /?-
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'he "ank also provides various non1fund based services like 7etters of
9redit *both foreign and inland+( -uarantees( services for
appraisal( loan syndication( etc3( in addition to services provided within the
traditional banking framework3
SI!"I has also taken strategic initiatives for addressing various non1
,nancial gaps for capacity building of the #S#$ sectors( as well asbankers3 'hese activities include entrepreneurship promotion
through a dedicated website ?www3small"3inA( 9redit dvisory
Services( 7oan :acilitation( capacity building of banks( particularly
Regional Rural "anks towards micro enterprise lending( etc3
Information %i##eminationNith a view to address the information gap by
ensuring availability of relevant information to #S#$s( your "ank set up a
website www3small"3in to handhold and guide new entrepreneurs on how to
set up a business( access to ,nance( avail bene,ts under government
schemes( etc3
!redit Ad8i#ory !entre#Nith a view to mitigate the various challenges
faced by #S#$s in Gbtaining credit( SI!"I has set up 9redit dvisory 9entres
*99s+ guiding new 6 existing entrepreneurs regarding availability
of schemes of commercial banks( government subsidies6 bene,ts( provide
borrowers with debt counseling( answering queries raised by banks
etc3 'he 99s have been servicing &.2 clusters across the country in
partnership with Industry ssociations3 :or manning the 99s( SI!"I
has appointed ;nowledge Partners *;Ps+ who are retired "ank oDcials(
suitably trained for the purpose3 So far more than B%.. #S#$s have
bene,ted through 99s3
"oan $yndication $er8ice# SI!"I has launched the 7oan Syndication
Services *7SS+ with the objective of setting up an ecosystem in partnership
with "anks( Rating gencies and ccredited 9onsultants to ensure timely and
adequate credit Eow to the #S#$s by generating complete( rated and
//&
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validated proposals to be o@ered to banks6:Is for consideration of
assistance3 'he 7SS has referred over /2. proposals to SI!"I and #oF "anks
during the :O %./03
//0
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information asymmetry for the prospective and new entrepreneurs( coming
out with various studies 6 reports 6 web1based solutions to address
information gap( etc3 'hese developmental initiatives would not only address
the emerging needs of the sector( but also will create employment and
opportunities in this productive sector of the economy( resulting in the
overall growth of the economy and the country as a whole3
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