A Summer Project Report On

LOAN SYNDICATION PROCESS

In the partial fulfillment of the Degree of Master of Management Studies under the University of Mumbai BY

ROHAN IRANNA MANGALURE [Roll No: 30] Under the Guidance of

Mr.ROHAN GADKARI
(EXTERNAL GUIDE, QUEST PROFIN ADVISORY LTD)

Prof. MOHANTY S.
(INTERNAL GUIDE)

Aruna Manharlal Shah Institute of Management and Research

Ghatkopar [W], Mumbai-86

2010-11

PREFACE
An individual or a group of individuals start a business with a very simple and straightforward approach i.e. Develop the plan, fund the plan and work the plan. The success of the company is determined by hardwork, commitment and the ability of the management to adjust the plan as per the changing conditions. Once the business has started, a lot of unforeseen factors come up. Some to add value to the organization and some make management think that how they can avoid them. It is very difficult to survive in the competitive and customer dominated business environment. But there is one thing that every business should try now-a-days and they must so follow, Providing best quality products at the lowest prices. As the time passes, most businesses examine the satisfaction of customer plays an imperative role in the competitive market and increase the market value of the product and the company. A continuous and dedicated effort helps the management to identify the problems consumer face and solve them. And try to not to repeat the mistakes, thus which gives a strong stand in the market compare to the marketers or competitors. It also promotes consistency, improves efficiency and increases overall profitability and revenue through customer satisfaction and customer delight.

ACKNOWLEDGEMENT
No creative work is 100% anyones own. Several peoples inputs are hidden unsung in every project, and mine is no exception. I am highly thankful to Quest Profin Advisor Private Limited (Quest), Mumbai for enrolling me for the summer internship and helping hand extended by team while working at the company premises. Foremost, it is my pleasant duty to acknowledge Mr. Mohanty S, Mumbai: in every sense, a guiding beacon to all the students on campus, a great motivating force to freshers in particular.

To Prof. Mr. Mohanty S (Faculty Guide), I owe a special debt of gratitude- for being there constantly, clearing doubts and providing stimulus guidelines. Next, it gives me immense pleasure to place on record, my grateful appreciation to Mr. Suresh Vishwasrao, Mr. Dhiren Kothary, Mr. M. S. Srinivas Directors of Quest Profin Advisor Pvt. Ltd., and Mr. J. A. Kotian who acted as Company Guide on my project. In the midst of their hectic professional schedule, they gave me QUALITY TIME helping me come face to face with the reality of the corporate structure. Without his penetrating and insightful comments- constructive critical commentsthis work could not have been completed on time. At last but not the least, I sincerely thank and express my deepest gratitude to all the employees of Quest. As they have helped not only to attain knowledge but also for their spontaneous support, guidance, encouragement and understanding this project would never have reached successful completion.

INDEX
EXECUTIVE SUMMARY........................................................................................................................5 COMPANY PROFILE................................................................................................................................8 3. OBJECTIVES OF THE STUDY..........................................................................................................10 ..................................................................................................................................................................12 4. RESEARCH METHODOLOGY..........................................................................................................12 4.1 What is business loan?....................................................................................................................13 4.2 Different Types of Loans................................................................................................................13 4.3 What is project?...............................................................................................................................14 5. LOAN SYNDICATION.......................................................................................................................17 5.1 Definition.........................................................................................................................................17 5.2 Block Diagram of Loan Syndication Process.................................................................................17 5.3 Roles within the syndication process..............................................................................................18 5.4 Time Chart required for completion of one Loan Syndication Cycle............................................19 5.5 Steps involved in Loan Syndication Process..................................................................................21 6. ANALYSIS & INTERPRETATION OF THE DATA........................................................................45 6.2 Inspection Report............................................................................................................................55 6.3 Inspection & Follow-up by different branch functionaries............................................................55 7. SUGGESTIONS & CONCLUSION....................................................................................................61 8. BIBLIOGRAPHY.................................................................................................................................62 9. ANNEXURE.........................................................................................................................................63

EXECUTIVE SUMMARY
India has become a better place for upcoming entrepreneurs to get a loan, but at the same time the overall process to start a business here has become tougher in the last one year. The recent World Bank study has found this fact. According to the 'Doing Business 2008' report published by the World Bank and its private sector lending arm IFC, India has moved up 12 positions in terms of 'ease of availability of business loans', but is still ranked in the bottom half at 120th position among 178 economies across the world. The ranking format is based on ten different indicators of business regulation that track the time and cost to meet government requirements for business start-up, operation, trade, taxation and closure. India has improved significantly when it comes to getting easy credit and trading across the world, but its position has deteriorated in areas like starting a business, employing workers, registering a new property and paying taxes. The country has been ranked 111th for starting business, down from 93rd in 2006. For dealing with licenses, it has dropped one rank to 134th, while for employing workers it has been placed two ranks down from previous 85th position. However, for getting business loan, India has climbed 26 positions to 36th as compared to 62nd in 2007. On the indicator of paying taxes, the country has lost seven positions to 165th, from 158th during 2006-07. For registering a property, India has dropped four rankings standing at 112 against 108 last year. For closing a business, it is down two places at 137th rank. Noting that Indian government was taking liberal steps to speed up the reforms by making the availability of business loans easier. The report said the time to obtain a business license in

India ranges from 159 days in Bhubaneswar to 522 in Ranchi, while the time to register property ranges from 35 days in Hyderabad to 155 in Kolkata. Easy availability of business loans to start a new venture has catapulted the growth prospective of Indian economy. The great news for companies looking to grow through mergers, acquisitions or leveraged buyouts. And lenders are on the hunt for new opportunities worthy of their cash. While many businesses sat patiently through the past few years to ride out the sluggish economy, many are now prepared to pull the trigger on their growth plans. Capital is the key to turning these plans into reality, with many businesses looking to the syndicated loan market to finance acquisitions or to pay down more expensive debt. Overall, syndicated loan volume grew 24 percent from $1.02 trillion in 1999 to 1.35 trillion in 2004, according to Loan Pricing Corp. Mid-sized companies defined as $20 million to $500 in annual revenue accounted for $168 billion of syndicated loans in 2004, compared to $107 billion the prior year.

Why to go for a Syndicated Loan?

Lenders both banks and institutional providers tightened their belts for a couple of years, scrutinizing deals to minimize their risk or exposure. While lenders today may be cash-heavy, they are not looking to throw cash at every deal that crosses their desks. Lenders today may be reluctant to hold large amounts of debt from a single corporate customer, opting instead to take a piece of the deal and syndicating the remainder to other banks or institutional lenders. This strategy spreads the risk or exposure among multiple lenders. As the borrower, you benefit by increasing your borrowing capacity with multiple credit providers. And there are additional benefits.

Less-expensive financing than bonds lower interest rates and upfront costs. Prepayment option is usually available without penalty or premium. Expanded access to noncredit products such as capital markets solutions and expertise Short-term loans, traditionally up to five years. Reliance on any one lender is reduced with multiple providers. Competitive pressure often results in more market-driven structures and price.

REASON FOR SELECTING THE TOPIC

In the present scenario, the source of finance is the key element in the business process. Hence understanding the loan syndication process is the first and far most step in financial aspect. As the study on consideration of Loan Syndication Process at Quest gives the researcher to understand the business environment of any organization and provides a broad understanding of financial aspects, the researcher has taken up this study.

COMPANY PROFILE
Quest Profin Advisor Private Limited (Quest) is a Mumbai based Financial Advisors established in 1994. Quest is promoted by professionals having an experience of more than two decades in the field of Corporate Finance and Advisory. Quest has a dedicated team of experience Professionals specialized in a wide range of Financial Services and corporate Laws.

Quest is the Financial Consultancy arm of a 20-year-old firm of Chartered Accountants. They are engaged in providing Corporate Advisory services to reputed Companies in Financial Structuring, Project Funding, Private Equity, Loan Syndication, IPO Management, Compliance, Due Diligence and Corporate Law matters. Over the years, they have provided their services to a number of corporate clients including MNCs, NRI as well as Indian companies. They are a team of MBAs/ Chartered Accountants, have handled various types of assignments involving funds raising & corporate advisory and earned reputation for their knowledge of corporate laws, diligence and task-oriented approach and adaptation to the latest trends in the industry.

Mission of the organisation

To bestow value based chain of quality financial & consultancy services. To build mutual beneficial long-term business relationship with the clients by delivering high quality service with utmost confidentiality.

Vision of the Organisation

To be a globally renowned Financial Consultancy House

Professional Approach of Quest profin:The team members bring a rich transaction closure and consulting experience with senior managements of large corporate. Leveraging on vast industry experience and incisive knowledge of investment strategies, the organisation assists the clients in developing and executing capital raising transactions. Clients like the two fold advantage they get with Quest- extensive knowledge and capabilities to process and manage growth capital transactions. Quest work closely with the Board of Companies and their management teams to support their acquisitions, recapitalization and business enhancement objectives through both the equity (public and Private) and debt routes.

Services offered by the organisation

The company provides strategic advisory services to assist clients in choosing the best financing option in congruence with their strategic goal. They provide end-to-end financing services to corporate clients. The organisation is headed by young and dynamic professional, having immense experience in financial sector. It has two divisions viz. 1. Corporate Advisory. 2. Corporate Finance. Sr. Corporate Advisory Sr. Corporate Finance

No. 1. Advisor for Initial Public Offerings

No. 1. Providing range of services in sanction as well as disbursement of the finance in various classes.

2.

Private Equity Syndication

2.

Arranging funding for overseas Acquisition. Syndication of corporate Loans/ Term Loans.

3.

Mergers and Acquisitions.

3.

4. 5.

Partner Search (Cross Border Deals). Project Advisory Services towards SEZ approvals, Hotels, Townships

4. 5.

Arranging Short/ Long Term Rupee\ Foreign Currency Loans for corporates. Syndication of Foreign Currency Loans.

6. 7. 8.

etc. Corporate Law. Business Valuation Due Diligence Review

6. 7. 8.

Discounting Future Receivables. Debt Swaps Syndication of Working Capital Finance. Fund based Non-fund based

9.

Corporate and Financial Restructuring

ORGANIZATIONAL STRUCTURE
BOARD OF DIRECTORS

BUSSINESS DEVELOPMENT & STRATIGIES

CORPORATE ADVISORY

CORPORATE FINANCE

3. OBJECTIVES OF THE STUDY

Syndicated lending is a form of lending in which a group of lenders collectively extend a loan to a single borrower. The group of lenders is called a Syndicate. The loan is called a syndicated loan, in contrast to a bilateral loan, which is a loan made by a single lender to a single borrower. Syndicated

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Loans facility is extended to large corporates, sovereigns or other government bodies. They are also used in project finance and to fund leveraged buyouts. Syndicated loans are primarily originated by banks, but a variety of institutional investors participate in syndications. Syndicate members play different roles. Some just lend money. Others also facilitate the process. It is common to speak of an arranger, lead bank or lead lender that originates the loan, forms the syndicate and processes payments. But several syndicate members may share these tasks. Syndications with two or more arrangers are not uncommon. In a world where bragging rights are important for securing future deals, a bank may be called an arranger for nothing more than contributing a large part of the loan. Suppose a project need 100 crore Rupees debt. The corporate approaches the Bank/ Financial Institutions. If that Bank/ Financial Institution cannot finance more than 10 crore Rupees the corporate move to a new lender. Here again it finds same difficulty. It leads an option to take loan from multiple lenders for single investment project. Here borrower corporate can use loan syndication facility. The company needs to appoint one Arranger or Lead Manager. This Bank place the syndicated loan to other banks and makes sure that syndication is fully subscribed. A syndicated facility is a lending facility, defined by a single loan agreement, in which several banks can participate. A borrower wants to raise a relatively large amount of money quickly and conveniently. The amount exceeds the stipulated exposure limits or appetite of any one lender. The borrower may also does not want to deal with a large number of lenders. So what should borrower do? Even lender doesnt want to miss this opportunity. They can simply use loan syndication facility.

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By this approach borrower gets desired amount without dealing with multiple lenders while lenders do not miss a profitable loan proposal due to low exposure limit and minimize their risk. The market for syndicated loans is huge. In 2003 banks extended close to USD 2 trillion in syndicated loans. The standard theory for why banks join forces in a syndicate is risk diversification. The banks in the syndicate share the risk of large, indivisible investment projects. Syndicates may also arise because additional syndicate members provide informative opinions of investment projects or additional expertise after the funding has been extended. So as a Business Administrator one needs to understand the way of procuring funds by using the facility of Loan Syndication provided by the banks.

4. RESEARCH METHODOLOGY

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4.1 What is business loan?

The Business Loan is a loan in which a corporate require a more extensive application in which the business concept, cashflows, and profitability of the business activity is considered detail. These loans currently make up 7 to 10% of the outstanding loan portfolio.

As a business owner, the most difficult task is finding the money to operate the business. Taking the necessary steps to prepare for a business loan can minimize the difficulty. Yet, one can still get a loan for the business by proper preparation. One should also avoid the common mistakes of thinking that he would get grants from the government. The main requirements of attaining a business loan are promoters credit history, business plan, experience, education, and feasibility of the project, promoters, financial means and the market demand for the products.

The most important task to obtain a loan is preparing a detail business plan. The business plan needs to show the lender that providing with a business loan is a low-risk proposition.

4.2 Different Types of Loans

1. Unsecured Loans Some credit is granted on an unsecured basis. But most business loans are secured by the assets of business, personal assets, or both. Unsecured means that there is no tangible security for the loan. 2. Secured Loans Secured loans mean that there are assets pledged to secure the payment in the event of default.

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4.3 What is project?

The word project comes from the Latin word projectum from the Latin verb proicere, "to throw something forwards" which in turn comes from pro-, which denotes something that precedes the action of the next part of the word in time and iacere, "to throw". The word "project" thus actually originally meant "something that comes before anything else happens". Project Requirements Setting up of any project involves many steps and arranging financial assistance to fund the projection is one of. Some of the steps involved are: Application:A detailed project report is made. In case of large projects, a report from the specialized agencies too needs to be obtained. This report is known as the Techno- Economic viability report which has commentary on Technical feasibility and economic viability of the project. Government Permission:Clearances, permissions from various government departments that need to be obtained before hand i.e. before start up and those which needs to be obtained during the implementation stages wherever required. Finance Approvals:Finance is the heart of any business. Funding can be from promoters borrowed funds raised through Banks/ Financial Institutions.

Demand Loans Demand loans are loan agreements that provide the lender with the ability to demand repayment of the loan at any point in time. Unlike an installment loan, the demand loan format does not include a

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specific maturity date and may not include a specific schedule for making payments to retire the debt. Sometimes this loan is referred to as a call loan. A demand loan is often beneficial to the borrower, in that the repayment schedule is very open-ended. This can be especially important if the purpose of the loan was to fund a new venture that may take some time to become profitable. The borrower may make token payments from time to time as the project begins to take off, gradually increasing the amount and frequency of the payments as the generated revenue increases. For the lender, a demand loan situation can also be quite lucrative. As with most types of loans, a demand loan structure does include the application of finance charges periodically. Term Loans Loans, with a fixed maturity and often featuring amortization of principal. If this loan is in the form of a line of credit, the funds are drawn down shortly after the agreement is signed. Otherwise, the borrower usually uses the funds from the loan soon after they become available. Bank term loans are very a common kind of lending. Term Loans, as the name suggests, is for a fixed tenure. The repayment of the loan is structured before hand i.e. at the time of sanction itself. Short Term Finance The Short Term Loan Repayment term of short term loan is usually for a short period of 3 years or less. Some of the factors that needs to be critically examined in this regard are: Integrity: Integrity of the promoters is always considered important. Promoters Past Experience: The business sense of the promoter the level of past experience. Market Scenario for the product: The general business circumstances in the industry and the economy.

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Long Term Finance Long term financing is a form of financing that is provided generally for a period of more than three year. It is different from short term financing. Short term financing is normally used to provide funds for shorter period. The period may be shorter than one year as well. Long term finance are preferred to fund new projects etc. The methods of financing these types of projects will generally be quite complex and can involve billions of rupees. The following products are provided as part of long term financing: Debentures Equity Preference Shares Private Equity. Debts from Banks/ Financial Institutions. Foreign Currency Loans (ECB/ FCNRB)

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5. LOAN SYNDICATION
5.1 Definition
A syndicated facility is a lending facility, defined by a single loan agreement, in which several or many banks/ Financial Institutions participate. When is loan syndication the right solution? A borrower wants to raise a relatively large amount of money towards the project undertaken. The amount exceeds the exposure limits or appetite of any simple lender. The borrower does not want to deal with a large number of lenders. Preferred mode of Finance for large projects.

5.2 Block Diagram of Loan Syndication Process

Application to Bank/ Financial Institution Discussion with Bank/ Financial Institution Submission of Additional information/ details required by the bank Pre Sanction Visit Preparation of Proposal by the bank

Disbursement

Post Sanction Visit

Documentatio n

Sanction Loan

Discussion of Terms & conditions

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5.3 Roles within the syndication process

1. Arranger / lead manager The bank that is awarded the mandate by the company and is responsible for placing the syndicated loan with other banks and ensuring that the syndication is fully tied up. 2. Underwriting bank The bank that commits to supplying the funds to the borrower- if necessary from its own resources if the loan is not fully subscribed. May be the arranging bank or another bank. 3. Participating bank The bank that participates in the syndication by lending a portion of the total amount required. Interest and participation fee. Risks: Borrower credit risk (as normal loans). A participating bank may be led into passive approval and complacency (i.e. so many high profile banks cannot be wrong!). 4. Facility manager / agent The one that takes care of the administrative arrangements over the term of the loan (e.g.disbursements, repayments, compliance).

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5.4 Time Chart required for completion of one Loan Syndication Cycle Sr. No.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Stage
Application to Bank/ Financial Institution Discussion with Bank/ Financial Institution Submission of Additional information/ details required by the bank Pre-Sanction Visit Preparation of Proposal by the bank Discussion of Terms & conditions Sanction Loan Documentation Post-Sanction Visit Disbursement Total 1 7 7

Duration (In Days)

2 30- 45 7 15 15 2 2 88-103 Days

Pricing for the Loan Fees for "front-end activities" arrangement and underwriting fees. Interest (margin over base rate). Commitment fees for available but undrawn funds. Agency fees - payable for administrative activity during the term of the loan. Benefits of loan syndications for borrowers Syndicated loans provide borrowers with a more complete menu of financing options. This has resulted in a more competitive corporate finance market, which has permitted issuers to achieve more marketoriented and cost-effective financing. Benefits to the lead banks Good arrangement and other fees can be earned without committing capital. Enhancement of bank's reputation. Enhancement of bank's relationship with the client.

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Benefits to the participating banks Access to lending opportunities with low marketing costs. Opportunities to participate in future syndications. In case the borrower runs into difficulties, participant banks have equal treatment. Participant banks do not find themselves at a disadvantage vis--vis a dominat bank or one with high leverage over the client.

Bilateral Loans
Loan Size Public Information disclosure Driving Factor Covenants Normally Low Low Relationship Extensive and frequently renegotiated Floating Rate/ Fixed Revolving credit or fully funded term loan.

Syndicated Loans
Larger High Relationship or Transaction. Extensive but less frequently renegotiated Floating Rate/ Fixed Revolving credit or fully funded term loan.

Borrowing Rates Funding

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5.5 Steps involved in Loan Syndication Process

1. Application to Bank/ Financial Institution In order to get the loan an application is submitted to the bank. Along with it project information memorandum is submitted. The information memorandum consists of the details of the proposed project. Company details such as various business areas, existing operations and past financials (if it is a existing company) should be mentioned in the information memorandum. It also includes the information about the Board of Directors of the company. It may include details such as name of the directors, their qualification and work experience, their vision and mission. As 100% finance from the bank is not obtained the company needs to show its various sources of finance for the remaining amount as well as the share holding pattern of the company. If the present company has been promoted by another company or has associates group of companies their details should be provided to the bank. The company should give maximum details about the project such as background, salient features of the undertaken project. Providing information about the marketing and sales arrangement will help the borrower in making good impression on the lender. Along with this bank requires the Memorandum of Association and Article of association of the company. The balance sheets and profit and loss accounts of past years for existing company are required by the bank. The financial model cover following aspects: Assumptions or the premises which financial statements are proposed for the project. Cost of Project and means of Finance. Balance Sheet. Income Statement. Cash Flow Statement. Debt Drawn Down. 21

 Debt Repayment Schedule. Income Working statement. Deprecation and Tax Working. Sensitivity Analysis. DSCR Working. Return on Investment. Initial list of requirements to be procured from the client 1. Company Profile with brief background of the company. 2. Details of the Company such as Registered Address, other offices / factories, contact nos. of key persons etc. 3. Audited Financial Statements for the previous years. 4. Sanction Letters of all existing facilities with all the Banks (Existing companies). 5. Profile of the Promoters/Directors / Partners viz. Full name, Fathers / Husbands name, residential & office address with telephone nos., Academic Qualification, Experience, Functional Responsibilities in the unit, Capital or Loan contribution in the unit, other concerns with which he/she is associated along with other brief details, etc. 6. Profile of the Key Managerial / Technical Personnel with Qualification & Experience. 7. Details of Associate Concerns with their borrowing arrangements, last 3 years Financial Statements, major Shareholders, etc. 8. Capital Structure and Share Holding Pattern of the Company. 9. Brief write-up on the nature of the business, products/services, technology employed, manufacturing process, etc. 10. Details of the proposed Project.

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11. Cost of Project. 12. Means of Finance proposed. 13. Schedule of Implementation. 14. Details of Suppliers of Machineries (with copies of Invoices). 15. If some portion of the expenditure has already been incurred, necessary proof. 16. Copy of the Techno-economic viability study report (if any). 17. Industry overview and competitive scenario. 18. Markets and Marketing Strategies. 19. Income Tax / Wealth Tax Returns and Personal Balance Sheets of all Promoters / Directors / Guarantors for the last three years. 20. Details of Collaboration arrangements, if any. 21. Tenure and Purpose of proposed loans (Term Loan / Corporate Loan). 22. Estimates of Sales Turnover for the current year and the future projections till term loan is outstanding. 23. Copy of Memorandum & Articles of Association / Partnership Deed etc. 24. List of Orders and inquiries on Hand. 25. Details of Jobs done in the past. 26. Details of Collateral Securities to be offered. 27. If Letter of Credit required, whether Inland or Import, whether for materials or other items, terms of L/C etc. 28. If Bank Grantee required, reasons for the same, nature of Bank Guarantees, terms and nature of Beneficiaries, etc. 29. List of top 5-10 Customers with contact details 30. List of top 5-10 Suppliers with contact details

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31. List of top 5-10 Competitors 32. Copies of Licenses / permissions / approvals by Regulatory Authorities, where applicable. 33. In case of switch over from another Bank, reason for the same. 34. Copies of Tax Returns of the Company for the last three years. 35. PAN Card copy of the Company and Directors/Guarantors. 2. Discussion with Bank/ Financial Institution After providing with the above information to the bank, it is not always that bank will be satisfied with the provided information. It may require some additional information regarding the project and the customer needs to provide the bank with what is required. The bank needs to compile its own assessment. The lender might have some doubts regarding certain polices or terms of the borrower. So the lender might ask some detailed insights about the project or any other area related to it. The lender has to assist the bank in order to create a proposal. 3. Submission of Additional information/ details required by the bank The bank verifies the authenticity of the given information and makes their own proposal. This is the most lengthiest period of the loan syndication process. This involves various set of steps. The bank tries to make the proposal as healthy as possible in order to get it sanctioned from the appropriate authority. The various steps can be explained as follows. Pre Sanction Process Funds are the very important factor of any business. Funds can either be raised by the owners themselves or by approaching the banks. When one approaches the bank it has to take many factors under consideration. There are certain set of procedures which are to be followed in order to get a loan. It is not the case that all the proposals submitted to it are sanctioned by the bank. Loans might get rejected depending on the other related factors. The pre-sanction process can be sub divided into three phases:

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Appraisal Assessment & Recommendation Sanction Appraisal Appraisal Functions involve following list of activities:Preliminary Appraisal Following things should be obtained The company has to produce application/ Project Report for finance. The company has to produce audited financials for the previous three years. Details of existing borrowing arrangements should be produced by the company. Reports from existing bankers on the applicant Company. Financial statements, borrowing relationship of Associate firms/ Group Companies. Profile of promoters/senior management personnel. If request includes project finance obtain additionally Project Report should be obtained about the project work which is to be undertaken. Appraisal report from financial institutions in case appraisal has been done by them. NOC from term lenders if already financed by them. Report from merchant bankers in case capital market is being accessed.

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Examine the following Banks lending policy/ RBI guidelines, policies. Prudential Exposure norms. Industry related risk factors. List of defaulters indicating the history of the borrower (Credit Information Bureau of India Ltd.) Caution lists (ECGC- Exporters Caution List etc.) Compliance regarding transfer of borrowal accounts from one bank to another, if applicable. Govt. regulations/ legislations impacting on the industry. Acceptability of the promoters. Applicants status vis--vis other units in the industry. Financial status in broad and whether it is acceptable. Examine the following in the case of project finance Whether project cost is prima face acceptable. Debt/Equity gearing proposed and whether the same is acceptable. Promoters ability to access capital market for debt/equity support. Whether critical aspects of project-demand, product cost, profitability etc. are prima facie in order. Debt component i.e. debentures, term loans, deferred payment facilities, unsecured loans/deposits.

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 Feasibility of arrangements to access capital market. Feasibility of the projections/estimates of sales, cost of production and profits covering the period of repayment. BEP in terms of sales value and percentage of installed capacity under a normal production year. Cash Flows and Fund Flows. Proposed amortisation schedule if applicable. Whether profitability is adequate to meet stipulated repayments with reference to DSCR, ROI. Industry profile & prospects. Critical factors of the industry and whether the assessment of these and management plans in this regard are acceptable. Technical feasibility with reference to report of Technical consultants if available. Management Quality, competence, track record. Companys structure & systems. Applicants strength on inter-firm comparisons. By sourcing information where necessary from: Market share of the units under comparison. Unique features Profitability factors Financing pattern of the business Inventory/Receivable levels. Capacity utilisation.

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Production effiency and costs. Bank borrowings patterns. Financial ratios & other relevant ratios Capital Market Perceptions. Current Price Market View (if anything adverse) Project implementation schedule. Status of approvals from other Term Lenders. Detailed Appraisal Carry out a detailed appraisal after a pre-sanction visit to the applicant company their office/project site. Working capital facilities Examine/Analysis/Assess: Financials (in the prescribed forms) Financial ratios and other ratios relevant to the project dividend policy Other aspects viz Depreciation method. Revaluation of fixed assets. Record of defaults (tax dues etc.) Pending suits having financial implications (customs, excise etc.) Qualifications to balance sheets, auditors remarks etc. Trends in sales and profitability.

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 Past deviations in sales and profit projection. Production capacity & use past & projected Estimates/Projections of sales values Estimated build up inventory/ receivables/ other current assets/ current liabilities/ Bank borrowings. Project levels : whether acceptable. Compliance with mandatory guidelines as applicable. Assessed bank finance. Assess requirements of off balance sheet facilities viz L/C, BGs etc.

Different Methods of Appraisal

Ratio Analysis Financial analysis is used primarily to gain insights into operating problems and financial problems confronting the firm. One of the major tools of financial analysis is Ratio Analysis. Ratios by themselves however do not locate the problems directly. At this point it is important to distinguish between a problem its cause and its cause and its symptom while high costs would be the cause. Financial ratios are classified in a number of ways i) ii) iii) Liquidity Ratios Profitability Ratios Leverage Ratios

Liquidity ratios examine the adequacy of funds and are based on the relationship between current assets and current liabilities. If a company has sufficient net working capital it is generally deemed to have sufficient liquidity. The ratios which play a vital role in loan 29

syndication process are Current Ratio, Profit Before Depreciation Interest and Tax (PBDIT) to Sales, Profit Before Tax (PBT) to Sales, Interest Coverage Ratio, Debt Equity Ratio, Total outside Liabilities to Tangible Net Worth (TNW), Growth Ratios, DSCR ( Debt Service Coverage Ratio). Funds Flow Analysis A statement of the sources and application of funds also known as a funds flow statement is a technical device designed to highlight the changes in the financial condition of a business enterprise between two dates. This statement, variously referred to as funds flow statement, has been recognized for long in the Western Countries as an important tool in the hands of the credit analyst to examine the working capital flow. However in India funds flow analysis in its present form was not extensively used by the commercial banks for their working capital appraisal until late Sixties. A funds flow statement is quite simply a movement of funds to and from the companys coffers. Thus sources include increase in owners equity, increase in debt and sale of assets, liquidation of loans and other liabilities and reduction in owners equity.

Cash Flow Analysis Contrasted with the broad level of a funds flow statement the cash flow is basically a functional statement concerning itself with the pure cash management aspect. It is designed to throw light on (i) what cash commitments are likely to arise within a short span of time and (ii) and what cash resources will be available to meet them. For instance if the Finance Manager has to pay an installment of a term loan to a financial institution within a period of three months, he needs to visualize a cash budget to decide whether he can meet his commitment without an additional bank loan. 30

Project Finance
Obtain the following: Statutory clearance from various govt. Departments./ Agencies Licences/permits/approvals/clearances/No Objection Certificates/ Collaboration agreements as applicable. Details of sourcing of energy requirements- Power fuel etc. Pollution control clearance. Examine/analyse/assess commercial/economic and financial viability Cost of project and source of finance. Projected costs with reference to estimates, quotations, certificates etc. to ensure correctness. Build up of fixed assets Requirement of funds for investment in fixed assets to be critically examined with regard to production factors, improvement in quality of products, economies of scale etc.) Arrangements proposed for raising debt/equity. Capital structure. Concessions extended and value thereof. Compliance with other terms and conditions. Action taken on comments/observations contained in RBI Inspection Reports. Other Inspection & Audit Reports. Verification Audit Reports.

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 Concurrent Audit Reports. Stock Audit Reports. Spot Audit reports. Statutory Audit Reports. Present relationship with Bank Compile for existing customers profile of present exposures. Facilities now granted Conduct of the accounts. Utilization of Limits FB & NFB. Occurrence of irregularities, if any. Frequency of irregularity No. of times Total No. of days last 12 mnths. Repayment of term commitments. Compliance with requirements regarding submission of stock statements, FFR, renewal data etc. Stock turnover, realisation of book debts. Value of account with break-up of income. Arrive at a preliminary decision to support or not to support the request. Credit Rating Draw up ratings for Working Capital Term Finance Opinion Reports Compile opinion reports on partners/promoters and the proposed guarantors. 32

Existing charges on Assets Report on search of charges with ROC. Structure of facilities and term of sanction Fix term for exposures proposed- facility wise and overall Limit for each facility- sub limits. Security- Primary & collateral, Guarantee. Margins- For each facility as applicable. Rate of interest. Rate of commission/Exchange/Other fees. Concessional facilities and value thereof. Repayment Terms, where applicable. ECGC cover where applicable. Other standard covenants. Review of the proposal Strengths and weaknesses of the exposure proposed. Risk factors and steps proposed to mitigate them. Deviations proposed from usual norms of the Bank and the reasons therefore. Proposal for sanction Prepare a draft proposal in prescribed format with required back up details and with recommendations for sanction. Assistance to Assessment

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 Interact with the assessor, provide additional inputs arising from the assessment, incorporate these and required modifications in the draft proposal and generate an integrated final proposal for sanction. Assessment Indicative Lists of activities involved in the assessment Function Review the draft proposal together with back-up details/notes and the borrowers application, financial and other reports/documents examined by the appraiser. Interact with the borrower and the appraiser. Carry our pre-sanction visit to the applicant company and their project/factory site. Peruse the financial analysis (Balance Sheet/Operating Statement/ Ratio Analysis/Fund Flow Statement/Working Capital assessment/Project cost & sources/break even analysis/Debt Service/Security Cover etc.) to see if this is prima facie in order. If any deficiencies are seen, arrange with the appraiser for the analysis on the correct lines. Examine critically the following aspects of the proposed exposure Banks Lending policy. RBI Guidelines Promoters/Senior Management background. Inter-firm comparison Technology in use in the company. Market conditions. Projected Performance of the borrower vis--vis past estimates and performance Viability of the project. Strength & weaknesses of the borrowers entity. Proposed structure of facilities. 34

 Adequacy/Correctness of limits/Sub limits, margins, moratorium & repayment schedule. Adequacy of proposed security cover. Credit Risk Rating. Pricing and other charges and concession, if any, proposed for the facilities. Risk factors of the proposal steps proposed to mitigate the risk. Deviations proposed from the norms of the Bank, duly reasoned. Recommendation for sanction. To the extent the inputs/comments are inadequate or require modification, arrange for additional inputs/modifications to be incorporated in the proposal with any required modification to the initial recommendation by the appraiser. Arrange with the Appraiser to draw up the proposal in the final form.

4. Pre- Sanction Visit

The bank officials arrange visits to the project site and try to get some rough idea about the proposed project.

5. Preparation of Proposal by the bank

After going through the various documents, the team of the bank studies the various strengths and weakness of the corporates. The team of the bank who are looking after that particular corporate loan compile their own proposal. Analysis and interpretation of Financial Statements Financial information forms the basis for financial planning and analysis, and this information is provided by the financial statements or accounting reports of a business enterprise. The objective of accounting are to provide information for making decisions concerning the limited resources of

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an enterprise, direct the controlling of the organisation human and material resources and permit information judgments and decisions by users of the financial information. Apart from gathering information on the clients, bankers rely on the financial data of an organisation, which are contained in two statements: Balance Sheet and Profit and Loss Accounts. Balance Sheet Balance sheet as the name indicates is a statement of balances, depicting the state of affairs or position of a business enterprise on a given date. Since it is an aggregation of balance, it pertains obviously to a particular date. As on the date of reckoning it discloses to the user of the statement the investment of funds made by the enterprise and the various sources from which funds have been drawn to enable investment. It would be useful to visualize a balance sheet essentially in terms of the resources of an enterprise and claims held against such resources provided to it. Assets Assets can be described as economic sources owned by an enterprise whose cost at the time of their acquisition can be objectively can be objectively measured. Thus any item to be called an asset should satisfy three attributes viz capability to generate an economic benefit, ownership and measurement of cost. Thus skilled labour and managerial personnel, though very powerful assets doubtless are not regarded as such managerial personnel, through very powerful asset. Share Capital The Banks form classifies redeemable preference share which are redeemable within 12 years as term liabilities and not under net worth. This classification is based on the principle that the redeemable preference shares have to be redeemed. Current Liabilities and Provisions

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The banker will have to obtain some more details about current liabilities from the company as the classification in the companies act format does not fully meet the bankers requirements. For example statutory liabilities need not be separately delineated in the companies act format whereas the banker is interested in knowing the quantum statutory liabilities. Further sundry creditors as indicated in companies act is an all-embracing term but the banker should know how much is towards trade creditors i.e. those arising out of purchase of raw materials and stores and for others. Inventory Inventory comprises goods held for processing and conversion into saleable products and finished products held for sale. Inventory would also consist of goods-in-process and other items of stores and spares used in the process of manufacture and packing material. As inventory is still the predominant asset financed by the Indian Bankers. While classification of raw materials, stocksin-process and finished goods would not pose any problem, identifying stores and consumable spares would have to be examined carefully. Coal, fuel oil etc which are used in the process of manufacture would be classified as stores. Gross Block The gross block would not include the intangible assets. If there has been a revaluation in assets the amount by which the asset value has been increased, should be deducted from gross block and shown os intangible assets

6. Discussion of Terms & Conditions Terms & Conditions can be defined as A specification of restrictions for the use of goods or services. Before sanctioning the loan the bank, wants its client to know about the various norms that they have to follow.

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7. Sanction Loan
Indicative List of Activities Involved in the Sanction Function Peruse the proposal to see if the report prima facie presents the proposal in a comprehensive manner as required. If any critical information is not provided in the proposal, remit it back to the Assessor for the requires data/ Clarifications. Examine critically the following aspects of the proposed exposure. Banks Lending Policy. Borrowers status in the industry. Industry prospects. Experience with units in similar industry. Overall strength of the borrower. Projected level of operations. Risk Factors critical to the exposure and adequacy of safeguards there against proposed. Value of the existing connection with the borrower. Credit Risk Rating. Security pricing charges and concessions proposed for the exposure and conveants stipulated vis--vis the risk perception. Accord sanction of the proposal on the terms proposed or by stipulating modified or additional conditions/safeguards. OR Defer decision on the proposal and return it for additional data/clarifications. OR 38

 Reject the proposal, if it is not acceptable, setting out the reason therefore. Sanctioning authority is to endure that the sanction is within the powers delegated to the authority and that the sanction is reported to a higher authority as required.

8. Documentation
In this phase various documents which are submitted to the bank are verified.

9. Post Sanction Visit

Once the loan is sanctioned the bank officials again visits the project site.

10. Disbursement
In this phase finally the amount is disbursed to the customer. The whole amount may not be distributed in one time. Bank may disburse the loan in various phases as per the requirement of the project. Post sanction credit process The post-sanction credit process can be broadly classified into three stages viz., follow-up, supervision and monitoring, which together facilitate ensuring an efficient and effective credit management and maintaining high level of standard assets. The indicative tasks associated with the three stages. Broadly, the objectives of the three functions are as under: Follow up function The follow up function covers the following: Ensuring on an ongoing compliance with terms and conditions of sanction through the system of control measures/feedback viz. terms and conditions of sanction through the system of

39

control measures/feedback viz. Inspection visits, prescribed financial/operating statements from the borrower, interactions with borrowers etc. Tracking performance of the borrower, ensuring safety and recover-ability of the advances. Ensuring compliance with all internal and external reporting requirements covering the advances. Indicative list of the activities involved in the follow-up function is as follows: Conveying sanction of advances to the borrower detailing the terms and conditions and obtaining acceptance thereof. Preparation submission of control returns for sanction. Completion of applicable documentation; maintaining custody and validity of the documents. Creation of charge over security and completion of all relevant and applicable formalities including. Creation of Registered or Equitable mortgage. Creation of second charge. Registration of charge with ROC. Periodical search of charge with ROC. Ensuring borrowers compliance with all pre-disbursal formalities and requirements and ongoing compliance with the term of sanction. Conducting pre-disbursal inspection and verifications (including verification of subsisting charges on the assets of limited companies by search at ROC) as laid down Arranging for and supervising computation and recording of Drawing Power for the disbursal of the facilities.

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 Obtention from the borrowers and scrutiny/analysis of the following financial and other statements; initiating appropriate action thereon: Stock statements. Other control/MIS statements viz. MSOD (Monthly Select Operational Data), FFR (Financial Follow up Reports), Cash Budget. Annual and mid term financial statements.

Ongoing scrutiny of transactions in the various accountants by perusal of ledgers, registers, vouchers etc. to watch for proper conduct of the accounts, healthy turnover therein and proper end-use of funds. Ongoing verification of assets charged as security, to ensure availability and safety of the assets. Maintaining ongoing contact with the borrower and CO-lenders and keeping abreast of developments in the borrower entities and business environment. Securing and maintaining ECGC (Export Credit Guarantee Corporation) cover where applicable. Timely recognition of unsatisfactory features in the conduct of the advances, such as Delays in project implementation. Unusual developments/changes in the business or business environment. Shortfall in achievement of production/sales as compared to the projections. Defaults in payments due under Fund Based facilities/Defaults in the commitments under NFB facilities.

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 Non-fulfillment of financial obligations to the bank, colanders, creditors and statutory dues etc. Any other deficiency observed during periodic inspection visits. Initiating required action by the borrower on the foregoing unsatisfactory features and submitting reports thereon. Ensuring obtention of Refinance from concerned agency wherever applicable. Ensuring maintenance of proper records/files covering the advances to a borrower for scrutiny/inspection by various internal and external authorities. Ensuring collation/maintenance of data as appropriate for submitting reports/returns/reviews etc. to various higher authorities in the Bank and to external agencies. Obtention of required data proposal from borrower and preparation of reviews/renewals of credit facilities, as prescribed. Initiating required action by the borrower on the foregoing unsatisfactory features and submitting reports, including. RBI Inspection Report. Other Inspection & Audit Report/Credit Audit Report. Verification Audit Report. Concurrent Audit Report. Stock Audit Report. Spot Audit Report. Statutory Audit Report Recovery of applicable charges/fees/penalties etc. as per extant instructions. Preparation of reviews of IRAC (Income Recognition And Asset Classification), identification of deteriorating assets and initiation of corrective action where warranted.

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 Accountwise Follow-up of NPAs for recovery/rehabilitation preparation of related recommendations to appropriate authority for approval.

Supervision I. Supervision function should primarily ensure that effective follow-up of advances is in place and asset quality of a good order is maintained. Supervisor should look out for early warning signals, identify incipient sickness and initiate proactive remedial actions. i)Indicative lists of activities involved in the supervision function is as follows: Ensuring proper follow-up of advances and observance at the operating level of system laid down by the Bank. Periodic and random examination of registers, accounts and books at the branch, scrutiny of periodical statements received, control registers and files/records covering the advances will assist this process. Ensuring that security documents are kept current and that all related documentation formalities are observed by the officials responsible. Ensuring that system is in force for the recovery of applicable charges/fees/penalties etc. and that income leakages are avoided. Engaging in ongoing interaction with the official responsible for follow-up on all critical matters relating to the advances. Maintaining ongoing contact with the borrower and co-lenders and keeping abreast of developments in the borrower entities and business environment. Scrutiny of periodical statements and financials from borrowers, control statements/reports prepared on the advances. Ensuring that corrective as required are taken and reports to higher authorities where necessary are submitted.

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 Periodicals inspection of security at the intervals prescribed for the supervisor. Ensuring that compliance is maintained with instructions laid down regarding systems and procedures, maintenance of books/registers is in order, and action is taken for rectification of irregularities pointed out in the various Audit/Inspection reports. Conduct periodic assessment of the information thrown up by IRAC reviews and ensure identification of deteriorating assets and initiation of corrective steps. Exercise control over NPA management and ensure effective follow up for

recoveries/rehabilitation with approvals from concerned/appropriate authority. Ensure timely reviews/renewals of credit facilities. Initiate appropriate measures for upgradation of credit skills of level functionaries. Monitoring & Control Monitoring and control function ensures that effective supervision is maintained on advances and appropriate responses are imitated wherever early warning signals are seen. The function also tracks customer satisfaction and provides responses where necessary. Indicative list of activities involved in the Monitoring and Control function is as follows: Ensuring that effective supervision is maintained on advances by the lower level functionaries responsible for follow up and supervision. Scrutiny of returns/reports received from these lines functionaries, interaction with them, feedback from customers, commentary in inspection/audit reports etc. will assist this process. Monitoring of high value advances through specific focus on these in the return/reports received on advances and by keeping watch on the developments in the borrower company/industry.

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 Ensuring non-recurrence at the operating levels of commonly noticed lapses/irregularities pointed out in various audit reports. Ongoing monitoring of asset portfolio by tracking changes from time to time, chalkout and arrange for carrying out specific actions to ensure high standards asset content. Extending guidance to down the line functionaries on the follow-up and supervision of the exposure at risk. Examination of NPAs with a view to recognizing problem assets, drawing up recovery upgradation path for these and monitoring the recovery process. Redressal of customers complaints. Ongoing evaluation of credit management skills at the branches and office under control through Annual Appraisal Reports (AARs), interaction with the supervisors and imitating appropriate interventions.

6. ANALYSIS & INTERPRETATION OF THE DATA

6.1 Responsibility of different functionaries in the post-sanction credit process
The tasks associated with the post-sanction follow-up, supervision and monitoring & control in respect of individual accounts shall be handled by the designated officials Wherever two functionaries are assigned the functions relating to a single stage (e.g. follow-up), they will carry out all the functions relating to this stage either individually or jointly and with due diligence. The senior functionary will decide the requirement in this regard.

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 The controllers of the concerned networks will have responsibility for monitoring the overall credit portfolio in their respective networks. Follow up the compliance of remarks made by higher authorities on credit proposals, irregularity reports, etc. The cells viz., Advances Monitoring Cell, NPA (Non Performing Assets) Management Cell or the Rehabilitation Cell will assist the controllers to oversee the credit portfolio of the Commercial Network. Reporting for control Bank officials exercising financial powers delegated to them for sanctioning of loans should promptly report to their respective controlling authorities in the manner stipulated in the Scheme of Delegation of Financial Powers in force. The controlling offices should diligently scrutinise the control returns. If they notice any unusual feature, they should initiate suitable follow-up action to rectify the position with a view to protecting the Banks interest. Non-submission of control returns in time should be viewed seriously. Necessary steps should be initiated to obtain the pending returns and ensure regular submission of such returns in future. Security documents Security documents necessary for different types of credit facilities have been furnished in the Manual on Documentation. Branches should not release any of the sanctioned limits, new or enhancements, before obtaining the relevant documents in terms of sanction duly complete in all respects. However, in cases where creation of mortgage or obtaining the documents related to a third party guarantee is sought to be deferred beyond the date of release of credit facilities

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for genuine reasons, prior approval of the sanctioning authorities for the deviation should be obtained. Branches may provide true certified copies of security documents to a borrower/guarantor, whenever a request for such copies is received. Statement of stocks & book debts Each borrower should submit a statement of stocks and book-debts, on the standard format usually at monthly intervals. Non-submission of such statement in time would attract penal interest as per instructions in force. While timely submission of stock statements should remain under constant attention of the concerned field officers, for the purpose of

supervision/monitoring, branch managers/managers of division should verify the register every month. The stock statements should be filed unit-wise and in chronological order and retained as part of the record. The borrower has to submit the stock statement, duly signed by an authorised person, at intervals as specified in the sanction letter. Further, such statement as on the annual balance sheet date should be obtained from every borrower enjoying advances against security of stocks/book debts. Computation of drawing power on eligible current assets and maintaining of DP Register As assessment of working capital is based on the financial statements, the method of valuation of current assets in the stock statement should be consistent with the norms followed in preparation of the annual financial statements. While regulating drawings in a cash credit (including WCDL) account within the drawing power (DP) of a borrowing company, it should be ensured that the DP is not given against such assets which have not been considered as current assets at the time of assessment and are accordingly ineligible for DP. For example, 47

where plant spares` are classified as non-current asset for working capital assessment, this asset should not be considered eligible for DP though included in the stock statement. Stocks purchased under usance LCs should not be reckoned for the purpose of drawing power. While allowing drawings in accounts on the basis of stock statements, it should be ensured that there is no double financing involved. Similarly, drawing power may not be given against old accumulated (non-moving) or slow moving stocks. Borrowers should be advised to make special efforts to clear such stocks. In cases where cash credit limits are granted against book debts, a statement of book debts with age-wise break-up should be obtained along with the stock statement. Such book debts should be based on invoices and delivery challans. Drawing power should be allowed only on such book-debts as are within the norms accepted at the time of sanction. Generally, book debts of more than six months old should not be reckoned for giving drawing power. For the purpose of fixation of drawing power, different components of stocks may be valued as detailed below:

ITEM
Imported raw material

TO BE VALUED AT
Landed cost (i.e., invoice value plus customs duty but excluding sales-tax and demurrage, if any.) or market

Indigenous raw materials, packing materials,

price whichever is lower Invoice price or market price or Govt. controlled price, whichever is the lowest

consumable stores and spares Semi-finished goods Cost of production or selling price or market price or Finished goods Govt. controlled rates, whichever is the lowest Cost of production or selling price or market price or Govt. controlled rates, whichever is the lowest

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Variations in the prices of commodities, against which advances are granted, should be carefully examined to ensure that the stock statements represent correct value of assets. When stock statements are received at the branch, details like date of stock statement, date of its receipt at the branch, brief particulars of the security held, the value thereof, the stipulated margin and the resultant drawing power (i.e., value of security after deducting margin) should be recorded in words and figures in the Drawing Power (DP) Register, a separate folio being allotted to each account. It should be ensured that the drawing power in each account should not exceed the corresponding sanctioned limit. Each drawing power must be dated and signed by the branch manager or any authorised official, obsolete drawing powers at the same time being cancelled. At the head of the current page of each cash credit account, the amount of authorised drawing power will be entered (in figures and words) under the full signature of the BM/manager of the division. The official checking the ledger will ensure that this is invariably done. The drawing powers recorded in the cash credit account ledgers will be periodically checked by the BM/manager of the division with the Drawing Power Register. All changes in the authorised drawing powers of borrowers must be promptly recorded in the ledger accounts under the signature of the BM/ manager of the division or any authorised official handling loans and advances. Exceptions: In case of seasonal industries, the assessment is done on the basis of monthly/quarterly cash budgets. Correspondingly, drawings should be regulated on the basis of the monthly/quarterly cash budgets subject to the condition that the out standings should not exceed the advance value of the security charged or the sanctioned limit, whichever is lower. For determining the advance value of security charged (value of security minus stipulated margin) the stock statements may continue to be obtained on the

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usual format. Similarly, considering the special features of tea, coffee and other plantations, the drawing power should be fixed corresponding to the methods followed for assessment. Stock audit Units that are exhibiting symptoms of liquidity crunch may be considered for stock audit. Some of the symptoms are as follows: Pressing creditor Overdue interest and term loan instalment Stagnant stocks Undue delay in submission of stock statements Falsification of chargeable current assets Too many and significant qualifying remarks about stock/ receivables in auditors' report in the balance sheet, etc. If on considerations of the above aspects, an unsatisfactory scene emerges, a stock audit may be considered. Stock audit would cover audit of stocks and receivables. The quantity, quality and value of the current assets should be examined and compared with the build-up of current assets projected at the time of assessment of the WC advances. The system of inventory and receivables management followed by the unit should also be studied. Wherever necessary, approved valuers or Chartered Accountants may be engaged for conducting stock audit, but care should be taken to keep the cost reasonable and minimum, as it is to be borne by the borrower. Stock audit should be resorted to only in exceptional cases and not to be used as a regular periodical tool. In other words, excessive dependence on external agencies is not desirable 50

and the stock audit proposed should be with a view to initiate result oriented action plans aimed at improvement in management of inventory and receivables and thereby quality of our lending. To ensure that the process of stock audit is completed within a reasonable time, while assigning the stock audit work, a time limit should be prescribed for completion of the audit and submission of the report. Such a prescription to be made taking into consideration the nature and magnitude of the work involved and in consultation with the auditors. The past record of adherence to the specified time limit should form one of the necessary criteria for assigning further work to auditors. Inspection & follow-up The principal objective of effective credit management is to maintain soundness of the loan assets. The operative guidelines for inspection and follow-up to achieve the objective are broadly outlined in this section. However, dealing officials should adapt these suitably on merits of each borrowing unit (e.g., its market performance, the management strength, reliability of its information system, etc.) with focus on an effective credit management in a cost effective manner. Thus, the rigour of inspection and follow-up may be varied depending on the general health of the unit and the conduct of advances. Periodic inspection and follow-up would afford an opportunity to not merely assess the quantity, quality and value of stocks, but also to Know the tempo of activity, Have a look at the books of accounts and other relevant records/returns, Old discussions with the borrower, Satisfy oneself that the borrower is alive to his responsibilities,

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 Supplement and constantly update the Banks knowledge about operations of the borrower in particular and the industry in general, Ensure that all the fixed assets charged to the Bank are not only intact and well maintained but also put to optimum use and that the unit's profitability is maintained, at least, at the level projected at the time of sanction of advances, Ensure that the security coverage is not diluted at any time for any reason and that the servicing of the loan does not suffer under any circumstances. The follow-up system consists of financial follow-up and physical follow-up. The financial follow-up lays stress on monitoring of the units performance based on the level of production, sales and profitability, while physical follow-up consists of physical verification of assets and ensuring end-use of funds lent. The follow-up and supervision procedure delineated above involves monitoring on the basis of relevant information/ data to be furnished by the borrowers. For this purpose, the borrowers would need to have in place an information system. Though supervision is basically based on the information system of the borrower, it is desirable that the central discipline of financial analysis, inter-firm comparisons and study of variances between projected and actual balance sheets, are always kept in view. Monitoring receipt of the statements: For making use of the information system successfully, monitoring timely receipt of the various statements is an essential prerequisite. A suitable register should be maintained. The date of receipt of the statement should be entered in the appropriate column. If a statement is received late, it should be entered in red. An inspection of this register will reveal the extent of compliance of the borrower in submitting the information. The register will help in sending reminders for getting the pending statements and initiating other measures. 52

 Inspecting officials may carry with them a list of the fixed assets charged to the Bank a copy of the latest monthly stock statement and a copy of the latest half-yearly operating statement received from the borrowing units. The quarter/year-end stock statements should be compared and reconciled with the

corresponding items in the financial follow-up statements such as FFR-I & II/ and year-end balance sheet. Verification of assets Stocks pledged/hypothecated to the Bank must be inspected at irregular intervals which should ordinarily not exceed one month. The basic objective is to ensure that the stated stocks are physically there and the advances are adequately secured. Wherever possible, all stocks should be thoroughly verified and compared with that mentioned in the stock statement. Where the number of items charged to the Bank is large, goods should be stacked according to sizes, weight, lots, groups, etc., to facilitate inspection. The inspecting official should make an ABC analysis of stocks and check all high value items during each visit. In other cases, verification would be possible only on a random sample basis. Different items should, however, be checked in different visits so that all the major items would be covered over a period of, say, four to six months. Checking on random sample basis should not, however, rule out repetitive checking of certain items. Where goods are stored in different places, inspection of all the godowns should be conducted simultaneously or on the same day. Inspecting officials must see that the godowns are properly secured and that all the conditions of the fire insurance policies covering them and their contents are being observed. Particular attention should be paid to the effect on the insurance cover of any adjacent structures, whether permanent or temporary, which are of an inflammable nature.

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Whenever a godown cannot for any reason be inspected, a note must be made in the inspection register in order to ensure that the contents of the godown are examined at the next inspection. Verification of stocks-in-process may present some difficulties. One may have to look for fluctuations in their value over a period and verify the data in the context of production capacity, production cycle, cross tally for raw materials and production figures in the stock statement, records on input output at different stages and other relevant factors. The available storage capacities for various items, including for stocks-in-process, should also be examined. Where goods are excisable or subject to other statutory controls, the stock statement could be crosschecked with the relative records. The position of book debts should be checked, specially where advances have been granted there against. This again may have to be done on a sample basis by reference to Debtors Ledger and other relevant records such as invoices and bills raised and by checking position regarding periodic confirmations from debtors, age of book debts in relation to normal credit period, system of control over book debts and periodic reports to top management of the unit. Checking quality of assets is another problem area and much would depend on the experience and technical competence of the inspecting officials. A feel could be had by looking for slow moving, old and accumulated stocks, rejections at the time of both purchases and sales by examining the relative records of purchases and sales returns, records of quality control and scrap, book debts under dispute and age of book debts. Verification of systems All borrowers enjoying large value credit should be asked to give to the Bank a write-up on their inventory control, verification and valuation systems. The branch officials will have to familiarise themselves with the operation of such declared systems with reference to the relative records and get satisfied about their efficacy, at least at quarterly intervals. A reference to the cost records, where available, would also be of help in checking valuation. Where internal cost audit reports are

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available, these too could be seen. Where such systems do not exist or are not in operation, this in itself would be a major warning signal calling for being circumspect about the functioning of the unit. The absence of any such system would raise doubts about the competence and also perhaps about the integrity of the management and call for urgent remedial action, if necessary by engaging consultants.

6.2 Inspection Report

On completion of the inspection, the inspection officials should set out their observations in inspection reports commenting, inter alia, about the important issues taken up with the borrower and the corrective measures proposed to be initiated by the borrower for rectifying the aberrations. The inspection report should also cover comments about the issues taken up with the borrower during the previous inspection and the impact of the corrective measures initiated by the borrower on that basis. Copies of the half-yearly progress report, half-yearly operating statements and the inspection report as above should be filed chronologically and made available for scrutiny by the Banks Inspectors/Auditors. The inspection reports would also help in the periodic review of accounts of borrowers.

6.3 Inspection & Follow-up by different branch functionaries

The Branch Manager has overall responsibility for the quality and efficient management of the credit portfolio at the branch. He has, therefore, to deploy his organisation- Manager of the Division, Deputy Manager, Field Officers (FOs)- in such a manner that the total follow-up coverage of all the units is achieved at the level of FOs, with each successive higher level of managers covering the units selectively.

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Frequency of inspection In respect of working capital credit facilities, the inspection should be conducted by different officials at frequencies as mentioned below: A. Field Officers should inspect the units at monthly irregular intervals. The Field Officer need not conduct monthly inspection during the month in which Branch Manager/ Manager of the Division has inspected the unit unless the circumstances so demand. B. Branch Managers of branches Division/Special Branches should visit units with large limits once in 6 months. C. Managers of Divisions should inspect all units with limits over Rs.5 lacs once in 6 months. Where such units are very few, they should cover units enjoying limits above Rs.2 lacs also. Where Deputy Managers have been posted besides the Managers of the Division, the inspection may be organised between them so that there is no overlapping. D. Where there is genuine shortage of field staff, Branch Manager can entrust the inspection of units with smaller limits to other officers, with the approval of the Controlling Authority. E. In the case of unsatisfactory accounts or where the exigencies so warrant (wide fluctuation in stocks, etc.) or units put under nursing plans, irrespective of the loan amount, inspection has to be carried out at shorter intervals, till the units activity stabilises or it is nursed back to health or the loan amount is recovered. F. Where term loans/other term assistance are granted as stand-alone facilities or granted along with working capital facilities, until the repayment of the last instalment under the term loan, inspection of the borrowing unit must be carried out half-yearly by the Manager of Division/Branch Manager assisted by the concerned field officer. Apart from what have been mentioned above, the inspecting official should also keep the following guidelines in mind:

56

(i). The Field Officer must check the correctness of the production and sales information supplied to him and which he has not had occasion to check previously. Stocks of raw materials, etc., with the unit should be verified with the latest Stock Statement. (ii). The Field Officer must assess the level of activity from various sources, such as the order book, the work on the shop floor, number of shifts of working, accumulation of finished products and the general tempo of activity in the plant. When there is a decline in sales, production, and profitability, the reasons therefore should be ascertained. Frequent visits to the same unit will automatically give him enough experience to get a quick feel of the tempo of activity. (iii). The Field Officer must check if the books of accounts e.g., cash book, sales, purchase and stock registers are being maintained properly and kept up to date. If he notices any slackness in this respect, he must impress on the borrower the need to keep the books updated. Special attention must be given to the cashbook. Invoices may be checked at random to know the mode (credit or cash basis) and terms of purchase. Sales through associates or sister concerns and bills drawn on them should be monitored with extra care. Credit summations in the operative account should be compared with the amount of realisation of sale proceeds during the relevant period. If the credit summations and the amount of sale proceeds realised are not comparable, the reasons therefore should be enquired into. Bills outstanding in the Bank's books should be compared and crosschecked with the unit's bills receivable registers. If bills are returned or payments delayed, the reasons therefore should be enquired into. Order position - pending, being executed and anticipated- should be enquired into and matched with production and sales. This should be followed up in the subsequent inspections. With the accent of follow-up on the activity level, the inspections could be held on the basis of pre-arranged visits to the unit instead of surprise visits. This does not rule out surprise visits altogether. The intention is that inspections based on prearranged visits would be more meaningful and mutually beneficial to the Bank and the borrowers.

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In cases where the unit has a separate administrative office, which maintains the books of accounts, the Field Officer must give advance intimation of his visit so that the necessary books could be brought to the factory for his inspection, if the duplicates are not maintained there. Large transactions in the units books of accounts particularly payments to branch/associate firms should be enquired into. (iv). The Field Officer must discuss with the borrower all factors that may have a bearing on the operation of the unit such as, potential changes in the market conditions, raw material supply position, power shortage, transport and labour problems, etc. Since the Field Officer has an opportunity of visiting a number of units in the area, he would be better informed about the environmental conditions and be able to guide the borrower, should the need arise. He could also be on the look out for any possible signs of dissension among partners. (v). The Field Officer must impress on the borrower the need for continued financial discipline. This can be monitored by the degree of promptness in the preparation of annual balance sheets, submission of various statements such as stock statement, monthly select operational data, etc. to the Bank, submission of income tax and sales tax returns, etc. The Field Officer must check the progress in the preparation of these statements from time to time. (vi). The accounts of the units should be regularly scrutinised and in case of those found irregular due to non-payment of instalments or excess drawings, the concerned units should be advised in writing to regularise the position. In view of the irregularity in the account, the Field Officers visit assumes greater significance as he would then be required to monitor the actions being taken by the borrower towards the adjustment of the irregularity. In fact, the visits to units whose accounts are irregular must be accorded a priority in the timetable for Field Officers. He should act as a continuous channel of communication between the borrower and the Branch Manager during the

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period the irregularity persists and provide the Branch Manager with his personal assessment of the effectiveness of the action taken by the borrower. (vii). The Field Officer will have special responsibilities during his visits, if the unit has asked for enhancement either on account of receipt of a large order or on account of the need to buy raw materials in bulk. The Field Officer should follow-up the end-use of the additional facilities granted in order to ensure that the terms thereof are strictly adhered to. (viii). A list of all items of machinery pledged/hypothecated to the Bank should be prominently displayed in the factory premises and a legend Pledged/hypothecated to XYZ Branch boldly painted on the body of each machine. At the time of inspection, the field staff should physically verify each item of the fixed assets with those listed as per the records with the branch. The working condition of plant, machinery and equipment should be checked to ascertain that none of them remain idle. The inspecting official should ascertain the reasons for any machine lying idle. No item of machinery charged to the Bank should be removed from the factory, even for repairs, without the permission of the Branch. Where any machinery is taken out of the unit, prompt return thereof should be ensured and the relative item checked during subsequent inspection of the unit. (ix).The Banks officials should not record their observations on the books/ registers of the borrowers, not even on the stock statements submitted by them. The observations, if any, should be recorded on the prescribed inspection report on the unit on return to the branch and submitted to the Branch Manager. It should be retained in the file of the respective unit after taking necessary action, where warranted. The borrower should be advised in writing, about the irregularities observed, with a request to set right the position immediately. During the next visit, attention should be paid to check the progress made to rectify the irregularities observed during the previous visits.

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Inspection Register Each branch should maintain a suitable register showing at a glance, dates of inspection conducted. Inspection register has to be filled in after each inspection and duly authenticated by the officers concerned. During the first week of a month, the Branch Manager should verify the register to find out the units not inspected during the previous month. He should ensure that such units are inspected during the current month at the frequency laid down by the Bank. Monitoring of units not inspected: Branch Manager should get from the Field Officers/Manager of the Division, for his own monitoring, a list of units not inspected during the quarter as at the end of March, June, etc. He should submit to the Controlling Authority at quarterly intervals as at the end of March, June, September, and December a list of units with outstandings of over Rs.2 lacs, not inspected during the last quarter, indicating the date of last inspection, reasons for delay, and plan of action proposed to rectify the position. Freezing accounts Where even levy of penal interest does not evoke financial discipline, branches may freeze the accounts of such borrowers. However, before doing so, the reasons for violating financial discipline should be ascertained from the borrower. If there is no acceptable reason for such noncompliance with the terms and conditions of sanction, a decision to freeze the accounts may be taken only in consultation the controlling authority. The accounts may be frozen only after giving due notice to the borrower by registered post with A/D. Full implications of freezing must be considered, more so in the case of consortium/multiple banking arrangement where in the absence of a consensus among all banks, a freeze on any account will serve no useful purpose as the borrowers may transact further in another bank. Branches must be circumspect in freezing as a measure to enforce financial discipline. Disclosure of names of defaulters 60

On the basis of the borrowers consent for disclosure as per the consent clause in the documents, a decision to publicize the names of borrowers who have defaulted in the repayment of loans can be taken only with the approval of the following authorities and after giving a notice of 30 days to the borrowing company of the Banks intention to make public the information, unless the borrower rectifies the default within such period.

7. SUGGESTIONS & CONCLUSION

Getting the money is only the first step. One should strive to be a good customer so that the specified client can get cooperation if it is needed later. A good customer sticks to the agreement. Understand the requirements and perform to them as much as possible. In a business relationship, lenders will ask for regular financial statements, which you should produce on time. There may be covenants. A covenant is a written agreement in which you promise to meet specified obligations such as submitting the aging of your accounts receivable. The "aging" report will show the lenders if your credit customers are paying on time or not. One should be proactive. One should contact the lender if there is some problem. Getting to the next highest level is important. The time period required for sanction of a business loan can be reduced and hence the procedure can be shortened in days. One needs to provide the various documents required by the bank to create the proposal. One should try to share as maximum information with the bank to allow them to complete their work of preparing proposal in time. 61

Etiquettes of building good relationship with the lender Being well dressed and neat in appearance at bank meetings will reflect positively. Produce Business plan whenever lender demands for it. Keeping lenders informed on the status of the business whether it is good or bad. If one is not able to make his loan payments on time call the lender in advance and share your problem and request the extension needed. Explaining sources of repayment

8. BIBLIOGRAPHY
Survey of Indian Industries ( The Hindu) edition 2008 Credit Risk Assessment by D.D. Mukherjee www.coolavenues.com/know/fin/soumiya_1.php www.investopedia.com/terms/l/loansyndication.asp www.answers.com/topic/loan-syndication www.riskglossary.com/articles/syndicated_loan.htm www.businessdictionary.com/definition/loan-syndication.html Discussions with various bank officals.

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9. ANNEXURE
Format of Credit Monitoring Arrangement (CMA) Particular 1. Gross Sales i)Domestic sales ii)Export sales iii) Export Incentive TOTAL : 2. Less:Excise duty 3. Net Sales (1-2) 4.%age rise(+) or fall(-) in Net Sales 5. Cost of sales i)Purchases a) Imported b) Indigeneous ii)Other spares a) Imported b) Indigenous iii) Direct Expenses iv)Depreciation SUB TOTAL(i to vii) Year Year

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Add: Opening W.I.P. Sub total Less: Closing W.I.P. Cost of Production A/c.M/S. B/F. Add:Opening stk.of FG Sub total Less:Closing stk.of FG TOTAL COST OF SALES 6 Administration,Selling & Distribution and Other Exp. 7. Sub Total (5+6) 8.Operating profit before interest(3-7) 9 Interest 10. Operating profit after interest(8-9) 11.i)Add: other non-opera -ting income (a) Misc. Income (b) (c) Sub total(Income) ii)Less:other non-opera -ting Expenses (a) (b) (c) Sub total (Expenses) iii)Net of [11(i)-11(ii)] 12. Profit before Tax/Loss [10+11(iii)] 13. Provision for Taxes 14. Net Profit/Loss (12-13) 15 Appropriations 16 (a) Equity Dividend paid (b) Dividend Rate 17. Retained Profit(14-15) 18. %age of Net Profit A/c.M/S. LIABILITIES CURRENT LIABILITIES 1.Short Term Borrowings from Banks(incl.BP/BD) i)From applicant Bank

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ii)From other Bank iii)(of which BP/BD) Sub Total 2. Short term Borrowings from others 3. Sundry Creditors(Trade&Exp) 4. Advance payments from customers/Deposits from dealers 5. Provision for Taxation 6. Dividend Payable 7. Other statutory liabilities(due in 1 Year) 8 Deposits/Instalment of T.L./DPG. etc. (Due within 1 year) 9. Other current Liabilities & Provisions Sub Total (2 to 9) 10.TOTAL CURRENT LIABILI. A/c.M/S. TERM LIABILITIES 11. Debentures (not maturing within 1 year) 12. Preference Shares redeemable after one year 13. Term loans(Excluding payable within 1 year) 14. Vehicle Loan & Home Loan (Excl.payable within one year) 15. Term Deposits (excluding payable within one year) 16. Other Term Liabilities 17. TOTAL TERM LIABILI. (Total of 11 to 16) 18. TOTAL OUTSIDE LIABI. (10 + 17) NET WORTH 19.Ordinary Share Capital 20.General Reserve 21. Capital Reserve (On Amalgamation) 22.Share Premium 23.Surplus(+)/Deficit(-) in Profit & Loss A/c. 24. Net Worth (19 to 23)

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25. TOTAL LIABILITIES (18+24) A/c.M/S. ASSETS CURRENT ASSETS 26. Cash and Bank Balance 27. Investments (i)Govt.& Other Trustee securities (ii)F.D. with Banks (ii) In Subsidiary 28. (i) Receivables other than deferred & Exports(incl.BP/BD with Banks) (ii)Export Receivables 29. Instal. of Def. Rec. (Due within one year) 30. Inventory : (i) Raw materials (incl.stores) (a)Imported (b)Indigeneous (ii) Work-in-process (iii) Finished Goods (iv) Other consu.spares (a)Imported (b)Indigeneous 31. Advances to Suppliers of RM & Expenses 32. Adv. Payment of Taxes 33. Other Current Assets 34. TOTAL CURRENT ASSETS FIXED ASSETS 35. Gross Block 36. Depreciation to-date 37. Net Block(35-36) OTHER NON CURRENT ASSETS 38.Investments/Bookdebts/ Advances/Deposits (i)(a)Inv.in Subsidiaries (b)Others (ii) Adv.to suppliers of Capital Goods (iii) Deferred Receivables

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(Maturity above 1 Yr.) (iv) Others 39.Non consu.Stores/Spares 40.Other Non Current Assets 41.TOTAL NON CURRENT ASSTS. 42. INTANGIBLE ASSETS 43. TOTAL ASSETS 44. TANGIBLE NET WORTH 45. NET WORKING CAPITAL 46. CURRENT RATIO(34/10) 47. T.O.L./T.N.W.(18/44) CURRENT ASSETS 1. Raw Materials(incl. Stores) (a) Imported (Month's Consu.) (b) Indigeneous (Month's Consu.) 2. Other Spares (a)Imported (Month's Consu.) (b)Indigeneous (Month's Consu.) 3. Stocks-in-process (Month's c.o.p.) 4. Finished Goods (Month's c.o.s.) 5. Receivables(other than Export and Deferred) (Month's Dome. Sales) 6. Export Receivables (Month's Expo. Sales) 7. Adv. to Suppl.of RM/ stores/spares 8. Other C.A. (incl. Cash & Bank Bal.) 9. TOTAL CURRENT ASSETS: CURRENT LIABILITIES other than Bank Borrowings for W.C.) 10. Creditors for purchases of R.M./stores/ spares.

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(Month's Purchases & Direct Exp) 11. Adv. from customers 12. Statutory Liabilties 13. Other Curr. Liabili. 14. TOTAL: (Total of 10 to 13) First Method of Lending 1. Total Current Assets (Item 9 in form IV) 2. Current Liabi.other than B.B.& T.L.Instal. (Item 14 of form IV) 3. Working Capital Gap (1-2) 4. Min.stipulated N.W.C. (25% of WCG OR Total C.A. other than Exp. Recei.-as the case may be). 5. Actual/Proj. N.W.C. (Item 45 in Form III) 6. Item 3 - Item 4 7. Item 3 - Item 5 8. M.P.B.F. 9. Excess Borrowings representing short -fall in N.W.C. Second Method of Lending 1. Total Current Assets (Item 9 in form IV) 2. Current Liabi.other than B.B.& T.L.Instal. (Item 14 of form IV) 3. Working Capital Gap (1-2) 4. Min.stipulated N.W.C. (25% of WCG OR Total C.A. other than Exp. Recei.-as the case may be). 5. Actual/Proj. N.W.C. (Item 45 in Form III) 6. Item 3 - Item 4 7. Item 3 - Item 5 8. M.P.B.F.

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9. Excess Borrowings representing short -fall in N.W.C. (Item 4-5). 1. SOURCES a) Net Profit(after tax) b) Depreciation c) Increase in Capital d) Increase in others e) Increase in Term Liab. f) Decrease in (i) Fixed Assets (ii) Other N.C.A. g) Decrease in others TOTAL 2. USES a) Net Loss b) Decrease in Term Liabilities c) Decrease in others d) Increase in (a) Fixed Assets (b) N.C.A. e) Dividend f) increase in others TOTAL 3. LONG TERM SURPLUS(+)/ DEFICIT(-). (1-2) 3. LONG TERM SURPLUS(+)/ DEFICIT(-). 4. Increase/Decrease in Current Assets(as per details given below)* 5. Increase/Decrease in Current Liabilities other than B.B. 6. Increase/Decrease in Working Capital Gap 7. Net Surplus(+)/Deficit (-)- (Diff. of 3 & 6) 8. Increase/Decrease in Bank Borrowings INCREASE/DECREASE IN NET SALES

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* Break-up of (4) ' i) Increase/Decrease in Raw Materials ii) Increase/Decrease in S.I.P. iii) Increase/Decrease in Finished Goods iv) Increase/Decrease in Receivables (a) Domestic (b) Exports v) Increase/Decrease in Stores & Spares iv) Increase/Decrease in other C.A. TOTAL:

Format of Financial Follow up Report (FFR) Activity Annual Plan (current year) 2007-08 1 Actuals (cumulative) upto quarter ending 30.06.07 2 % of achievement 3

(i) Production (quantity) (ii) Net sales (Rs. in Lacs) (a) Domestic (b) Exports (Direct) * Since we do tailor made products it is difficult to establish quantity Status of working capital funds (Rs. in Lacs) At the end of last year ended 31.03.2007 At the quarter ending 30.06.07 Change during the current year (2 minus 1) Estimates of the end of current year 2007-08 70

(Provisional) 1 Current Assets (CA) a. Inventory b. Receivables c. Other CA d. Total CA Current Liabilities (CL) e. Bank borrowings f. Sundry Creditors g. Other CL h. Total CL I. NWC (d-h) j. Current Ratio (d/h)

(+) or (-) 3

Cont2 ::2:: ANEXURE II (a) contd.. Current Assets : How Financed: (Rs. in Lacs) At the end of last year 1 k. Bank Borrowings (e/d*%) l. Sun. Creditors (f/d*%) m. Other CLs (g/d*%) n. NOW (f/d %) Total Upto the quarter ending 30.06.07 2 Estimates of the end of current year 3

Levels of Inventory / Receivables / Sundry Creditors (No of days) At the end of last year 1 Upto the quarter ending 30.06.07 2 Estimates of the end of current year 3 71

o. Inventory p. Receivables q. Sun. Creditors

Sales Purchases

Format of Quarterly Information Systems

QUARTERLY INFORMATION SYSTEM--FORM Estimates for the ensuing quarter ending (Amount : Rs. In lacs) Name of Borrower: A. Estimates for the current accounting year indicated in the annual plan (a) (b) Production : Gross Sales : i) Domestic : ii) Exports : iii) Other Income : Net Sales : Production : Gross Sales : i) Domestic : ii) Exports : iii) Other Income : Net Sales :

(c) B. Estimates for the ensuing quarter ending June, 2009 (a) (b)

(c) C. Estimates of current assets and current liabilities for the ensuing quarter ending June, 2009 Current Assets Inventory i) Raw Materials (including stores & spares used in the process of manufacture) **

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II

III

IV V VI

a) Imported S (months' consumptions)@ b) Indigenous S (months' consumptions)@ ii) Stocks-in-process (months' cost of production)@ iii) Finished Goods (months' cost of sales)@ iv) Spares excluding those under item (i) above (months' consumptions)@ Receivables (other than exports & deferred) including bills purchased and discounted with Bankers ++ (months' domestic sales)@ Export receivables including bills purchased & discounted with Bankers (months' export sales)@ Advances to suppliers of raw materials & stores / spares & consumables Other current assets including cash and bank balances (specify major items) Total (estimated) current assets Current Liabilities Short Term bank borrowings from banks (including bills purchased/discounted with Bankers) +++ Bank of Baroda, Matunga Branch, Chandavarkar Road. Creditors for purchase of raw materials and stores /spares& consumables ( including those under Usance Letter of Credit / Co-acceptances facility from the banks)+++ a) Imported (months' purchases)@ b) Indigenous (months' purchases)@ Advance payments from customers Statutory liabilities Other Current Liabilities (specify major items) Total (estimated) current liabilities

VII

VIII

IX X XI XII

Notes: Information should be furnished for each line of activity/unit separately as also for the Company as a whole. In cases where the different activities/units are financed by different banks, the concerned activity/unit-wise data and data relating to the Company as a whole should be furnished to each financing bank. The valuation of current assets or current liabilities in these forms should be on the same basis as adopted for the statutory balance sheet, and it should be applied on a consistent basis. The period should be shown in relation to the annual projection for the relative item. If the levels of inventory/receivables are higher than the stipulated norms, reasons therefor should be given.

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If the canalized items form a significant part of raw materials inventory, these may be shown separately. Amount of bills discounted with bankers, included in items of Part C should be indicated separately. Amount of bills discounted with bankers in respect of purchases, included in item VII or item VIII of Part C should be indicated separately. The classification of current assets or current liabilities should be made as per the usually accepted approach of bankers and not as per definitions in the Companies Act.

Format Of Cash Budget

(Rs. in lacs) CASH BUDGET CASH RECEIPTS (i) (ii) (iii) (A) CASH DISBURSEMENTS (i) (ii) (iii) (iv) (v) (vi) Sales Proceeds Realisation of sundry debtors Other receipt (share capital moines, loan proceeds, fixed deposit, receipt etc.) Total Receipts Payments to creditors towards supplies of material/ stores & capital goods Salaries & wages payments Other routine production expenses in cash (energy bill, water bill, rent, taxes, duties, insurance, etc. Advance income tax Other (Repayment of Term loan, interest on CC & TL etc.) Interest paid (working capital) Year Year Year Year Year

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(B) (C )

Total Disbursements Surplus/ deficit Add: Opening Balance Closing Balance

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