EXECUTIVE SUMMARY

Once a project opportunity is conceived and it is considered after the preliminary screening, a detailed feasibility study has to be undertaken covering marketing, technical, and financial aspects of the project. The study in the form of cases deal with calculations of MPBF (Maximum Permissible Finance), along with going through the borrower’s information, general information of the proposal, past record of borrower and details of security mortgaged. Financial records of the borrower audited, provisional and projected such as Profit and loss account statements, Balance Sheet and Cash and Fund Flow Statements needed to be considered. The ratios such as current Ratio, Debt Service Coverage Ratio etc are also checked. The ultimate decision whether to grant the credit to borrower for the application or not and how to go about it , is undertaken after this study which discloses whether the borrower has good past record and information provided are true and fair. My project concerns with the Calculations of MPBF i.e. Credit Appraisal and Renewal, in which I need to asses if the borrower should be granted credit, and what should be the recommended loan amount. This all is done after carefully evaluating the financials and securities provided by the borrower. Various financial ratios are calculated for the past and future data provided by the borrower after checking the veracity of the same. The various ratios, which are frequently calculated include:

Current expenses)]

ratio:

[(Receivables + material and finished good inventory)/ (creditors for goods and

Long

term

debt-equity

ratio

[Long Term Debt/ Net worth]

1

Interest

coverage

ratio

[(Profit Before Interest – Provision for Tax)]/(Interest payments due for the year]

Fixed

assets

coverage

ratio

[Fixed Assets/ (Term loan and other long term debt obligations)]

Debt-service charges]/

coverage

ratio

[{(Profit after tax + Interest on term loan + Depreciation} + Other non-cash [Interest on term loan + Principle Repayment ]

• •

Profit after tax/sales Debtors Velocity [Average Receivables/Credit Sales* No. of days in a year.]

Creditors Velocity [Average Payables/Credit Purchase* No. of days in a year.]

Stock Velocity [Average Stocks/Cost of goods Sold* No. of days in a year.]

Two other important criterions are IRR and DSCR Financial institutions calculate the Internal Rate of Return (IRR). The Internal Rate of Return refers to the rate of return that the project is expected to generate based on its projected cash flows accruing over its expected lifespan. Institutions have a threshold IRR that the project needs to surpass to assess its viability. DSCR refers to the ability of the project to generate sufficient cash flows to repay the debt taken to finance the project. This includes the principal along with the interest component. The above ratios are taken and matched with the standard, though a certain amount of flexibility is exercised depending on the perception and personal judgment of the appraising officer. A rating is assigned to the project based on the scores of the different ratios. A cut-off rating determines financing decision (whether the project would financed

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or not). Above the rating, the projects maybe categorized into excellent, good and average. Based on this and the project characteristics, the final terms and conditions of financial assistance are decided upon like: • • • • • Moratorium Repayment period Availability period Security (like first charge, personal guarantee etc.) Interest rate

All the expenses like service fee, processing fee, document fee and other expenses like inspection of site, factory, etc. are charged to the applicant and are a source of income for the lending institution.

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The new identity for J&K Bank is a visual representation of the Bank’s philosophy and business strategy. The three colored squares represent the regions of Jammu, Kashmir and Ladakh. The counter-form created by the interaction of the squares is a falcon with outstretched wings – a symbol of power and empowerment. The synergy between the three regions propels the bank towards new horizons. Green signifies growth and renewal, blue conveys stability and unity, and red represents energy and power. All these attributes are integrated and assimilated in the white counter-form.

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COMPANY PROFILE

Jammu and Kashmir Bank Limited was incorporated on 1st October, 1938 and commenced its business from 4th July, 1939 in Kashmir (India). The Bank was the first in the country as a State owned bank. The Bank was established as a semi State Bank with participation in capital by State and the public under the control of State Government. The bank had to face serious problems at the time of independence when out of its total of ten branches two branches of Muzaffarabad and Mirpur fell to the other side of the line of control (now Pak Occupied Kashmir) along with cash and other assets. According to the extended Central laws of the state, Jammu & Kashmir Bank was defined as a govt. Company as per the provision of Indian company’s act 1956. In the year 1971, the Bank received the status of scheduled bank. It was declared as "A" Class Bank by RBI in 1976. Today, Jammu & Kashmir Bank is one of the fastest growing banks in India with a network of more than 500 branches/offices spread across the country offering world class banking products/services to its customers. The Bank has a status of value driven organization and is always working towards building trust with Shareholders, Employees, Customers, Borrowers, Regulators and other diverse Stakeholders, for which it has adopted a strategy directed to developing a sound foundation of relationship and trust aimed at achieving excellence, which of course, comes from the womb of good Corporate Governance. Good Governance is a source of competitive advantage and a critical input for achieving excellence in all pursuits. J&K Bank considers good Corporate Governance as the sine qua non of a good banking system and has adopted a policy based on all the four pillars of good governance – transparency, disclosures, accountability and value, enabling it to practice trusteeship, transparency, fairness and control, leading to stakeholders delight, enhanced shareholder value and ethical corporate citizenship. It also ensures that bank is managed by an independent and highly qualified Board following 5

best globally accepted practices, transparent disclosures and empowerment of shareholders, besides ensuring to meet shareholders aspirations and societal expectations following the principles of management's executive freedom to drive the bank forward without undue restraints but within the framework of effective accountability. The excellence achieved by the bank in its operations stemming from the roots of voluntary good Governance has not gone unrecognized and Bank has recently bagged three very prestigious awards for following fair business practices and commitment to social obligations.

Key Developments “The Bank should be an organ of public interest and not an instrument for the government or the shareholders to achieve their own end”. The J&K Bank seems to have made some headway in getting there. The Bank has changed the business model and made it relevant to the people of the state. The further story explains it all… In the last two years, the Bank has registered a 140 per cent increase in profits, a 108 per cent increase in the rate of return on equity, thereby showing a vast improvement in the Bank’s efficiency to generate profits from every invested rupee. Similarly, the efficiency of using the assets of the Bank to generate earnings has increased 104 per cent in two years. As far as safety is concerned, Bank has covered itself very well. The NPA coverage ratio has been increased from 48 to 65 per cent The stock price has more than doubled in the last two years. The Bank touched a high of Rs 788 in the month of May, showing a 288 per cent increase. And above all, the Bank has produced, for the second consecutive year, a completely transparent balance sheet, which has no auditors' qualifications. Outperforming the sector, as the bank has done in the last two years is the hallmark of a good company. For a company like J&K Bank, which operates in a region of low

6

development and poor financial intermediation, it is also important to see how these numbers are generated. As it is, the J&K Bank is much more than a mere bank for the people of the state. Not only is it the most successful company of and from the state, it is a citadel of civil society. Going beyond that, it is a testimony of the competencies of the people of the state in the building of a national institution. Future Goals of the Bank To build a global brand, the Bank feels a need to do two things – go global physically and second, more importantly, have a unique business model, product offering and service standards, all of which are globally recognized. The bank has taken initial steps to achieve the first. As of today, after the state government, the bank’s second largest shareholders are Foreign Institutional Investors, with a combined stake of almost 36 per cent. Some of the biggest names in the world figure in the sixty plus funds that have invested in the Bank. The list is truly international, with funds from USA, Europe, Singapore, Japan, Sweden, Mexico and Spain, having investments valued at more than $300 million in the Bank. As a next step in this direction, the bank plans this year to raise money abroad. The bank will offer Global Depository Receipts and list the Bank in international capital markets. This will be a landmark in J&K bank illustrious history. The second way to becoming a global brand is to have a unique business model, which is a far more formidable task. The Bank has a wonderful brand in Pashmina.By and large most global brands are products. What the bank is setting out to do is to create a global brand in the financial services industry.

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The BANK’S MISSION STATEMENT

The most important change is to move away from trying to govern to trying to serve. The bank’s overriding mission as a corporation is to use its core competency to serve and empower the people of the state in general and entrepreneurs in particular, rather than serving them as an afterthought.

SERVICES OFFERED

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Depository Services Scheme of J&K Bank • • • • • • • • Dematerialization (Demat) Stock Broking through INVESTMART an initiative of ILFS Depository Depository Participant Market transaction Off-market transactions Pledge of securities Rematerialisation (remat)

Insurance offered by J&K Bank Insurance products of Jammu and Kashmir Bank are offered in association with Bajaj Allianz General Insurance Co. Ltd. • • • • Motor insurance Hospital cash Burglary Shop keepers

In association with MetLife, the Bank is offering the following Life Insurance Policy to its customers: • • • • Met Bhavishya- A flexible money-back plan Met Junior- Par Endowment Met Mortgage Protector SP- Single Premium Mortgage Protection Plan Met 100- Limited Pay Whole Life Insurance

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• • •

Met 100 Gold- Par Whole Life Met Platinum (Endowment)-Participating endowment assurance for face amount above Rs. 3 lakh Met Riders- Customization tools for policies.

Credit Card of J&K Bank Initially there are three types of Credit Cards issued by Jammu and Kashmir Bank: • • • Gold Card Silver Card Blue Card

All the above cards are also available with photo along with a family address on Cards. The Card is accepted by all those Merchant Establishment who honour MASTER cards. ATMs linked with MASTER cards accept J&K Bank Credit Card. Customer Service The Jammu and Kashmir Bank has proved to be customer driven organization and the people in the organization understand that innovation creates opportunity, quality creates demand and teamwork makes it happen. The Bank, feeling the pulse of customers need that they demand more for less, has endeavored to provide them better quality service, wider choice and above all innovative products. The Bank is always ready to add value to its customers and takes every possible step to improve quality of customer service. The Bank proves its promises to customer quality service by establishing. ‘Customer Advisory Foray at its every major branch. The number of such foray has been consistently rising. In monthly meetings of these forays, the branch managers and customers interact to sort out issues relating to customer service or other related problems. The Bank has a very efficient complaint redress mechanism. It handles the customer queries and complaints on priority. One can find ‘Customer Suggestion Card’, 10

at all branches of the Bank and also on its website. Customers accessing the website of the Bank have the option to send their queries through e-mail.

Bank on Information Technology The bank has a constant focus on application and augmentation of the information technology in order to modernize Bank’s operations and deliver value-added services to the customers. The Bank covers more and more branches under the computerization programmes.The bank has extended Anywhere Banking and Tele-Banking facilities to many new locations/branches, The number of ATMs (both off-site and on-site) installed by the Bank has increased to 78 during the year under report, of these 51 ATMs were networked through IST Switch. The Bank is in the process of setting up its DATA centre at Delhi for which creation of infrastructure is in progress. With the commencing of the said data centre the Bank will be able to introduce Internet Banking. Customer Orientation The Bank has come up with various value added products and services to suit customers’ expectations and requirement. Its Marketing and Research Cell has been functioning for three years now. The market research is conducted on an ongoing basis to identify needs and expectations of the customers and shape products / services accordingly. Even value addition to the extant products/services is made to suit the growing needs/ demands of the customers. Bank provides value to its customers by delivery of innovative products and services in an effective and efficient manner. In order to reach extant and potential customers in an effective manner creative promotional campaigns are being undertaken to create a strong "Brand Identity" for the Bank. With multiple options available to customer in shopping their products, more focus was laid on retail advertising during the year and extensive promotional campaign through print and electronic media was undertaken which showed significant results in the form of increased demand for the Bank’s products and customer base. As a part of the advertising strategy the Bank has sponsored weekly radio programmes named "JK Bank Dairy" which is aired from the three stations of radio

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Kashmir viz., Srinagar, Jammu and Leh. It is an innovative programme and is successfully running for last 18 months. The programme is being produced by Bank’s own staff. The programme has gained wide popularity among the people as it provides awareness and up-to-date information about banking in general and products/services offered by the Bank in particular. People from all walks of life with their responses have appreciated the usefulness of the programmes, which is evident from hundreds of responses received every week from the listeners. Bank’s web site is a powerful resource for customer education and information. The website provides the visitors up-to-date information about all the products/services offered by the Bank and other matters of interest relating to the Bank besides, providing some on-line services. The updating of the site is done on daily basis so as to provide the visitors latest information about the Bank. The site attracts on an average 700 visitors weekly. Branch Expansion With a view to increasing its reach to potential markets and extending banking facilities to un-banked areas coupled with catching on new business opportunities Bank has been opening new branches selectively at centers offering highest business potential. In keeping with this strategy the Bank opened 15 new branches/extension counters during the period under report raising the total number of offices to 454 at the end of March 2003.

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J&K BANK BRIEF FINANCIAL (IN RS. MN.)

Profit / Loss A/C Net profit Net Interest Margins Operating Income Net interest income Fee based income Operating Profit Deposits Return on Assets (%) Post Tax Return on Equity (%) Earnings per Share CRAR Tier – I Tier – II

FY 2007-08 360 2.95% 1055.45 810.44 245.01 651.84 28593 1.1 16.68 74.26 12.80% 12.14% 0.66%

FY 2006-07 274.49 2.97% 928.06 767.85 160.21 555.62 25194 0.96 14.42 56.62 13.24% 12.60% 0.64%

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J&K BANK AT A GLANCE
• • • •

Incorporated in 1938 as a limited company. Governed by the Companies Act and Banking Regulation Act of India. Regulated by the Reserve Bank of India and SEBI. Listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) 53 per cent owned by the Government of J&K. Rated "P1+" by Standard and Poor- CRISIL connoting highest degree of safety. Four decades of uninterrupted profitability and dividends

• • •

Unique Characteristics: One of a Kind
• • • • • • •

Private sector Bank despite government holding 53 per cent of equity. Sole banker and lender of last resort to the Government of J & K. Plan and non -plan funds, taxes and non-tax revenues routed through the bank. Salaries of Government officials disbursed by the Bank. Only private sector bank designated as agent of RBI for banking. Carries out banking business of the Central Government. Collects taxes pertaining to Central Board of Direct Taxes in J & K

The J&K Bank identifies empowerment as the process of enhancing the capacity of individuals or group to make choices and to transform those choices into desired actions and outcomes. Central to this process are actions that build both individual and collective assets, and improve the efficiency and fairness of the organizational and institutional context that governs the use of these assets. Registered Office M A Road Srinagar 190 001 Jammu & Kashmir Corporate Headquarters M A Road Srinagar 190 001 Jammu & Kashmir www.jkbank.net

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TASK ASSIGNED
I was assigned a project in J&K Bank that deals with evaluating and providing credit assistance to applicants and consumers from business establishment to consumable requirements, taking the prescribed norms of the RBI and J&K Bank into consideration. The task starts with the application from the borrower. Then a checklist is created to confirm the presence of all relevant documents and guarantees duly certified and to the satisfaction of JK bank. These documents contain the Detailed Project Report (DPR) in case of term loan, the stock reports and company’s financials along with guarantee in case of cash credit, the salary slips in case of consumable loans to salaried persons and securities in every case. The DPR contains the financial outlook, projections and the assumptions in accordance to the company applying for the loan. After initial scrutiny the borrower is requested to submit any further documents, if required and/or for clarification and queries. For a complex and large project, agency may also be asked to make a presentation to the team of appraisers, where the queries and clarification are addressed to obtain the complete documents and clarification. The Team prepares a final appraisal note in form of Report. We start with institutional financial viability assessment first, which contains the assessment of the net worth of the main promoters (both individuals and corporate according to the share holding pattern), the net worth of companies giving corporate guarantee along with the main company asking for loan. The relevant information from the audited reports of all is taken into account for this assessment. This is how we come across to a fine picture of financial position of the company requesting for financial aid. Confidential reports from existing bankers and lenders to the agency are also sought to ascertain the borrower/promoter's track record. For our regular borrowing agencies, the past record with JK Bank is also checked for any default. From here on the financial appraisal takes up examining the projected future Cash Flows and Balance Sheet. The main criterions used by JK Bank are DSCR (Debt Service Coverage Ratio) and DER (Debt Equity Ratio). The guidelines issued by JK Bank govern the required criterion. I was required to assess the working capital requirements of various firms applying to JK bank for Cash Credits (Working Capital Loans). We were required to estimate MPBF for 15

the same. Maximum Permissible Bank Finance is the maximum limit of credit that Bank can lend. It is calculated as follows:

Maximum Permissible Bank Finance (MPBF)
Current Assets ( All Current Assets) Less: Current Liabilities ( Crs. + Other Current Liabilities) Working Capital Gap Less: 25% of the Total Current Assets or NWC whichever is higher of the two amounts MPBF

Assessment Of Working Capital Fund Based : under Mortgage Loan Scheme
Sales for last financial year Projected Sales for next financial year Accepted Sales (Maximum 125% of the achieved turnover) Permissible Limit (20% of the accepted sales) Forced Sale value of Property Permissible Limit (75% of the forced Sale Value) Maximum Permissible Limit (Lower of A or B) Available Limit Limit Recommended by the branch B C A

FORMS OF BANK FINANCE
A firm can draw funds from its bank within the maximum credit limit sanctioned. It can draw fund in the following forms: 16

Overdraft Under the overdraft facility, the borrower is allowed to withdraw funds in excess of the balance in his current account up to a certain specified limit during a stipulated period. Though overdrawn amount is repayable on demand, they generally continue for a long period by annual renewals of the limits. It is a very flexible arrangement from the borrower’s point of view since he can withdraw and repay funds whenever h desires within the overall stipulations. Interest is charged on daily balances- on the amount withdrawn-subject to some minimum charges. The borrower operates the account through cheques. Cash Credit It is the most popular method of bank finance for working capital in India. Under this method a borrower is allowed to withdraw funds from the bank up to the sanctioned credit limit. Borrower is not required to borrow the entire sanctioned credit once, rather, he can draw periodically to the extent of his requirements and repay by depositing surplus funds in his cash credit account. There is no commitment charge; therefore, interest is payable on the amount actually utilized by the borrower. Cash credit limits are sanctioned against the security of current assets. Though funds borrowed are repayable on demand, banks usually do not recall such advances unless they are compelled by adverse circumstances. Cash credit is the most flexible arrangement from borrower’s point of view. It is more often than not is used for working capital.

Purchase of Discounting Bills Under the purchase or discounting of bills, a borrower can obtain credit from bank against its bills. The bank purchases or discounts the borrower’s bills. The provided under

17

this agreement is covered within the overall cash credit or overdraft limit. Before purchasing or discounting the bills, the bank satisfies itself as to the creditworthiness of the drawer. Though the term bills purchased implies that the bank becomes owner of the bills, in practice, bank holds bills as security for the credit. When a bill is discounted, the borrower is paid the discounted amount of the bill. Letter of Credit Suppliers, particularly the foreign suppliers, insist that the buyer should ensure that his bank will make the payment if he fails to honor its obligation. This is ensured through a letter of credit arrangement. A Bank opens a Letter of Credit in favor of a customer to facilitate his purchase goods. If the customer does not pay to the supplier within the credit period, the bank makes the payment under the L/C arrangements. This arrangement passes the risk of the supplier to the bank. Bank charges the customer for opening the L/C. The Bank extends such facility to the financially sound customers. Unlike cash credit or overdraft facility, the L/C arrangement is an indirect financing; the bank makes payment to the suppliers on behalf of the customer only when he fails to meet the obligation. There are two banks involved in L/C arrangements. The L/C opener Bank on behalf of the applicant or purchaser and the advisory bank on behalf of the beneficiary or supplier. The L/C opener Bank issues L/C after taking required security. The beneficiary or supplier gives the goods invoice & bill of exchange to the advisory bank. The advisory bank sends the same to the Opener Bank for acceptance, the opener bank take an acceptance from the applicant and sends back the same to the advisory bank. Now the L/C opener Bank makes payment to the beneficiary or supplier in case of purchaser default. The bank charges the customer for opening the L/C. Bank Guarantee A Bank Guarantee is a guarantee made by a bank on behalf of a customer (usually an established corporate customer) should it fail to deliver the payment, essentially making

18

the bank a co-signer for one of its customer's purchases. A bank guarantee is more risky for the merchant and less risky for the bank. A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. With a bank guarantee, a client can default and the bank assumes the liability. Thus it can be said that Bank Guarantee is a commitment made by a bank to a foreign buyer that the bank will pay an exporter for goods shipped if the buyer defaults. Housing Loan The Bank provides facility of housing loan to consumers fork purchase, construction, renovations or for repairs of the house. The eligibility criterion of the bank is as follows: • • • Employees of Govt., Semi-Govt. Dept., Civic Bodies, PSU's with minimum 5 years service. Reputed Businessmen with minimum 5 years standing. Professionals & Self employed like Doctors, Engineers , CA's , Advocates with minimum 5 years standing The quantum of loan that can be sanctioned to the consumer is: • • • • For Construction /Purchase 60 months net salary or 75.00 Lacs whichever is lower. For repairs/renovation 20 months net salary, subject to a maximum of Rs.10.00 Lacs. For purchase of land: 20 months net salary/income subject to maximum of Rs.5 Lacs within J&K and Rs10.00 Lacs outside J&K. Also as an incentive for small borrowers, the loans up to Rs. 1.5 Lacs granted for repairs/renovations of existing houses would now be secured by third party guarantee of two persons or such other security as is deemed appropriate by the Bank.

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The Bank as against the loan amount asks for security from the borrower, the conditions for which are as follows: • • • Primary: Mortgage of the house Property to be purchased / constructed. Collateral: Third party Guarantee of one person, or assignment of LIC Policies, pledge of Govt. securities etc. Negative lien on the property to be repaired/renovated without mortgaging the same to the Bank. In the view of above conditions bank sanctions the loan to the borrower. The bank asks a margin of 15% for construction/purchase of built flat and 20% for renovation/purchase of land. The J&K Bank charges a processing fee @0.25% of loan amount. Following is the table for rate of interest that bank charges against housing loan amount. They are subject to change.

Rate of Interest (Subject to change)
Floating Up to Rs.15 lacs Repayable up to 5 years Above 5 years up to 10 years Above 10 years up to 15 years Above 15 years up to 20 years Education loan 11.75% 13.25% 11.50% 12.75% 10.50% 12.75% 11.75% 13.50% 10.00% 11.75% 10.75% 12.75% Above Rs.15 lacs Fixed Up to Rs.15 lacs

Above Rs.15 lacs

The J&K Bank also provide assistance to gain education to the Indian Nationals, who have secured admission to professional/technical courses through entrance test/selection process or have secured admission to foreign universities/institutions or have passed the 20

qualifying examination for admission to the courses or to employed person intending to improve their educational qualification and/or receive training in modern technology in India or abroad provided training offers prospects of better placement. The quantum of finance is Rs. 7.50 Lacs for studies in India and Rs. 15.00 Lacs for studies abroad. The courses that are finances ranges from Graduate/P.G. Courses in: Medicine, Surgery, Engineering, Hotel Management, Design, Architecture, Bio-chemistry, Agriculture, Veterinary etc. to Graduate / P.G Courses in : Business Management, Chartered or Cost Accounting , Company Secretary ship. The security against finance amount is Personal guarantee of borrower and Collateral security equal to amount of loan. The margin that J&K Bank asks for is nil to the loan amount of Rs. 4 lacs and for loans above Rs. 4 lacs, 5% in case studies pursued in India and 15% in case studies pursued abroad..
.

Rate of Interest (Subject to change)
Interest Rate 9% p.a

Loan Amount Up to Rs.25,000

Rs.25,001 to Rs.5.00 Lacs Above Rs.5.00 Lacs

10.50% p.a 11.50% p.a

Apart from above said assistance bank also provide special education loans such as Term loan for B.Ed/M.Ed. Courses. The purpose of this loan is to provide loan to students or employed persons who want to pursue B.Ed/M.Ed courses and for meeting admission/ tuition/ examination/ library/ lab Fee. The nature of this type of loan is not called educational loan but term loan. It is offered to Indian Nationals, who have completed their graduation in any discipline from any recognized university, should have secured admission to the recognized Institution/College imparting the B.Ed/M.Ed Course. The loan application should be forwarded by the principal of the college. The quantum of 21

bank finance is maximum Rs. 25000 with 10% margin and a processing fee 0.05% or minimum Rs. 25. The security in this case is third party guarantee of one person. The interest rate is PLR with quarterly rests.

The J&K Bank also provide opportunity to children to have good quality primary education for which it provides term loan assistance under the special tag Budshah Primary Education Finance. This facility is to finance the entire cost of education of a child including school fee, uniform, books, etc. The finance is granted in the name of Guardian who has an independent regular source of income, for all children above the age of 3 years, on producing a Certificate from the concerned recognized/ registered school where the child has been granted admission and the loan application should be forwarded by the principal of the school. The bank asks for personal guarantee of the parent/guardian and third party guarantee of one person as the security (However third party guarantee does not apply in case of Government employees drawing salary through J&K Bank Branches). The bank also asks for a margin of 10% and a processing fee @ 0.05% of the amount sanctioned with a minimum cap of Rs. 25 to be paid upfront. The interest rate is charged with quarterly rests. The Quantum of Finance is given ahead:

Quantum of Finance

Class 22

School

Maximum Amount (Rs)

Pry.Edu. Pry.Edu Sec.Edu Sec.Edu. Car Loan

Private Govt. Private Govt.

30,000.00 2,000.00 25,000.00 5,000.00

The J&K Bank provide car loan facility to the employees of Government/Semi Government, Civic Bodies PSU's / Individual / Proprietorship Concerns / Firms / Limited Companies known to the Bank. The eligibility criterion for Employees of Government / Semi Government., Civic Bodies is: their Net annual income should not be less than Rs. 60000 per annum. Spouse’s income can also be included for calculating the eligibility for quantum of finance. The applicant (individuals) should have a valid driving license in his/her own name. The employees of the State Govt/Semi Govt. Departments/Other Organizations should have a minimum of 5 years active service in the organization/department. The security is as follows: Primary: Hypothecation of vehicle Financed. Collateral: Third party guarantee of one person. However, no Third Party Guarantee is required in respect of government employees drawing salary through the bank and maintaining account with us or where drawing and disbursing authorities undertake deduction of required monthly installments from their salaries. In respect of others like professionals, businessmen etc. guarantee of one person good for the amount is obtained along with an affidavit to the effect that the prospective borrower is not defaulter with any bank/ branch of the bank. The quantum of loan is calculated on the basis of 24 months net monthly income/salary which is subject to maximum finance of Rs. 10.00 lacs with a margin @ 20%. There are no processing charges as such however the bank charges interest @ 11.50% (Fixed.) Amount of loan is to be repaid within 7 years. Apart from the above car loan facility the J&K Bank provides loan facility for used cars. The purpose of such a finance is to let borrower buy an old car/jeep (not more than 5 23

years old) any model. This loan facility is available for Permanent employees of Government/Semi-Government Undertakings, Autonomous bodies, Public Sector Undertakings, Private Companies or reputed establishments. Professionals or self employed individuals, Proprietorship Concerns. Partnership Firms, Private /Public Ltd Co. There is age criteria attached with this loan facility which is as follows: in case of a salaried individual the applicant should be at least 21 years old at the time of application, and below 58 years of age at the time of maturity of the loan but in case of institutions, where retirement age is 60 years, the upper age limit shall be 60 years. In case of SelfEmployed Individual, any Proprietor, Partner, Professional or director above 21 years of age but below 65 at the time of the loan's maturity. The bank asks for a margin @ 25% for vehicles having age less than 3 years and 30% for vehicles having age of 3 years and above up to 5 years. The maximum loan amount that the bank can finance is 2.5 times of the net annual income or 15 lacs, whichever is lower. If married, the spouse's income also considered provided the spouse guarantees the loan. Loan amount for used vehicles shall be subject to a maximum limit of Rs. 15 lacs. The security for the same is as follows: Primary: Hypothecation of vehicle to be purchased. Collateral: No third party guarantee required in respect of employees drawing salary through our branches & where letter of undertaking from employer is available. Third Party Guarantee of two persons for all other applicants. Third Party Guarantee may be waived off in case of existing account holders having good reputation. Instead Post Dated Cheques may be accepted. The rate of interest is fixed considering repayment period. If the repayment period is up to 4 years then rate of interest would be PLR+ 0.25% p.a. and if the repayment period is above 4 years and up to 6 years the rate of interest would be PLR+0.75% p.a. In case cheques drawn for repayment of the loan gets bounced the bank charge Rs. 200 as penalty. The value of the vehicle is ascertained on the basis of present market value of the new car of same variety & configuration less than depreciation 24

Consumer Loan The J&K Bank grants Consumer Loan for purchase of durable consumer goods like: • • • • • • Desktop Computer ( P.C )/ Laptop Motor Cycle / Scooter / Air Conditioner Color TV / DVD Player/ VCR / Generator/ Washing Machine (automatic) / cooking range. Refrigerator / Dish Antenna/DTH Equipment/ Kerosene Room Heater/ Washing machine Vacuum cleaner Water Filter cum purifier / CD Players /Cassette Players / Geyser / Cooler, etc.

The scale of finance range from Rs. 3000 to Rs. 40000 per article however maximum finance is Rs. 75000 subject to 12 times net monthly Salary. The borrower must be one out of the following: Employees of Govt., Semi-Govt., Civic Bodies, Self employed (with assured income). The Security is as follows: Primary: Hypothecation of article financed. Collateral: Third party Guarantee of one person. Rate of interest keep changing however current rate of interest is 14% with no processing charges. The margin is 25%.

Consumption Loan The main features of Consumption loan provided at J&K Bank are as follows: • • Disbursed in cash No questions asked about its end-use.

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• • •

Revolving type facility, as full limit can be restored on request of the borrower subject to the following:Outstanding balance reduced to below 40% of the loan amount. At the time of reinstatement of the limit, applicant must have sufficient remaining years of service so that loan is repaid within the borrowers remaining years of service.

• • •

Fresh D.P Note for full amount of loan. Borrower has not had more than two installments in arrears on any point of time during currency of loan. Borrower shall have to furnish an undertaking from drawing and disbursing officer for intimating the bank about their transfer and noting that outstanding from the bank and the monthly installment obligation in their LPC forwarded to the next drawing and disbursing authority.

The borrower must be Permanent employees of State, Central Government, autonomous bodies, corporates, public & private sector undertakings having minimum of 3 years confirmed service. The quantum of loan is 30 months gross salary or Rs 7.00 lacs whichever is less. There is no margin asked and rate of interest is 14% subject to change. Working Capital Loan/Term Loan or Mortgage loan for Trade & Service Sector Banks are the main institutional sources of working capital finance in India. After trade credit, bank credit is the most important source of financing working capital requirements. A bank considers a firm’s sales and production plans and the desirable levels of current assets in determining its working capital requirements. The amount approved by the bank for the firm’s working capital requirements is called credit limit. Credit limit is the maximum funds which a firm can obtain from the banking system. In case of firms with seasonal businesses, banks may fix separate limits for the peak level credit requirements indicating the periods during which the separate limits will be utilized by the borrower. In practice, banks do not lend 100% of the credit limit; they deduct margin money. A margin requirement is based on the principle of conservatism and is

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meant to ensure security. If the margin requirement is 30%, bank will lend only up to 70% of the value of the asset. This implies that security of bank’s lending should be maintained even if the asset’s value falls by 30%. A borrower may sometimes require ad hoc or temporary accommodation in excess of sanctioned credit limit to meet unforeseen contingencies. Banks provide such accommodation through a demand loan account or a separate non operable cash credit account. The borrower is required to pay a higher rate of interest above the normal rate of interest on such additional credit. The purpose of such loan is to provide hassle free working capital finance to the borrower. The nature of this loan can be cash credit, overdraft or a term loan. The borrower should have a good track record of 3 years. The security in this case goes as follows: Primary Hypothecation of stocks and bookdebts Collateral Mortgage of Unencumbered residential house/flat, commercial or industrial property with a clear marketable title in the name and possession of the borrower/Proprietor/ Partner/s/Director/s either self occupied or vacant. The Rate of interest is PLR+1% with monthly rests. The term loan (against mortgage of immovable property) from a minimum Rs. 0.50 lacs to maximum Rs. 50 lacs or 30 times net monthly income whichever is lower. The security is the Mortgage of the unencumbered residential house/flat, commercial or Industrial property with a clear marketable title in the name and possession of borrower/proprietor or partner/s/Director/s either self occupied or vacant with a security cover of 1.5 times the amount of loan. The Rate of Interest is PLR+2.5% with a repayment period of 60 months.

Factors to be taken into consideration while determining requirements for working capital:
Production Policies

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A sugar factory which belongs to a seasonal industry would obviously have its working capital need affected by the length of the crushing season. The production schedule i.e. the plan for production, has great influence on the level of inventories. In some cases raw material can be procured only in a particular season and have to be stocked for the production of the whole year. In many others, the production cycle is limited to a part of the year and raw materials have to be accumulated throughout the year. In all such cases the need for working capital will vary according to the production plans. Similarly, the decision of the management regarding automation, etc, also affects working capital requirements. In a labor- intensive process, the requirements of working capital will be higher. In the case of highly automatic plant, the requirements of long-term funds would be greater. Nature of the business The shorter the manufacturing process, the lower is the requirements of working capital. This is because, in such a case, inventories have to be maintained at a low level. Longer the manufacturing process, higher will be the requirements of working capital. This is the reason why highly capital-intensive industries require large amount of working capital to run their sophisticated and long production process. Similarly, a trading concern requires lower working capital than a manufacturing concern. Credit policy The credit policy of the company also determines the requirements of working capital. A company, which allows liberal credit to its customers, may have higher sales but consequently will have large amount of funds tied up in sundry debtors. Similarly a company, which has very efficient debt collection machinery and offers strict credit terms, may require lesser amount of working capital than the one where debt collection system is not so efficient or where the credit terms are liberal. The credibility of a company in the market also has an effect on the working capital requirements. Reputed and established concerns can purchase raw material on credit and enjoy many other

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services also like door delivery, after sales service etc. This would mean that they could easily have large current liabilities; therefore the required working capital may not be very high. Inventory policy The inventory policy of a company also has an impact on the working capital requirements since a large amount of funds is normally locked up in inventories. An efficient firm may stock material for a smaller period and may, therefore, require lesser amount of working capital. Abnormal factors Abnormal factors like strikes and lockouts also require additional working capital. Recessionary conditions necessitate a higher amount of stock of finished goods remaining in stock. Similarly, inflationary conditions necessitate more funds for working capital to maintain same amount of current assets. Market conditions Working capital requirements are also affected by market conditions like degree of competition. Large inventory is essential as delivery has to be off the shelf or credit has to be extended on liberal terms when market competition is fierce or market is not very strong is a buyer’s market. Conditions of supply If prompt and adequate supply of raw materials, spares, stores etc. is available it is possible to manage with small investments in inventory or work on the just in time (JIT) principle. However if the supply is erratic, scant seasonal, channel zed through

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government agencies etc., it is essential to keep large stocks increasing working capital requirements. Business Cycle Business fluctuations lead to cyclical and seasonal changes in production and sales and affect the working capital requirements. Growth and expansion The growth in volume and growth in working capital go hand in hand. However, the change may not be proportionate and the increased need for working capital is felt right from the initial stages of growth. Level of taxes The amount of taxes paid depends on taxation laws. These amount usually have to be paid in advance. Thus need for working capital varies with tax rates and advance tax provisions. Dividend policy Payment of dividend utilizes cash while retaining profits acts as a source of working capital. Thus working capital gets affected by dividend policies.

Price level changes Inflationary trends in the economy necessitate more working capital to maintain the same level of activity.

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Operating efficiency Efficient and coordinated utilization of capital reduces the amount required to be invested in working capital

Securities Required in bank finance
Banks generally do not provide working capital without adequate security. The following are the modes of security which a bank may require:

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Hypothecation Under hypothecation, the borrower is provided with working capital finance by the bank against the security of movable property, generally inventories. The borrower does not transfer the property to the bank; he remains in the possession of property made available as security for the debt. Thus hypothecation is a charge against property for an amount of debt where neither ownership nor possession is passed to his creditor. Banks generally grant credit hypothecation only to first class customers with highest integrity. They do not usually grant hypothecation facility to new borrowers. Pledge Under this arrangement, the borrower is required to transfer the physical possession of the property for the payment of debt. In case of mortgage, the possession of the property may remain with the borrower, with the lender getting the full legal title. The transferor of interest (borrower) is called mortgager, the transferee (bank) is called mortgagee, and the instrument of transfer is called the mortgage deed. The credit granted against immovable property has some difficulties. They are not self liquidating. Also, there are difficulties in ascertaining the title and assessing the value of the property. There is limited marketability and therefore security may often b difficult to realize. Also, without the court’s decree the property can not be sold. Usually, for working capital finance, the mode of security is either hypothecation or pledge. Mortgages may be taken as additional security.

Lien Lien means right of the lender to retain property belonging to the borrower until he repays credit. It can be either a particular lien or general lien. Particular lien is a right to retain property until the claim associated with the property is fully paid. General lien, on

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the other hand, is applicable till all dues of the lender are paid. Banks usually enjoy general lien.

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Case Studies
Assessment of Working Capital /Cash Credit Facility/Term Loan

M/S Quality Crafts Store
M/S Quality Crafts Store Proprietor Mr. Shah Alam Mateen 256-D 1st floor, Green Towers, established in the year 2002, is engaged in retail business of Kashmiri shawls particularly trading of Pashmina and woolen shawls and allied items. The party has been 34

in connection with and dealing with the J&K Bank Lajpat Nagar branch since year 2006 with satisfactory dealings and good conduct. The turnover of account is encouraging. The party has established good trade connections and is involved in related trade. No negative complaints has been registered or found against the party ever since the opening of account with the bank branch. The amount is frequently routed through the account and the performance of account is good. Borrower’s Information Name of Applicant Borrower Address of the Head/Regd. Office Constitution Date of Establishment Period since dealing with branch Net worth as on 31.10.2007 General Information of the Proposal Existing Banking Arrangements Proposed Banking Arrangements Sanction Comes Under Powers of Activity Sector Present Facilities by the Applicant Facility Requested by the Applicant Purpose of Borrowing Amount Requested Securities Proposed for the Facility : : : : : : : : : Sole Banking Sole Banking Branch Head Trading of Pashmina, woolen shawls etc. Trading Nil Cash Credit For Expansion of Existing Business Rs. 5.00 Lacs. : : : : : : Mr. Shah Alam Mateen 256-D 1st floor, Green Towers Individual Year 2002 Year 2006 Rs. 9.00 lacs

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Primary Security Hypothecation of stocks and Book Debts Collateral Security Third Party Guarantee of two persons: 1. Mr. Azam Ahmad S/o Mr. Naseeruddin Ahamad 2. Mr Shoeb Tak S/o Mr. Younis Tak Both the guarantors are dealing with the J&K Bank Branches. As reported Both are availing cash credit facility with their respective branches and with a satisfactory performance.

Financials of the Firm (Amt. in Rs. Lacs)
Particulars Sales Purchases 36 31/03/2007 6.12 4.12 31/03/2008 Projected 19.00 17.53

% of Sales Growth Net Profit Liabilities Share Capital Total Term Liabilities Current Liabilities Working Capital Sundry Creditors Expenses Payable Borrowings Other liabilities Total Current Liabilities Tolal Liabilities Assets Investments Fixed Assets Total Fixed Assets Current Assets Stocks Sundry Debtors Cash in hand/Bank Balance Loans/Advances Total Current Assets Total Assets

1.42

325.00 2.23

2.64 2.64

3.30 3.30

0.00 0.38 0.23 0.00 0.00 0.61 3.25

8.00 1.20 0.65 0.00 0.00 9.85 13.15

0.00 0.24 0.24

0.00 0.72 0.72

1.24 0.52 1.25 0.00 3.01 3.25

8.50 3.16 0.77 0.00 12.43 13.15

Financial Indicators
Particulars Net Working Capital (In Rs. Lacs) Current Ratio Stocking Velocity ( Days) Debtors Velocity (Days) Creditors Velocity (Days) 37 31/03/2007 2.40 4.93 108 31 33 31/03/2008 2.58 1.26 175 60 25

Apart from the above financials of the party, the account statement reveals the following transactions of the party with the Bank Branch (Amt. in Rs. Lacs) :

From 01/04/2006 to 31/03/2007 (1 year) From 01/04/2007 to 31/10/2007 (7 months)

Debit Summation Credit Summation 6.52 6.50 11.62 11.10

Comments and Observations: Financial Indicators has been calculated as follows: a) Net Working Capital: Total Current Assets less Total Current Liabilities. b) Current Ratio: Total Current Assets divided by Total Current Liablities. c) Stocking Velocity: Stock for the year divided by Cost of Goods Sold or Credit Purchase during the year multiplied by 360 days. d) Debtors Velocity: Average Receivables or Debtors for the year divided by Credit Sales during the year multiplied by 360 days. e) Creditors Velocity: Average Payables or Creditors for the year divided by Credit Purchase during the year multiplied by 360 days. Other Comments and observations: f) The party has projected to achieve a sales target of Rs. 19.00 Lacs over previous year achievement of Rs. 6.12 Lacs. The projected sales target seems to be achievable owing to the fact that up to 31/10/2007 (7 months) the party has a sales turnover of Rs. 11.62 lacs through the account. g) Stock Velocity reveals the part of sales always invested in stock during the year or in other words it refers to the period of sales sans obstacles out of the current stock in case the production halts due to strike or other reason.

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The stocking period of 175 days is on higher side hence its been accepted at 90 days level. h) Debtors Velocity reveals the duration within the debtors are expected to be realized. The projected debtors’ period seems reasonable hence accepted for assessment as projected. i) Creditors Velocity reveals the duration within the creditors are expected to be paid. Lesser the days better is the position of the firm. The projected creditors velocity is at a lower level, keeping the kind of stocks in trade into consideration, the velocity has been accepted at 50 days level.

Assessment of MPBF (Amt. in Rs. Lacs)

Particulars Accepted Sales Accepted Purchase Current Assets Stock (17.53*19÷360) Debtors (19*60÷360 Cash in hand Loans & advances Total Current Assets (a) Current Liabilities Creditors (17.53*50÷360) Other liabilities Total Current liabilities (b) Working Capital Gap (a-b) Margin (as projected by the party) MPBF 90 days 60 days

Amount 19.00 17.53 4.38 3.16 0.54 0.00 8.08 2.50 0.00 2.50 5.58 2.58 3.00

50 days

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Recommendations of Bank Branch In view of above, it is proposed, if agreed, to allow Cash Credit Facility of Rs. 3 Lacs (Rupees three lacs only) in favor of M/S Quality Crafts Store Prop. Mr. Shah Alam Mateen for a period of one year subject to renewal after review against securities as discussed. Rate of Interest : PLR presently 13 % with monthly rests or any other rate This may be prescribed by the Bank from time to time. Margin : 40% on Stocks 50% on Book-Debts (excluding book debts older than 6 months). .

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M/S A.M. CLASSIC

M/S A.M. Classic Proprietor Mr. Saleem Siddique E-115 Cannought Circle New Delhi, established in the year 1997, is engaged in wholesale and retail trading of shawls,dress material and artificial jewelries. The party has been in connection with and dealing with the J&K Bank Lajpat Nagar brannch with satisfactory dealings and good conduct. The turnover of account is encouraging. The party has established good trade connections and is involved in related trade. No negative complaints has been registered or found against the party ever since the opening of account with the bank branch. The amount is frequently routed through the account and the performance of account is good. The party was maintaining current account with J&K Bank Lajpat Nagar Branch and was accommodated by way of cash credit facility of Rs. 5.50 lacs in December 2005 against collateral security of 3rd party guarantee of two persons. The said C/C limit was renewed on 31/01/2007. Borrower’s Information Name of Applicant Borrower Address of the Head/Regd. Office Constitution Date of Establishment : : : : Mr. Saleem Siddique E-115 Cannought Circle New Delhi Sole Proprietorship Year 1997

General Information of the Proposal

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Existing Banking Arrangements Proposed Banking Arrangements Sanction Comes Under Powers of Activity Sector Present Facilities by the Applicant

: : : : : :

Sole Banking Arrangements Sole Banking Arrangements Zonal Office Delhi Trading Handicrafts C/C facility of Rs. 5.50 lacs against Collateral security of 3rd party Guarantee of two persons.

Facility Requested by the Applicant

:

Cash Credit under bank’s scheme of Mortgage loan for Trade & Service Sector

Purpose of Borrowing Amount Requested Securities Proposed for the Facility Primary Security Hypothecation of stocks and Book Debts Collateral Security Third Party Guarantee of two persons: 1 2 Existing Offered : :

: :

For Expansion of Existing Business Rs. 35.00 Lacs.

3rd Party Guarantee of two persons Mortgage of flat at F-87, First Floor, Connought Circle, New Delhi

The security offered as mortgage comprises of residential flat at F-87, Connought Circle, New Delhi standing in the name of Mr. Saleem Siddique S/o Mr. Shahid Siddique (Proprietor of the Firm). As per the valuation report of P. Kumar, the market value of the said flat is Rs. 54.00 lacs and the realizable value (Forced Sale Value) is less by 15% of the cost. It is to be mentioned that the against said flat, the party is presently availing Home Loan Facility from IDBI Bank and the party will adjust the said loan in full and

42

final prior to availing the fresh facility from the Branch. The papers regarding clearance of title deeds in respect of flat to be offered as mortgage have been forwarded to Bank’s approved lawyer/Legal Department Zonal Office New Delhi for Legal Opinion.

Financials of the Firm (Amt. in Rs. Lacs)
Particulars Sales Purchases % of Sales Growth Net Profit Liabilities Share Capital Car Loan- IDBI Bank Home Loan- IDBI Bank Unsecured Loans Total Term Liabilities Current Liabilities Working Capital Sundry Creditors Expenses Payable Sales Tax Payable Other liabilities Total Current Liabilities Total Liabilities Assets Investments Fixed Assets Total Fixed Assets Current Assets 43 0.00 16.96 16.96 0.52 19.31 19.83 0.84 17.87 18.71 0.00 31.13 1.08 0.00 0.00 32.21 50.94 0.00 10.78 0.68 0.72 0.00 12.18 40.46 39.51 12.39 0.96 1.25 0.00 54.11 74.43 4.20 0.00 14.53 0.00 18.73 7.85 2.42 12.01 6.00 28.28 12.77 1.55 0.00 6.00 20.32 31/03/2006 31/03/2007 31/03/2008 64.08 60.32 3.55 127.00 115.40 98.19 4.41 163.46 151.48 28.71 5.57

Stocks Sundry Debtors Cash in hand/Bank Balance Loans/Advances Others Total Current Assets Total Assets

5.15 22.43 6.20 0.00 0.20 33.98 50.94

11.43 3.46 5.74 0.00 0.00 20.63 40.46

27.15 28.52 0.05 0.00 0.00 55.72 74.43

Financial Indicators
Particulars Net Working Capital (In Rs. Lacs) Current Ratio Stocking Velocity ( Days) Debtors Velocity (Days) Creditors Velocity (Days) 31/03/2006 31/03/2007 31/03/2008 1.77 8.45 1.61 1.05 1.69 1.03 31 36 65 126 10 63 186 34 29

Apart from the above financials of the party, the account statement reveals the following transactions of the party with the Bank Branch (Amt. in Rs. Lacs): Months April-2006 May-2006 June-2006 July-2006 August-206 September-2006 October-2006 November-2006 December-2006 January-2007 February-2007 Debit Summation Credit Summation 11.94 20.91 7.67 1.50 2.62 0.36 2.99 0.00 6.52 6.53 3.49 0.00 3.40 4.69 6.32 3.55 12.58 13.04 18.45 18.97 14.87 32.41

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March-2007 Total

15.27 106.12

7.84 109.80

Comments and Observations: Financial Indicators has been calculated as follows: a) Net Working Capital: Total Current Assets less Total Current Liabilities. b) Current Ratio: Total Current Assets divided by Total Current Liablities. c) Stocking Velocity: Stock for the year divided by Cost of Goods Sold or Credit Purchase during the year multiplied by 360 days. d) Debtors Velocity: Average Receivables or Debtors for the year divided by Credit Sales during the year multiplied by 360 days. e) Creditors Velocity: Average Payables or Creditors for the year divided by Credit Purchase during the year multiplied by 360 days. Other Comments and observations: f) The party has achieved sales target of Rs. 127.00 lacs during the financial year 2006-2007, out of which Rs. 109.80 lacs has been routed through the C/C account thorough the Bank Branch. It is about 86% of sales that have been routed through the account. g) The conduct of account has remained satisfactory. h) The firm is running on profitable lines and capital of the firm is showing continuous increasing trend. i) The firm is availing Car Loan Facility from IDBI Bank and is regularly depositing installments in the said account. j) The proprietor of the firm is also availing Home Loan facility again from IDBI Bank and the party intends to adjust the same.

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Assessment Of Working Capital : (Under Mortgage Loan Scheme)
Particulars Sales achieved during the year 2006-2007 Projected Sales for the year 2007-2008 Accepted Sales (Maximum 125% of the achieved turnover) Permissible Limit (20% of the accepted sales) Market Value of property as per valuation report Forced Value (85% of market value) Permissible Limit (75% of the forced Sale Value) Maximum Permissible Limit (Lower of A or B) Limit Recommended by the branch Amount (in lacs) 127.00 163.46 158.75 31.75 A 54.00 45.90 34.43 B 31.75 32.00

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Recommendations of the Bank In view of above, it is recommended to sanction Cash Credit Facility of Rs. 32.00 Lacs (Rupees Thirty Two Lacs only) in favor of M/S A.M. Classic proprietor Mr. Saleem Siddique under Bank’s scheme “Mortgage Loan for Trade and Service Sector” against before said securities for a period of one year subject to renewal after review.

Rate of Interest Validity Other Conditions

: :

As per CAD guidelines One year

1. Prior to release of facility, the party shall have to adjust C/C facility of Rs. 5.50 lacs sanctioned under Normal Cash Credit Scheme of Bank. 2. Prior to release of facility, party to adjust Home loan facility with IDBI Bank in full and final

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M/S Healthy Heart Hospital

M/S Healthy Heart Hospital (Popularly known as 3H) South Extension New Delhi is headed by eminent cardiologist of the country Dr. Nasir. Dr. Nasir is the recipient of various prestigious awards and has a rich expertise in treating heart ailments. The hospital run with the specialization of treating heart ailments with all kinds of modern equipment and infrastructure. There are four stake holders of the hospital one being Dr. Nasir himself, apart from him, out of three stacke holders, two are doctors by profession and both are the daughters of Dr. Nasir. The fourth partner Mrs. Zainab Kareem is teacher by profession and is part of the family. All the three partner have 2% stake each in the Hospital rest is lying with Dr. Nasir. Dr. Nasir presently enjoying the facilities of Car Loan, and Housing Loan and he has requested for sanction of mortgage loan of Rs. 100.00 lacs. The conduct of all the loan accounts of Dr. Nasir is satisfactory.

Borrower’s Information

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Name of Applicant Borrower Address of the Head/Regd. Office Constitution Date of Incorporation Period since dealing with branch Net worth

: : : : : :

Healthy Heart Hospital (3H) South Extension, New Delhi. Partnership Year 1995 Year 2002 Rs.600.00 lacs. Approx.

General Information of the Proposal Existing Banking Arrangements 25.00 lacs limit of Rs. 2. : 1. Working Capital Limit of Rs. 25.00 Lacs. Presently Adhoc Facility of Rs. over and above the Regular 25.00 Lac. Term Loan Facility of Rs. 396.00 Lac with Outstanding Balance of Rs. 50.41 Lac as on Date. 3 Term Loan facility of Rs. 15.00 lac for Purchase of Machinery with O/S Balance Of Rs. 3.99 lacs as on date of proposal. 4 Proposed Banking Arrangements : Term Loan facility of Rs. 9.00 Lac with O/S Balance of Rs. 7.13 lacs Enhancement in working capital limit of Rs. 25.00 lacs to Rs. 100.00 Lacs as Cash Credit Limit under “Mortgage Loan under Trade And Service sector”.

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Sanction Comes Under Powers of Activity Sector Present Facilities by the Applicant

: : : :

Zonal Office Running Hospital with specialization in Treating heart ailments. Professionals Detailed above at the head Existing Banking Arrangements Cash Credit limit under “Mortgage Loan Under Trade and Service Sector”. For Expansion and growth of Business Rs. 100.00 Lacs.

Facility Requested by the Applicant : Purpose of Borrowing Amount Requested : :

Securities Existing/Proposed for the Facility Primary Hypothecation of stocks of medicine, machinery and receivables/Book debts. Collateral The property is commercial in nature and is one of the reputed hospitals of metropolis. The property secured is none other than Healthy Heart Hospital itself. The full description of property is : Plot No-1 South Extension New Delhi with four storied building and basement. The property has been valued to the tune of Rs. 889.58 Lacs as per recent valuation report prepared by Mr. P Kumar, registered valuer on approved panel of the Bank. In view of the fact that real estate has witnessed enormous price escalation particularly in preceding years and the present property is enjoying placement at prime location the assessed value seems reasonable. Apart from above mentioned securities there is also personal guarantee of partners.

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Details of Credit Facilities Enjoyed By Dr. Nasir Partner M/S Healthy Heart Hospitals (3H): Serial Nature of Credit No. 1. 2. 3. Facility Car Loan Housing Loan Housing Loan Limit 2.26 15.00 102.00 Balance O/S 1.70 9.90 60.00 Security Hypothecation of Car Mortgage of Flat Purchased for Rs. 56.33 Lacs Mortgage of House valued Rs. 154.00 Lacs

Financials of the Firm (Amt. in Rs. Lacs)

Particulars Income Net Profit % of growth in sales Liabilities Share Capital Term Loan-J&K Bank Term Loan-Other Banks Unsecured Loans Total Term Liabilities Current Liabilities Working Capital Sundry Creditors Expenses Payable Other liabilities

31/03/2006 31/03/2007 31/03/2008 Audited Provisional Projected 335.38 339.16 424.55 12.36 10.31 25.68

50.96 84.57 39.15 76.41 251.09

66.21 54.21 41.19 70.43 232.04

91.64 38.21 32.24 73.18 235.27

20.82 73.88 17.06

15.89 70.30 16.51

18.39 84.37 16.21

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Total Current Liabilities Total Liabilities Assets Fixed Assets Total Fixed Assets Current Assets Receivables Cash in hand/Bank Balance Loans/Advances Others Total Current Assets Total Assets

111.76 362.85

102.70 334.74

118.97 354.24

346.53 346.53

321.88 321.88

297.26 297.26

5.40 4.39 6.53 16.32 362.85

3.48 3.29 9.39 16.16 338.04

3.20 3.35 6.10 44.33 56.98 354.24

Financial Indicators
Particulars Tangible Net worth (In Rs. Lacs) Current Ratio 31/03/2006 31/03/2007 31/03/2008 251.09 232.04 235.27 0.14 0.15 0.48

Comments and Observations: a) The Hospital income has shown marginal increase over previous years income (from 335.38 lacs to 339.16). However projected income (Rs. 424.55 Lacs) seems achievable owing to proposed expansion program. b) The current ratio has remained below bench mark, however keeping into account the nature of engagement present level seems justified..

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Assessment Of Working Capital : (Under Mortgage Loan Scheme)

Particulars Provisional business income during the year 20062007 Projected business income for the year 2007-2008 Accepted Income/Turnover (Maximum 125% of the achieved turnover) Permissible Limit (20% of the accepted Income/Turnover) Realizable Value of the property Forced Value Permissible Limit (75% of the forced Sale Value) Maximum Permissible Limit (Lower of A or B) Loan requested by applicant Limit Recommended by the branch

Amount (in lacs) 339.16 424.55 423.95 84.79 A 889.58 889.58 667.19 B 84.79 100.00 100.00

Recommendations of Bank Branch Keeping into consideration the reputation, satisfactory dealings and value of the property the requested enhancement of present limit from Rs. 25.00 Lacs (Rs, Twenty Lacs) to Rs. 100.00 Lacs (Rs. One Crore only) is proposed in favour of the party under “Banks Mortgage Loan Scheme For Trade and Service. In view of past satisfactory working results and excellent track record supported by sufficient collateral security, the sanction of Rs. 100.00 Lacs as cash credit facility is recommended for sanction in favor of Healthy Heart Hospitals (3H). The facility allowed

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is for the period of one year subject of renewal after review of performance. However present limit of Rs.25.00 lacs which the party enjoys will be withdrawn simultaneously with the release of proposed facility. Apart from this all other terms and conditions coming under the purview of mortgage loan scheme for trade and services will apply.

BIBLIOGRAPHY: Reference-

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Websites: www.jkbank.org www.google.co.in

Book : Financial Management By Prasanna Chandra

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