RESEARCH METHODOLOGY

INTRODUCTION:
Credit appraisal means investigation/assessment done by te ban! be"ore providing any
loans and advan#es/pro$e#t "inan#e and also #e#!s te #ommer#ial% "inan#ial &ind'strial
viability o" te pro$e#t proposed its "'nding pattern and "'rter #e#!s te primary &
#ollateral se#'rity #over available "or re#overy o" s'# "'nds(
PROBLEM STATEMENT :
To st'dy te #redit appraisal system in SME se#tor% at A)*S +an! Amadabad(
OBJECTIVES:
To st'dy te #redit appraisal metods(
To 'nderstand te #ommer#ial% "inan#ial & te#ni#al viability o" te proposal
proposed and it,s "inding pattern(
RESEARCH DESIGN:
Analyti#al in nat're(
DATA COLLECTION :
Primary data:
*n"ormal intervie- -it manager and oter sta"" members at A.is +an!(
Secodary data:
1
+oo!s
-ebsites
database at A.is +an!
library resear#
BENE!ICIARIES:
Re"earc#er":
Tis report -ill elp resear#ers improving !no-ledge abo't te #redit appraisal system and
to ave pra#ti#al e.pos're o" te #redit appraisal system at A)*S +an!(
Maa$emet St%det":
Te pro$e#t -ill elp te management st'dent to !no- te patterns o" #redit appraisal in
A.is ban!(
LIMITATION O! THE STUD&:
As te #redit appraisal is one o" te #r'#ial areas "or any ban!% some o" te
Te#ni#alities are not revealed(
Credit appraisal system in#l'des vario's types o" detail st'dies "or di""erent areas o"
analysis% b't d'e to time #onstraint% o'r analysis -as o" limited areas only(
2
CHAPTER '
INTRODUCTION TO BAN(ING SECTOR
A "a)"#ot o* t#e +a,i$ id%"try
Te Reserve +an! o" *ndia /R+*0% as te #entral ban! o" te #o'ntry% #losely monitors
developments in te -ole "inan#ial se#tor(
Te ban!ing se#tor is dominated by S#ed'led Commer#ial +an!s /S+Cs0( As at end Mar#
1221% tere -ere 134 Commer#ial ban!s operating in *ndia( Tis in#l'ded 15 6'bli# Se#tor
+an!s /6S+s0% 78 6rivate% 91 :oreign and 834 Regional R'ral +an!s( Also% tere -ere 45
s#ed'led #o;operative ban!s #onsisting o" <8 s#ed'led 'rban #ooperative ban!s and 84
s#ed'led state #o;operative ban!s(
S#ed'led #ommer#ial ban!s to'#ed% on te deposit "ront% a gro-t o" 89= as against 8>=
registered in te previo's year( And on advan#es% te gro-t -as 89(<= against 85(7= o" te
earlier year(
State +an! o" *ndia is still te largest ban! in *ndia -it te mar!et sare o" 12= *C*C* and
its t-o s'bsidiaries merged -it *C*C* +an!% leading #reating te se#ond largest ban! in
*ndia -it a balan#e seet si?e o" Rs( 8292bn(
Higer provisioning norms% tigter asset #lassi"i#ation norms% dispensing -it te #on#ept o"
@past d'e, "or re#ognition o" A6As% lo-ering o" #eiling on e.pos're to a single borro-er and
gro'p e.pos're et#(% are among te meas'res in order to improve te ban!ing se#tor(
A minim'm stip'lated Capital AdeB'a#y Ratio /CAR0 -as introd'#ed to strengten te
ability o" ban!s to absorb losses and te ratio as s'bseB'ently been raised "rom >= to 3=( *t
is proposed to i!e te CAR to 81= by 1229 based on te +asle Committee
re#ommendations(
Retail +an!ing is te ne- mantra in te ban!ing se#tor( Te ome Loans alone a##o'nt
"or nearly t-o;tird o" te total retail port"olio o" te ban!( A##ording to one estimate% te
retail segment is e.pe#ted to gro- at 72;92= in te #oming years(
3
Aet ban!ing% pone ban!ing% mobile ban!ing% ATMs and bill payments are te ne- b'??
-ords tat ban!s are 'sing to l're #'stomers(
Cit a vie- to provide an instit'tional me#anism "or saring o" in"ormation on borro-ers /
potential borro-ers by ban!s and :inan#ial *nstit'tions% te Credit *n"ormation +'rea'
/*ndia0 Ltd( /C*+*L0 -as set 'p in A'g'st 1222( Te +'rea' provides a "rame-or! "or
#olle#ting% pro#essing and saring #redit in"ormation on borro-ers o" #redit instit'tions( S+*
and HD:C are te promoters o" te C*+*L(
Te R+* is no- planning to trans"er o" its sta!es in te S+*% AH+ and Aational ban! "or
Agri#'lt'ral and R'ral Development to te private players( Also% te Government as so'gt
to lo-er its olding in 6S+s to a minim'm o" 77= o" total #apital by allo-ing tem to raise
#apital "rom te mar!et( +an!s are "ree to a#B'ire sares% #onvertible debent'res o" #orporate
and 'nits o" eB'ity oriented m't'al "'nds% s'b$e#t to a #eiling o" <= o" te total o'tstanding
advan#es /in#l'ding #ommer#ial paper0 as on Mar# 78 o" te previo's year(
Te "inan#e ministry spelt o't str'#t're o" te government;sponsored ARC #alled te Asset
Re#onstr'#tion Company /*ndia0 Limited /ARC*L0% tis pilot pro$e#t o" te ministry -o'ld
pave -ay "or smooter "'n#tioning o" te #redit mar!et in te #o'ntry( Te government -ill
old 93= sta!e and private players -ill old te rest <8=; te ma$ority being eld by *C*C*
+an! /19(<=0(
Re*orm" i t#e Ba,i$ "ector
Te "irst pase o" "inan#ial re"orms res'lted in te nationali?ation o" 89 ma$or ban!s in 8343
and res'lted in a si"t "rom Class ban!ing to Mass ban!ing( Tis in t'rn res'lted in a
signi"i#ant gro-t in te geograpi#al #overage o" ban!s( Every ban! as to earmar! a
minim'm per#entage o" teir Loan port"olio to se#tors identi"ied as Dpriority se#torsE( Te
man'"a#t'ring se#tor also gre- d'ring te 8352s in prote#ted environs and te ban!ing se#tor
-as a #riti#al so'r#e( Te ne.t -ave o" re"orms sa- te nationali?ation o" 4 more #ommer#ial
ban!s in 83>2( Sin#e ten te n'mber s#ed'led #ommer#ial ban!s in#reased "o'r;"old and
te n'mber o" ban!s bran#es in#reased eigt;"old(
4
A"ter te se#ond pase o" "inan#ial se#tor re"orms and liberali?ation o" te se#tor in te early
nineties% te 6'bli# Se#tor +an!s /6S+0 s "o'nd it e.tremely di""i#'lt to #omplete -it te
ne- private se#tor ban!s and te "oreign ban!s( Te ne- private se#tor ban!s "irst made teir
appearan#e a"ter te g'idelines permitting tem -ere iss'ed in Fan'ary 8337( Eigt ne-
private se#tor ban!s are presently in operation( Tis ban!s d'e to teir late start ave a##ess
to state;o";te;art te#nology% -i# in t'rn elps tem to save on manpo-er #osts and
provide better servi#es(
D'ring te year 1222% te State +an! o" *ndia /S+*0 and its 5 asso#iates a##o'nted "or a 1<=
sare in deposits and 1>(8= sare in #redit( Te 12 nationali?ed ban!s a##o'nted "or <7(<=
o" te deposits and 95(<= o" #redit d'ring te same period( Te sare o" "oreign ban!s
/ n'mbering 91 0% regional r'ral ban!s and oter s#ed'led #ommer#ial ban!s a##o'nted "or
<(5=% 7(3= and 81(1= respe#tively in deposits and >(98=% 7(89= and 81(><= respe#tively in
#redit d'ring te year 1222
5
C-a""i*icatio o* Ba,":
Te *ndian ban!ing ind'stry% -i# is governed by te +an!ing Reg'lation A#t o" *ndia
8393 #an be broadly #lassi"ied into t-o ma$or #ategories% non;s#ed'led ban!s and
s#ed'led ban!s( S#ed'led ban!s #omprise #ommer#ial ban!s and te #o;operative
ban!s( *n Terms o" o-nersip% #ommer#ial ban!s #an be "'rter gro'ped into nationali?ed
ban!s% te State +an! o" *ndia and its gro'p ban!s% regional r'ral ban!s and private se#tor
ban!s /te old / ne- domesti# and "oreign0( Tese ban!s ave over 45%222 bran#es
spread a#ross te #o'ntry( Te *ndian ban!ing ind'stry is a mi. o" te p'bli# se#tor%
private se#tor and "oreign ban!s( Te private se#tor ban!s are again spilt into old ban!s
and ne- ban!s(
+an!ing System in *ndia
Reserve ban! o" *ndia /Controlling A'tority0
Development :inan#ial instit'tions +an!s
*:C* *D+* *C*C* AA+ARD AH+ *R+* E)*M +an! S*D+*
Commer#ial Regional R'ral Land Development Cooperative
+an!s +an!s +an!s +an!s
6'bli# Se#tor +an!s 6rivate Se#tor +an!s
S+* Gro'ps Aationali?ed +an!s *ndian +an!s :oreign +an!s
6
CHAPTER .
GLOBAL AND LOCAL SCENARIO O! BAN(ING
SECTOR
Idia Ba,i$ Sy"tem: T#e C%rret State / Road A#ead
Itrod%ctio
Re#ent time as -itnessed te -orld e#onomy develop serio's di""i#'lties in terms o" lapse o"
ban!ing & "inan#ial instit'tions and pl'nging demand( 6rospe#ts be#ame very 'n#ertain
#a'sing re#ession in ma$or e#onomies( Ho-ever% amidst all tis #aos *ndia,s ban!ing se#tor
as been amongst te "e- to maintain resilien#e(
A progressively gro-ing balan#e seet% iger pa#e o" #redit e.pansion% e.panding
pro"itability and prod'#tivity a!in to ban!s in developed mar!ets% lo-er in#iden#e o"
nonper"orming assets and "o#'s on "inan#ial in#l'sion ave #ontrib'ted to ma!ing *ndian
ban!ing vibrant and strong( *ndian ban!s ave beg'n to revise teir gro-t approa# and re;
eval'ate te prospe#ts on and to !eep te e#onomy rolling( Te -ay "or-ard "or te *ndian
ban!s is to innovate to ta!e advantage o" te ne- b'siness opport'nities and at te same time
ens're #ontin'o's assessment o" ris!s(
A rigoro's eval'ation o" te ealt o" #ommer#ial ban!s% re#ently 'nderta!en by te
Committee on :inan#ial Se#tor Assessment /C:SA0 also so-s tat te #ommer#ial ban!s
are rob'st and versatile( Te single;"a#tor stress tests 'nderta!en by te C:SA div'lge tat
te ban!ing system #an end're #onsiderable so#!s arising "rom large possible #anges in
#redit B'ality% interest rate and liB'idity #onditions( Tese stress tests "or #redit% mar!et and
liB'idity ris! so- tat *ndian ban!s are by and large resilient(
T's% it as be#ome "ar more imperative to #ontemplate te role o" te +an!ing *nd'stry in
"ostering te long term gro-t o" te e#onomy( Cit te p'rvie- o" e#onomi# stability and
gro-t% greater attention is reB'ired on bot politi#al and reg'latory #ommitment to long
7
term development programme( :*CC* #ond'#ted a s'rvey on te *ndian +an!ing *nd'stry to
assess te #ompetitive advantage o""ered by te ban!ing se#tor% as -ell as te poli#ies and
str'#t'res tat are reB'ired to "'rter te pa#e o" gro-t( Te res'lts o" o'r s'rvey are given
in te "ollo-ing se#tions(
Geera- Ba,i$ Sceario
Te pa#e o" development "or te *ndian ban!ing ind'stry as been tremendo's over te past
de#ade( As te -orld reels "rom te global "inan#ial meltdo-n% *ndia,s ban!ing se#tor as
been one o" te very "e- to a#t'ally maintain resilien#e -ile #ontin'ing to provide gro-t
opport'nities% a "eat 'nli!ely to be mat#ed by oter developed mar!ets aro'nd te -orld(
:*CC* #ond'#ted a s'rvey on te *ndian +an!ing *nd'stry to assess te #ompetitive
advantage o""ered by te ban!ing se#tor% as -ell as te poli#ies and str'#t'res reB'ired to
"'rter stim'late te pa#e o" gro-t(
Te predi#ament o" te ban!s in te developed #o'ntries o-ing to e.#essive leverage and la.
reg'latory system as time and again been #ompared -it some-at 'ns#ated *ndian
+an!ing Se#tor( An attempt as been made to 'nderstand te general sentiment -it regards
to te per"orman#e% te #allenges and te opport'nities aead "or te *ndian +an!ing Se#tor(
A ma$ority o" te respondents% almost 43= o" tem% "elt tat te *ndian ban!ing *nd'stry -as
in a very good to e.#ellent sape% -it a "'rter 1<= "eeling it -as in good sape and only
4= o" te respondents "eeling tat te per"orman#e o" te ind'stry -as $'st average( *n "a#t%
an over-elming ma$ority /37(77=0 o" te respondents "elt tat te ban!ing ind'stry
#ompared -it te best o" te se#tors o" te e#onomy% in#l'ding parma#e'ti#als%
in"rastr'#t're% et#(
Most o" te respondents -ere positive -it regard to te gro-t rate attainable by te *ndian
ban!ing ind'stry "or te year 1223;82 and 1289;8<% -it <7(77= o" te vie- tat gro-t
-o'ld be bet-een 8<;12= "or te year 1223;82 and greater tan 12= "or 1289;8<(
8
On being as!ed -at is te ma$or strengt o" te *ndian ban!ing ind'stry% -i# ma!es it
resilient in te #'rrent e#onomi# #limateG 37(5<= respondents "eel te reg'latory system to be
te ma$or strengt% 5<= e#onomi# gro-t% 4>(5<= relative ins'lation "rom e.ternal mar!et%
<4(1<= #redit B'ality% 1<= te#nologi#al advan#ement and 97(5<= o'r ris! assessment
systems(
Cange is te only #onstant "eat're in tis dynami# -orld and ban!ing is not an e.#eption(
Te #anges staring in te "a#e o" ban!ers relates to te "'ndamental -ay o" ban!ing;-i#
is going tro'g rapid trans"ormation in te -orld o" today( Ad$'st% adapt and #ange so'ld
be te !ey mantra( Te ma$or #allenge "a#ed by ban!s today is te ever rising #'stomer
e.pe#tation as -ell as ris! management and maintaining gro-t rate( :ollo-ing are te
res'lts o" te biggest #allenge "a#ed by te ban!ing ind'stry as de#lared by o'r respondents
/on a mode s#ale o" 8 to 5 -it 8 being te biggest #allenge0H
9
Tey also as!ed teir respondents to rate *ndia on #ertain essential ban!ing parameters
/Reg'latory Systems% Ris! Assessment Systems% Te#nologi#al System and Credit I'ality0
in #omparison -it oter #o'ntries i(e( Cina% Fapan% +ra?il% R'ssia% Hong Jong% Singapore%
KJ and KSA(
Te re#ent "inan#ial #risis as dra-n attention to 'nder;reg'lation o" ban!s /mainly
investment ban!s0 in te KS( To'g% te *ndian story is B'ite di""erent( Reg'latory systems
o" *ndian ban!s -ere rated better tan Cina% +ra?il% R'ssia% and KJG at par -it Fapan%
Singapore and Hong Jong -ere as all o'r respondents "eel tat -e are above par or at par
-it KSA( On #omparing te res'lts -it teir previo's s'rvey -ere te respondents ad
rated *ndian Reg'latory system belo- par te KS and KJ system% tey see tat post te
"inan#ial #risis *ndian +an!s are more #on"ident on te *ndian Reg'latory :rame-or!(
10
Te global meltdo-n started as a ban!ing #risis triggered by te #redit B'ality( *ndian ban!s
seem to ave pa#ed 'p in terms o" Credit I'ality( Credit B'ality o" ban!s as been rated
above par tan Cina% +ra?il% R'ssia% KJ and KSA b't at par -it Hong Jong and Singapore
and ><(51= o" te respondents "eel tat -e are at least at par -it Fapan( T's% tey see tat
te resilien#e te *ndian +an!s so-ed at te time o" "inan#ial #risis as led to an attit'dinal
si"t o" o'r respondents -it te past s'rvey indi#ating Credit B'ality o"
*ndian ban!s being belo- par tan tat o" KS and KJ(
11
As te#nology ingrains itsel" in all aspe#ts o" a ban!,s "'n#tioning% te #allenge lies in
e.ploiting te potential "or pro"iting "rom investments made in te#nology( A lot needs to be
done on te te#nologi#al "ront to !eep in pa#e -it te global e#onomies% as is evident "rom
te s'rvey res'lts( Te#nology systems o" *ndian ban!s ave been rated more advan#ed tan
+ra?il and R'ssia b't belo- par -it Cina% Fapan% Hong Jong% Singapore% KJ and KSA(
Tey "ind no #ange on introspe#tion o" teir past s'rveys -i# also igligted te need
"or *ndian ban!s to pa#e 'p in adoption o" advan#ed te#nology(
12
G-o+a- E0)a"io o* Idia Ba,i$
Te idea o" #reating bigger ban!s to ta!e on #ompetition so'nds attra#tive b't one m'st
reali?e even te biggest among *ndian ban!s are small by global standards( Te la#! o" global
s#ale "or *ndian ban!s #ame into sarp "o#'s d'ring te re#ent "inan#ial #risis -i# sa-
several international ban!s reneging on teir "'nding #ommitments to *ndian #ompanies% b't
lo#al ban!s #o'ld not step into te brea# be#a'se o" balan#e seet limitations(
*n tis ligt% 37(5<= o" all respondents to teir s'rvey are #onsidering e.panding teir
operations in te "'t're( Tey "'rter as!ed parti#ipants on te metods tat tey #onsider
s'itable to meet teir e.pansion needs( Tey divide tem into organi# means o" gro-t tat
#omes o't o" an in#rease in te ban!,s o-n b'siness a#tivity% and inorgani# means tat
in#l'des mergers or ta!eovers(
13
Ce see "rom te above grap tat amongst organi# means o" e.pansion% bran# e.pansion
"inds "avor -it ban!s -ile strategi# allian#es is te most pop'lar inorgani# metod "or
14
ban!s #onsidering s#aling 'p teir operations( On te oter and% ne- vent'res and b'yo't
port"olios are te least pop'lar metods "or ban! e.pansion(
Sco)e *or Ne1 Etrat"
>8(1<= also "elt tat tere -as "'rter s#ope "or ne- entrants in te mar!et% in spite o" #apital
management and 'man reso'r#e #onstraints% as tere #ontin'e to remain opport'nities in
'nban!ed areas( Cit only 72;7<= o" te pop'lation "inan#ially in#l'ded% and te *ndian
ban!ing ind'stry 'nsat'rated -it CAGR o" -ell above 12=% parti#ipants in teir s'rvey "elt
tat te mar!et de"initely as s#ope to a##ommodate ne- players(
Cile tere as been prior debate% tey B'estioned ban!s on A+:Cs and *nd'strial o'ses
being establised as ban!ing instit'tions and "ind opinion to be marginally against te notion%
-it 7<(58= in "avo'r -ile 91(>4= -ere against tem being establised as ban!s(
Ho-ever% on "'rter B'estioning% <5(89= o" respondents "eel tat te above may be allo-ed
b't only i" it is along -it spe#i"i# reg'latory limitations( +an!s "elt tat limitations regarding
tra#! re#ord% ens'ring adeB'ate #apitali?ation levels% a tiered li#ense tat enables ne- entrants
to enter into spe#i"i# areas o" te b'siness only a"ter satis"a#torily a#ieving set milestones
"or te prior stages% #ap on promoterLs oldings and -ider p'bli# olding in addition to a
#ommon ban!ing reg'lator on a level playing "ield are essential be"ore tey may set
temselves 'p as ban!s(
Ba,i$ Acti2itie"
Over te last tree de#ades% tere as been a remar!able in#rease in te si?e% spread and s#ope
o" a#tivities o" ban!s in *ndia( Te b'siness pro"ile o" ban!s as trans"ormed dramati#ally to
in#l'de non;traditional a#tivities li!e mer#ant ban!ing% m't'al "'nds%ne- "inan#ial servi#es
and prod'#ts and te 'man reso'r#e development(
15
Teir s'rvey "inds tat -itin retail operations% ban!s rate prod'#t development and
di""erentiationG innovation and #'stomi?ationG #ost red'#tionG #ross selling and te#nologi#al
'p gradation as eB'ally important to te gro-t o" teir retail operations( Additionally a "e-
respondents also "ind pro;a#tive "inan#ial in#l'sion% #redit dis#ipline and in#ome gro-t o"
individ'als and #'stomer orientation to be signi"i#ant "a#tors "or teir retail gro-t(
Tere is% at te same time% an 'rgent need "or *ndian ban!s to move beyond retail ban!ing%
and "'rter gro- and e.pand teir "ee; based operations% -i# as globally remained one o"
te !ey drivers o" gro-t and pro"itability( *n "a#t% over >2= o" ban!s in teir s'rvey ave
only 'p to 8<= o" teir total in#omes #onstit'ted by "ee; based in#omeG and barely 87= ave
12;72= o" teir total in#ome #onstit'ted by "ee;based in#ome(
O't o" aven'es "or non;interest in#ome% -e see tat +an# ass'ran#e /><(58=0 and :ORE)
Management /58(97=0 remain most pro"itable "or ban!s( Derivatives% 'nderstandably%
remains te least pro"itable b'siness opport'nity "or ban!s as te mar!et "or derivatives is
still in its nas#ent stage in *ndia(
Tere is neverteless a visibly in#reased "o#'s on "ee based so'r#es o" in#ome( 58= o" ban!s
in teir s'rvey sa- an in#rease in teir "ee based in#ome as a per#entage o" teir total in#ome
"or te :Y 122>;23 as #ompared to :Y 1225;2>( *ndian ban!s are "ast reali?ing tat "ee;based
so'r#es o" in#ome ave to be a#tively loo!ed at as a basis "or "'t're gro-t% i" te ind'stry is
to be#ome a global "or#e to re#!on -it(
16
!iacia- Ic-%"io ad E0)a"io o* Ba,i$ Ser2ice"
Transition "rom #lass ban!ing to mass ban!ing and in#reased #'stomer "o#'s is drasti#ally
#anging te lands#ape o" *ndian ban!ing( E.pansion o" retail ban!ing as a lot o" potential
as retail assets are $'st 11= o" te total ban!ing assets and #ontrib'tion o" retail loans to GD6
stands merely at 4= in *ndia vis;M;vis 8<= in Cina and 19= in Tailand( All ban!s in teir
s'rvey -eig Cost e""e#tive #redit delivery me#anisms /822=0 as most important to te
promotion o" "inan#ial in#l'sion( Tis -as "ollo-ed by "a#tors s'# as identi"ying needs and
developing relevant "inan#ial prod'#ts /5<=0% demograpi# !no-ledge and strong lo#al
relations /41(<=0 and ens'ring prod'#tive 'se and adeB'ate ret'rns on #redit employed
/97(5<=0 in de#reasing levels o" importan#e( *n "a#t% *ndia as an e.panding middle #lass o"
1<2 to 722 million people in need o" varied ban!ing servi#es( Cile 42= o" o'r pop'lation
as a##ess to ban!s% only 8<= o" tem ave loan a##o'nts and an over-elming 52= o"
"armers ave no a##ess to "ormal so'r#es o" #redit% re"le#tive o" immense potential "or te
ban!ing system Tis is mirrored in te "a#t tat -ile o'r s'rvey "inds no dis#ernible si"t in
te lending pattern o" ban!s a#ross Tier 8% Tier 1 and Tier 7 #ities over te last t-o years%
37= *ndian +an!ing SystemH Te C'rrent State & Road Aead 6age N 12 parti#ipants still
"ind r'ral mar!ets to be to be a pro"itable aven'e% -it <7= o" respondents "inding it
l'#rative in spite o" it being a di""i#'lt mar!et( Cost o" a##essing mar!ets as been te only
so'r note in te overall e.perien#e o" o'r respondents in r'ral mar!ets At te same time%
more tan >8(1<= o" o'r respondents ave a strategy in pla#e to tap r'ral mar!ets% -it te
remainder as yet 'nde#ided on teir plan o" a#tion( Tie 'ps -it mi#ro "inan#e instit'tions
/M:*s0/SHG and introd'#tion o" innovative and #'stomi?ed prod'#ts are #onsidered most
important to approa#ing r'ral mar!ets a##ording to respondents% more so as #ompared to
internet !ios!s% post o""i#es and s'pply #ain management te#niB'es
17
Additionally% >8(1<= o" respondents "o'nd bran#less ban!ing to be an e""e#tive and se#'re
-ay o" rea#ing o't to r'ral mar!ets% -it mobile% biometri# and andeld devi#es% eB'ally
pop'lar amongst ban!s( Some respondents also "o'nd te +'siness Correspondents model to
be an 'ntapped model "or "inan#ial in#l'sion(
As *ndian "inan#ial mar!ets mat're over time% tere is also a need "or innovative instr'ments
to deepen te mar!et "'rter( S'ggestions ranged "rom mi#ro saving and mi#ro ins'ran#e
initiatives% Cas deposit ma#ines% -areo'se re#eipts% to prepaid #as #ards% derivatives%
interest rate "'t'res and #redit de"a'lt s-aps as a means to "'rter te "inan#ial in#l'sion and
e.pansionary pro#ess(
Credit !-o1 ad Id%"try
*ndia *n# is #ompletely dependent on te +an!ing System "or meeting its "'nding
reB'irement( One o" te ma$or #omplaints "rom te ind'stry as in "a#t been ig lending
rates in spite o" massive #'ts in poli#y rates by te R+*( Ce as!ed te ban!s -at tey "elt
-ere ma$or "a#tors responsible "or rigid prime lending rates(
18
Aone o" te ban!s in teir s'rvey #onsidered te #ap on ban! deposit rates to be one o" te
#a'ses o" in"le.ible lending rates( D'e to long;term mat'rity% te trend seems to be #anging(
Ho-ever% tere are oter "a#tors -i# ave led to te sti#!iness o" lending rates s'# as
-ariness o" #orporate #redit ris! /77(77=0% #ompetition "rom government small savings
s#emes /14(45=0( +en#mar!ing o" SME and e.port loans against 6LR /12(22=0 on te
oter and% do not seem to ave as signi"i#ant an in"l'en#e over lending rates a##ording to
ban!s(
Te great *ndian ind'strial engine as neverteless #ontin'ed to 'm its -ay tro'g most o"
te year long #risis( Ce as!ed ban!s abo't te se#tors tat tey #onsider to be most pro"itable
in te #oming years /:ig( 810( All respondents -ere #on"ident in te in"rastr'#t're se#tor
leading te pro"itability "or te ind'stry% "ollo-ed by retail loans /57(77=0 and oters
/So%rce: Ann'al s'rvey% :ebr'ary 12820
/:EDERAT*OA O: *AD*AA CHAM+ERS O: COMMERCE & *ADKSTRY0
19
CHAPTER 3
INDUSTR& ANAL&SIS
Com)etiti2e !orce" Mode-
4Porter5" !i2e !orce Mode-6
20
/10
Potetia- Etrat" is ig as
development "inan#ial
instit'tions as -ell as private
and :oreign +an!s ave
entered in a big -ay
/80
Ri2a-ry amo$ e0i"ti$
*irm" as in#reased -it
liberali?ation( Ae- prod'#ts
and improved #'stomer
servi#es is te "o#'s(
/90
Bar$aii$ )o1er o* +%yer"
is ig as #orporate #an raise
"'nds easily d'e to ig
Competition(
/70
T#e t#reat o* "%+"tit%te
prod'#t is very ig li!e
#redit 'nions and investment
o'ses( Tere are oter
s'bstit'tes as -ell ban!s li!e
m't'al "'nds% sto#!s%
government se#'rities%
debent'res% gold% real estate
et#(
/<0
Or$ai7i$ )o1er o* t#e
"%))-ier is ig( Cit te ne-
"inan#ial instr'ments tey are
as!ing iger ret'rn on te
investments
'8 Ri2a-ry amo$ e0i"ti$ *irm"
Cit te pro#ess o" liberali?ation% #ompetition among te e.isting ban!s as in#reased(
Ea# ban! is #oming 'p -it ne- prod'#ts to attra#t te #'stomers and tailor made Loans
are provided( Te B'ality o" servi#es provided by ban!s as improved drasti#ally(
.8 Potetia- Etrat"
6revio'sly te Development :inan#ial *nstit'tions mainly provided pro$e#t "inan#e
and development a#tivities( +'t tey no- entered into retail ban!ing -i# as res'lted
into sti"" #ompetition among te e.iting players(
38 T#reat" *rom S%+"tit%te"
Competition "rom te non;ban!ing "inan#ial se#tor is in#reasing rapidly( Te treat o"
s'bstit'te prod'#t is very ig li!e #redit 'nions and in investment o'ses( Tere are oter
s'bstit'tes as -ell ban!s li!e m't'al "'nds% sto#!s% government se#'rities% debent'res%
gold% real estate et#(
98 Bar$aii$ Po1er o* B%yer"
Corporate #an raise teir "'nds tro'g primary mar!et or by iss'e o" GDRs% :CC+s( As
a res'lt tey ave a iger bargaining po-er( Even in te #ase o" personal "inan#e% te
b'yers ave a ig bargaining po-er( Tis is mainly be#a'se o" #ompetition(
:8 Bar$aii$ Po1er o* S%))-ier"
Cit te advent o" ne- "inan#ial instr'ments providing a iger rate o" ret'rns to
te investors% te investments in deposits is not gro-ing in a pased manner( Te
s'ppliers demand a iger ret'rn "or te investments(
;8 O2era-- Aa-y"i"
Te !ey iss'e is o- ban!s #an leverage teir strengts to ave a better "'t're( Sin#e te
availability o" "'nds is more and deployment o" "'nds is less% ban!s so'ld evolve ne-
prod'#ts and servi#es to te #'stomers( Tere so'ld be a rational tin!ing in san#tioning
Loans% -i# -ill bring do-n te A6As( As tere is a e.pe#ted revival in te *ndian
e#onomy +an!s ave a ma$or role to play(
21
S<OT Aa-y"i"
Te ban!ing se#tor is also ta!en as a pro.y "or te e#onomy as a -ole( Te per"orman#e o"
ban! so'ld tere"ore% re"le#t DTrends in te *ndian E#onomyE( D'e to te re"orms in te
"inan#ial se#tor% ban!ing ind'stry as #anged drasti#ally -it te opport'nities to te -or!
-it% ne- a##o'nting standards ne- entrants and in"ormation te#nology( Te dereg'lation
o" te interest rate% parti#ipation o" ban!s in pro$e#t "inan#ing as #anged in te environment
o" ban!s(
Te per"orman#e o" ban!ing ind'stry is done tro'g SCOT Analysis( *t mainly elps to
!no- te strengts and Cea!ness o" te ind'stry and to improve -ill be !no-n tro'g
#onverting te opport'nities into strengts( *t also elps "or te #ompetitive environment
among te ban!s(
a6 STRENGTHS
'8 Greater "ec%ritie" o* !%d"
Compared to oter investment options ban!s sin#e its in#eption as been a better aven'e in
terms o" se#'rities( D'e to satis"a#tory implementation o" R+*,s pr'dential norms ban!s ave
-on p'bli# #on"iden#e over several years(
.8 Ba,i$ et1or,
A"ter nationali?ation% ban!s ave e.panded teir bran#es in te #o'ntry% -i# as elped
ban!s b'ild large net-or!s in te r'ral and 'rban areas( 6rivate ban!s allo-ed to operate b't
tey mainly #on#entrate in metropolis(
38 Lar$e C%"tomer Ba"e
Tis is mainly attrib'ted to te large net-or! o" te ban!ing se#tor( Depositors in r'ral
areas pre"er ban!s be#a'se o" te "ail're o" te A+:Cs(
98 Lo1 Co"t o* Ca)ita-
Corporate pre"ers borro-ing money "rom ban!s be#a'se o" lo- #ost o" #apital( Middle
in#ome people -o -ant money "or personal "inan#ing #an loo! to ban!s as tey o""er at very
lo- rates o" interests( Cons'mer #redit "orms te ma$or so'r#e o" "inan#ing by ban!s(
22
+6 <EA(NESS
'8 Ba"e- Committee
Te ban!s need to #omply -it te norms o" +asel #ommittee b't be"ore tat it is #allenge
"or ban!s to implement te +asel #ommittee standard% -i# are o" international standard(
.8 Po1er*%- Uio"
Aationali?ation o" ban!s ad a positive o't#ome in elping te *ndian E#onomy as a -ole(
+'t tis ad also proved detrimental in te "orm o" strong 'nions% -i# ave a ma$or
in"l'en#e in de#ision;ma!ing( Tey are against a'tomation(
38 Priority Sector Ledi$
To 'pli"t te so#iety% priority se#tor lending -as bro'gt in d'ring nationali?ation( Tis is
good "or te e#onomy b't ban!s ave "ailed to manage te asset B'ality and teir intensions
-ere more to-ards "'l"illing government norms( As a res'lt lending -as done "or non;
prod'#tive p'rposes(
98 Hi$# No=Per*ormi$ A""et"
Aon;6er"orming Assets /A6As0 ave be#ome a matter o" #on#ern in te ban!ing ind'stry(
Tis is be#a'se red'#ed to meet te international standardso" #ange in te total o'tstanding
advan#es% -i# as to be red'#ed to meet te international standards(
c6 OPPORTUNITIES
'8 Ui2er"a- Ba,i$
+an!s ave moved along te val'e #ain to provide teir #'stomers more prod'#ts and
servi#es( li!e ome "inan#e% Capital Mar!ets% +onds et#( Every *ndian ban! as an
opport'nity to be#ome 'niversal ban!% -i# provides every "inan#ial servi#e 'nder one roo"(
.8 Di**eretia- Itere"t Rate"
As R+* #ontrol over ban! red'#es% tey -ill ave greater "le.ibility to "i. teir o-n interest
rates -i# depends on te pro"itability o" te ban!s(
38 Hi$# Ho%"e#o-d Sa2i$"
Ho'seold savings as been in#reasing drasti#ally( *nvestment in "inan#ial assets as also
in#reased( +an!s so'ld 'se tis opport'nity "or raising "'nds(
23
98 Uta))ed !orei$ Mar,et"
Many *ndian ban!s ave not s'""i#iently penetrated in "oreign mar!ets to generate
satis"a#tory b'siness tere"ore% it #an be #on#l'ded #lear opport'nity e.ists in s'# mar!ets(
:8 Itere"t Ba,i$
Te advan#e in in"ormation te#nology as made ban!ing easier( +'siness #an E""e#tively
#arried o't tro'g internet ban!ing(
d6 THREATS
'8 NB!C"> Ca)ita- Mar,et" ad M%t%a- *%d"
Tere is a 'ge investment o" o'seold savings( Te investments in A+:Cs deposits%
Capital Mar!et *nstr'ments and M't'al :'nds are in#reasing( Aormally tese instr'ments
o""er better ret'rn to investors(
.8 C#a$e" i t#e Go2ermet Po-icy
Te #ange in te government poli#y as proved to be a treat to te ban!ing se#tor( D'e to
some ma$or #anges in poli#ies related to deposits mobili?ation #redit deployment% interest
rates; te -ole s#enario o" ban!ing ind'stry may #ange(
38 I*-atio
Te interest rates go do-n -it a "all in in"lation( T's% te investors -ill si"t is
investments to te oter pro"itable se#tors(
98 Rece""io
D'e to te re#ession in te b'siness #y#le te e#onomy "'n#tions poorly and tis as proved
to be a treat to te ban!ing se#tor( Te mar!et oriented e#onomy and globali?ation as
res'lted into #ompetition "or mar!et sare( Te spread in te ban!ing se#tor is very narro-(
To meet te #ompetition te ban!s as to gro- at a "aster rates and red'#e te overeads(
Tey #an introd'#e te ne- prod'#ts and develop te e.isting servi#es(
24
CHAPTER 9
INTRODUCTION TO A?IS BAN(
A.is +an! -as te "irst o" te ne- private ban!s to ave beg'n operations in 8339% a"ter te
Government o" *ndia allo-ed ne- private ban!s to be establised( Te +an! -as promoted
$ointly by te Administrator o" te spe#i"ied 'nderta!ing o" te Knit Tr'st o" *ndia /KT* ; *0%
Li"e *ns'ran#e Corporation o" *ndia /L*C0 and General *ns'ran#e Corporation o" *ndia /G*C0
and oter "o'r 6SK ins'ran#e #ompanies% i(e( Aational *ns'ran#e Company Ltd(% Te Ae-
*ndia Ass'ran#e Company Ltd(% Te Oriental *ns'ran#e Company Ltd( and Knited *ndia
*ns'ran#e Company Ltd(
Te +an! today is #apitali?ed to te e.tent o" Rs( 927(47 #rores -it te p'bli# olding /oter
tan promoters and GDRs0 at <7(51=(
Te +an!Ls Registered O""i#e is at Amedabad and its Central O""i#e is lo#ated at M'mbai(
Te +an! as a very -ide net-or! o" more tan >34 bran#es and E.tension Co'nters /as on
78st De#ember 12230( Te +an! as a net-or! o" over 92<< ATMs /as on 78st De#ember
12230 providing 19 rs a day ban!ing #onvenien#e to its #'stomers( Tis is one o" te largest
ATM net-or!s in te #o'ntry(
Te +an! as strengts in bot retail and #orporate ban!ing and is #ommitted to adopting te
best ind'stry pra#ti#es internationally in order to a#ieve e.#ellen#e(
Mi""io
C'stomer servi#e and prod'#t innovation t'ned to diverse needs o" individ'al and
#orporate #lientele(
Contin'o's te#nology 'p gradation -ile maintaining 'man val'es(
6rogressive globali?ation and a#ieving international standards(
25
Core 2a-%e"
C'stomer satis"a#tion tro'g
6roviding B'ality servi#e e""e#tively and e""i#iently
Dsmile% it enan#es yo'r "a#e val'eE a servi#e B'ality stressed on
6eriodi# #'stomers servi#e a'dits
Ma.imi?ation o" sta!eolder val'e
B%"ie"" di2i"io"
Trea"%ry maa$emet
Treas'ry is responsible "or te maintenan#e o" te stat'tory reB'irements s'# as te #as
reserve ratio /CRR0% stat'tory liB'idity ratio /SLR0 and te investment o" s'# "'nds( *t also
manages te assets and liabilities o" te ban!( 6rimary dealing a#tivities #an be #lassi"ied into
Money mar!et operations
:oreign e.#ange operations
Derivatives
Merc#at Ba,i$ ad ca)ita- mar,et"
A.is +an! is a registered mer#ant +an!er( Te servi#es o""ered areH
6rivate pla#ement/syndi#ation
*ss'e management
26
Debent're tr'stees
Depository servi#es
6ro$e#t advisory servi#es% #apital mar!et servi#es% advisory on Mergers & A#B'isition
Retai- *iacia- "er2ice"
All bran#es ave a dedi#ated "inan#ial advisory des!% -erein te m't'al "'nd s#emes are
mar!eted( Te ob$e#tive is to provide #'stomers -it a larger port"olio o" investment aven'es
tereby enan#ing #'stomer relationsip( Oter prod'#ts andled by te department in#l'de
sale o" Gold Coins as -ell as mar!eting o" Depository servi#es(
Cor)orate ad i"tit%tioa- +a,i$
Cas management Servi#es
+'siness #'rrent A##o'nts
Correspondent +an!ing
Government +'siness
Retai- Ba,i$
27
Retail ban!ing is one o" te !ey departments in te ban!( *t as te largest variety in its
port"olio -i# #onsists o" retail asset and retail liability prod'#ts( Retail +an!ing by
de"inition implies ban!ing servi#es -i# are o""ered to individ'al #'stomers as opposed to
#orporate ban!ing -i# is meant "or #ompanies(
Iteratioa- +a,i$
Ma$or "'n#tions in#l'de
Handling reg'latory iss'es -i# in#l'de #omplian#e -it reg'lations o"
vario's a'torities s'# as R+* reg'latios% :EMA et#
Jeeping a tra#! o" te b'siness vol'mes being generated by te bran#es and
#ontrolling te margins
Maintaining relationsip -it #orrespondent +an!s o'tside *ndia
Ad2ace"
Te "'n#tion involves e.tending "'nd and non;"'nd based #redit "a#ilities to di""erent #lients
in te #o'ntry% te department aims to ma.imi?e te interest spread earned on "'nds available
-it te ban! -ile !eeping te ris! on te #redit port"olio at a##eptable limits( Te
department also tries to ma.imi?e "ee;based in#ome "rom bot "'nd based and non;"'nd
based a#tivities(

Board o* Director":
Sri A(C( Singal
Sri F(R( Oarma
Dr( R(H( 6atil
Smt( Rama +i$ap'r!ar
28
Sri R(+( L( Oais
Sri M(O( S'bbia
Sri Rames Ramanatan
Sri J(A( 6ritvira$
29
CHAPTER :
INTRODUCTION TO SME
*n te Idia #onte.t% te small and medi'm enterprises /SME0 se#tor is broadly a Term 'sed
"or small s#ale ind'strial /SS*0 'nits and medi'm;s#ale ind'strial 'nits( Any ind'strial 'nit
-it a total investment in its "i.ed assets or leased assets or ire;p'r#ase asset o" 'pto Rs 82
million% #an be #onsidered as an SS* 'nit and any investment o" 'pto Rs 822 million #an be
Termed as a medi'm 'nit( An SS* 'nit so'ld neiter be a s'bsidiary o" any oter ind'strial
'nit nor be o-ned or #ontrolled by any oter ind'strial 'nit(
An SME is !no-n by di""erent -ays a#ross te -orld( *n *ndia% a standard de"inition s'r"a#ed
only in O#tober 1% 1224% -en te Ministry o" Mi#ro% Small and Medi'm Enterprises%
Government o" *ndia% imposed te Mi#ro% Small and Medi'm enterprises Development
/MSMED0 A#t%1224(
Tis de"inition% o-ever -as #anged a##ording to te #anging e#onomi# s#enario and t's
as separate de"initions to it( :or instan#e% an SME de"inition "or man'"a#t'ring enterprises is
di""erent "rom -at an SME de"inition "or servi#e enterprises as to say(
Hi"tory
Small and Medi'm Enterprises or SMEs are vital "or te gro-t and -ell being o" te
#o'ntry( Tis se#tor -as re#ogni?ed and given importan#e rigt "rom independen#e and is
being en#o'raged ever sin#e ten(
To'g% it #ommen#ed on a small s#ale% it grad'ally gained signi"i#an#e% be#a'se it employed
a #onsiderable n'mber o" people(
Cen it started gaining moment'm% tis se#tor -as de"ined as an enterprise -it investment
in plant and ma#inery o" 'p to Rs 8 la! and sit'ated in to-ns and villages -it strengt o"
30
less tan <2%222 people( Te poli#y statement p't in pla#e spe#ial legislation to re#ogni?e and
prote#t sel" employed people in #ottage and ome ind'stries( Distri#t ind'stries #anters
/D*Cs0 -ere set 'p and made te "o#al point o" SS* development% bypassing large #ities and
state #apitals( Also% te government started providing spe#ial servi#es a!in to prod'#t
standardi?ation% B'ality #ontrol and mar!eting s'rveys in order to assist te SS*s in enabling
tem to mar!et teir prod'#ts in an 'nderdeveloped mar!et(
Te s#enario "or te small;s#ale se#tor #anged -it te *nd'strial 6oli#y o" F'ly 8338%
-i#% "or te "irst time in *ndia,s development istory spo!e o" liberali?ation( Cat tis
meant -as tat medi'm and large enterprises -o'ld no longer need li#enses to r'n( E.port;
oriented enterprises #o'ld be -olly "oreign o-ned and "oreign eB'ity parti#ipation -as
sele#tively allo-ed( *nd'stries #o'ld import #apital goods -it m'# "e-er restri#tions(
8334 sa- te government involved in te setting 'p o" a iger level #ommittee% !no-n as
te Abid H'ssain Committee% to revie- poli#ies "or small ind'stries and re#ommend
meas'res to elp "orm'late a strong and innovative poli#y pa#!age "or te rapid development
o" SMEs( Cit liberali?ation% rapid #anges -ere seen in te *ndian e#onomy( *ndian
#ompanies -ere no longer ins'lated "rom te global e#onomy( *n "a#t% tere -as an 'rgent
need to ma!e tem% espe#ially SMEs% more #ompetitive and resilient(
*n 8338% te gro-t rate o" SS*s -as almost tree times tat o" te total ind'strial se#tor at
7(8 per#ent( :rom 8338 to 833<% te gro-t rate o" SS*s e.#eeded tat o" te total ind'strial
se#tor( Yet% in 833<;34% te gro-t rate o" SS*s -as sligtly lo-er tan te total ind'strial
se#tor% o-ever it in#reased again in 8334 and #ontin'ed to be iger tan te total ind'strial
gro-t rate till 8333( till 1224% te SME segment sa- a lot more development and s'pport
"rom te government(
De"cri)tio o* SME i t#e ma%*act%ri$ "ector
31
Te Term enterprise in te man'"a#t'ring #onte.t stands "or an ind'strial 'nderta!ing or a
b'siness #on#ern involved in te prod'#tion% pro#essing or preservation o" goods "or te list
o" eligible ind'stries in te :irst S#ed'le to te *nd'stries /Development and Reg'lation
A#t0% 83<8(
:or te Man'"a#t'ring Se#tor% te MSMED A#t 1224 de"ines mi#ro% small and medi'm
enterprises /MSMEs0 as mentioned belo-H
A mi#ro enterprise is an enterprise -ere investment in plant and ma#inery does not
e.#eed Rs 1< la!(
Te investment in plant and ma#inery in a small enterprise is more tan Rs 1< la!%
b't does not e.#eed Rs < #rore(
A medi'm enterprise is one -ere te investment in plant and ma#inery is more tan
Rs < #rore% b't does not e.#eed Rs 82 #rore(
*n all tese% te #ost e.#l'des tat o" land% b'ilding and te items spe#i"ied by te Ministry o"
Small S#ale *nd'stries -it its noti"i#ation Ao SO 8511 /E0 dated O#tober <% 1224(
SME de*iitio *or Ser2ice Eter)ri"e"
A servi#e se#tor enterprise is de"ined as one involved in providing servi#es( Te "ollo-ing
points -ill e.plain o-(
Small road and -ater transport operators tat #an no- o-n a "leet o" vei#les not
e.#eeding ten in n'mber(
Small b'siness% -ose original #ost pri#e o" eB'ipment 'sed "or b'siness% does not
e.#eed Rs 12 la!(
6ro"essional and sel";employed persons% -ose borro-ing limits do not e.#eed Rs 82
la! o" -i# not more tan Rs 1 la! so'ld be "or -or!ing #apital reB'irements
6ro"essionally B'ali"ied medi#al pra#titioners setting 'p a pra#ti#e in semi 'rban and
r'ral areas% -ose borro-ing limits so'ld not be less tan Rs 8< la! -it a s'b;
#eiling o" Rs 7 la! "or -or!ing #apital reB'irements(
32
C#a--e$e" *aced +y SME
Te #allenges being "a#ed by te small and medi'm se#tor may be brie"ly set o't as
:ollo-s;
Small and Medi'm Enterprises /SME0% parti#'larly te tiny segment o" te small
enterprises ave inadeB'ate a##ess to "inan#e d'e to la#! o" "inan#ial in"ormation and
non;"ormal b'siness pra#ti#es( SMEs also la#! a##ess to private eB'ity and vent're
#apital and ave a very limited a##ess to se#ondary mar!et instr'ments(
SMEs "a#e "ragmented mar!ets in respe#t o" teir inp'ts as -ell as prod'#ts and are
v'lnerable to mar!et "l'#t'ations(
SMEs la#! easy a##ess to inter;state and international mar!ets(
Te a##ess o" SMEs to te#nology and prod'#t innovations is also limited( Tere is
la#! o" a-areness o" global best pra#ti#es(
SMEs "a#e #onsiderable delays in te settlement o" d'es/payment o" bills by te large
s#ale b'yers( Cit te dereg'lation o" te "inan#ial se#tor% te ability o" te ban!s to
servi#e te #redit reB'irements o" te SME se#tor depends on te 'nderlying
transa#tion #osts% e""i#ient re#overy pro#esses and available se#'rity( Tere is an
immediate need "or te ban!ing se#tor to "o#'s on #redit and SMEs
33
CHAPTER ;
OVERVIE< O! CREDIT APPRAISAL
Credit appraisal means an investigation/assessment done by te ban!s be"ore providing any
Loans & advan#es/pro$e#t "inan#e & also #e#!s te #ommer#ial% "inan#ial & te#ni#al
viability o" te pro$e#t proposed% its "'nding pattern & "'rter #e#!s te primary & #ollateral
se#'rity #over available "or re#overy o" s'# "'nds(
Brie* o2er2ie1 o* Credit
Credit Appraisal is a pro#ess to as#ertain te ris!s asso#iated -it te e.tension o" te #redit
"a#ility( *t is generally #arried by te "inan#ial instit'tions% -i# are involved in providing
"inan#ial "'nding to its #'stomers( Credit ris! is a ris! related to non;repayment o" te #redit
obtained by te #'stomer o" a ban!( T's it is ne#essary to appraise te #redibility o" te
#'stomer in order to mitigate te #redit ris!( 6roper eval'ation o" te #'stomer is per"ormed
tis meas'res te "inan#ial #ondition and te ability o" te #'stomer to repay ba#! te Loan in
"'t're( Generally te #redits "a#ilities are e.tended against te se#'rity !no- as #ollateral(
+'t even to'g te Loans are ba#!ed by te #ollateral% ban!s are normally interested in te
a#t'al Loan amo'nt to be repaid along -it te interest( T's% te #'stomerLs #as "lo-s are
as#ertained to ens're te timely payment o" prin#ipal and te interest(
*t is te pro#ess o" appraising te #redit -ortiness o" a Loan appli#ant( :a#tors li!e age%
in#ome% n'mber o" dependents% nat're o" employment% #ontin'ity o" employment% repayment
#apa#ity% previo's Loans% #redit #ards% et#( are ta!en into a##o'nt -ile appraising te #redit
-ortiness o" a person( Every ban! or lending instit'tion as its o-n panel o" o""i#ials "or
tis p'rpose(
Ho-ever te 7 @C, o" #redit are #r'#ial & relevant to all borro-ers/ lending% -i# m'st be
!ept in mind% at all times(
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Cara#ter
Capa#ity
Collateral
*" any one o" tese are missing in te eB'ation ten te lending o""i#er m'st B'estion te
viability o" #redit( Tere is no g'arantee to ens're a Loan does not r'n into problemsG
o-ever i" proper #redit eval'ation te#niB'es and monitoring are implemented ten
nat'rally te Loan loss probability / problems -ill be minimi?ed% -i# so'ld be te
ob$e#tive o" every lending O""i#er(
Credit is te provision o" reso'r#es /s'# as granting a Loan0 by one party to anoter party
-ere tat se#ond party does not reimb'rse te "irst party immediately% tereby generating a
debt% and instead arranges eiter to repay or ret'rn tose reso'r#es /or material/s0 o" eB'al
val'e0 at a later date( Te "irst party is #alled a #reditor% also !no-n as a lender% -ile te
se#ond party is #alled a debtor% also !no-n as a borro-er(
Credit allo-s yo' to b'y goods or #ommodities no-% and pay "or tem later( Ce 'se #redit to
b'y tings -it an agreement to repay te Loans over a period o" time( Te most #ommon
-ay to avail #redit is by te 'se o" #redit #ards( Oter #redit plans in#l'de personal Loans%
ome Loans% vei#le Loans% st'dent Loans% small b'siness Loans% trade( A #redit is a legal
#ontra#t -ere one party re#eives reso'r#e or -ealt "rom anoter party and promises to
repay im on a "'t're date along -it interest( *n simple Terms% a #redit is an agreement o"
postponed payments o" goods bo'gt or Loan( Cit te iss'an#e o" a #redit% a debt is "ormed(
Ba"ic ty)e" o* credit
Tere are "o'r basi# types o" #redit( +y 'nderstanding o- ea# -or!s% yo' -ill be able to
get te most "or yo'r money and avoid paying 'nne#essary #arges(
Ser2ice credit is montly payments "or 'tilities s'# as telepone% gas% ele#tri#ity% and -ater(
Yo' o"ten ave to pay a deposit% and yo' may pay a late #arge i" yo'r payment is not on
time(
35
Loa" let yo' borro- #as( Loans #an be "or small or large amo'nts and "or a "e- days or
several years( Money #an be repaid in one l'mp s'm or in several reg'lar payments 'ntil te
amo'nt yo' borro-ed and te "inan#e #arges are paid in "'ll( Loans #an be se#'red or
'nse#'red(
I"ta--met credit may be des#ribed as b'ying on time% "inan#ing tro'g te store or te
easy payment plan( Te borro-er ta!es te goods ome in e.#ange "or a promise to pay
later( Cars% ma$or applian#es% and "'rnit're are o"ten p'r#ased tis -ay( Yo' 's'ally sign a
#ontra#t% ma!e a do-n payment% and agree to pay te balan#e -it a spe#i"ied n'mber o"
eB'al payments #alled installments( Te "inan#e #arges are in#l'ded in te payments( Te
item yo' p'r#ase may be 'sed as se#'rity "or te Loan(
Credit card" are iss'ed by individ'al retail stores% ban!s% or b'sinesses( Ksing a #redit #ard
#an be te eB'ivalent o" an interest;"ree Loan; end o" ea# mont(;i" yo' pay "or te 'se o" it
in "'ll at te
Brie* o2er2ie1 o* Loa"
Loans #an be o" t-o types "'nd base & non;"'nd baseH
!%d Ba"e ic-%de":
Cor!ing Capital
Term Loan
No=*%d Ba"e ic-%de":
Letter o" Credit
+an! G'arantee
+ill Dis#o'nting
36
!%d Ba"e:
<or,i$ ca)ita-
Te ob$e#tive o" r'nning any ind'stry is earning pro"its( An ind'stry -ill reB'ire "'nds to
a#B'ire D"i.ed assetsE li!e land% b'ilding% plant% ma#inery% eB'ipments% vei#les% tools et#(%
& also to r'n te b'siness i(e( its day;to;day operations(
:'nds reB'ired "or day to;day -or!ing -ill be to "inan#e prod'#tion & sales( :or prod'#tion%
"'nds are needed "or p'r#ase o" ra- materials/ stores/ "'el% "or employment o" labor% "or
po-er #arges et#( "inan#ing te sales by -ay o" s'ndry debtors/ re#eivables(
Capital or "'nds reB'ired "or an ind'stry #an tere"ore be bi"'r#ated as "i.ed #apital &
-or!ing #apital( Cor!ing #apital in tis #onte.t is te e.#ess o" #'rrent assets over #'rrent
liabilities( Te e.#ess o" #'rrent assets over #'rrent liabilities is treated as net% "or storing
"inising goods till tey are sold o't & "or -or!ing #apital or liB'id s'rpl's & represents tat
portion o" te -or!ing #apital% -i# as been provided "rom te long;Term so'r#e(
Term Loa
A Term Loan is granted "or a "i.ed Term o" not less tan 7 years intended normally "or
"inan#ing "i.ed assets a#B'ired -it a repayment s#ed'le normally not e.#eeding > years(
A Term Loan is a Loan granted "or te p'rpose o" #apital assets% s'# as p'r#ase o" land%
#onstr'#tion o"% b'ildings% p'r#ase o" ma#inery% moderni?ation% renovation or
rationali?ation o" plant% & repayable "rom o't o" te "'t're earning o" te enterprise% in
installments% as per a prearranged s#ed'le(
:rom te above de"inition% te "ollo-ing di""eren#es bet-een a Term Loan & te -or!ing
#apital #redit a""orded by te +an! are apparentH
o Te p'rpose o" te Term Loan is "or a#B'isition o" #apital assets(
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o Te Term Loan is an advan#e not repayable on demand b't only in installments
ranging over a period o" years(
o Te repayment o" Term Loan is not o't o" sale pro#eeds o" te goods & #ommodities
per se% -eter given as se#'rity or not( Te repayment so'ld #ome o't o" te "'t're
#as a##r'als "rom te a#tivity o" te 'nit(
o Te se#'rity is not te readily saleable goods & #ommodities b't te "i.ed assets o"
te 'nits(
*t may t's be observed tat te s#ope & operation o" te Term Loans are entirely di""erent
"rom tose o" te #onventional -or!ing #apital advan#es( Te +an!,s #ommitment is "or a
long period & te ris! involved is greater( An element o" ris! is inerent in any type o" Loan
be#a'se o" te 'n#ertainty o" te repayment( Longer te d'ration o" te #redit% greater is te
attendant 'n#ertainty o" repayment & #onseB'ently te ris! involved also be#omes greater(
Ho-ever% it may be observed tat Term Loans are not so la#!ing in liB'idity as tey appear
to be( Tese Loans are s'b$e#t to a de"inite repayment programme 'nli!e sort Term Loans
"or -or!ing #apital /espe#ially te #as #redits0 -i# are being rene-ed year a"ter year(
Term Loans -o'ld be repaid in a reg'lar -ay "rom te anti#ipated in#ome o" te ind'stry/
trade(
Tese distin#tive #ara#teristi#s o" Term Loans disting'is tem "rom te sort Term #redit
granted by te ban!s & it be#omes ne#essary tere"ore% to adopt a di""erent approa# in
e.amining te appli#ations o" borro-ers "or s'# #redit & "or appraising s'# proposals(
Te repayment o" a Term Loan depends on te "'t're in#ome o" te borro-ing 'nit( Hen#e%
te primary tas! o" te ban! be"ore granting Term Loans is to ass're itsel" tat te anti#ipated
in#ome "rom te 'nit -o'ld provide te ne#essary amo'nt "or te repayment o" te Loan(
Tis -ill involve a detailed s#r'tiny o" te s#eme% its #apital assets( :inan#ial aspe#ts%
e#onomi# aspe#ts% te#ni#al aspe#ts% a pro$e#tion o" "'t're trends o" o'tp'ts & sales &
estimates o" #ost% ret'rns% "lo- o" "'nds & pro"its(
38
No=*%d Ba"e:
Letter o* credit
Te e.pe#tation o" te seller o" any goods or servi#es is tat e so'ld get te payment
immediately on delivery o" te same( Tis may not materiali?e i" te seller & te b'yer are at
di""erent pla#es /eiter -itin te same #o'ntry or in di""erent #o'ntries0( Te seller desires to
ave an ass'ran#e "or payment by te p'r#aser( At te same time te p'r#aser desires tat
te amo'nt so'ld be paid only -en te goods are a#t'ally re#eived( Here arises te need o"
Letter o" Credit /LCs0( Te ob$e#tive o" LC is to provide a means o" payment to te seller &
te delivery o" goods & servi#es to te b'yer at te same time(
De*iitio
A Letter o" Credit /LC0 is an arrangement -ereby a ban! /te iss'ing ban!0 a#ting at te
reB'est & on te instr'#tions o" te #'stomer /te appli#ant0 or on its o-n beal"%
o *s to ma!e a payment to or to te order o" a tird party /te bene"i#iary0% or is to
a##ept & pay bills o" e.#ange /dra"ts dra-n by te bene"i#iary0G or
o A'tori?es anoter ban! to e""e#t s'# payment% or to a##ept & pay s'# bills o"
e.#anges /dra"ts0G or
o A'tori?es anoter ban! to negotiate te Terms & #onditions o" te #redit are
#omplied -it( against stip'lated do#'ment/s0% provided tat
Ba, G%aratee":
A #ontra#t o" g'arantee is de"ined as @a #ontra#t to per"orm te promise or dis#arge te
liability o" te tird person in #ase o" te de"a'lt,( Te parties to te #ontra#t o" g'arantees
areH
a0 Appli#antH Te prin#ipal debtor P person at -ose reB'est te g'arantee is e.e#'ted
b0 +ene"i#iaryH 6erson to -om te g'arantee is given & -o #an en"or#e it in #ase o"
de"a'lt(
#0 G'aranteeH Te person -o 'nderta!es to dis#arge te obligations o" te appli#ant
in #ase o" is de"a'lt(
39
T's% g'arantee is a #ollateral #ontra#t% #onseB'ential to a main #o appli#ant & te
bene"i#iary(
P%r)o"e o* Ba, G%aratee"
+an! G'arantees are 'sed to "or bot bot preventive & remedial p'rposes( Te g'arantees
e.e#'ted by ban!s #omprise bot per"orman#e g'arantees & "inan#ial g'arantees( Te
g'arantees are str'#t'red a##ording to te Terms o" agreement% vi?(% se#'rity% mat'rity &
p'rpose(
+ran#es may iss'e g'arantees generally "or te "ollo-ing p'rposesH
a0 *n lie' o" se#'rity deposit/earnest money deposit "or parti#ipating in tendersG
b0 Mobili?ation advan#e or advan#e money be"ore #ommen#ement o" te pro$e#t by te
#ontra#tor & "or money to be re#eived in vario's stages li!e plant layo't%
design/dra-ings in pro$e#t "inan#eG
#0 *n respe#t o" ra- materials s'pplies or "or advan#es by te b'yersG
d0 *n respe#t o" d'e per"orman#e o" spe#i"i# #ontra#ts by te borro-ers & "or obtaining
"'ll payment o" te billsG
e0 6er"orman#e g'arantee "or -arranty period on #ompletion o" #ontra#t -i# -o'ld
enable te s'ppliers to period to be overG reali?e te pro#eeds -ito't -aiting "or
-arranty0 To allo- 'nits to dra- "'nds "rom time to time "rom te #on#erned
indenters against part e.e#'tion o" #ontra#ts% et#(
"0 +id bonds on beal" o" e.porters
g0 E.port per"orman#e g'arantees on beal" o" e.porters "avoring te C'stoms
Department 'nder E6CG s#eme(
Bi-- di"co%ti$:
De*iitio:
As per Aegotiable *nstr'ment A#t% DTe bill o" e.#ange is an instr'ment in -riting
#ontaining an 'n#onditional order% signed by te ma!er% dire#ting a #ertain person to pay a
#ertain s'm o" money only to% or to te order o"% a #ertain person% or to te bearer o" tat
instr'ment(E
40
Di"co%ti$ o* +i-- o* e0c#a$e:
A seller /Dra-er0 i" need #as% may andover te +/E to te +an!% A+:C% a #ompany or a
ig Aet -ort *ndivid'al and obtain ready #as tis is !no-n as dis#o'nting o" bill( te
pra#ti#e in *ndia is tat% te "inan#ing organi?ation olds te original +/E till te dra-ee pays
on mat'rity( :or dis#o'nting te bill% "inan#iers #arge an interest on te bill amo'nt "or te
d'ration o" te bill -i# is #alled dis#o'nt #arges(normal mat'rity periods are 72% 42% 32%
812 days(
Ty)e" o* Bi--"
8( Demand +ill
1( Ksan#e +ill
7( Do#'mentary +ills
a( Do#'ments against a##eptan#e /D/A0 bills
b( Do#'ments against payment /D/60 bills
9( Clean +ills
Ad2ata$e"
o To *nvestors
8( Sort Term so'r#e o" "inan#e
1( O'tside te p'rvie- o" Se#tion 752 o" *ndian Companies A#t 83<4
7( Ao ta. ded'#ted at so'r#e
9( :le.ibility
o To +an!s
8( Sa"ety o" "'nds
1( Certainty o" payment
7( 6ro"itability
41
Credit A))rai"a- Proce""
42
Re#eipt o" appli#ation "rom appli#ant
Re#eipt o" do#'ments
/+alan#e seet% JYC papers% Di""erent govt( registration no(% MOA% AOA% and
properties do#'ments
6re;san#tion visit by ban! o""i#ers
Ce#! "or R+* de"a'lters list% -ill"'l de"a'lters list% C*+*L data% ECGC% Ca'tion list
et#
Title #learan#e reports o" te properties to be obtained "rom empanelled
Advo#ates
6roposal preparation
Oal'ation reports o" te properties to be obtained "rom empanelled val'er/engineers
6reparation o" "inan#ial data
Assessment o" proposal
San#tion/approval o" proposal by appropriate san#tioning a'tority
43
Do#'mentations% agreements% mortgages
Disb'rsement o" Loan
6ost san#tion a#tivities s'# as re#eiving sto#! statements% revie- o" a##o'nts% rene-
o" a##o'nts% et#
/On reg'lar basis0
Loa admii"tratio )re= "actio )roce""
A))rai"a-> A""e""met ad Sactio *%ctio"
'8 A))rai"a-
A8 Pre-imiary a))rai"a-
So'nd #redit appraisal involves analysis o" te viability o" operations o" a b'siness and
te #apa#ity o" te promoters to r'n it pro"itably and repay te ban! te d'es as and -en
tey "all
To-ards tis end te preliminary appraisal -ill e.amine te "ollo-ing aspe#ts o" a
proposal(
+an!,s lending poli#y and oter relevant g'idelines/R+* g'idelines%
6r'dential E.pos're norms%
*nd'stry E.pos're restri#tions%
Gro'p E.pos're restri#tions%
*nd'stry related ris! "a#tors%
Credit ris! rating%
6ro"ile o" te promoters/senior management personnel o" te pro$e#t%
List o" de"a'lters%
Ca'tion lists%
A##eptability o" te promoters%
Complian#e regarding trans"er o" borro-er a##o'nts "rom one ban! to anoter% i"
appli#ableG
Government reg'lations/legislation impa#ting on te ind'stryG e(g(% ban on "inan#ing
o" ind'stries prod'#ing/ #ons'ming O?one depleting s'bstan#esG
Appli#ant,s stat's vis;M;vis oter 'nits in te ind'stry%
:inan#ial stat's in broad Terms and -eter it is a##eptable Te Company,s
Memorand'm and Arti#les o" Asso#iation so'ld be s#r'tini?ed #are"'lly to ens're /i0
44
tat tere are no #la'ses pre$'di#ial to te +an!,s interests% /ii0 no limitations ave
been pla#ed on te Company,s borro-ing po-ers and operations and /iii0 te s#ope o"
a#tivity o" te #ompany(
:'rter% i" te proposal is to "inan#e a pro$e#t% te "ollo-ing aspe#ts ave to be e.aminedH
Ceter pro$e#t #ost is prima facie a##eptable
Debt/eB'ity gearing proposed and -eter a##eptable
6romoters, ability to a##ess #apital mar!et "or debt/eB'ity s'pport
Ceter #riti#al aspe#ts o" pro$e#t ; demand% #ost o" prod'#tion% pro"itability% et#( are
prima facie in order
ReB'ired Do#'ments "or 6ro#ess o" Loan
a0 Appli#ation "or reB'irement o" loan
b0 Copy o" Memorand'm & Arti#le o" Asso#iation
#0 Copy o" in#orporation o" b'siness
d0 Copy o" #ommen#ement o" b'siness
e0 Copy o" resol'tion regarding te reB'irement o" #redit "a#ilities
"0 +rie" istory o" #ompany% its #'stomers & s'pplies% previo's tra#! re#ords% orders *n
and( Also provide some in"ormation abo't te dire#tors o" te #ompany
g0 :inan#ial statements o" last 7 years in#l'ding te provisional "inan#ial statement "or
te year 1225;2>
0 Copy o" 6AA/TAA n'mber o" #ompany
i0 Copy o" last Ele#tri#ity bill o" #ompany
$0 Copy o" GST/CST n'mber
!0 Copy o" E.#ise n'mber
l0 6oto *(D( o" all te dire#tors
m0 Address proo" o" all te dire#tors
n0 Copies related to te property s'# as 5/81 & >A 'tara% lease/ sales deed% 1R
6ermission% Allotment letter% 6ossession
o0 +io;data "orm o" all te dire#tors d'ly "illed & notari?ed
p0 :inan#ial statements o" asso#iate #on#ern "or te last 7 years
45
A"ter 'nderta!ing te above preliminary e.amination o" te proposal% te bran# -ill
arrive at a de#ision -eter to s'pport te reB'est or not( *" te bran# /a re"eren#e to te
bran# in#l'des a re"eren#e to SECC/C6C et#( as te #ase may be0 "inds te proposal
a##eptable% it -ill #all "or "rom te appli#ant/s0% a #ompreensive appli#ation in te
pres#ribed pro"orma% along -it a #opy o" te proposal/pro$e#t report% #overing spe#i"i#
#redit reB'irement o" te #ompany and oter essential data/ in"ormation( Te in"ormation%
among oter tings% so'ld in#l'deH
Organi?ational set 'p -it a list o" +oard o" Dire#tors and indi#ating te
B'ali"i#ations% e.perien#e and #ompeten#e o" te !ey personnel in #arge o" te main
"'n#tional areas
e(g(% p'r#ase% prod'#tion% mar!eting and "inan#eG in oter -ords a brie" on te
managerial reso'r#es and -eter tese are #ompatible -it te si?e and s#ope o" te
proposed a#tivity(
Demand and s'pply pro$e#tions based on te overall mar!et prospe#ts togeter -it a
#opy o" te mar!et s'rvey report( Te report may #omment on te geograpi# spread
o" te mar!et -ere te 'nit proposes to operate% demand and s'pply gap% te
#ompetitors, sare% #ompetitive advantage o" te appli#ant% proposed mar!eting
arrangement% et#(
C'rrent pra#ti#es "or te parti#'lar prod'#t/servi#e espe#ially relating to Terms o"
#redit sales% probability o" bad debts% et#(
Estimates o" sales #ost o" prod'#tion and pro"itability(
6ro$e#ted pro"it and loss a##o'nt and balan#e seet "or te operating years d'ring te
C'rren#y o" te +an! assistan#e(
*" reB'est in#l'des *iaci$ o* )ro@ect4"6% bran# so'ld obtain additionally
a0 Appraisal report "rom any oter ban!/"inan#ial instit'tion in #ase appraisal as been
done by tem(
b0 @Ao Ob$e#tion Certi"i#ate, "rom Term lenders i" already "inan#ed by tem and
#0 Report "rom Mer#ant ban!ers in #ase te #ompany plans to a##ess #apital mar!et%
-erever ne#essary(
46
*n respe#t o" e.isting #on#erns% in addition to te above% parti#'lars regarding te istory
o" te #on#ern% its past per"orman#e% present "inan#ial position% et#( so'ld also be #alled
"or( Tis data/in"ormation so'ld be s'pplemented by te s'pporting statements
S'# asH
a0 A'dited pro"it loss a##o'nt and balan#e seet "or te past tree years /i" te latest
a'dited balan#e seet is more tan 4 monts old% a pro-forma balan#e seet as on a
re#ent date so'ld be obtained and analysed0( :or non;#orporate borro-ers%
irrespe#tive o" mar!et segment% en$oying #redit limits o" Rs(82 la#s and above "rom
te ban!ing system% a'dited balan#e seet in te *+A approved "ormats so'ld be
s'bmitted by te borro-ers(
b0 Details o" e.isting borro-ing arrangements% i" any%
#0 Credit in"ormation reports "rom te e.isting ban!ers on te appli#ant Company% and
d0 :inan#ial statements and borro-ing relationsip o" Asso#iate "irms/Gro'p
Companies(
B8 Detai-ed A))rai"a-
Te viability o" a pro$e#t is e.amined to as#ertain tat te #ompany -o'ld ave te
ability to servi#e its Loan and interest obligations o't o" #as a##r'als "rom te
b'siness( Cile appraising a pro$e#t or a Loan proposal% all te data/in"ormation
"'rnised by te borro-er so'ld be #o'nter #e#!ed and% -erever possible% inter;
"irm and inter;ind'stry #omparisons so'ld be made to establis teir vera#ity(
Te "inan#ial analysis #arried o't on te basis o" te #ompany,s a'dited balan#e
seets and pro"it and loss a##o'nts "or te last tree years so'ld elp to establis te
#'rrent viability(
*n addition to te "inan#ials% te "ollo-ing aspe#ts so'ld also be e.aminedH
Te metod o" depre#iation "ollo-ed by te #ompany;-eter te #ompany is
"ollo-ing "trai$#t -ie metod or 1ritte do1 2a-%e metod and -eter te
#ompany as #anged te metod o" depre#iation in te past and% i" so% te reason
tere"oreG
47
Ceter te #ompany as reval'ed any o" its "i.ed assets any time in te past and te
present stat's o" te reval'ation reserve% i" any #reated "or te p'rposeG
Re#ord o" ma$or de"a'lts% i" any% in repayment in te past and istory o" past si#!ness%
*" anyG
Te position regarding te #ompany,s ta. assessment ; -eter te provisions made
in te balan#e seets are adeB'ate to ta!e #are o" te #ompany,s ta. liabilitiesG
Te nat're and p'rpose o" te #ontingent liabilities% togeter -it #omments tereonG
6ending s'its by or against te #ompany and teir "inan#ial impli#ations /e(g( #ases
relating to #'stoms and e.#ise% sales ta.% et#(0G
I'ali"i#ations/adverse remar!s% i" any% made by te stat'tory a'ditors on te
#ompany,s a##o'ntsG
Dividend poli#yG
Apart "rom "inan#ial ratios% oter ratios relevant to te pro$e#tG
Trends in sales and pro"itability% past deviations in sales and pro"it pro$e#tions% and
estimates/pro$e#tions o" sales val'esG
6rod'#tion #apa#ity & 'seH past and pro$e#tedG
o Estimated reB'irement o" -or!ing #apital "inan#e -it re"eren#e to a##eptable
b'ild 'p o" inventory/ re#eivables/ oter #'rrent assetsG
6ro$e#ted levelsH -eter a##eptableG and
Complian#e -it lending norms and oter mandatory g'idelines as appli#able
6ro$e#t "inan#ingH
*" te proposal involves *iaci$ a e1 )ro@ect> te #ommer#ial% e#onomi# and
:inan#ial viability and oter aspe#ts are to be e.amined as indi#ated belo-H
Stat'tory #learan#es "rom vario's Government Depts( / Agen#ies
Li#enses/permits/approvals/#learan#es/AOCs/Collaboration agreements% as appli#able
Details o" so'r#ing o" energy reB'irements% po-er% "'el et#(
6oll'tion #ontrol #learan#e
Cost o" pro$e#t and so'r#e o" "inan#e
48
+'ild;'p o" "i.ed assets /reB'irement o" "'nds "or investments in "i.ed assets to be
#riti#ally e.amined -it regard to prod'#tion "a#tors% improvement in B'ality o"
prod'#ts% e#onomies o" s#ale et#(0
Arrangements proposed "or raising debt and eB'ity
Capital str'#t're /position o" A'tori?ed% *ss'ed/ 6aid;'p Capital% Redeemable
6re"eren#e Sares% et#(0
Debt #omponent i(e(% debent'res% Term Loans% de"erred payment "a#ilities% 'nse#'red
Loans/ deposits( All 'nse#'red Loans/ deposits raised by te #ompany "or "inan#ing a
pro$e#t so'ld be s'bordinate to te Term Loans o" te ban!s/ "inan#ial instit'tions
and so'ld be permitted to be repaid only -it te prior approval o" all te ban!s and
te "inan#ial instit'tions #on#erned( Cere #entral or state sales ta. Loan or
developmental Loan is ta!en as so'r#e o" "inan#ing te pro$e#t% "'rnis details o" te
Terms and #onditions governing te Loan li!e te rate o" interest /i" appli#able0% te
manner o" repayment% et#(
:easibility o" arrangements to a##ess #apital mar!et
:easibility o" te pro$e#tions/ estimates o" sales% #ost o" prod'#tion and pro"its
#overing te period o" repayment
+rea! Even 6oint in Terms o" sales val'e and per#entage o" installed #apa#ity 'nder a
Aormal prod'#tion year
Cas "lo-s and "'nd "lo-s
6roposed amorti?ation s#ed'le
Ceter pro"itability is adeB'ate to meet stip'lated repayments -it re"eren#e to
Debt Servi#e Coverage Ratio% Ret'rn on *nvestment
*nd'stry pro"ile & prospe#ts
Criti#al "a#tors o" te ind'stry and -eter te assessment o" tese and management
plans in tis regard are a##eptable
Te#ni#al "easibility -it re"eren#e to report o" te#ni#al #ons'ltants% i" available
Management B'ality% #ompeten#e% tra#! re#ord
Company,s str'#t're & systems
Appli#ant,s strengt on inter;"irm #omparisons
49
:or te p'rpose o" inter;"irm #omparison and oter in"ormation% -ere ne#essary% so'r#e data
"rom Sto#! E.#ange Dire#tory% "inan#ial $o'rnals/ p'bli#ations% pro"essional entities li!e
CR*S;*A:AC% CM*E% et#( -it empasis on "ollo-ing aspe#tsH
o Mar!et sare o" te 'nits 'nder #omparison
o KniB'e "eat'res
o 6ro"itability "a#tors
o :inan#ing pattern o" te b'siness
o *nventory/Re#eivable levels
o Capa#ity 'tili?ation
o 6rod'#tion e""i#ien#y and #osts
o +an! borro-ings patterns
o :inan#ial ratios & oter relevant ratios
o Capital Mar!et 6er#eptions
o C'rrent pri#e
o <1-ee! ig and lo- o" te sare pri#e
o 6/E ratio or 6/E M'ltiple
o Yield /=0; al" yearly and yearly
Also e.amine and #omment on te stat's o" approvals "rom oter Term lenders% mar!et vie-
/i" anyting adverse0% and pro$e#t implementation s#ed'le( A pre;san#tion inspe#tion o" te
pro$e#t site or te "a#tory so'ld be #arried o't in te #ase o" e.isting 'nits( To ens're a
iger degree o" #ommitment "rom te promoters% te portion o" te eB'ity / Loans -i# is
proposed to be bro'gt in by te promoters% teir "amily members% "riends and relatives -ill
ave to be bro'gt 'p"ront( Ho-ever% rela.ation in tis regard may be #onsidered on a #ase to
#ase basis "or gen'ine and a##eptable reasons( Knder s'# #ir#'mstan#es% te promoter
so'ld "'rnis a de"inite plan indi#ating #learly te so'r#es "or meeting is #ontrib'tion( Te
balan#e amo'nt proposed to be raised "rom oter so'r#es% vi?(% debent'res% p'bli# eB'ity et#(%
so'ld also be "'lly tied 'p(
C8 Pre"et re-atio"#i) 1it# Ba,:
50
Compile "or e.isting #'stomers% pro"ile o" present e.pos'resH
Credit "a#ilities no- granted
Cond'#t o" te e.isting a##o'nt
Ktili?ation o" limits ; :+ & A:+
O##'rren#e o" irreg'larities% i" any
:reB'en#y o" irreg'larity i(e(% n'mber o" times and total n'mber o" days te a##o'nt
-as irreg'lar d'ring te last t-elve monts
Repayment o" Term #ommitments
Complian#e -it reB'irements regarding s'bmission o" sto#! statements% :inan#ial
:ollo-;'p Reports% rene-al data% et#(
Sto#! t'rnover% reali?ation o" boo! debts
Oal'e o" a##o'nt -it brea!;'p o" in#ome earned
6ro;rata sare o" non;"'nd and "oreign e.#ange b'siness
Con#essions e.tended and val'e tereo"
Complian#e -it oter Terms and #onditions
A#tion ta!en on Comments/observations #ontained in R+* *nspe#tion ReportsH CO
*nspe#tion & A'dit Reports

D8 Credit ri", rati$H Dra- 'p rating "or /i0 Cor!ing Capital and /ii0 Term :inan#e(
E8 O)iio Re)ort"H Compile opinion reports on te #ompany% partners/ promoters and
Te proposed g'arantors(
!8 E0i"ti$ c#ar$e" o a""et" o* t#e %itH *" a #ompany% report on sear# o" #arges -it
ROC(
G8 Str%ct%re o* *aci-itie" ad Term" o* SactioH
:i. Terms and #onditions "or e.pos'res proposed ; "a#ility -ise and overallH
Limit "or ea# "a#ility P s'b;limits
Se#'rity ; 6rimary & Collateral% G'arantee
Margins ; :or ea# "a#ility as appli#able
51
Rate o" interest
Rate o" #ommission/e.#ange/oter "ees
Con#essional "a#ilities and val'e tereo"
Repayment Terms% -ere appli#able
ECGC #over -ere appli#able
Oter standard #ovenants
H8 Re2ie1 o* t#e )ro)o"a-:
Revie- o" te proposal so'ld be done #overing /i0 strengts and -ea!nesses o" te e.pos're
proposed /ii0 ris! "a#tors and steps proposed to mitigate tem
/ii0 Deviations% i" any% proposed "rom 's'al norms o" te +an! and te reasons tere"ore
I8 Pro)o"a- *or "actio:
6repare a dra"t proposal in pres#ribed "ormat -it reB'ired ba#!'p details and -it
re#ommendations "or san#tion(
J8 A""i"tace to A""e""metH
*ntera#t -it te assessor% provide additional inp'ts arising "rom te assessment% in#orporate
tese and reB'ired modi"i#ations in te dra"t proposal and generate an integrated "inal
proposal "or san#tion(
.8 A""e""met H
*ndi#ative List o" A#tivities *nvolved in Assessment :'n#tion is given belo-H
Revie- te dra"t proposal togeter -it te ba#!;'p details/notes% and te borro-er,s
appli#ation% "inan#ial statements and oter reports/do#'ments e.amined by te
appraiser(
*ntera#t -it te borro-er and te appraiser(
Carry o't pre;san#tion visit to te appli#ant #ompany and teir pro$e#t/"a#tory site(
6er'se te "inan#ial analysis /+alan#e Seet/ Operating Statement/ Ratio Analysis/
52
:'nd :lo- Statement/ Cor!ing Capital assessment/6ro$e#t #ost & so'r#es/ +rea!
Even analysis/Debt Servi#e/Se#'rity Cover% et#(0 to see i" tis is prima facie in order(
*" any de"i#ien#ies are seen% arrange -it te appraiser "or te analysis on te #orre#t
lines(
E.amine #riti#ally te "ollo-ing aspe#ts o" te proposed e.pos're(
o +an!,s lending poli#y and oter g'idelines iss'ed by te +an! "rom time to time
o R+* g'idelines
o +a#!gro'nd o" promoters/ senior management
o *nter;"irm #omparison
o Te#nology in 'se in te #ompany
o Mar!et #onditions
o 6ro$e#ted per"orman#e o" te borro-er vis;M;vis past estimates and per"orman#e
o Oiability o" te pro$e#t
o Strengts and Cea!nesses o" te borro-er entity(
o 6roposed str'#t're o" "a#ilities(
o AdeB'a#y/ #orre#tness o" limits/ s'b limits% margins% moratori'm and repayment
s#ed'le
o AdeB'a#y o" proposed se#'rity #over o Credit ris! rating
o 6ri#ing and oter #arges and #on#essions% i" any% proposed "or te "a#ilities
o Ris! "a#tors o" te proposal and steps proposed to mitigate te ris!
o Deviations proposed "rom te norms o" te +an! and $'sti"i#ations tere"or
To te e.tent te inp'ts/#omments are inadeB'ate or reB'ire modi"i#ation% arrange "or
additional inp'ts/ modi"i#ations to be in#orporated in te proposal% -it any reB'ired
modi"i#ation to te initial re#ommendation by te Appraiser
Arrange -it te Appraiser to dra- 'p te proposal in te "inal "orm(
Re#ommendation "or san#tionH Re#apit'late brie"ly te #on#l'sions o" te appraisal
and state -eter te proposal is e#onomi#ally viable( Re#o'nt brie"ly te val'e o" te
#ompany,s /and te Gro'p,s0 #onne#tions( State -eter% all #onsidered% te proposal
is a "air ban!ing ris!( :inally% give re#ommendations "or grant o" te reB'isite "'nd;
based and non;"'nd based #redit "a#ilities(
53
38 Sactio:
*ndi#ative list o" a#tivities involved in te san#tion "'n#tion is given belo-H
6er'se te proposal to see i" te report prima facie presents te proposal in a
#ompreensive manner as reB'ired( *" any #riti#al in"ormation is not provided in te
proposal% remit it ba#! to te Assessor "or s'pply o" te reB'ired data/#lari"i#ations(
E.amine #riti#ally te "ollo-ing aspe#ts o" te proposed e.pos're in te ligt o"
#orresponding instr'#tions in "or#eH
+an!,s lending poli#y and oter relevant g'idelines
R+* g'idelines
+orro-er,s stat's in te ind'stry
*nd'stry prospe#ts
E.perien#e o" te +an! -it oter 'nits in similar ind'stry
Overall strengt o" te borro-er
6ro$e#ted level o" operations
Ris! "a#tors #riti#al to te e.pos're and adeB'a#y o" sa"eg'ards proposed
Tere against
Oal'e o" te e.isting #onne#tion -it te borro-er
Credit ris! rating
Se#'rity% pri#ing% #arges and #on#essions proposed "or te e.pos're and #ovenants
o Stip'lated vis;M;vis te ris! per#eption(
Accord "actio o" te proposal on te Terms proposed or by stip'lating modi"ied or
additional #onditions/ sa"eg'ards% or De*er deci"io on te proposal and ret'rn it "or
additional data/#lari"i#ations% or Re@ect te proposal% i" it is not a##eptable% setting o't
te reasons(
54
Loa admii"tratio = Po"t "actio Credit )roce""
(
Need
Lending de#isions are made on so'nd appraisal and assessment o" #redit -ortiness(
6ast re#ord o" satis"a#tory per"orman#e and integrity are no g'arantee "or "'t're
to'g tey serve as a 'se"'l g'ide to pro$e#t te trend in per"orman#e( Credit
assessment is made based on promises and pro$e#tions( A loan granted on te basis o"
so'nd appraisal may go bad be#a'se te borro-er did not #arry o't is promises
regarding per"orman#e( *t is "or tis reason tat proper "ollo- 'p and s'pervision is
essential( A ban!er #annot ta!e sola#e in s'""i#ien#y o" se#'rity "or is loans( He as
to ;
a0 Ma!e a proper sele#tion o" borro-er
b0 Ens're #omplian#e -it terms and #onditions
#0 Monitor per"orman#e to #e#! #ontin'ed viability o" operations
d0 Ens're end 'se o" "'nds(
e0 Kltimately ens're sa"ety o" "'nds lent(
Sta$e" o* )o"t "actio )roce""
Te post;san#tion #redit pro#ess #an be broadly #lassi"ied into tree stages vi?(% "ollo-;'p%
s'pervision and monitoring% -i# togeter "a#ilitate e""i#ient and e""e#tive #redit
management and maintaining ig level o" standard assets( Te ob$e#tives o" te tree stages
o" post san#tion pro#ess are detailed belo-(
55
Ty)e" o* Ledi$ Arra$emet"
Itrod%ctio
+'siness entities #an ave vario's types o" borro-ing arrangements( Tey are
One +orro-er P One +an!
One +orro-er P Several +an!s /-it #onsorti'm arrangement0
One +orro-er P Several +an!s /-ito't #onsorti'm arrangements P M'ltiple
+an!ing
One +orro-er P Several +an!s /Loan Syndi#ation0
Oe Ba,
Te most "amiliar amongst te above "or smaller loans is te One +orro-er;One +an!
arrangement -ere te borro-er #on"ines all is "inan#ial dealings -it only one ban!(
Sometimes% 'nits -o'ld pre"er to ave ban!ing arrangements -it more tan one ban! on
a##o'nt o" te large "inan#ial reB'irement or te reso'r#e #onstraint o" is o-n ban!er or d'e
to varying terms & #onditions o""ered by di""erent ban!s or "or seer administrative
#onvenien#e( Te advantages to te ban! in a m'ltiple ban!ing arrangement/ #onsorti'm
arrangement are tat te e.pos're to an individ'al #'stomer is limited & ris! is proportionate(
Te ban! is also able to spread its port"olio( *n te #ase o" borro-ing b'siness entity% it is able
to meet its "'nds reB'irement -ito't being #onstrained by te limited reso'r#e o" its o-n
ban!er( +esides tis% #onsorti'm arrangement enables parti#ipating ban!s to save manpo-er
& reso'r#es tro'g #ommon appraisal & inspe#tion & saring #redit in"ormation(
Te vario's arrangements 'nder borro-ings "rom more tan one ban! -ill di""er on a##o'nt
o" terms & #onditions% metod o" appraisal% #oordination% do#'mentation & s'pervision &
#ontrol(
Co"orti%m Ledi$
56
Cen one borro-er avails loans "rom several ban!s 'nder an arrangement among all te
lending ban!ers% tis leads to a #onsorti'm lending arrangements( *n #onsorti'm lending%
several ban!s pool ban!ing re#o'rses & e.pertise in #redit management togeter & "inan#e a
single borro-er -it a #ommon appraisal% #ommon do#'mentation & $oint s'pervision &
"ollo- 'p( Te borro-er en$oys te advantage similar to single -indo- availing o" #redit
"a#ilities "rom several ban!s( Te arrangement #ontin'es 'ntil any one o" te ban! moves o't
o" te #onsorti'm( Te ban! ta!ing te igest sare o" te #redit -ill 's'ally be te leader o"
#onsorti'm( Tere is no #eiling on te n'mber o" ban!s in a #onsorti'm(
M%-ti)-e Ba,i$ Arra$emet
M'ltiple +an!ing Arrangement is one -ere te r'les o" #onsorti'm do not apply & no inter
se agreement among ban!s e.ists( Te borro-er avails #redit "a#ility "rom vario's ban!s
providing separate se#'rities on di""erent terms & #onditions( Tere is no s'# arrangement
#alled @M'ltiple +an!ing Arrangement, & te term is 'sed only to denote te e.isten#e o"
ban!ing arrangement -it more tan one ban!( +an!ing Arrangement as #ome to stay as it
as some advantages "or te borro-er & te ban!s ave te "reedom to pri#e teir #redit
prod'#ts & non;"'nd based "a#ility a##ording to teir #ommer#ial $'dgment( Consorti'm
arrangement o##asioned delays in #redit de#isions & te borro-er as "o'nd is -ay aro'nd
tis di""i#'lty by te m'ltiple ban!ing arrangement( Additionally% -en 'nits -ere not doing
-ell% #onsens's -as rarely prevalent among te #onsorti'm members( *" one ban! -anted to
#all 'p te advan#e & prote#t te se#'rity% anoter ban! -as interested in #ontin'ing te
"a#ility on a##o'nt o" gro'p #onsiderations(
Poit" to +e oted i ca"e o* m%-ti)-e +a,i$ arra$emet"
To'g no "ormal arrangement e.ists among te "inan#ing ban!s% it is pre"erable to
ave in"ormal e.#ange o" in"ormation to ens're "inan#ial dis#ipline
Carges on te se#'rity given to te ban! so'ld be #reated -it 'tmost #are to g'ard
against dil'tion in o'r se#'rity o""ered & to avoid do'ble "inan#ing
Certi"i#ates on te o'tstanding -it te oter ban!s so'ld be obtained on te
periodi#al basis & also veri"ied "rom te +alan#e seet o" te 'nit to avoid e.#ess
"inan#ing
Credit Sydicatio
57
A syndi#ated #redit is an agreement bet-een t-o or more lending instit'tions to provide a
borro-er a #redit "a#ility 'sing #ommon loan do#'mentation( *t is a #onvenient mode o"
raising long;term "'nds(
Te borro-er mandates a lead manager o" is #oi#e to arrange a loan "or im( Te mandate
spells o't te terms o" te loan & te mandated ban!,s rigts & responsibilities(
Te mandated ban!er P te lead manger P prepares an in"ormation memorand'm &
Cir#'lates among prospe#tive lender ban!s soli#iting teir parti#ipation in te loan( On te
basis o" te memorand'm & on teir o-n independent e#onomi# & "inan#ial evol'tion te
leading ban!s ta!e a vie- on te proposal( Te mandated ban! #onvenes te meeting to
dis#'ss te syndi#ation strategy relating to #oordination% #omm'ni#ation & #ontrol -itin te
syndi#ation pro#ess & "inali?es deal timing% management "ees% #ost o" #redit et#( Te loan
agreement is signed by all te parti#ipating ban!s( Te borro-er is reB'ired to give prior
noti#e to te lead manger abo't loan dra-al to enable im to tie 'p disb'rsements -it te
oter lending ban!s(
!eat%re" o* "ydicated -oa"
Arranger brings togeter gro'p o" ban!s
+orro-er is not reB'ired to ave inter"a#e -it parti#ipating ban!s% t's easy & assle
"ee
Large loans #an be raised tro'g syndi#ation by a##essing global mar!ets
:or te borro-er% te #ompetition among te lenders leads to "iner terms
Ris! is sared
Small ban!s #an also ave a##ess to large ti#!et loans & top #lass #redit appraisal
& management
Ad2ata$e"
Stri#t% time;bo'nd delivery s#ed'le & dra-als
Streamlined pro#ess o" do#'mentation -it #learly laid do-n roles & responsibilities
Mar!et driven pri#ing lin!ed to te ris! per#eption
Competitive pri#ing b't s#ope "or "ee;based in#ome is also available
Syndi#ated portions #an be sold to anoter ban!% i" reB'ired
58
:i.ed repayment s#ed'le & stri#t monitoring o" de"a'lt by mar!ets -i# p'nis
indis#ipline
59
CHA6TER 5
CRED*T A66RA*SAL MODEL AT A)*S +AAJ
Credit to SME Sector
A)*S ban! provides #redit to SME se#tor 'nder "ollo-ing S#emes
SME A Sc#ematic 4!a"t Trac,6
*t in#l'des str'#t'red prod'#ts basi#ally to provide "ast servi#es to #lients( *t in#l'des vario's
prod'#ts li!eH
Mpo-er OD and Mpo-er Term Loan
+'siness Loan "or 6roperty
6o-er Rent
6o-er Trade
Qero Collateral Loans /QCL0 to MSE 'nder CGS
Card 6o-er
Enterprise 6o-er
+'siness 6o-er
M)o1er OD ad M)o1er Term Loa:
Te prod'#t aims at to provide bot Cor!ing #apital and Term "inan#e
reB'irements o" a trade enterprise( Te "a#ility is in te "orm o" a Cas Credit /"or
Cor!ing Capital reB'irements0 and Term Loan /:inan#ing Capital e.pendit're0(
Te "a#ility is se#'red by ypote#ation o" Cor!ing Capital assets and "'rter
#ollaterali?ed by #arge over an immovable property/ "inan#ial asset( Aon;:'nd
based "a#ilities #an also be granted 'nder te prod'#t( Te ma.im'm Loan
amo'nt 'nder te prod'#t is Rs( 1(<2 Crs(
B%"ie"" Loa *or Pro)erty:
60
Te prod'#t is aimed at providing "inan#e to b'siness enterprises "or a#B'ition o"
an immovable property( Te "a#ility is in te "orm o" a Term Loan repayable by
EM*s( Te ma.im'm Loan amo'nt 'nder te prod'#t is Rs( < #rores(
Po1er Ret:
Te prod'#t generally !no-n in mar!et parlan#e as DLease Rental Dis#o'ntingE is
aimed at providing a Term Loan to o-ners o" properties against teir lease rental
re#eivables( Te Loan amo'nt is assessed on te basis o" te net present val'e o"
te rental re#eivables over te lease period /a"ter ded'#ting margin and ta.es0(
Te lease rentals are ypote#ated in ban!,s "avor and te Loan is "'rter
#ollaterali?ed by #arge over te property( Te prod'#t spe#i"ies a minim'm;
se#'rity #overage o" 8(< times( Ma.im'm Loan amo'nt 'nder te prod'#t is Rs(
12 #rores(
Po1er Trade:
Te prod'#t aims to provide bot -or!ing #apital and Term "inan#e reB'irements
o" a trade enterprise( Te "a#ility is in te "orm o" a #as #redit /"or -or!ing
#apital reB'irements0 and Term Loan /"inan#ing #apital e.pendit're0( Te "a#ility
is se#'red by ypote#ation o" -or!ing #apital assets and "'rter #ollaterali?ed by
#arge over an immovable property/ "inan#ial asset( Aon; "'nd based "a#ilities #an
also be granted 'nder te prod'#t( Te ma.im'm Loan amo'nt 'nder te prod'#t
is Rs( 1(< #rores(
Bero Co--atera- Loa" 4BCL6 to MSE %der CGS:
Tis prod'#t "a#ilitates te MSEs and so"t-are/*T related servi#es to avail bot
-or!ing #apital and term "inan#e "rom ban!( Te "a#ility is se#'red by g'arantee
#over o" #redit g'arantee "'nd tr'st "or mi#ro and small enterprises /CGTMSE0
and tere is no #ollateral se#'rity to be ta!en in s'# #ases( Ma.im'm loan
amo'nt 'nder te prod'#t is Rs( 8(22 #rore(
Card Po1er:
Tis is a s#eme "or "inan#ing #redit/debit #ard re#eivables o" 'nits installing po'r
EDC ma#ines( +ot demand loan & term loan "a#ilities are o""ered to te
61
borro-ers% s'b$e#t to a ma.im'm o" Rs( 1(< #rores( All trading/ retailing a#tivities
/-it a "e- e.#eptions li!e liB'or% toba##o% seasonal b'siness et#(0% -ere #redit/
debit #ards are 'sed are eligible "or te loans(
Eter)ri"e Po1er:
Tis prod'#t as been developed to meet te #redit needs o" te Mi#ro and small
enterprises #overing bot man'"a#t'ring and te servi#e se#tors( Te "a#ilities
o""ered in#l'de CC R'pee e.port #reditG pre & post sipment #redit & non;"'nd
based "a#ilities li!e LC & +G( Te ma.im'm limit is restri#ted to Rs( 8(22 Crore(
B%"e"" Po1er:
+'siness 6o-er is an 'nse#'red Term Loan /Ma.im'm loan amo'nt 'nder te
prod'#t is Rs( 7< la#s0 to be repaid by -ay o" EM*,s over a ma.im'm period o" 9
years(
SME= No Sc#ematic 4Stadard6
:or a b'siness on te gro-t pase -it a -ide range o" opport'nities to e.plore% timely
availability o" #redit is an integral ingredient needed to s#ale ne- eigts( A.is +an!
'nderstands tis and endeavor to be not $'st a ban! b't also "inan#ing partner% so tat
"o#'s on b'siness needs be#omes possible -ereas +an! #ater to meet "inan#ing needs(
Teir servi#es ranging "rom :'nded to Aon;:'nded% "rom Sort Term to Long Term and
"rom Credit to Trade Servi#es ens'res to get "inan#e te -ay it is best s'ited "or b'siness(
Ser2ice":
Cas Credit
Cor!ing Capital Demand Loan
E.port :inan#e
Sort Term Loan
Term Loan
Clean +ill Dis#o'nting
LC +a#!ed +ill Dis#o'nting
62
Co;A##eptan#e o" +ills
Credit :a#ilities against G'arantee or Stand +y Letter o" Credit iss'ed by :oreign
+an!s
Letter o" Credit
+an! G'arantee
Solven#y Certi"i#ates
Ca"# CreditH
+an! o""er Cas Credit "a#ilities to meet day;to;day -or!ing #apital needs( Cas
Credit is provided against te primary se#'rity o" sto#!% debtors% oter #'rrent
assets% et#(% and/or #ollateral se#'rity o" movable "i.ed assets% immovable
property% personal or #orporate g'arantee% et#( *nterest is #arged not on te
san#tioned amo'nt b't on te 'tili?ed amo'nt
<or,i$ Ca)ita- Demad Loa:
+an! also provides -or!ing #apital "a#ilities in te "orm o" Cor!ing Capital
Demand Loan instead o" #as #redit "a#ility( Te primary or #ollateral se#'rity
-ill be as mentioned in #as #redit "a#ility( Here also interest is levied on te
amo'nt dra-n rater tan on te amo'nt 'tili?ed(
E0)ort !iace:
+an! provides "inan#e "or e.port a#tivities in te "orm o" 6re;Sipment Credit
against "irm order and or Letter o" Credit and 6ost sipment #redit( Credit is
available "or pro#'ring ra- materials% man'"a#t'ring te goods% pro#essing and
pa#!aging te goods and sipping te goods( :inan#e is provided in *ndian or
"oreign #'rren#y depending 'pon te need o" te borro-er(
S#ort Term Loa:
+an! provides Cor!ing Capital "a#ilities to meet day;to;day -or!ing #apital
needs and Term Loan "or #ape.( Ho-ever tere may be o##asions -ere tere is
need o" ad o# or sort;Term "inan#e "or general #orporate p'rposes% meeting
63
temporary mismat#es in -or!ing #apital or "or meeting #ontingent e.penses( *n
s'# sit'ations it provides Sort Term Loans "or ten're 'p to a year to ens're tat
b'siness r'ns smootly(
Term Loa:
Cen tere is need o" long;Term "'nds "or #ape. or #apa#ity e.pansions or plant
moderni?ation and so on( Jeeping tese reB'irements in mind +an! provides
Term Loans 'p to a##eptable tenor -it s'itable moratori'm% i" reB'ired% and
repayment options str'#t'red on te basis o" #'stomer,s estimated #as "lo-s(
Tese Loans are primarily se#'red by a "irst #arge on te "i.ed assets a#B'ired
tro'g te Loan amo'nt( S'itable #ollateral se#'rity is also ta!en -enever
reB'ired(
C-ea Bi-- Di"co%ti$:
+an! provides #lean bill dis#o'nting "a#ilities to "'nd re#eivables( +an! dis#o'nt
bills or re#eivables and provide #redit against tat( Tis "a#ility is provided "or a
period o" 7;4 monts depending 'pon te tenor o" te bill(
LC Bac,ed Bi-- Di"co%ti$:
+an! dis#o'nt trade bills dra-n 'nder Letters o" Credit iss'ed by rep'ted ban!s
to "'nd re#eivables( Tis "a#ility is provided "or a period o" 7;4 monts
depending 'pon te tenor o" te bill or Letter o" Credit(
Co=Acce)tace o* Bi--":
+an! also provides #o;a##eptan#e o" trade bills depending 'pon te need o" te
borro-er(
Credit !aci-itie" a$ai"t G%aratee or Stad By Letter o* Credit i""%ed +y
!orei$ Ba,":
Oario's "oreign #ompanies set 'p s'bsidiary in *ndia( +an! provides "'nding to
s'# #ompanies against g'arantees or S+LCs o" a##eptable "oreign ban!s(
64
Letter o* Credit:
Apart "rom "'nd based -or!ing #apital "a#ilities +an! provides a range o" Aon;
:'nd +ased "a#ilities s'# as Letter o" #redit% +an! G'arantees% Solven#y
#erti"i#ates% et#( Letter o" Credit is provided to meet trade p'r#ases( Tese are
generally provided "or 7;4 monts depending 'pon Trade #y#le( Apart "rom tis it
provides *mport Letter o" Credit "or importing ma#inery or #apital goods( S'#
LCs are "or ten're ranging "rom 8;7 years depending 'pon te need o" te
borro-er(
Ba, G%aratee:
+an! provides +an! G'arantee on beal" o" its #lient to vario's oter entities
s'# as Government% B'asi govt bodies% #orporate and so on( it provides a range
o" g'arantee s'# as 6er"orman#e g'arantee% "inan#ial g'arantee% E6CG et#( Te
ten're o" +an! G'arantee range "rom 8 year to 82 years depending 'pon te
p'rpose o" te g'arantee(
So-2ecy Certi*icate":
+an! also provides solven#y #erti"i#ate depending 'pon te need o" te borro-er(
Sactioi$ )o1er" *or "c#ematic Loa" %der MSME
ad Mid Cor)orate
*n order to ave better #ontrol over te port"olio% it is "elt tat te b'dget "or s#emati#
advan#es so'ld be allotted only to sele#t bran#es% -ere te potential and manpo-er
s'pport e.ist "or s'# b'siness(
A##ordingly% te b'dget "or :Y 2> as been restri#ted to sele#t bran#es% to be de#ided by
Advan#es Cells( Te +ran# Heads o" bran#es lo#ated at #enters -ere Advan#es Cells ave
been set 'p -ill not ave any san#tioning po-ers( +ran# Heads o" stand;alone bran#es
-ere b'dgets ave been allo#ated -ill ave san#tioning po-ers as per delegation o" po-ers
given belo-( Te +ran# Heads o" oter stand;alone bran#es -ere b'dgets ave not been
65
allo#ated -ill not ave any san#tioning po-ers( Tese bran#es -o'ld% o-ever% #ontin'e to
so'r#e b'siness and s'# proposals -o'ld be pro#essed / san#tioned at te respe#tive
Advan#es Cells( Revie- / rene-al o" e.isting Loans at s'# bran#es -o'ld also be done at
te Advan#es Cells(
+ran#es -o'ld #ontin'e to be responsible "or all post san#tion "ormalities% maintaining
B'ality o" assets eld in teir boo!s% periodi# 'pdating o" dra-ing po-er% obtention o" sto#!
statements and periodi#al inspe#tion o" borro-al 'nits(
Te san#tioning po-ers% to be e.er#ised by vario's o""i#ials -o'ld be as 'nder(

Sactioi$ A%t#ority E0)o"%re Limit"
4i R"8 Lac"6
Itere"t rate"
Coce""io"
Re2ie1i$ A%t#ority
Manager
<2 A*L
AO6 / O6;Advan#es at
te Advan#es Cell
AO6 1<2 A*L O6;Advan#es
O6 8222 Kpto 822 bps SO6 P Advan#es
SO6 /Advan#es0 at QO 1222 Kpto 822 bps Qonal Head
All reB'ests "or interest rate #on#essions are to be "or-arded to te Advan#es Cells(
Te proposals san#tioned at Advan#es Cells / Qonal O""i#es d'ring a parti#'lar mont are to
be s'bmitted "or revie- by te ne.t iger a'tority tro'g a montly #ontrol ret'rn% latest
by te <t o" te s'##eeding mont% in te pres#ribed "ormat and not on a #ase;by;#ase basis(
Similarly% te proposals san#tioned by te +ran# Heads /Advan#es Cells /eaded by
AO6s/Managers0 d'ring a parti#'lar mont are to be s'bmitted "or revie- by te appropriate
a'tority at Qonal O""i#e or Advan#es Cells as te #ase may be tro'g a montly #ontrol
ret'rn% latest by te <t o" te s'##eeding mont% in te pres#ribed "ormat and not on a #ase;
by;#ase basis( Te #on#essions in rates o" interest / variations a'torised by te O6
/Advan#es0 and SO6 /Advan#es0 d'ring a parti#'lar mont are to be s'bmitted "or revie- by
te SO6/Advan#es0/ Qonal Head respe#tively tro'g a montly #ontrol ret'rn% in te
pres#ribed "ormat by te <t o" te s'##eeding mont(
*" a #ombination o" s#emati# Loan prod'#ts is to be o""ered% te #ombined e.pos're so'l be
te #riterion -ile san#tioning te limits
66
Itrod%ctio to Credit Ri", Maa$emet
De*iitio
O" all di""erent types o" ris!s tat a ban! is s'b$e#t to% #redit ris! #an be de"ined as te ris! o"
"ail're on te part o" te borro-er to meet obligations to-ards te ban! in a##ordan#e -it
te Terms and #onditions tat ave been agreed 'pon( *nability and/or 'n-illingness o" te
borro-er to repay debts may be te #a'se o" s'# de"a'lt(
Te ban! aims at minimi?ing tis ris! tat #o'ld arise "rom individ'al borro-ers or te entire
port"olio( Te "ormer #an be addressed by aving -ell;developed systems to appraise te
borro-ersG te latter% on te oter and% #an be minimi?ed by avoiding #on#entration o" #redit
e.pos're -it a "e- borro-ers -o ave similar ris! pro"iles( Credit ris! management
be#omes even more relevant in te ligt o" te #anges tat ave been bro'gt abo't in te
e#onomi# environment% in#l'ding in#reasing #ompetition and tinning spreads on bot te
sides o" +alan#e seet
Determiat" o* Credit Ri",
:a#tors determining #redit ris! o" a ban!,s port"olio #an be divided into e.ternal and internal
"a#tors( Te ban!s do not ave #ontrol on e.ternal "a#tors( Tese in#l'de "a#tors a#ross a
-ide spe#tr'm ranging "rom te state o" te e#onomy to te #orrelation among di""erent
segments o" ind'stry( Te ris! arising o't o" e.ternal "a#tors #an be mitigated via
diversi"i#ation o" te #redit port"olio a#ross ind'stries espe#ially in ligt o" any e.pe#tations
o" adverse developments in te e.isting port"olio(
Given tat te ban!s ave very little #ontrol over s'# e.ternal "a#tors% te ban! #an
minimi?e te #redit ris! tat it "a#es mainly by managing te internal "a#tors(
Tese in#l'de te internal poli#ies and pro#esses o" te ban! li!e Loan poli#ies% appraisal
pro#esses% monitoring systems et#( Tese internal "a#tors #an be ta!en #are o"% partly% via
e""e#tive rating and monitoring systems% entry level #riteria et#( Tese pro#esses -o'ld
enable improvement in te B'ality o" #redit de#isions(
67
Tis -o'ld e""e#tively improve te B'ality /and en#e pro"itability0 o" te port"olio( Cile
monitoring systems are 'se"'l tool at post;san#tion stage% rating systems a#t as important aid
at te pre;san#tion stage(
Itrod%ctio to Credit Too-"
Te +an! as developed tools "or better #redit ris! management( Tese "o#'s on te areas o"
rating o" #orporate /pre;san#tioning o" Loans0 and monitoring o" Loans /post;san#tioning0(
Te "o#'s o" tis man'al is to "amiliarise te 'ser -it te #redit rating tool(
Credit Rati$: De*iitio
Credit rating is te pro#ess o" assigning a letter rating to borro-ers indi#ating te
#redit-ortiness o" te borro-er( Rating is assigned based on te ability o" te borro-er
/#ompany0 to repay te debt and is -illingness to do so( Te iger te rating o" a #ompany%
te lo-er te probability o" its de"a'lt( Te #ompanies assigned -it te same #redit rating
ave similar probability o" de"a'lt(
U"e i deci"io=ma,i$
Credit rating elps te ban! in ma!ing several !ey de#isions regarding #redit in#l'dingH
R Ceter to lend to a parti#'lar borro-er or notG Cat pri#e to #arge
R Cat are te prod'#ts to be o""ered to te borro-er and "or -at tenor
R At -at level so'ld san#tioning be done
R Cat so'ld be te "reB'en#y o" rene-al and monitoring
*t so'ld% o-ever% be noted tat #redit rating is one o" te inp'ts 'sed in ta!ing #redit
de#isions( Tere are vario's oter "a#tors tat need to be #onsidered in ta!ing te de#ision
/e(g(% adeB'a#y o" borro-er,s #as "lo-% #ollateral provided% relationsip -it te borro-er0(
Te rating allo-s te ban! to as#ertain a probability o" te borro-er,s de"a'lt based on past
data(
68
Mai *eat%re" o* t#e rati$ too-:
i0 Compreensive #overage o" parameters(
ii0 E.tensive data reB'irement(
iii0 Mi. o" s'b$e#tive and ob$e#tive parameters(
iv0 *n#l'des trend analysis(
v0 87 parameters are ben#mar!ed against oter players in te segment( Te tool #ontains te
latest available a'dited data/ratios o" oter players in te segment( Te data is 'pdated at
intervals(
vi0 Capt'res ind'stry o'tloo!(
vii0 Eigt grade ratings broadly mapped -it e.ternal #redit rating agen#y,s ratings prevalent
in *ndia(
S)ecia- *eat%re" o* t#e 1e+ +a"ed credit rati$ too-
i0 Centralised data base(
ii0 Easy a##essibility and "aster #omp'tation o" s#ores(
iii0 Sele#tive a##ess to 'sers based on te area o" operation( +ran#es ave a##ess to te data
pertaining to teir bran# only% Qonal o""i#es ave a##ess to te data pertaining to all te
bran#es 'nder teir #ontrol and te Credit Department and Ris! Department at Central
O""i#e ave a##ess to all a##o'nts(
iv0 AdeB'ate se#'rity system and provision o" a'dit trails "or #on"identiality(
v0 Maintaining o" past rating re#ords in te system "or #olle#tion o" empiri#al data on rating
migrations( Tis -ill enable te ban! to arrive at 6Ds /6robability o" De"a'lt0 "a#tor(
Rati$ Too- *or Sma-- ad Medi%m Eter)ri"e" 4SME6
Te SME rating tool as been developed "or te p'rpose o" assigning a #redit rating to te
SME borro-er o" te +an!( Te aim o" te tool is to provide a standardised system "or te
ban! to eval'ate te #redit ris! o" di""erent borro-ers( *t so'ld% o-ever% be noted tat tis
tool is not te standalone e.er#ise "or te p'rpose o" san#tioning o" Loan to a SME borro-er(
*t so'ld be s'pplemented -it oter inp'ts important in te san#tioning pro#ess(
69
Te "ollo-ing broad areas ave been #onsidered "or deTermining te rating o"
borro-ers in te SME #ategoryH
:inan#ial per"orman#e
+'siness per"orman#e
*nd'stry o'tloo!
I'ality o" management
Cond'#t o" a##o'nt /a"ter roll o't o" te Monitoring tool0
Citin ea# o" tese broad areas% vario's parameters ave been 'sed "or obtaining an overall
rating o" te borro-er( *n te "ollo-ing se#tions% -e sall dis#'ss in greater detail te
str'#t're o" te tool and te metodology o" 'sing it(
Parameter" %"ed i credit rati$ o* SME:
Te rating tool "or SME borro-ers assigns te "ollo-ing -eigtages to ea# one o" te "o'r
main #ategories
i0 S#enario /*0 -ito't monitoring
Parameter <ei$#ta$e 4C6
:inan#ial per"orman#e 92
Operating per"orman#e o" b'siness 11(<
I'ality o" management 11(<
*nd'stry o'tloo! 8<
ii0 S#enario /**0 -it monitoring toolH Te -eigtages -o'ld be #onveyed separately on roll
o't o" te tool(
Parameter" %"ed i t#e SME too-
70
!iacia- )er*ormace
Te tool in its #'rrent "orm 'ses vario's parameters "or rating a borro-er on its
"inan#ial strengt( Tese vario's s'b;parameters give 's an idea o" te di""erent
so'r#es o" ris! being "a#ed by a #ompany in di""erent areas(
O)erati$ )er*ormace o* +%"ie""
Operational e""i#ien#y o" a borro-er is important in deTermining te generation o"
#as "or repayment o" its debt obligations( Te parameters in tis #ategory assess te
borro-er,s #ompeten#e in its primary a#tivities(
D%a-ity o* maa$emet
I'ality o" te management o" a borro-al 'nit as a dire#t impa#t on te per"orman#e
o" te 'nit( Also% it -o'ld ave a dire#t impa#t on te integrity o" te borro-er
espe#ially in Terms o" its -illingness to repay its debt(
Id%"try
*n order to 'nderta!e te #redit rating o" any borro-er% it is important to assess te
ris!iness o" te ind'stry to -i# tat borro-er belongs( +orro-ers% -i# are
similarly ran!ed in Terms o" "inan#ial per"orman#e% operating per"orman#e o"
b'siness and B'ality o" management may ave di""erent #redit ratings d'e to te ris!s
inerent in teir ind'stry( Te ris! assessment in ind'stry se#tors is done at te
Central O""i#e level and appropriate s#ore "or ea# ind'stry as been allo#ated in te
tool( On sele#tion o" te relevant ind'stry se#tor% te tool -ill a'tomati#ally re#!on
te allo#ated s#ore(
T#ree ty)e" %der SME too-
i0 Man'"a#t'ring
ii0 Servi#es and
iii0 Trading
71
Oario's parameters 'nder ea# o" te above stated parameters "or tese tree types o" SME
tool are as 'nderH
' Ma%*act%ri$
i6 !iacia- )er*ormace
Sr8 No8 S%+ )arameter" <ei$#ta$e 4C6
:8 Aet Sales Gro-t Rate /=0 82
:1 6+D*T Gro-t Rate /=0 5
:7 6+D*T/Sales /=0 82
:4 TOL/TAC 82
:5 C'rrent Ratio 82
:> Operating Cas :lo- >
:3 DSCR >
:81ST :oreign e.#ange ris! 82
:87 E.pe#ted val'es o" D/E% i" <2= o" A:+ #redit
devolves /#orre#ted "or margin0
<
:19 Realisability o" Debtors 81
:15S State o" e.port #o'ntry e#onomy <
:1>S :'nd repatriation ris! <
TOTAL 822
S Appli#able "or e.port 'nits
TAppli#able "or 'nits aving imports and or e.ports
ii6 O)erati$ )er*ormace o* +%"ie""
Sr8 No8 S%+ )arameter" <ei$#ta$e 4C6
+5 Credit period allo-ed 82
+> Credit 6eriod Availed 82
+3 Cor!ing Capital Cy#le 12
+82 Ta. in#entives 82
+87 6rod'#tion Related Ris! 82
+89 6rod'#t Related Ris!s 82
+8< 6ri#e Related Ris! 82
+12 Client Ris! 82
+18 :i.ed Asset T'rnover 82
TOTAL 822
iii6 D%a-ity o* maa$emet
72
Sr8 No8 S%+ )arameter" <ei$#ta$e 4C6
M8 HR poli#y/tra#! re#ord o" ind'strial 'nrest 8<
M1 Tra#! Re#ord in De"a'lt o" Stat'tory D'es 84
M7 Mar!et Report o" Management rep'tation 8<
M9 History o" :ERA violation/ED enB'iry >
M4 Too Optimisti# 6ro$e#tions o" Sales and Oter
:inan#ials
84
M3 Te#ni#al & Managerial E.pertise 8<
M> Capability to raise money 8<
TOTAL 822
. Ser2ice"
i6 !iacia- )er*ormace
Sr8 No8 S%+ )arameter" <ei$#ta$e 4C6
:8 Aet Sales Gro-t Rate /=0 82
:1 6+D*T Gro-t Rate /=0 5
:7 6+D*T/Sales /=0 82
:4 TOL/TAC 82
:5 C'rrent Ratio 82
:> Operating Cas :lo- >
:3 DSCR >
:81ST :oreign e.#ange ris! 82
:87 E.pe#ted val'es o" D/E% i" <2= o" A:+ #redit
devolves /#orre#ted "or margin0
<
:19 Realisability o" Debtors 81
:15S State o" e.port #o'ntry e#onomy <
:1>S :'nd repatriation ris! <
TOTAL 822
S Appli#able "or e.port 'nits
TAppli#able "or 'nits aving imports and or e.ports
ii6 O)erati$ )er*ormace o* +%"ie""
Sr8 No8 S%+ )arameter" <ei$#ta$e 4C6
M8 HR 6oli#y/Tra#! Re#ord in *nd'strial Knrest 8<
M7 Mar!et Report o" Management Rep'tation 12
M9 History o" :ERA violation/ED enB'iry 82
73
M4 Too Optimisti# 6ro$e#tions o" Sales and Oter
:inan#ials
12
M> Capability to raise money 8<
M81 Mi. o" 6ro"essional and Traditional
Management
12
TOTAL 822
iii6 D%a-ity o* maa$emet
Sr8 No8 S%+ )arameter" <ei$#ta$e 4C6
M8 HR 6oli#y/Tra#! Re#ord in *nd'strial Knrest 8<
M7 Mar!et Report o" Management Rep'tation 12
M9 History o" :ERA violation/ED enB'iry 82
M4 Too Optimisti# 6ro$e#tions o" Sales and Oter
:inan#ials
12
M> Capability to raise money 8<
M81 Mi. o" 6ro"essional and Traditional
Management
12
TOTAL 822
3 Tradi$
i6 !iacia- )er*ormace
Sr8 No8 S%+ )arameter" <ei$#ta$e 4C6
:8 Aet Sales Gro-t Rate /=0 82
:1 6+D*T Gro-t Rate /=0 5
:7 6+D*T/Sales /=0 82
:4 TOL/TAC 82
:5 C'rrent Ratio 82
:> Operating Cas :lo- >
:3 DSCR >
:81ST :oreign e.#ange ris! 82
:87 E.pe#ted val'es o" D/E% i" <2= o" A:+ #redit
devolves /#orre#ted "or margin0
<
:19 Realisability o" Debtors 81
:15S State o" e.port #o'ntry e#onomy <
74
:1>S :'nd repatriation ris! <
TOTAL 822
S Appli#able "or e.port 'nits
TAppli#able "or 'nits aving imports and or e.ports
ii6 O)erati$ )er*ormace o* +%"ie""
Sr8 No8 S%+ )arameter" <ei$#ta$e 4C6
+7 *nventory T'rnover 84
+5 Credit period allo-ed 82
+> Credit 6eriod Availed 81
+3 Cor!ing Capital Cy#le 84
+82 Ta. in#entives 82
+89 6rod'#t Related Ris!s 81
+8< 6ri#e Related Ris! 81
+19 S'stainability o" Sales 81
TOTAL 822
iii6 D%a-ity o* maa$emet
Sr8 No8 S%+ )arameter" <ei$#ta$e 4C6
M8 HR 6oli#y/Tra#! Re#ord in *nd'strial Knrest 8<
M1 Tra#! Re#ord in De"a'lt o" Stat'tory D'es 84
M7 Mar!et Report o" Management Rep'tation 8<
M9 History o" :ERA violation/ED enB'iry >
M4 Too Optimisti# 6ro$e#tions o" Sales and Oter
:inan#ials
84
M> Capability to raise money 8<
M81 Mi. o" 6ro"essional and Traditional
Management
8<
TOTAL 822
75
De*iitio o* Parameter" %"ed i SME too-
!' = Net Sa-e" Gro1t# Rate
Im)ortace o* t#i" idicator
Tis ratio re"ers to te #ompo'nded ann'al gro-t rate o" net sales over a period o" tree
years(
Te #ompany,s gro-t ratio vis;M;vis oter #ompanies in te ind'stry -ill be a good tool to
assess its per"orman#e( *" te gro-t rate is lo- #ompared to oters in te ind'stry% ten it
-ill enable 's to analyse te problems 'niB'e to tis #ompany(
!orm%-a
Te #ompo'nded ann'al gro-t rate over te past 7 years is #al#'lated in per#entage Terms(
CAGR /Compo'nded ann'al gro-t rate0 "or tree years U
VW/Oal'e o" sales in #'rrent year0//Oal'e o" sales in year P70X/8/70 P 8XYS822
T's it is te tird root o" sales in #'rrent year divided by sales tree years ago%
min's 8% e.pressed as per#ent(
Note"
R Aet sales U Gross sales P *ndire#t ta.es
R :or ban!s% A+:Cs% and oter "inan#ial instit'tionsH
o Aet sales U net interest in#ome Z oter in#ome
!. = PBDIT Gro1t# Rate
Im)ortace o* t#i" idicator
Tis ratio re"ers to te #ompo'nded ann'al gro-t rate o" pro"its be"ore depre#iation /non
#as0% "inan#e #osts /interest0 and ta. over a period o" tree years(
A #onsistent gro-t in tis ratio indi#ates an improved per"orman#e o" te #ompany%
re"le#ted in in#reasing pro"itability /#ompared to its sales gro-t0(
!orm%-a
Te #ompo'nded ann'al gro-t rate over te past 7 years is #al#'lated in
per#entage Terms(
CAGR /Compo'nded average gro-t rate0 "or tree years U
76
VW/Oal'e o" 6+D*T in #'rrent year0//Oal'e o" 6+D*T 7 years ba#!0X/8/70 P 8XYS822
T's it is te tird root o" 6+D*T in #'rrent year divided by 6+D*T tree years
ago% min's 8% e.pressed as per#ent(
Note"
R 6+D*T denotes pro"it be"ore depre#iation% interest and ta.(
R :or ban!s% A+:Cs% and oter "inan#ial instit'tions% 'se 6+T instead o" 6+D*T
!3 = PBDITESa-e"
Im)ortace o* t#i" ratio
Tis ratio indi#ates te pro"it be"ore depre#iation% interest and ta. as a per#entage o" net sales(
Te pro"it be"ore interest% depre#iation and ta. is an indi#ator o" te operational e""i#ien#y( *"
tis ratio as a per#entage o" sales is ig% ten it is a positive indi#ation o" te operating
e""i#ien#y in Terms o" ra- material #ons'mption% employee prod'#tivity and po-er
#ons'mption among oter tings( A ig val'e indi#ates greater pro"itability and en#e
betters #apability to repay te debt( Te ratio is a meas're o" te margin available to a
#ompany "rom its operations(
!orm%-a
Tis ratio /in =0 is #omp'ted by dividing te 6+D*T -it Aet Sales(
/6+D*T/Aet Sales0 . 822
R 6+D*T U Operating pro"it be"ore depre#iation% interest and ta.
R :or ban!s% A+:Cs% and oter "inan#ial instit'tionsH
o Aet sales U net interest in#ome Z oter in#ome
o Kse 6+T instead o" 6+D*T
!; = TOLETN<
Im)ortace o* t#i" ratio
Tis ratio gives a olisti# representation o" total o'tside liabilities in relation to tangible net
-ort o" #ompany( *t re"le#ts te #apa#ity o" te b'siness 'nit to ass're te #reditors o" te
se#'rity tey ave "or payment o" bot interest and instalment( *t indi#ates te e.tent to -i#
te #reditors are #overed by asset(
Tis ratio so-s o- m'# o'tside borro-ings are resorted to in #omparison -it o-ners,
"'nds
77
!orm%-a
Te total o'tside liabilities are divided -it te tangible net -ort o" te
#ompany(
Total O'tside Liabilities
Tangible Aet Cort
R TOL U Total liabilities ; TAC
R TAC as de"ined in Debt EB'ity ratio
R Also #al#'late tis ratio "or ban!s% A+:Cs and oter "inan#ial instit'tions% as it -ill
give an indi#ation o" te #apital adeB'a#y o" te #ompany
!F = C%rret Ratio
Im)ortace o* t#i" ratio
C'rrent assets o" #ompany are te assets tat #an be easily liB'idated and #onverted into #as(
Te #'rrent ratio meas'res sort;Term liB'idity o" te #ompany and ability to meet its sort;
Term "inan#ial obligations( A ig ratio is good "rom te point o" vie- o" te ban! b't a very
ig ratio may a""e#t pro"itability tro'g a ig inventory #arrying #ost(
!orm%-a
Te ratio is -or!ed o't by dividing te C'rrent Assets -it C'rrent Liabilities
C'rrent Assets
C'rrent liabilities /in#l'ding instalments d'e d'ring te year0
R To get a meaning"'l #'rrent ratio% -e so'ld a##o'nt "or te v'lnerability o" a #ompany to
sort Term insolven#y( Te #'rrent ratio #o'ld be ig be#a'se o" e.#ess inventory or slo-
realisation o" debtors( Tere"ore% #'rrent assets m'st not in#l'de inventory -i# is older
tan te normal -or!ing #y#le o" #ompany /say 4;> mont0% re#eivables over 4 monts% dies%
spares reB'ired "or more tan 3 monts o" prod'#tion and disp'ted re#eivables( *" s'#
De.#ess assetsE e.ist ten please ma!e ne#essary notes in te remar!s #ol'mn( *n s'# #ases
please indi#ate yo'r assessment o" te val'e o" #'rrent ratio(
R Also #al#'late tis ratio "or ban!s% A+:Cs and oter "inan#ial instit'tions% as it -ill give an
indi#ation o" te d'ration mismat# o" te #ompany,s balan#e seet
78
!G = O)erati$ Ca"# !-o1
Im)ortace o* t#i" idicator
Tis meas're indi#ates te #ompany,s #as in"lo-s and o't"lo-s arising "rom its operations(
*t is di""erent "rom "'nds "lo- o" b'siness(
*t elps 's to eval'ate te #ompany,s ability to generate #as in"lo-s "rom operations to pay
debt% interest and dividends% and to e.plain te di""eren#e bet-een net in#ome and net #as
"lo- "or operating a#tivities( Te operating #as "lo- #an indi#ate te #ompany,s need "or
e.ternal "inan#ing(
Cile "'nds "lo- is good to mat# long Term and sort Term 'se and so'r#e o" "'nds% tis
indi#ator tries to #apt're te #apability o" te "irm to be able to meet its b'siness obligations
(
Ca-c%-atio
Operating #as "lo- / "or te last "inan#ial year0 is #omp'ted in te "ollo-ing manner
Head Amo%t
Aet Sales
Oter in#ome
Total re#eipts
LessH COGS
Gross 6ro"it
LessH SGA/Operating e.penses
6+D*T
; *n#rease / Z de#rease in non #as #'rrent assets
Z *n#rease / ; de#rease in #'rrent liabilities
Operating #as
LessH *n#ome ta. paid
6ost ta. operating #as
LessH *nterest paid on LT & ST
LessH Dividend paid
Cas "rom operations
Repayment d'e o" long Term debt
79
Ho1 to rate
Compare D#as "lo- "rom operationsE to Drepayment d'e o" long Term debtE(
Te rating is done as e.plained in te table belo-(
De"cri)tio Score
Te #ompany is li!ely to de"a'lt on repayment o" its Loans and
*nterest
O
Te #ompany is not in a position to meet its repayment obligations
"rom its o-n reso'r#es and it "a#es di""i#'lties to arrange o'tside
"'nds
8
Te #ompany is in a position to meet its repayment obligation "rom
its o-n reso'r#es and Term "'nds tat are already applied "or /and
e.pe#ted to be san#tioned sortly0
1
Te #ompany is in a position to meet its repayment obligation "rom
its o-n reso'r#es and Term "'nds
7
Te #ompany is in a #om"ortable position to meet its repayment
obligation "rom its o-n reso'r#es /no need "or o'tside "'nds0
9
!H = DSCR 4De+t Ser2ice Co2era$e Ratio6
Im)ortace o* t#i" ratio
Tis ratio meas'res te #apa#ity o" te #ompany to servi#e its debt i(e( repayment o" prin#ipal
and interest( DSCR meas'res te n'mber o" times a #ompany,s earnings #over its total long;
Term debt;servi#ing reB'irement% in#l'ding interest and prin#ipal repayments in Term Loans%
over a period o" one year(
Tis ratio -ill elp 's to eval'ate i" an adeB'ate #as "lo- -ill be available to meet debt
obligation and also "or providing margin o" sa"ety to lenders( Tis ratio also elps to
deTermine te time -en repayment so'ld #ommen#e and te pay;ba#! period o" te Loan(
Tis ratio is a good indi#ator o" te long;Term solven#y o" a #ompany(
!orm%-a
Te pro"it be"ore depre#iation and interest /6+D*0 is divided by installments d'e
d'ring te year pl's interest(
6 + D *[[[[[[[[[[
*nstalments "or te year Z interest
80
R Do not "ill in tis ratio "or ban!s% A+:Cs and oter "inan#ial instit'tions
!'. = !orei$ e0c#a$e ri",
Im)ortace o* t#i" idicator
Adverse movements in te "oreign e.#ange rate #an ave a tremendo's impa#t on te
#ompany,s "inan#ial strengt(
:oreign e.#ange ris! may be eiter transa#tion based or port"olio based( Transa#tion based
ris! is d'e to time lags bet-een p'r#ases being made and payment being made% or sales
being made and payment being re#eived against tese sales( 6ort"olio based ris! is on a##o'nt
o" "oreign e.#ange Loans -ere te repayment is made on "'t're dates in "oreign #'rren#y(
Te rater needs to !no- o- te li!ely "l'#t'ation in e.#ange rate -ill a""e#t te pro"its o"
te #ompany( Depending on #omposition o" international trade% te adverse e.#ange rate
movement #o'ld a""e#t te pro"itability/#as "lo-( 6r'dent borro-ers edge teir e.pos're to
"oreign e.#ange( Only te 'n;edged part o" te "oreign e.#ange e.pos're so'ld be ta!en
into a##o'nt(
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator on a s#ore o" 2 to 9 based on is per#eption
and !no-ledge o" te "oreign e.#ange ris!( A potential model to allo#ate s#ore #an be te
"ollo-ingH
De"cri)tio Score
Te ris! involved is \ 82= o" TAC 2
Te ris! involved is bet-een >= and 82= o"
TAC
8
Te ris! involved is bet-een <= and >= o" TAC 1
Te ris! involved is less tan <= o" TAC 7
Te entire port"olio is edged 9
81
Im)ortat ote"
R Te "oreign e.#ange ris! #an be B'anti"ied by 'sing te "or-ard e.#ange rates prevailing
in te #'rren#y mar!et(
R Te ris! involved #an be estimated by eval'ating t-o meas'resH
8( e.ports as = o" TAC
1( Aat'ral edge involved% -it a pro.y meas're being /8; imports divided by e.ports0
/al-ays divide te smaller n'mber by te larger one0( Cen tis ratio is
8% "oreign e.#ange ris! "rom e.ports and imports #an#els ea# oter o't /provided it is
to/"rom similar #'rren#y ?ones0
E.ampleH total sales U 822% e.ports U 12% imports U 82% TAC U 122
Ris! involved U e.ports . /8; imports/e.ports0 U 12 . /8; 82/120 U 82
U <= o" TAC
R Also #al#'late tis ratio "or ban!s% A+:Cs and oter "inan#ial instit'tions
!'3 = E0)ected 2a-%e" o* De+t EI%ity ratio i* :JC N!B credit de2o-2e"
Im)ortace o* t#i" idicator
Tis indi#ator gives 's an idea abo't te "'t're e.pe#ted debt eB'ity str'#t're in an e.treme
sit'ation(
*t re#al#'lates te Debt/EB'ity ratio -en <2= o" non;"'nd based limits devolve( *n doing so%
it gives a sense o" te long;Term "inan#ial stability in an e.treme sit'ation( Tis is B'ite a
good #om"orting "a#tor "or te ban!( Most #ompanies ave to p't 'p a margin "or teir non;
"'nd based #redits( Te ne- D/E ratio -ill ave to be #orre#ted "or tis -en te limits
devolve% sin#e part o" it -ill be #overed by te margin
Ca-c%-atio
Te #al#'lation is te same as "or :< P Debt/EB'ity ratio% -it
Debt U Long Term debt
Z <2= o" te #ompany,s non;"'nd based limits
; margin tat te #ompany p't 'p "or its non;"'nd based limits(
R Do not #al#'late tis ratio "or ban!s% A+:Cs and oter "inan#ial instit'tions
82
!.9 = Rea-i"a+i-ity o* De+tor"
Im)ortace o* t#i" idicator
Tis indi#ator so'ld indi#ate te B'ality o" te debtors o" te #ompany and i" money #an be
re#overed "rom tem B'i#!ly and easily( A lot depends on o- a'ditors ave treated te
re#eivables(
Tere are many -ays in -i# te a'ditors #an play aro'nd -it te re#eivables vi?( te
re#eivables may be disp'ted( Re#eivables may be 'nrelated to b'siness a#tivity o" te
#ompany or tere #o'ld be ig amo'nt o" bad debts in te re#eivable port"olio o" te
#ompany( Any delay in re#eipt o" payment "rom debtors/non;re#eipt o" amo'nt #an amper
te prod'#tion #y#le o" a #ompany as -ell as in#rease #olle#tion #osts and te probability o"
de"a'lt on te part o" te debtor o" te #ompany( Hen#e te realisability o" te debtors o" a
#ompany is a #riti#al inp't "or assessing te "inan#ial ris! o" a borro-er(
!.F A State o* t#e e0)ort co%try ecoomy
Im)ortace o* t#i" idicator
Te e#onomy o" te #o'ntry/ies0 to -i# is being e.ported% -ill ave a signi"i#ant impa#t on
te e.porter,s b'siness( A slo-do-n in te e#onomi# gro-t migt even ave a more tan
linear impa#t on te e.porter,s t'rnover and pro"itability% sin#e importers -ill typi#ally may
ave te rea#tion to #'t #osts by #'tting relationsips -it overseas, s'ppliers(
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator on a s#ore o" 2 to 9 based on is per#eption
and !no-ledge o" te "oreign e.#ange ris!( Te minim'm s#ore o" 2 #o'ld be assigned to
e.porters -o trade te b'l! o" teir prod'#ts/servi#es -it 8 single #o'ntry% tat is #'rrently
in a re#ession( Te ma.im'm s#ore o" 9 #an be granted to parties -o ave a -ide port"olio
o" e.port #o'ntries% -it most /or all0 o" tese #o'ntries so-ing strong e#onomi# gro-t(
!.G A !%d re)atriatio ri",
Im)ortace o* t#i" idicator
E.porters are o"ten paid in te #'rren#y o" te #o'ntry to -i# tey e.port(Some o" tese
#'rren#ies may be di""i#'lt to e.#ange or to -ire ba#! to *ndia( *n tat #ase% signi"i#ant #osts
and ris!s are involved in te repatriation o" "'nds% -i# #o'ld a""e#t te overall ris! pro"ile
o" te e.porter
83
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator on a s#ore o" 2 to 9 based on is per#eption
and !no-ledge o" te "oreign e.#ange ris!( Te minim'm s#ore o" 2 #o'ld be assigned to an
e.porter -o trades te b'l! o" is prod'#ts/servi#es -it a #o'ntry tat as very stringent
"oreign e.#ange and #'rren#y repatriation poli#ies( Te ma.im'm s#ore o" 9 #o'ld be
granted to e.porters -o only trade -it #o'ntries% -i# ave no restri#tions on te "lo- or
repatriation o" "'nds(
B3 = I2etory T%ro2er4Tradi$6
Im)ortace o* t#i" ratio
Tis ratio indi#ates te velo#ity /n'mber o" times0 -it -i# te inventory #ir#'lates in te
b'siness% d'ring te relevant period(
A de#rease in ratio #o'ld be a signi"i#ant danger signal( Lo- ratio #o'ld indi#ate te presen#e
o" slo- moving items in sto#!( A ig ratio is good "rom te point o" liB'idity sin#e
inventory -ill be B'i#!ly #onverted into #as( Tis ratio also indi#ates te e""i#ien#y o" te
#ompany in 'tili?ing its inventory and maintaining it at an optim'm level( T's% te iger
te ratio% te iger te sales per 'nit o" investment in inventories( A lo-er ratio res'lts in
ig #arrying #ost and blo#!ing o" "'nds% t's limiting te liB'idity o" te #ompany(
!orm%-a
Te ratio is -or!ed o't by dividing te net sales -it average inventory maintained(
Aet sales
Average inventories
R Average inventory U /opening sto#! o" inventory Z #losing sto#! o" inventory0/1
R *nventory U ra- materials Z C*6 Z "inised goods
R Do not #al#'late tis ratio "or ban!s% A+:Cs and oter "inan#ial instit'tions
BF = Credit )eriod a--o1ed
Im)ortace o* t#i" idicator
Tis indi#ates te period o" realisation o" sales pro#eeds( *t is te average lengt o" time tat
#'stomers -o b'y on #redit ta!e to pay teir d'es( *t indi#ates te e""i#ien#y o" management
in debt #olle#tion(
84
A lo-er val'e o" tis ratio indi#ates a speedy realisation o" sale pro#eeds( Te ind'stry,s
pra#ti#e so'ld be given d'e #onsideration( A ig ratio #o'ld be indi#ative o" disp'ted
re#eivables or a ig amo'nt o" bad debts( Te appraisal o""i#er so'ld be #are"'l -en
assessing tis ratio% sin#e it also re"le#ts te bargaining po-er en$oyed by te #ompany in te
mar!et -it respe#t to te b'yers(
!orm%-a
Te period o" #olle#tion /in days0 is #al#'lated by dividing te average debtors o'tstanding
-it average daily sales(
Average debtors
Average daily sales
Average debtors U /S'ndry debtors in te beginning o" te year Z s'ndry debtors at te
#lose o" te year0/1
R Do not #al#'late tis ratio "or ban!s% A+:Cs and oter "inan#ial instit'tions
BG = Credit )eriod a2ai-ed
Im)ortace o* t#i" idicator
*t meas'res te average time ta!en by te #ompany to pay its s'ppliers "or p'r#ases made on
#redit( Tis ratio relates #redit availed to its total p'r#ases( Tis indi#ator is a meas're o" te
bargaining po-er tat te #ompany en$oys -it its s'ppliers( A stronger #ompany -ill avail a
longer #redit period "rom its s'ppliers tan a -ea! #ompany( A longer #redit period o""ered
by s'ppliers also indi#ates tat te s'ppliers are #on"ident o" te ability o" te #ompany to
pay
tem( A -ord o" #a'tion% a very ig ratio #o'ld indi#ate sort;Term liB'idity problems also(
!orm%-a
Te #redit period availed /in days0 is #omp'ted by dividing te average /non "inan#ial0
#reditors o'tstanding d'ring te year -it average daily #ost o" sales(
Average #reditors
Average daily #ost o" sales
Average #reditors U /S'ndry #reditors in te beginning o" te year Z s'ndry #reditors at
85
te #lose o" te year0/1
R Do not #al#'late tis ratio "or ban!s% A+:Cs and oter "inan#ial instit'tions
BH A <or,i$ ca)ita- cyc-e 4Ma%*act%ri$> Tradi$6
Im)ortace o* t#i" idicator
Cor!ing #apital represents an important part o" te employed #apital o" many #ompanies(
Tere"ore% a good per"orming #ompany so'ld #are"'lly manage tis part o" its assets% sin#e it
represents an important invest Also% te -ay a #ompany go abo't teir -or!ing #apital% says
a lot abo't te management o" te #ompany( *n a sense one #o'ld arg'e tat good -or!ing
#apital management is an indi#ator o" good management :a#tors to be #onsidered *nventory
t'rnover and #redit period allo-ed
Ho1 to ca-c%-ate
Aet sales
Cor!ing #apital
Cor!ing #apital U Ra- materials and sparesZ :inised and semi "inised goodsZ
Debtors
R Do not #al#'late tis ratio "or ban!s% A+:Cs and oter "inan#ial instit'tions
B'J = Ta0 Iceti2e"
Im)ortace o* t#i" idicator
Ta. in#entives #an be a ma$or driver o" pro"itability "or many #ompanies( A 'nit lo#ated in
ba#!-ard area or in some o" te states /li!e Goa or 'nion territory o" Daman & Di' et#(0
en$oy spe#ial ta. in#entives( /+ot states grant in#ome ta. and sales ta. olidays "or 7;< yrs(0
S'# ta. oliday period is elp"'l "or #ompany to ta!e advantage espe#ially in a #ommodity
mar!et and t's improve pro"itability(
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator on a s#ore o" 2 to 9 based on is per#eption
and !no-ledge o" te government poli#ies and ind'stry( Te rater so'ld also be a-are o" te
management strengts and teir ability to ma!e best 'se o" te e.isting government
86
in#entives( S#ore o" 9 indi#ates a ig probability o" s'##ess"'lly getting ta. in#entives(
S#ore o" 2 means no or negative e""e#t o" ta.es(
B'3 = Prod%ctio re-ated ri", 4Ma%*act%ri$6
Im)ortace o* t#i" idicator
Tis meas'res te ris! o" a #ompany -it respe#t to its prod'#tion a#tivities( *t eval'ates te
ability o" #ompany to s'stain te prod'#tion a#tivity at a diversi"ied level( A #ompany aving
little prod'#tion related 'n#ertainties in prod'#tion -o'ld be better pla#ed in te ind'stry(
6roblems in prod'#tion -o'ld lead to impa#t on overall per"orman#e o" te #ompany( T's
te e""i#ien#y% stability and #onsisten#y o" B'ality o" te prod'#tion a#tivities are a #riti#al
deTerminant o" per"orman#e( Te state o" te#nology #an be #onsidered an overall driver o"
tis ris!
!actor" to +e co"idered
Capa#ity KtilisationG Availability o" ra- material% State o" te#nology 'sedG :le.ibility in
prod'#t man'"a#t'ringG 6atents and proprietary te#nologyG R&D A'mber o" man'"a#t'ring
plants(
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator on a s#ore o" 2 to 9 based on is per#eption
and !no-ledge o" te prod'#tion ris!( A potential model to allo#ate s#ore #an be te
"ollo-ingH
S#ore U1% i" #ompany is 'pgrading
b't as old te#nology
S#ore U 9% i" #ompany is 'pgrading
and te#nology is ne-
S#ore U 2%8 i" #ompany is not
'pgrading and as old te#nology
S#ore U 7% i" #ompany is not 'pgrading b't
as ne- te#nology
R Do not #al#'late tis ratio "or ban!s% A+:Cs% oter "inan#ial instit'tions or servi#e
Companies
B'9 A Prod%ctE"er2ice re-ated ri",
Im)ortace o* t#i" idicator
Tis indi#ator meas'res te ris! relating to te prod'#ts man'"a#t'red / servi#es provided by
te #ompany(
87
Te ris!s asso#iated -it te prod'#t #an be tose related to obsoles#en#e% s'bstit'tion%
de#rease in demand et#( A prod'#t so'ld be o" a #onsistent ig B'alityG oter-ise its
mar!et rep'tation -ill s'""er( Te #ompany,s ability to standardi?e prod'#t B'ality% getting
*S* ben#mar!s or *SO #erti"i#ates -ill add to its advantage( Te e.pe#ted prod'#t li"e #y#le
-ill also #ontrib'te to te overall prod'#t ris!( Te sorter te e.pe#ted li"e o" te prod'#t%
te ris!ier te #ompany,s b'siness per"orman#e
(
!actor" to +e co"idered
6rod'#t rangeG 6rod'#t/servi#e B'alityG +rand val'e% Higly #'stomi?ed prod'#t/servi#eG
Obsoles#en#e% Demand s'pply position/gap(
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator on a s#ore o" 2 to 9 based on is per#eption
and !no-ledge o" te prod'#t ris!( A potential model to allo#ate s#ore #an be te "ollo-ingH
De"cri)tio Score
Hig variability in prod'#t/servi#e B'ality /e(g( "reB'ent re#alls0 and
sort prod'#t li"e /]8 year0
2
Hig variability in prod'#t/servi#e B'ality and medi'm prod'#t li"e
/8 to 7 years0
8
Lo- variability in prod'#t/servi#e B'ality and medi'm prod'#t li"e
/8 to 7 years0
1
Ao variability in prod'#t/servi#e B'ality and long prod'#t li"e /\ 7
years0
7
Ao variability in prod'#t/servi#e B'ality and very long prod'#t li"e /\ <
years0
9
B': = Price Re-ated Ri",
Im)ortace o* t#i" idicator
Tis indi#ator meas'res te ability o" a #ompany to di#tate pri#es in te mar!etpla#e as -ell
as to #'t its pri#es in #ase o" a pri#e -ar( Te pri#e #ompetitiveness o" a #ompany is an
important indi#ator o" te #ompetitive position o" a #ompany( A #ompany tat is in a position
to #arge a premi'm over its #ompetitors is better pla#ed in te ind'stry( Similarly% a
88
#ompany -it lo-er #osts is in a good position to -itstand pri#e #ompetition in te mar!et(
*" te #ompany,s prod'#ts en$oy a ig rep'tation% it #an pri#e te prod'#t to its advantage(
!actor" to +e co"idered
E#onomies o" s#ale/#ost e""e#tive te#nologyG +rand EB'ityG 6ri#ing :le.ibilityG :inan#ing
edge over #ompetitorsG +argaining po-er o" b'yers
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator on a s#ore o" 2 to 9 based on is/er
per#eption and !no-ledge o" te pri#e ris!( A s#ore o" 9 means tat te #ompany is not at all
s'b$e#t to pri#e ris!% i(e( #an #arge a s'stainable pri#e premi'm( A s#ore o" 2 indi#ates tat
te #ompany as no #ontrol at all over its pri#e% t's being s'b$e#t to ig pri#e ris!s(
B.J A C-iet ri",4Ser2ice"> Ma%*act%ri$6
Im)ortace o* t#i" idicator
Smaller to midsi?ed #ompanies #an "a#e #onsiderable ris!s at te #lient side( Tis ris! is
t-o"oldH n'mber o" #lients and B'ality o" #lients( Medi'm;si?ed #ompanies sometimes
depend on a very small port"olio o" #lients% or ave 8 predominant #lients -o ma!es or
brea!s te #ompany( Also% medi'm si?ed #ompanies are sometimes #losely #onne#ted to
#lients -it a sady or poor rep'tation( Tis migt not only adversely impa#t teir o-n
rep'tation% b't also
represent a barrier to re#r'iting and retaining o" talent% innovation% ^
!actor" to +e co"idered
A'mber o" #lients% B'ality/rep'tation o" #lients
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator on a s#ore o" 2 to 9 based on is/er
per#eption and !no-ledge o" te #lient ris!( A s#ore o" 9 means tat te #ompany as a -ell
diversi"ied port"olio o" ig B'ality #lients( A s#ore o" 2 indi#ates tat te #ompany depends
on a small set o" #lients% -i# #an be per#eived as 1nd or 7rd ran! in teir respe#tive
ind'stry(
B.' A !i0ed a""et t%ro2er 4Ma%*act%ri$6
Im)ortace o* t#i" idicator
89
:i.ed assets represent an important part o" te #apital employed at man'"a#t'ring #ompanies(
A -ell per"orming #ompany so'ld tere"ore ma!e s're tat it gets te ma.im'm o't o" its
ma#ine par!(
Ho1 to rate
Aet sales
:i.ed tangible assets
Cit "i.ed tangible assets U repla#ement or a#B'isition val'e o" "i.ed tangible assets
/land% ma#ines% b'ildings%((0
B.. A D%a-ity o* itera- )roce""e" / "y"tem" 4Ser2ice"6
Im)ortace o* t#i" idicator
Te b'siness per"orman#e o" servi#e #ompanies is o"ten determined by te B'ality o" teir
internal pro#esses and systems( *t is tere"ore important to assess o- tese #ompanies s#ore
on tese dimensions% sin#e tey -ill be an important #ontrib'tor to te potential s'##ess and /
or ris! o" te #ompany
!actor" to co"ider
Consisten#y o" delivered servi#e% timeliness or response time% internal saring o" !no-;o-%
B'ality o" internal training programs%
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator on a s#ore o" 2 to 9 based on is/er
per#eption and !no-ledge o" te B'ality o" internal pro#esses and systems( A s#ore o" 9
means tat te #ompany,s pro#esses and systems are #onsidered top #lass in te ind'stry( A
s#ore o" 2 indi#ates tat te #ompany as a very poor servi#e o""ering and res'lting
rep'tation(
B.3 A Com)etece to io2ate4Ser2ice"0
Im)ortace o* t#i" idicator
Te s'##ess o" a #ompany #an o"ten be related to te overall per"orman#e o" its servi#e
o""ering( Tere"ore% a #ompany,s #apability to develop servi#es -i# respond to its 'sers,
needs /tro'g e""i#ien#y% #'stomi?ation% e""e#tiveness ^0 -ill in"l'en#e its #ompetitive
position and en#e its s'##ess
90
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator% based on is 'nderstanding o" te #ompany,s
innovation #apabilities( A rating s#ale "rom 2 to 9 -ill be 'sed( A s#ore o" 1 means tat te
#ompany #an be seen as aving DaverageE innovation s!ills( A s#ore o" 7 or 9 indi#ates a
stronger or o'tstanding /respe#tively0 innovational strengt #ompared to its #ompetitors( A
s#ore o" 8 or 2 indi#ates a -ea!er or poor /respe#tively0 innovation s!ill #ompared to
#ompetitors.
B.9 A S%"taia+i-ity o* "a-e"4Tradi$6
Im)ortace o* t#i" idicator
An important driver o" te s'##ess o" a trading #ompany% is te level o" sales it is able to
generate( Tere"ore% te ris! asso#iated -it a trading #ompany is very m'# lin!ed to te
s'stainability o" its sales( A #ompany -it s'stainable sales -ill ave a #ore port"olio o"
prod'#ts% -i# -ill not s-it# B'i#!ly( Opport'nisti# trading #ompanies do r'n te ris! o"
ma!ing te -rong DbetE% res'lting in impressive de#lines in sales(
Ho1 to rate
Te rater as to s'b$e#tively rate tis indi#ator% based on is 'nderstanding o" te #ompany,s
sales s'stainability( A rating s#ale "rom 2 to 9 -ill be 'sed( Te ma.im'm s#ore o" 9 #an be
assigned to trading #ompanies -it a strong port"olio o" #ore prod'#ts% so-ing #ontin'o's
gro-t as a res'lt o" a -ell laid o't strategy( Te minim'm s#ore o" 2 #o'ld be given to
opport'nisti# trading #ompanies% so-ing a very random pat in per"orman#e% and -ito't a
#lear;#'t strategy(
S%+@ecti2e A""e""met o* D%a-ity o* Maa$emet
Ho1 to rate:
Te rater so'ld rate te ratios and indi#ators on te s#ore o" 2 to 9 depending on is
'nderstanding and #om"ort levels(
A s#ore o" 9 means tat te rater "eels tat promoters and teir management -ill per"orm
very -ell on te ratio/indi#ator( Adversely% te rater so'ld assign a s#ore o" 2 i" e/se
tin!s tat management -ill per"orm poorly on te ratio/indi#ator(
91
Te importan#e o" ea# o" te above ratios and indi#ators are no- listed(
M' = HR )o-icy E Trac, record o* id%"tria- %re"t
Im)ortace o* t#i" idicator
Tis "a#tor relates to labo'r 'nrest% lo#! o't% and -or! slo- do-n% stri!e and strained
management P employee relation( *nd'strial armony is a !ey "a#tor "or s'##ess o" an
ind'stry/b'siness( *n sort% tis indi#ator re"le#ts te B'ality o" te #ompany,s HR poli#y(
:a#tors to assess in#l'deH is te HR system "air and eB'itable% are promotions based on
merits% does te #ompany provide a s'pportive environment% and do employees "eel
appre#iated_
M. = Trac, record i de*a%-t o* "tat%tory d%e" 4e8$8 E-ectricity +i--"> P! d%e"> etc86
4Ma%*act%ri$ >Tradi$6
Im)ortace o* t#i" idicator
Tis "a#tor ta!es into a##o'nt te serio'sness o" te #ompany and its management to-ards
#ontra#t'al obligation( *" management is not serio's abo't te legal and stat'tory d'es ten
tere is a ig probability o" it not being #ommitted to "'l"il te Loans ta!en "rom te ban!(
M3 = Mar,et re)ort o* maa$emet re)%tatio
Im)ortace o* t#i" idicator
Tis mar!et report assesses te rep'tation or general per#eption abo't integrity and "air
dealing o" te promoters( Te rep'tation o" promoters regarding teir integrity% adering to
#ommitments% "air dealings as important bearing on B'ality o" management( Tis
in#identally be#omes one o" te most important ratios and indi#ators% as past beavio'r is
o"ten a good pro.y "or teir "'t're beavio'r(
Adverse per"orman#e o" asso#iate #on#erns #ontrolled by te #orporate so'ld also be
#onsidered(
92
M9 = Hi"tory o* !ERA 2io-atio EED eI%iry
Im)ortace o* t#i" idicator
A #ompany may ave a tra#! re#ord o" :ERA violation or migt ave "a#ed raids by te
En"or#ement Dire#torate( Companies also ind'lge in 'nealty pra#ti#e o" ele#tri#ity te"ts or
evasion o" ST% *T or E.#ise or ind'lge in Ha-ala transa#tions% 'nder;invoi#ing or over;
invoi#ing( S'# instan#es spea! abo't poor integrity o" #ompany and indi#ate abo't #ompany
-or!ing against national interest(
M; A Too o)timi"tic )ro@ectio" o* "a-e" ad ot#er *iacia-"
Im)ortace o* t#i" idicator
Tere is sometimes a #ons#io's attempt to over;estimate "inan#ial pro$e#tions to se#'re
e.#ess borro-ings( Re#'rrent non;a#ievement o" targets #o'ld be indi#ative o" s'#
pra#ti#e( Care"'l s#r'tiny o" past tra#! re#ords elp develop an idea o" reliability o"
pro$e#tions(
MG A Ca)a+i-ity to rai"e re"o%rce"
Im)ortace o* t#i" idicator
Management,s #apability o" raising additional reso'r#es is an important "a#tor in assessing
te #redit-ortiness o" te #ompany( *" management is li!ely to "ind additional o'tside
"'nding /"rom #apital mar!et% partners% "amily% gro'p #ompany%^0 -enever tis is
ne#essary% tis so'ld #ontrib'te to a red'#ed ris! "or te ban!(
MH = Tec#ica- / Maa$eria- e0)erti"e4Ma%*act%ri$6
Im)ortace o* t#i" idicator
Tis indi#ator relates to te te#ni#al !no-ledge and e.perien#e o" te promoters in te
relevant area o" operation( Te#ni#al s!ills -ill #ontrib'te to a greater e""i#ien#y o"
operations and B'ality o" prod'#ts( Managerial !no-;o- -ill enable management to avoid
typi#al pit"alls and to p't togeter a #onsistent and "easible strategy(
M'. A Mi0 o* )ro*e""ioa- ad traditioa- maa$emet 4Ser2ice">Tardi$6
Im)ortace o* t#i" idicator
Tis indi#ator tries to eval'ate te pro"essionalism o" te #ompany,s management( *t is
important tat te management #onsists o" people -o !no- te b'siness% te ind'stry and
-o ave te ne#essary e.perien#e to ma!e tings -or!( Ho-ever% a lot o" #ompanies are
93
still "amily;o-ned% -i# is o"ten re"le#ted in te #omposition o" te management team(
Tere"ore% it is important to assess i" te #ompany maintains a good balan#e bet-een
traditional management /-o o"ten o-n te #lient relations0 and pro"essional management(
Moitori$ Too-
Itrod%ctio
Te -eb based #redit rating model #onsists o" te "ollo-ing t-o toolsH
80 Credit rating tool
10 Monitoring tool

Te model as been provided -it te "ollo-ing t-o optionsH
80 S#enario *
10 S#enario **
At te time o" san#tioning o" a "res advan#e% te #on#erned #lient so'ld be rated in te
#redit rating model 'nder te Sceario I option( Tis -o'ld a#tivate te Credit rati$ too-
provided in te rating model and based on te data entered% te tool -o'ld #omp'te a #redit
rating "or te #lient(
A"ter te san#tion and disb'rsement o" te advan#e% rating o" te borro-er so'ld be
revie-ed at a "reB'en#y indi#ated by te rating -ise s#ed'le /as indi#ated in te Credit
6oli#y o" te +an!0( Tis rating e.er#ise so'ld be done in te model 'nder te Sceario II
option( Tis -o'ld a#tivate bot te Credit rati$ too- ad t#e Moitori$ too- in te
model8 Te model -o'ld re;#omp'te te overall rating a"ter re#!oning te data bot "rom
rating tool and te monitoring tool( On#e an a##o'nt as been re;rated 'sing te S#enario;**
option% "'rter modi*icatio" / re=rati$" pertaining to tat a##o'nt -ill #omp'lsorily ave
to be done 'sing S#enario;** option only( *n oter -ords% te a##ess to S#enario;* option -ill
be blo#!ed in s'# #ases
94

/Te above stated -eigtages are s'b$e#t to #ange0
+ases on an e.er#ise #ond'#ted to e.amine te rob'stness o" te monitoring toolG te
erst-ile #ond'#t rating parameters ave been #ondensed and divided into t-o gro'psH
80 H%rd-e"H Tese are parameters -i# la#! te dis#riminating po-er bet-een a good
and a bad a##o'nt b't tey are neverteless important as "ar as beavior o" an obligor
is #on#erned(
10 Di"crimiat"H Tese are parameters -i# ave iger dis#riminating po-er bet-een
a good and a bad a##o'nt and maybe 'sed "or predi#ting de"a'lts(
Sin#e inp'ts "or te monitoring tool -ill be available -it te bran#es% data inp't in te
monitoring tool -ill be done by te bran#es only( *n #ase o" any #lari"i#ations te 'ser may
get in to'# -it te Ris! Department at Central O""i#e
95
Te "ollo-ing
-eigtages ave been
allo#ated 'nder te
above stated respe#tive
s#enariosH 6arameters
LCMC SME
S#enario 8 S#enario ** S#enario 8 S#enario **
:inan#ial 92(22 7<(22 <<(22 95(<2
+'siness 11(<2 85(<2 8<(22 8<(22
Management 11(<2 12(22 8<(22 8<(22
*nd'stry 8<(22 81(<2 8<(22 81(<2
Monitoring Tool
/Cond'#t0
Aot Appli#able 8<(22 Aot Appli#able 82(22
96
Parameter
H%rd-e"
A8 Creation o" Carge on 6rimary Se#'rity
A1 Creation o" #arge on #ollateral and / or e.e#'tion o" personal /
#orporate g'arantee
A7 Oter Terms & #onditions not #omplied -it
A9 Re#eipt o" periodi#al data / Sto#! & +oo! Debt statements
A< Re#eipt o" +alan#e Seet / Rene-al data
A4 Complian#e o" "inan#ial #ovenants
A5 Knit inspe#tion reports observations
A> Ro'ting o" proportionate t'rnover / b'siness
A3 Ktilisation o" "a#ilities /not appli#able "or Term Loan0
A82 AdeB'a#y o" ins'ran#e "or te primary / #ollateral se#'rity
+8 Aegative Deviation in Aet Sales /a#t'al vs( estimates0
+1 :inan#ial Dis#ipline
Overd'e dis#o'nted bills d'ring te period 'nder revie-
Devolved bill 'nder L/C o'tstanding d'ring te period 'nder
revie-
*nvo!ed +Gs iss'ed o'tstanding d'ring te period 'nder revie-
:reB'en#y o" RETKRA o" #eB'es per B'arter deposited by
borro-er
:reB'en#y o" iss'ing o" #eB'es -ito't s'""i#ient balan#e per
B'arter
6ayment o" *ATEREST or *ASTALMEAT
+7 :reB'en#y o" reB'ests "or Ad Ho# in#rease in limits
+9 :reB'en#y o" overdra-ing in CC a##o'nt
+< Any oter adverse "eat'res "inan#ial / non;"inan#ial% in#l'ding
#orporate governan#e iss'es s'# as adverse p'bli#ity% stri#t'res
"rom reg'lators% politi#al ris! and adverse trade environment not
#overed else-ere
(
H%rd-e"
A': Creatio o* C#ar$e o Primary Sec%rity
6rimary se#'rity re"ers to te asset/s ta!en as te main tangible se#'rity "or te "'nding o"
-i# te ban! grants "inan#e% s'# as inventory% re#eivables% oter #'rrent assets% "i.ed
assets% et#( Cen tese assets are ta!en as se#'rity% tey so'ld be properly #arged to te
ban! by -ay o" ypote#ation% mortgage% pledge and assignment -i# so'ld be legally
en"or#eable( *n #ase te primary se#'rity is not properly #reated or #arged as reB'ired 'nder
te relevant la-% te ban!,s advan#e may be#ome 'nse#'red t's in#reasing te ris! in te
e.pos're( Ce#! -eter te #arge on primary se#'rity stip'lated in te san#tion as been
#reated and registered -it te RoC /-ere ever reB'ired0 or any oter a'tority( *" any o"
te reB'irements o" proper #reation o" #arge on te primary se#'rity is not "'l"illed% #arge
on te stip'lated se#'rity is #onsidered as not #reated "or tis e.er#ise( Even i" te delay in
#reation o" se#'rity is allo-ed by te san#tioning a'tority% se#'rity is #onsidered as not
#reated(
A.: Creatio o* c#ar$e o co--atera- ad E or e0ec%tio o* )er"oa- E cor)orate
$%aratee
Collateral se#'rity is ta!en as an additional se#'rity over and above te primary se#'rity( Te
#ollateral se#'rity o""ers additional #om"ort to te ban! partly mitigating te ris! involved in
te e.pos're( Te reB'irements stated in respe#t o" te primary se#'rity /'nder A80 are
appli#able "or te #ollateral se#'rity also(
97
A personal / #orporate g'arantee "'rter enan#es te degree o" mitigation o" ris!( *t is
important to ens're tat tese ave been e.e#'ted / obtained stri#tly as per te san#tion
Terms and legal reB'irements(
A3: Ot#er Term" / coditio" ot com)-ied 1it#
Apart "rom te se#'rity% vario's oter Terms and #onditions are stip'lated "or enabling te
ban! to mitigate ris! "rom te e.pos're( Some o" te stip'lations ass'me greater importan#e
to te sa"ety o" advan#e s'# as obtention o" AOC "rom te e.isting lenders "or #reation o"
"irst / se#ond / paripass' #arge in "avo'r o" te ban!% bringing in anoter ban! "or saring /
tying 'p te gap% end 'se #erti"i#ation% et#(
A9: Recei)t o* )eriodica- data E Stoc, / Boo, De+t "tatemet"
Timely re#eipt o" vario's data "rom te borro-er is o" 'tmost importan#e in monitoring te
ealt o" an a##o'nt( Apart "rom deTermining te dra-ing po-er /-ere ever appli#able0%
te data is #onsidered as an indi#ator o" #ond'#t o" te borro-er,s b'siness operation -i#
ave impli#ation on te #ond'#t / per"orman#e o" te a##o'nt( Aon re#eipt o" s'# data /"or
any reason -atsoever0 itsel" is #onsidered as a ris! "a#tor( Even in #ase o" "reB'ent delays in
s'bmission o" sto#! statements% ::R% et# te parameter so'ld be rated as @Aot Complied,(
A:: Recei)t o* Ba-ace S#eet E Ree1a- data
Te balan#e seet is one o" te so'r#es o" tangible in"ormation on te #ompany,s operation
-i# #an be ob$e#tively analysed to assess te e""e#tiveness o" te b'siness model( S#r'tiny
o" te balan#e seet #an elp noti#e salient and abnormal "eat'res in te areas o" #as "lo-%
"'nd "lo-% #apital base% prod'#tion% inventories% re#eivables% sales% borro-ings% diversion o"
"'nds% and pro"itability( A timely s'bmitted balan#e seet enables te +an! to assess potential
adverse "eat'res and ta!e appropriate a#tion -ell in time( Aon "inalisation o" a'dited balan#e
seet% non s'bmission / delayed s'bmission o" a'dited balan#e seet / rene-al data re"le#ts
poorly on te #orporate governan#e o" te borro-er and #onsidered as one o" te ris! "a#tors(
A;: Com)-iace o* *iacia- co2eat"
:inan#ial #ovenants are stip'lated "or mitigating ris! in an e.pos're( Some o" tese
stip'lations relate to #reation o" Debt Servi#e Reserve% maintenan#e o" minim'm asset #over%
#'rrent ratio level% TOL/TAC ratio% in"'sion o" "'nds by promoters% raising o" long Term
98
"'nds% liB'idation o" investments% restri#tions o" investments/dividend et#( Tese ris!
mitigation meas'res provide e.tra #om"ort to te ban! -ile san#tioning te advan#e( *n #ase
te stip'lated "inan#ial #ovenants are not #omplied -it% partly or "'lly% te e.pos're -o'ld
#arry a iger ris! -i# needs to be #apt'red in te monitoring tool(

AF: Uit i")ectio re)ort" o+"er2atio"
6ysi#al inspe#tion o" borro-er,s 'nit enables te ban! to veri"y te in"ormation s'pplied by
te borro-er( *nspe#tion so'ld #over te "ollo-ing indi#ative areasH
R *dle plant and ma#inery(
R Attendan#e o" labo'r / sta"" and teir -or!ing #onditions(
R AdeB'ate availability o" 'tilities / in"rastr'#t're s'# as -ater% po-er% et#(
R I'ality & val'e o" inventory & "inised prod'#t(
R Legal / stat'tory / lender,s noti#es pasted in te "a#tory or on te 6lant and Ma#ineries(
*n #ase o" borro-ers engaged in a#tivities oter tan man'"a#t'ring% te borro-er,s godo-n /
o""i#e / bran#es / o'tlets so'ld be visited "or as#ertaining te overall #ond'#t o" b'siness(
AG: Ro%ti$ o* )ro)ortioate t%ro2er E +%"ie""
Te 'ser is reB'ired to sele#t -eter te borro-er en$oysH
So-e Ba,i$
M%-ti)-e E Co"orti%m Ba,i$
And rate te borro-er as per te options provided tere 'nder(
Apart "rom s'pplementing oter in#ome "rom te borro-er te ro'ting o" entire /
proportionate t'rnover / b'siness enables te ban! to #apt're te borro-er,s #as "lo- -i#
an important indi#ator o" te borro-er,s operations(
*n #ase o" sole ban!ing arrangement% te borro-er is e.pe#ted to ro'te its entire t'rnover /
b'siness tro'g te ban!( *n oter #ases% at least proportionate b'siness so'ld be ro'ted(
6oints to noteH
*n #ase o" Term Loan "a#ility -ito't -or!ing #apital "a#ility% te ro'ting o"
t'rnover/b'siness tro'g te ban! is #onsidered as an added advantage to te ban!% alto'g
it may not be one o" te stip'lations(
99

AH: Uti-i"atio o* *aci-itie" 4ot a))-ica+-e *or Term Loa6
:'ll 'tilisation o" #as #redit "a#ilities -ito't variations "or a long period reB'ires #loser
s#r'tiny to ens're tat te liB'idity o" te borro-er is not strained( Te parameter intends to
#apt're s'# ris!( Optim'm 'tilisation o" a##o'nt apart "rom indi#ating so'ndness o"
borro-er,s #as "lo- also ens'res adeB'ate earnings "or te ban!(

A'J: AdeI%acy o* i"%race *or t#e )rimary E co--atera- "ec%rity
*nadeB'a#y o" ins'ran#e indi#ates lo- val'e o" assets or te possibility tat te borro-er as
inadeB'ate interest in te assets( Knderins'ran#e -o'ld res'lt in appli#ation o" @average
#la'se, leading lo-er settlement o" #laim( Tese impli#ations are 'ndesirable "rom a lender,s
point o" vie-(
Di"crimiat"
B': Ne$ati2e De2iatio i Net Sa-e" 4act%a- 2"8 e"timate"6
Te amo'nt o" estimated/pro$e#ted net sales is one o" te ma$or parameters o" #redit
assessment( Aon;a#ievement o" estimated/pro$e#ted net sales by te #ompany indi#ates
setba#! in te borro-er,s b'siness per"orman#e( Aon;a#ievement o" sales #o'ld be one o"
te early indi#ators o" te -ea!ening o" an a##o'nt and -e need to loo! "or te reason/s "or
te set ba#!( Te 'ser needs to inp't te sales t'rnover as per te latest A'dited Ann'al report
as -ell as te sales t'rnover estimated / pro$e#ted in te #redit appraisal "or te #orresponding
period(
B.: !iacia- Di"ci)-ie
O2erd%e di"co%ted +i--" d%ri$ t#e )eriod %der re2ie1
Aon realisation o" bills dis#o'nted by te ban! re"le#ts adversely on te borro-er,s #'stomer
pro"ile and en#e #onsidered as ris!(

De2o-2ed +i-- %der LEC o%t"tadi$ d%ri$ t#e )eriod %der re2ie1
100
AdeB'ate #as "lo-s are one o" te important indi#ators o" satis"a#tory ealt o" a borro-er(
Devolvement o" bills 'nder LC indi#ates inadeB'ate #as "lo-s o" te borro-er( Histori#ally%
in most o" te #ases% s'# "eat'res are te starting point o" "inan#ial de"i#ien#y 'ltimately
leading to de"a'lt( A borro-er aving adeB'ate #as "lo-s and e""i#ient #as "lo-
management system -o'ld not allo- devolvement o" #ontingent liability s'# as bills 'nder
LC(
I2o,ed BG" i""%ed o%t"tadi$ d%ri$ t#e )eriod %der re2ie1
*nvo#ation o" a g'arantee indi#ates te borro-er,s "ail're to per"orm te #ontra#t or meet te
reB'irement "or -i# te g'arantee -as iss'ed and #onsidered as a ris! "a#tor( :'rter% non;
payment o" te invo!ed +an! G'arantee obligation -itin a reasonable period is #onsidered
ris!y(
!reI%ecy o* ret%r o* c#eI%e" )er I%arter de)o"ited +y +orro1er
Ret'rn o" #eB'es deposited by te borro-er indi#ates lo- #redit -ortiness o" te
borro-er,s #lients or te goods s'pplied by te borro-ers do not #on"orm to te Terms o"
sale B'alitatively( Tis may 'ltimately a""e#t te b'siness o" te borro-er and en#e
#onsidered as a ris! "a#tor(
!reI%ecy o* i""%i$ o* c#eI%e" 1it#o%t "%**iciet +a-ace )er I%arter de)o"ited +y
+orro1er
*ss'an#e o" #eB'es by te borro-er -ito't maintaining s'""i#ient balan#e in te a##o'nt
impa#ts is #redit -ortiness( Tis -o'ld ave negative impa#t on te ealt o" te borro-er(
Paymet o* itere"t or i"ta-met
:ail're to meet interest / instalment payment obligation indi#ates #rystalli?ation o" #redit ris!(
De"a'lt / delay in payment o" interest or instalment represent a strong -arning signal abo't
te ealt o" te a##o'nt(
B3: !reI%ecy o* reI%e"t" *or Ad Hoc icrea"e i -imit"
:reB'ent reB'ests "or ad o# in#rease in limits indi#ate la#! o" proper management o" "'nds
or inability o" te borro-er to raise "'nds "rom oter so'r#es or la#! o" #as "lo-s to manage
te -or!ing #apital #y#le( Te signal adds to ris! pro"ile o" te borro-er(
B9: !reI%ecy o* o2erdra1i$ i CC acco%t
101
Te reB'irement o" -or!ing #apital "inan#e is assessed on te basis o" borro-er,s estimated /
pro$e#ted level o" operations( Hen#e% te borro-er so'ld be able to manage is "'nds
reB'irement -itin te san#tioned "a#ilities( :reB'ent overdra"t o" te CC a##o'nt d'e to any
reason /s'# as Term instalment% interest% temporary liB'idity mismat# et#(0 indi#ates poor
management o" -or!ing #apital "inan#e and may be a potential ris! o" de"a'lt(
B:: Ay ot#er ad2er"e *eat%re" *iacia- E o=*iacia-> ic-%di$ cor)orate
$o2erace i""%e" "%c# a" ad2er"e )%+-icity> "trict%re" *rom re$%-ator"> )o-itica- ri",
ad ad2er"e trade e2iromet ot co2ered e-"e1#ere
Ao e.pos're is ris! "ree nor #an all ris! "a#tors in an e.pos're be ob$e#tively listed or
"oreseen at a given point o" time( As tis parameter is s'b$e#tive te rater so'ld sele#t a
s'itable option based on is/er 'nderstanding o" te borro-er and te e.pos're(
:a#tors in#l'ding mar!et "or#es li!e #apital mar!et per#eption /#ontin'o's "all in te sto#!
pri#e -i# are signals o" deteriorating "inan#ial #onditions% as -ell as oter iss'es0 may be
#onsidered -ile sele#ting te option(
Rati$ Sca-e"
Te rating tool "or SME as an >;point rating s#ale% -i# ranges "rom SME 8 to SME >(
Borro1er Rati$ Ra$e o* Score" Ri", Le2e-
SME 8 Above >< Lo-est ris!
SME 1 54;>< Lo-er ris!
SME 7 44;5< Lo- ris!
SME 9 <4;4< Moderate ris!
SME < 94;<< Hig ris!
SME 4 74;9< Hig ris!
SME 5 14;7< Higer ris!
SME > +elo- 14 Higest ris!
102
CHAPTER=G
CASE STUD&= '
Detai-" o* ca"e "t%dy
Name ME" Dyemic Prod%ct" Limited 4DPL6
Co"tit%tio 6'bli# Limited Company
O**ice Addre"" +; 728% Satyamev Comple.;8% Opp( Ae- G'$arat Hig Co'rt%
S(G(Hig-ay% Sola% Amedabad;7>2 242% G'$arat% *ndia(
Lie o* acti2ity Man'"a#t'ring o" :ood Colo'r 6rod'#ts
Sector Cemi#al and Cemi#al 6rod'#ts
Dea-i$ 1it# %" Ae- Conne#tion
Icor)oratio 89t F'ne 8332
Name o* Director" Mr( Dasratbai 6raladbai 6atel /D*A H 2222>8420
Mr( Ramesbai +ag-anbai 6atel /D*A H 22275<4>0
Mr( Hitendra Hargovinddas Set /D*A H 2227552<0
Mr( Fagdisbai Sevantilal Sa /D*A H 22275>140
Mr( Harisbai Jesavlal Sa /D*A H 222753710
Mr( +ag-andas Jalidas 6atel /D*A H 2229<>9<0
Mr( Di.it +ag-andas 6atel /D*A H 2229<>>70
Mr( Sasi!ant 6'rsottambai 6atel /D*A H 2229<3<50
Mr( Oisn'bai Gangarambai 6atel /D*A H 221529870
Mr( San!arlal +al'ram M'ndra /D*A H 227>>1290
Gro%) Aot a re#ogni?ed gro'p
Rati$ E.ternalH Aot done(
*nternalH SME 7 /A+S 78(27(12230
A""ociate Cocer Dynemi# Overseas /*ndia0 6rivate Limited
Dynemi# KSA *n#(
S#are #o-di$ )atter As mentioned belo-
S#are Price mo2emet Listed on te +SE
C'rrent Mar!et 6ri#e P Rs(89(<</; /15(88(12230
<1 -ee! ig/lo- P Rs( 13(12 / 11 AprL 230 / Rs( 82(22 / 84 FanL 230
Brie* Bac,$ro%d:
Te Company -as in#orporated on 89
t
F'ne% 8332 as 6rivate Limited Company( Te Aame
-as s'bseB'ently #anged to Dynemi# 6rod'#ts Limited on 78/81/8331( Te Company -as
103
promoted -it te ob$e#tive o" #arrying on te b'siness o" man'"a#t'ring S(6(C(6% te ra-
material "or :ood Color% rea#tive & Raa?ole Dyes(
*n te Year 1222 te #ompany a#B'ired te r'nning b'siness o" M/s Sa""orn Dye St'""
*nd'stries and started man'"a#t'ring -ide range o" "ood #olors at te premises 7523/4% G*DC
Estate% An!les-ar aving plot area o" admeas'ring 7522 SB(Mtr(
As te #ompany aims to provide entire range B'alitative and B'antitative servi#e to "ood
ind'stry% as its Knit *( Te #ompany #ommen#ed man'"a#t'ring o" "ood #olors namely
Tratra?ine in te year 1222;28( +ot te 'nits at An!les-ar are Kltra modern and ave e#o
"riendly plants -it in o'se testing "a#ilities to #ontrol B'ality at every level o"
man'"a#t'ring( Te Company gained good-ill in te sort span o" time d'e to its B'ality
prod'#t( Te #ompany as -ell eB'ipped state o" art in o'se laboratory -i# #ond'#t test
o" every parameter o" "ood #olor & Dye intermediates laid do-n 'nder national and
international a'torities( Te Company e.ports its prod'#t to aro'nd 98 #o'ntries -orld-ide(
All tese ave led te #ompany to a#B'ire and retain a stat's o" largest man'"a#t'rer and
s'pplier o" "ood #olors and dye intermediates in *ndia(
D%a-itati2e !actor":
Te Company as a pro;a#tive Management and 6romoters -o ave ands on
e.perien#e in man'"a#t'ring o" Dyes *nTermediaries and :ood Colo'rs(
6ro"it ma!ing Company sin#e last 87 years(
Te #ompany as to its #redit an a-ard "or *ndire#t E.port o" Sel" Man'"a#t'red Dyes
"or te year 1228;21 & 1221; 27 re#eived by G'$arat Dyest'""s Man'"a#t'rers,
Asso#iation(
Te #ompany as obtained #erti"i#ate o" approval :rom +'rea' Oerities I'ality
*nternational /+OI*0 "or a#ievement o" *SO 3228H 1222 B'ality standards% te
Company as also re#eived #erti"i#ate o" approval "rom +'rea' Oerities I'ality
*nternational /+OI*0 "or a#ievement o" 89228H8334 and 89228H1229 B'ality
standards "or bot its 'nits satiated at An!les-ar(
Te #ompany as also obtained HAAC6 CodeH 1227 #erti"i#ate o" registration "rom
TICS *nternational /Gro'p0 6ty Ltd 'nder "ood sa"ety programme "or bot its 'nits
sit'ated at An!les-ar
104
Te #ompany -as a-arded -it tropy "or e.port per"orman#e o" more tan Rs( 4(22
& >(22 Crore "or Sel"
Man'"a#t'red *ndire#t E.port o" Dyes & inTermediates in te year 1221;27 by
G'$arat Dyest'""s Man'"a#t'rers,Asso#iation(
+ot te Knits o" te #ompany are e.porting Oriented Knits and ave obtained te
stat's o" One Star E.port Ho'se(
Mar,eti$ Strate$yEMar,eti$ arra$emet
Strong and e.perien#e people are leading #ompany,s mar!eting department( Company,s total
t'rnover is divided intoH
E.ports Sales
Lo#al Sales
E0)ort" Sa-e":
Company,s 52= t'rnover is generated by -ay o" e.ports sales( Company as its o-n
presen#e in all most all #o'ntries( Te #ompany is e.porting :ood #olors in Latin
Ameri#a% A"ri#an #o'ntries% Middle East% :ar East% KS and E'rope( Almost all e.port
#'stomers are dealing -it #ompany "or many years(
O't o" total e.ports t'rnover 42 to 52= per#entage orders are repeated orders and rest
o" te orders are ne- orders(
Te Company as region -ise E.port Managers -o #an #ater te need o" #'stomers
individ'ally( D'e to te B'ality and timely delivery o" te material te #ompany ave
less #ompetition "rom tese #o'ntries(
Globally many #o'ntries ave dis#ontin'ed prod'#tion o" Dyes% :ood #olors and
*ntermediates% ne- mar!et as opened "or *ndian man'"a#t'rer o" Dyes and
*ntermediates( As Dynemi# 6rod'#ts Ltd is already a -ell re#ogni?ed name in te
"ield globally% it as more opport'nities to grab "rom gro-ing *nternational mar!et(
105
Loca- Sa-e":
*n Lo#al Mar!et Company is doing mar!eting its Dyes & *ntermediates to te end
#'stomers(
Te #ompany is te largest man'"a#t'rer o" S(6(C(6 in *ndia -i# generating
repeated order "rom te lo#al #'stomers(
Ao-% #ompany is planning to mar!et te "ood #olors in small pa#!ing tro'g its
dealers and distrib'tors -i# #ater te lo#al needs(
Company is also planning to arrange mar!eting arrangement -it so"t drin!
man'"a#t'res and parma#e'ti#al man'"a#t'res "or "ood #olors(
Pro)o"a- *or Pro)o"a- *or *re"# "actio o* credit *aci-itie" +y 1ay o* ta,e o2er 41it#
e#acemet6 *rom HD!C Ba,
a) San#tion o" Cas Credit Limit o" Rs( <22(22 la#s "or -or!ing #apital
reB'irement / ta!e over o" Rs( <22(22 la#s "rom HD:C +an!0(
b) San#tion o" Letter o" Credit /*nland/:oreign0 o" Rs( 722(22 la#s "or
-or!ing #apital reB'irement as a s'b;limit o" #as #redit limit /ta!e over o" Rs(
722(22 la#s "rom HD:C +an!0(
c) San#tion o" E6C/:+D/:+6/6C:C/6SC:C o" Rs( <22(22 la#s "or -or!ing
#apital reB'irement as a s'b ;limit o" #as #redit limit /ta!e over o" Rs( <22(22
la#s "rom HD:C +an!0(
d) San#tion o" Corporate Loan o" Rs( 122(22 la#s /ta!e over o" Cor!ing
Capital Term Loan o" Rs( 122(22 la#s "rom HD:C +an!0(
e) San#tion o" LER limit o" Rs( 1<(22 la#s /eB'ivalent to "or-ard #over o"
Rs(<22(22 la#s0(
f) Caiver o" #redit opinion report "rom e.isting ban!ers o" M/s( D6L
/HD:C +an!0 and gro'p #on#erns o" M/s( D6L i(e( M/s( Dynemi# Overseas
/*ndia0 Limited based on $'sti"i#ations given in te proposal(
g) Con#ession in pro#essing "ees at Rs( 8(22 la#s against norm o" 8(22=(
h) 6ermitting time o" 72 days "or #ompletion o" ta!e over "ormalities -it
HD:C and #reation o" mortgage by CMC(
106
E0i"ti$ /
Pro)o"ed !aci-itie"
4R"8 i -ac"6
Ty)e o* !aci-ity
E0i"ti$
Limit"
4HD!C6
Pro)o"ed
K Ic E
A Dec
Pro)o"ed
Limit"
4A0i" Ba,6
Cas Credit Limit P Sto#! #'m +oo!
Debt
<22(22 ;; <22(22
Corporate Loan 122(22 ;; 122(22
E6C/:+D/:+6/6C:C/6SC:C P As a
s'b limit o" Cas Credit Limit
/<22(220 ;; /<22(220
LC/*nland /:oreign0 ; As a s'b limit
o" Cas Credit Limit
/722(220 ;; /722(220
LER Limit /as a s'b;limit o" CC
limit0
/8<(220 Z1<(22 Z1<(22
Tota-
FJJ8JJ K.:8JJ F.:8JJ
P%r)o"e
<CELCELER : To meet -or!ing #apital reB'irements(
Cor)orate Loa : :or ACC b'ilt 'p(
Teor <CELCELER : 81 monts(
Cor)orate Loa : 19 monts "rom te date o" "irst disb'rsement(
Re)aymet <CELCELER : On Demand(
Cor)orate Loa : 17 montly instalments o" Rs( >79222 ea# and last instalment
o" Rs( >8>222( Repayment to #ommen#e "rom De#ember 1223(
*nterest to be servi#ed as and -en debited(
Sec%rity Primary Hypote#ation o" entire #'rrent assets 4Pari passu6 o" te
#ompany /+ot present & "'t're0( /Oal'e as on 78(27(1223
is o" Rs( 8714(91 la#s0(
Hypote#ation over 6lant and Ma#inery 4Pari Passu6
/+ot present & "'t're0( /Oal'e is o" Rs( 8<13(<< la#s as
per empanelled val'er o" Citi +an!0(
Co--atera- Pari Passu #arge being sared by Citi +an! Limited on
"ollo-ing properties H
i. :a#tory Land and +'ilding% 6lant and Ma#inery at 6lot Ao(
4928%498<%4984% G(*(D(C(% An!les-ar% Dist(+ar'#
admeas'ring <449 sB(mts( standing in name o" M/s( Dynemi#
6rod'#ts Limited(
ii. O""i#e sit'ated at +; 728%72>%723%782 Satyamev Comple.;8%
Opp( Ae- G'$arat Hig Co'rt% S(G(Hig-ay% Sola%
107
Amedabad;7>2 242% G'$arat admeas'ring 9151 sB'are "eets
standing in te name o" M/s( Dynemi# 6rod'#ts Limited(
iii. :a#tory Land and +'ilding% 6lant and Ma#inery at 6lot Ao(
7523/4%7582/7%7582/8% G(*(D(C(% An!les-ar% Dist(+ar'#
admeas'ring 81132(>2 sB( mts( standing in name o" M/s(
Dynemi# 6rod'#ts Limited(
G%aratee Per"oa- G%aratee o* :
Mr( +(J(6atel aving net -ort o" Rs( 149(>> la#s
/appro.(0 as on 78(27(1223(
Mr( Rames +(6atel aving net -ort o" Rs( 8<1(<5 la#s
/appro.(0 as on 78(27(1223(
Mr( Dasrat 6(6atel aving net -ort o" Rs( 1<5(>3 la#s
/appro.(0 as on 78(27(1223(
Mr( Sasi!ant 6(6atel aving net -ort o" Rs( 89>(11 la#s
/appro.(0 as on 78(27(1223(
Mr( Di.it +(6atel aving net -ort o" Rs( 74(77 la#s
/appro.(0 as on 78(27(1223(
Credit
e#acemet
Ail(
Itere"t Rate +6LR ; 7(<2= i(e( 88(1<= p(a( -it montly rests /presently +6LR ` 89(5<=0(
LC C#ar$e" +an!,s standard s#ed'le o" #arges(
Proce""i$ *ee" Rs( 8 la#s "or te san#tioned "a#ilities pl's appli#able ta.es(
Ba,i$
Arra$emet
M'ltiple -it Citi +an! /6roposed0(
Uit 2i"it
Te 'nit -as visited Mr( Asim +ad'ri /O6 P SME and Center Head0% Mr( 6(C(Das /AO6
and SCO P SME0 and Mr( J'ntal +att /Manager and RM ; SME0 on 87t Aovember 1223
and te overall operations o" te 'nit -ere "o'nd to be satis"a#tory(
108
O)eratioa- / !iacia- Aa-y"i"
4R"8 i -ac"6
Partic%-ar"

3'8J38JF 3'8J38JG 3'8J38JH 3'8J38'J 3'8J38''
4Act%a-"6 4Act%a-"6 4Act%a-"6 4Pro@86 4Pro@86
Gross Sales 7178(81 74<5(52 9388(12 4<22(22 5<22(22
Aet Sales 7178(81 74<5(52 9388(12 4<22(22 5<22(22
Aet Sales Gro-t Rate = 81(53= 87(12= 79(15= 71(7<= 8<(7>=
Operating 6ro"it 115(93 787(>2 148(41 418(13 513(35
Oter *n#ome 898(<1 /<(740 <4(25 <<(22 4<(22
6+D*T 711(>> 981(>3 <27(>5 >>8(59 828>(23
Depre#iation 95(39 <2(41 34(81 882(39 825(22
*nterest 95(9< 9>(95 894(81 893(<2 8>8(81
6+T 743(28 72>(99 785(43 454(13 539(35
6AT 144(3< 8>9(33 832(27 994(91 <19(54
Cas 6ro"it 8>1(7< 827(25 8<7(41 919(>7 933(11
Operating 6ro"it Margin = 5(29= >(<>= <(77= 3(<4= 3(57=
6+D*T Margin = 3(33= 88(13= 82(14= 87(<5= 87(<5=
6AT Margin = >(14= <(24= 7(>5= 4(>5= 5(22=
6aid 'p Capital ; EB'ity 8871(>9 8871(>9 8871(>9 8871(>9 8871(>9
Knad$'sted TAC 1493(57 1525(77 1549(34 725>(>9 7958(24
Knad$'sted TOL 8823(91 8<>3(14 1778(57 1>32(81 7239(99
Knad$'sted TOL/ TAC 2(91 2(<3 2(>9 2(39 2(>3
Ad$'sted TAC 1582(>9 151<(4> 1>1>(79 7175(9> 7413(52
Ad$'sted TOL 829>(78 8<52(38 114>(7< 1578(9> 137<(>2
Ad$'sted TOL/ TAC 2(73 2(<> 2(>2 2(>9 2(>8
*nterest Coverage 3(>1 >(99 7(>9 4(15 <(3>
C'rrent Ratio 8(54 8(79 2(39 8(87 8(19
DSCR 5(45 8(>7 8(18 1(7< 1(12
AOC: 82<(43 172(81 4<9(7> /143(330 893(19
Aet 6ro"it / AOC: 1(<7 2(>2 2(13 /8(4<0 7(<1
AOC: / *nterest 1(17 9(5< 9(9> /8(>80 2(>1
AOC: / :inan#ing 6ayments 2(2> 2(87 2(13 /2(2>0 2(29
Total Debt / AOC: /Ao( o"
years0
8(85 2(5> 2(42 /2(9<0 /2(220
Rati$
Te rating o" te #ompany as per SME Rating Tool #omes to SME ; 7 /A+S 78(27(12230(
Te segment -ise s#oring is as 'nderH
Partic%-ar" Rati$
O2era-- Scori$ SME=3
:inan#ial s#oring SME;9
+'siness s#oring SME;7
109
Management s#oring SME;7
*nd'stry s#oring SME;7
CIBILERBIEECGC De*a%-ter"5 Li"tECA Veri*icatioE A%ditor Veri*icatio
Partic%-ar" A" o* Date Po"itio
R+* De"a'lters list 78(81(122> Ao mat# "o'nd(
ECGC Spe#i"i# Approval List 78(25(122> Ao mat# "o'nd(
C*+*L De"a'lters List Satis"a#tory(
CA Oeri"i#ation /A'ditor0 87(88(1223 Oeri"ied(
A'ditor,s :irm Oeri"i#ation 87(88(1223 Oeri"ied(
Re*erece C#ec,
Re"eren#e #e#! -as made tro'g some o" +an!,s #lients in te same line o" a#tivity
"inan#ed by A.is ban! and te same -as reported to be satis"a#tory(
Aa-y"i"
a0 Te promoters o" te #ompany are aving ri# e.perien#e o" more tan 83 years in
vario's *nd'stries(
b0 Te proposed e.pansion o" te #ompany is aving 'ge mar!et potentials(
#0 Te Company is te leader in Man'"a#t'ring and e.port o" "ood #olo'rs(
d0 Te overall #redit rating o" #ompany is SME P7(
e0 Te b'siness is 83 years old(
"0 Te sale o" te #ompany as been so-ing an in#reasing trend tro'go't te years
'nder #onsideration( Te sale o" te #ompany -as in#reased "rom Rs( 7178(81 la#s in
:Y24;25 /A'd0 to Rs( 74<5(52 la#s /A'd0 in :Y25;2> and "'rter to Rs( 9388(12 la#s
in :Y2>;23 /A'd).
110
g0 Sin#e te #ompany is into Man'"a#t'ring o" :ood Colo'rs% te net margin normally
remains bet-een <(22= ; 3(22=( Te net pro"it o" te #ompany -as de#reased "rom
Rs( 144(3< la#s in :Y24;25 /A'd0 so-ing margin o" >(14= to Rs( 8>9(33 la#s in
:Y25;2> /A'd0 so-ing margin o" <(24=( Ho-ever% te same -as maintained at Rs(
832(27 la#s in :Y2>;23 /A'd0 so-ing margin o" 7(>5= d'e to de#rease in margins
in te #emi#al ind'stry on a##o'nt o" ra- material pri#e "l'#t'ations -orld-ide( Te
same -as an aberration( +'t% no- te ind'stry is on revival and boom pat(
Considering te same% te #ompany as estimated te pro"it o" Rs( 994(91 la#s "or
:Y23;82 ` margin o" 4(>5=% -i# may be a##epted(
0 Te TOL/TAC o" te #ompany in#reased "rom 2(91 in :Y24;25 /A'd0 to 2(<3 in
:Y25;2> /A'd0 and to 2(>9 in :Y2>;23 /A'd0( Te #ompany as estimated
TOL/TAC at 2(39 and 2(>3 "or :Y23;82 and :Y82;88 respe#tively on a##o'nt o"
in#reased ban! borro-ings% -i# may be #onsidered #om"ortable(
i0 Te #'rrent ratio o" te #ompany -as 8(54 in :Y24;25 /A'd0 -i# de#reased to 8(79
in :Y25;2> /A'd0 and -i# "'rter pl'mmeted to 2(39 in :Y2>;23 /A'd0% on
a##o'nt o" #ape. e.pansion -i# -ill be #ompleted in te #'rrent "is#al( Te
#ompany as estimated its #'rrent ratio at 8(87 and 8(19 "or :Y23;82 and :Y82;88%
-i# is reasonably a##eptable as regards to te liB'idity position o" te #ompany(
$0 Te AOC: is positive d'ring :Y 122>;23 /A'd0 by Rs( 4<9(7> la#s( AOC: is
estimated negative in :Y 1223 P82 at Rs( 143(33 la#s% as per pro$e#ted "inan#ials
s'bmitted by te #ompany on a##o'nt o" in#rease in sto#! and re#eivables -i# is
!eeping in line -it te in#rease in t'rnover and te olding levels are as per te
ind'stry pra#ti#e(
!0 Te overall #ond'#t o" te a##o'nt% repayment stat's et#( at Citi +an! and HD:C is
satis"a#tory(
l0 Te main dire#tor is dynami# and as ri# e.perien#e o" more tan 12 years in is line
o" a#tivity(
m0 Te #ompany is a registered SS* 'nit(
111
n0 Mar!et re"eren#e o" te #ompany is satis"a#tory
(
o0 Te overall pro$e#ted per"orman#e and "inan#ial o" te 'nit are satis"a#tory(
112
CASE STUD&=.
Detai-" o* ca"e "t%dy
Name
Sa,a-) Recreatio P2t8 Ltd8 4SRPL6
Co"tit%tio 6rivate Limited Company
Gro%) San!alp
Date o*
Icor)oratio
2<(21(1221
Name o* Director" Mr( Jailas R( Goen!a
Mr( Robin R( Goen!a
Mr( Ramavatar R( Goen!a
Re$i"tered O**ice DSan!alp SB'areE% Opp( G'r'!'l% Drive;in Road% Amedabad P
7<22<1
6(H 253;15933122 /:0 253;15933722
Pro)o"ed Hote- Site :6 a 9% T6S a 9<% S'rvey a 39>% Aear AKDA Garden% O""( 822 "t(
Road% 6raaladnagar% Aear S( G( Hig-ay% Amedabad P 7<22<8
Lie o* acti2ity E0i"ti$: Resta'rant / :ran#isee in#ome "rom Resta'rant
Pro)o"ed: Hotel/Hospitality
Dea-i$ 1it# %" Ae- Conne#tion
Rati$ Itera-: SME;1 /A+S 78(27(12230
E0tera-: Aot rated
Brie* Bac,$ro%d
Te DSAAJAL6E gro'p is a #ain o" spe#ialty teme based retail resta'rant o'tlets( SR6L
as been in#orporated on 2<(21(1221( Ho-ever% te gro'p is aving its presen#e into te
Hospitality b'siness "or more tan t-o de#ades and as teir esteemed rep'tation in te
mar!et( Te #ompany as been "loated by te promoters Mr( Ramavatar Ranglal Goen!a &
is t-o sons Mr( Jailas Goen!a and Mr( Robin Goen!a( Te :o'nder o" tis #ain Mr(
Ramavtar Goen!a% vent'red in to te b'siness in 83>8 -it te opening o" its "lagsip
resta'rant at Asram Road% Amedabad% *ndia and tere as been no loo!ing ba#! sin#e ten(
Jno-ing te So't *ndian #'isine very -ell% e set 'p te teme;based resta'rant in
Amedabad and got an over-elming response(
*t as been te #'lmination o" inerent desire to give #'stomer an innovative spe#ialty brand
tat gave birt to San!alp Resta'rant( Cit over "orty igly pro"itable o'tlets and a large
113
loyal #'stomer base to boast o""% te gro'p is all set to la'n# into international mar!et -it
its brands and "ood prod'#t e.ports mer#andising too(
Pro)o"a- Detai-"
Pro)o"a-
San#tion o" Term Loan o" Rs( 8<22(22 la#s "or Hotel 6ro$e#t
San#tion o" one;time :oreign Letter o" Credit /#ape.0 "a#ility o" Rs( 8<2(22
la#s /as a s'b;limit o" Term Loan0 "or import o" ma#ineries/eB'ipments
San#tion o" +'yer,s Credit /#ape.0 Limit o" Rs( 8<2(22 la#s in lie' o"
:oreign L/C /#ape.0 as a s'b;limit o" Term Loan
San#tion o" LER limit o" Rs( 5(<2 la#s /eB'ivalent to "or-ard #over
e.pos're o" Rs( 8<2(22 la#s0 as a s'b;limit o" Term Loan
Con#ession in *nterest Rate and 6ro#essing :ees
E0i"ti$ /
Pro)o"ed
!aci-itie"
4R"8 i -ac"6
Ty)e o* !aci-ity E0i"ti$
Limit"
Pro)o"ed
Limit"
K Ic E
A Dec
Term Loan Ail 8<22(22 Z8<22(22
:oreign L/C #ape. /as a s'b;limit o" TL0 Ail /8<2(220 Z /8<2(220
+'yer,s Credit /as a s'b;limit o" TL0 Ail /8<2(220 Z /8<2(220
LER limit eB'ivalent to "or-ard #over o"
Rs( 8<2(22 la#s /as a s'b;limit o" TL0
Ail /5(<20 Z/5(<20
Tota- Ni- ':JJ8JJ K':JJ8JJ
P%r)o"e
:or #onstr'#tion o" 7;star Hotel
Teor >1 monts /in#l'ding moratori'm period o" 84 monts0
Repayment to start "rom April 1288
114
Re)aymet i0 81 montly instalments o" Rs( 3(<2 la#s ea# /April 1288 to Mar# 12810
ii0 81 montly instalments o" Rs( 11(22 la#s ea# /April 1281 to Mar# 12870
iii0 81 montly instalments o" Rs( 1<(22 la#s ea# /April 1287 to Mar# 12890
iv0 81 montly instalments o" Rs( 1>(22 la#s ea# /April 1289 to Mar# 128<0
v0 81 montly instalments o" Rs( 78(1< la#s ea# /April 128< to Mar# 12840
vi0 4 montly instalments o" Rs( 8>(<2 la#s ea# /April 1284 to September
12840
*nterest to be servi#ed separately as and -en debited(
Sec%rity / G%aratee
Primary
EM o" Land & +'ilding at te 6ro$e#t Site lo#ated at :6 a 9% T6S a 9<%
S'rvey a 39>% Aear AKDA Garden% O""( 822 "t( Road% 6raaladnagar% Aear S(
G( Hig-ay% Amedabad P <8 /6ro$e#ted Cost Rs( 8<(25 #rores0
Hypote#ation o" entire movable "i.ed assets at te 6ro$e#t Site /6ro$e#ted
Cost Rs( 5(24 #rores0
Co--atera- Ail(
G%aratee 6ersonal g'arantee o" te dire#tors o" te #ompany( Te net -ort details are as
'nderH
/Rs( in #rores0
Name o* t#e Director Net <ort#
Mr( Jailas R( Goen!a 9(48
Mr( Robin R( Goen!a 7(27
Mr( Ramavatar R( Goen!a 1(8>
Tota- H8G.
Uit 2i"it
Te proposed site o" te otel pro$e#t o" te #ompany -as visited by Mr( Asim +ad'ri /Oi#e
6resident ; SME0% Mr( 6( C( Das /AO6/SCO ; SME0 and Mr( Aisant Sarma /AO6/SSO ;
SME0 and te same -as reported satis"a#tory(
Pro)o"ed Pro@ect
115
SR6L as been in#orporated as a 6rivate Limited Company -it main ob$e#t o" b'siness o"
r'nning otel in all its aspe#ts% lodging and boarding and to r'n% manage% a#B'ire% #ontrol%
o-n% p'r#ase% ire te same in#l'ding resta'rant% #a"b% tavern% re"resment;room% lodging;
o'se !eepers et#( Te #ompany as proposed to set 'p a tree star otel -it 34 rooms at
S(G( ig-ay(
Te pro$e#t is lo#ated at one o" te best lo#ations and in te ne-ly developed area o"
Amedabad City( Tis is sit'ated at DSan!alp HotelE Aear AKDA Garden% O"" 822 "t( Road%
6raaladnagar% S(G(Hig-ay% Amedabad ; 7>22<8( Tis area is te "astest developing area
in te #ity and is s'rro'nded by vario's b'siness o""i#e premises% residential plots% vario's
resta'rants and oter #ommer#ial #omple.es( Amedabad Rail-ay Station is $'st 12 mins
"rom te Hotel and *nternational Airport is almost 72 mins "rom te lo#ation( Company,s
main p'rpose o" te otel is to en#o'rage te #orporate people -o #ome "or te b'siness
p'rposes( Hen#e te lo#ation o" te pro$e#t is ideal & te #ompany -ants to be a part o" te
gro-ing pop'larity o" tis area(
Against te total #ost o" pro$e#t o" Rs( 1<(22 #rores% te #ompany as reB'ested "or Term
Loan assistan#e o" Rs( 8<(22 #rores( Hen#e% te margin to be bro'gt in by -ay o" promoters,
#ontrib'tion -o'ld be 92= o" te total CA6E) "or te proposed otel pro$e#t o" te #ompany
by -ay o" sare #apital/premi'm and 'nse#'red Loans(
O)eratioa- / !iacia- Aa-y"i"
116
COST O! PROJECT R"8 i Crore"
A Land & +'ilding 3(28
+ Civil Constr'#tion and Civil :inising 4(24
C :'rnit're & :i.t'res <(93
D 6lant and Ma#inery 8(<5
E 6reliminary and 6re;operative Cost 1(88
: Contingen#ies 2(54
TOTAL .:8JJ
MEANS O! !INANCE
A EB'ity Sare Capital / 6remi'm 7(22
+ Knse#'red Loans 5(22
C Term Loan 8<(22
TOTAL .:8JJ
Partic%-ar" 3'8J38JG 3'8J38JH 3'8J38'J 3'8J38'' 3'8J38'.
4A%d6 4A%d6 4E"t6 4Pro@6 4Pro@6
Aet Sales / Re#eipts 9>7(41 9>3(49 423(22 8777(22 17>4(22
Operating 6ro"it 47(71 ><(4> 897(>9 954(22 384(22
Oter *n#ome 81(>2 2(<8 2(22 2(22 2(22
6+D*T 54(81 >4(83 897(>9 954(22 384(22
Depre#iation & Amortisation 5(<4 5(93 81(22 818(22 184(22
*nterest & :inan#ial Carges 9(3> 5(<3 73(22 894(22 195(22
6ro"it +e"ore Ta. /6+T0 47(<> 58(88 31(>9 123(22 9<7(22
6ro"it A"ter Ta. /6AT0 94(47 9>(34 49(>9 874(22 13<(22
Cas A##r'als <9(83 <4(9< 54(>9 1<5(22 <88(22
Sare Capital 8(22 8(22 128(22 728(22 728(22
Reserves & S'rpl's 59(49 817(<3 8>>(97 719(97 483(97
Mis#( E.p( Aot C/o"" 2(22 2(22 2(22 2(22 2(22
Tangible Aet Cort /TAC0 5<(49 819(<3 7>3(97 41<(97 312(97
KSL as I'asi EB'ity 2(22 2(22 873(12 873(12 873(12
Ad$'sted TAC 5<(49 819(<3 <1>(47 549(47 82<3(47
Total Term Liabilities /TTL0 72(12 88(22 8494(>2 1831(>2 8>94(>2
Total O'tside Liabilities /TOL0 8<4(3< 843(72 8>9>(>2 1<53(>2 1935(>2
Aet Sales Gro-t = 2(78= 8(7>= 11(99= 88>(>>= 5>(33=
6+D*T Margin = 8<(59= 85(42= 17(41= 7<(58= 7>(73=
6AT Margin = 3(49= 82(22= 82(4<= 82(12= 81(74=
ROCE 49(5>= <>(29= 4(24= 81(22= 19(2>=
TOL / TAC 1(25 8(74 <(82 9(7< 1(>4
Ad$( TOL / TAC 1(25 8(74 7(<2 7(75 1(74
TTL / TAC 2(92 2(23 9(<3 7(57 1(84
Ad$( TTL / TAC 2(92 2(23 7(81 1(>5 8(59
C'rrent Ratio 8(42 8(91 8(<8 8(99 8(<1
C'rrent Ratio -/o TL inst( 8(42 8(<1 1(98 1(>2 7(19
*nterest Coverage Ratio 8<(13 88(74 7(43 7(14 7(58
Aet Operating Cas :lo- /AOC:0 /93(730 <8(>5 55(<5 722(22 4<2(22
Aet 6ro"it / AOC: /2(390 2(39 2(>9 2(9< 2(9<
AOC: / *nterest /3(310 4(>7 8(33 1(2< 1(47
AOC: / :inan#ing 6ayments /2(1>0 2(17 2(14 2(<2 2(<3
Total Debt / AOC: /Ao( o" years0 /2(480 2(18 9(88 5(78 1(>9
Rati$
Te rating o" te #ompany as per SME Rating Tool #omes to SME;1 /A+S 78(27(12230( Te
segment -ise s#oring is as 'nderH
Partic%-ar" Rati$
O2era-- Scori$ SME=.
:inan#ial s#oring SME;7
+'siness s#oring SME;1
Management s#oring SME;1
117
*nd'stry s#oring SME;9
CIBILERBIEECGC De*a%-ter"5 Li"t
Te name o" te #ompany and its dire#tors are not appearing in C*+*L/R+*,s de"a'lter/-ill"'l
de"a'lter list as o" 78(81(122> /latest available0( Te name o" te #ompany and its dire#tors
are not appearing in ECGC,s de"a'lter list as o" 78(25(122> /latest available0
118
Aa-y"i"
a0 Te #ompany belongs a re#ogni?ed gro'p named SAAJAL6% -o as #reated a ni#e
in te ospitality se#tor(
b0 Te gro'p is aving its presen#e sin#e 83>8 and as emerged as a rep'ted name sin#e
in#eption( Te promoters o" te #ompany ave ri# e.perien#e in teir line and belong
to a reso'r#e"'l "amily(
#0 Te promoters are aving so'nd entreprene'r s!ills to a#B'ire b'siness opport'nities
to s#ale ne- eigts(
d0 Te sales/re#eipts o" te resta'rant/"ran#isee b'siness /e.isting0 o" te #ompany
-ere in#reased "rom Rs( 9>7(41 la#s in :Y25;2> to Rs( 9>3(49 la#s in :Y2>;23( Te
#ompany as a#ieved te sale o" Rs( 757(59 la#s /Resta'rant in#ome o" Rs( 722(1<
la#s and :ran#isee in#ome o" Rs( 57(93 la#s0 'pto 72(23(1223 against te estimated
sale o" Rs( 423(22 la#s /Resta'rant in#ome o" Rs( 9>9(22 la#s and :ran#isee in#ome
o" Rs( 81<(22 la#0 "or te year 1223;82% -i# indi#ates aro'nd 48= a#ievement o"
te estimated sales/re#eipts "or te year 1223;82 and #an be #onsidered reasonable(
e0 Te net pro"it o" te e.isting b'siness o" te #ompany -as in#reased "rom Rs( 94(47
la#s /A6 margin o" 3(49=0 in :Y25;2> to Rs( 9>(34 la#s /A6 margin o" 82(22=0 in
:Y2>;23( Te 6+D*T o" te e.isting a#tivity o" te #ompany -as in#reased "rom Rs(
54(81 la#s /6+D*T margin o" 8<(59=0 in :Y25;2> to Rs( >4(83 la#s /6+D*T margin
o" 85(42=0 in :Y2>;23
"0 Te TOL/TAC o" te #ompany remained at 1(25 in :Y25;2> and 8(74 in :Y2>;23(
Te TOL/TAC o" te #ompany as been estimated at <(82 "or :Y23;82 #onsidering
te Loan Against 6roperty o" Rs( 912(22 la#s ta!en "or e.isting b'siness and te
proposed Term Loan disb'rsement o" Rs( 8222(22 la#s d'ring te #'rrent :Y23;82(
g0 Te #'rrent ratio o" te #ompany remained above te ben#mar! level at 8(42 in
:Y25;2> and 8(91 in :Y2>;23( Te same as been estimated at 8(<8 "or :Y23;82
#onsidering te e.isting b'siness a#tivity o" te #ompany d'ring 1223;82( Cile
119
#onsidering te e.isting as -ell as proposed b'siness a#tivity o" te #ompany% te
#'rrent ratio as been pro$e#ted at 8(99 "or :Y82;88 and 8(<1 "or :Y88;81(
0 Te net operating and all ratios pertaining to AOC: -ere positive in :Y2>;23( Te
same ave been estimated to be positive "rom :Y23;82 on-ards(
i0 Te #ompany as so-n a #onsistent gro-t sin#e its in#eption and "inan#ials o" te
#ompany are satis"a#tory(
120
CASE STUD& 3
Detai-" o* ca"e "t%dy
Appli#ant Details Appli#ant Details
'
Name o* t#e
A))-icat
MES8 Vi"#e"# Di"tri+%tor" P2t8 Ltd8 4Ne1 Re-atio"#i)6
. Re$i"tered O**ice
S#o1room
4!ra$race"6
S#o1room 4Airte-6
Godo1
4Be2era$e6
Cotact Detai-"
928% Jalasagar% +eind Ratnamani Comple.% Fodp'r Cross Road% Satellite%
Amedabad ; 7>228<
:/828% S-agat 6la?a *% +opal Amli Road% +opal% Amedabad(
MH 3>3>2<1221
83% R'dra SB'are% F'dges b'nglo- #ross road% +oda!dev% Amedabad(
MH 3>3>2<1484
Sola Timber Mar!et% A"ter Sola Over +ridge% +eind Maindra So-room%
Sola% Amedabad(
MH 3>3>2<1298
Te-8 No( 253;14595333
Mo+i-e: 3>3>2<1228 /Jetan Sa0
E=Mai-: visesd1222`gmail(#om
3 Co"tit%tio 6rivate Limited Company
Dire#torsH
8( Mr( Jetan 6( Sa /AC66S5843H0
1( Mr( 6an!a$ C( Sa /ACY6S<32>+0
7( Mrs( Dara J( Sa /AM:6S128>:0
9( Mrs( 6ina 6( Sa /A6A6S55>>E0
Com)ay PAN No8 AA+CO179>I
9 Date o*
E"ta+-i"#met
Certi"i#ate o" in#orporation Ao( K<8113GF12286TC73917% Dated
85(29(1228
G'$arat Sales Ta. Registration Ao( 19259722<97% dated 28(25(1221
*mport E.port Code Ao( 2>252292>8% dated 19(2<(1225
: Nat%re o* B%"ie"" Distrib'torsip o" 6epsi prod'#ts% Airtel% Levi,s Str'ss Signat're
121
Brie* Bac,$ro%d
M/S( Oises Distrib'tors 6vt( Ltd( *s a private limited #ompany% eld by #lose "amily
members( Te #ompany -as establised in year 1228(
Te gro'p as been engaged in distrib'tion o" branded #ompany prod'#ts li!e 6epsi#o
beverage prod'#ts% Airtel% Levi,s Str'ss Signat're% Am'l% TATA% "ragment sop% et#(
Te gro'p -as earlier distrib'tor "or #ompanies li!e Himalaya% Cipro% Godre$% 6ar!er% 6arle%
Adani & Lays(
Ao-% d'e to strong mar!eting #annel% te #ompany is also entered in agreement -it Levi,s
signat're "or distrib'tion o" garments to teir o'tlets & "ran#ises in all over te G'$arat(
:'rter te #ompany is also aving 89 #ommer#ial vei#les "or distrib'tion a#tivities(
(
Pre"et Pro)o"a-
To meet te in#reasing b'siness demand "or te vario's distrib'tion s#emes% te #ompany
as reB'ested "or te OD limit o" Rs( 8>2(22 la#s( by ta!eover o" e.isting LA6 "rom HD:C
+an! & also reB'ested to allo- te Cas #redit limit o" Rs( <<(22 la#s "rom Oi$aya +an!( Te
#ompany -ants to e.pand teir e.isting b'siness a#tivity by enan#ing -or!ing #apital limit
"or smoot b'siness operation(
P%r)o"e o* -oa :or General +'siness 6'rpose
Limit"
Pro)o"ed
OOERDRA:T ; Rs( 8>2(22 la#s
Rate o* Itere"t
Va-idity o*
Limit"
+6LR P1(<2= i(e( 81(1<= p(a( -it montly rests( /6resently +6LR is at 89(5<= p(a(0
81 monts only s'b$e#t to revie- every year(
Sec%rity Detai-" 6rimary Se#'rity: NIL
Co--atera- Sec%rity:
EB'itable Mortgage o" "ollo-ing propertiesH
8( Residential "lat sit'ated at 928% Jalasagar Appartment% Opp( Star *ndia
+a?aar% Fodp'r% Satellite% Amedabad% belonging to Mr( Jetan 6( Sa
/Dire#tor0( Estimated mar!et val'e Rs( >2(22 la#s(
1( Sop at 828% 8
st
"loor% S-agat 6la?a *% Aear +opal Amli road% +opal%
Amedabad% belongs to Mrs( Dara J( Sa /Dire#tor0( Estimated mar!et
val'e Rs(98(22 la#s(
7( Sop at 83% 8
st
"loor% R'dra SB'are% Aear +oda!dev poli#e #o-!i%
+oda!dev% Amedabad% belongs to Mr( Jetan 6( Sa /Dire#tor0(
122
Estimated mar!et val'e Rs( >2(22 la#s(
9( Sop at 3;82% Gro'nd "loor% S'!riti Anne.ie% Aear 6rernatirt +'nglo-s;1%
Satellite% Amedabad% belongs to Mr( Jetan 6( Sa /Dire#tor0( Estimated
mar!et val'e Rs( 822(22 la#s(
Total mar!et val'e o" above properties is Rs( 728(22 la#s /Appro.0(
G%aratee: 6ersonal g'arantee o"H
8( Mr( Jetan 6( Sa /Dire#tor & property older0(
1( Mrs( Dara J( Sa /Dire#tor & property older0
7( Mr( 6an!a$ C( Sa /Dire#tor0
9( Mrs( 6ina 6( Sa /Dire#tor0
PDC5":
T-o 6DC,s "or te entire overdra"t limit ea# dated 7 monts and 3 monts "rom te
date o" "irst disb'rsement(
Proce""i$ !ee"
2(5<= o" te limit san#tioned pl's appli#able ta.es /Aon;re"'ndable0
Doc%metatio
As per ban!,s e.tent g'idelines(
Ri", A""ociated
Te #ompany is "a#ing #ompetition "rom te oter distrib'tors in te mar!et(
Ri", miti$ate"
Te above ris! "a#tor is mitigated as belo-H
8( Dire#tors o" te #ompany% are aving 82 years o" ri# e.perien#e in te "ield o"
distrib'torsip
1( Te #ompany is "reB'ently o""ering promotional s#emes to its retail
distrib'tors
7( Te #ompany is aving diverse #lientele base in te mar!et(
Uit Vi"it
Te #ompany as been visited by Mr( A( Rama#andran /AO6;SME0% Ms( Disa
+adani /E.e#'tive;SME0% Mr( Airav Ayer /E.e#'tive;SME0% on 29(21(1282H
Overall visit -as "o'nd satis"a#tory(
Lo$i !ee"
Rs( <222/; pl's appli#able ta.es /Aon re"'ndable0
123
De*a%-ter Li"t
Ceter te names o" te borro-er or any o" te promoters/dire#tors appear/s0 inH ;
RBI de*a%-ter" Li"t: Ao /Te "irm name and dire#tors are not "eat'ring in R+*
De"a'lters, List as o" 78(27(1223 ; Latest Available0(
ECGC de*a%-ter Li"t: Ao
CIBIL:
Credit card re)aymet record o* Director Mr8 (eta P8 S#a#:
*n C*+*L o" Mr( Jetan% it is observed tat one #redit #ard a##o'nt "rom Standard
Cartered +an!% -it overd'e amo'nt Rs( 2(97 la#s% -as observed -ritten;o""(
Ho-ever% Mr( Jetan as s'bmitted tat it -as a d'e o" Rs( 8822/;( D'e to non ;
re#eipt o" bill on time% tere -as interest #arge levied on te a#t'al amo'nt(
He% s'bseB'ently paid te a#t'al amo'nt% b't not te interest amo'nt% -i# as on date
as be#ome overd'e o" Rs( 97%517/; -it interest #arge(
Te dire#tor as also "iled a #ase against SC+ regarding te same% to te DCons'mer
Ed'#ation & Resear# So#ietyE and it is in pro#ess till date(
Te dire#tor as s'bmitted te #opy o" te relevant do#'ments to o'r ban!(
Ho1e2er> co"ideri$ +e-o1 *act"> 1e may co"ider t#e Credit Card 1ritte=o**
"tat%" a" acce)ta+-e:
8( Te borro-er is aving satis"a#tory repayment tra#! re#ord o" CC% LA6 &
term loan -it HD:C +an! & Oi$aya ban!(
1( Relevant do#'mentary proo"s available "or C*+*L #ase(
Credit Score
/En#losed Credit
S#oring Seet0

Parameter" Pre"et Score
4ABS A 3'8J38JH6
:inan#ial 74(22
Aon P :inan#ial 72(22
O2era-- ;;8JJ
Rati$ SME 3
4Acce)ta+-e6
124
Per*ormace detai-"
Partic%-ar" 3'8J38.JJF3'8J38.JJG3'8J38.JJH3'8J38.J'J3'8J38.J''3'8J38.J'.
A%dited A%dited A%dited E"timated Pro@ected Pro@ected
Sa-e" 8157(78 8271(77 >>9(<7 881<(22 895<(22 8<1<(22
Ot#er Icome 17(93 71(73 72(77 72(22 72(22 72(22
Tota- Icome 8134(>2 8249(51 389(>4 88<<(22 8<2<(22 8<<<(22
PBDIT .3899 .G8:H 3'8:G 9:8.F :J8:9 :.8.H
De)reciatio 7(5> 4(7> 4(<> 4(38 4(38 4(38
Itere"t 81(31 85(<< 8>(39 1>(48 72(47 72(47
Itere"t / rem%eratio to Director" 9(>2 1(92 1(<2 1(5< 7(22 7(1<
PBT 8(39 1(14 7(<4 5(22 82(22 88(<2
PAT 8(4> 1(27 1(92 <(22 5(22 >(22
PBT Mar$i C J8': J8.' J83H J8;' J8;; J8F9
Ca"# Accr%a-" :89; G89' G8HG ''8H' '38H' '98H'
TN<4Uad@%"ted6 87(99 89(28 8<(3< 75(34 99(34 <1(34
U"ec%red Loa" *rom *ried" /
re-ati2e" 7>(39 <4(1< 3<(94 5>(94 5>(94 5>(94
TN< 4Ad@%"ted6 <1(7> 52(14 888(98 884(91 817(91 878(91
TOL4Ad@%"ted6 8>7(33 89>(38 815(87 1<2(58 1<3(98 142(53
TOL4Uad@%"ted6 111(37 12<(84 111(<3 713(85 775(>5 773(1<
TOLETN<4Uad@%"ted6 ';8:H '98;9 '38H; G8;F F8:' ;89'
TOLETN<4Ad@%"ted6 38:' .8'. '8'9 .8': .8'J '8HG
De+tor" 49(35 9<(>> 58(42 885(83 8<7(4< 8<>(><
= Le"" t#a ; mot#" 49(35 9<(>> 58(42 885(83 8<7(4< 8<>(><
= More t#a ; mot#" 2(22 2(22 2(22 2(22 2(22 2(22
De+tor" #o-di$ 4i day"6 'G8;. ';8.. .H8:: 3G8J. 3G8J. 3G8J.
C%rret Ratio '8;' '8FJ .8.; '833 '83F '893
C%rret A""et 8>5(<1 842(77 8><(3> 71>(82 7<2(58 745(22
C%rret Lia+i-itie" 884(72 39(75 >1(84 194(51 1<<(91 1<4(>2
125
Aa-y"i"
a0 Te gro'p as been engaged in distrib'tion o" branded #ompany prod'#ts li!e 6epsi#o
beverage prod'#ts% Airtel% Levi,s Str'ss Signat're% Am'l% TATA% "ragment sop% et#(
b0 Jey promoter and pioneer o" te #ompany is Mr( Jetan 6( Sa(% engaged in te
distrib'tion a#tivities sin#e last more tan 82 years(
#0 He as gained good !no-ledge and s!ill espe#ially in te "ield o" mar!eting aspe#ts(
He is andling total b'siness a""airs -it so'nd b'siness and management poli#y(
d0 Te #ompany ad registered sales o" Rs( 8157(78 la#s in :Y( 1224;25% Rs( 8271(77
la#s in :Y( 1225;2> and sales o" Rs( >>9(<7 la#s in :Y( 122>;23(
e0 Te #ompany is aving Airtel distrib'torsip% 'nder -i# it -as selling prepaid
mobile #ards also( Tis b'siness -as -it ig t'rnover and lo- margin basis( Te
#ompany as #losed tat prepaid #ard se#tion in year 1225( :'rter to tis #ompany
-as aving TATA,s distrib'torsip% -i# -as #losed in te mid o" te year 1223 &
en#e% tere -as de#line in sales d'ring past 7 years( C'rrent year% #ompany as
entered into ne- agreement -it Levi,s Signat're% tro'g -i# it is e.pe#ting
t'rnover o" Rs( <2(22 la#s every mont(
"0 Te #ompany as boo!ed net pro"it /6+T0 o" Rs( 1(14 la#s d'ring :Y 1225;2> as
against Rs( 8(39 la#s o" :Y 1224;25% registering Y;o;Y gro-t o" 84(<2=( D'ring
:Y( 122>;23% te net pro"it o" te #ompany in#reased to Rs( 7(<4 la#s(
g0 Despite o" de#rease in t'rnover o" te #ompany% pro"itability is on in#reasing trend(
Also% 6+D*T o" te #ompany is at B'ite iger level o" Rs( 78(<> la#s "or te :Y
122>;23 & Rs( 1>(<3 la#s "or te :Y 1225;2>% -i# #an be #onsidered as
satis"a#tory(
126
0 Te #ompany as been marginally in#reasing its TAC /'nad$'sted0 Y;o;Y basis i(e(
"rom Rs( 87(99 la#s in :Y( 1224;25 to Rs( 8<(3< la#s in :Y( 1225;23( Te TAC "or
te :Y 1223;82 is estimated at iger side o" Rs( 75(34 la#s% mainly d'e to plo'ging
ba#! o" entire pro"it and in"'sion o" "res #apital by dire#tors -it de#rease in
'nse#'red Loans "rom dire#tors( (
i0 Te #'rrent ratio o" te #ompany "or :Y 1225;2> as been 8(52 & at 1(14 "or :Y
122>;23( Te #'rrent ratio estimated "or :Y 1223;82 is 8(77 times% mainly on a##o'nt
o" proposed #redit limit o" Rs( 8>2(22 la#s "rom o'r ban! and te same may be
#onsidered as satis"a#tory(
127
CASE STUD& 9
Detai-" o* ca"e "t%dy
Name o* t#e
A))-icat
S%c#i <ire" 4Ne1 Re-atio"#i)6
<or, O**ice
Addre""
Re"idece
Addre""
Cotact
Detai-"
8>3% G(*(D(C( Estate% 6or;Ramangamdi% Dist( Oadodara;738197
Deep Fyoti;1% +lo#! Ao( 929% 92<% Opp( G'$arat Tra#tor% Ois-amitri% Oadodara(
214<;149<978% 723>978
214<;1>78493 /O0
MH 3>19279952 /Ra$endrabai0
Co"tit%tio
6roprietorsip :irm
Pro)rietor: Mr( Ra$endra
Oallavbai( 6atel
PAN: ACS661<81A
Date o"
E
st
a
bl
is

m
e
nt
78(28(8331
/GST Registration Ao(
1943842874>0
/SS* Registration Ao(
1928388229>2% dated
25(24(12250
Nat%re o*
B%"ie""
Man'"a#t'rer o" H+ /Hal" ard bend0 & MS /Mild stone0 -ires
Brie* Bac,$ro%d
M/s S'#i Cires is a proprietorsip "irm establised in year 8331( Mr( Ra$endra Oallabbai
6atel is a proprietor o" te "irm(

:irm is mainly engaged in te b'siness o" man'"a#t'ring o" iron -ires% #'tting & stret#ing it
into di""erent si?es a##ording to #'stomers, reB'irements(
Te proprietor -as -or!ing -it administrative department o" s#ool in is initial #areer
be"ore 12 years( 6roprietor ten started trading in -ires -it "riends at small level% on seeing
te b'siness potential% e de#ided to establis te b'siness in te name o" S'#i Cires(
128
Te proprietor is Commer#e Grad'ate & aged abo't <8 years( He started b'siness in year
8331 and aving e.perien#e o" aro'nd 85 years in te same line o" b'siness(
Mrs( Aiyati 6atel /sister o" te proprietor0 manages administrative -or! related to te
b'siness( Mr( Jalpes 6atel /+roter;in;la- o" te proprietor0 loo!s a"ter te te#ni#al
s'pport( Te proprietor loo!s a"ter te "inan#e & overall management(
Tere are 84 -or!ers in te "irm% -or!ing in 1 si"ts a day(
Appli#ant p'r#ases -ires o" di""erent diameters & ten pro#esses it tro'g di""erent
ma#ines to stret# tem and prepare -ires o" parti#'lar diameter & si?e% as per te
reB'irements/spe#i"i#ations o" te #lients(
To prepare te -ires a##ording to #'stomers reB'irement% -or! pro#esses li!e -ire dra-ing%
#'tting% bending et#( are per"ormed( *ron -ires are 'sed in ma!ing grill o" "ridge ba#!% table
"an #over% stapler pins% ';pins% et#(
Ma@or S%))-ier" o* t#e a))-icat are:
Aational Small *nd'stries Corporation Ltd( /Amedabad0
Santi :intrade Ltd( /Raip'r0
Ro'nd-ell Steel Corporation /Amedabad0
Sree Oinaya! Steels /+illimora0
Ma@or B%yer" o* t#e a))-icat are:
Gandi Spe#ial T'bes Ltd( /Halol0
Oi$ay $yot Seats 6vt( Ltd( /Halol0
Lalit Engineers /Oadodara0
Almonard 6vt( Ltd( /Oadodara0
129
Pre"et Pro)o"a-
P%r)o"e o* Loa Cor!ing #apital limit
Limit" Pro)o"ed CC limit o" Rs( <2(22 la#s(
Rate o* Itere"t /
Va-idity o* Limit"
+6LR;1(1<= i(e( 81(<2= /+6LR at present is 89(5<=0
81 monts only s'b$e#t to revie- every year(
Sec%rity Detai-" Primary: Hypote#ation o" #'rrent assets o" te "irm(
Co--atera-:
A0 EB'itable mortgage o" "ollo-ing propertiesH
8( :a#tory premise o" S'#i Cires sit'ated at 6lot Ao( 91>% G*DC%
Ramangamdi% 6or% Oadodara( 6roperty belongs to Mr( Ra$endra O(
6atel /proprietor0 & appro.imate mar!et val'e o" te property is Rs(
9<(22 la#s(
1( Residential property sit'ated at Deep Fyot;1% +lo#! Ao( 929 & 92<%
Opp( G'$arat tra#tor% Os-amitri% Oadodara( Te property belongs
to Mr( Ra$endra O( 6atel /proprietor0 & appro.imate mar!et val'e
o" te property is Rs( 8<(22 la#s(
+0 Hypote#ation o" "i.ed assets o" te "irm(
G%aratee:
6ersonal g'arantee o"H
8( Mr( Ra$endra Oallabbai 6atel /6roprietor0
1( Mr( Jalpes 6atel /+roter;in;la- o" te proprietor0
Vi"it to t#e
-ocatio o* !irm
Te 'nit o" te "irm -as $ointly visited by Mr( A Rama#andran /AO6;
SME0% Mr( Sa#in g'pta /Dep'ty Manager;SME0 & Mr( Sameep +'#
/Manager;A.is Sales0 on 81(82(1223(
Overall #ond'#t o" te b'siness -as "o'nd reg'lar( Te visit -as
satis"a#tory(
Proce""i$ !ee" 8(22= o" san#tioned CC limit% pl's appli#able ta.es /non;re"'ndable0(
Lo$i !ee" Rs( <222/; pl's appli#able ta.es% to be ta!en 'p"ront /Aon ; re"'ndable0
De*a%-ter Li"t Ceter te names o" te borro-er or any o" te promoters/dire#tors
appear/s0 inH
130
R+* de"a'lters ListH Ao /Te "irm name and proprietor,s name are not
"eat'ring in R+* de"a'lters list latest available o" 78(81(122>0
ECGC de"a'lter ListH Ao
C*+*LH Satis"a#tory
Credit Scori$
Credit Score
4Ec-o"e Credit
Scori$ S#eet6
Rati$
SME .
131
Parameter"
Score
4ABS 3'EJ3E.JJH6
:inan#ial
1>(22
+'siness & Management
91(5>
*nd'stry 88(89
O2era-- G'8H.
Per*ormace detai-"
Partic%-ar" 3'8J38.JJF 3'8J38.JJG 3'8J38.JJH 3'8J38.J'J 3'8J38.J''
A%dited A%dited A%dited E"timated Pro@ected
Sa-e" 883(57 129(93 978(21 <4>(<5 41<(97
Ot#er Icome 8(24 8(43 7(73 9(2> 9(3
Tota- Icome 812(53 124(8> 979(98 <51(4< 472(77
PBDIT 38H' :8'; ''8'3 .'8J9 ..8GJ
De)reciatio 2(<1 8(17 8(78 8(8> 8(24
Itere"t 2(88 2(11 8(15 <(95 <(9>
PBT 7(1> 7(58 >(<< 89(73 84(14
PAT 7(1> 7(58 >(<< 89(73 84(14
PBT Mar$i C .8F. '8GJ '8HF .8:' .8:G
Ca"# Accr%a-" 38G 98H9 H8G; ':8:F 'F83.
TN<4Uad@%"ted6 12(47 14(15 79(2> 94(34 48(51
U"ec%red Loa" *rom
*ried" / re-ati2e" 84(<2 83(32 54(27 4>(<7 44(<7
TN< 4Ad@%"ted6 75(87 94(85 882(88 88<(93 81>(1<
TOL4Ad@%"ted6 14(>3 15(3> 49(2< >2(3< >7(3<
TOL4Uad@%"ted6 97(73 95(>> 892(2> 893(9> 8<2(9>
TOLETN<4Uad@%"ted6 .8'J '8G. 98'' 38'G .899
TOLETN<4Ad@%"ted6 J8F. J8;' J8:G J8FJ J8;:
De+tor" 11(2> 77(59 59(87 39(54 829(19
= Le"" t#a ; mot#" 11(2> 77(59 59(87 39(54 829(19
= More t#a ; mot#" 2(22 2(22 2(22 2(22 2(22
De+tor" #o-di$ 4i day"6 ;F83' ;J8.. ;.8FG ;J8G3 ;J8G3
C%rret Ratio '89J '899 '8FF '8;; '8F;
C%rret A""et 75(54 97(<5 887(<3 879(<< 895(>>
C%rret Lia+i-itie" 14(>3 72(74 49(2< >2(3< >7(3<
132
Aa-y"i"
a0 Te mar!et rep'tation o" promoter is satis"a#tory(
b0 :irm as a#ieved sales o" Rs( 129(93 la#s in :Y( 1225; 2> and Rs( 978(21 la#s in :Y(
122>;23% tis is more tan do'ble o" te last year( :irm as s'bmitted estimated sales
o" Rs( <4>(<5 la#s "or :Y 1223;82% against -i# "irm as a#ieved sales t'rnover o"
Rs( 17<(52 la#s till 78st O#tober 1223% -i# is 98(9< = o" estimated sales.
#0 6ro"itability o" te "irm is also so-ing in#reasing trend y;o;y bases( :irm as
a#ieved 6+T o" Rs( 7(58 la#s in :Y 1225;2> & Rs( >(<< la#s in :Y 122>;23(
6ro"itability as also rose in line -it in#rease in sales o" previo's "inan#ial year(
6+D*T o" te "irm is also on in#reasing trend% -i# #an be #onsidered as
satis"a#tory(
d0 Aet -ort o" te "irm is in#reasing y;o;y bases% -it plo'g ba#! o" te pro"it in te
b'siness( Knad$'sted gearing o" te "irm is on iger side "or :Y 122>;23 mainly d'e
to iger side o" #reditors at parti#'lar point in Mar# 1223( *n Mar# 1223%
proprietor s'bmitted tat p'r#ase o" ra- material -as at better pri#e & te s'ppliers
also allo-ed #redit period( Hen#e% te #reditor base -as on iger side(
e0 Debtor,s level o" te "irm is average 42 days "or all te past 7 years( 6roprietor as
s'bmitted tat average payment d'ration is 42 days maintained in te b'siness(
Debtors maintain reg'larity in payment% -i# #an be #onsidered as a##eptable(
"0 Te C'rrent Ratio o" te "irm as been on iger side% above te ben#mar! level o"
8(77 "or all te past 7 years( C'rrent ratio "or :Y 1225;2> -as 8(99 & "or :Y 122>;23
-as at 8(55( Estimated ratio is 8(44 "or :Y 1223;82( Alto'g% it as been maintained
above te ben#mar! level% -i# #an be #onsidered as a##eptable(
133
CHAPTER H
!INDINGS
Credit appraisal is done to #e#! te #ommer#ial% "inan#ial & te#ni#al viability o" te
pro$e#t proposed its "'nding pattern & "'rter #e#!s te primary or #ollateral se#'rity
#over available "or te re#overy o" s'# "'nds
Credit is te #ore a#tivity o" te ban!s & important so'r#e o" teir earnings -i# go
to pay interest to depositors% salaries to employees & dividend to sareolders
Credit & ris! go and in and
*n te b'siness -orld ris! arises o't o"H;
De"i#ien#ies / lapses on te part o" te management
Kn#ertainties in te b'siness environment
Kn#ertainties in te ind'strial environment
Cea!ness in te "inan#ial position
+an!,s main "'n#tion is to lend "'nds/ provide "inan#e b't it appears tat norms are
ta!en as g'idelines not as a de#ision ma!ing
A ban!er,s tas! is to indenti"y/assess te ris! "a#tors/parameters & manage/mitigate
tem on #ontin'o's basis
Te Credit Appraisal pro#ess adopted by te ban! ta!e into a##o'nt all possible
"a#tors -i# go into appraising te ris! asso#iated -it a loan
Tese ave been #ategori?ed broadly into "inan#ial% b'siness% ind'strial% management
ris!s & are rated separately
134
Te assessment o" "inan#ial ris! involves appraisal o" te "inan#ial strengt o" te
borro-er based on per"orman#e & "inan#ial indi#ators
Te norms o" te ban! "or providing loans are not stringent% i(e( even i" a parti#'lar
#lient is not aving te "avorable estimated and "inan#ial per"orman#e% based on its
past re#ord and "'t're gro-t perspe#tive% te loan is provided(
+y providing vario's s#emes o" loans% A.is ban! tries to #ater to te "inan#ial
reB'irements o" almost all te types o" SME 'nits(
135
CHAPTER 'J
CONCLUSION
:inan#e management is te ba#!bone o" any organi?ations and en#e yields a n'mber
o" $ob options ranging "rom strategi# "inan#ial planning to sales(
:rom te st'dy o" Credit appraisal o" SME% it #an be #on#l'ded tat #redit appraisal
so'ld tere"ore be based on te "ollo-ing "a#tors% te same are applied at A.is +an!H
:inan#ial per"orman#e
+'siness per"orman#e
*nd'stry o'tloo!
I'ality o" management
Cond'#t o" a##o'nt
A.is +an! loan poli#y #ontains vario's norms "or san#tion o" di""erent types o" loans(
Tese all norms do not apply to ea# & every #ase( A.is +an! norms "or providing
loans are "le.ible & it may di""er "rom #ase to #ase(
Ks'ally% it is seen tat #redit appraisal is basi#ally done on te basis o" "'ndamental
so'ndness( +'t% a"ter di""erent types o" #ase st'dies% o'r #on#l'sion -as s'# tat
#redit appraisal system is not only loo!ing "or "inan#ial -ealt( Oter strong
parameters also play an important role in analy?ing #redit -ortiness o" te
"irm/#ompany(
*n all% te viability o" te pro$e#t "rom every aspe#t is analy?ed% as -ell as type o"
b'siness% ind'stry% promoters% past re#ords% e.perien#e% pro$e#ted data and estimates%
goals% long term plans also plays #r'#ial role in in#reasing #an#es o" getting pro$e#t
approved "or loan(
136
BIBLIOGRAPH&
Ceb Sites
---(rbi(org(in
---(A.is +an!(#om
---(indianban!asso#iation(#om
---(ban!ersindia(#om
---(-i!ipedia(#om
+oo!sH
DCredit and ban!ingE +yH J( C( Aanda
137