STATE BANK OF INDIA

Project Financing.

CONTENTS
SECTION I
Executive Summary 4-7
Industria !r"#ie $ -%&
SECTION II
C"m'any !r"#ie %(-&%
SECTION III
T)e"retica Bac*+r"und #"r t)e 'r",ect -"r* &&- 4$
- Intr"ducti"n t" 'r",ect #inancin+
- !r",ect #inancin+ ris*s
- !r",ect Financia A''raisa
!r",ect in Brie#- S. #"- c"ntr"s /0- /(
SECTION I1
Financia Anaysis /4-74
2easures ta*en 3y SBI -)en t)e re'ayment is n"t '"ssi3e 7/

SECTION 1
Anaysis 74
Findin+s 77 -75
6ec"mmendati"ns
.imitati"ns
C"ncusi"ns
Bi3i"+ra')y 7$


BABASAB PATIL
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STATE BANK OF INDIA
Project Financing.

Executive Summary
Tite "# t)e 'r",ect
7Financia A''raisa O# t)e !r",ect Financed By SBI8 9u3i:
As a part of curriculum, every student studying MBA has to undertake a project on a
particular subject assigned to him/her. Accordingly I have been assigned the project
ork on the study of project financing in Banking !ector.
As it is rightly said that finance is the life blood of every business so every business
need funds for smooth running of its activities and bank is the one of the source through
hich the business get funds, before financing the bank appraise the projects and if the
projects meet the re"uirement of the bank rules than only they ill finance.
#roject financing is commonly used as a financing method in capital-intensive
industries for projects re"uiring large investments of funds, such as the construction of
poer plants, pipelines, transportation systems, mining facilities, industrial facilities
and heavy manufacturing plants.

$he core area of this project focuses on the financial appraisal of !% flo controls, ho
has started Manufacturing of industrial valves hich is financed by !BI
.
$his project has been undertaken at !tate Bank of India, &ubli branch hich is one of
the largest bank in India having vast domestic netork of over '((( branches. !BI
deals ith all financial activities hich involves all types of deposits, advances
including project financing, mutual funds etc
)inancial appraisal hich mainly leads to the feasibility study consisting of ratio
analysis and capital budgeting calculations.
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STATE BANK OF INDIA
Project Financing.

2ain O3,ective

)inancial appraisal of project*
Su3 O3,ectives -
+. $o kno the projects financed by !BI.
,. $o kno the policies of !BI toards the project financing.
-. $o kno the risks involved in projects financing.
.. $o appraise the projects using financial tools.
/. $o kno the measures taken by bank hen the clients fail to repay the amount.
2et)"d""+y
0ata collection method1 $he report ill be prepared mainly using secondary data vi2,
Sec"ndary data

.sbi.com.
3ompany manuals.
3ommercial Banks Book.
T)e tec)ni;ues8 -)ic) -"ud 3e used #"r t)e study<
+. 0iscussions ith Bank guide and customers.

,. By studying projects reports
.
-. 4sing #roject $echni"ues1

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STATE BANK OF INDIA
Project Financing.

Anaysis<-
T)is anaysis 'art is reated t" t)e #inancia via3iity "# t)e 'r",ect S. F"-
C"ntr"s<-
$hrough ratio analysis I analy2ed that the li"uidity position of the firm is
good and it is maintaining the standard ratio..
0ebt 5"uity ratio is in decreasing trend, it shos that the firm is reducing its
liability portion by paying the loan year on year so the financial risk less.
#rofitability ratios related to sales and capital employed are in increasing
trend, it shos that the sales are increasing and the firm using its resources
efficiently.
0ebt !ervice 3overage 6atio is also in increasing trend, it shos that the
firms ability to make the loan repayments on time over the debt life of the
project.
$he payback period is ithin the debt life of the project.
$he net present value of the project is positive, $he positive net present
value ill result only if the project generates cash inflos at a rate higher
than the opportunity cost of capital . !ince the 7et #resent 8alue of the
above project is positive, the proposal can be accepted.
$he internal rate of the return is higher than hat accepted so the project is
accepted.

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STATE BANK OF INDIA
Project Financing.


Findin+s <- T)ese are reated t" 3an* in +enera
!tate bank of India is strictly folloing the guidelines of 6BI on #roject
)inancing
!anctioning for the projects is approved by 6A!M533 96etailed Assets
!mall And Medium 5nterprises 3redit 3ell:.
$he bank finances the projects only through term loans.
Interest rates are fi;ed depending upon the projects hich is knon as !tate
Bank advance rate.
<hen the clients fail to pay the interest, - months from the due date the term
loan granted ill be treated as 7on #erforming Assets.
If the interest is due further - more months then it ill be treated as doubtful
assets and interest rates becomes 2ero.
Again for further - months it goes as loss assets and the bank rite off the
account.
5very firm starting up a ne project should make an insurance policy ith
the same bank itself.
6ec"mmendati"ns<-
Bank check only financial, technical and commercial feasibility of the
project and it should not consider sensitivity analysis and social cost benefit
analysis of the project so bank should consider this because these are also
important from the point of vie of risk and economy groth.
BABASAB PATIL
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STATE BANK OF INDIA
Project Financing.

Bank should be caution about the availability of security and ensure
honesty of both borroer and guarantor so as to avoid the account
becoming the loss assets.
.imitati"n "# t)e study<-
!ome of the information are confidential in nature that could not divulged for study.
6ati"nae 3e)ind c)""sin+ t)is t"'ic<
#roject financing is a comparatively ne field for Indian banks,at present scenario India
is becoming developed country so because of that many projects are going on that may
be infrastructure, poer generation, mining etc. considering all these the projects must
need finance, to fulfill these objectives the project undertaken companies raise the
funds through capital market, debt market and through banks.
<henever bank ants to finance these type of projects it must study the feasibility of
the project and then it ill go for financing that project
Because of this it is very necessary to study the process of project financed by the bank
so I choose this topic to study ho !BI study the projects and the method of financing
the projects.
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STATE BANK OF INDIA
Project Financing.

Industria !r"#ie
9ISTO6= OF BANKIN> IN INDIA
<ithout a sound and effective banking system in India it cannot have a healthy
economy. $he banking system of India should not only be hassle free but it should be
able to meet ne challenges posed by the technology and any other e;ternal and
internal factors.
)or the past three decades India=s banking system has several outstanding
achievements to its credit. $he most striking is its e;tensive reach. It is no longer
confined to only metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote corners of the country. $his is one of the main
reasons for India=s groth. $he government=s regular policy for Indian bank since +'>'
has paid rich dividends ith the nationali2ation of +. major private banks of India.
$he first bank in India, though conservative, as established in +?@>. )rom +?@> till
today, the journey of Indian Banking !ystem can be segregated into three distinct
phases. $hey are as mentioned belo1
5arly phase from +?@> to +'>' of Indian Banks.
7ationali2ation of Indian Banks and up to +''+ prior to Indian.
Banking sector 6eforms.
7e phase of Indian Banking !ystem ith the advent of Indian.
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STATE BANK OF INDIA
Project Financing.

)inancial A Banking !ector 6eforms after +''+.
!)ase I
$he Beneral Bank of India as set up in the year +?@>. 7e;t came Bank of &industan
and Bengal Bank. $he 5ast India 3ompany established Bank of Bengal 9+@(':, Bank of
Bombay 9+@.(: and Bank of Madras 9+@.-: as independent units and called it
#residency Banks. $hese three banks ere amalgamated in +',( and Imperial Bank of
India as established hich started as private shareholders banks, mostly 5uropean
shareholders.
In +@>/ Allahabad Bank as established and first time e;clusively by Indians, #unjab
7ational Bank %td. as set up in +@'. ith head"uarters at %ahore. Beteen +'(> and
+'+-, Bank of India, 3entral Bank of India, Bank of Baroda, 3anara Bank, Indian
Bank, and Bank of Mysore ere set up. 6eserve Bank of India came in +'-/.
0uring the first phase the groth as very slo and banks also e;perienced periodic
failures beteen +'+- and +'.@. $here ere appro;imately ++(( banks, mostly small.
$o streamline the functioning and activities of banks, mostly small. $o streamline the
functioning and activities of commercial banks, the Bovernment of India came up ith
$he Banking 3ompanies Act, +'.' hich as later changed to Banking 6egulation Act
+'.' as per amending Act of +'>/ 9Act 7o. ,- of +'>/:. 6eserve Bank of India as
vested ith e;tensive poers for the supervision of banking in India as the 3entral
Banking !ystem.
0uring those days public has lesser confidence in the banks. As an aftermath deposit
mobilisation as slo. Abreast of it the savings bank facility provided by the #ostal
department as comparatively safer. Moreover, funds ere largely given to traders.
!)ase II
Bovernment took major steps in this Indian Banking !ector 6eform after independence.
In +'//, it nationalised Imperial Bank of India ith e;tensive banking facilities on a
BABASAB PATIL
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STATE BANK OF INDIA
Project Financing.

large scale specially in rural and semi-urban areas. It formed !tate Bank of India to act
as the principal agent of 6BI and to handle banking transactions of the 4nion and state
government all over the country.
!even banks forming subsidiary of !tate Bank of India as nationalised in +'>( on +'
th
Culy +'>', major process of nationalisation as carried out. It as the effort of the then
#rime Minister of India, Mrs. Indira Bandhi. +. major commercial banks in the country
ere nationali2ed.!econd phase of nationalisation Indian Banking !ector 6eform as
carried out in +'@( ith seven more banks. $his step brought @(D of the banking
segment in India under Bovernment onership.
T)e #""-in+ are t)e ste's ta*en 3y t)e >"vernment "# India t" 6e+uate Ban*in+
Instituti"ns in t)e C"untry<
+. +'.'1 5nactment of Banking 6egulation Act.
,. +'//1 7ationalisation of !tate Bank of India.
-. +'/'1 7ationalisation of !BI subsidiaries.
.. +'>+1 Insurance cover e;tended to deposits.
/. +'>'1 7ationalisation of +. major banks.
>. +'?+1 3reation of credit guarantee corporation.
?. +'?/1 3reation of regional rural banks.
@. +'@(1 7ationalisation of seven banks ith deposits over ,(( crores.
After the nationali2ation of banks, the branches of the public sector bank India raised to
appro;imately @((D in deposits and advances took a huge jump by ++(((D. Banking
in the sunshine of Bovernment onership gave the public implicit faith and immense
confidence about the sustainability of these institutions.
BABASAB PATIL
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STATE BANK OF INDIA
Project Financing.

!)ase III
$his phase has introduced many more products and facilities in the banking sector in
its reforms measure. In +''+, under the chairmanship of M 7arasimham, a committee
as set up by his name, hich orked for the %iberali2ation of Banking #ractices.
$he country is flooded ith foreign banks and their A$M stations. 5fforts are being put
to give a satisfactory service to customers. #hone banking and net banking is
introduced. $he entire system became more convenient and sift. $ime is given more
importance than money.
$he financial system of India has shon a great deal of resilience. It is sheltered from
any crisis triggered by any e;ternal macroeconomics shock as other 5ast Asian
3ountries suffered. $his is all due to a fle;ible e;change rate regime, the foreign
reserves are high, the capital account is not yet fully convertible, and banks and their
customers have limited foreign e;change e;posure.
Banking in India originated in the first decade of +@
th
century ith $he Beneral Bank
Ef India coming into e;istence in +?@>. $his as folloed by Bank of &industan. Both
these banks are no defunct. $he oldest bank in e;istence in India is the !tate Bank Ef
India being established as F $he Bank Ef 3alcutta* in 3alcutta in Cune +@(>. 3ouple of
0ecades later, foreign Banks like &!B3 and 3redit %yonnais !tarted their 3alcutta
operations in +@/(s. At that point of time, 3alcutta as the most active trading port,
mainly due to the trade of British 5mpire and due to hich banking actively took roots
there and prospered. $he first fully Indian oned bank as the Allahabad Bank set up
in +@>/.
By +'((, the market e;panded ith the establishment of banks like #unjab 7ational
Bank in +@'/ in %ahoreG Bank of India in +'(> in Mumbai-both of hich ere founded
under private onership. Indian Banking !ector as formally regulated by 6eserve
Bank Ef India from +'-/. After India=s independence in +'.?, the 6eserve Bank as
nationalised and given broader poers.
BABASAB PATIL
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STATE BANK OF INDIA
Project Financing.

SBI >r"u'
$he Bank of Bengal, hich later became the !tate Bank of India. !tate Bank of India
ith its seven associate banks commands the largest banking resources in India.
Nati"nai?ati"n
$he ne;t significant milestone in Indian Banking happened in late +'>(s hen the then
Indira Bandhi government nationali2ed on +'
th
Culy +'.', +. major commercial Indian
banks folloed by nationalisation of > more commercial Indian banks in +'@(.
$he stated reason for the nationalisation as more control of credit delivery. After this,
until +''(s, the nationali2ed banks gre at a leisurely pace of around .D also called as
the &indu groth of the Indian economy.
After the amalgamation of 7e Bank of India ith #unjab 7ational Bank, currently
there are +' nationali2ed banks in India.
.i3erai?ati"n-
In the early +''(=s the then 7arasimha rao government embarked a policy of
liberali2ation and gave licences to a small number of private banks, hich came to be
knon as 7e generation tech-savvy banks, hich included banks like I3I3I and
&0)3. $his move along ith the rapid groth of the economy of India, kick started the
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STATE BANK OF INDIA
Project Financing.

banking sector in India, hich has seen rapid groth ith strong contribution from all
the sectors of banks, namely Bovernment banks, #rivate Banks and )oreign banks.
&oever there had been a fe hiccups for these ne banks ith many either being
taken over like Blobal $rust Bank hile others like 3enturion Bank have found the
going tough.
$he ne;t stage for the Indian Banking has been set up ith the proposed
rela;ation in the norms for )oreign 0irect Investment, here all )oreign Investors in
Banks may be given voting rights hich could e;ceed the present cap of +(D, at
present it has gone up to .'D ith some restrictions.
$he ne policy shook the Banking sector in India completely. Bankers, till this
time, ere used to the .->-. method 9Borro at .DG %end at >DG Bo home at .: of
functioning. $he ne ave ushered in a modern outlook and tech-savvy methods of
orking for traditional banks. All this led to the retail boom in India. #eople not just
demanded more from their banks but also received more.
C@66ENT SCENA6IO
3urrently 9,((?:, overall, banking in India is considered as fairly mature in terms
of supply, product range and reach-even though reach in rural India still remains a
challenge for the private sector and foreign banks. 5ven in terms of "uality of assets
and capital ade"uacy, Indian banks are considered to have clean, strong and transparent
balance sheets-as compared to other banks in comparable economies in its region. $he
6eserve Bank of India is an autonomous body, ith minimal pressure from the
government. $he stated policy of the Bank on the Indian 6upee is to manage volatility-
ithout any stated e;change rate-and this has mostly been true.
<ith the groth in the Indian economy e;pected to be strong for "uite some time-
especially in its services sector, the demand for banking services-especially retail
banking, mortgages and investment services are e;pected to be strong. MAAs,
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STATE BANK OF INDIA
Project Financing.

takeovers, asset sales and much more action 9as it is unraveling in 3hina: ill happen
on this front in India.
In March ,((>, the 6eserve Bank of India alloed <arburg #incus to increase its stake
in Hotak Mahindra Bank 9a private sector bank: to +(D. $his is the first time an
investor has been alloed to hold more than /D in a private sector bank since the 6BI
announced norms in ,((/ that any stake e;ceeding /D in the private sector banks
ould need to be vetted by them.
3urrently, India has @@ scheduled commercial banks 9!3Bs: - ,@ public sector
banks 9that is ith the Bovernment of India holding a stake:, ,' private banks 9these do
not have government stakeG they may be publicly listed and traded on stock e;changes:
and -+ foreign banks. $hey have a combined netork of over /-,((( branches and
+?,((( A$Ms. According to a report by I36A %imited, a rating agency, the public
sector banks hold over ?/ percent of total assets of the banking industry, ith the
private and foreign banks holding +@.,D and >./D respectively.
BABASAB PATIL
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STATE BANK OF INDIA
Project Financing.

Ban*in+ in India
+ 3entral Bank 6eserve Bank of India
, 7ationalised
Banks
!tate Bank of India, Allahabad Bank, Andhra Bank,
Bank of Baroda, Bank of India, Bank of
Maharastra,3anara Bank, 3entral Bank of India,
3orporation Bank, 0ena Bank, Indian Bank, Indian
overseas Bank,Eriental Bank of 3ommerce, #unjab and
!ind Bank, #unjab 7ational Bank, !yndicate Bank,
4nion Bank of India, 4nited Bank of India, 43E
Bank,and 8ijaya Bank.
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STATE BANK OF INDIA
Project Financing.

- #rivate Banks
Bank of 6ajastan, Bharath overseas Bank, 3atholic
!yrian Bank, 3enturion Bank of #unjab, 3ity 4nion
Bank, 0evelopment 3redit Bank, 0hanala;mi Bank,
)ederal Bank, Banesh Bank of Hurundad, &0)3 Bank,
I3I3I Bank, I0BI, IndusInd Bank, I7B 8ysya Bank,
Cammu and Hashmir Bank, Harnataka Bank %imited,
Harur 8ysya Bank, Hotek Mahindra Bank, %akshmivilas
Bank, %ord Hrishna Bank, 7ainitak Bank, 6atnakar
Bank,!angli Bank, !BI 3ommercial and International
Bank, !outh Indian Bank, $amil 7adu Merchantile Bank
%td., 4nited <estern Bank, 4$I Bank, I5! Bank.
Structure "# Indian Ban*in+
6eserve Bank of India is the regulating body for the Indian Banking Industry. It is a
mi;ture of #ublic sector, #rivate sector, 3o-operative banks and foreign banks. $he
private sector banks are further spilt into old banks and ne banks.

Sc)edued Ban*s



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6eserve Ban* "# India
Sc)edued C"mmercia
Ban*s
Sc)edued C"-"'erative
Ban*s

STATE BANK OF INDIA
Project Financing.




Ban* Overvie-
STATE BANK OF INDIA
7ot only many financial institution in the orld today can claim the anti"uity and
majesty of the !tate Bank Ef India founded nearly to centuries ago ith primarily
intent of imparting stability to the money market, the bank from its inception mobili2ed
funds for supporting both the public credit of the companies governments in the three
presidencies of British India and the private credit of the 5uropean and India merchants
from about +@>(s hen the Indian economy book a significant leap forard under the
impulse of "uickened orld communications and ingenious method of industrial and
agricultural production the Bank became intimately in valued in the financing of
practically and mining activity of the !ub- 3ontinent Although large 5uropean and
Indian merchants and manufacturers ere undoubtedly thee principal beneficiaries, the
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!u3ic Sect"r
Ban*s
!rivate Sect"r
Ban*s
F"rei+n
Ban*s
6e+i"na
6ura Ban*s
Nati"nai?ed
Ban*s
SBI A its
Ass"ciates
Od 'rivate sect"r
Ban*s
Ne- 'rivate sect"r
Ban*s
Sc)edued @r3an
c""'erative
Ban*
Sc)edued State c"-
"'erative Ban*s

STATE BANK OF INDIA
Project Financing.

small man never ignored loans as lo as 6s.+(( ere disbursed in agricultural districts
against glad ornaments. Added to these the bank till the creation of the 6eserve Bank in
+'-/ carried out numerous 3entral J Banking functions.
Adaptation orld and the needs of the hour has been one of the strengths of the Bank,
In the post depression e;e. )or instance J hen business opportunities become
e;tremely restricted, rules laid don in the book of instructions ere relined to ensure
that good business did not go post. Iet seldom did the bank contravenes its value as
depart from sound banking principles to retain as e;pand its business. An innovative
array of office, unknon to the orld then, as devised in the form of branches, sub
branches, treasury pay office, pay office, sub pay office and out students to e;ploit the
opportunities of an e;panding economy. 7e business strategy as also evaded ay
back in +'-? to render the best banking service through prompt and courteous attention
to customers.
A highly efficient and e;perienced management functioning in a ell defined
organi2ational structure did not take long to place the bank an e;ecuted pedestal in the
areas of business, profitability, internal discipline and above all credibility A
impeccable financial status consistent maintenance of the lofty traditions if banking an
observation of a high standard of integrity in its operations helped the bank gain a pre-
eminent status. 7o onders the administration for the bank as universal as key
functionaries of India successive finance minister of independent India 6esource Bank
of governors and representatives of chamber of commercial shoered economics on it.
Modern day management techni"ues ere also very much evident in the good old days
years before corporate governance had become a pu22led the banks bound functioned
ith a high degree of responsibility and concerns for the shareholders. An unbroken
records of profits and a fairly high rate of profit and fairly high rate of dividend all
through ensured satisfaction, prudential management and asset liability management
not only protected the interests of the Bank but also ensured that the obligations to
customers ere not met.
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STATE BANK OF INDIA
Project Financing.

$he traditions of the past continued to be upheld even to this day as the !tate Bank
years itself to meet the emerging challenges of the millennium.

ABO@T .O>O
T9E !.ACE TO S9A6E T9E NEBS CCCDD
S9A6E T9E 1IEBS DD
$ogetherness is the theme of this corporate loge of !BI here the orld of banking
services meet the ever changing customers needs and establishes a link that is like a
circle, it indicates complete services toards customers. $he logo also denotes a bank
that it has prepared to do anything to go to any lengths, for customers.
$he blue pointer represent the philosophy of the bank that is alays looking for the
groth and neer, more challenging, more promising direction. $he key hole indicates
safety and security.
2ISSION STATE2ENT<
$o retain the Bank=s position as premiere Indian )inancial !ervice Broup, ith orld
class standards and significant global committed to e;cellence in customer, shareholder
and employee satisfaction and to play a leading role in e;panding and diversifying
financial service sectors hile containing emphasis on its development banking rule.
1ISION STATE2ENT<
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STATE BANK OF INDIA
Project Financing.

#remier Indian )inancial !ervice Broup ith prospective orld-class
!tandards of efficiency and professionalism and institutional values
6etain its position in the country as pioneers in 0evelopment banking.
Ma;imi2e the shareholders value through high-sustained earnings per !hare.
An institution ith cultural mutual care and commitment, satisfying and
Bood ork environment and continues learning opportunities.
1A.@ES
5;cellence in customer service
#rofit orientation
Belonging commitment to Bank
)airness in all dealings and relations
6isk taking and innovative
$eam playing
%earning and reneal
Integrity
$ransparency and 0iscipline in policies and systems.
Or+ani?ati"n Structure
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MA7ABI7B 0I653$E6
3&I5) B5756A% MA7AB56

STATE BANK OF INDIA
Project Financing.

B. M B.M B. M B.M B.M
9Eperations: 93AB: 9)A!: 9I: A 38E 9#A0:

Konal off )unctional &eads
6egional officers
T)e"retica Bac*+r"und #"r t)e 'r",ect -"r*
#roject )inancing
I7$6E043$IE7-
#roject financing is an innovative and timely financing techni"ue that has been used on
many high-profile corporate projects, including 5uro 0isneyland and the 5uro tunnel.
5mploying a carefully engineered financing mi;, it has long been used to fund large-
scale natural resource projects, from pipelines and refineries to electric-generating
facilities and hydroelectric projects. Increasingly, project financing is emerging as the
preferred alternative to conventional methods of financing infrastructure and other
large-scale projects orldide.
BABASAB PATIL
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STATE BANK OF INDIA
Project Financing.

M5A7I7B-
#roject financing involves non-recourse financing of the development and construction
of a particular project in hich the lender looks principally to the revenues e;pected to
be generated by the project for the repayment of its loan and to the assets of the project
as collateral for its loan rather than to the general credit of the project sponsor.
6A$IE7A%5-
#roject financing is commonly used as a financing method in capital-intensive
industries for projects re"uiring large investments of funds, such as the construction of
poer plants, pipelines, transportation systems, mining facilities, industrial facilities
and heavy manufacturing plants. $he sponsors of such projects fre"uently are not
sufficiently creditorthy to obtain traditional financing or are unilling to take the
risks and assume the debt obligations associated ith traditional financings. #roject
financing permits the risks associated ith such projects to be allocated among a
number of parties at levels acceptable to each party.
!6INCI!.E AD1ANTA>E AND OBEECTI1ES-
NON 6ECO@6SE
$he typical project financing involves a loan to enable the sponsor to construct a
project here the loan is completely Lnon-recourseL to the sponsor, i.e., the sponsor has
no obligation to make payments on the project loan if revenues generated by the project
are insufficient to cover the principal and interest payments on the loan. In order to
minimi2e the risks associated ith a non-recourse loan, a lender typically ill re"uire
indirect credit supports in the form of guarantees, arranties and other covenants from
the sponsor, its affiliates and other third parties involved ith the project
2AFI2IGE .E1E6A>E
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STATE BANK OF INDIA
Project Financing.

In a project financing, the sponsor typically seeks to finance the costs of
development and construction of the project on a highly leveraged basis. )re"uently,
such costs are financed using @( to +(( percent debt. &igh leverage in a non-recourse
project financing permits a sponsor to put less in funds at risk, permits a sponsor to
finance the project ithout diluting its e"uity investment in the project and, in certain
circumstances, also may permit reductions in the cost of capital by substituting loer-
cost, ta;-deductible interest for higher-cost, ta;able returns on e"uity.
OFF-BA.ANCES9EET T6EAT2ENT
0epending upon the structure of a project financing, the project sponsor may not
be re"uired to report any of the project debt on its balance sheet because such debt is
non-recourse or of limited recourse to the sponsor. Eff-balance-sheet treatment can
have the added practical benefit of helping the sponsor comply ith covenants and
restrictions relating to borroing funds contained in other indentures and credit
agreements to hich the sponsor is a party.
2AFI2IGE TAF-BENEFITS
#roject financings should be structured to ma;imi2e ta; benefits and to assure that all
available ta; benefits are used by the sponsor or transferred, to the e;tent permissible,
to another party through a partnership, lease or other vehicle.
DISAD1ANTA>ES-
#roject financings are e;tremely comple;. It may take a much longer period of time to
structure, negotiate and document a project financing than a traditional financing, and
the legal fees and related costs associated ith a project financing can be very high.
Because the risks assumed by lenders may be greater in a non-recourse project
financing than in a more traditional financing, the cost of capital may be greater than
ith a traditional financing.
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STATE BANK OF INDIA
Project Financing.

!6OCESS OF !6OEECT FINANCIN>
Feasi3iity Study
As one of the first steps in a project financing is hiring of a technical consultant and he
ill prepare a feasibility study shoing the financial viability of the project. )re"uently,
a prospective lender ill hire its on independent consultants to prepare an
independent feasibility study before the lender ill commit to lend funds for the
project.
C"ntents
$he feasibility study should analy2e every technical, financial and other aspect of the
project, including the time-frame for completion of the various phases of the project
development, and should clearly set forth all of the financial and other assumptions
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STATE BANK OF INDIA
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upon hich the conclusions of the study are based, Among the more important items
contained in a feasibility study are1
+. 0escription of project
,. 0escription of sponsor9s:.
-. !ponsorsM Agreements.
.. #roject site.
/. Bovernmental arrangements.
>. !ource of funds.
?. )eedstock Agreements.
@. Eff take Agreements.
'. 3onstruction 3ontract.
+(. Management of project.
++. 3apital costs.
+,. <orking capital.
+-. 5"uity sourcing.
+.. 0ebt sourcing.
+/. )inancial projections.
+>. Market study.
+?. Assumptions.
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STATE BANK OF INDIA
Project Financing.

T9E !6OEECT CO2!AN=
.e+a F"rm
!ponsors of projects adopt many different legal forms for the onership of the
project. $he specific form adopted for any particular project ill depend upon many
factors, including1
$he amount of e"uity re"uired for the project
$he concern ith management of the project
$he availability of ta; benefits associated ith the project
$he need to allocate ta; benefits in a specific manner among the project
company investors.
T)e t)ree 3asic #"rms #"r "-ners)i' "# a 'r",ect are<
%C C"r'"rati"ns-
$his is the simplest form for onership of a project. A special purpose
corporation may be formed under the las of the jurisdiction in hich the
project is located, or it may be formed in some other jurisdiction and be
"ualified to do business in the jurisdiction of the project.
&C >enera !artners)i's-
$he sponsors may form a general partnership. In most jurisdictions, a
partnership is recogni2ed as a separate legal entity and can on, operate and
enter into financing arrangements for a project in its on name. A
partnership is not a separate ta;able entity, and although a partnership is
re"uired to file ta; returns for reporting purposes, items of income, gain,
losses, deductions and credits are allocated among the partners, hich
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STATE BANK OF INDIA
Project Financing.

include their allocated share in computing their on individual ta;es.
3onse"uently, a partnership fre"uently ill be used hen the ta; benefits
associated ith the project are significant. Because the general partners of a
partnership are severally liable for all of the debts and liabilities of the
partnership, a sponsor fre"uently ill form a holly oned, single-purpose
subsidiary to act as its general partner in a partnership.
(C .imited !artners)i's-
A limited partnership has similar characteristics to a general partnership
e;cept that the limited partners have limited control over the business of the
partnership and are liable only for the debts and liabilities of the partnership
to the e;tent of their capital contributions in the partnership. A limited
partnership may be useful for a project financing hen the sponsors do not
have substantial capital and the project re"uires large amounts of outside
e"uity.
.imited .ia3iity C"m'anies-
$hey are a cross beteen a corporation and a limited partnership.
!r",ect C"m'any A+reements
0epending on the form of project company chosen for a particular project
financing, the sponsors and other e"uity investors ill enter into a stockholder
agreement, general or limited partnership agreement or other agreement that sets forth
the terms under hich they ill develop, on and operate the project. At a minimum,
such an agreement should cover the folloing matters1
Enership interests.
3apitali2ation and capital calls.
Allocation of profits and losses.
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STATE BANK OF INDIA
Project Financing.

0istributions.
Accounting.
Boverning body and voting.
0ay-to-day management.
Budgets.
$ransfer of onership interests.
Admission of ne participants.
0efault.
$ermination and dissolution.
!rinci'a A+reements in a !r",ect Financin+-
%C C"nstructi"n C"ntract-
!ome of the more important terms of the construction contracts are-
!r",ect Descri'ti"n- $he construction contract should set forth a
detailed description of all the <ork necessary to complete the
project
!rice<- Most project financing construction contracts are fi;ed-
price contracts although some projects may be built on a cost-
plus basis. If the contract is not fi;ed-price, additional debt or
e"uity contributions may be necessary to complete the
project, and the project agreements should clearly indicate the
party or parties responsible for such contributions.
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STATE BANK OF INDIA
Project Financing.

!ayment- #ayments typically are made on a LmilestoneL or
Lcompleted orkL basis, ith a retain age. $his payment
procedure provides an incentive for the contractor to keep on
schedule and useful monitoring points for the oner and the
lender.
C"m'eti"n Date- $he construction completion date, together
ith any time e;tensions resulting from an event of force
majeure, must be consistent ith the partiesM obligations under
the other project documents. If construction is not finished by the
completion date, the contractor typically is re"uired to pay
li"uidated damages to cover debt service for each day until the
project is completed. If construction is completed early, the
contractor fre"uently is entitled to an early completion bonus.
!er#"rmance >uarantees- $he contractor typically ill
guarantee that the project ill be able to meet certain
performance standards hen completed. !uch standards must
be set at levels to assure that the project ill generate sufficient
revenues for debt service, operating costs and a return on e"uity.
!uch guarantees are measured by performance tests conducted
by the contractor at the end of construction. If the project does
not meet the guaranteed levels of performance, the contractor
typically is re"uired to make li"uidated damages payments to the
sponsor. If project performance e;ceeds the guaranteed minimum
levels, the contractor may be entitled to bonus payments.
,. Feedst"c* Su''y A+reements.
$he project company ill enter into one or more feedstock supply
agreements for the supply of ra materials, energy or other resources over
the life of the project. )re"uently, feedstock supply agreements are
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STATE BANK OF INDIA
Project Financing.

structured on a Lput-or-payL basis, hich means that the supplier must either
supply the feedstock or pay the project company the difference in costs
incurred in obtaining the feedstock from another source. $he price
provisions of feedstock supply agreements must assure that the cost of the
feedstock is fi;ed ithin an acceptable range and consistent ith the
financial projections of the project.
-. !r"duct "## ta*e A+reements.
In a project financing, the product off take agreements represent the source
of revenue for the project .!uch agreements must be structured in a
manner to provide the project company ith sufficient revenue to pay its
project debt obligations and all other costs of operating, maintaining and
oning the project .)re"uently,offtake agreements are structured on a Ltake-
or-payL basis, hich means that the offtaker is obligated to pay for product
on a regular basis hether or not the offtaker actually takes the product
unless the product is unavailable due to a default by the project
company. %ike feedstock supply arrangements, offtake agreements
fre"uently are on a fi;ed or scheduled price basis during the term of
the project debt financing.
.. O'erati"ns and 2aintenance A+reement -
$he project company typically ill enter into a long-term agreement
for the day-to-day operation and maintenance of the project facilities ith
a company having the technical and financial e;pertise to operate the
project in accordance ith the cost and production specifications for the
project. $he operator may be an independent company, or it may be one of
the sponsors . $he operator typically ill be paid a fi;ed compensation and
may be entitled to bonus payments for e;traordinary project performance
and be re"uired to pay li"uidated damages for project performance belo
specified levels.
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STATE BANK OF INDIA
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/. ."an and Security A+reement.
$he borroer in a project financing typically is the project company formed
by the sponsor9s: to on the project. $he loan agreement ill set forth the
basic terms of the loan and ill contain general provisions relating to
maturity, interest rate and fees. $he typical project financing loan agreement
also ill contain yhr provisions such as-
+. Dis3ursement C"ntr"s. $hese fre"uently take the form of conditions
precedent to each dradon, re"uiring the borroer to present invoices,
builders= certificates or other evidence as to the need for and use of the
funds.
,. !r"+ress 6e'"rts.1- $he lender may re"uire periodic reports certified by
an independent consultant on the status of construction progress.
-. C"venants N"t t" Amend1- $he borroer ill covenant not to amend or
aive any of its rights under the construction, feedstock, off take,
operations and maintenance, or other principal agreements ithout the
consent of the lender.
.. C"m'eti"n C"venants1-$hese re"uire the borroer to complete the
project in accordance ith project plans and specifications and prohibit
the borroer from materially altering the project plans ithout the
consent of the lender.
/. Dividend 6estricti"ns. $hese covenants place restrictions on the
payment of dividends or other distributions by the borroer until debt
service obligations are satisfied.
>. De3t and >uarantee 6estricti"ns. $he borroer may be prohibited
from incurring additional debt or from guaranteeing other obligations
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STATE BANK OF INDIA
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?. Financia C"venants. !uch covenants re"uire the maintenance of
orking capital and li"uidity ratios, debt service coverage ratios, debt
service reserves and other financial ratios to protect the credit of the
borroer.
@. Su3"rdinati"n. %enders typically re"uire other participants in the
project to enter into a subordination agreement under hich certain
payments to such participants from the borroer under project
agreements are restricted 9either absolutely or partially: and made
subordinate to the payment of debt service.
'. SecurityC $he project loan typically ill be secured by multiple forms of
collateral, including1----
Mortgage on the project facilities and real property.
Assignment of operating revenues.
#ledge of bank deposits
Assignment of any letters of credit or performance or
completion bonds relating to the project.
project under hich borroer is the beneficiary.
%iens on the borroerMs personal property
Assignment of insurance proceeds.
Assignment of all project agreements
#ledge of stock in project company or assignment of
partnership interests.
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STATE BANK OF INDIA
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Assignment of any patents, trademarks or other
intellectual property oned by the borroer.
> Site .ease A+reement. $he project company typically enters into long-
term lease for the life of the project relating to the real property on hich
the project is to be located. 6ental payments may be set in advance at a
fi;ed rate or may be tied to project performance.
7CInsuranceC $he general categories of insurance available in connection
ith project financings are1
+. !tandard Insurance- $he folloing types of insurance typically are
obtained for all project financings and cover the most common
types of losses that a project may suffer.
#roperty 0amage, including transportation, fire and e;tended
casualty.
Boiler and Machinery.
3omprehensive Beneral %iability.
<orkerMs 3ompensation.
Automobile %iability and #hysical 0amage.
5;cess %iability.
,. O'ti"na Insurance. $he folloing types of insurance often are
obtained in connection ith a project financing. 3overages such as
these are more e;pensive than standard insurance and re"uire more
tailoring to meet the specific needs of the project
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STATE BANK OF INDIA
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Business Interruption.
#erformance Bonds.
3ost Everrun/0elayed Epening.
0esign 5rrors and Emissions
!ystem #erformance 95fficiency:.
#ollution %iability.
!r",ect 6is*s
#roject finance is finance for a particular project, such as a mine, toll road, railay,
pipeline, poer station, ship, hospital or prison, hich is repaid from the cash-flo of
that project. #roject finance is different from traditional forms of finance because the
financier principally looks to the assets and revenue of the project in order to secure and
service the loan. In contrast to an ordinary borroing situation, in a project financing
the financier usually has little or no recourse to the non-project assets of the borroer
or the sponsors of the project. In this situation, the credit risk associated ith the
borroer is not as important as in an ordinary loan transactionG hat is most important
is the identification, analysis, allocation and management of every risk associated ith
the project.
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STATE BANK OF INDIA
Project Financing.

T)e #""-in+ detais s)"-s t)e manner in -)ic) ris*s are a''r"ac)ed 3y
#inanciers in a 'r",ect #inance transacti"nC Suc) ris* minimi?ati"n ies at t)e )eart
"# 'r",ect #inanceC
In a no recourse or limited recourse project financing, the risks for a financier are
great. !ince the loan can only be repaid hen the project is operational, if a major part
of the project fails, the financiers are likely to lose a substantial amount of money. $he
assets that remain are usually highly speciali2ed and possibly in a remote location. If
saleable, they may have little value outside the project. $herefore, it is not surprising
that financiers, and their advisers, go to substantial efforts to ensure that the risks
associated ith the project are reduced or eliminated as far as possible. It is also not
surprising that because of the risks involved, the cost of such finance is generally
higher and it is more time consuming for such finance to be provided.
6is* minimi?ati"n 'r"cess
)inanciers are concerned ith minimi2ing the dangers of any events hich could have
a negative impact on the financial performance of the project, in particular, events
hich could result in1
+: $he project not being completed on time, on budget, or at allG
,: $he project not operating at its full capacityG
-: $he project failing to generate sufficient revenue to service the debtG or
.: $he project prematurely coming to an end.
$he minimi2ation of such risks involves a three step process.
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STATE BANK OF INDIA
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+: $he first step re"uires the identification and analysis of all the risks that may
bear upon the project.
,: $he second step is the allocation of those risks among the parties.
-: $he last step involves the creation of mechanisms to manage the risks.
If a risk to the financiers cannot be minimi2ed, the financiers ill need to build it into
the interest rate margin for the loan.
Ste' %- 6is* identi#icati"n and anaysis-
$he project sponsors ill usually prepare a feasibility study, e.g. as to the construction
and operation of a mine or pipeline. $he financiers ill carefully revie the study and
may engage independent e;pert consultants to supplement it. $he matters of particular
focus ill be hether the costs of the project have been properly assessed and hether
the cash-flo streams from the project are properly calculated. !ome risks are analysed
using financial models to determine the projectMs cash-flo and hence the ability of the
project to meet repayment schedules. 0ifferent scenarios ill be e;amined by adjusting
economic variables such as inflation, interest rates, e;change rates and prices for the
inputs and output of the project. 8arious classes of risk that may be identified in a
project financing ill be discussed belo.
Ste'&- 6is* a"cati"n-
Ence the risks are identified and analy2ed, they are allocated by the parties through
negotiation of the contractual frameork. Ideally a risk should be allocated to the party
ho is the most appropriate to bear it 9i.e. ho is in the best position to manage, control
and insure against it: and ho has the financial capacity to bear it. It has been observed
that financiers attempt to allocate uncontrollable risks idely and to ensure that each
party has an interest in fi;ing such risks. Benerally, commercial risks are sought to be
allocated to the private sector and political risks to the state sector.
Ste'(- 6is* mana+ement-
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STATE BANK OF INDIA
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6isks must be also managed in order to minimise the possibility of the risk event
occurring and to minimise its conse"uences if it does occur. )inanciers need to ensure
that the greater the risks that they bear, the more informed they are and the greater their
control over the project. !ince they take security over the entire project and must be
prepared to step in and take it over if the borroer defaults. $his re"uires the financiers
to be involved in and monitor the project closely. !uch risk management is facilitated
by imposing reporting obligations on the borroer and controls over project accounts.
!uch measures may lead to tension beteen the fle;ibility desired by borroer and risk
management mechanisms re"uired by the financier.
Ty'es "# 6is*s
Basically different types of projects are posed to different risks. !imilarly the risks
mentioned belo are related to this particular project.
%H C"m'eti"n 6is*-
3ompletion risk allocation is a vital part of the risk allocation of any project. $his phase
carries the greatest risk for the financier. 3onstruction carries the danger that the project
ill not be completed on time, on budget or at all because of technical, labour, and
other construction difficulties. !uch delays or cost increases may delay loan repayments
and cause interest and debt to accumulate. $hey may also jeopardi2e contracts for the
sale of the projectMs output and supply contacts for ra materials.
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STATE BANK OF INDIA
Project Financing.

3ommonly employed mechanisms for minimi2ing completion risk before lending takes
place include1
9a: Ebtaining completion guarantees re"uiring the sponsors to pay all debts and
li"uidated damages if completion does not occur by the re"uired dateG
9b: 5nsuring that sponsors have a significant financial interest in the success of the
project so that they remain committed to it by insisting that sponsors inject e"uity into
the projectG
9c: 6e"uiring the project to be developed under fi;ed-price, fi;ed-time turnkey
contracts by reputable and financially sound contractors hose performance is secured
by performance bonds or guaranteed by third partiesG and
9d: Ebtaining independent e;pertsM reports on the design and construction of the project.
3ompletion risk is managed during the loan period by methods such as making pre-
completion phase dra dons of further funds conditional on certificates being issued
by independent e;perts to confirm that the construction is progressing as planned.
&H O'eratin+ 6is*-
$hese are general risks that may affect the cash-flo of the project by increasing the
operating costs or affecting the projectMs capacity to continue to generate the "uantity
and "uality of the planned output over the life of the project. Eperating risks include,
for e;ample, the level of e;perience and resources of the operator, inefficiencies in
operations or shortages in the supply of skilled labour. $he usual ay for minimising
operating risks before lending takes place is to re"uire the project to be operated by a
reputable and financially sound operator hose performance is secured by performance
bonds. Eperating risks are managed during the loan period by re"uiring the provision of
detailed reports on the operations of the project and by controlling cash-flos by
re"uiring the proceeds of the sale of product to be paid into a tightly regulated proceeds
account to ensure that funds are used for approved operating costs only.
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STATE BANK OF INDIA
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(H 2ar*et 6is*-
Ebviously, the loan can only be repaid if the product that is generated can be turned
into cash. Market risk is the risk that a buyer cannot be found for the product at a price
sufficient to provide ade"uate cash-flo to service the debt. $he best mechanism for
minimising market risk before lending takes place is an acceptable forard sales
contact entered into ith a financially sound purchaser.
4H Credit 6is*-
$hese are the risks associated ith the sponsors or the borroers themselves. $he
"uestion is hether they have sufficient resources to manage the construction and
operation of the project and to efficiently resolve any problems hich may arise. Ef
course, credit risk is also important for the sponsorsM completion guarantees. $o
minimise these risks, the financiers need to satisfy themselves that the participants in
the project have the necessary human resources, e;perience in past projects of this
nature and are financially strong 9e.g. so that they can inject funds into an ailing project
to save it:.
/H Tec)nica 6is*-
$his is the risk of technical difficulties in the construction and operation of the projectMs
plant and e"uipment, including latent defects. )inanciers usually minimise this risk by
preferring tried and tested technologies to ne unproven technologies. $echnical risk is
also minimi2ed before lending takes place by obtaining e;perts reports as to the
proposed technology. $echnical risks are managed during the loan period by re"uiring a
maintenance retention account to be maintained to receive a proportion of cash-flos to
cover future maintenance e;penditure.
4H 6e+uat"ry "r A''r"va 6is*-
$hese are risks that government licenses and approvals re"uired to construct or operate
the project ill not be issued 9or ill only be issued subject to onerous conditions:, or
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STATE BANK OF INDIA
Project Financing.

that the project ill be subject to e;cessive ta;ation, royalty payments, or rigid
re"uirements as to local supply or distribution. !uch risks may be reduced by obtaining
legal opinions confirming compliance ith applicable las and ensuring that any
necessary approvals are a condition precedent to the dra don of funds.
.
A''raisa
!r",ect Financin+-
$he !BI has formed a dedicated #roject )inance !trategic Business 4nit to assess
credit proposals from and e;tend term loans for large industrial and infrastructure
projects. Apart from this, project term loans for medium si2ed projects and smaller
clients are delivered through the 3AB and the 7BB.
In general, project finance covers Breenfield industrial projects, capacity e;pansion at
e;isting manufacturing units, construction ventures or other infrastructure projects.
3apital intensive business e;pansion and diversification as ell as replacement of
e"uipment may be financed through the project term loans.
#roject finance is "uite often channeled through special purpose vehicles and arranged
against the future cash streams to emerge from the project.$he loans are approved on
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STATE BANK OF INDIA
Project Financing.

the basis of strong in-house appraisal of the cost and viability of the ventures as ell as
the credit standing of promoters.
!r",ect #inance strate+ic 3usiness unit-
A one-stop-shop of financial services for ne projects as ell as e;pansion,
diversification and moderni2ation of e;isting projects in infrastructure and non-
infrastructure sector.
5;pertise
Being IndiaMs largest bank and ith the rich e;perience gained over generation, !BI
brings considerable e;pertise in engineering financial packages that address
comple; financial re"uirements.
#roject )inance !B4 is ell e"uipped to provide a bou"uet of structured financial
solutions ith the support of the largest $reasury in India 9i.e. !BIMs:, International
0ivision of !BI and !BI 3apital Markets %imited.
$he global presence as also the ell spread domestic branch netork of !BI
ensures that the delivery of your project specific financial needs are totally taken
care of.
%ead role in many projects
Allied roles such as security agent, monitoring/$6A agent etc.
!ynergy ith !BI caps 9e;change of leads, joint attempt in bidding for projects,
joint syndication etc.:. In a ay, the to institutions are complimentary to each
other. <e have in house e;pertise 9in appraising projects: in infrastructure sector as
ell as non-infrastructure sector. !ome of the areas are as follos1 Infrastructure
sector1
In#rastructure sect"r-
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STATE BANK OF INDIA
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6oad A urban infrastructure
#oer and utilities
Eil A gas, other natural resources
#orts and airports
$elecommunications
N"n-In#rastructure sect"r-
Manufacturing1 3ement, steel, mining, engineering, auto components, te;tiles,
#ulp A papers, chemical A pharmaceuticals N
!ervices1 $ourism A hospitality, educational Institutions, health industry N
Ex'ertise
6upee term loan
)oreign currency term loan/convertible bonds/B06/A06
0ebt advisory service
%oan syndication
%oan underriting
0eferred payment guarantee
Ether customi2ed products i.e. receivables securiti2ation, etc.
B)y 'r",ect #inance SB@I
!ince its inception in +''/ the #roject )inance !B4 has built-up a strong reputation for
itMs in-depth understanding of the infrastructure sector as ell as non-infrastructure
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STATE BANK OF INDIA
Project Financing.

sector in India and e have the ability to provide tailor made financial solutions to meet
the groing A diversified re"uirement for different levels of the project. $he recent
transactions undertaken by #)-!B4 include a ide range of projects undertaken by the
Indian corporate.
Ei+i3iity-
$he infrastructure ing of #) !B4 deals ith projects herein1
the project cost is more than 6s +(( 3rores. $he proposed share of !BI in the term loan
is more than 6s./( crores. In case of projects in 6oad sector alone, the cut off ill be
project cost of 6s./( crores and !BI $erm %oan 6s. ,/ crores, respectively.
$he commercial ing of #) !B4 deals ith projects herein1
$he minimum project cost is 6s. ,(( crores 96s. +(( crores in respect of !ervices
sector:. $he minimum proposed term commitment is of 6s. /( crores from !BI.
!r"cess "# sancti"nin+ -
+: !r"'"sa- $he bank usually asks the firm to give the folloing details 7ature of
the proposal $he purpose for hich the term loan is re"uired 9 hether for
e;pansion, moderni2ation, diversification etc..:
,: Brie# 9ist"ry- In case of an e;isting company essential particulars about its
promoters, its incorporation, subse"uent corporate groth to date, major
developments or changes in management.
-: !ast !er#"rmance- A summary of past performance in terms of
licensed/installed or operating capacities, sales, operating capacities, and sales
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STATE BANK OF INDIA
Project Financing.

and net profit for the three years should be analy2ed. $he figures relating to
sales and profitability should be analy2ed to ascertain the trend during the -
years. In sum, the company=s past performance has to be assessed to study if
there has been a steady improvement and groth record has been satisfactory.
.: !resent #inancia '"siti"n- $he 3ompany=s audited balance sheets and profit
and loss account have to be analy2ed. If the latest audited balance sheet has
more than > months old, a pro-forma balance sheet as on a recent date should be
obtained and analysed.
/: !r",ect- &ere the technical feasibility and the financial feasibility of the project
is studied.
>: !r",ect im'ementati"n sc)edue- 5;amine the project implementation
schedule ith reference to Bar 3hart or #56$/3#M chart9if proposed to be used
by the company for monitoring the implementation of the project: and in the
light of actual implementation schedules of similar project
!re sancti"n 'r"cess-
A''raisa
%C !reiminary a''raisa-
$he folloing aspects have to be e;amined if the proposal is to )inancing a
project-
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STATE BANK OF INDIA
Project Financing.

<hether the project cost is prima facie acceptable.
0ebt and e"uity gearing proposed and hether acceptable
#romoter=s ability to access capital market for debt/ e"uity support
<hether critical aspects of project- demand, cost of production, profitability
etc.are prima facie in order.
After undertaking the preliminary e;amination of the proposal, the branch ill arrive at
a decision hether to support the re"uest or not. If the branch finds the proposal
acceptable, it ill call for from the applicants, a comprehensive application in the
prescribed pro-forma, along ith a copy of project report, covering specific credit
re"uirements of the company and other essential data/ information. $he information
among other things should include-
Ergani2ation setup ith a list of board of directors and indicating the
Oualifications, e;perience and competence of the key personnel in
3harge of the main functional areas e.g.. #roduction , purchase
,Marketing and finance in other ord brief on the managerial resource
and hether these are compatible ith the si2e and the scope of the
proposed activity .
0emand and supply projections based on the overall market prospects
ogether ith a copy of market research report . $he report may
comment on the geographic spread of the market here the unit
proposes to operate, demand and supply gap , the competitor=s
share, competitive advantage of the applicant , proposed marketing
arrangement.
3urrent practices for the particular product or service especially relating to
terms of credit sales, probability of bad debts.
5stimates of sales cost of production and profitability.
BABASAB PATIL
44

STATE BANK OF INDIA
Project Financing.

#rojected profit and loss account and Balance !heet for the operating
years during currency r of the bank assistance.
Branch should also obtain additionally
Appraisal report from any other bank/financial institution in case appraisal has been
done by them,
PNO O3,ecti"n Certi#icateJ from term lenders if already financed by them and
6eport from Merchant bankers in case the company plans to access capital market,
herever necessary.
In respect of e;isting concerns, in addition to the above particulars regarding the history
of the concern, its past performance, present financial position, etc. !hould also be
called for. $his data should be supplemented by supporting statements such as1
Audited profit and loss account and balance sheet for the past three years
0etails of e;isting borroing arrangements, if any,
3redit information reports from the e;isting bankers on the applicant company
)inancial statements and borroing relationship of associate firms/group
companies.
&C Detaied A''raisa-
$he viability of a project is e;amined to ascertain that the
company ould have the ability to service its loan and interest obligations out of cash
accruals from the business. <hile appraising a project all the data/ information
furnished by the borroer is counter checked and herever possible, inter-firm and
inter-industry comparisons should be made to establish their veracity.
BABASAB PATIL
45

STATE BANK OF INDIA
Project Financing.

T)e a''raisa "# t)e ne- 'r",ect c"ud 3e 3r"ady divided int" t)e #""-in+ su3
)eads-
#romoters track recordG
$ypes of fi;ed assets to be ac"uiredG
$echnical feasibility
Marketability
#roduction process
Management
$ime schedule
3ost of project
!ources of finance
3ommercial #rofitabilityG
!ecurity and Margin
6epayment period and debt service coverageG
)unds )los statement Gand
6ates of return.
I# t)e 'r"'"sa inv"ves #inancin+ "# a ne- 'r",ect8 t)e c"mmercia8 ec"n"mic and
#inancia via3iity and "t)er as'ects are t" 3e examined as indicated 3e"--
!tatutory clearance from various government depts/agencies
%icense/ clearance /permits as applicable
BABASAB PATIL
46

STATE BANK OF INDIA
Project Financing.

0etails of sources of energy re"uirements, poer, fuel etc..
#ollution control clearance
3ost of project and source of finance
Buildup of fi;ed assets.
Arrangements proposed for raising debt and e"uity
3apital structure
)easibility of arrangements to access capital market
)easibility of the projections/estimates of sales cost of production and profit
covering the period of repayment.
Break-even point in terms of sales value and percentage of installed capacity
under a normal production year.
3ash flos and fund flos
<hether profitability is ade"uate to meet stipulated repayments ith reference
to 0ebt !ervice 3overage 6atio, 6eturn on Investment.
Industry profile and prospectus
3ritical factors of industry and hether the assessment of these and
management plans in this regard are acceptable
$echnical feasibility ith reference to report of technical consultants, if
available
Management "uality, competence, track record
BABASAB PATIL
47

STATE BANK OF INDIA
Project Financing.

3ompany=s structure and systems.
Also e;amine and comment on the status of approvals from other term lenders, project
implementation schedule. A pre-sanction inspection of the project site or the factory
should be carried out in the case of e;isting units.
(C !resent reati"ns)i' -it) t)e Ban*1
$he banks also take into consideration the relationship of the firm or the customer ith the
banks. It takes into account the folloing aspects-
3redit )acilities no granted.
3onduct of the e;isting accounts.
4tili2ation of limits- )B A 7)B.
Eccurrence of irregularities, if any.
)re"uency of irregularity i.e.G the number of times and the total number of days
the account as irregular during the last telve months.
6epayment of term commitments.
3ompliance ith re"uirements regarding submission of stock statements,
)inancial )ollo-up 6eports, reneal data, etcN
!tock turnover, reali2ation of book debts.
8alue of accounts ith breakup of income earned. #ro-rata share of
non-fund and foreign e;change business.
3oncessions e;tended and value thereof.
BABASAB PATIL
48

STATE BANK OF INDIA
Project Financing.

3ompliance ith other terms and conditions.
Action taken on comments /observations contained in
6BI inspection 6eports.
3E inspection and audit reports.
8erification Audit 6eports.
3oncurrent audit reports.
!tock Audit 6eports
!pot Audit 6eports.
%ong )orm Audit 6eport 9statutory 6eport:.
.. Credit ris* 6atin+-
0ra up rating for <orking 3apital and $erm )inance.
/. O'ini"n 6e'"rts- 3ompile opinion 6eports on the company, partners/ promoters
and the proposed guarantors.
>C Existin+ c)ar+es "n assets "# t)e unit-If the company, report on search of charges
ith proposed guarantors.
?. Structure "# #aciities and Terms "# Sancti"n-)i; terms and conditions for
e;posures proposed facility ise and overall1
%imit for each facility- sub limits.
!ecurity- #rimary A collateral, Buarantee.
BABASAB PATIL
49

STATE BANK OF INDIA
Project Financing.

Margins- for each facility as applicable.
6ate of interest.
6ate of commission/e;change/other fees.
3oncessional facilities and value thereof.
6epayment terms, here applicable.
Ether standard covenants.
@C 6evie- "# t)e 'r"'"sa-6evie of the proposal should be done covering !trengths
and eaknesses of the e;posure proposed 6isk factors and steps proposed to mitigate
them0eviations if any, proposed from usual norms of the bank and the reasons thereof.
'. !r"'"sa #"r sancti"n- #repare a draft in prescribed format ith re"uired back-up
details and ith recommendations for sanction.
BABASAB PATIL
50

STATE BANK OF INDIA
Project Financing.

SBI )as 'resenty #inanced t)e #""-in+ !r",ects-
BABASAB PATIL
51
S.CNO Name O# T)e !r",ect
AmtKin cr"resH
+ &escom @,.((
, Manoj Ceellers >.((
- Mahaveer developers. '-.((
. C$H Arihant appliances ,.,/
/ !hreyala;mi properties /.'/
> !hri la;mi trading co. /.@
? !% flo controls +.,/
@ &ubli 3igarette center +.+(
' Mahindrakar Agencies -/
+( !hri gopal industries ,..(
++ Atul agencies ,.(,
+, Hashyap j. Majethia ...(
+- !hree meena;i pharma ,./
+. !hree meena;i medical agency ..(
+/ )ine lab /.(
+> !hree engineers and process /.@
+? !astik inding orks ../

STATE BANK OF INDIA
Project Financing.

T)e #urt)er 'art )as 3een deat -it) res'ect t" t)e 'r",ect "#
S. #"- c"ntr"sC
!r",ect in Brie#
Name 2LS S. F"- C"ntr"
Address $5LA8 &A%8 Sri .axmi Business )"use near
Air'"rt r"ad >"*u r"ad 9u3iC
Nature "# Business 2anu#acturin+ "# industria vavesC
Status !r"'rietary C"ncernC
Name "# t)e 'r"m"ter Sri 1erendraCBCK"u,aa+iC
C"st "# t)e 'r",ect 6s &&%C4% a*)s
Em'"yment '"tentia (0 em'"yees
De3t Service c"vera+e rati" &C05

C"st "# t)e 'r",ect
BABASAB PATIL
52

STATE BANK OF INDIA
Project Financing.

3ost of the project Amount9%akhs:
Building ,/.((
land ,,.((
Machinery @-.-@
5lectrification >./(
5lectricity 0eposit /.((
#reliminary 5;penses
- $echnical kno ho /.((
- #ersonnel training ,.((
-#atterns /.(( +,.((
7et <orking 3aptial >?./-
$otal ,,+..+
2eans "# #inance
Am"unts in a*)s
BABASAB PATIL
53
$erm loan +(,./(
<orking 3aptial loan /(.((
En 3ontribution /+.-@
Margin Money for orking 3apital +?./-
$otal ,,+..+

STATE BANK OF INDIA
Project Financing.

Financia anaysis
6ati" Anaysis<-
An integral aspect of financial appraisal is financial analysis, hich takes into account
the financial features of a project, especially source of finance. )inancial analysis helps
to determine smooth operation of the project over its entire life cycle.
T)e t-" ma,"r as'ects "# #inancia anaysis are i;uidity anaysis and ca'ita
structure. )or this purpose ratios are employed hich reveal e;isting strengths and
eakness of the projectC
%H .i;uidity rati"s- %i"uidity ratio or solvency ratio=s measure a project=s
ability to meet its current or short-term obligations hen they become due.
%i"uidity is the pre-re"uisite for the very survival of a firm. A proper balance
beteen the li"uidity and profitability is re"uired for efficient financial
management. It reflects the short-term financial strength or solvency of the firm.
$o ratios are calculated to measure li"uidity, the current ratio and "uick ratio.
aH Current rati"-
$he current ratio is defined as the ratio of total current assets to total current
liabilities. It is computed by,
Current assets
Current rati"
Current ia3iities
BABASAB PATIL
54
#articulars ,((. ,((/ ,((> ,((? ,((@
3urrent assets '+..? +(+.?, ++,.?> +,@.? +./.,/
3urrent liabilities +...-, +,?.>> +,+./' '>.(/ @(.('
3urrent ratio (.>-. (.?>? (.',? +.--' +.@+-.

STATE BANK OF INDIA
Project Financing.



Inter'retati"n-
It is an indicator of the e;tent to hich short term creditors are covered
by assets that are e;pected to be converted to cash in a period corresponding to the
maturity of claims. $he ideal current ratio is ,1+. $he firm current ratio indicate that the
firm is in a position to meet its short term obligation because the ratio is in increasing
trend , by observing the above table e can say that though the firm does not maintain
ideal current ratio, it is still in a position to meet its current obligations. After clearing
all the dues the firm is still in a position to maintain li"uidity.
3H Acid test "r ;uic* rati"-
BABASAB PATIL
55

STATE BANK OF INDIA
Project Financing.

It is a measure of li"uidity calculated dividing current assets minus
inventory and prepaid e;penses by current liabilities. !ince inventories among current
assets are not "uite li"uid 9means not "uickly converted into cash:, the "uick ratio
e;cludes it. $he "uick ratio includes only assets, hich can be readily converted into
cash and constitutes a better test of li"uidity. It is often called as "uick "uick ratio
because it is a measurement of a firms ability to convert its assets "uickly into cash in
order to meet its current liabilities.

Inter'retati"n-
BABASAB PATIL
56
#articulars ,((. ,((/ ,((> ,((? ,((@
Ouick assets >(..? >?.>/ ?/.,@ @?..? ''.'
3urrent liabilities +...-, +,?.>> +,+./' '>.(/ @(.('
3urrent ratio (./-. (./- (.>, (.'++ +.,.?

STATE BANK OF INDIA
Project Financing.

Acid test ratio is a rigorous measure of firm=s ability to service short term liabilities.
$he usefulness of the ratio lies in the fact that it is idely accepted as the best available
test of li"uidity position of a firm. Benerally an acid test ratio of +1+ is considered
satisfactory as a firm can easily meet all its current claims. In the case of the above firm
the "uick ratio is in increasing trend by year on. !o it shos that firm is capable of
paying its "uick short term obligations
&C Ca'ita structure rati"J
$he long-term lenders/creditors ould judge the soundness of a firm on the basis of the
long term financial strength measured in terms of its ability to pay the interest regularly
as ell as repay the installment of the principal on due dates or in one lump sum at the
time of maturity. $he long term solvency of firm can be e;amined by using leverage or
capital structure ratios. $he leverage or capital structure ratio=s may be defined as
financial ratios hich thro light on the long term solvency of a firm as reflected in its
ability to assure the long term lenders ith regard to 9i: periodic payment of interest
during the period of the loan and 9ii: repayment of the principal on maturity or in
predetermined installments at due dates.
aH De3t e;uity rati"- $his ratio measures the long term or total debt to
shareholders e"uity. $his ratio reflects claims of creditors and
shareholders against the assets of the firm. 0ebt 5"uity 6atio is given
by1
."n+ term de3t
De3t E;uity 6ati" M
S)are)"ders e;uity

BABASAB PATIL
57
#articulars ,((. ,((/ ,((> ,((? ,((@
0ebt @,.(( >+./( .+.(( ,(.(/ (.((
5"uity9#romoter contribution: />.-@ /..(? />.@@ >@.'. @...'
0ebt e"uity ratio +../. +.+. (.?,+ (.,'+ (.((

STATE BANK OF INDIA
Project Financing.


Inter'retati"n-
$he debt e"uity ratio is an important tool of financial analysis to appraise the financial
structure of the firm. $he ratio reflects the relative contribution of creditors and oners
of the business in its financing. A high ratio shos a large share of financing by the
creditors of the firmG a lo ratio implies the a smaller claim of the creditors. 0ebt J
5"uity ratio indicates the margin of safety to the creditors. $he debt-e"uity ratio is in
decreasing and in ,((@ it become nil, hich implies that the oners are putting up
relatively more money of their on.
(C !r"#ita3iity rati"Js reated t" saes-
BABASAB PATIL
58

STATE BANK OF INDIA
Project Financing.

$hese ratios are based on the premise that a firm should earn sufficient profit on each
rupee of sales. If ade"uate profits are not earned on sales, there ill be difficulty in
meeting the operating e;penses and no returns ill be available to the oners.
AC Net 'r"#it mar+in-
It is also knon as net margin. $his measures the relationship beteen the net
profits and sales of a firm. 0epending on the concept of net profit employed. , this
ratio can be computed as follos-
Earnin+s a#ter tax
Net !r"#it rati" M %00
Net saes
Inter'retati"n
$he net profit margin is indicative of management=s ability to operate the business ith
sufficient success not only to recover from revenues of the period, the cost of services,
the operating e;penses and the cost of borroed funds, but also to leave a margin of
reasonable compensation to the oners for providing their capital at risk. A high profit
margin ould ensure the ade"uate return to the oners as ell as enable the firm to
ithstand adverse economic conditions. A lo net profit margin has the opposite
implications. <ith respect to the above firm the net profit margin is increasing trend so
BABASAB PATIL
59
#articulars ,((. ,((/ ,((> ,((? ,((@
5arnings after ta; +(.>@ +?.@, ,?.(/ -/./> .-.?/
7et sales ,>/..' ,',.(. -,+.,. -/-.-> -@@.?
7et profit margin ..(,-D >.+(,D @..,(D +(.(>D ++.,/D

STATE BANK OF INDIA
Project Financing.

it ill sho that the company is in good condition and the demand for the product is
increasing.
4 C !r"#ita3iity rati"s reated t" Investments-
6eturn "n Investments-
6eturn on investments measures the overall effectiveness of management in
generating profits ith its available assets. $here are three different concepts of
investments in financial literature1 assets, capital employed and shareholder=s
e"uity. Based on each of them, there are three broad categories of 6EIs. $hey are
I. 6eturn on assets,
II. 6eturn on total capital employed.
6eturn "n assets-
$he profitability ratio is measured in terms of relationship beteen net profits and
assets. $he 6EA may also be called profit-to-asset ratio. It can be computed as follos-
Net 'r"#it a#ter tax
6eturn "n Assets M %00
Avera+e t"ta assets
BABASAB PATIL
60
#articulars ,((. ,((/ ,((> ,((? ,((@
5arnings after ta; +(.>@ +?.@, ,?.(/ -/./> .-.?/
Average total assets ,(@.-' +''./. +'/.' ,((./. ,(@.-.
6EA /.+,/D @.'-D +-.@+D +?.?-D ,(.''D

STATE BANK OF INDIA
Project Financing.


Inter'retati"n-
6eturn on assets employed is favorable. $hat means the firm is in a position to employ
its assets in an efficient manner.
6eturn "n Ca'ita Em'"yed-
It is similar to 6EI e;cept in one respect. &ere the profits are related to the total capital
employed. $he term capital employed refers to long term funds supplied by the lenders
and oners of the firm. It is given by the formula-
EBIT
6eturn "n Ca'ita em'"yed M %00
Avera+e t"ta ca'ita em'"yed
BABASAB PATIL
61
#articulars ,((. ,((/ ,((> ,((? ,((@
5BI$ -..@, .,.,. /,.>> >,.(. ?(.''
total capital employed ,(-.-' +''./. +'/.'( ,((./. ,(@.-.
6E35 +?.,D ,+.+>D ,@.',D -(.'D -..(?D

STATE BANK OF INDIA
Project Financing.


Inter'retati"n<-
$he capital employed basis provides a test of profitability related to the source of long
term funds. $he higher the ratio, the more efficient is the use of capital employed. )rom
the above table e can say that the 6E35 is "uite high. 3ompared to previous years
ratio. It is good for the companyC

6e'ayment !eri"d and de3t service c"vera+e
AH !r",ecti"ns "# 'er#"rmance and 'r"#ita3iity
particulars ,((. ,((/ ,((> ,((? ,((@
BABASAB PATIL
62

STATE BANK OF INDIA
Project Financing.

A: !ales -((.(( --(.(( ->-.(( -''.-( .-'.,-
%ess1 5;cise -../+ -?.'> .+.?> ./.'. /(./-
7et sales
,>/..' ,',.(. -,+.,. -/-.-> -@@.?(
B: cost of #roduction
+.6a material consumed +@/.@. ,(..., ,,..@? ,.?.-/ ,?,.('
,.#oer A )uel >.(( >.>( ?.,> ?.'' @.?@
-.0irect labor A ages +,.,. +-..> +..@+ +>.,' +?.',
..consumable stores (.>( (.>> (.?- (.@( (.@@
/.6epair A Maintenance +.,( +.-, +.>/ ,..@ -..?
>.Ethermanufacturinge;pences (.?, (.?' +.++ +.// ,.+?
?.0epreciation ,..'? +'.+( +..>> ++.-( @.?/
@.#reliminary e;penses /off ,..( ,..( ,..( ,..( ,..(
$otal 3ost of #roduction
,--..? ,.@.?> ,>?..' ,'(.+> -+>..>
Add1 Epening stock (.(( ../( ..?@ /.+. /./@
%ess1 3losing !tock ../( ..?@ /.+. /./@ >.('
0:3ost of goods sold ,,'..? ,.@.?@ ,>?.+- ,@'.?, -+/.'>
5: Bross #rofit 9B-0: ->.(, .-./> /..++ >-.>. ?,.?.
): Interest on
+: $erm %oan +,.@( +(.(- ?.,> ../( +.?-
,: <orking 3aptial >.?/ >.?/ >.?/ >.?/ >.?/
$otal +'.// +>.?@ +..(+ ++.,/ @..@
B: !elling, administration 5;p +.,( +.-, +../ +.>( +.?>
BABASAB PATIL
63

STATE BANK OF INDIA
Project Financing.

&:#rofit Before $a;ation95-
9)QB::
+/.,? ,/../ -@.>/ /(.@( >,./+
I: #rovision for $a;ation ../@ ?.>. ++./' +/.,. +@.?/
C: #rofit after ta; 9&-I:
+(.>' +?.@, ,?.(/ -/./> .-.?/
H: 0epreciation ,..'? +'.+( +..>> ++.-( @.?/
%: 7et 3ash accruals9 CQH:
-/.>> ->.', .+.?, .>.@> /,./
BH !r",ected Cas) F"- Statement
!%.7E #articulars ,((. ,((/ ,((> ,((? ,((@
A: !ources of funds
+.7et profit before interest and ta; -..@, .,.,. /,.>> >,.(. ?(.''
,. 0epreciation ,..'? +'.+( +..>> ++.-( @.?/
-.#romoters capital /+.-@
..on contribution toards /.((
/.term loan +(,./(
>.orking capital loan /(.((
?.!undry creditior ?.?. (.?? (.@/ (.'. +.(-
@.Amortisationofpreliminarye;pences ,..( ,..( ,..( ,..( ,..(
$otal1 ,?@.@ >../, ?(./@ ?>.>@ @-.+?
BH
Application of funds
+. Buldings ,/.((
BABASAB PATIL
64

STATE BANK OF INDIA
Project Financing.

,. %and ,,.((
-.Macinary @-.-@
..5lectrification >./(
/.5lectricity 0eposit /.((
>.#reliminary 5;penditure
>. Increase in receivables ...,/ ..., ..@? /.-/ /.@'
?.incerase in stock of material -(.'? -.+( -..+ -.?/ ..+,
'.increase in stock of finished goods ../( (.,@ (.-> (... (./+
+(.0raing/ 0ividend -.(( +(.(( +/.(( +/.(( ,(.((
++.interest on loans +'.// +>.?@ +..(+ ++.,/ @..@
+,.income ta; (.(( ../@ ?.>. ++./' +/.,.
+-.6epayment of term loans ,(./ ,(./ ,(./ ,(./ ,(./
$otal ,?>.>/ /'.>? >/.?' >?.@@ ?..?.
!urplus/deficit ,.+/ ..@/ ..?' @.@( @..-
Epening Balance (.(( ,,+/ ?.(( ++.@( ,(.>
Add1 surplus/ deficit ,.+/ ..@/ ..?' @.@( @..-
3losing Balance ,.+/ ?.(( ++.@( ,(.> ,'.(-
!r",ectd Baance S)eet
!%.7E #articulars ,((. ,((/ ,((> ,((? ,((@
A 3aptial A %iability
BABASAB PATIL
65

STATE BANK OF INDIA
Project Financing.

#romoter capital (.(( >..(? ?+.@@ @-.'. +(...'
En contribution />.-@ (.(( (.(( (.(( (.((
%ess 0raings -,(( +(.(( +/.(( +/.(( ,(.((
5"uity /-.-@ /..(? />.@@ >@,'. @...'
6etained 5arning +(.>' +?.@, ,?.(/ -/./> .-.?/
>..(? ?+.@@ @-.'. +(...' +,@.,/
$erm loan90ebt: @,.(( >+./( .+.(( ,(./( (.((
!undry creditors ?.?. @./, '.-? +(.-+ ++.-.
<orking 3aptial loan /(.(( /(.(( /(.(( /(.(( /(.((
#rovision for ta; ../@ ?.>. ++./' +/.,. +@.?/
Brand $otal ,(-.-' +''./. +'/.'( ,((./. ,(@.-.
Assets<
)i;ed assets @'.'+ ?(.@+ />.+. ...@. ->.('
%and ,,.(( ,,.(( ,,.(( ,,.(( ,,.((
5lectricity deposit /.(( /.(( /.(( /.(( /.((
3ash A Bank Balances ,.+/ ?.(( ++.@( ,(.> ,'.(-
6eceivables ...,/ .@.>? /-./. /@.@' >..?@
!tock of material -(.'? -..(? -?..@ .+.,- ./.-/
!tock of finished goods ../( ..?@ /.+. /./@ >.('
#reliminary e;pences not /off '.>( ?.,( ..@( ,..( (.((
Brand $otal ,(@.-' +''./. +'/.' ,((./. ,(@.-.
BABASAB PATIL
66

STATE BANK OF INDIA
Project Financing.

De3t Service C"vera+e 6ati"<KDSC6H
It is considered a more comprehensive and apt measure to compute debt service
capacity of firm. It provides the value in terms of the number of times the total debt
service obligations consisting of interest and repayment of principal in installments are
covered by the operating funds available after the payment of ta; 1 earnings after ta;es,
5A$QinterestQ0epreciationQEther non cash e;penditure like amorti2ation.
5A$QinterestQ0epreciationQEther 7on cash e;penditure
0!36 R
Installments
BABASAB PATIL
67
#articulars ,((. ,((/ ,((> ,((? ,((@
7et 3ash Accruals
-/.>>
->.', .+.?, .>.@> /,./(
Instalment ,(./ ,(./ ,(./ ,(./ ,(./
0!36 +.?. +.@( ,.(- ,.,' ,./>

STATE BANK OF INDIA
Project Financing.


Inter'retati"n<-
BABASAB PATIL
68
year 7et profit for the year Interest on term loan 6epayment of term loan
,((. -/.>> +'.// ,(./
,((/ ->.', +>.?@ ,(./
,((> .+.?, +..(+ ,(./
,((? .>.@> ++.,/ ,(./
,((@ /,./( @..@ ,(./

STATE BANK OF INDIA
Project Financing.

$he higher the ratio, the better it is, A ratio of less than one may be taken as a sign of
long term solvency problem as it indicates that the firm does not generate enough cash
internally to service debt. in general, lending financial institution consider ,1+ as
satisfactory ratio.
In this project 0!36 is in increasing trend it shos that firm is able to meet its debt
obligation.
Ca'ita investment evauati"n met)"ds
!uccessful completion of a project mainly depends on the selection criteria adopted
hile choosing the project in the initial phases itself and the choice of a project must be
based on a sound Pfinancial assessment= and not based on Pimpressions=. Among the
several criteria available for financial assessment of projects, 0iscounted 3ash )lo
903): techni"ues are being idely used in both public and private sectors. 4sually the
basic criterion used in project appraisal is Internal 6ate of 6eturns 9I66:, hich is the
most popular 03) techni"ue used in the country. &oever, in most of the projects of
the projects , the actual returns are vastly different from the e;pected returns based on
I66, necessitating looking for alternative project appraisal criteria. $herefore, an
attempt is made to analyse other alternative project appraisal methods available for
catering to the re"uirements of vivid circumstances. 5mphasis is given for 03)
techni"ues as they ere proved to be the best techni"ues for project appraisal all over
the orldC
%H !ay Bac* !eri"d K!B!H 2et)"d<
#ay back period is the minimum period re"uired to cover the initial cost and a
project ith minimum #B# is acceptable in this model. $his is a very useful tool to
decide rapidly if it is orth to do a small investment by a local manager and also helps
to reduce the risk of bad choices. But the basic economic principles involved in #B#
method are not as reliable as the other methods like 7#8 etc. $he most important
draback of #<# method is, it is insensitive to changes in timing ith in the payback
BABASAB PATIL
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STATE BANK OF INDIA
Project Financing.

period and ignores the cash flos beyond the #B#. $his method also lacks a Pnatural=
bench mark against hich comparisons can be made among various projects.
0iscounted #B# method gives a more accurate period to cover the initial cost but
doesn=t overcome the above drabacks. &oever this is a very good method to use in
combination ith other methods.
T"ta cas)
"ut#"-
!ay Bac* !eri"d R
Annua cas) in#"-
$he recovery of the investment is in the -
rd
year and (.>. month.
Inter'retati"n-
$he #ay back period is a measure of li"uidity of investments rather than their
profitability. !ince the period ithin hich the total cost of the period is less than the
completion period, the project can be accepted. It means that the firm ill be able to
pay the dues out of their inflos. $herefore the project is said to be feasible.
&C Avera+e 6ate "# 6eturn-
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Iear 3ash )los 9in lakhs: 3umulative cash flos
,((. -/.>> -/.>>
,((/ ->.', ?,./@
,((> .+.?, ++..-
,((? .>.@> +>+.+>
,((@ /,./( ,+-.>>

STATE BANK OF INDIA
Project Financing.

$he average rate of return 9A66: method of evaluating proposed capital
e;penditure is also knon as the accounting rate of return method. It is also knon as
6eturn on Investment, as it uses the information revealed by financial statements, to
measure the profitability of an investment. $he accounting rate of return can be found
out by dividing the average after-ta; profit by the average investment. It is given by the
formula-

Avera+e annua 'r"#it a#ter tax
Avera+e rate "# return M N %00
Avera+e investment
,+-.>>/ /
Average rate of return R S +((
+/,.// ,

.,.?-,
Average rate of return R S +((
?>.,/
Average rate of return R />.(.D.
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STATE BANK OF INDIA
Project Financing.

Inter'retati"n-
&ere the A66 is more consistent as the A66 is "uite higher 9 more than average: and
the project can be accepted.
(C Net !resent vaue-
It is calculated by discounting the future cash flos of the project to the present value
ith the re"uired rate of return to finance the cost of capital. A project is acceptable if
the capital value of the project is less than or e"ual to the net present value of cash
flos over the operating life cycle of the project. $his method is highly useful hen
selection has to be made among many projects, hich are mutually e;clusive, and there
are no budgetary constraints. !election of projects ith the largest positive 7#8 ill
yield highest returns. But this method is useful only to determine hether a project is
acceptable or not but doesn=t indicate hich project is best under budgetary constraints.
It is difficult to rank different compatible projects ith 7#8 as there is no account for
Pscale= of investment hile calculating 7#8.
Iear 3ash )los9lakhs: #8 factor T+(D $otal present value
+ -/.>> (.'(' -,..+.
, ->.', (.@,> -(..'/
- .+.?, (.?/+ -+.,'(
. .>.@> (.>@- -,.((/
/ /,./( (.>,+ -,.>(-
$otal #8 - +/@.@(?
%ess- Initial outlay +/,./
7et #resent 8alue - - >.-(?
Inter'retati"n-
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STATE BANK OF INDIA
Project Financing.

$he acceptance rule using 7#8 method is to accept the investment proposal if its net
present value is positive 97#8 U (: and to reject it if the 7#8 is negative 97#8V(:.
#ositive 7#8=s contribute to the net ealth of the shareholders hich should result in
the increased price of a firm=s share. $he positive net present value ill result only if
the project generates cash inflos at a rate higher than the opportunity cost of capital .
!ince the 7et #resent 8alue of the above project is positive, the proposal can be
accepted.
4 C !r"#ita3iity Index-
It is also knon as Benefit J3ost 6atio. It is similar to 7#8 approach. $he
profitability inde; approach measures the present value of returns per rupee invested,
<hile the 7#8 is based on the difference beteen the present value of the future cash
inflos and the present value of cash outlays. It may be defined as the ratio hich is
obtained dividing the present value of cash inflos by the present value of cash outlays.
It is given by the formula1
!resent vaue "# cas) in#"-s
!r"#ita3iity Index M
!resent vaue "# cas) "ut#"-s
+/@.@(?
#rofitabillity Inde; R
+/,./
#rofitability Inde; R +.(.+
Inter'retati"n-
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Project Financing.

4sing the profitability inde;, a project ill "ualify for acceptance if its #I e;ceeds one
9#IU+:. <hen #I is greater than or e"ual to or less than +, the net present value is
greater than or e"ual to or less than 2ero respectively. !ince the #rofitability Inde; of
the above project shos the #I greater than + and hence the project should be accepted.
/C Interna 6ate "# 6eturn-
It is the rate of return at hich the 7et #resent 8alue 97#8: of a project becomes 2ero.
A project is acceptable if the I66 e;ceeds the cost of capital. It is possible to rank
various compatible projects ith I66 method and a project ith highest I66 can be
selected. &oever, this method is not useful hen selection has to be made among
mutually e;clusive projects. $his method assumes that the net cash flos from a project
are first negative and then positive for the rest of the project life and vice versa. But
this condition is not alays fulfilled resulting in multiple I66s for the same project.
0ue to ambiguous results, project selection becomes difficult. )urther, selection of a
project based on highest I66 alone, ithout taking project specific risk factors into
consideration, may be often misleading.
Iear 3ash flos <eights <eighted average
3)=s
+ -/.>> / +?@.-
, ->.', . +.?.>@
- .+.?, - +,/.+>
. .>.@> , '-.?,
/ /,./( + /,./
$otal +/ /'?.->

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STATE BANK OF INDIA
Project Financing.

/'?.->
<eighted Average 3ost R
+/

R -'.@,.
Initia Investment
!ay Bac* !eri"d M
Bei+)ted avera+e c"st

+/,./
#ay Back #eriod R
-'.@,.
#ay back period R -.@ years
AH
BH
Iear 3ash flos #8 factor T +,D #resent value
+ -/.>>
(.@'- -+.@.
, ->.',
(.?'? ,'..-
BABASAB PATIL
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Iear 3ash)los9lakhs: #8 factor T+(D present value
+ -/.>> (.'(' -,..+.
, ->.', (.@,> -(..'/
- .+.?, (.?/+ -+.,'(
. .>.@> (.>@- -,.((/
/ /,./( (.>,+ -,.>(-
$otal #8 - +/@.@(?
%ess- Initial outlay +/,./
7et #resent 8alue - - >.-(?

STATE BANK OF INDIA
Project Financing.

- .+.?,
(.?+, ,'.?(
. .>.@>
(.>-> ,'.@(
/ /,./(
(./>? ,'.?>
$otal #8
+/(./-
%ess- Initial outlay
+/,./-
7et #resent 8alue -
-+.'?
A
Interna rate "# return M .O P9-.Q
A- B
>.-(?
Internal rate of return R +( Q 9+,-+(:
>.-(?-+.'?
>.-(?
Internal rate of return R +(Q W,X
..--?
Internal rate of return R +( Q ,.'(@
Internal rate of return R +,.'+D

Inter'retati"n-
!ince the e;pected rate of return is +(D so the project is said to be accepted.


2easures ta*en 3y SBI -)en t)e re'ayment is n"t '"ssi3e
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STATE BANK OF INDIA
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,: )irstly they send a notice to the clients stating therein to pay their dues.
-: <hen there no improvements in the repayments even after the notice being sent
then the bank ill forard the legal notice stating the clients to make
payments
.: $hird is the compromise dealing herein both the parties sit together and
decide hat measures has to be taken hich means hether the clients make
the payments, or hether to file a suit or decide to sell the #roperties etc..
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STATE BANK OF INDIA
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Anaysis<-
T)is anaysis 'art is reated t" t)e #inancia via3iity "# t)e 'r",ect S. F"-
C"ntr"s<-
$hrough ratio analysis I analy2ed that the li"uidity position of the firm is
good and it is maintaining the standard ratio..
0ebt 5"uity ratio is in decreasing trend, it shos that the firm is reducing its
liability portion by paying the loan year on year so the financial risk less.
#rofitability ratios related to sales and capital employed are in increasing
trend, it shos that the sales are increasing and the firm using its resources
efficiently.
0ebt !ervice 3overage 6atio is also in increasing trend, it shos that the
firms ability to make the loan repayments on time over the debt life of the
project.
$he payback period is ithin the debt life of the project.
$he net present value of the project is positive, $he positive net present
value ill result only if the project generates cash inflos at a rate higher
than the opportunity cost of capital . !ince the 7et #resent 8alue of the
above project is positive, the proposal can be accepted.
$he internal rate of the return is higher than hat accepted so the project is
accepted.

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STATE BANK OF INDIA
Project Financing.


Findin+s <- T)ese are reated t" 3an* in +enera
!tate bank of India is strictly folloing the guidelines of 6BI on #roject
)inancing
!anctioning for the projects is approved by 6A!M533 96etailed Assets
!mall And Medium 5nterprises 3redit 3ell:.
$he bank finances the projects only through term loans.
Interest rates are fi;ed depending upon the projects hich is knon as !tate
Bank advance rate.
<hen the clients fail to pay the interest, - months from the due date the term
loan granted ill be treated as 7on #erforming Assets.
If the interest is due further - more months then it ill be treated as doubtful
assets and interest rates becomes 2ero.
Again for further - months it goes as loss assets and the bank rite off the
account.
5very firm starting up a ne project should make an insurance policy ith
the same bank itself.
6ec"mmendati"ns<-
Bank check only financial, technical and commercial feasibility of the
project and it should not consider sensitivity analysis and social cost benefit
analysis of the project so bank should consider this because these are also
important from the point of vie of risk and economy groth.
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STATE BANK OF INDIA
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Bank should be caution about the availability of security and ensure
honesty of both borroer and guarantor so as to avoid the account
becoming the loss assets.
.imitati"n "# t)e study<-
!ome of the information are confidential in nature that could not divulged for study.
C"ncusi"n<-
$he project undertaken has helped a lot in understanding the concept of project
financing in nationali2ed bank ith reference to state bank of India. $he project
financing is an important aspect hich helps in increasing the profit of the banks.
#roject financing is a vast subject and it is very difficult to apply all the aspect in all
type of project hen bank ant to finance, and it is very difficult to cover all aspect in
this project.
$o sum up it ould not be out of ay to mention here that the state bank of India has
given a special impetus on F#roject )inancing* .the concerted efforts of the
management and staff of state bank of India has helped the bank in achieving
remarkable progress in almost all important aspects.
)inally the success of project financing ould mostly depend on the proper analysis of
the projects before financing.

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STATE BANK OF INDIA
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Bi3i"+ra')y
$he data is collected from the list of books and eb site given belo
.sbi.com.
.Boogle.com
3ompany manuals.
3ommercial Banks Book.
#roject financing by J Machiraju
)inancial management by J Hhan and Cain.
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