Project Appraisal At Surat District Co Operative Bank Ltd.

CHAPTER: 1: INTRODUCTION OF BANK & CO OPERATIVE BANKS
1.1 Introduction
The development of banking is an inevitable precondition for the healthy and rapid development of the national economic structure. Banking institutions have contributed much to the development of the developed countries of the world. Today we cannot imagine the business world without banking institutions. Banking is as important as blood in the human body. Due to the development of banking advances are increased and business activities developing so it is rightly said, " The development of banking is not only the root but also the result of the development of the business world." After independence, the Indian government also has taken a series of steps to develop the banking sector. Due to considerable efforts of the government, today we have a number of banks such as Reserve Bank of India, State Bank of India, nationalized commercial banks, Industrial Banks and cooperative banks. Indian Banks contribute a lot to the development of agriculture, and trade and industrial sectors. Even today the banking systems of India possess certain limitations, but one cannot doubt its important role in the development of the Indian economy. Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should be able to meet new challenges posed by the technology and any other external and internal factors

1.2 Definition
As per Section 5(c) of Banking Regulation Act, 1949 a "Banking Company" means any company which transacts the business of banking in India. As per Section 5(b) of Banking Regulation Act, 1949, “banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft or order”.

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Project Appraisal At Surat District Co Operative Bank Ltd. The first bank in India was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below. 1) Early phase from 1786 to 1969 of Indian Banks. 2) Nationalization of Indian Banks and up to 1991 prior to Indian banking Reforms. 3) New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. sector

1.3 Challenges facing Banking industry in India
The banking industry in India is undergoing a major transformation due to changes in economic conditions and continuous deregulation. These multiple changes happening one after other has a ripple effect on a bank (Refer fig. 2.1) trying to graduate from completely regulated sellers market to completed deregulated customers market.

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Project Appraisal At Surat District Co Operative Bank Ltd.
➢ Deregulation: This continuous deregulation has made the Banking market

extremely competitive with greater autonomy, operational flexibility, and decontrolled interest rate and liberalized norms for foreign exchange. The deregulation of the industry coupled with decontrol in interest rates has led to entry of a number of players in the banking industry. At the same time reduced corporate credit off take thanks to sluggish economy has resulted in large number of competitors battling for the same pie.

➢ New rules: As a result, the market place has been redefined with new rules of the

game. Banks are transforming to universal banking, adding new channels with lucrative pricing and freebees to offer. Natural fall out of this has led to a series of innovative product offerings catering to various customer segments, specifically retail credit.

➢ Efficiency: This in turn has made it necessary to look for efficiencies in the

business. Banks need to access low cost funds and simultaneously improve the efficiency. The banks are facing pricing pressure, squeeze on spread and have to give thrust on retail assets

➢ Diffused Customer loyalty: This will definitely impact Customer preferences, as

they are bound to react to the value added offerings. Customers have become demanding and the loyalties are diffused. There are multiple choices; the wallet share is reduced per bank with demand on flexibility and customization. Given the relatively low switching costs; customer retention calls for customized service and hassle free, flawless service delivery.

➢ Misaligned mindset: These changes are creating challenges, as employees are

made to adapt to changing conditions. There is resistance to change from employees and the Seller market mindset is yet to be changed coupled with Fear

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Project Appraisal At Surat District Co Operative Bank Ltd. of uncertainty and Control orientation. Acceptance of technology is slowly creeping in but the utilization is not maximized.
➢ Competency Gap: Placing the right skill at the right place will determine

success. The competency gap needs to be addressed simultaneously otherwise there will be missed opportunities. The focus of people will be on doing work but not providing solutions, on escalating problems rather than solving them and on disposing customers instead of using the opportunity to cross sell.

1.4 Co-operative banks in India
The Co operative banks in India started functioning almost 100 years ago. The Cooperative bank is an important constituent of the Indian Financial System, judging by the role assigned to co operative, the expectations the co operative is supposed to fulfill, their number, and the number of offices the cooperative bank operate. Though the co operative movement originated in the West, but the importance of such banks have assumed in India is rarely paralleled anywhere else in the world. The cooperative banks in India play an important role even today in rural financing. The businesses of cooperative bank in the urban areas also have increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.
 Cooperative banks in India finance rural areas under:

• • • • •

Farming Cattle Milk Hatchery Personal finance

 Cooperative banks in India finance urban areas under:

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Project Appraisal At Surat District Co Operative Bank Ltd. • • • • • • Self-employment Industries Small scale units Home finance Consumer finance Personal finance

1.5 Structure of Co-Operative Banks Co-Operative Bank

Central Land State CoUrban CoState Primary Land Developmen Development Agriculture Operative Operative Credit Banks Banks tBanks Banks

1.5.1 Primary Credit Societies:Primary credit societies lie at the local or base level. In rural areas There is primary agriculture credit and societies (PACs) which cater to the short and medium-term credit needs of the farmers.

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Project Appraisal At Surat District Co Operative Bank Ltd. In urban areas, to provide non agriculture credit, urban co-operative banks and employees, credit societies are formed. Urban banks usually provided short term loans to their members, who are small borrowers. They also accept deposits from members and non-members, too. Thus, their functions and working are more or less similar to those of a major distention between these and commercial banks which are joint stock companies. 1.5.2 The Central Co-operative Banks (CCBs):The central Co-operative banks are federation of primary societies Belonging to specific district, by furnishing credit it the primary societies, central Cooperative banks serve as an important link between these societies and the money market of the country. No central co-operative banks lends to individuals. It lends to societies only. 1.5.3 The State Co-operative Banks (SCBs): The state co-operative banks lie at the apex of the entire co-operative credit structure. Every state co-operative bank’s basic functions to furnish loans to the central co-operative banks in order to enable them to help promote the lending activities of the primary credit societies. This state co-operative banks, thus serve as the final link between the money market and the co-operative sector of the country. 1.5.4 Land Development Banks:The lend development banks meet the long credit requirement of the firms for development purpose, viz.., purchase the equipment like pump set, tractors and other machineries, reclamation of land, fencing, digging up new wells and repairs of old walls etc. lend development banks are co-operation institution and they grant loan of the securities of mortgage of immovable property of the farmers. These banks have a two tire organization structure at the state level, there are central level lend development banks and at the district or taluka level, there are primary land development banks. The financial resources of land development banks are raised by floating debenture in the market. Such debentures carry the guarantees of the state government, commercial banks, Life Insurance Corporation and other land development bank as a 6 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. measure of mutual support. Lend development banks also avails of the referencing facilities provided by the national bank for agriculture and rural development in respect of the term loans granted by them for the schemes of agriculture development. They also secure short term accommodation from the state governments. Commercial banks and the state co-operative banks.

1.5.5 The State Land Development Bank:The state land development banks rise their resources by floating debentures in market. These debentures carry the guarantees of the state government and subscribed by the central and state governments, commercial banks, Life Insurance Corporation and other land development banks are as a measure of a mutual support. The land development banks have availed of the refinancing facilities provided by the national bank for agriculture and rural development is respected of the term loans granted by them for the schemes of agriculture development. They also secure short term accommodation from the state government, commercial banks and the state co-operative banks.

THE SURAT DISTRICT CO-OP.BANK LTD.

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Project Appraisal At Surat District Co Operative Bank Ltd.

CHAPTER 2 COMPANY PROFILE
2.1 Introduction of the Surat Dis. Co-Operative Bank Ltd:
In the year 1909 on 17th June with the strenuous efforts of late Shri B.A.MODI & Shri K.G.DESAI society viz, “the Surat District Co-Operative Union Limitation” was registered. In the year 1921, this society has undertaken banking activities in absolute terms and in the year 1923. The Surat district co-operative union ltd. was converted in to “THE SURAT DISTRICT CO-OPERATIVE BANK LTD.” The work extended to the entire Surat District, which included city of Surat has also towns like Navasari, Valsad, Billimora and Sizable tribal areas with hiss & dense forests. The vast Surat District was bifurcated in 1965 & district of Valsad was separated. At present there are 14 Taluka in Surat District of which 9 are in tribal areas. Banks had separate department for agriculture advance from the year 1944, and become an effective central agency for co-ordinate and smooth flow of finance to cooperative sector in district. ALL CO-OPERATIVE ORGANIZATION LIKES:The Surat District Milk Producer’s Co-operative Union Ltd. The Purushottom Farmers Co-operative. Ginning and pressing society ltd. The Surat District Co-operative Spinning Mills ltd. Cotton Co-operative societies of Olpad taluka. Surat central Co-operative stores Ltd. Having since been developed and bank had provided timely to them. During this period, forest labors co-operative society were also capital in tribal and were engaged in crop cutting activity for which substantial finance was provided to them. After1960, when shri Khedut Sahakari Khand Udhyog Mandali ltd Bardoli, came existence the entire Sugar factories has tooting financial trouble in the beginning. However bank had provided them enough finance as also assisted even for meeting share capital also. The sugar cane crop has now become principal crop in District, and out of total capable area of 490000 Hectares, 83745 Hectares is under sugar cane cultivation. 9 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. The Surat District co-operative bank ltd. amply supported this economics structure of the crushing capacity of 35500 tones per day. Annual sugar production exceeds to 400 corers in this sector. Bank has been enjoying privilege of having prominent citizens in field like social, co-operative and agriculture, on its board included outstanding lawyers and members of parliament District Panchayat, major of Surat City and lenders from various walker of life including ministers. Immediate past chairman of the board shri Pramodbhai K Desai was award “Kaka Saheed Godgil Award” for his outstanding services to society as also awarded by the Gujarat state Co-operative union by Sahakari award. Shri Popatbhai Vyas, the present director on the board, remained as home minister of the state. Shri Dilipbhai Bhalta, the present chairman is also the Chairman of “Madhi Vibhag Khand Udhyog Sahakari Mandali ltd” and also enjoying key position in different co-operative societies functioning in various fields. Board has formed committees for loans, staff matters, legal matters and new construction etc... Also power has been delegated properly to smoothen day-to-day working. Bank has been committed for overall up to lift man of the society developing upon the profit made by the bank, donation from a special platinum jubilee fund, to the extend of exceeding Rs. 40 lakh every year in made to the hospital, schools, colleges and charitable institutions. Also separate fund has been created for donating the educational organization only. Another trust is also created for donation to the charitable and social service organization viz. Surat District Co-operative Bank Charitable Trust. Last year bank has donated Rs. 50 Lakh for ultimate benefit of people affected with natural calamities in addition to Rs. 36 lakh or so to the different organization setup, for betterment of medical education etc.

2.2 Organization Structure of the bank: ORGANISATION STRUCTURE OF SURAT DIS. CO-OPERATIVE BANK LTD. 10 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.
Assistant Assistant Manager Assistant Manager Assistant Generalvision& (Super Manager Manager Manager (Industry) Manager General (Supervision) (Housing) (Recovery) (Industry) Recovery) Manager (Banking) (ADM) (Loan & Adv) (Manager) (A/C) Managing Director

(Recovery)

Manager (loan)

2.3 BOARD OF DIRECTORS OF SURAT DIS. CO-OPERATIVE BANK LTD.

Sr. no

Board of directors

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Project Appraisal At Surat District Co Operative Bank Ltd. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Shri Dilipbhai B Bhakta Shri Amarshinh J Chaudhari Shri Bhagabhai P Patel Shri Maganbhai R Patel Shri Narayanbhai H Doanwala Shri Haribhai L Patel Shri Ramanbhai A Patel Shri Shradhbhai S Patel Shri Narendrabhai D Solanki Shri Maganbhai B Vasava Shri Jayshigh D Vasava Shri Kiritbhai R Desai Shri Pravinchandra C. Parekh Shri Parbhubhau N Vasava Mrs. Dr. Vikasben K Desai Shri Chhotubahi L Patel Shri Nayanbhai N Bhartiya Shri Leelachand V. Patel Shri Sureshbhai J Patel Shri Ajaybhai J Shah Shri Pradipshigh G Atodaria

2.4 Staff details of Surat Dis. Co-operative Bank Ltd.
Designation Total staff members 12 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.

Manager Clerk/cashier/inspector/go. Manager Peon/Driver etc.

137 246 103

2.5 Branches:Bank’s registered office is at the J. P. Road, near the Athwagate. Bank’s main branch is in the Surat city. It is near to Chautapul (kanpith). Bank has other 56 (total 57) branches which is located in two (Surat and Tapi) district and bank thinking for start 6 new branches in two year.

2.6 Computerization: All 57 branches of Surat district co-operative bank are fully computerized.

2.7 Growth Table of Surat Dis. Co-operative Bank Ltd.
(Rs. In lacs) Share Year 1997-98 1998-99 1999-00 2000-01 capital & funds 5641.49 6113.07 6528.11 6934.59 Deposits 70787.16 86035.83 91513.49 99824.76 Advances 29301.44 23666.51 25889.64 35388.69 Profits 375.00 161.76 210.09 386.38 Dividends 15% 15% 15% 15% 13 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 7654.09 8233.94 9616.36 10084.04 10434.40 10940.52 12257.00 14984.00 110574.59 113999.72 120979.51 111604.22 129343.18 120340.60 151929.97 174318.79 46008.14 39434.34 36868.87 24592.07 22346.28 35005.31 73007.29 56689.93 425.54 451.39 471.15 305.00 246.00 293.00 555.00 700.00 15% 15% 15% 15% 15% 15% 15% 15%

2.8Auditors:The audit of the bank shall be conducted only by the Chartered Accountants from the Panel approved by NABARD. The auditor is Parikh Mehta and Association (C.A), Baroda.

2.9 Bankers:The Gujarat State Co-operative ltd. (Ahmedabad) State Bank of India. (Surat & Bardoli)

2.10 Customer Service Available in Surat Dis. Co-operative Bank.
➢ Current Account: The current accounts with The Surat Dist. Co-op. bank Ltd., promises you a unique banking experience through innovative features and best services for businessmen, firms, companies, public enterprises etc. that have numerous daily banking transact. ➢ Savings Accounts:

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Project Appraisal At Surat District Co Operative Bank Ltd. A safe and easy way to save your money is with a bank savings account. Interest will be earned on the money you have on deposit at the bank. ➢ Fixed Deposit: Bank fixed deposits are one of the most common savings scheme open to an average investor. Fixed deposits also give a higher rate of interest than a savings bank account. Monthly interest facility also available in this scheme. ➢ Recurring Deposit: Recurring Deposit Scheme is meant for investor who wants to deposit a fixed amount every month. The scheme, a systematic way for long term savings is one of the best investment options for the low income group.

➢ Bank Enter In Insurance Sector: Bank is affiliated with AVIVA LIFE INSURANCE COMPANY INDIA PVT. LTD. for their customers’ life insurance. Bank is also affiliated with UNITED GENERAL INSURANCE COMPANY for their customer's general insurance ➢ Gold Coin Selling: Bank has taken distributorship for pure gold coins under the terms of MOU. Bank is selling gold coins under ICICI bank's pure and international 24 carat gold coins scheme. ➢ Loans: The Surat Dist. Co-operative Bank provides different types of loan at less interest rate. The different type of loans as specified below: Loans Against Government Securities: Facility to get loan or overdraft against government securities like National Saving Certificates (N.S.C.), Kishan Vikas Patra (K.V.P.) Interest rate 8% and 9% subsequently. 15 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. Individual Home consumable Loan: Loan on purchase of home consumable product like Refrigerator, Washing Machine, Television etc. 75% to 90% of purchase bill or maximum limit to 1 lakh rupees. 36 to 60 monthly installments. Interest Rate 9.50%. Individual Vehicle Loan: Up to 75% to 90% of purchase bill. Maximum limit of Rs.1 lakh for two wheeler vehicle purchase Maximum limit of Rs.10 lakh for heavy vehicle like Car, Jeep, Tempo, Truck, and Trailor. For 3 to 5 years on interest rate 9.50%. Loan for higher education studies: Provides education loan for business education like Medical, Engineering etc. Maximum limit up to 5 lakh for study in country and up to 15 lakh for abroad study. Interest Rate 9% to 10%. Individual Housing Loan: Loan available for employee, merchants and farmers for construction of new building and flats, Construction on their plots. Maximum installment credit is up to 10 years. Interest rate is 9% to 10% Loan against Fixed Deposit: Facility to get quick loan/ overdraft for accidental requirement on Fixed Deposit slip for bank fixed depositor. Business Loan: Merchants can get cash based on their current product stock. Interest rate is 9.50% to 11.25%. Loan for small Scale Industrial (S.S.I.) unit: Loan for individual/partnership firm, company, textile, engineering, printing press unit etc. Installment limits up to 5 years. Interest rate is 10% to 11%. Technology Up gradation Fund Scheme:

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Project Appraisal At Surat District Co Operative Bank Ltd. Scheme by Central Government, valid up to 31 March 2007. Businessmen can get benefits by taking the scheme as follow: a) 5% interest subsidiary or 15% Credit licked Capital subsidiary OR b) 20% Credit licked Capital subsidiary (Maximum investment amount Rs.100 Lakh and Maximum subsidiary amount Rs.60 lakh). This loan is pplicable to Textile S.S.I. and non S.S.I. Unit.

2.11 Procedure of taking loan from banks :The procedure associated with a term loan involves the Process of loan 1. Submission of application 2. Primary assessment 3. Branch head recommendation 4. Final assessment of various level of bank 5. Lending committee 6. Documentation of loan application 7. Disbursement of loan 8. Creation of security (1) Submission of application following principle steps.

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Project Appraisal At Surat District Co Operative Bank Ltd. The main & the first step is the submission of the duty filled form or the loan application it is the choice customer that which types of application he wants to give depending upon the needs.
(2) Primary assessment

When the application is received, an officer of the recipient institution reviews it to ascertain whether it is complete for processing. If it is incomplete the borrower is asked to provide the required additional information. When the application is considered complete, the recipient institution prepares of flash report, which is essentially a summarization of the loan application, to be evaluated at the Once the SEM, on the basis of Senior Executive Meeting (SEM). its evaluation of the flash report, decides that are: location

the project justifies a detail appraisal, it nominates lead financial institutions. The factors taken in to account for designating lead institution of the project, prior experience of work load of the institutions.
(3) Branch head recommendation

institution in handling similar projects,

representation of institutions in the state and promoter group, and existing

The appraisal is moving one step ahead that is to analysis the applicants eligibility as per the norms provided by the considering his gross income after detecting his liabilities, his actual repayment capacity is checked as per norms.
(4) Final assessment of various level of bank

After referring the application form and appraisal branch head put his recommended action whether to accept the application or not & send it the corporate office.
(5) Lending committee

At the corporate office the final assessment is to be done & decision is taken to reject the application is forwarded to the particular branch from where the application has been received. Before it also lending committee decide whether to give loan or not. 18 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. Example • • Loan for more than 10 lack Rs all BOD need to agree for that particular Loan. Also some of the lending committee is formed by bank in which Directors are included and they decide whether to give Loan or not. The branches have the power to take the major decision on the sanctioning of the loan if it is less than Rs 1 lack.

(1) Documentation of loan application Once the Loan is Sanction Banks need to check all the document of borrower as well as guarantor once again and only than and than they can proceed ahead. (7) Disbursement of loan If loan is sanction than Bank open the account of borrower in their bank and issue the check. Before the entire term loan is disbursed the borrowers must fully comply with all terms and condition of the loan agreement. (8) Creation of security The term loans (both rupee and foreign currency) and the differed guarantee assistance provided by the All-India financial institutions are secured through the first mortgage, by way of deposit of title deeds of immovable properties and hypothecation of movable properties. As the creation of mortgage, particularly in the case of land, tends to be a time consuming process, the institutions permit interim disbursement against alternate security (institution the form of guarantees provided by the promoters). The mortgage, however, has to be created within a year from the date of the first disbursement. Otherwise the borrower has to pay an additional charge of 1 percent interest

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Project Appraisal At Surat District Co Operative Bank Ltd.

CHAPTER 3 THEORITICAL FRAMEWORK
3.1 Introduction of Project Appraisal
Project appraisal is the assessment of the viability of proposed long-term investments in terms of shareholder wealth and the formal analysis of all project costs and benefits which is used to justify the project proposal. Effective project appraisal offers significant benefits to a firm. A good appraisal justifies spending money on a project. Project appraisal or project planning must be viewed as a process of decision-making over time, starting with project identification, and proceeding through various stages of various feasibility studies (for example, engineering, financial etc), then the investment phase, and finally project evaluation. This is the so-called concept of the project cycle. Getting the design and operation of appraisal systems right is important. The proper consideration of each of the key components of project appraisal is essential. These are, 1) Need, targeting and objectives 2) Options 3) Inputs 20 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. 4) Outputs and outcomes Key issues in appraising projects include the following. 1) Need, targeting and objectives The starting point for appraisal: applicants should provide a detailed description of the project, identifying the local need it aims to meet. Appraisal helps show if the project is the right response, and highlight what the project is supposed to do and for whom. 2) Options Options analysis is concerned with establishing whether there are different ways of achieving objectives. This is a particularly complex part of project appraisal, and one where guidance varies. It is vital though to review different ways of meeting local need and key objectives. 3) Inputs It’s important to ensure that all the necessary people and resources are in place to deliver the project. This may mean thinking about funding from various sources and other inputs, such as volunteer help or premises. examination of appropriately detailed budgets. 4) Outputs and outcomes Detailed consideration must be given in appraisal to what a project does and achieves: its outputs and more importantly its longer-term outcomes. Benefits to neighbourhoods and their residents are reflected in the improved quality of life outcomes (jobs, better housing, safety, health and so on), and appraisals consider if these are realistic. Appraisal should include the

3.2 The Purpose of Appraisal
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The immediate need is to ensure that: Programmed are

A) Only those projects which satisfy the objectives of the Single offered assistance;

B) The project offers value for money and, especially where funds are limited, those projects offering the best value are chosen and; C) There is a transparent selection process. • An important aspect of appraisal is obtaining an understanding of the anticipated expenditure and benefits of a project, usually expressed in terms of its inputs (costs) and outputs (results). The expected timing of this must also be made clear. • Whilst detailed appraisal is generally necessary before decisions can be taken and offers made. This will enable any obviously poor or ineligible ones to be eliminated, avoid duplication and give an early overall view of the success of the measure.

3.3 Benefits to prepare a Project Appraisal
 Project appraisal helps a firm to, • • • Be consistent and objective in choosing projects Make sure its programme benefits all sections of the community, including those from ethnic groups who have been left out in the past Provide documentation to meet financial and audit requirements and to explain decisions to local people.  Appraisal justifies spending money on a project Appraisal asks fundamental questions about whether funding is required and whether a project offers good value for money. It can give confidence that public money is being put to good use, and help identify other funding to support a project. Getting it right may help a firm make its resources go further in meeting local need.

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Project Appraisal At Surat District Co Operative Bank Ltd.  Appraisal is an important decision making tool Appraisal involves the comprehensive analysis of a wide range of data, judgements and assumptions, all of which need adequate evidence. This helps ensure that projects selected for funding: • • • • • Will help a partnership achieve its objectives for its area Are deliverable Involve local people and take proper account of the needs of people from ethnic minorities and other minority groups. Are sustainable Have sensible ways of managing risk.

 Appraisal lays the foundations for delivery Appraisal helps ensure that projects will be properly managed, by ensuring appropriate financial and monitoring systems are in place, that there are contingency plans to deal with risks and setting milestones against which progress can be judged.

3.4 Feasibility of The Project
Project Should Be Feasible And This Is Done By Detail Appraisal Of The Project Into The Following Different Environment. 3.4.1 Market and Demand appraisal The first step in project analysis is to estimate the potential size of the market for the product proposal and gets an idea about the market share that is likely to be capture. Market and demand analysis is concerned with two broad issues: 1) What is the likely aggregate demand for the product/service? 2) What share of the market will the proposed project achieve? 23 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.

The importance of market and demand analysis, it should be carried out in orderly and systematic manners. The key steps in such analysis are, 1) Situation analysis and specification of objectives 2) Collection of secondary information 3) Conduct of market survey 4) Characterization of the market 5) Demand forecasting 6) Market planning 3.4.2 Technical Analysis Technical analysis of a project idea includes designing the various processes, installing equipment, specifying material and prototype testing. The project manager has to be careful in finalizing the technical aspects of the project as the decision is irreversible and the investments involved may be high. The project manager has to select the technology required in consultation with technical experts and consultants. Technical analysis is concerned primarily with: • • • • • • • • • Material inputs and utilities Manufacturing process/technology Product mix Plant capacity Location and site Machineries and equipments Structures and civil works Project charts and layouts Work schedule

3.4.3 Financial Analysis

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Project Appraisal At Surat District Co Operative Bank Ltd. To judge a project from the financial angle, we need information about the following:          Cost of project Means of financing Estimates of sales and production Cost of production Working capital requirement and its financing Estimates of working results Break-even point Projected cash flow statements Projected balance sheets

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Project Appraisal At Surat District Co Operative Bank Ltd.

CHAPTER 4 RESEARCH METHODOLOGY

4.1 Problem statement
This project desires to understand the “PROJECT APPRAISAL SYSTEM” at The Surat District Co- Operative Bank Ltd.

4.2 Objectives

The main objective of the project training is to study the PROJECT APPRAISAL SYSTEM IN SUART DISTRICT CO-OPERATIVE BANK LTD. To study entire loan system if Surat District Co-operative Bank Ltd. To study what is the procedure of obtaining loan from the Surat District Co-operative Bank Ltd. To know on which basis the Surat District Co-operative Bank Ltd. Appraised the loan to the business.

4.3 Research design

4.3.1 Collecting Secondary Data:Annual report of the Surat District Co-operative Bank ltd. Case Study Other necessary theoretical requirement 26 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. The information has been collected from the other sources to make a project report effective and informative. That data are collected from various website and financial management for making concept very clear. 4.3.2 Studying Secondary Data:-

After collecting secondary data from various sources, the next steps is to study various data and finding out relevant information and filtering it to further process.

4.3.3 Analysis of Case Studying Computing Following:

Pay back period method Internal rate of return Net present value Profitability index Debt service coverage ratio Debt equity ratio Break even point analysis Current ratio Quick ratio Proprietary ratio Gross profit ratio Net profit ratio Sensitivity Analysis

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CHAPTER 5 CASE STUDY
Purpose of loan:
A firm requires loan to purchase the STROKE brand Digital Printing Machine, Model RUBY and for other expenses i.e. transportation, duty, custom clearance, supporting UPS (15 kv) and A.C.

5.1 Project profile:
Name of the unit Address Constitution Registration Date Registration no. M/S Peacock Digital Prints 3rd floor, Plot no. 714, Road no. 7, G.I.D.C. , Sachin, Surat PARTNERSHIP FIRM 27 Sep 2008 GUJ/SRT/ (17) 27588

Name and address of the partners (1) Mayur Vasantbhai Patel (HUF) Age Address : 41 years : 47, Alaknanda Soc., Bhd Jogani Nagar, Rander Road, Surat (2) Jugalkishor Ramratan Bhutra Age Address (3) Jimmy D. Singaporia Age : 33 years : 30 years : 702, G.I.D.C., Sachin , Surat

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Project Appraisal At Surat District Co Operative Bank Ltd. Address : 202 Akash Ganga Co. Op. Soc., Vanki Bordi, Saiyadpura, Surat Partners’ share in profit and loss: Equally distribution i.e. 33.33% Qualification and experience of the partners:
(1) Mayur Vasantbhai Patel

: He is Textile Engineer and working as Dyeing and

Printing master with Aastha Dyeing since last 12 years.
(2) Jugalkishor Ramratan Bhutra : He is graduate and presently running many process

houses under the brand name of Aastha at and around Sachin, Surat.
(3) Jimmy D. Singaporia

: He is graduate and presently working as Dyeing

Master with Aastha Dyeing and is having experience for 10 years in the same firm. Nature of project M/s. Shreenathji fashion will do job work of sarees through printing machine. The firm wants to install 1 printing machines worth Rs. 80.50 lacs. Manpower The unit will employ with 10 to 12 persons includes skilled and unskilled labour and it is available easily. Cost of project and means of finance The cost of project will be around Rs. 90.60 lacs which include cost of PRINTING machine and other expenses i.e. transportation, duty, custom clearance, supporting UPS (15 kv) and A.C. thereof out of which firm wants to take a bank finance of Rs. 60.38 lacs. Cost of Machinery
I.

Price of the machine 1,11,000 EURO

INR 71,00,000 INR 2,00,000 29

II. Transportation

Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.
III. Duty under EPCG (3.25%) IV. Custom clearance charges V. A.C. VI. UPS (15 KV)

INR 2,45,000 INR 1,50,000 INR 55,000 INR 3,00,000 INR 80,50,000

TOTAL (approx) Means of Finance Partners’ Capital(25% margin) Bank Term Loan Infrastructural requirements

INR 20,50,000 INR 60,00,000

The unit will have all basic infrastructural facilities in the form of required electricity power, water, supply and availability of manpower. Affluent The unit will not generate any polluting whether air or water. Name and address of the dealer of the machine Tex India Enterprise(P) Ltd. Plot No. 23, Sector-27A, Faridabad, Hariyana. Any other firm or branch which is presently being run bye the partners: Neelkanth Chemical, a partnership firm, is a sister concern of Peacock Digital Prints. Security Offered against the loan: Primary Collateral Hypothecation of machineries imported Agricultural Plot of Land at survey No. 96/2114 and 136/2 at village Segwa Shyedla Moje Olpad admeasuring 10.00 Vingha having value of about Rs. 100.00 lacs.

30 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. Guarantors: (1) Kalpeshbhai B. Patel Age:33 years Cast: Hindu Addres(R ): 59, Jogani Nagar-2, New Rander Road, Adajan, Surat. Business: Trading of chemicals Annual Income: 13,65,383 Rs. (2) Mayurbhai V. Patel Age:41 years Cast:Hindu Address(R): 47, Alaknanda Soc., Bhd Jogani Nagar, Rander Road, Surat. Business: Consultant Address(O): 47, Alaknanda Soc., Bhd Jogani Nagar, Rander Road, Surat. Annual Income: 17,88,552

5.2 Cost fr project and means of finance
31 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. COST OF PROJECT AND MEANS OF FINANCE

A.COST OF PROJECT 1)Plant and machinery. - Imported - Indigenous (as per separate list ) 2) Air conditioner & UPS 3) Misc. fixed assets 4) Preliminary & pre-operative expenses 5) Other 6) Other contingency 7) Margin for working capital. TOTAL Rs B. MEANS OF FINANCE. 9) Promoter’s contribution (25% margin) 10) Unsecured loans 11) Financial assistance from financial institution ( Medium term loan ) TOTAL Rs.

Amt Rs. In ‘000

7695 -----355 --------------------1010 9060

3022 ------

6038 9060

5.3 Balance sheet statements:5.3.1 Projected Profitability Working For 5 Years Particular Year (Amount Rs. IN 000)

2008-

2009-

2010-

2011-

2012-

32 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. 09 1) Efficiency percentages (%) 2) Net sales 8190 9009 9435 9522 10 3) Cost of production I) Cons. Of raw materials 2457 2703 2830 2857 30 63 II) Power & fuel 458 479 516 513 5 45 III) Direct labor & wages 566 622 685 753 82 8 IV) Consumable stores 322 354 386 403 41 9 V) Repairs & maintenance 448 460 495 509 54 7 VI )Other Manufacturing Expenses VII) Depreciation 870 870 870 870 655 655 699 699 74 3 87 0 VIII) Rent Expenses. 36 36 36 36 3 6 ADD: Opening stock of Work in process 0 110 121 127 12 8 LESS: Closing stock of Work in process 4) TOTAL COST OF 110 570 121 6168 127 6511 128 6639 137 7042 33 Department of Business & Industrial Management 102 75 10 75 11 80 12 80 13 85

Project Appraisal At Surat District Co Operative Bank Ltd. PRODUCTION ADD: Opening stock of Finished goods LESS: Closing stock of Finished goods 5) Cost of sales GROSS PROFIT 0 5702 248 8 6) FINANCIAL CHARGES I ) on term loans II) on working capital & others 7) ADMINISTRION EXPENSES 8) SELLING EXPENSES 9) PRELIMINARY EXPENSES 10) PROFIT BEFORE TAXATION 11) PROVISION FOR TAXTS 343 537 649 719 0 0 1481 0 0 1947 0 0 2164 0 0 2269 0 0 26 78 87 5 12) NET PROFIT 1138 1410 1515 1550 18 02 13) LESS: DRAWINGS 240 240 240 240 2 40 14) RETAINED PROFIT 898 1170 1275 1310 156 2 15) ADD DEPRECIATION 870 870 870 870 8 70 34 Department of Business & Industrial Management 321 353 372 379 408 686 0 540 0 388 0 235 0 83 0 0 6168 2841 0 6511 2924 0 6639 2884 0 7042 3168 0 0 0 0 0 2

Project Appraisal At Surat District Co Operative Bank Ltd. P & P EXPS. 16) NET YEARLY CASH GENERATION (CFAT) 0 1768 0 2040 0 2146 0 2180 0 243 3

5.3.2 Projected Balance Sheets Working For 5 Years (Rs. In ‘000) LIABILITIES 2008 2008-09 2009-10 2010-11 2011-12 2012-13

Promoters’ Contribution Reserves & Surplus (1)Central Subsidy (2)Profit &Loss A/C NET WORTH Secured Loans

3022

3022

3022

3022

3022

3022

0 0 3022 6038

0 898 3920 3813

0 2067 5090 2542

0 3343 6365 1271

0 4653 7675 0

0 6215 9237 0 35

Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. Term Loan from Bank (Excluding T/L inst. Due in 1 year) Unsecured Loans Total CURRENT LIABILITIES T/L inst. Due in 1 year Creditors Unpaid Expenses Cash Credit Total TOTAL LIABILITIES 0 0 0 0 0 9060 1271 0 124 0 1395 9128 1271 0 131 0 1402 9034 1271 0 141 0 1413 9049 1271 0 146 0 1417 9092 0 0 157 0 157 9394 0 6038 0 3813 0 2542 0 1271 0 0 0 0

ASSETS Fixed Assets New Investments Total CURRENT ASSETS Raw Material- Indigenous Work in Progress Finished goods Debtors Prepaid Expenses Cash& Bank Balances Total TOTAL ASSETS 0 0 0 0 0 1010 1010 9060 236 110 0 788 0 814 1948 9128 260 121 0 866 0 977 2224 9034 272 127 0 907 0 803 2109 9049 275 128 0 916 0 704 2023 9092 295 137 0 982 0 781 2195 9394 36 Department of Business & Industrial Management 8050 0 8050 7180 0 7180 6310 500 6810 5439 1500 6939 4569 2500 7069 3699 3500 7199

Project Appraisal At Surat District Co Operative Bank Ltd.

5.3.3 Working Capital Assessment Year (Amount Rs. In ‘ 000)

Particular

2008-09

2009-10

2010-11

2011-12

2012-13

1. raw material-indigenous 2. work in progress 3. finished goods 4. debtors 5. expenses 6. cash & bank balances TOTAL Less: 6. T/L inst. In 1 yr. 7. creditors 8. Unpaid exps. 9. cash credit TOTAL Net working capital

236 110 0 788 0 814 1948

260 121 0 866 0 977 2224

272 127 0 907 0 803 2109

275 128 0 916 0 704 2023

295 137 0 982 0 781 2195

1271 0 124 0 1395 553

1271 0 131 0 1402 822

1271 0 141 0 1413 697

1271 0 146 0 1417 606

0 0 157 0 157 2038

37 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.

5.3.4 Cash flow statement Particular Year (Amount Rs. In ‘000)

2008

2008-09 2009-10 2010-11 2011-12 2012-13

Sources of Funds Net Profit before Tax Promoters’ Capital Depreciation Preliminary Expenses w/off Term Loan from bank Bank Borrowings Government Cash Subsidy Total Disposition of Funds Preliminary & Preoperate expenses Fixed assets Increase in Current Assets M.T.L. repayments Funds for Investments Interest on term loan 0 686 540 388 235 83 38 Department of Business & Industrial Management 0 0 953 0 1271 500 1271 1000 1271 1000 1271 1000 8050 0 0 1010 0 107 0 49 0 7 0 85 0 0 0 0 0 0 9060 3037 3358 3422 3375 3631 6038 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3022 0 0 2167 0 870 0 2487 0 870 0 2552 0 870 0 2504 0 870 0 2760 0 870 0

Project Appraisal At Surat District Co Operative Bank Ltd.

Taxation Drawings Total Opening Balance Surplus/ (Deficit) Closing Balance

0 0 8050 0 1010 1010

343 240 3232 1010 -195 814

537 240 3195 814 163 977

649 240 3596 977 -174 803

719 240 3473 803 -98 704

875 240 3554 704 77 781

5.3.5 Break Even Analysis

Particular

Year (Amount Rs. In’ 000)

39 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. 2008-09 2009-10 2010-11 2011-12 2012-13

SALES REVENUE

8190

9009

9435

9522

10210

VARIABLE COST Cost of sales Less : considered fixed Power & fuel (20%) Direct labour & wages (25% fixed ) Depreciation 870 4599 Contribution P/V Ratio P/V as % of installed capacity FIXED COST Depreciation Power & fuel (20%) Direct labour & wages (25% fixed) FINANCIAL CHARGES On term loans On working capital & others Administration expenses Selling expenses 321 0 353 0 372 0 379 0 408 0 40 Department of Business & Industrial Management 686 0 540 0 388 0 235 0 83 0 870 92 141 870 96 156 870 10 171 870 103 188 870 109 207 3591 1 84 870 5047 3962 1 86 870 5367 4068 1 78 870 5478 4045 1 76 870 5856 4355 1 73 92 141 96 156 103 171 103 188 109 207 5702 6168 6511 6639 7042

Project Appraisal At Surat District Co Operative Bank Ltd. Preliminary expenses 0 2111 Break even point BEP AS % OF SALES BEP AS % OF INSTALLED CAPACITY 3351 41 31 0 2015 3137 35 26 0 1904 3048 32 26 0 1775 2914 31 24 0 1677 2712 27 23

41 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.

CHAPTER 6 FINDINGS & ANALYSIS

6.1 CAPITAL BUDGETING

Capital budgeting (or investment appraisal) is the planning process used to determine a firm's long term investments such as new machinery, replacement machinery, new plants, new products, and research and development projects. • • Capital Budgeting is a project selection exercise performed by the business enterprise. Capital budgeting uses the concept of present value to select the projects.

Capital Budgeting Tools • Net Present Value 42 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. • • • • Profitability Index Payback Period Internal Rate of Return Accounting Rate of Return

6.1.1 Net present value (NPV):

NPV is an indicator of how much value an investment or project adds to the value of the firm.

If NPV > 0 NPV < 0

It means the investment would

Then... add the project should be

value to the firm accepted the investment would subtract the project should be value from the firm rejected We should be indifferent in the decision whether to accept or reject the project. This project adds no monetary value.

NPV = 0

the investment would neither gain nor lose value for the firm

Decision should be based on other criteria, e.g. strategic positioning or other factors not explicitly included in the calculation.

43 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. YEAR 2008-09 2009-10 2010-11 2011-12 2012-13 CFAT(IN ‘000) 17.68 20.40 21.46 21.80 24.33 PVF@5% 0.952 0.907 0.864 0.823 0.784 CFAT( PVF) 16.83 18.50 18.54 17.94 19.07

∑CFAT(PVF) = 90.88 (in,000)

NPV

= 90.88 – 90.60 = 0.28 (in, 000)

Calculation of PV factor: Sources Amount ( in ,000) Total debt Equity 6038 3022 Cost Of Capital 0.0084 0.12 50.72 362.64 44 Department of Business & Industrial Management Total Cost (Rs. In,000)

Project Appraisal At Surat District Co Operative Bank Ltd. capital

Total

9060

413.36

Cost of capital

=

413.36 9060

= = Solution: Cost of debt. (Kd)

0.04562 5%

= It (1-t) = 12 (1-0.30) = 8.40 = 8%

It = amt. of interest in period t t = income tax Cost of debt (Kd) Cost of equity Analysis: Here NPV is greater than 0 i.e. 0.28 (in, 000), it means investments would add the value to the firm and project is feasible so it should be accepted. = 8% = 12 %

45 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. 6.1.2 Profitability index: Profitability index identifies the relationship of investment to payoff of a proposed project. Profitability index is a good tool for ranking projects because it allows you to clearly identify the amount of value created per unit of investment, thus if you are capital constrained, you wish to invest in those projects which create value most efficiently first. The project will qualify for acceptance if the PI exceeds one. The ratio is calculated as follows: Profitability Index = Present value of cash in flow Present value of cash out flow = 90.88 90.60 = 1.00%

Analysis: The PI of this project is 1.00 % which is equal to 1. Therefore this project is feasible and it will create value for the firm so it should be qualify for acceptance.

6.1.3 Pay Back Period: Payback period in business and economics refers to the period of time required for the return on an investment to "repay" the sum of the original investment. It measure that how long something takes to "pay for itself".

46 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. YEAR Net cash accruals (Rs. In ‘000) 2008-09 2009-10 2010-11 2011-12 2012-13 17.68 20.40 21.46 21.80 24.33 Cumulative ( Rs. In ‘000) 17.68 38.08 59.54 81.34 105.67

Net cash accruals 3rd year

= 105.67 - 81.34 = 24.33 (in, 000)

Required amt. at the end of the 2012-13 = 90.60 (in, 000) =90.60 – 81.34 =9.26 (in, 000)

24.33 net cash accruals in 12 months 9.26 net cash accruals in (?)

= 4.56

Pay back period is 4 years and 5 month

47 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.

Analysis:

PB period of this project is 4 years and 5 month and it consider to be a short period and short periods are more preferable to long period. Therefore this project is feasible and should be accepted for appraising loan because the initial cost of the project is recovered within 3 years and 1 month.

6.1.4 Internal rate of return (IRR)

The internal rate of return is a capital budgeting matrix used by the firm to decide whether they should make investment or not. A project is good investment proposition if IRR is greater than the rate of return. In general if IRR is greater than the cost of capital, the project will add value for the money.

YEAR

CFAT ( Rs. In ‘000)

PVF@5%

CFAT(PVF) (Rs In ‘000)

2008-09 2009-10 2010-11 2011-12 2012-13

17.68 20.40 21.46 21.80 24.33

0.952 0.907 0.864 0.823 0.784 ∑CFAT(PVF)

16.83 18.50 18.54 17.94 19.07 90.88 ( in ‘000)

48 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. YEAR CFAT (Rs. In ‘000) 2008-09 2009-10 2010-11 2011-12 2012-13 17.68 20.40 21.46 21.80 24.33 0.943 0.890 0.840 0.792 0.747 ∑CFAT(PVF) PVF@6% CFAT(PVF) (Rs. In ‘000) 16.67 18.16 18.03 17.27 18.18 88.31 (in ‘000)

IRR

= PL + [PVL –PVD] ΔPL Δ PL

= 5+ [90.88-90.60] * 1 2.57 = 5+0.109 49 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. = 5.11%

Analysis: The IRR is usually the rate of return that a project earns. Here IRR i.e. 5.11% is greater so the project will add good value for the money therefore this project should be accepted.

6.1.5 Average rate of return (ARR) Average Rate of return (ARR) or return on investment (ROI), or sometimes just return, is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. ROI does not indicate how long an investment is held. With the help of the ARR, the financial decision maker can decide whether to accept or reject the investment proposal. The actual ARR would be compared with a predermined or minimum required rate of return or cut-off rate. ARR = Avg. annual profit after tax x 100

Avg. investment over the life of project

= 1483 9060/2

= 1483 50 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. 4530

= 32.74%

Analysis:

A project would qualify to be accepted if the actual ARR is higher than the minimum desired ARR. Here the actual ARR is higher than the cut off rate that is 8.00%. So the project should be accepted.

6.2 RATIO ANALYSIS

Ratio analysis is a widely used tool of financial analysis. It can be used to compare the risk and return relationships of different sizes. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a 51 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. firm as well as its historiacal performance and current financial cindition can be determined.

A ratio is a quantity that denotes the proportional amount or magnitude of one quantity relative to another. The ratios show the relationship in the more meaningful way so as to enable us to draw conclusion from than a single figure.

Different types of ratios are, 6.2.1 SOLVENCY RATIO:

6.2.1.1 Current Ratio: The current ratio is the ratio of the total current liabilities to total current liabilities. The ideal C.R. is 2:1.It means that C.A is twice than its C.L and this is generally considered to have good short-term financial strength means the company may not have problems meeting its short-term obligations.

CR= Current Assets Current liabilities

Particulars 2008-09 Current Assets Current liabilities Current ratio 1948 1395 1.40

Year (Rs. In ,000) 2009-10 2224 1402 1.59 2010-11 2109 1413 1.49 2011-12 2023 1417 1.43 2012-13 2195 157 14.02

52 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.

Analysis: Here in all years the CR is decreasing but in 2011-12 it is very high so it shows good capabilities of a firm in meeting the current obligation. So it suggests that project should be accepted. 6.2.1.2 Quick Ratio: Quick Ratio measures the ability of a company to use its quick assets to immediately extinguish its current liabilities. Quick Ratio of 1:1 is considered satisfactory. It refers that liquid Assets are equal to C.L. The Ratio less than 1:1 shows the companies condition to be unsound & the higher ratio shows good financial position. QR = Current Assets – (stock + prepaid expenses) Current liabilities – BOD PARTICULARS 2008-09 CA- (stock prepaid + exp.) CL - BOD Quick ratio 1395 1.24 1402 1.40 1413 1.30 1417 1.23 157 12.10 1712 Year (Rs. In ,000) 2009-10 1964 2010-11 1837 2011-12 1748 2012-13 1900

Analysis: Here, in all five years, the ratio is higher or nearer to the original standard that is 1:1. So it is found to be satisfactory and it suggests that project should be accepted.

53 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.

6.2.1.3Proprietary Ratio:

Proprietary ratio shows the relationship between shareholder’s funds and total assets. The ideal propritory ratio is 1:3. It means company’s Total Assets should be 3 times more than its Owners Fund. PROPRITARY RATIO = Shareholders fund Total Assets PARTICULARS 2008-09 Shareholders Fund Total Assets Proprietary Ratio 3920 9128 0.43 Year (Rs. In ,000) 2009-10 5090 9034 0.56 2010-11 6365 9049 0.70 2011-12 7675 9092 0.84 2012-13 9237 9394 0.98

Analysis: Here in all three years company's Shareholder Fund is less compare to its total assets. So it is good for the firm and project should be accepted. 6.2.2 FINANCIAL LEVERAGE RATIO: 6.2.2.1 Debt Equity Ratio The relationship between borrowed fund and owner’s capital is a popular measure of the long term financial solvency of a firm. This relationship is shown by the debt equity ratios. This ratio reflects claims of creditors and shareholders against the

54 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. assets of the firms. Alternatively this ratio indicates the relative proportion of debt and equity in financing the assets of a firm. Debt Equity Ratio = long term Debt Share Holders Equity Particulars 2008-09 DEBT: Long term debt Shareholder’s fund Debt equity ratio 3813 3920 0.97 2542 5090 0.50 1271 6365 0.20 0 7675 0 0 9237 0 Year (Rs. In ‘000) 2009-10 2010-11 2011-12 2012-13

Analysis:

Here in all years the ratios are less than 2:1 so this implies high safety margin for the creditors and the firm would be able to meet the creditors claims. So the project should be accepted.

6.2.2.2 Debt Services Coverage Ratio: It is the ratio of debt service profit to debt payments on a piece of investment real estate. It is a popular benchmark used in the measurement of an incomeproducing property’s ability to produce enough revenue to cover its monthly mortgage payments. The higher the ratio, the better it is. That would mean the property is generating enough income to pay its debt obligations.

55 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. DSCR = Net profit after tax + interest on loan + depreciation Interest on loan + loan installment

PARTICULARS 2008-09 DIVISION A Net Profit after Tax Depreciation Interest on term loans Total(A) DIVISION B Interest on term loans Term loan installments Total(B) Yearly D.S.C.R. (Total-A/Total-B) 1640 1.64 1811 1.56 954 1271 686 540 2694 2820 1138 870 686 1410 870 540 2009-10

Year (Rs. In ,000) 2010-11 2011-12 2012-13

1515 870 388

1550 870 235

1802 870 83

2773

2655

2755

388

235

83

1271

1271

1271

1659 1.67

1506 1.76

1354 2.04

Analysis:-

Here in all 5 years the ratios are above the 1 means property will generation enough income to pay obligations so according to this engal project should be accepted. 56 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.

6.2.3 PROFITABILITY RATIO 6.2.3.1 Gross Profit Ratio It is also known as gross margin. It is calculated by dividing gross profit by sales. Gross profit is the result of the relationship between price, sales volume and costs. A change in gross margin can be bought about by change in any of these factors. A higher ratio of gross profit to sales is a sign of good management as it implies that the cost if production of the firm is relatively low. A relatively low gross profit is definitely a danger signal. GROSS PROFIT RATIO = Gross profit * 100 Sales PARTICULARS 2008-09 Gross Profit Sales Gross Profit ratio 2488 8190 30.38% Year (Rs. In ,000) 2009-10 2841 9009 31.54% 2010-11 2924 9435 30.99% 2011-12 2884 9522 30.29% 2012-13 3168 10210 31.03%

Analysis:Higher gross margins for a manufacturer reflect greater efficiency in turning raw materials into income. A ratios of 25% to 30% may be consider good. And here in all 5 years the ratios are above than 30% so it reflect greater efficiency of the firm to turn raw material into income. So at this engal the project should be accepted.

6.2.3.2 Net Profit Ratio

57 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. Profit margin is an indicator of a company's pricing policies and its ability to control costs. Higher the ratio, better is the operational efficiency of the firm.. it gives to measure overall profitability of the firm. Net Profit Ratio = Net profit after tax * 100 Net sales Particulars 2008-09 Profit after tax Net sales Net profit ratio 1138 8190 13.89% Year (Rs. In ,000) 2009-10 1410 9009 15.65% 2010-11 1515 9435 16.06% 2011-12 1550 9522 16.28% 2012-13 1802 10210 17.65%

Analysis : Here in all 5 years, ratios are increasing. So this shows the good ability of firm over control it costs and its profitability so the project should be accepted.

6.2.3.3 Return On Capital Employed Ratio: This Ratio is used in finance as a measure of the returns that a company is realising from its capital employed. The ratio can also be seen as representing the efficiency with which capital is being utilised to generate revenue. The higher the ratio, more efficient use of the capital employee.

Return on capital employed = Net Profit Before Interest & Tax X Department of Business & Industrial Management

100 58

Project Appraisal At Surat District Co Operative Bank Ltd. Total Capital Employed Particular 2008-09 2009-10 Year(Rs. In ‘000) 2010-11 2011-12 2012-13

N.P.B.I.T Total capital employed

2167x 100 9004

2487x 100 8903

2552 x100 8907

2504 x100 8946

2760 x 100 9237

Return on capital employed ratio

24%

28%

29%

28%

30%

Analysis: Here the ratios are increasing in each year so it shows the good efficiency of capital employee to be used which will generate good revenue. It means projected loan will generate good revenue for the firm.

6.3 SENSITIVITY ANALYSIS

Sensitive analysis is the popular method for assessing risk. It is done to set up the relationship between the basic underlying factors (like the quantity sold, unit selling price, life of the project, etc.) and net present value. It estimates the range of variation & the most likely value of each of the basic underlying factors. Sensitive analysis method forces the management to identify the underlying variables and their interrelationship. It indicates the need for further work. If the net 59 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. present value or internal rate of return is highly sensitive to change in some variables, it is desirable to gather further information about that variable. We will see sensitivity analysis in five different cases In Projected Profitability Working Statement. 6.3.1 Selling Price decrease by 10% Particulars 2008-9 Year (Amount Rs. In ‘000) 200910 1) Efficiency percentages (%) 2) Net sales 7371 8108 8492 8570 89 3) Cost of production I) Cons. Of raw materials II) Power & fuel 458 479 2457 2703 283 0 516 285 7 513 30 63 5 45 III) Direct labor & wages 566 622 685 753 82 8 IV) Consumable stores 322 354 386 403 41 9 V) Repairs & maintenance 448 460 495 509 54 7 VI )Other Manufacturing Expenses VII) Depreciation 870 870 870 870 655 655 699 699 74 3 87 0 60 Department of Business & Industrial Management 91 75% 75% 201011 80% 201112 80% 201213 85%

Project Appraisal At Surat District Co Operative Bank Ltd. VIII) Rent Expenses. 36 36 36 36 3 6 ADD: Opening stock of Work in process 0 110 121 127 12 8 LESS: Closing stock of Work in process 4) TOTAL COST OF PRODUCTION ADD: Opening stock of Finished goods LESS: Closing stock of Finished goods 5) Cost of sales GROSS PROFIT 6) FINANCIAL CHARGES I ) on term loans II) on working capital & others 7) ADMINISTRION EXPENSES 8) SELLING EXPENSES 9) PRELIMINARY EXPENSES 10) PROFIT BEFORE TAXATION 11) PROVISION FOR TAXTS 199 314 366 395 0 0 662 0 0 1047 0 0 1221 0 0 1317 0 0 16 56 49 7 321 353 372 379 408 686 0 540 0 388 0 235 0 83 0 0 5702 1669 0 6168 1940 0 6511 1981 0 6639 1931 0 7042 2147 0 0 0 0 0 110 5702 121 6168 127 6511 128 6639 137 7042

61 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. 12) NET PROFIT 463 733 855 922 11 59 13) LESS: DRAWINGS 240 240 240 240 2 40 14) REPAINED PROFIT 15) ADD DEPRECIATION 223 870 493 870 615 870 682 870 919 8 70 16) NET YEARLY CASH GENERATION (CFAT) %Change in CFAT after selling price decrease by 10% (38) (33) (31) (29) 1093 1363 1485 1552 178 9 (26)

Analysis:

Here by decreasing 10% in job work charges, actual CFAT will also decrease by 31% (average of 5 years).

6.3.2

Raw material consumed increase by 10%

Particulars 2008-9

Year (Amount Rs. In ‘000) 2009201020112012-

62 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. 10 1) Efficiency percentages (%) 2) Net sales 8190 09 3) Cost of production I) Cons. Of raw materials II) Power & fuel 2703 458 2973 479 3113 516 3143 513 3369 5 45 III) Direct labor & wages 566 622 685 753 82 8 IV) Consumable stores 322 354 386 403 41 9 V) Repairs & maintenance 448 460 495 509 54 7 VI )Other Manufacturing Expenses VII) Depreciation 870 870 870 870 655 655 699 699 74 3 87 0 VIII) Rent Expenses. 36 36 36 36 3 6 ADD: Opening stock of Work in process 0 110 121 127 12 8 LESS: Closing stock of Work in process 4) TOTAL COST OF PRODUCTION 63 Department of Business & Industrial Management 110 5948 121 6438 127 6794 128 6925 137 7348 90 9435 9522 10210 75% 75% 11 80% 12 80% 13 85%

Project Appraisal At Surat District Co Operative Bank Ltd. ADD: Opening stock of Finished goods LESS: Closing stock of Finished goods 5) Cost of sales GROSS PROFIT 6) FINANCIAL CHARGES I ) on term loans II) on working capital & others 7) ADMINISTRION EXPENSES 8) SELLING EXPENSES 9) PRELIMINARY EXPENSES 10) PROFIT BEFORE TAXATION 11) PROVISION FOR TAXTS 371 503 564 595 71 1 12) NET PROFIT 13) LESS: DRAWINGS 864 240 1175 240 1317 240 1388 240 1660 2 40 14) REPAINED PROFIT 624 935 1077 1148 142 0 15) ADD DEPRECIATION 870 870 870 870 8 70 16) NET YEARLY CASH GENERATION (CFAT) 64 Department of Business & Industrial Management 1494 1805 1947 2018 229 0 0 0 1235 0 0 1678 0 0 1881 0 0 1983 0 0 2371 321 353 372 379 408 686 0 540 0 388 0 235 0 83 0 0 5948 2242 0 6438 2571 0 6794 2641 0 6925 2597 0 7348 2862 0 0 0 0 0

Project Appraisal At Surat District Co Operative Bank Ltd. %Change in CFAT after selling price decrease by 10% (15.50) (11.52) (9.27) (7.43) 88) (5.

Analysis:

Here by increasing 10% in raw material consumed, actual CFAT will decrease by 9.92% (average).

6.3.3

Power & fuel expenses increase by 10%

Particulars 2008-9

Year (Amount Rs. In ‘000) 200910 201011 80% 201112 80% 201213 85%

1) Efficiency percentages (%) 2) Net sales

75%

75%

8190

9009

9435

9522 10

102

3) Cost of production I) Cons. Of raw materials 2457 2703 283 0 II) Power & fuel III) Direct labor & wages 504 566 527 622 568 685 564 753 65 Department of Business & Industrial Management 2857 30 63 600 82

Project Appraisal At Surat District Co Operative Bank Ltd. 8 IV) Consumable stores 322 354 386 403 41 9 V) Repairs & maintenance 448 460 495 509 54 7 VI )Other Manufacturing Expenses VII) Depreciation 870 870 870 870 655 655 699 699 74 3 87 0 VIII) Rent Expenses. 36 36 36 36 3 6 ADD: Opening stock of Work in process 0 110 121 127 12 8 LESS: Closing stock of Work in process 4) TOTAL COST OF PRODUCTION ADD: Opening stock of Finished goods LESS: Closing stock of Finished goods 5) Cost of sales GROSS PROFIT 6) FINANCIAL CHARGES I ) on term loans 686 540 388 235 83 0 5748 2442 0 6216 2793 0 6563 2872 0 6690 2832 0 7097 3113 0 0 0 0 0 110 5748 121 6216 127 6563 128 6690 137 7097

66 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. II) on working capital & others 7) ADMINISTRION EXPENSES 8) SELLING EXPENSES 9) PRELIMINARY EXPENSES 10) PROFIT BEFORE TAXATION 11) PROVISION FOR TAXES 431 570 634 665 78 9 12) NET PROFIT 13) LESS: DRAWINGS 1004 240 1330 240 1478 240 1553 240 1833 2 40 14) REPAINED PROFIT 764 1090 1238 1313 159 3 15) ADD DEPRECIATION 870 870 870 870 8 70 16) NET YEARLY CASH GENERATION (CFAT) %Change in CFAT after selling price decrease by 10% (7.71%) (3.92%) (1.77% ) 00% 3% 1634 1960 2108 2183 246 3 1.2 0 0 1435 0 0 1900 0 0 2112 0 0 2218 0 0 2622 321 353 372 379 408 0 0 0 0 0

Analysis:

67 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. Here by increasing 10% in power & fuel exp., actual CFAT will decrease by 2.43%.

6.3.4

Direct labour & wages increase by 10%

Particulars 2008-9

Year (Amount Rs. In ‘000) 200910 201011 80% 201112 80% 201213 85%

1) Efficiency percentages (%) 2) Net sales

75%

75%

8190

9009

9435

9522

102 10

3) Cost of production I) Cons. Of raw materials 2457 2703 2830 2857 30 63 II) Power & fuel 458 479 516 513 5 45 III) Direct labor & wages IV) Consumable stores 623 322 684 354 754 386 828 403 911 41 9 V) Repairs & maintenance 448 460 495 509 54 7 VI )Other Manufacturing Expenses VII) Depreciation 870 870 870 870 655 655 699 699 74 3 87 0

68 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. VIII) Rent Expenses. 36 36 36 36 3 6 ADD: Opening stock of Work in process 0 110 121 127 12 8 LESS: Closing stock of Work in process 4) TOTAL COST OF PRODUCTION ADD: Opening stock of Finished goods LESS: Closing stock of Finished goods 5) Cost of sales GROSS PROFIT 6) FINANCIAL CHARGES I ) on term loans II) on working capital & others 7) ADMINISTRION EXPENSES 8) SELLING EXPENSES 9) PRELIMINARY EXPENSES 10) PROFIT BEFORE TAXATION 11) PROVISION FOR TAXTS 427 566 629 658 77 8 0 0 1424 0 0 1886 0 0 2095 0 0 2194 0 0 2594 321 353 372 379 408 686 0 540 0 388 0 235 0 83 0 0 5759 2431 0 6230 2779 0 6580 2855 0 6714 2808 0 7125 3085 0 0 0 0 0 110 5759 121 6230 127 6580 128 6714 137 7125

69 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. 12) NET PROFIT 13) LESS: DRAWINGS 997 240 1320 240 1466 240 1536 240 1816 2 40 14) REPAINED PROFIT 757 1080 1226 1296 157 6 15) ADD DEPRECIATION 870 870 870 870 8 70 16) NET YEARLY CASH GENERATION (CFAT) %Change in CFAT after selling price decrease by 10% (9.98%) (4.41%) (2.33% ) (0.64% ) 3% 1627 1950 2096 2166 244 6 0.5

Analysis:

Here by increase in labour & wages, actual CFAT will decrease by 3.37%

6.3.5 Combine effect of above all four conditions that are, • • • • Decrease in selling price by 10% Increase in R.M by 10% Increase in power & fuel exp. by 10% Increase in direct labour & wages by 10% 70 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd.

Particulars 2008-9

Year (Amount Rs. In ‘000) 200910 201011 80% 201112 80% 201213 85%

1) Efficiency percentages (%) 2) Net sales

75 % 737 1

75%

8108

8492

857 0 89

91

3) Cost of production I) Cons. Of raw materials II) Power & fuel 270 3 50 4 III) Direct labor & wages 62 3 IV) Consumable stores 322 354 386 403 41 9 V) Repairs & maintenance 448 460 495 509 54 7 VI )Other Manufacturing Expenses VII) Depreciation 870 870 870 870 655 655 699 699 74 3 87 0 VIII) Rent Expenses. ADD: Opening stock of Work in process LESS: Closing stock of 0 110 121 127 128 36 36 36 36 36 684 754 828 911 527 568 2973 3113 314 3 564 600 3369

71 Department of Business & Industrial Management

Project Appraisal At Surat District Co Operative Bank Ltd. Work in process 4) TOTAL COST OF PRODUCTION ADD: Opening stock of Finished goods LESS: Closing stock of Finished goods 5) Cost of sales 0 605 1 GROSS PROFIT 132 0 6) FINANCIAL CHARGES I ) on term loans 68 6 II) on working capital & others 7) ADMINISTRION EXPENSES 8) SELLING EXPENSES 9) PRELIMINARY EXPENSES 10) PROFIT BEFORE TAXATION 11) PROVISION FOR TAXTS 12) NET PROFIT 13) LESS: DRAWINGS 94 219 240 200 467 240 245 572 240 272 633 240 0 0 313 0 0 667 0 0 817 0 0 905 0 0 121 2 364 848 24 0 14) RETAINED PROFIT (21 ) 72 Department of Business & Industrial Management 227 332 393 608 321 353 372 379 408 0 0 0 0 0 540 388 235 83 1560 1577 1519 1703 0 6548 0 6915 0 7051 0 7486 0 0 0 0 0 110 605 1 121 6548 127 6915 128 7051 137 7486

Project Appraisal At Surat District Co Operative Bank Ltd. 15) ADD DEPRECIATION 87 0 16) NET YEARLY CASH GENERATION (CFAT) %Change in CFAT after selling price decrease by 10% (51.98 %) (46.23 %) (43.99 (42.06 %) %) (39.25 %) 849 1097 1202 1263 870 870 870 87 0 1478

Analysis: Here by applying all conditions, actual CFAT will decrease by 44.70% (average). This shows how one variable affect the overall CFAT. If minor changes are done in the variable, there will be a major effect on the CFAT.

Chapter 7 LIMITATIONS

Data which are shown in project report for five years are just expected figures. So the result of project appraisal can not consider the 100% correct result then also I have tried my best to find out complete result.

All financial tools which are applied in this appraisal has their own limitations. So the result can not consider the final result.

Because of time limitation, I have taken only one case study. I know that this is not enough to give entire idea about the project appraisal process but I put my enough efforts to analysis this case study.

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Project Appraisal At Surat District Co Operative Bank Ltd.

Chapter 8 CONCLUSION & SUGGESTIONS
As I studied this case, I came to know how various financial tools practically apply in real appraisal of the project, and how the final decision is made that is whether project should be selected or not. All budgeting tools, ratios and sensitive analysis are been used by me in appraising the project which give proper idea about whether the loan taken by firm will use in right way, whether it will increase the profit, whether it will expand the firm’s capacity. And by doing the practical study, I will conclude that this project looks feasible, it will create a good result and fulfill the requirement of the firm so this project should be selected.

SUGGESTIONS
➢ Bank provide loan on the basis of only re-payment capacity of the borrower and it considers only DSCR to appraise the loan to the business which is not enough to check the feasibility of the project and appraising such high amount of loan. Therefore the bank should also consider various capital techniques like pay back period, NPV, IRR, PI etc. along with DSCR and debt equity ratio. ➢ As I done in financial analysis, different budgeting tools are also need to be analysis instead of only some ratios, BEP analysis, because they are also improtant criterias which may be give good result from the different point of view.

Chapter 9 BIBLIOGRAPHIES
Name of book
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Project Appraisal At Surat District Co Operative Bank Ltd.

• • • •

Financial management, text, problem and case, by M Y Khan & P K Jain. Project planning, analysis, selection, implementation & review by Prasanna Chandra, addition 4th. Bank’s other reports Annual report of the bank

Name of site
• • • • • www.bankneindia.com www.sudicobank.com/aboutus.htm http://www.sudicobank.com/services.htm en.wikipedia.org/wiki/Project appraisal tech Http://en.wikipedia.org/wiki/NPV/IRR/ARR/PI/PB

75 Department of Business & Industrial Management

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