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Gunjan Aggarwal Report On Credit Appraisal
Gunjan Aggarwal Report On Credit Appraisal
ON
CREDIT APPRAISAL OF TERM LOAN AND WORKING CAPITAL FINANCING
At
Punjab National Bank, Head Office
Submitted by Submitted to
Batch: 2015-2017
MADHUBAN CHOWK
NEW DELHI
1
Date of submission -
DECLARATION
STUDIES, New Delhi, pursuing MBA course hereby declare that the project work
entitled “A Study on Working Capital, Term loan And Credit Appraisal” carried on
in “PUNJAB NATIONAL BANK”, and its value added services is an original work
This report bears no resemblance with any other report submitted to TECNIA
INSTITUTE OF ADVANCED STUDIES, New Delhi during the current academic year, or
earlier for the award of any degree or diploma. I am presenting this during the year 2015
I also declare that this project report work is not submitted to any other university for any
degree.
2
CERTIFICATE
Mr. R.K.Gupta
Chief Manager, Credit
Administration Division;
HO: BHIKAIJI KAMA PLACE,
NEW DELHI
3
TABLE OF CONTENTS
NO TITLE PAGE NO
1. Acknowledgement 5
2. Executive Summary 6
3. Introduction
i. Background 7
ii. Company Profile: Punjab National Bank
13
4. SWOT ANALYSIS 14
5. About Project 16
6. Credit Facilities 18
10. Pricing 26
13. Appendix 94
14. Conclusion 95
15 Bibliography 96
4
ACKNOWLEDGEMENT
I am deeply indebted to the Credit Division and my company guide MR.R.K. GUPTA
(CHIEF MANAGER OF CREDIT DIVISION) of Punjab National Bank for his valuable
and enlightened guidance. He provided me with immense opportunity to learn about the
working at Credit Administration Department (CAD), HO. He took time away from his
busy schedule to help me gain insights into the Credit Management process. He helped
me with my queries at every step of the project and also arranged the critical resources
required for the successful completion of the project.
I am also highly thankful to the Library Staff of PNB who provided me the study
materials and helped me during training.
The learning during the project was immense and valuable. My work included the study
of various aspects of Credit Administration.
Regards
GUNJAN AGGARWAL
TECNIA INSTITUTE OF ADVANCED STUDIES
MADHUBAN CHOWK
5
EXECUTIVE SUMMARY
This was my First exposure to the corporate world and had an experience of working in
a banking. I was directly working under loan/advances: I was working on the credit
appraisal, Term loan which I feel is the basic requirement of any bank. While working I
observed the significance of the loan/advances in a bank, it’s working. I also got to
observe various functions of the credit department.
The project, which was given to me in this period of my summer internship, project was
to know the credit appraisal & term loan. For that, I have to talk to manager and try to
understand concept of credit in the bank.
Business needs credit facilities for long term to fund new projects, to expand existing
capacities new projects and in short term to meet operational and working capital
requirement. Banks earn interest income and fee based income on the loans and
advances disbursed.
Punjab National Bank being a leading national bank , provides ideal opportunity to study
the credit delivery mechanisms, processes and procedures prevalent in industry. Credit
Administration process at PNB has been described in details and different types of
credit facilities and credit delivery mechanisms provided to industrial consumers viz.
Overdraft, Term Loans, Working Capital, Cash Credit, Fund Based, Non Fund Based
Credit has been discussed.
Thus during this internship-period working on project and simultaneously observing has
proved to be a great experience in all as I have got to see and understand various
situations of the employees. I would like to conclude by saying that it is been a great
learning for me through this internship. I understand some realities of the bank , as, I
was part of the everyday activities of the organization. I also learned the fact that no
department can work on its own each department have to depend on other in one-way
or the other.
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1. INTRODUCTION
Bank is the main confluence that maintains and controls the “flow of money” to make
the commerce of the land possible. Government uses it to control the flow of money by
managing Cash Reserve Ratio (CRR) and thereby influencing the inflation level.
The functions of the bank include accepting deposits from public and other institutions
and to direct it as a loan and advances to party for growth and development of industry.
It extends loan for the purpose of education housing etc
The bank take the deposit at the lowest rate of interest and give loans at the higher
rates of interest the difference in this become the source of income for banks. this is
known as net interest margin
7
Presently, the Indian banking sector consists of 26 public sector banks, 20 private sector banks
and 43 foreign banks along with 61 regional banks rural banks and more than 90,000 credit
cooperatives
Punjab National Bank (PNB) was established in 1894 and is the second largest
government owned and over all fourth largest bank in India. It has about 6692 branches
across 764 cities and serves over 63 million customers. It has presence throughout the
length and breadth of the country and offers a wide variety of banking services that
include corporate and personal banking, industrial finance, agricultural finance,
financing of trade and international banking. Among the clients of the bank are
multinational companies, Indian conglomerates, medium and small industrial units,
exporters and non-resident Indians. The large presence and vast resource base have
helped the bank to build strong links with trade and industry. The strength of the bank
lies in its corporate belief of growth and stability.
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Vision
“ To be a Leading Global Bank with Pan India footprints and become a household brand
in the Indo- Gangetic Plains providing entire range of financial products and services
under one roof “.
To evolve and position the bank as a world class, progressive institution providing
comprehensive financial and related services.
Integrating frontiers of technology and services various segments of the society,
laying more emphasis on the weaker sections of the society.
Committed to excellence in servicing the public debt and also excelling in corporate
Mission
“Banking for the unbanked”
Use latest technology aimed at customer and act as an effective catalyst for an
overall socio-economic development.
To provide excellent professional services and improve its position as a leader in
financial and related services.
Build and maintain teams of motivated workforce with high work ethics.
Corporate Banking
Personal Banking
Industrial Banking
Agricultural Banking
International Banking
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Organizational structure
Board of
directors
CMD
ED
GM ( NPA GM
GM GM GM GM GM
(Credit) & Weak (Retail &
(Treasury) (IRMD) (Deposits) (Audit) .......
Account) lending)
Funtional
Head
CREDIT
ADMINISTR
ATION
DEIVISION
HUMAN
OTHER RESOUCE
DIVISIONS DIVISION
PUNJAB
NATIONA
L BANK
INTEGRATED
TREASURY
RISK
DIVISION
DIVISION
10
Figure: Major Departments of Punjab National Bank (HO)
CAD
TD
RMD
IBD
HRD
11
HOCAC Level-II Senior most ED Above Rs.75 crore& up to Rs.150 crore
Managing Director &
HOCAC Level-III Above Rs.150crore& up to Rs.400 crore
CEO
Management
Chairman (MD & CEO) Above Rs.400 crore.
Committee
• Human Resource Division (HRD):The banking industry being a service industry, the
human resource constitutes its most precious resource. The success of any bank
depends upon the ability and capacity to leverage its human talent, potential and
capabilities to achieve the greater efficiency increase in its market share as well as its
profitability due to the fast changing economic scenario, technological advancement and
increase in competition in the market.
This calls for attracting talented people, nurturing and developing them, providing them
necessary space for their individual growth, looking after their well-being, creating a
facilitating environment, developing an organizational culture that removes impediments
and foster in them the feeling of pride and belongingness to the organization, enabling
them to align their personal goals with the goals of the organization.
In this scenario, the role of Human Resource Development Division (HRDD) of the bank
is thus to find, attract, engage, upgrade skills, motivate, retain, grow the scarce talent
and to increase their efficiency level to enable them to deliver as per the bank’s Vision
and Mission through series a of HR interventions.
• Risk Management Division (RMD): “Credit risk” is the possibility of loss associated
with changes in the credit quality of the borrowers or counter parties. In a bank’s
portfolio, losses stem from outright default due to inability or unwillingness of a borrower
or counter party to honour commitments in relation to lending, settlement and other
financial transactions.
12
PNB has an elaborate risk management structure in place. Credit Risk management
structure at PNB involves:
13
delivery of credit; bring uniformity in the system and facilitate storage of data & analysis
thereof. The analysis also involves analyzing the projections for the future years.
3 .SWOT ANALYIS
SWOT Analysis
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To understand the appraisal process of Term Loan and Working Capital Financing
proposals.
To understand the factors affecting rate of interest levied viz. risk assessment, bank
guidelines, sectoral policies, business considerations etc.
Primary:
The main purpose of the study is the in depth study of the sanctioning and analysis of
the term loan and its appraisal by PUNJAB NATIONAL BANK for Corporates. This
includes the following:
Judge whether term loans are viable or not, i.e. whether they can generate adequate
surplus for servicing its debts within a reasonable period of time and still is left with
some funds for future development. This involves taking an over-all view of the
strengths and weaknesses of the project.
To see whether the management and organization can prove effective for successful
implementation of the project.
Secondary:
To prepare CMA data for WC assessment in order to ensure optimum investment in
current assets so that the normal operations are not affected adversely.
To track & evaluate the health of borrower accounts on a continuous basis through PMS
report that is to detect unsatisfactory/adverse signals/indicators at an early stage in a
comprehensive manner and to propose speedy corrective/remedial actions/steps to
prevent the account from becoming Non Performing Asset as well as to minimize the
loan losses.
To understand the importance of appropriate and effective risk management along with
maintenance of comprehensive risk policies.
To study the treatment of sick units either by their restructuring or by bifurcating the
units.
The bank has to answer following questions.
Whether the company is utilizing its working capital efficiently?
Whether the industry in which company falls has any major negative points, or if it’s
vulnerable to other economic factors?
The Company is creditworthy or not?
The Management of the Company is efficient or not?
Scope of the Study
This report covers:
Credit Administration at PNB.
Various types of Bank Finance.
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Term Loans Financing.
Working Capital Financing.
Appraisal Process of Term Loans and Working Capital.
Credit Risk Management.
Credit Risk Models.
Post Sanction Processes.
Case Study describing actual appraisal of a Term Loan proposal and a Working Capital
Financing Proposal.
With ours being an open economy, rapid changes are taking place in the technological
and financial sector, exposing banks to greater risks. Thus, efficient project appraisals
have taken up huge importance as they can keep a check on and prevent induction of
weak accounts to a bank’s loan portfolio. All possible steps need to be taken to
strengthen the pre-sanction appraisal as “prevention is better than cure”.
This report seeks to present an overall picture of credit management in the bank as its
effectiveness is highlighted by the quality of its loan portfolio. The study also stands to
understand the process of preparation of CMA data for WC assessment as well as
credit risk management. Both of these are vital for any financial business.
In Indian financial context, it becomes important to keep a track on the borrower’s
accounts in order to prevent them turning into NPA. This requires a continuous
evaluation. Furthermore, the sick units shall be suggested to undergo restructuring
and/or bifurcation.
Methodology
To fulfil the objectives of the study following methods were used:
Study of various bank guidelines and circulars.
Study of pre-approved proposals.
Personal interaction with the employees of Bank.
Developing cases based on actual work done at Credit Division.
Reading material available in the library.
Primary Sources:
Discussions with the project guide and staff members.
Discussions with other department heads.
Secondary Sources:
RBI guidelines regulating the activities of the banks.
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Bank’s Credit policy and related circulars and guidelines.
Research papers, power point presentations and PDF files prepared by the bank and its
related officials.
Study of proposals and manuals.
5 .Credit Facilities
Punjab National Bank provides different types of credit facilities according to the
banking norms and convenience of the clients. Different type of facilities provided can
be classified as below:
Overdrafts
Overdraft accounts are treated as current accounts. Normally overdrafts are allowed
against the Bank’s own deposits, government securities approved shares and/or
debentures of companies, life insurance policies, government supply bills, cash
incentive and duty drawbacks, personal security etc. Overdraft accounts should be kept
in the ordinary current account head at branches.
Demand Loans
A demand loan account is an advance for a fixed amount and no debits to the account
are made subsequent to the initial advance except for interest, insurance premium and
other sundry charges. As an amount credited to a demand loan account has the effect
of permanently reducing the original advance, any further drawings permitted in the
account will not be secured by the demand promissory note taken to cover the original
loan. A fresh loan account must, therefore be opened for every new advance granted
and a new demand promissory note taken as security. Demand loan would be a loan,
which is payable on demand in one shot i.e. bullet repayment. Normally, demand loans
are allowed against the Bank’s own deposits, government securities, approved shares
and/or debentures of companies, life insurance policies, pledge of gold/silver
ornaments, and mortgage of immovable property.
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mortgage of immovable property, book debts, trust securities etc. In cash credit
accounts the borrower is allowed to draw on account within the prescribed limit as and
when required.
Bill Finance
Bill finance are the advances against the inland bills are sanctioned in the form of limits
for purchase of bills (ODD) or discount of bills (BD) or bills sent for collection. Bills are
either payable on demand or after usage period
Credit
Facilities
Non-Fund
Fund Based
Based
Packing
Term Loan
Credit
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b) A bank guarantee (BG) or letter of credit (LOC) issued by a bank on behalf of its
client is an off-balance sheet item in the books of clients, hence do not show up
as debt or liability.
For the lending banks, cost of providing non-fund based facilities is significantly lower
than the cost of providing fund-based facilities.
Nevertheless, inherent risks associated with NFB credit facility are same as that
attached with FB credit proposals. In case of default, provision of funds becomes
necessary. Also, NFB exposure is facilities are not treated as off-balance sheet
exposure and minimum capital adequacy need to be maintained against the NFB
exposures as well.
Assessment of Non Fund based facilities shall be subjected to the same degree of
appraisal, scrutiny as in the case of fund based limits because outstanding in these
facilities are to be reckoned at 100% for exposure purposes. Therefore, need based
requirement of a borrower should be assessed after reckoning the lead time, credit
period available, source of supply, proximity of supplier, etc. in case of LCs and industry
practices and business requirements in case of LGs.
The working of NFB assessment is to be incorporated in the appraisal note. Further,
while assessing non-fund facilities, cash flow aspects should also be taken into account.
Bank Guarantees
BGs may be financial or performance in nature. In a financial guarantee, the issuing
banks assumes usual credit risk which is the domain of the banks. However, issue of a
performance guarantee involved technical competency and managerial ability of a
customer to ensure the performance of the contract for which guarantee has been
drawn.
Issuing bank’s responsibility against the BG is absolute. So proper appraisal needs to
be done before issuing BG as it is the responsibility of the issuing bank to honor its
guarantee when invoked.
Letter of Credit
A document issued by a bank that guarantees the payment of a customer's draft;
substitutes the bank's credit for the customer's credit. It is an undertaking issued by
bank on behalf of the buyer to the seller, to pay for the goods and services, provided
that the seller presents the documents which comply with the terms and conditions
stipulated in the LOC. All letters of credit are irrevocable, i.e., cannot be amended or
cancelled without prior agreement of the beneficiary, the issuing bank and the
confirming bank, if any. It is different from BG in the sense that in case of LOC, the
issuing bank does not wait for the buyer to default, and for the seller to invoke the
undertaking. While in BG, comes into play only when the principal party (the buyer) has
failed to pay its supplier.
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6 Term Loans and Working Capital Loans
Term Loans
Term loans are those loans that are lent for extended period of time majorly for the
capital expenditure by the firm. This is different from the short term loans which are
mainly provided for meeting working capital requirements and maintaining short term
liquidity.
Term loans are provided for acquisition of fixed assets are to be repaid from the cash
generated from the operations. Credit delivery for term loans are broadly through two
means: Fund based and Non-fund based. Fund based term loans like cash credit
provided outright cash while non-fund based loans like Deferred Payment Guarantee
(DPG) where the liability to make payment crystallizes after the bill again such
guarantees are presented for payments.
Term loans are sanctioned for acquisition of fixed assets like land, building,
plant/machinery, office equipment, furniture-fixture and other capital expenditure like
purchase of transport vehicles and other vehicles, agricultural equipment etc. The term
loan is a loan which is not a demand loan and is repayable in terms of i.e. in Instalments
irrespective of the period or the security cover.
Term loans are normally granted for the periods varying from three to seven years and
under exceptional circumstances beyond seven years. The term loans with remaining
maturity period of above 5 years shall not exceed 50% of the term deposits with
remaining maturity period of above 5 years after taking into account the renewal of term
deposits as per the past trend, as is being done for ALM.
Since term loans are provided for a long tenure ensuring the viability of the project and
sufficient generation of cash over the long tenor of the loan becomes critical. Detailed
process of appraising Term Loan proposals is given in next section.
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Businesses finance permanent core component through long-term sources of fund like
equity or long term loans. Fluctuating Component is financed mainly by availing the
short term loans and other credit facilities from the bank. Main focus here is to avoid
overfunding or underfunding of the operations.
While over funding will amount to locking up of assets unproductively as idling cash or
inventories, at the same time under funding would seriously hamper the day-to-day
operations and pose a threat to the survival of the businesses. Hence, it is critical to
correctly determine the maximum bank finance that should be provided.
Credit appraisal of a term loan denotes evaluating the proposal of the loan to find out
repayment capacity of the borrower. The primary objective is to ensure the safety of the
money of the bank and its customers. The process involves an appraisal of market,
management, technical, and financial.
Getting a term loan from a financial institution is not so easy. The corporate asking for
the term loan has to go through several tests. The bank follows an extensive process of
credit appraisal before sanctioning any loan. It analyses the loan proposal from all
angles. The primary objective of credit APPRAISAL is to ensure that the money is given
in right hands and the capital and interest income of the bank is relatively secured.
While appraising a term loan, a financial institution would focus on evaluating the credit-
worthiness of the company and future expected stream of cash flow with the amount of
risk attached to them. Credit worthiness is assessed with parameters such as the
willingness of promoters to pay the money back and repayment capacity of the
borrower.
1. Market Appraisal:
As part of the market appraisal, the very first thing a financial institution would look at is
the gap between demand and supply. Bigger the demand-supply gap, higher is the
chances of the flourishing of that business. The demand versus the proposed supply by
the borrower should have a wide difference in demand of 50000 units against the
proposed supply of 10000 units.
Another most important parameter is marketing efforts and infrastructure. This is the
factor which converts a demand into sales for a business. The marketing side of the
company needs to be very strong as it is very critical to the success of the venture.
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2.Management Appraisal:
Management of the company needs to be appraised for their intentions, knowledge, and
dedication towards the project. By intention, it is meant to evaluate the willingness of the
promoters of the company to pay the money back. It needs to evaluate the real
objective of borrowing.
Only good intentions would not generate cash flows to honor the installments of the
loan. The management needs to be strong in terms of their knowledge about business,
commitment towards achieving the set goals etc.
3 Technical Appraisal:
A technical appraisal is subject to the kind of business and industry of the borrower. If
it’s a manufacturing concern, all those parameters like project site, availability of raw
material and labor, capacity utilization, vicinity to selling market, transportation etc would
be examined. A project needs to be technically very sound to be able to sustain all
business cycles.
4 Financial Appraisal:
After all the other kinds of appraisal, everything boils down to financial appraisal. This
probably is the most important part of credit appraisal of business loans. The reason is
that it expresses everything in terms of money.
Financial appraisal tries to assess the correctness or reasonability of the estimates of
costs and expenses and also the projected revenues. These may include the estimation
of the selling price, cost of machinery, the overall cost of the project and the means of
financing.
Financial appraisal involves extensive financial modeling in excel. Basically, it takes the
financial statements of previous periods and forecasts the future financial position for at
least till the loan matures. From that, the cash flows of each year are compared with the
installment of loan because ultimately the cash flows are going to honor the payments
of the bank.
Feasibility of the project is evaluated in terms of debt servicing capacity of the firm. Debt
service coverage ratio is a key ratio which is calculated for each future financial period
and if that ratio is satisfying the norms accepted by the bank, the loan would get another
green signal.
It is difficult to explain the process of appraisal in an article or even a set of articles. It is
a very extensive work being done at financial institutions. They have a separate team of
professionals for conducting such project appraisals.
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Current financials of existing operations, project funding information like sources of
funds etc. and future projections are used for calculating key financial ratios for a period
of time. These ratios tell us a lot about a unit's liquidity position, managements' stake in
the business, capacity to service the debts etc.
The financial ratios which are considered important are discussed as under:
DSCR = 𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭 (𝐀𝐟𝐭𝐞𝐫 𝐓𝐚𝐱𝐞𝐬) + 𝐀𝐧𝐧𝐮𝐚𝐥 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐨𝐧 𝐥𝐨𝐧𝐠 𝐭𝐞𝐫𝐦 𝐝𝐞𝐛𝐭 +
𝐃𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧
𝐀𝐧𝐧𝐮𝐚𝐥 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐨𝐧 𝐥𝐨𝐧𝐠 𝐭𝐞𝐫𝐦 𝐝𝐞𝐛𝐭 + 𝐀𝐦𝐨𝐮𝐧𝐭 𝐨𝐟 𝐢𝐧𝐬𝐭𝐚𝐥𝐦𝐞𝐧𝐭𝐬 𝐨𝐟 𝐩𝐫𝐢𝐧𝐜𝐢𝐩𝐚𝐥
𝐩𝐚𝐲𝐚𝐛𝐥𝐞 𝐝𝐮𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐲𝐞𝐚𝐫
This ratio provides a measure of the ability of an enterprise to service its debts i.e.
`interest' and `principal repayment' besides indicating the margin of safety. The ratio
may vary from industry to industry but has to be viewed with circumspection when it is
less than 1.5. This ratio shows the relationship between cash generating capacity of the
unit and its repayment obligation and indicates whether the cash flow would be
adequate to meet the debt obligations and whether there is sufficient margin for the
lending banker.
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This ratio gives a view of borrower's capital structure. If the ratio shows a rising trend, it
indicates that the borrower is relying more on his own funds and less on outside funds
and vice versa.
Profit-Sales Ratio
=𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭 𝐛𝐞𝐟𝐨𝐫𝐞 𝐓𝐚𝐱 𝐞𝐱𝐜𝐥𝐮𝐝𝐢𝐧𝐠 𝐨𝐭𝐡𝐞𝐫 𝐈𝐧𝐜𝐨𝐦𝐞
𝐒𝐚𝐥𝐞𝐬
This ratio gives the margin available after meeting cost of manufacturing. It provides a
yardstick to measure the efficiency of production and margin on sales price i.e. the
pricing structure.
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Existing MPBF system with flexible approach is followed for units requiring working
capital finance exceeding the above-mentioned amount.
iii) Cash Budget System
Cash Budget System shall be followed in Sugar, Tea, Service Sector, construction
activity, Film Production accounts etc.
25
Under this method, the borrower's contribution from long term funds will be to the extent
of the entire CORE CURRENT ASSETS, which has been defined by the Study Group
as representing the absolute minimum level of raw materials, process stock, finished
goods and stores which are in the pipeline to ensure continuity of production and a
minimum of 25% of the balance current assets should be financed out of the long term
funds plus term borrowings.
MPBF: 75% [(Total Current Assets – Core Current Assets) – Other Current Liabilities]
Third method of lending was not accepted by RBI for practical implementation and
hence is of only academic interest.
2 Chore Committee Recommendations
This committee streamlined the above guidelines further by stipulating annual review of
working capital credit limits above 50 lacs. Also the bifurcation of cash credit into
demand loan and cash credit components has also been withdrawn.
3 Nayak Committee Recommendations (Simplified Turnover Method)
Nayak committee recommended not to apply the norms for inventory and receivables.
Rather, the working capital limits shall be computed on the basis of a minimum of 20%
of their projected annual Turnover for new and existing units. Out of this, the borrower
shall provide 1/5th of the estimated working capital requirement (5% of PATO) as
margin money of working capital.
The Bank has the policy of evaluating MPBF for those limits that exceed 2 crore and up
to 5 crore, for limits less than 2 crore, the bank has a policy of following the simplified
turnover method.
Cash Budget System
Customers enjoying working capital limits in excess of Rs.5 crore can be given option to
adopt the cash budgeting method at the discretion of the bank. In case such borrowers
choose the cash budget system of lending, they have to satisfy the bank that they have
necessary infrastructure in place to submit the required information periodically in time.
The scope of internal MIS should be satisfactory and commensurate with the level of
operations. The borrower must have a finance professional and computerised
environment.
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Cash flow based lending is more customer-friendly. This is well suited to units dealing in
seasonal products, construction activities and order based activities. Cash flow based
lending method is popular in developed countries
10 .Pricing
Loan pricing which was earlier based on the BPLR (Benchmark Prime Lending Rate)
regime has now been administered under MCLR (Marginal Cost of Funds Based
Lending Rate)regime as per the RBI directives. Under MCLR system banks specify a
rate above which all the loans are priced. MCLR rate is revised from time to time as per
the leads of RBI review of interest rates that depends on the macroeconomic situations.
At PNB, pricing of loans depends on following factors:
a) Credit Rating of the Client
Better the risk rating of a business lower is the spread (interest charged) over the base
rate.
b) Nature of the business sector
Apart from the credit rating, the business sector to which a borrower belongs also
effects the pricing of the loan. For example pricing for a business in Food processing
sector with credit rating “AA” will be different from a business in Real estate sector
having the same credit rating “AA”.
c) Special Business Considerations and Competitive Pressures
In consortium financing, PNB have to keep the pricing in line with the other business
partners. Also due to competitive consideration and a view of garnering further business
from reputed clients discounts can be offered. Sometimes, there are special lending
schemes for various sectors having specific pricing guidelines.
All the loans are secured against the collaterals. During the loan appraisal process
collateral are valued for margin of safety requirements and valuation is verified. Type of
bank’s claim on the collateral i.e. mortgage, hypothecation, first pari-passu charge, lien,
etc is decided.
In addition, the terms and condition for maintenance of the collateral are laid down.
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Further Guarantee is sought for the loan from the group holding company. This is
known as Corporate Guarantee. Sometimes personal guarantee is also sought from the
Promoters in case of privately held companies or partnerships.
FACR is one critical financial ratio which is ascertained to ensure that loans are
adequately covered by fixed assets.
11 .Credit Risk
Credit risk is the most fundamental risk faced by a banking company. It is the risk of
default or decline in credit standing of the borrower. It is most difficult to quantify due to
the large amount of subjectivity involved in it.
Traditionally credit risk has been managed by setting up limits to the global exposure,
industry exposure, country exposure and individual client/group exposure. Credit risk
management is extremely important as the pricing of a portfolio or a transaction is
dependent on the risk factor built in.
Credit risk management has mainly two objectives:
1. Manage the asset portfolio in a manner that ensures that the bank have adequate
capital to hedge their risks.
2. Match the return to the risks.
Among the different types of risks, credit risk is the crown jewel as the profitability and
liquidity of the bank depends largely on forecasted cash flows.
Credit Risk needs to quantified so that it becomes more objective to deal with it. PNB
has its own credit risk analysis policy.
Risk Analysis at PNB
PNB has elaborate risk management structure, process and procedures in place. For
the appraisal of the loan proposals, RMD provides the risk ratings for the client and
project based in the patented internal models of the PNB that have been developed
based on statistical analysis of data.
These models are placed on central server based system ‘PNB TRAC’, which provides
facility to assess credit risk rating of a client.
This credit risk rating captures risk factors under four areas:
1. Financial evaluation (40%)
28
2. Business or industry evaluation (30%)
Some of the important risk rating models used in loan appraisals are summarized
as below:
S. Applicability
Credit Risk Rating
No. Total Limit Sales
1 Large Corporate Above Rs. 15 Cr. Above Rs. 100 Cr.
Between Rs. 25 Cr and 100
2 Mid Corporate Between 5 Cr. and 15 Cr.
Cr.
3 New Project Rating Above Rs. 5 Cr. Cost of Project above Rs.
29
Models 15 Cr.
New Business requiring
Entrepreneur New Cost of Project up to Rs. 15
4 finance b/w Rs. 20 Lakhs
Business Model Cr.
and 5 Cr.
Credit Risk Rating model
5 All Banks and Financial Institutions.
for banks and FI
1. Proposal in Brief :
Sanction of Term Loan of Rs. 68.11 crore and Bank Guarantee of Rs. 4.05 crore for
rehabilitation and operation and maintenance of major district road and part of State
Highway in Kerala namely Vidyanagar- Meppady- Seethangoli (MDR) and Uppala –
Kaniyana Road (MDR) having total length of 25 Kms. The project is annuity based and
half yearly annuity is Rs. 10.73 Cr., which will start from March 2018 and will be
received for 13 years and last annuity will receive in Sept 20302. Risk Rating: B2, Score
47.93% under NPM indicating Marginally Acceptable Risk.
ITEM NO:
30
Gist of Fresh Term Loan of 68.11 CR.
proposal for Construction of Roads and
BG Limit of Rs.4.05 Cr.
FB 0.00 0.00
(i) For Fresh Term Loan: Sanction of Term Loan of Rs. 68.11 crore for Rehabilitation and
operation and maintenance of major district road and part of State Highway in Kerala namely
Vidyanagar- Meppady- Seethangoli (MDR) and Uppala – Kaniyana Road (MDR) having total
length of 25 Kms. with total cost of Rs. 99.95 crore to be met by way of debt of Rs. 68.11 crore,
promoters’ contribution of Rs. 16.93 crore and VGF from State Govt. of Rs. 14.91 Crore.
(our share)
31
Door to door tenor 139 months including construction period of 12 months, moratorium
period of 6 months and repayment period of 121 months.
Processing Fee NFB NA 50% concession i.e. Rs. Rs. 300.00 per lakh or
60750/- part thereof.(Rs. 121500/-
)
32
Credit Risk Rating by Rating Date of Score ABS Reasons for
Bank is ‘B2’ indicating Rating degradation
Present B2 27.05.16 47.93 NPM NA
Marginally Acceptable
Previous NA NA NA NA NA
Risk
Present LB2 27.05.16 LGD-6 NA NA
Facility Rating: Previous NA NA NA NA NA
Rating from External Not yet rated. The Borrower shall get itself rated within 3 months from
Agency date of sanction failing which additional interest of 1% p.a. shall be
charged.
Whether priority/non Non Priority
priority sector as per
PS&LB guidelines
Weather Agriculture/ Other- Infrastructure
Retail/SME/ Others
a) Whether Sensitive NO
sector – Retail Estate /
Capital Market. 100% (being Unrated)
b) Applicable Risk Weight
Consortium/ Multiple Sole-Banking
Banking
Lead bank NA
PNB’s Share % 100%
Date of application 10.03.2016
Date of receipt of 03.05.2016
proposal- HO
Date of
acknowledgement given 27.04.2016
to the party
Date of clarifications, if
any, received at HO 20.06.2016
Date of submission of
proposal 21.06.2016
Date of original sanction NA. fresh relationship
Date of last sanction NA, In-principle consent approved by NBG on 21.03.2016 at ROI of
Authority/’In Principle’ BR+0.90%+0.50%TP i.e. 11.00%{Concession of 2.10%},
Consent/ NBG clearance Upfront/Processing fee/Commission on BG: 50% concession.
with date
Customer ID No. Not created yet
Activity code -
4. Brief History:
The ABCD a state Govt. undertaking invited Proposal for Rehabilitation of State Highways and
Major District Roads - Package (A) (Modified) Total 25 Km in the state of Kerala under Design
Build Finance Maintenance & Transfer (DBFMT) on Annuity basis.
33
AB Tollways Ltd is a Company, which is a corporate partnership between Aand B group for
execution of Infrastructure Projects had submitted a bid for execution of Rehabilitation of State
Highways and Major District Roads. The main Criteria for selection of bidder was quoting of
lowest annuity to be paid by the concessioning authority. There were 4 bidders for this project.
The details of the same are given hereunder:
Annuity in Cr.
Sr. No. Bidder Name Lower
(half yearly)
3 E Engeering 13.50 L3
AB Tollways Limited has quoted lowest annuity and declared as L1/Successful bidder.
The company has quoted half yearly annuity of Rs.10.73 cr. The Letter of Award (LOA)
was issued on 30th January 2016.
It was one of the conditions of tender document to float a new SPV for executing the
project. Hence AB TL has incorporated a new company under the name and style of
ABCD Kerala Project Ltd., for executing the project. ABTL will be having 99.99%
shareholding in the SPV. The required concession agreement has also been executed
on 29th February 2016.
AB Tollways Ltd.
AB Tollways Ltd. Is a corporate partnership between A and B Group and was incorporated in
2005-06 for executing BOT projects in Punjab A Builders (India) Private Limited and B Buildcon
Private Limited along with its associates are the major promoters and shareholders of ABTL.
The company has successfully completed and is operating 4 BOT projects and 2 operation and
maintenance projects in the state of Punjab. It has also entered into contracting activity and
completed one NHAI project in the year 2009-10 in the state of Punjab, 1 project in Rajasthan,
and 1 in Maharashtra recently as EPC contractor.
The company is dealing with our bank since 2006 and the track record of the company is
satisfactory
The details of the BOT projects undertaken ABTollways Ltd are as under:
Particulars A B C D
34
Awarding Authority PIDB# PIDB PIDB PIDB
Toll Commencement date 6th March 2007 6th March 2007 20th Nov.2007 14th May 2009
Banker X X Y Y
Particulars (JN)
The company had handed over Ropar-Phagwara project and Jagraon Nakodar project in the
year 2014-15 after completion of contract. PWD (B&R) has once again awarded JN project to
RRTL for operation and maintenance. The concession period is 12 years and the toll collection
has started in May 2015.
AB Group have successfully completed 9 BOT projects in the states of Maharashtra, Punjab
and Rajasthan. All the projects of the group have been completed within the time frames with
good track record with respective bankers.
35
Non Fund Based
4.D Short Term Loans sanctioned by PNB in last 12 months, if any- NIL
The Borrower shall get itself rated within 3 months from date of sanction failing which additional
36
interest of 1% p.a. shall be charged. Thereafter, the rating should be obtained and furnished to
the Rupee Term Lenders at least at annual intervals.
5D. Details of Working Capital Limits from the Consortium/Multiple Banking/JLA – Nil
Details of Group /Allied/Associate firms and the facilities sanctioned to them along
with conduct of these accounts with our Bank/ other Banks and comments on
adverse indicators, if any.:
6.A. Details of Group exposure with our Bank and comments on adverse
indicators, if any.: (Rs. in Cr.)
Name of the company FB Limit NFB Limit Term Loans Grand Total
66.57
20.45
The company is incorporated on 23rd February 2016 and is a subsidiary of ABTollways Ltd.
Since no other activity is being carried out in the borrowing company, there are no past
financials. However, the key financials of the parent company – RRTL are as under:
(Rs. in Cr.)
37
Particulars 31.03.13 31.03.14 31.03.15
Audited Audited Audited
Profit after tax 27.53 8.34 20.31
Depreciation/Amortization of Capital Exp. 29.06 65.01 24.39
undertaken on Road projects (on BOT basis
Cash profit/ (Loss) 56.59 73.35 44.70
Paid up capital 33.50 33.50 33.50
Share Application Money --- --- ---
Reserves & Surplus 142.18 146.10 161.45
Share premium 65.00 65.00 65.00
Misc. expenditure not w/ off 0 0 0
Accumulated losses - - -
Deferred Tax/liability 24.52 22.93 19.06
a) Tangible Net Worth 265.20 267.53 279.01
b) Investment in allied concerns 128.86 143.81 163.03
c) Net owned funds 136.34 123.72 115.98
Total Borrowings 197.63 167.42 160.87
Secured 197.63 167.42 160.87
Unsecured - - -
Total Assets 512.50 512.70 516.42
Out of which fixed assets & Capital expenditure 286.51 247.27 384.16
(Roads on BOT basis)
Net Working Capital 31.04 10.98 (11.96)
Current Ratio 1.70 1.16 0.86
Debt Equity Ratio 0.70 0.59 0.52
Term liability/ Adjusted TNW 1.36 1.28 1.26
TOL/Adjusted TNW 1.81 1.98 2.05
Operating Profit/ total receipts 19.27% 0.63% 7.39%
Long Term Sources 468.24 443.53 429.79
Long Term Uses 437.20 432.55 441.75
Surplus/ Deficit 31.04 10.98 (11.96)
Short Term Sources 44.26 69.18 86.63
Short Term Uses 75.30 80.16 74.67
Surplus/ Deficit (31.04) (10.98) 11.96
7A (iii) Key Financials upto last quarter (as per published Un-audited Results in case
of listed companies): NA
38
7.C Capital Market Perception: NA, Not a listed company
NA, being a new company. Further, ITR of the directors & holding company(RRTL) has
been filed upto AY 15-16.
7.G Information on litigation initiated by other banks/FIs against the borrower as per
latest Audited Balance Sheet, if any: NA, being a new company.
7.I Overall likely impact of (7.C to 7.G) on the financial position of the borrowing unit: NA,
being a new Company.
8. SECURITY
A. Primary
- First Charge over annuity to be receivable from Road Infrastructure company Kerala Ltd
with escrow arrangement.
- Hypothecation of all movables, tangible & intangible, receivables, cash & investments,
project current assets, all project agreements and monies lying in Trust & Retention A/c
into which all the investments in the Project and all Project revenues and insurance
proceeds are to be deposited.
- Assignment of all the rights along with escrow arrangement on annuity to the extent as
permissible under the already executed concession agreement.
-
Name of Relationship Net Worth Immovable property Date of
borrower
39
Prev. Present Prev. Present Prev. Present
As at As at As at As at
31.03.15 31.03.14 31.03.15
31.03.14
- Assignment of all insurance policies related to the Project and insurance proceeds
received, if any, thereof in favour of bank.
- Substitution rights for appointment of any other party in the event of default as available
with the concessionaire in favour of bank by way of required power of attorney and
subject to terms and conditions as contained in the concession agreement.
Collateral: Nil
Whether the acknowledgement for registration with CERSAI has been recorded in Title-
Deed Register NA
If yes, the Asset ID/Security Interest ID No. and date is mentioned below: NA
40
9. Position of Account as on:
a) WC Limits: NA
b) Term Loan: NA
10.A Conduct of the Account including in terms of restructuring done, if any, along
with details of terms & conditions not complied with. Comments on following should be
given: NA. Fresh relationship.
However, our bank has financed the holding company i.e. ABTL and other group companies,
AB Rajasthan Infra Projects Ltd B Buildcon Pvt Ltd and AB Highways Ltd. Conduct of these
account is satisfactory. All the projects of ABTL and Other two projects namely AB Rajasthan
Infra Projects Ltd. financed by our bank have been implemented and toll collection has
commenced.
41
Total 18.20 16.74
PART – II
11.A(i) Industry Rating: In terms of L & A Cir. No.08/2016 dated 28.01.2016, the
industry rating for Road project on BOT basis is “Neutral”.
Sanction of fresh term loan of Rs. 68.11 Cr. for rehabilitation and operation and
maintenance of major district road and part of State Highway in Kerala namely
Vidyanagar-Meppady-Seethangoli(MDR) and Uppala–Kaniyana Road (MDR) having
total length of 25 Kms.
b) Justification for Non Fund based limits: The Company have to provide performance
security of Rs. 4.05 Crores to the authority within 90 days from the date of Concession
Agreement in the form of Bank Guarantee. The Performance Security shall remain in
force till the end of construction period or shall be released upon the request of the
concessionaire in case of expenditure on project is not less than 30% of project cost.
The BG is proposed at 10% cash margin.
42
c) Justification for Term Loan/ILC:
The ABCD, a state Govt. undertaking is engaged in the development of State Highways and
Major District roads and had invited Proposal for Rehabilitation of State Highways and Major
District Roads - Package (A) (Modified) Total 25 Km in the state of Kerala under DBFMT on
Annuity basis.
AB Tollways Limited has been selected as successful bidder based on lowest annuity quoted as
compared to other 3 bidders. The LOA is received on 30th January 2016. The half yearly annuity
quoted by ABTL is Rs.10.73 cr.
Scope of work: Rehabilitation of the existing carriageway to the specified standard and
operation and maintenance of the road during the concession period. The Rehabilitation work
will be within the available ROW include improvements to the horizontal and vertical alignments,
construction of new pavement, construction/rehabilitation of major and minor bridges, culverts,
road intersections, interchanges, drains, road safety enhancement, project facilities and the
operation and maintenance.
Location of the project Rehabilitation, operation and maintenance of two road projects
in Kasardgod District having total length of 25 Km.
Vidyanagar-Seethangoli road and Upala – Kaniyana Road
Length of the Road 25 KM
Awarding Authority ABCD , State Government Undertaking
Date of Award 30th January 2016
Date of signing of 29th February 2016
Concession Agreement
Concession Period 14 years including Construction period of 12 months
Construction period as per 12 months
tender document
Annuity Project is annuity based with half yearly annuity of Rs.10.73
Cr. backed by LC for a period of 13 years commencing from
March 2018.
Payment of Annuity The annuity will be paid through LC. The first annuity will be
paid after 6 months from the date of COD i.e. August 2017.
43
The total concession period for the project is 14 years, including the construction period of 12
months. The concession period will commence after completion of 180 days from the date of
signing of the concession agreement i.e appointed date. The concession agreement has
already been executed on 29th February 2016.
The period of 180 days has been given by the Authority for financial closure with permitted
extension on request and if found in order of period not exceeding 30 days.
The company has decided to give EPC contract to M/s. B Buildcon Pvt. Ltd. on a fixed price of
Rs. 89.08 Crore Buildcon is engaged in the activity of construction and contracting and has a
very vast experience in execution of road projects of more than 15 years. The company is
presently executing 3 construction projects in Kerala state having the total contract value of Rs.
132.83 crore. Considering the experience of the company in operating in the state of Kerela for
execution of projects as also considering the fact that the company has major machinery,
equipment and other resources required for the execution of the project, it has been decided to
give the EPC work to B Buildcon Private Limited.
The project is annuity based and half yearly annuity is Rs. 10.73 Cr., which will start from March
2018 and will be received for 13 years and last annuity will receive in Sept 2030. Annuity will be
directly deposited to the proposed Escrow Account. Further, as per the RFQ, the state
government has also agreed to open a revolving letter of credit covering the entire annuity
amount and period for the payment of the annuity.
A. Appraising agency: The Project has been appraised by the company internally.
1. Whether vetted by any Technical Officer/ Other Official of Bank (Name and
designation to be furnished): Yes, cost estimates given by the company vetted from
bank’s empanelled Engineers for Road Projects M/s Yardi Prabhu Consultants and
Valuers, Mumbai. As per his report dated 14.6.2016, the cost of construction estimated
at Rs. 89.08 crore and pre operative expenses amounting Rs. 2.83 crore is reasonable.
Further, AGM(B) has submitted that the total project cost has been defined in the
concession agreement as under:
In view of the above, the cost estimates given by ABCD in RFQ as Rs. 81 crore has no
relevance as far as project cost for the purpose of financing is concerned.
AGM(B) therefore, recommended for accepting Rs. 99.95 crore as total project cost,
which includes soft cost of Rs. 10.87 crore as vetted by bank’s approved LIE.
44
(iii) Summary of cost of project and means of finance:
The cost of construction (EPC contract value) is inclusive of 1% labour cess. The construction
cost per KM worked out by the company is Rs. 3.36 crore as against Rs. 3.24 crore considered
by ABCD. The cost worked out by ABCD is based on commodity and other indices in 2014-15
and the difference of Rs. 0.12 per KM is mainly on account of this.
The project will be funded out of equity of Rs. 16.93 Cr., Grant from the Authority i.e VGF of Rs.
14.91 Cr. and term loan of Rs. 68.11 Cr. Authority will release the VGF after 50% equity is
brought in by the company and as per the stage of construction completion which is given
hereunder:
25% 3.73
50% 3.73
75% 3.73
90% 2.79
100% 0.93
Total 14.91
45
iv) Sources of Promoters’ Contribution and the time schedule as to when the funds will
be brought.:
The total contribution from the promoter company i.e. ABTL is proposed at Rs. 16.93 Crores,
which will be brought in from internal cash accruals of the company.
The construction of road will commence from September 2016. The detail of equity to be
brought in respective financial years is given hereunder:
ABTL is generating toll income from 5 road projects in Punjab. During the year 14-15, the
company has booked the total income of Rs.113.52 crores with PAT of Rs. 20.31 Crores and
cash accruals of Rs. 44.70 Crores. The toll income till 31.12.2015 is Rs. 83.06 Cr.
Availability of internal resources with the company to bring in the required equity during the next
two years is estimated hereunder:
(Rs. in crores)
Thus the company has the required means to bring in the required equity contributions.
v)Status of tie-up of loans: Company has requested our bank for entire funds requirement by
way of term loan of Rs. 68.11 Cr and BG limit of Rs. 4.05 Cr.
vi)Brief explanation for each major individual item of cost of Project with present status
along with comments on the reasonableness/competitiveness:
Construction cost: The total construction cost as estimated by the company is Rs. 84.84
Crores.
46
Particulars Amount
Culverts 3.09
Total - 84.84
Total 89.08
The company intends to give a fixed price EPC contract for construction project to B Buildcon
Private Limited (BBPL) for the total consideration of Rs. 84.84 Cr. BBPL is the promoter
company of ABTL and has more than 25 years of experience in the contracting industry
including construction of roads and bridges. RBPL is currently executing two construction
contracts having total contract value of Rs. 132.00 Cr. Considering the experience of BBPL in
the contracting industry and working in Kerala it has been decide to award the EPC contract for
this project to them.
Preliminary Expenses: The Company has estimated the preliminary and pre-operative
expenses at Rs. 2.83 crores and the details of the same are as under:
47
Paticulars Amount
Total 2.83
Interest during construction: Rate of interest assumed is 11% p.a. payable monthly.
The construction period awarded in the tender is 12 months and interest during
construction has been worked out based on schedule of construction planned by the
company and the debt draw down schedule. The detailed working of interest during
construction period is as under:
Particulars Sept Oct- Jan. 17- Apr- July and Total Sept. 17 Total
16 Dec.16 March June Aug. 17 to Feb. Project
17 17 18
Completion of 15% 25% 35% 20% 5% 100%
construction %
Construction cost 13.36 22.27 31.18 17.82 4.45 89.08 0.00 89.08
Preliminary and
pre-operative 2.83 0.00 0.00 0.00 0.00 2.83 0.00 2.83
Interest during
construction 0.05 0.52 1.03 1.52 1.17 4.28 0.00 4.28
Interest post
completion 3.75 3.75
Total out flow 16.25 22.79 32.21 19.33 5.62 96.20 3.75 99.95
Promoters
contribution 5.18 3.53 2.80 3.37 0.86 15.74 1.19 16.93
VGF from Authority 3.73 7.46 2.79 0.93 14.91 0.00 14.91
Loan from the
lenders 11.07 15.53 21.95 13.17 3.83 65.55 2.55 68.11
Total inflow 16.25 22.79 32.21 19.33 5.62 96.20 3.75 99.95
Cumulative loan
amount 11.07 26.60 48.55 61.72 65.55 0.00 2.55 68.11
48
Contingency: The total construction cost of the project is estimated at Rs. 84.84 Cr.
and company has provided for contingency of 5% on the same amounting to Rs. 4.24
Crores.
vii) Comments on all major technical aspects like locational advantage, Technology/
manufacturing process, power, man power, utilities, transportation, etc.
The said project includes two roads namely Vidyanagar-Seethangoli road and Uppala –
Kaniyana road. Vidyanagar road starts at Vidyanagar from NH-17 and ends at Kumbala
Badiadakka Road. Uppala-Kaniyana road starts from NH-17 at Kaikamba and ends at Bayar
nesr Kerala- Karnataka Border.
The project roads have good connectivity to National Highways and State Highways.
Summary of profitability, Break-Even, DSCR and IRR with comments thereon including
Assumptions underlying profitability projections:
The road project has been awarded with the total concession period of 14 years with
construction period of 12 months. The project is fixed annuity based project with annuity period
of 13 years. The construction is estimated to commence from September 2016 and will be
completed till August 2017. The first annuity is payable after 6 months from the date of COD,
hence the first annuity is expected in February 2018.
In case of completion of construction prior to schedule COD, then the bonus for earlier
completion of the project will be paid. Such bonus will be paid along with first annuity. The
bonus will be equal to product of average daily annuity and no. of days of earlier completion.
Amount of fixed half yearly annuity is Rs.10.73 Cr. i.e Rs. 21.46 Cr. p.a. payable for 13 years.
The total annuity payable for concession period is Rs. 278.98 Cr
Expenditure: The revenue costs associated with the project are mainly routine operation and
maintenance of the project. Routine operation and maintenance cost mainly consist of routine
type of repairs and maintenance, salary and wages of staff appointed for maintenance,
administrative and other cost required for maintenance of the project. The total estimate cost is
Rs. 1.51 Cr. p.a. which is expected to increase by 10% every year.
Periodic maintenance/renewal costs: The tender provides for the periodic maintenance and
major repairs till the facility is finally handed over to the Authority) with renewal (major
maintenance) to take place within 5th to 7th year. This being a capital expenditure has been
provided in the cash flows and amortized over the life of the project.
The periodic maintenance costs have been considered by company and the details of the same
are as under:
49
Particulars Rs. in crores
Profitability: The construction of the project is estimated to be complete in August 2017 and
first annuity will be received in February/March 2018. The cash accruals are estimated at Rs.
5.68 Crores for the year 2017-18 and Rs. 13.30 Crores in the year 2018-19. The Net profit in the
year 2017-18 is estimated at Rs. 1.20 Crores i.e. 10.59% of annuity income.
The project is eligible for Income Tax benefit U/s 80 (I) of the Income Tax Act. However, though
the profits of the company will be tax free, the company will have to pay Minimum Alternate Tax
(MAT) @ 20% on the book profits and has been factored in accordingly.
DSCR: Since the company is a SPV for execution of the Kerala Road Project, the DSCR for the
project and the company is the same:
(Rs. in crores)
1 2 3 4 5 6 7 8 9 10 11
Particulars 17-18 18-19 19-20 20-21 21-22 22-23 23-24 24-25 25-26 26-27 27-28
Profit after tax 0.62 4.76 5.55 6.11 6.50 5.81 5.53 6.16 7.52 9.02 10.00
Depreciation 4.48 7.39 7.39 7.39 7.39 8.00 8.69 8.69 8.69 8.69 8.69
Interest on term
loan 4.37 7.21 6.78 6.25 5.68 5.06 4.38 3.65 2.81 1.84 0.74
Total (A) 9.48 19.36 19.72 19.75 19.57 18.87 18.61 18.50 19.02 19.55 19.43
Interest on term
loan 4.37 7.21 6.78 6.25 5.68 5.06 4.38 3.65 2.81 1.84 0.74
Repayment of
term loan 1.50 3.50 4.60 5.00 5.50 6.00 6.50 7.25 8.35 9.75 10.16
Total (B) 5.87 10.71 11.38 11.25 11.18 11.06 10.88 10.90 11.16 11.59 10.89
DSCR (A/B) 1.61 1.81 1.73 1.75 1.75 1.71 1.71 1.70 1.70 1.69 1.78
Average DSCR 1.73
Maximum
DSCR 1.81
Minimum DSCR 1.61
The commercial operations of the company are estimated to commence from the year 2017-18
and hence computation of DSCR is from the said year.
50
Interest coverage ratio 1.39 1.39
(ISCR) 2.07 (for full year of operation) 2.07 (for full year of operation
The project has been subject to sensitivity analysis to gauge the viability under different
business scenario. The project is fixed annuity based project, hence increase in expenses and
ROI can affect the viability of the project. The sensitivity has been worked out under different
scenario as under:
It can be seen from the above table that even after increase in cost by 10% and ROI by 1%, the
Avg DSCR is above 1.65 and minimum DSCR is above 1.50.
51
crushers
Licence for use of explosives Not required
Permission of the State Water will be drawn from local bore wells and company will
Government for drawing water take permission at the time of execution
from river/reservoir
Licence from Inspector of The company will apply for the licence at the time of setting
factories or other competent up batching plant.
authority for setting up Batching
Plant
Clearance of Pollution Control The company will apply at the time of setting up batching
Board for setting up Batching plant.
Plant
Clearance of Village The company will apply the same at the time of setting up
Panchayats and Pollution Asphalt Plant.
Control Board for Asphalt Plant
We are stipulating that Company to obtain statutory & non-statutory approvals, consents, NOC
& clearances required for Project implementation.
Physical Progress: The EPC contractor has started activities including site mobilisation,
mobilization of hot mix plant and site survey has been completed and preparation of DPR is
in advanced stage of completion. However, the EPC contractor will start the billing for the
contract only after financial closure and after the appointed date. By starting all these
activities, the project will be completed before time and the company will be able to get
early completion bonus which has not been considered in the finance model on a
conservative side.
Financial Progress: The Company has received share application money of Rs. 8.74 crore
and has given mobilisation advance of Rs. 8.91 crore to EPC Contractor-M/s B Buildcon
Pvt. Ltd.
Implementation schedule:
Issue of LOA 30th January 2016
Signing of concession agreement 29th Feb. 2016
Financial Closure September-16
Start date of construction September-16
Construction completion date August-17
Start of First Annuity Payment February-18
Concession period ends August-30
xiii) Draw Down Schedule Quarter-wise:
The construction period is 12 months. Hence the company will draw the term loan in 12 months
52
period in line with the execution of the project. The quarterly draw down schedule is projected
as under:
xiv) The construction will be completed in August 2017 and 1st annuity will be received in March
2018. Hence, the interest for the period till receipt of annuity has been capitalized.
53
March - 2.75
Sept - 3.00 6.00
2022-23 March - 3.00
Sept- 3.25 6.50
2023-24 March- 3.25
Sept - 3.5 7.25
2024-25 March- 3.75
Sept – 4.00 8.35
2025-26 March- 4.35
Sept - 4.75 9.75
2026-27 March – 5.00
Sept - 5.25 10.16
2027-28 March - 4.91
Total 68.11
Detailed projected profitability projections, balance-sheet, cash flow are as per Appendix IV.
D) Review of existing term loan with present outstanding: NA, fresh relationship
13. Pricing:
Facility Existing Proposed Applicable rate
TL NA 5 year MCLR i.e. 5 year MCLR i.e.
9.70%+1.30% i.e. 11.00% 9.70%+3.45% i.e. 13.15%
Rate of Interest
p.a. i.e. concession of p.a.
2.15%.
Processing Fee NFB NA 50% concession i.e. Rs. Rs. 300.00 per lakh or part
60750/- thereof.(Rs. 121500/-)
Upfront fee TL NA 50% concession with min. 0.90% of the loan amount
Rs. 45.00 Lacs. with Min. Rs. 90.00 Lacs
Document TL NA As applicable Rs. 400/- per Lac or part
Charges thereof max. Rs. 50000/-
Commission on BG NA 50% concession i.e. 1.00% BG: 0.50% per quarter min.
NFB p.a +ST i.e. Rs. 405000/- Rs. 200/- (Rs. 8.10 Lacs per
p.a.+ST annum)
Other charges, if TL NA As applicable During implementation:
any 10 paisa per Rs 100
TL review charges After implementation: 5
etc. paisa per Rs 100
(a) Justification:
AGM(B) has submitted that the group has been banking with us since May 2006. The track
record of the group in terms of project performance, revenue and debt servicing is satisfactory.
ABTL, the holding company, maintains significant balances in the various escrow and current
accounts held with the bank.
54
NBG in its meeting held on 21.03.2016 have approved for evincing interest in the proposal at
the above pricing. Considering the value of the account, float in escrow and current accounts,
long relation with the group and future business prospects, AGM(B) has recommended for
approval of pricing as above.
Strength-:
Excellent track record of the holding company, AB Tollways Limited (ABTL) in execution
of BOT Projects. ABTL is having track record of completing majority of projects before
55
stipulated time. RRTL is currently operating 5 large toll based projects in Punjab. The
annual toll collection for the year 2014-15 from all the 5 projects was Rs.113.52 crores.
The group as a whole has completed more than 12 BOT projects in the state of Punjab,
Maharashtra and Rajashtan. The promoters are experienced in this line of activity, with
established track record.
The scope of work involves only rehabilitation, operation and maintenance of Kerala
Road project.
Project is fixed annuity based, hence no risk of drop in traffic or change in Government
policy is involved.
The construction period for the project is 12 months and in case the company completes
the project before time, bonus will be paid to the company.
The total concession period is 14 years including construction period of 12 months. The
total door to door tenure of the loan is proposed at 139 months. Thus, there is a
substantial tail after the debt servicing is completed.
Weakness:
Mitigant: The project is fixed annuity based backed by LC from ABCD & there are
assured level of revenues.
1. SPONSOR RISK
Sponsor Low With Sponsor Sponsors have requisite experience in development,
construction and operations of infrastructure projects.
Experience & The sponsors also have the requisite financial,
Execution managerial and implementation capability.
Capability
2. DEVELOPMENT RISK
I.Pre Construction Risk
Finalization of key Low With Concession Agreement with the Authority is already
contracts/ Concessionaire executed on Feb. 29, 2016.
agreements EPC Agreement has been executed on a fixed
price, fixed time and turn-key basis.
Impact on Low With Authority Environment clearance is not required and since it is
Environment a existing alignment of the road, no new land
acquisition is required. The only permissions required
are pollution control and village panchayat
56
permission for Asphalt and Batch mixing plant, which
the company will apply for at the time of installation
of the same.
Approval/ Low With Authority All required permits and approvals are under
Consents/ and Concessionaire process.
Permits Environment clearence is not required. The only
permissions required are pollution control and village
panchayat permission for Asphalt and Batch mixing
plant, which the company will apply for at the time of
installation of the same.
Funding Risk Medium With At the end of construction, the overall project debt-
Lenders and equity ratio is proposed to be 2.14:1 (Including VGF).
Concessionaire The project sponsors are resourceful and have a
demonstrated track record of meeting their
investment commitments.
II Construction Risk
Land Acquisition Low With Authority According to the Concession Agreement, the
and Concessionaire Authority is under obligation to hand over 100% of
the Right of Way, free from all encumbrances for the
project site.
The Project is for rehabilitation and operation and
maintenance of major district road and accordingly all
required ROW is already available with authority and
no land acquisition is required.
Performance of Medium With The EPC work will be executed by B Buildcon Pvt.
Construction Concessionaire Ltd.
Contractors RICKL shall appoint an Independent Engineer to
oversee the activities of RRKRPL during design,
construction, operation and maintenance of the
Project Highway.
Increase in cost Low With Fixed price, fixed time turnkey EPC/construction
Concessionaire contracts covering major portion of capital
expenditure have been envisaged.
The EPC cost has been estimated keeping in view
the current market scenario, the project
requirements.
Adequate contingency provision in the project cost
has been estimated.
Proven sponsor's track record delivering results
under BOT schemes.
Utilities during Low With Authority The Government of Kerala will assist RICKL in
construction and Concessionaire obtaining access to necessary infrastructure like
power; water etc. during construction of the road.
Force Majeure (FM) Low With Authority Comprehensive insurance package during
and Concessionaire construction/operation envisaged. An insurance
adviser will be appointed for the purpose.
The Concession Agreement covers termination
payment under various Force Majeure Events, where
priority payment towards debt due has also been
incorporated.
57
3.OPERATIONAL RISK
Underperformance Low With Lenders Adequate O&M arrangements would be put in
of Facility and Concessionaire place so as to meet the standards set out in the
Concession Agreement. An O&M manual is already
in place according to which the maintenance
procedures shall be carried out.
Operations to be carried out as per industry
practices.
The group has substantial experience in
construction, operation and management of road
projects.
Insurance Risks Low With RRKRPL proposes to obtain a comprehensive
Concessionaire insurance package covering various insurable risks
relating to the construction and operations of the
Project.
Revenue Risks Low With Authority, Project is fixed annuity based backed by LC,
Lenders and payable half yearly commencing 180 days from
Concessionaire COD.
Force Majeure Low With Lenders Upon the occurrence of any Force Majeure Event
and Concessionaire prior to the Appointed Date, the period set forth in
Clause 24.1.1 for achieving Financial Close, shall be
extended by a period equal in length to the duration
of the Force Majeure Event.
58
16.B Recommendations :
Keeping in view the above, AGM(B) has recommended for sanction of fresh term loan
of Rs. 68.11 crore and Bank Guarantee of Rs. 4.05 crore on the terms & conditions as
per Appendix–I and approval of pricing as per item no 13 of this note.
AGM(B) has certified that the stipulated terms and conditions have been duly discussed
with the borrower.
17. ZM Recommendations:
ZM, Ludhiana has also recommended for approval of sanction of fresh Term Loan of Rs.
68.11 crores and Bank Guarantee of Rs. 4.05 crore and approval of ROI/other charges
as proposed by AGM(B) subject to following stipulations:
Corporate guarantee of Holding company i.e. M/s Rohan Rajdeep Tollways Limited
be taken, apart from the guarantees of directors.
Cost of project be got vetted from the bank’s empanelled lender Engineer.
Margin on BG limit be kept in the shape of FDR under Bank’s Lien.
18. HO RECOMMENDATIONS:
The credit risk rating of the account is “B2” with a score of 47.93%, signifying
“Marginally Acceptable Risk”, as per risk rating report dated 27.05.2016 carried out by
IRMD (HO) based on New Project Model(IRMD,HO report dated 27.05.2016 enclosed
as per Appendix – VIII)
Major risk factors/other risk factors identified and factored in the Credit Risk Rating
Report and its mitigants are as under
59
is lower than benchmarkfrom March 2018. As such IRR at 15.32 is reasonable keeping in
values. view the receipt of annuity backed by LC.
3. Most of the statutory The company will apply for licenses from factories etc., clearance
clearances yet to be of pollution control board and clearance of village Panchayats at
obtained by the company the time of setting up Batching Plant and Asphalt plant.
4. Delay in payment of The project is annuity based project with half yearly annuity of Rs.
annuity may impact the 10.73 crore backed by LC for a period of 13 years commencing
revenue from March 2018. As such risk relating to delay in payment of
annuity is of no relevance.
5.BO/ZO to get the company A condition in this regard has been stipulated to get the external
externally rated as per rating done within a period of 3 months otherwise penal interest
extant guidelines will be charged.
HO Views: We are stipulating that AGM(B) & ZO to monitor the Risk factors identified by IRMD,
HO and take necessary remedial steps to safeguard bank’s interest.
Overall exposure ceiling for Infrastructure- Roads & Ports sector has been fixed at 5% of the
total advances of the bank as at 31.03.2016 and segment-wise sub-ceilings have been fixed as
under:
(Rs. In crore)
Industry Infrastructure-Road & ports
Exposure 13920.00
% of Gross Credit in the Industry 3.22%
Exposure Ceiling as per current loan policy 5%
Amount of NPA in industry 494.03
% to total advances in the industry 1.14%
Recommendations :
In view of the foregoing, we endorse the recommendations of AGM(B) and ZM, Ludhiana for
approval of the followings:
60
Fresh term loan of Rs. 68.11 crore and Bank Guarantee of Rs. 4.05 crore for
rehabilitation and operation and maintenance of major district road and part of State
Highway in Kerala namely Vidyanagar- Meppady- Seethangoli (MDR) and Uppala –
Kaniyana Road (MDR) having total length of 25 Kms.
Processing Fee NFB NA 50% concession i.e. Rs. Rs. 300.00 per lakh or
60750/- part thereof.(Rs. 121500/-
)
The above is proposed on the terms and conditions as proposed in Appendix-I and
additional stipulations as follows:-
ZM Stipulations:
Corporate guarantee of Holding company i.e. M/s AB Tollways Limited be taken, apart from
the guarantees of directors.
Cost of project be got vetted from the bank’s empanelled lender Engineer(Since Done).
Margin on BG limit be kept in the shape of FDR under Bank’s Lien.
HO Stipulations:
61
i. Company to submit an undertaking certifying that accounts of all the group/allied
concerns/companies are in standard category. Further, the branch to extract CIR of the
group companies from CIBIL & Highmark at borrower’s cost.
ii. Company to obtain statutory & non-statutory approvals, consents, NOC & clearances
required for Project implementation.
iii. The envisaged promoters equity contribution for the financial year 2016-17 to the extent of
Rs. 11.51 Cr. to be brought upfront before release of loan.
iv. Company to maintain DSRA equivalent to installment plus interest of minimum two quarters
till LC to be issued by ABCD .
v. BO shall visit major risk factor, as identified by the IRMD, and take corrective steps, wherever
required, in order to safeguard the Bank’s interest.
vi. BO/ZO to monitor the timely induction of Promoter’s Equity Contribution so that the project is
implemented as per schedule within the given time & cost estimates.
vii. The Borrower shall get itself rated within 3 months from date of sanction failing which
additional interest of 1% p.a. shall be charged.
viii. BO/ZO to get the Due Diligence Report before disbursement.
ix. Interest to be recovered on monthly basis as and when levied.
x. BO/ZO to ensure before release of loan that 100% right of Way is available.
62
Detailed terms & conditions
APPENDIX – I
Facility 1
Primary The term loan together with interest, liquidity damages, costs,
security charges, expenses and all other monies payable by the borrower:
63
preference capital / unsecured interest free loans.
Up Front Fee With 50% relaxation (normal rate being 0.90% of the Term Loan
amount) + Service Tax
Documentation As prescribed
charges
Rs. Crores
Total
Installment repayment
2017-18 March - Rs. 1.50 cr 1.50
Sept - Rs.1.50 cr 3.50
2018-19 March - Rs. 2 cr
Sept -Rs.2.10 cr 4.60
2019-20 March -Rs. 2.50 cr
Sept - Rs.2.50 cr 5.00
2020-21 March- Rs. 2.50 cr
Sept- Rs.2.75 cr 5.50
2021-22 March - Rs. 2.75 cr
Sept- Rs.3 cr 6.00
2022-23 March- Rs. 3 cr
Sept- Rs.3.25 cr 6.50
2023-24 March- Rs. 3.25 cr
64
Sept - Rs.3.5 cr 7.25
2024-25 March- Rs. 3.75 cr
Sept -Rs 4 cr 8.35
2025-26 March- Rs. 4.35 cr
Sept - Rs 4.75 cr 9.75
2026-27 March - Rs.5 cr
Sept - Rs.5.25 cr 10.16
2027-28 March - Rs. 4.91 cr
Prepayment Except as provided below, the Company shall not pay the
charges outstanding principal amount of the loan in part or full.
Mandatory Upon occurrence of any of the following events, the company shall
prepayment mandatorily prepay the outstanding loan amount of the Loan in full
or part, as the context may require, without payment of
prepayment premium from the proceeds of any amount exceeding
Rs. 5.00 Crores received on behalf of the Company for any such
event, if such event involves the receipt of:
65
Upon such prepayment, the installments of loan payable as per the
Repayment Schedule shall stand reduced proportionately.
Facility 2
Margin 10%
66
Pre disbursement conditions:
Before seeking disbursement, the company shall to the satisfaction of the Bank:
1. Procure and furnish joint and several undertaking to the effect that Equity will be
brought in and that project DER will be maintained at minimum level of 2.13:1
during all times during construction of the project
2. Procure and furnish joint and several undertaking to the effect that ABTL, the
holding company shall retain the majority economic equity interest and
management control over the Company
3. Obtain all statutory clearances required for the Project and submit confirmation to
the Bank in this respect
4. Create and maintain security interest mentioned above under “security” and
“collateral security” head
2. The borrower should submit to the bank such financial statements as may be
required by the Bank from time to time in addition to the set of such statements to be
furnished by the borrower to the bank as on the date of publication of the borrower
accounts.
4. The bank will have the right to share credit information as deemed appropriate with
Credit Information Companies (CICs) or any other institution as approved by RBI from
time to time.
5. The borrower should not induct into its Board as person whose name appears in the
willful defaulters list of RBI/CICs. In case such a person is already on the Board of the
company, it would take expeditious and effective steps of removal of that person from
its Board. Nominee directors are excluded for this purpose.
67
6. In the event of default in repayment to the Bank or if cross default has occurred the
Bank will have the right to appoint its nominee on the Board of Directors of the borrower
to look after its interests.
8. Bank will have the right to examine at all times the borrower’s books of accounts and
to have the borrower’s factories inspected. From time to time, by officer(s) of the bank
and/or qualified auditors and /or technical experts and or management consultants of
the bank’s choice. Cost of such inspection shall be borne by the borrower.
9. After provision of tax and other statutory liabilities, unless expressly permitted
otherwise, the bank will have a first right on the profits of the borrower for repayment of
amounts due to the bank.
10. The borrower shall keep the Bank informed of the happening of any event likely to
have a substantial effect on their profit or business: for instance, if the monthly
production or sales are substantially less than what had been indicated, the borrower
shall immediately inform he bank with explanations and the remedial steps taken and
/or proposed to be taken.
11. Effect any change in the borrower’s capital structure where the shareholding of the
existing promoter(s) gets diluted below current level or 51% of the controlling stake
(whichever is lower), without prior permission of the Bank – for which 60 days’ prior
notice shall be required.
12. The borrower will utilise the funds for the purpose they have been lent. Any
deviation will be dealt with as per RBI guidelines.
13. Promoter’s shares in the borrowing entity should not be pledged to any
Bank/NBFC/Institution without our prior consent.
14. Each of the following events will attract penal interest/charges as applicable, at rates
circulated from time to time, over and above the normal interest applicable in the
account:
a. For the period of overdue interest/instalment in respect of Term Loans and over-
drawings above the drawing power/limit in Fund Based Working Capital Accounts on
account of interest/devolvement of letters of credit/bank guarantee, insufficient stocks
and receivables etc.
68
b. Non submission of Audited Balance Sheet within 8 months of closure of financial
year.
c. Non submission/ delayed submission of Follow-up/ Review Data such as QRS/ QMS
information, Project Progress Report etc. wherever stipulated, within due date.
d. Non submission of review/renewal data at least one month prior to due date.
1. In the event of default, or where signs of inherent weakness are apparent. The Bank
shall have the right to securities the assets charged and in the event of such
securitization, the Bank will suitably inform the borrower(s) and guarantor(s).
4. Invest by way of share capital in or lend or advance funds to or place deposits with
any other concern (including group companies); normal trade credit or security deposits
in the ordinary course of business or advances to employee can, however, be extended.
Such investment should not result in breach of financial covenants relating to
TOL/Adj.TNW and current ratio agreed upon at the time of sanction.
5. Enter into borrowing arrangement either secured or unsecured with any other bank,
financial institution, company or otherwise or accept deposits which increases
indebtedness beyond permitted limits, stipulated if any at the time of sanction.
7. Declare dividends for any year except out of profits relating to that year after making
all due and necessary provisions and provided further that such distribution may be
permitted only if no event of default/breach in financial covenant is subsisting in any
repayment obligations to the Bank.
8. Create any charge, lien or encumbrance over its undertaking or any part thereof in
favour of nay financial institution, bank, company, firm or persons.
69
9. Sell, assign, mortgage or otherwise dispose of any of the fixed assets charged to the
Bank. However, fixed assets to the extent of 5% Gross Bloc may be sold in any financial
year provided such sale does not dilute FACR below minimum stipulated level. (Not
applicable for unsecured loans.)
10. Enter into any contractual obligation of a long term nature or which, in the
reasonable assessment of the Bank, is detrimental to lender’s interest, viz. acquisitions
beyond the capability of borrower as determined by the present scale of operations or
tangible net worth of the borrower/ net means of promoters etc., leveraged buyout etc.
11. Change the practice with regard to remuneration of Directors by means of ordinary,
remuneration or commission, scale of sitting fees etc, expect where mandated by any
legal or regulatory provisions.
13. Permit any transfer of the controlling interest or make any drastic change in the
management set-up including resignation of promoter directors.
14. Repay monies brought in by the Promoters / Directors / Principal Shareholder and
their friends and relatives by way of deposits / loans / advances. Further, the rate of
interest, if any, payable on such deposits / loans / advance should be lower than the
rate of interest charged by the Bank on its term loan and payment of such interest will
be subject to regular repayment of instalments to term loans granted / deferred payment
guarantees executed by the bank or other repayment obligations, if any, due from the
borrower to the Bank.
15. The borrower shall keep the Bank advised of any circumstance adversely affecting
the financial position of subsidiaries / group companies or companies in which it has
invested, including any action taken by any creditor against the said companies legally
or otherwise.
16. The borrower shall deal with our bank / banks under consortium / multiple banking
arrangement exclusively, shall not open current account/s with any other bank without
our prior permission. The borrower’s entire business relating to their activity including
deposit, remittances, bills / cheque purchase, non-fund based transactions including
LCs and BGs, Forex transactions, merchant banking, any interest rate or currency
hedging business etc. should be restricted only to the financing banks under
consortium/ multiple banking arrangement.
17. No commission to be paid by the borrowers to the guarantors for guaranteeing the
credit facilities sanctioned by the Bank to the borrowers.
70
18. Approach capital market for mobilizing additional resources either in the form of debt
or equity.
19. Fund Based Limits both in Working Capital and Term Loan, should be regulated
through as Escrow Mechanism as agreed among banks to avoid any kind of diversion of
funds
APPENDIX - II
(a) Details of Associate/ Allied/ Group concerns and the facilities sanctioned to
them
71
15.97 cr
(Rs.in cr)
72
(Rs.in cr)
73
(Rs.in cr)
Cash 0.26
accruals
TOL/TNW - 0.00 -
74
(Rs.in cr)
75
(Rs.in cr)
76
(Rs.in cr)
77
(Rs.in cr)
78
(Rs.in cr)
79
(Rs.in cr)
Cash - - 3.83
accruals
80
Name of the Co. Activity Financials (Last 3 years) Dealing Facilities
Bank
Nature &
Amount
PAT/Sales% -
O/s Rs.
Cash - 73 cr
accruals
TN Worth 24.75
TOL 72.28
TOL/TNW 2.92
Current 0.08
Assets
Current 3.39
Liab.
81
Projects Power income Bank of TL-7.00
Project Maharashtra cr
Profit after -
tax O/S Rs.
7.00 cr
PAT/Sales% -
Cash -
accruals
TN Worth 3.93
TOL 7.62
TOL/TNW 1.93
Current 0.26
Assets
Current 1.77
Liab.
APPENDIX– III
(A) Detailed Industry Scenario (As per latest updates of the rating agency
approved by the bank for advising the industry rating)
India has the second largest road network across the world at 4.7 million km. This road
network transports more than 60 per cent of all goods in the country and 85 per cent of
India’s total passenger traffic. Road transportation has gradually increased over the
years with the improvement in connectivity between cities, towns and villages in the
country.
82
per cent of the investment of US$ 1 trillion reserved for infrastructure during the 12th
Five-Year Plan (2012–17) to develop the country's roads.
Market size
The value of roads and bridges infrastructure in India is projected to grow at a
Compound Annual Growth Rate (CAGR) of 17.4 per cent over FY12–17. The country's
roads and bridges infrastructure, which was valued at US$ 6.9 billion in 2009 is
expected to touch US$ 19.2 billion by 2017. The financial outlay for road transport and
highways grew at a CAGR of 19.4 per cent in the period FY09-14.The plan outlay for
2015-16 stepped up budgetary support for Road Transport and Highways to Rs 42,912
crore (US$ 6.43 billion).
Key Investments/Developments
Some of the key investments and developments in the Indian roads sector are as
follows:
The Government of India plans to award 100 highway projects under the Public-Private
Partnership (PPP) mode in 2016, with expectations that recent amendments in
regulations would revive investor sentiments in PPP projects in the infrastructure sector.
The Ministry of Road Transport and Highways has undertaken development of about
7,000 km of national highways under Bharatmala Pariyojana at an estimated cost of Rs
80,000 crore (US$ 12 billion) in consultation with state governments. National Highways
Authority of India (NHAI) has invited bids for preparing Detailed Project Reports (DPRs)
for road development along the borders and coast lines under the Bharat Mala project.
Kerala Roads
There are 72 state highways in Kerala. Of them, MC Road (Main-Central Road),
proposed Hill Highway (Kerala) and Main Eastern Highway are the largest.The State
83
Road Improvement Project (SRIP) envisages to improve and upgrade 1200 km of State
Highways and Major District Roads to enhance the capacity and riding quality with
proper maintenance plan, road safety and reducing the expenditure on periodic
maintenance. The project is implemented by ABCD Company Kerala Ltd. Road
Infrastructure Company Kerala Limited (RICK) was incorporated on March 2012 as a
Special Purpose Vehicle with paid up capital contributed by Government of Kerala
(51%) and Kerala Road Fund Board (49%).[5] About 29 road sections totalling to a
length of 469 km has identified for rehabilitation improvements by the company.
Rehabilitation project include strengthening/reconstruction of pavement/structure,
junction improvements, provision of road furniture, bus bay byes and other traffic
management measures. The company plans to upgrade 32 roads of 644 km. Upgrades
involve widening the carriageway with paved shoulder (1.5 m on either side), widening
of narrow CD works, geometric improvements, junction improvements, identifying the
grade separation requirements, etc.
(B) Comments on :-
i.Management
84
Directors Group
Mr. S A
Mr X A
Mr. D B
Mr. R B
Shri S , is one of the promoter of A Group, Pune. He is a civil engineer and has been in
the construction line for more than 30 years and has successfully executed several
prestigious projects in the past.
Mr. D is the promoter of B Group from Nagar. The group is engaged in industrial,
infrastructure contracting. He is a Civil engineer and having more than 20 years of
experience in this field.
A& B group have completed together various prestigious projects and is having skilled
technical staff and required infrastructure to execute such kind of projects. AB Tollways
Limited has been responsible for completion of 10 major projects. The track record of
‘AB Tollways Limited’ has been excellent and majority of the projects have been
completed on time.
85
Rohan Rajdeep
Infra Projects Ltd. 12 12 12 12 12 12 12 12 12 12 12 12 12 5
APPENDIX IV
86
Profit and Loss
Account
17- 18- 19- 20- 21- 22- 23- 24- 25- 26- 27- 28- 29- 30-
Particulars 18 19 20 21 22 23 24 25 26 27 28 29 30 31
10. 21. 21. 21. 21. 21. 21. 21. 21. 21. 21. 21. 21. 10.
Annuity Payment 73 46 46 46 46 46 46 46 46 46 46 46 46 73
0.5 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 0.5
Deferred Income 7 5 5 5 5 5 5 5 5 5 5 5 5 7
11. 22. 22. 22. 22. 22. 22. 22. 22. 22. 22. 22. 22. 11.
Total income 30 61 61 61 61 61 61 61 61 61 61 61 61 30
0.7 1.6 1.8 2.0 2.2 2.4 2.6 2.9 3.2 3.5 3.9 4.3 4.7 2.6
Routine maintenance 6 7 3 2 2 4 8 5 5 7 3 2 5 1
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Concession Fees 0 0 0 0 0 0 0 0 0 0 0 0 0 0
4.4 7.3 7.3 7.3 7.3 8.0 8.6 8.6 8.6 8.6 8.6 11. 16. 7.0
Depreciation 8 9 9 9 9 0 9 9 9 9 9 70 85 2
5.2 9.0 9.2 9.4 9.6 10. 11. 11. 11. 12. 12. 16. 21. 9.6
Total Expenses 4 5 2 0 0 44 37 64 94 26 62 02 60 3
6.0 13. 13. 13. 13. 12. 11. 10. 10. 10. 9.9 6.5 1.0 1.6
Profit before interest 6 56 39 21 00 17 24 97 67 35 9 8 1 7
4.3 7.2 6.7 6.2 5.6 5.0 4.3 3.6 2.8 1.8 0.7 0.0 0.0 0.0
Interest 7 1 8 5 8 6 8 5 1 4 4 0 0 0
0.0 1.3 2.0 2.4 2.5 2.0 2.1 1.9 3.1 4.3 5.6 6.0 7.3 7.6
Other Income 0 6 9 5 8 4 3 2 1 5 1 0 2 6
1.6 7.7 8.6 9.4 9.9 9.1 8.9 9.2 10. 12. 14. 12. 8.3 1.6
Profit before tax 9 0 9 0 0 5 8 4 97 86 87 58 3 7
87
9 9 0 5 5 9 0 4 0 0 2 5 8 2
1.2 5.9 6.7 7.2 7.6 6.9 6.6 7.3 8.6 10. 11. 9.4 6.2 1.2
Profit after tax 0 1 0 5 4 6 8 1 7 17 15 4 5 5
5.6 13. 14. 14. 15. 14. 15. 16. 17. 18. 19. 21. 23. 8.2
Cash accruals 8 30 08 64 03 96 37 00 36 86 84 14 09 7
Cash flow
statement
17- 19- 20- 21- 22- 23- 24- 25- 26- 27- 28- 29-
Particulars 16-17 18 18-19 20 21 22 23 24 25 26 27 28 29 30
Promoters 5.4
equity 11.51 2
19.
Term loan 48.55 56
1.2 6.7 7.2 7.6 6.9 6.6 7.3 8.6 10. 11. 9.4 6.2
Profit after tax - 0 5.91 0 5 4 6 8 1 7 17 15 4 5
4.4 7.3 7.3 7.3 8.0 8.6 8.6 8.6 8.6 8.6 11. 16.
Depreciation - 8 7.39 9 9 9 0 9 9 9 9 9 70 85
34. 14. 14. 15. 14. 15. 16. 17. 18. 19. 21. 23.
Total inflow 71.25 38 13.30 08 64 03 96 37 00 36 86 84 14 09
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Repayment of 1.5 4.6 5.0 5.5 6.0 6.5 7.2 8.3 9.7 10. 0.0 0.0
term loan 0.00 0 3.50 0 0 0 0 0 5 5 5 16 0 0
VGF written 0.5 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
off 7 1.15 5 5 5 5 5 5 5 5 5 5 5
30. 5.7 6.1 6.6 12. 12. 8.4 9.5 10. 11. 8.4 8.4
Total out flow 71.25 77 4.65 5 5 5 28 78 0 0 90 30 3 3
Opening 0.0 12. 20. 29. 37. 40. 42. 50. 58. 66. 74. 87.
balance 0.00 0 3.61 26 59 08 47 14 73 33 19 15 68 39
Surplus/ 3.6 8.3 8.4 8.3 2.6 2.5 7.6 7.8 7.9 8.5 12. 14.
deficit 0.00 1 8.65 3 9 8 8 9 0 6 6 4 71 66
Closing 3.6 20. 29. 37. 40. 42. 50. 58. 66. 74. 87. 102
balance 0.00 1 12.26 59 08 47 14 73 33 19 15 68 39 .05
16- 17- 18- 19- 20- 21- 22- 23- 24- 25- 26- 27- 28- 29-
Particulars 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Promoters 11. 16. 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9
equity 51 93 3 3 3 3 3 3 3 3 3 3 3 3
Reserves and 0.0 1.2 13.8 21.0 28.7 35.6 42.3 49.6 58.3 68.4 79.6 89.0 95.3
surplus 0 0 7.11 0 6 0 6 4 5 2 9 4 7 2
22. 32. 37.2 42.7 48.8 55.3 61.1 66.7 72.8 80.4 89.4 99.4 107. 112.
Net worth 70 46 3 7 8 8 9 3 9 1 3 3 72 82
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48. 66. 63.1 58.5 53.5 48.0 42.0 35.5 28.2 19.9 10.1
Term loan 55 61 1 1 1 1 1 1 6 1 6 0.00 0.00 0.00
Total 71. 99. 100. 101. 102. 103. 103. 102. 101. 100. 99.5 99.4 107. 112.
liabilities 25 07 33 28 39 38 20 23 14 31 8 3 72 82
71. 99. 99.9 99.9 99.9 99.9 105. 110. 110. 110. 110. 110. 117. 124.
Fixed assets 25 95 5 5 5 5 08 22 22 22 22 22 50 79
0.0 4.4 11.8 19.2 26.6 34.0 42.0 50.7 59.4 68.0 76.7 85.4 97.1 114.
Depreciation 0 8 7 6 4 3 3 2 0 9 8 7 8 02
71. 95. 88.0 80.6 73.3 65.9 63.0 59.5 50.8 42.1 33.4 24.7 20.3 10.7
Net block 25 46 7 9 0 2 5 0 1 2 3 4 3 6
Cash and bank 0.0 3.6 12.2 20.5 29.0 37.4 40.1 42.7 50.3 58.1 66.1 74.6 87.3 102.
balances 0 1 6 9 8 7 4 3 3 9 5 8 9 05
71. 99. 100. 101. 102. 103. 103. 102. 101. 100. 99.5 99.4 107. 112.
Total assets 25 07 33 28 39 38 20 23 14 31 8 3 72 82
Conclusions
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1. Lending is more of an art than an exact science. Taking perfect lending
decisions requires understanding the business of the company and analysing it
from multiple perspectives. While attempt is made to infuse objectivity in the
appraisal, sound lending decisions involves taking subjective view of the
proposal. This is where experience and judgment of the appraiser plays a key
role.
2. Since bank lends the funds deposited by the general public with expectations of
safety and security, the lending decisions taken by the banks primarily focus on
the safety of funds. Risk aversion and risk diversion are the main parameters in
the bank lending.
3. To remain viable, a bank must earn adequate profit on its investment. This calls
for adequate margin between deposits rates and lending rates. In this respect,
appropriate fixing of interest rates on both advances and deposits is crucial.
Unless interest rates are competitively fixed and margins are adequate, bank
may lose customers to their competitors and become unprofitable.
4. To mitigate risk, banks lend to a diversified customer base. Diversification should
be in terms of geographical location, nature of business etc.
5. Banks achieve diversification by specifying strict exposure norms that limit the
exposure to a particular industry, business group and company.
6. Appraisal of working capital proposal is focused on ascertaining the working
capital requirement of funds. Overfunding will lead to operational inefficiencies
while underfunding could impact the normal operation.
7. Different industries possess different challenges in WC assessment as; the WC
varies from industry to industry.
8. Post sanction processes that include monitoring of accounts, ensuring end use
of funds etc. are as critical as pre sanction appraisal process for the security of
funds.
9. The project is rejected without detailed appraisal if it has some features like
banker’s report on the promoters is not satisfactory, promoters are reported to
have indulged in illegal and anti-social activities, financial position of the
promoter company is not satisfactory, cost of the project is unduly high, industry
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to which a particular unit belongs has low priority or is included in the negative
list of government guidelines etc.
15. BIBLIOGRAPHY
Books:
Varshney, P.N. (2014) Banking Law and Practice (25th Edition), Sultan Chand &
Sons Publication.
Indian Institute of Banking and Finance, (2014) Bankers’ Hand Book on Credit
Management, Taxmann Publications Pvt. Ltd.
Mukherjee, D.D. (2010) Credit Appraisal, Risk Analysis and Decision Making (6th
Edition), Snow White Publication Pvt. Ltd.
Websites:
http://www.rbi.org.in/home.aspx - RBI official website.
https://www.pnbindia.in/En/ui/Aboutus.aspx
https://www.pnbindia.in/En/ui/CorporateMission.aspx
http://www.crisil.com/research/research.jsp
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