ADDITIONAL INFO

INTRODUCTION:

CREDIT APPRAISAL:

Credit appraisal denotes comparing the idea of the loan to find out compensation capability of the borrower.
The number one objective is to make sure the safety of the cash of the bank and its clients. The process includes
an appraisal of market, management, technical, and financial. Getting time period loans from a economic
institution isn’t so smooth. The company soliciting for the term loan has to go through several stages of checks.
The financial institution will comply with a complete system of credit appraisal before sanctioning any styles of
mortgage. The bank will analyzes the loan thought from all the angles. The primary objective of credit score
appraisal in banks is to make certain that the money is given within the proper hands and additionally the capital
and interest income of the financial institution is fantastically secured.

Even as appraising term loans, economic organisation could cognizance on evaluating the credit-worthiness of
the employer and destiny anticipated movement of cash go with the flow with the amount of risk connected to
them. Credit score worthiness is classified with parameters including the willingness of promoters to pay the
money lower back and reimbursement potential of the borrower. 4 large areas of appraisal via banks are a
marketplace, management, technical and control.

MARKET APPRAISAL:

As a part of the market appraisal, the very 1st component a financial cluster may examine is that the gap among
demand and provide. Larger the decision for offer hole, higher is that the chances of the flourishing of that
industrial enterprise. The decision for versus the planned deliver via the receiver need to a large distinction in
incorporate 50000 gadgets towards the proposed deliver of 1oooo devices.

Any other most important parameter is advertising and selling efforts and infrastructure. This can be the
difficulty that converts a incorporate into sales for a billboard enterprise. The advertising and selling aspect of
the business enterprise desires to be very study as its miles very crucial to the success of the endeavour.

MANAGEMENT APPRAISAL:

Control of the business needs to be appraised for his or her intentions, understanding, and determination closure
to the assignment. By intention, it’s imagined to appraise the temperament of the promoters of the company to
the pay the money back. It has to assess the important objective of borrowing. Handiest true intentions wouldn’t
generate cash flows to honour the instalments of the loan. The management wishes to be study in phrases in
their-how around business, dedication closure to accomplishing the set wishes etc.
TECHNICAL APPRAISAL:

A technical appraisal is subject to the sort of commercial and enterprise of the borrower. If it’s a manufacturing
problem, all those parameters like project web page, availability of raw cloth and labour, capacity usage, area to
selling marketplace, transportation etc might be examined, A mission needs to be technically very sound so one
can preserve all commercial enterprise cycles.

ECONOMIC APPRAISAL:

After all the other forms of appraisal, everything boils all the way down to money appraisal. This doubtless is
that the most important a part of credit score appraisal of business enterprise loans. The cause is that it expresses
the total collection in phrases of cash. Economic appraisal tries to assess the correctness or reasonability of the
estimates of costs and charges and also the projected sales. Those could in addition carries with it estimation of
the selling price, fee of equipment, the worth of the task and also the manner of funding.

The credit demand got to be assessed through all Indian financial institution or specialised cluster established
for this motive.

On each occasion funding of infrastructure enterprise is taken up below a consortium/syndication arrangement-

bank’s publicity shall not exceed 25%.

Bank may additionally take up funding infrastructure challenge independently/exclusively in respect of

debtors/promoters of name with high-quality past record in mission implementation.

In such case due diligence on the lack of the mission are properly represented and assessed. Kingdom
authorities guarantee might not be taken or else for quality credit score appraisal.

The important element to contemplate isn’t continuously to be engulfed via advertising or profit centre reasons
to book a loan but to require a balanced view while booking a loan, thinking of the danger praise part.

Generally everyone can become positive at some purpose of the upswing of the business cycle, but tend to
forget to appear however the debtors can be at some purpose of the downswing that’s a brief-sighted approach.
Furthermore emphasis is given on financials, that are usually old; this can be any exacerbated by the reality that
a descriptive approach is often taken, instead of an analytical approach, to the credit. For this reason a forward
looking technique should be adopted, as a result of the mortgage is also speedy principally from destiny coins
flows, not historic overall performance; however each will be used as suitable compensation signs.

One of the first objectives of the examine became to determine the credit score appraisal ways which could be
presently getting used by business banks in African country to gauge the credit score worthiness of a receiver in
a very bid to enhance mortgage nice. On this note, the scientist found that the utmost used credit sore appraisal
approach by means of Zimbabwean industrial banks is that the internal score machine. An analysis whether or
not business banks have an inner score device, confirmed that every one banks below examine use an internal
score gadget as definitely one amongst their credit score appraisal ways. However, 80% of the respondents
showed that their internal rating gadget is reasonably powerful, while 20% all over that their device can be very
effective. Make out three: Effectiveness of inner score machine except the interior classification system
industrial banks also use different ways whereas establishing the credit score worthiness of a prospective
receiver. From the make out overleaf, it can be visible that everyone the credit appraisal strategies that were
provided among the form are employed by the industrial banks. Of the economic banks beneath study honestly
use all of the appraisal strategies that were highlighted in the questionnaire. The most used strategies are the
credit evaluation fashions, therefore eight of the 10 industrial banks use those fashions whereas organising the
credit worthiness of a receiver. Out of the 10 banks, seven, therefore 70% of the banks also confirmed to be
using the 5Cs as a credit appraisal technique. However, papers is that the least used appraisal technique as a
result of it had a 40% response. MBCA financial institution also highlighted that besides the credit score
appraisal strategies given within the questionnaire, it also makes use of monetary statements of the receiver
when assessing credit worthiness even as stannic highlighted that it additionally makes use of artificial neural
community. The graph overleaf shows appraisal techniques responses from the 10 banks below study. While
raising debt funding for industrial actual property initiatives data the fundamentals of credit evaluation is
important. Credit analysis is one amongst the step in credit score approval technique, a bank goes to assess a
corporation receiver, but it also available in handy once examination the financial strength of tenants, person,
and totally different company guarantors, operating agencies.

The 5 C’s of Credit Ana1ysis: Every new1y started out credit score ana1yst inside of a bank is informed with
the 5 C’s of credit ana1ysis. When inquiring for a business mortgage this is essentia11y an excessive stage tick
1ist that any company cou1d be eva1uated with the aid of.

Credit Analysis: Capacity

Capacity measures the capability of a employer to pay its debt carrier obligations. In other words, how can a
borrower display its capability to pay again the requested loan Analysing capability historically comes all the
way down to looking at ancient and projected coins flows. Commonly a lender will assessment the beyond
three-five years of financial statements and tax returns to be able to determine a coins waft figure, on the way to
rely upon the context but is usually described as earnings earlier than interest, Taxes, Depreciation, and
Amortisation (EBITDA). It recognizes that depreciation and amortization are non-cash costs and consequently
adds them again to the coins flow determine, at the side of interest and taxes, to reach at a dollar amount that’s
to be had to provider the debt.
Relying at the kind of business, extra capital expenditure estimates also can be included to account for the
actual effect of depreciation of equipment and different capital items. As soon as this cash flow parent is
calculated, the Debt Carrier Insurance Ratio (DSCR) is calculated, which definitely divides EBITDA by means
of all existing and proposed debt carrier responsibilities. Most banks would require an adequate cushion
between to be had coins drift and total debt carrier. Even as the real DSCR requirement will in the end depend
upon the kind of enterprise being evaluated in addition to the bank’s inner loan coverage, a 1.2ox DSCR is
mostly a desirable approximation.

Credit Analysis: Collateral

Collateral is a bank’s plan B. It answers the query “what takes place if the borrower can’t generate sufficient
cash glide to fulfil its debt service obligations” To shield its depositors, creditors like to be included in case
matters don’t work out as deliberate and a agency’s cash flow is unable to service its debt responsibilities.
Collateral gives creditors extra warranty that their loan gained move awful if the borrowing agency doesn’t
function as expected.

Within the case of liquidation, enough collateral fee will make sure that a lender is included if things go south.
Collateral consists of tangible property, which includes debt receivables, stock, device, and real property. At
some stage in the underwriting system a dollar cost is placed on collateral, usually with the aid of a 3 rd-birthday
celebration appraisal, and the mortgage quantity is normally capped at a positive loan to fee (1TV) ratio.

Credit Analysis: Capital

Capital ensures that the proprietors of the company have enough “skin in the sport.” Capital measures how tons
the proprietors stand to lose have to the commercial enterprise fail. The more capital there’s, the higher the
danger that the owners will do the whole lot in their power to no longer fail. Having sufficient capital
additionally guarantees that there’s a “cushion” in case the corporation’s cash flows turn bad for a season. At
the same time as there may be no magic variety, this is usually quantified using the debt-to-fairness ratio, and is
normally no better than 3x.

Credit Analysis: Conditions

Conditions cope with the economics of your enterprise and the larger macroeconomic surroundings. Your
financial institution will need to make certain that your company has competitive blessings and could not be
adversely laid low with industry tendencies. Generally a document from first studies or a similar provider is
used to recognize industry economics and developments, in addition to the banks own inner understanding of
broader market conditions.
Credit Analysis: Character

Character evaluation is arguably the maximum important aspect whilst appearing credit score evaluation. Banks
want to realize which you are straightforward and aren’t involved in any ethically questionable activities.
Maximum of this evaluation comes from creditors being involved inside the network and knowledge the history
of actual property developers and local business. Every now and then your lender will attain out for your other
banks, customers, or providers, however greater regularly than not man or woman assessment is really based on
a gut feeling.

Financial Statement Spreads

Commonly the first step inside the credit analysis technique is to accumulate the past three-five year’s of
economic statements and tax returns for the enterprise below evaluation. Then the analyst creates credit spreads
with the aid of “spreading” the economic statements. This includes manually inputting every line item on the
monetary statements into Excel or specialised credit spreading software.

Karnataka State Financial Corporation is a State level financial institution established by the State Government
in the year 1959 under the State Financial Corporations Act 1951, mainly to meet the long term financial needs
of Micro, Small and Medium Enterprises (MSMEs) in the State of Karnataka. Today, while the State economy
is making rapid strides in the global market, KSFC is moving in tandem. As a pioneering and responsive
financial institution, KSFC is fine-tuned to fulfil the plans and aspirations of entrepreneurs by extending all
possible assistance. In the 52 years of its existence, KSFC has contributed most significantly for the growth of
SMEs, backward area development and promotion of first generation entrepreneurs. Its achievements in these
areas are unparalleled. Since inception, KSFC has assisted more than 1.6o lakhs units with cumulative sanction
of more than Rs. 10,464 crore out of which about 5o% is towards SMEs. Amendments to SFCs Act provide
wide-ranging scope in financial assistance and operational flexibility. Keeping this in view, KSFC has re-
engineered itself to ensure utmost customer satisfaction with new energy, thrust and speed. In line with this, the
Corporation has put in place comprehensive, client-friendly, need based policies in the areas of credits and
recoveries. Apart from setting standards of performance, these policies would also achieve the objective of
transparent governance. KSFC an ISO 9001:2000 certified organization is proud to have played a major role in
the industrial development of the State. It is also the proud privilege of KSFC to have assisted many industries
that are internationally recognized like INFOSYS and BIOCON.1
History of KSFC:

In the year 1950, the Government of India circulated a draft bill for eliciting the views of the State Government
and of the RBI. The SFCs bill was introduced in parliament in December195o and passed in 1951; it came into
force on AUG 1, 1951. The KSFC, which prior to November 1, 1973 was known as the Mysore State Financial
Corporation, was established on March 30, 1959, that is to say, the last but one day of the financial year 1959-
6o. Although State Financial Corporations Act came into effect as far back as August 1, 1952, the then
Government of Mysore established the Corporation several years later. In the Reserve Bank Report on Currency
and Finance for the year1955-56, it was stated that the Mysore Government have also decided to set up a
financial corporation. However, this event happened four years later. It has not been possible to find out the
reasons for the delay in the establishment of the corporation. On 1-11-1973, it was renamed as Karnataka State
Financial Corporation. The Authorized Share Capital was fixed by the Mysore Government at Rs. 2.00 crore
out of which Rs.1.00 crore was fully paid up. The stake of the Government of Mysore in the Corporation was
Rs.40.465 lakhs and that of the RBI was Rs.15.00 lakhs. The Authorized Share Capital of the Corporation now
stands at Rs. 750 Crore. Sri. G. Mathias, I.A.S., was the first Chairman of the Board and Sri. M. Vasudeva Rao,
I.A.S., was the first Managing Director. In the first year of its operation, namely 1959-60, the Corporation
sanctioned 11 loans for a total sum of Rs. 28.00 lakhs. A 132 sum of Rs.13.01 lakhs (to be precise
Rs.13,01,238) was disbursed during the year. Such was the humble beginning of the operations of the
Corporation. The financial results too were also miniscule. In its first year, the Corporations earnings
aggregated to Rs. 3.33 lakhs of which only Rs. 4,037 was income from loans and advances to industrial units.
The expenses of the Corporation for the year amounted to Rs. 88,275. Thus, the Corporation made a net profit
of Rs. 2, 44,775 in the first year of its operation. Such was the story of in leaps and bounds and has touched the
operations of almost all the MSMEs in the State in some way or the other. Since inception, the Corporation has
sanctioned over Rs. 10,464 crore to as many as 1,60,000 MSMEs in the State of Karnataka. Its operations grew
many folds in the 80s and the 90s and for nearly two decades, the Corporation enjoyed complete dominance
over all other SFCs and other industrial investment and development corporations in the country. In the late
90s, the Corporation went through a correction mode. This coincided with the impact of globalization and
liberalization on the MSMEs. Being the prima-Dona for the MSMEs in the State, the Corporation had to take
severe economic beating due to the fall of MSMEs in the State in the post liberalization era. However, with
committed support of the major stakeholders, namely, the Government of Karnataka and SIDBI, the
Corporation bounced back to good health from the year 2oo3-o4. The Corporation, has so far, assisted small
scale units, SC/ST beneficiaries, minority and backward class women entrepreneurs and industries in backward
areas. The contribution of KSFC for the overall industrial development in the state of Karnataka is quite
significant not only in terms of amount of assistance, but also in the development of backward areas and weaker
sections of the society. In the year 2009, KSFC completed its 50th year of its formation and celebrated Golden
Jubilee of the Corporation. The journey of 50 years of the Corporation was a memorable and successful one
characterized by ups and downs.

Mission, Vision, and Quality policy of KSFC:

Mission

“KSFC is committed to nurture, develop and service the SME sector through need based product and
service”.

Vision

“To be a premier financial institution in the country, by providing effective and efficient services to all
sectors of people under one roof. Its vision is all for one & one for all”.

Quality policy

“Customer Satisfaction and Continual Improvement through professional management and team work”.

Functions of the Karnataka state financial corporation:

i. To provide loans for a period not exceeding 2o years to industrial units.

ii. To underwrite the issue of shares, debentures and bonds for a period not exceeding 2o years of industrial
units.
iii. To give guarantee to loans taken by industrial units for a period not exceeding 2o years.
iv. To make payment of capital goods purchased in India by these industrial units.
v. To subscribe to the share capital of the industrial units, in case they wish to raise additional capital.
vi. To do all such acts as may be incidental of its duties under this act.

Importance of credit appraisal procedure:

A credit appraisal process is important for a lender to carry out in order to ensure that the borrower has the
capacity to repay the entire loan amount on time without missing any payment deadlines. A credit appraisal is
done to avoid the risk of default on loans.
Statement of problem:

KSFC follows stringent credit appraisal process for providing loans to the clients, so the main purpose of
conducting this research is to know the credit appraisal process carried out in KSFC and the criteria to be
followed by the clients for getting credit facilities from the corporation.

Needs & relevance of the study:

a. Credit-The Life Line of the Business:

Off all the elements that go into a business, credit is perhaps the most crucial. The best of the plans can
come to naught if adequate finance is not available at the right time. Entrepreneurs need credit support
not only for running the enterprise and operational requirements but also for diversification,
modernization/ up gradation of facilities, capacity, expansion etc. Banking and financial system should
ensure the supply of timely and adequate amount of credit to the entrepreneurs in order to develop the
economy.

b. Development in Banking Systems:

Given the robust growth in the economy, Banks can expect to see rapid increase in disbursement; this
challenges the credit appraisal systems followed by Banks. Adoption of global best practices under this
circumstances will be timely and credit positive

 Growth in the volume of credit disbursement

 Reduce in the non performing assets of the bank and improves the quality of asset portfolio
 Improves the bottom line of the banks
 Ensures timely and adequate supply of credit to the industry
Hence, this studies carried out to understand the lending procedure of different loans and to
know how much customers are aware about the different retail loan product and demanded
product of retail loan.
Objectives of Karnataka state financial corporation:

 To provide financial assistance mainly to meet the long term financial needs of small and medium
enterprise [SME’s].
 Contribution to the growth of small scale industries backward area development and promotion of first
generation entrepreneurs.
 To provide for wide ranging scope of assistance and operational flexibility.
 Setting standards of performance to achieve transparent governance.
 To diversify its business in equipment leasing, working capital assistance to select unit to support
research and development activities.
 To introduce office automation.
 To identify new projects for investments and assist the local people to set up industrial units in backward
area by offering them project feasibility reports, marketing assistance and technical input required.
 Extend special concession to entrepreneurs belonging to SC/ST’s welcome entrepreneurs and physically
handicapped.
 Accord preference to local, tiny, ancillary entrepreneurs.
 To meet financial assistance for creation of fixed assets.
 To meet the urgent working capital requirement of existing units by way of corporate loans.

The focus of KSFC has always been on the small scale sector, artisans, tiny units and disadvantaged groups.
KSFC has been the main term lending institution in most of the districts for first generation entrepreneurs. its
major thrust in the regular activities are:

 Assistance to backward areas.

 Assistance to the small scale sector.
 Assistance to artisans, tiny, village and cottage industries.
 Assistance to medium scale industries.
 Assistance to local entrepreneurs.
 Assistance to special segments of society.

Nature of the business carried

Assistance from KSFC is available to industrial concern as defined under. The state financial corporation act,
industrial concern is those engaged in:

1) Manufacture.
2) Preservation and processing of goods.
3) Transport.
4) Industrial estate.
5) Hotels/restaurant.
6) R &D of any product.
7) Process connected to industry.
8) Weigh bridge facilities.
9) Power industries.
10) Xerox/photo copying.
11) Power generation.
12) Providing telex/telecom facilities.
13) Mining equipment.
14) Hiring out of heavy material.
15) Providing drilling rig facilities.
16) Handling equipment, cranes etc.
17) Hospital/nursing homes/medical stores.
18) Computers/mobile canteens.

Achievements and rewards

KSFC completed 56 years of operations. It has contributed significantly for the growth of the economy of
the state in particular country in general. It has created a strong employment base during 197o’s, 198o’s,
199o’s; it has extended financial assistance to rural area, cottage industries and other economically weaker
section of the society under special loan scheme. KSFC has developed good number of first four generation
entrepreneurs. INFOSYS, BLOCON, BPI and many other big companies now are assisted by KSFC in the
initial establishment.

Credit Analysis Ratio:

After the credit score analyst spreads the financial statements for the employer underneath review, questions are
normally requested of the CEO/CFO after which a complete written economic analysis is accomplished. This
written analysis will contain general statement and developments affecting the enterprise, a proof of each high
quality and terrible traits inside the financial statements, in addition to a discussion of key credit score analysis
ratios. Beneath we talk the mechanics and instinct of a number of the most common credit score evaluation
ratios throughout 4 classes: liquidity ratios, insurance ratios, leverage ratios, and running ratios.

Liquidity Ratio:

Liquidity refers to the potential of a business enterprise to repay quick-time period obligations as they come
due. The cause of measuring a organisation’s liquidity is to offer a level of comfort to lenders in the case of
liquidation. For agencies with more stable operations and cash flow (like utilities), liquidity ratios are less vital.
However for other businesses that are exposed to united states and downs in revenue, getting relaxed with
liquidity will become very vital.

Current Ratio:

The modern-day ratio shows the entire property that may be offered (i.e., converted to coins) in a 12 months to
pay debts incurred at some point of a yr. It offers you a tough indication of a emp1oyer’s abi1ity to cow1 its
short-time period 1iabi1ities. In widespread, the higher the ratio, the more the cushion.

Quick Ratio:

This ratio is a stricter degree of 1iquidity as compared to the cutting-edge ratio above. Regu1ar1y ca11ed the
“Acid-take a 1ook at” ratio, it is based strict1y on the maximum 1iquid of modern be1ongings, which can be
converted into cash straight away. This normally eliminates inventory from the 1iquidity ca1cu1ation. If this
ratio is 1ess than 1 it means that the firm is dependent on inventory and different much 1ess 1iquid assets to
cow1 its short-time period responsibi1ities.
Sa1es/Receivab1es :

This credit ratio measures how in many instances a firm’s trade receivab1es f1ip over in 12 months. The better
the ratio, the shorter the time period between sa1e and coins series. As an instance, if a business enterprise has
sa1es of $1,ooo,ooo and receivab1es of a hundreds then its income/Receivab1es ratio wou1d be 1o. This means
the company turns over receivab1es 1o instances in 1ine with year, which may additiona11y or might not be
favorab1e re1ying on the enterprise standards.

one abi1ity drawback you ought to be privy to with this ratio is that it best takes into consideration a photo of
receivab1es great on a particu1ar date, and then compares it to income for the who1e year. If income for the
organisation are seasona1 or otherwise differ then this cou1d motive a hass1e. A1so, when a company takes a
1arge portion of income in coins, then this ratio can a1so be thrown off.

Days’ Receivab1e:

This credit ratio expresses the common quantity of day’s receivab1es amazing. The greater the number of days
fantastic, the more 1ike1y it is that receivab1es are de1inquent. Universa1, this ratio wi11 provide you with a
demonstration of ways a who1e 1ot manage a organization has over its receivab1es and co11ections.

Cost of Sa1es/Inventory:

This ratio measures how genera11y a corporation’s inventory is grew to become over in a given yr. excessive
inventory turnover may additiona11y imp1y that an emp1oyer is efficient at transferring through its inventory.
on the other hand, every now and then it can indicate a 1ike1y scarcity of inventory to fu1fi11 demand. 1ow
stock turnover most possib1y indicates inferior or out of date merchandise or overstocking, but, it's a1so viab1e
that 1ow inventory turnover is the resu1t of de1iberate stock bui1dup.

one quandary of the cost of sa1es/inventory ratio is that it uses a photograph of inventory from one particu1ar
time period and does no 1onger do not forget any seasona1 f1uctuations.

Days’ Inventory:

This credit score ana1ysis ratio measures the common variety of days a unit of inventory is extreme1y good.

Cost of Sa1es/Payab1es:

This ratio measures how oftentimes a company’s payab1es turnover in a year. The higher the ratio, the shorter
the time among buy and payment. If a emp1oyer’s payab1es are turning s1ow1y in comparison to its peer
group, then it is ab1e to imp1y that the company is experiencing cash shortages or disputing invoices. on the
other hand, it cou1d be more favorab1e and imp1y that the organization is taking part in pro1onged terms with
providers.
Days’ Payab1es:

This ratio c1ear1y divides the above payab1es turnover ratio into 365 to get the common wide variety of days
payab1es are superb.

Coverage Ratios:

Coverage ratios measure a company’s capacity to carrier its debt ob1igations. Whi1e the 1iquidity ratios above
focused on what cou1d happen in a 1iquidation, coverage ratios provide a demonstration that a company can
continue to be a viab1e running commercia1 enterprise.

Earnings before Interest and Taxes (EBIT)/Interest:

This ratio measures a corporations’ potentia1 to fu1fi11 hobby payments and to tack1e additiona1 debt. A high
ratio indicates that a firm can easi1y meet a11 of its hobby ob1igations.

Net Profit + Depreciation, Dep1etion, Amortization/Current Maturities 1ong-Term Debt: This ratio
suggests how nice1y coins f1ow from operations can cover current maturities. on the grounds that cash g1ide
from operations is the number one supp1y of primary compensation, this ratio can provide you with a degree of
comfort about how we11 a company can cow1 debt bi11s and additiona11y tack1e new debt. one component to
be aware with this ratio is that it isn’t constant1y secure to expect a11 cash f1oat from operation may be
positioned toward debt provider. Though, this wi11 neverthe1ess be a tota11y usefu1 indicator.

Leverage Ratios:

1everage ratios he1p determine a company’s vu1nerabi1ity to downturns. Exceptiona11y 1everaged groups are
greater prone than the ones which are 1ess depending on debt. Companies that require 1ess debt a1so are better
credit score dangers for 1enders.

Fixed/Worth:

This ratio suggests how p1enty owners’ fairness has been invested in p1ant and gadget (constant assets). A 1ow
ratio shows a sma11er funding in constant property and therefore greater cushion for creditors inside the case of
1iquidation. A higher ratio cou1d suggest the other. But, be aware that if an agency has a 1ot of 1eased gadget
then this may turn out to be ensuing in a deceptive1y 1ow ratio.

Debt/Worth:
This credit score ratio measures how p1enty protection the owners of a emp1oyer are supp1ying 1enders. A
better ratio shows that a company is pretty 1everaged and consequent1y that creditors are assuming a greater
part of chance. A decrease ratio common1y suggests that a firm wi11 be extra financia11y resi1ient within the
1engthy-time period.

operating Ratios:

Running ratios are designed to offer a measure of management performance.

Profit before Taxes/Tangib1e Net Worth: This ratio expresses the rate of return on tangib1e capita1 hired and
shows contro1 overa11 performance. Typica11y, a higher go back indicates greater effective contro1 and a
decrease go back suggests inefficient contro1 performance. However, notice that a high return may
additiona11y indicate an be1ow- capita1ized company. Converse1y, a 1ow go back shou1d indicate a notab1y
capita1ized and conservative1y contro11ed business.

Profits before Taxes/Tota1 Assets:

This ratio measures the pre-tax go back on genera1 assets and affords a measure of the effectiveness of
management. Be aware that a massive part of intangible property or uncommon profits or price gadgets wi11
distort this ratio.

Sa1es/Net Fixed Assets:

This ratio shows how productive1y a company makes use of its constant assets. C1ose1y depreciated property
and/or a 1abor-extensive operation may want to motive distortions on this ratio.

Expertise the basics of credit score eva1uation may be an awesome venture, but credit score eva1uation is a1so
an important and beneficia1 abi1ity set to increase.

REVIEW OF LITERATURE AND RESEARCH

 METHODOLOGY

Methodology :

Objective of the study:

 This study helps in knowing the credit appraisal process in KSFC

 To know the requirements for the credit appraisal
 To understand the criteria to get loan facilities under KSFC
 To know the credit facilities and schemes provided in KSFC.

Research Methodology:

Research methodology is a blueprint which is followed to complete the study.

The methodology used in this study will be descriptive in nature, by using both primary and secondary data.

Data collection:

Primary data:

Primary data is the data collected by the researcher themselves, i.e. interview, observation, questionnaire etc.

Secondary data:

Secondary data is the data that already exists like previous research, official statistics, mass media products,
diaries, letters, web information, historical data and information.

Secondary data will be collected from KSFC official website, newspapers, KSFC annual reports etc.

Scope of the study:

The scope of the study is limited to the credit appraisal process that is followed in Karnataka state finance
corporation while providing credit facilities. This will not be applicable anywhere excluding KSFC.

Limitations of the study:

 The study is limited to only the credit appraisal process followed in KSFC.
 The information used in the report may not be full, due to the provision of disclosure of the norms of the
company.

 This study is restricted only to the KSFC.

SWOT ANALYSIS
Strengths and weakness

Strengths and weakness internal to the organisation. Strengths represent positive attributes or characteristics,
factors that provide an advantage. Weakness are attributes or characteristics that place the business at a
disadvantage relative to others.

Opportunities and threats

Opportunities and threats are external to the organisation. Opportunities represent external trends and chances to
improve performance-something happening in the outside environment that presents positive potential. Threats
are elements or trends in the outside environment that could cause trouble for the business, place at risk.

STRENGTHS

o Well qualified employees.

o Network touching the whole of Karnataka.
o Internal strength in financing small sectors.
o Well laid down policies and procedures.
o Operating and surviving in a highly industrialized state.
o Attractive schemes
o All financial services under one roof i.e., availability.
o The corporation has highly motivated employees.
o Flexible repayment period.
o Company’s image, reputation, quality of service, information availability is the key to success in their
performance level.
o Company’s leadership, dedication and skill of workers, entrepreneurial orientation, flexibility and
adaptability of changes in the work, ability to respond to changing conditions are strengthen their vision
which influenced more on their performance level at higher rate.
WEAKNESS

o The corporation is not adopting harsh recovery measures and helping the clients during their difficult
periods due to continued economic recession.
o A statutory corporation with lots of government control.
o Its scope of operation is limited since it operates only within Karnataka state.
o Could not raise resources of low cost.
o Net worth and borrowings powers are affected adversely.
o The corporation is heavily dependence on outsider’s funds.
o No flexibility in interest rates/ promoter’s margin/ security norms, when compared to delegation given
to commercial banks. lending rates are not competitive with the prevailing market rate.

OPPORTUNITIES

o Infrastructural development is what the companies are asking can be financed to large extent.
o Knowledge Processing Outsourcing (KPO), Buzz word, business can be given importance and financed.
o If implement dedicated connectivity between all their branches which can reduce the processing time
and increase their customer base.
o Growing population their lifestyle trends, level of education, provides an opportunities to innovate new
products and services to serve them.
o Per capita income, the rate of growth of economy also provides an opportunity to extend the financial
assistance at an increasing trend.
o Regulations in the competitive practices, government controls and legislation regulating business also an
opportunity to improve the business.
o Number of competitors is some what less which is an opportunity to increase the performance level.
THREATS

o Private banks like ICICI, HDFC, are aggressive in financing loans by reducing their processing time in
their corporate financing.
o Commercial multinational banks are coming up with innovative ideas for increasing the loan amount
like that of pre-draft loan for the prompt customer.
o IDBI, SIDBI, Corporative banks are gearing up for term loan finance to SME’s.
 OUTCOME OF THE STUDY
FINDINGS AND SUGGESTIONS

OUTCOME OF THE STUDY:

This paper examines the credit appraisal process at KSFC.

 The first objective sought to helps in knowing how the credit evaluation process can be done in ksfc.
 Credit appraisal is to require for assessing a particular loan application or proposal in a thorough manner
in order to guage the repayment ability of the applicant. A lender conducts a credit appraisal chiefly to
make certain that the bank gets back the money that it lends to its customers.
 The credit appraisal process before giving loan to entities is comprehensive in nature as it evaluates
management, market, technical and financial elements.
 From this process we get to know no lender approves and sanctions anybody’s loan application instantly
without an evaluation.
 Credit facilities and schemes provided by KSFC are:
 Schemes of financial assistance to food processing industries.
 Rental discounting scheme.
 Scheme for financing energy saving projects.
 Interest subsidy scheme for SC and ST entrepreneurs.
 To provide assistance to the construction activity sector.
 To provide financial assistance to property developers, construction companies and firms for
construction of group housing, commercial complexes, software parks and infrastructure
projects like roads. Flyovers, bridges etc.

 The procedure of getting loan in KSFC:

 Receipt of application from applicant
 Receipts of documents(balanced sheet, KYC papers, different government, registration
number.)
 Pre sanction visit by officers, check for RBI defaulters list, wilful defaulter list.
 CIBII data, ECGC, title clearance report of the properties to be obtained.
 Valuation reports of properties to be obtained from empanelled valuer.
 Preparation of financial data proposal.
 Sanction/ approval of proposal by appropriate sanction authority documentation,
agreements, mortgages.
 Disbursement of loan.
 Post sanction activities such as receiving stock statements, review of accounts etc.(on
regular basis)
FINDINGS:

1) All the schemes that can be availed by the local entrepreneur are operated at branch level.
2) The procedure of getting loan in KSFC.
3) Prior to providing assistance to a new unit an intensive study is done on the technical feasibility
and financial liability of the proposed project by appropriate expertise in the field.
4) The need for a guarantor/security for sanctioning a loan depends on the nature of the proposed
project. If the proposed project involves high risk and then the need for security also increases. If
the borrower is a regular customer, then his credit worthiness becomes vital.
5) KSFC has norms to decide the repayment period for a loan. Apart from this cash generation
capacity of the proposed project is considered to fix up actual repayment period.
6) KSFC provides guidance to the borrowers, and supervise/monitor the progress of a project and
follows up of loans.
7) A Borrower can avail loans under more than one scheme and can take loan before repaying the
previous loan, but this depends upon the exiting loan transactions with the corporation.
8) Normally, the lead-time between application of loans and sanctioning of loans is up to proposal
received by the branch having been processed within a period of 3 months. In some rare cases
they period taken has been up to 6 months. But the respondents have revealed that, the delay was
on account of their inability to comply with the formalities and provide required documents.

SUGGESTIONS:

 KSFC can try to focus on diversifying investment by encouraging entrepreneurs from our state to utilize
the resources of the state efficiency.
 KSFC can improve its recovery process to enable mobilizing of internal funds for servicing the debts.
 The rebate provided for on time payment is increased to encourage the entrepreneurs.
 KSFC is providing reimbursement facilities to women entrepreneurs and ST/SCs but they can also give
some facilities like this to the other entrepreneurs who are located in backward areas and
underdeveloped areas.
 EXPERIENCE, LEARNINGS AND CONCLUSION

EXPERIENCE AND LEARNINGS:

This project gave me a great opportunity to learn about the all aspect of credit appraisal process at KSFC in
Bangalore. This research study helped to know about current situation of the KSFC.

Through understanding of concept, practical understanding of concepts which theoretical exposure. Develop a
project idea.

This is really interesting and challenging to study the topic on how the organisation provided financial
assistance mainly to meet the long term financial needs of small and medium enterprises (SME’s), contribution
of the organisation to the growth of small scale industries backward area development and promotion of first
generation entrepreneurs, wide ranging scope of assistance and operational flexibility, setting standards of
performance to achieve transparent governance, to diversify its business in equipment leasing, working capital
assistance to select unit and to support research and development activities. Utilisation of office automation,
identify new projects for investments and assist the local people to set up industrial units in backward area by
offering them project feasibility reports, marketing assistance and technical input required, accord preference to
local, tiny, ancillary entrepreneurs, to meet financial for creation of fixed assets, to meet urgent working capital
requirement of existing units by way of corporate loans.

This research study, helps in knowing the credit appraisal process, requirements for the credit appraisal, the
criteria to get loan facilities under KSFC, the credit facilities and schemes provided in KSFC.

This study taught how the process is to be done in the organisation and how to decision making is done. And
learnt with SWOT analysis of credit evaluation process.

The learning experience gained during the research study was very much practical oriented. I gained many
information about the process of credit appraisal and also got a chance to learn new things with my own
experience. The overall study of the organisation reveals that the company has grown tremendously.
CONCLUSIONS:

KSFC is the largest state owned term lending institution in Karnataka. But the changing economic scenario,
financial sector reforms coupled with WTO provisions and declining interest rate regime has had adverse effect
on KSFC’s functioning particularly during the last 4-5 years. Both internal and external factors and market
competition offered particularly by the banking sector have worsened the position of KSFC during the given
period.

To conclude, it is observed that KSFC is a very good financial institution that has different branches all over
Karnataka. Gives a helping hand to the small-scale entrepreneurs. Further KSFC is also entering into insurance
sector and other emerging fields. where the financial assistance is needed.