A PROJECT REPORT ON “CREDIT APPRAISAL” OF CREDIT PROPOSALS AT J&K BANK, CORPORATE HEADQUARTERS (SRINAGAR) IN THE FULFILMENT OF THE REQUIREMENT
FOR THE MASTERS DEGREE IN Business Administration
Guided and supervised by Guide Mohammad Shahid Drabu Aprajita Das Gupta Manager Foreign Exchange J&K Bank .
Department, Foreign Exchange, J&K Bank
Submitted by WASEEM RAJA MBA – 2009-11 A3010909106
AMITY GLOBAL BUSINESS SCHOOL NOIDA SECTOR # 44, 201301
It is Certified that the project report entitled “Credit
Appraisal” is authentic work carried out by Waseem Raja in partial fulfilment of the award of Masters Degree in Masters in Business Administration He has completed this project report within the stipulated time period as prescribed by the University. The data mentioned in the report was obtained during the unfeigned work done and was collected by me. Any other data or information in this report, which has been collected or borrowed from outside agency, has been duly acknowledged.
SECTION A: TERM LOANS AND ADVANCES & STATUTORY PROHIBITIONS: a. Introduction: Term Loans b. Maturity profile c. Standards of margin d. Statutory And Other Restrictions SECTION B: TERMS USED IN CREDIT GRANTING DECISIONS a. Securities b. Banking facilities c. Capital Structure d. Banking arrangements e. Ratio analysis f. Financial statements g. Credit risk rating framework h. Subjective parameters configuration SECTION C: LIVE PROJECT APPRAISAL OF ARYAN POWER PROJECT LTD
a. General Information about the proposal b. Borrower Information c. Capital Structure & Shareholding Pattern d. Board of Directors e. Financials of APPL f. Brief about the promoter company g. Present Proposal of the Company h. Means of Finance & cost of Project i. Internal Rating j. Industry & Swot Analysis k. Risk Analysis & Mitigation l. Sensitivity analysis m.Recommendation
SECTION D: ANNEXURE BIBLIOGRAPHY
for grooming me into a true line of work. I am grateful and gratified to the respected AMITY GLOBAL BUSINESS SCHOOL branch of Amity University. I would like to express my profound gratitude to my supervisors Mohammad Shahid Drabu ( Manager Foreign Exchange J&K Bank) for their precious assistance. but with the grace of Allah. I sincerely thank all the members of the Foreign Exchange department for their generous help in my project. guidance. Before concluding i doubt if we could have completed this project work. I passionately give my sincere thanks to the organization of J & K Bank for providing me this grateful opportunity for doing this project.ACKNOWLEDGEMENT
First of all I must thank Almighty Allah who is behind my every success in life and without his blessings this project would not have been completed. untiring advice and encouragement. I am also thankful to all staff members for making me feel part of the organization and made me to work with all my sincerity and potential.
. Students are required to undertake Summer (practical) training of 8 weeks in any company at the end of the second semester. which they learn in the classroom and the remaining semesters becomes more goals oriented and meaningful. Srinagar and study the live project appraisal of Aryan Power Project Ltd. As part of the internship programme I have had the opportunity and pleasure to intern at J&K BANK Corporate headquarters. M A Road. This provides students with the opportunities to apply financial concepts and techniques.INTERNSHIP PROGRAMME
The internship programme is part of the mandatory course completion required for the Masters programme in Business Administration at Amity Global Business School branch of AMITY UNIVERSITY.
The whole part of this study discusses what project appraisal is. agriculture.and long-term financial assistance and act as catalytic agents in promoting balanced development of the country. the procedure adopt by banks / financial institutions in project appraisal. There are a number of banks and financial institutions that perform this function. various steps involved in project appraisal. The industrial growth intern depends upon the success of new projects.EXECUTIVE SUMMARY
The economic development of any country depends on the extent to which its financial system efficiently and effectively mobilizes and allocates resources. The report carriers in depths study of financing appraisal with relevance to project financing. and other key sectors. The main objective of the study is to understand the actual procedures and steps involved in project appraisal. The success of the new projects depends largely upon the quality of the project appraisal. They are engaged in promotion and development of industry. Financial institutions provide medium. They also provide development services that can help in the accelerated growth of an economy.
In recognition of dominant role and exalted performance. After prolonged exercises and deliberations the assignment for establishment of “The Jammu & Kashmir Bank Limited” was given to the late Sir Sorabji N Pochkhanwala. particularly around the time of independence. S.1930. Residency Road. N. 6. The Bank had its first full time Chairman in 1971. the bank had to encounter several serious problems. came to its rescue with the assistance of Rs. Company as per the provisions of Indian Companies Act 1956. Grindlays Bank and Imperial bank of India. the then Managing Director of the Central Bank of India.COMPANY PROFILE
Jammu & Kashmir Bank
Traditional moneylenders till 1920-30 performed entire banking in the state of Jammu & Kashmir at exorbitant interest rates. the Bank was defined as a Govt. suggesting establishment of a Semi State Bank with participation in capital by State and public under the control of State Government. To overcome this critical situation the then Maharaja of State conceived an idea of setting up of a State Bank in the state. especially in maintaining currency chest and collection of taxes
. However. At the same time some banks functioned but at a very limited scale. as they could not grant loans and advances to the people of the state owing to the statutory limitations. The year 1971 was a turning point for the Bank on conferment of scheduled bank status and witnessed remarkable progress in all the vital fields of operations. Kashmir In its formative years.Pochkhanwala formulated a scheme on 24. Thus the Bank was formally incorporated on 1st of October 1938 and commenced business from 4th of July 1939 at its Registered Office.09. RBI entrusted the Bank as its agent for performing the general banking business of the Central Government. Srinagar. following the social control measures in banks. State Govt. Mr. such as Punjab National Bank. The role of these banks was reduced to the acceptance of deposits. The Bank steadfastly overcame its difficulties and kept growing. Reserve Bank of India declared the Bank as “A” class bank in 1976. Following the extension of Central Laws to the State of Jammu & Kashmir. Under this scenario banks could not ameliorate the financial and social position of people of the State. when out of its total of 10 branches two branches of Muzafarabad and Mirpur fell to the other side of line of control (Now Pak Administered Kashmir) along with cash and other assets in 1947.00 lacks to meet the claims.
comes from the womb of good Corporate Governance.
. It also ensures that bank is managed by an independent and highly qualified Board following best globally accepted practices. The Bank is investing in a big way in information technology. for which it has adopted a strategy directed to developing a sound foundation of relationship and trust aimed at achieving excellence. The bank has already made available E-mail facilities at all of its computerized branches and also Tele-banking facilities at most of these branches.Excellence Award – Institute of Economic Studies Jamnalal Baja Uchit Vyavahar Puraskar 2002– Council for Fair Business Practices dated 26 th March 2003. The ATMs are interconnected and thus provide the customer convenient and 24-hour banking facilities. Borrowers. and financial strength.The Bank has been forerunner in responding to the need for technology up gradation in meeting its commitment to the customer to offer the best of service and wide range of products. overall operational efficiency. Employees. J&K Bank is going from strength to strength as it sees tremendous revenue growth opportunities in all businesses. Bank has also commissioned anywhere banking facilities at more than 103 branches throughout the country.Ranked 87th among India’s Top 500 Companies by world’s renowned rating agency – “ DUN & BRADSTREET” . From a small Beginning the Bank has grown to become a giant with a wide network of 577 branches/offices spread over the length and breadth of India. which of course. and Enhance shareholder value through whichever means is most appropriate. SMS and mobile banking facilities. In recognition of its excellent customer service. The Bank will continue to invest to increase revenue. which are dedicated to the cause of transforming the bank not only as a financial heart but also as a social heart of the community. including organic development. The bank has also launched Internet. Presently the bank is the fastest growing bank in the India offering world class banking products/services to the masses. acquisitions. The Bank has a powerful set of brands that people trust and has proven products and services. . joint ventures and partnerships. overall performance. Nearly 510 branches have been either partly or fully computerized covering 98% of the total business of the bank. an integrated distribution network that delivers. fair business practices. The bank has already installed around 175 ATMs at vital locations of the country.Asian Banking Awards – 2004 .Asian Banking Award 2004 for the Customer Convenience programme. Customers. transparent disclosures and empowerment of shareholders. Today bank has a status of value driven Organization and is always working towards building trust with Shareholders. Good Governance is a source of competitive advantage and a critical input for achieving excellence in all pursuits. Regulators and other diverse Stakeholders. etc the bank has been felicitated by the following awards during the last few years: . besides also ensuring that shareholders aspirations and societal expectations are met. A significant contributing factor for this fast growth is the solid founding principles.
New Identity The new identity for J&K Bank is a visual representation of the Bank’s philosophy and business strategy. rationalization of area wise branch structure. At the same time the emphasis will shift to greater self-regulation through adherence to prudential norms. Computerization and up gradation of technologies. Collects taxes pertaining to Central Board of Direct Taxes in J & K. SMS and Mobile Banking provided ATMs connected globally to all MasterCard networked ATMs Mobile ATM Service available – first of its kind in Northern India J&K Bank Global Access Debit Cards: Cirrus and Maestro enabled Electronic Fund Transfer (EFT) System
The Corporate Headquarter. Bankers or/and the Administrators of the State. blue conveys stability and unity.
Unique Characteristics of the Bank
• • • • • • Sole banker and lender of last resort to the Government of J & K. Kashmir and Ladakh. Green signifies growth and renewal. the Chairman is selected among reputed Economists. taxes and non-tax revenues routed through the bank. The counter-form created by the interaction of the squares is a falcon with outstretched wings – a symbol of power and empowerment. Tele-Banking and SWIFT facilities available Internet Banking. Carries out banking business of the Central Government. The synergy between the three regions propels the bank towards new horizons. The Chairman is guided by the Board of Directors of the Bank. staffing. Only private sector bank designated as agent of RBI for banking. registered office of the Bank is located at Srinagar and is headed by Chairman and Chief Executive officer (CEO). who is appointed by the J&K Government for a period of 3 to 5 years. and red represents energy and power. corporate governance and
Infrastructure: Global Standards The fastest growing bank with 577 branches across the country 98% of the business computerized Anywhere Banking. Plan and non -plan funds. development of human resources and strengthening of corporate management studies are issues which Bank will address and implement in the coming years. The three coloured squares represent the regions of Jammu.
J&K Bank has traversed a long way from the day one with the solitary aim of ‘social benefit’ and substantial progress has already been made towards this end. Salaries of Government officials disbursed by the Bank. Generally.
ROAD SRINAGAR. Of locations Industry Employees Website PUBLIC LIMITED 1938 M. Further shift will be on re-orientation and retraining of staff in tune with the changes in the operating environment. 577 branches/offices Banking 7267 http://www. by helping create a new financial architecture for the J&K economy.
Our mission is two-fold: To provide the people of J&K international quality financial service and solutions and to be a super-specialist bank in the rest of the country. J&K.jkbank. However.
The Jammu and Kashmir Bank Limited Type Founded Headquarters No. The two together will make us the most profitable Bank in the country. it will remain Bank’s endeavour to reduce the non-performing loans both in percentage as well as in absolute terms
“To catalyse economic transformation and capitalise on growth.net
. the need to widen the scope and range of products and services and above all an improvement in the delivery system and customer service levels.” Our vision is to engender and catalyse economic transformation of Jammu and Kashmir and capitalise from the growth induced financial prosperity thus engineered.strengthening of internal supervision and audit system as per guidelines of RBI. The Bank aspires to make Jammu and Kashmir the most prosperous state in the country. at the center of which will be the J&K Bank.A.
Credit in Finance
A credit is a legal contract where one party receives resource or wealth from another party and promises to repay him on a future date along with interest.2 or higher to show that an extra cushion exists and that the business can afford its debt requirements.
Definition of Credit in Trade and Commerce In trade and commerce. A credit analyst at a bank will measure the cash generated by a business (before interest expense and excluding depreciation and any other non-cash or extraordinary expenses). whether the business is large or small. Credit analysis also includes an examination of collateral and other sources of repayment as well as credit history and management ability. With the issuance of a credit.
It is the method by which one calculates the creditworthiness of a business or organization. Or. The amount. The debt service coverage ratio divides this cash flow amount by the debt service (both principal and interest payments on all loans) that will be required to be met. The audited financial statements of a large company might be analyzed when it issues or has issued bonds. a credit is an agreement of postponed payments of goods bought or loan. In other words. a bank may analyze the financial statements of a small business before making or renewing a commercial loan. the debt service coverage ratio should be 1. In simple terms. Credit depends on the creditworthiness of the debtor or receiver of credit. Bankers like to see debt service coverage of at least 120 percent.
. Before approving a commercial loan.Components of Project “Credit Appraisal” PROCESS
Credit a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date. A typical measurement of repayment ability is the debt service coverage ratio. The term refers to either case. including ratio and trend analysis as well as the creation of projections and a detailed analysis of cash flows. credit refers to the subtraction of a payment given by a borrower or debtor from an outstanding amount. A single entry or the aggregate of all the entries on the right hand side of the ledger account. . Credit analysis involves a wide variety of financial analysis techniques. a bank will look at all of these factors with the primary emphasis being the cash flow of the borrower. credit is defined as the sanctioning of detained payments for products that have been bought. a debt is formed Definition of Credit in Accountancy
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As per accounting theories. which is left over in the account of an individual.
Capital: Capital represents the amount of equity that a firm has.
.e how accurate are the revenues and expense projections or what is the condition of the economy and the industry.TERM LOANS:
A term loan is usually a single loan for a stated period of time or a series of loans on specified dates. Long term loans are collateralized by business assets and typically require quarterly or monthly payments derived from profits or cash flows.s continue to be of utmost importance. Term loans are for a set maturity and on the basis of maturity. These loans are generally repaid in monthly instalments from business cash flow. Term loan is not usually extended for finding day to day operations. these are Character: character means how the company has managed other loans (business as well as personal) and what is the company’s business experience. The difference between the values of the asset and the amount being financed is the borrower’s equity. that can be liquidated for payment if all other means of collection of the debt fail. Long Term loans: These loans are commonly set for more than three years. medium term loans and long term loans. depending upon the maturity. term loans are classified as under: Intermedial Term loans: Intermedial term loans usually run less than three years. Credit capacity: This refers to the success of the borrowers business as reflected in its financial condition and ability to meet financial obligation via cash flow and earnings. Comfort/ Confidence: This is related with the business plan i. Most of them are between three and ten years and some are as long as 20 years. Maturity of term loans Term loans range from one year to 20 years. They are used for specific purposes such as acquiring machinery. Collateral: Collateral refers to the assets that are pledged for security in a credit transaction. The fact that borrowers may lose their collateral if they default on their loans serves as an incentive for them to perform in accordance with the loan contract. The borrower’s equity represents the borrower’s investment in the asset being financed. renovating a building. refinancing a debt and so on and so forth. Term loans can be classified into short term loans. It also provides the bank with the cushion in the event of default. Banks generally require prospective borrowers to submit their financial statement in order to determine their credit worthiness. Term loans typically carry floating interest rates and repayable in monthly and quarterly intervals. From the lenders point of view the maturity of loan should not exceed the economic life of the asset being financed. While making decisions about term loans 5 C.
partner. However the restriction is not applicable in case of exemptions permitted under Section 20(i) of Banking Regulation Act. sanction any credit facility to his/her relative. or an individual any firm or any company in which any of its directors. D) Granting of loans and advances against the security of bullion / primary gold and to silver bullion dealers which are likely to be utilized for speculative purposes. B) Granting of loans and advances to partnership/proprietorship concerns against the primary security of shares and debentures. manager. C) Granting of loans and advances against term deposits of other banks and against Certificate of Deposits. H) Holding shares whether as pledgee or mortgagee or absolute owner. I) Granting of loans and advances to companies for buy back of their own shares or other specified securities J) Unless sanctioned by BOD/MCB loans and advances aggregating Rs 25 lacs and above shall not be granted to directors of other Banks.
. or any firm in which any of its directors is interested as partner. whichever is less. remit in whole or in part any debt due to it by any of its directors. while exercising powers for sanction of any credit facility. managing agent or guarantor. prudent and profitable lines. L) Granting of loans and advances for the purpose of setting up of new units consuming/ producing Ozone Depleting Substances as specified by the RBI. G) Holding shares whether as pledgee or mortgagee or absolute owner in any company for an amount exceeding 30% of the paid up share capital of that company or 30% of its own paid up share capital and reserves. manager. any firm or any company in which any of its directors is interested as director. The next higher sanctioning authority shall sanction such a facility. or an individual. employee or guarantor or in which he holds substantial interest or any individual in respect of whom any of its directors is a partner or guarantor.Loans and Advances – Statutory and Other Restrictions
Banks should implement these instructions and adopt adequate safeguards in order to ensure that the banking activities undertaken by them are run on sound. Proposals Prohibited: A) Granting of loans and advances against the security of shares of the Bank and against partly paid shares of other companies. E) Entering into commitment for granting of loans and advances to or on behalf of any of its directors. 1949 F) Except with the prior approval of Reserve Bank of India. any firm in which any of its director of other Banks is interested as a partner or a guarantor and any company in which any of the directors of other bank holds substantial interest or is interested as a director or as a guarantor K) No officer of the Bank or any committee comprising inter alia. an officer of the Bank as the member shall. in any company in the management of which any managing director or manager of the Bank is in any manner concerned or interested. employee or director or any company of which any of its directors of the Bank is a director. managing agent.
Further. of an amount exceeding 30 percent of the paid-up share capital of that company or 30 percent of its own paid-up share capital and reserves. companies are permitted to purchase their own shares or other specified securities out of their
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free reserves.Restrictions on Holding Shares in Companies In terms of Section 19(2) of the Banking Regulation Act. Facilities far in excess of the sanctioned limits and concessions were allowed in the course of operation of individual accounts of the parties. they did not follow the usual procedures and norms in sanctioning credit limits to the borrowers. serious concern was expressed in Parliament that such quid pro quo arrangements are not considered to be ethical. Therefore. 25 lakhs and above to -
. The banks should. in any company in the management of which any managing director or manager of the bank is in any manner concerned or interested. therefore. Directors (including Chairman/Managing Director) of other banks and their relatives. or securities premium account. banks should not hold shares in any company except as provided in sub-section (1) whether as pledgee. Although. 1956. Directors of Subsidiaries/Trustees of Mutual Funds/Venture Capital Funds set up by the financing banks or other banks. the banks should not hold shares whether as pledgee. mortgagee or absolute owner. there is no legal prohibition on a bank from giving credit facilities to a director of some other banks or his relatives. banks should not provide loans to companies for buy-back of shares/securities. mortgagee or absolute owner. banks should not grant loans and advances aggregating Rs. 1949. By and large. particularly those belonging to certain groups or directors. Lending to directors and their relatives on reciprocal basis There have been instances where certain banks have developed an informal understanding or mutual/reciprocal arrangement among themselves for extending credit facilities to each other’s directors. etc. etc. their relatives. relatives: Unless sanctioned by the Board of Directors/Management Committee. their relatives. Directors of Scheduled Co-operative Banks and their relatives. whichever is less. Regulatory Restrictions Without prior approval of the Board or without the knowledge of the Board.
Subject to compliance of various conditions specified in the Companies (Amendment) Act. Restrictions on Credit to Companies for Buy-back of their Securities In terms of Section 77A (1) of the Companies Act. 1999. as per details given below. follow the guidelines indicated below in regard to grant of loans and advances and award of contracts to the relatives of their directors and directors of other banks and their. 1949. no loans and advances should be granted to relatives of the bank's Chairman/Managing Director or other Directors. or the proceeds of any shares or other specified securities. in terms of Section 19(3) of the Banking Regulation Act.
shall. and (c) any company in which any of the directors of other banks holds substantial interest or is interested as a director or as a guarantor.00 lakh to these borrowers may be sanctioned by the appropriate authority in the financing bank under powers vested in such authority. inter alia. The Chairman/Managing Director or other director who is directly or indirectly concerned or interested in any proposal should disclose the nature of his interest to the Board when any such proposal is discussed. the following guidelines should be followed by all the banks with reference to the extension of credit facilities to officers and the relatives of senior officers: (i) Loans & advances to officers of the bank No officer or any Committee comprising. (c) any firm in which any of the relatives as mentioned in (a) & (b) above is interested as a partner or guarantor. and (d) any company in which any of the relatives as mentioned in (a) & (b) above hold substantial interest or is interested as a director or as a guarantor. In addition. Such a facility shall ordinarily be sanctioned only by the next higher sanctioning authority. He should not be present in the meeting unless his presence is required by the other directors for the purpose of eliciting information and the director so required to be present shall not vote on any such proposal. sanction any credit facility to his/her relative. while exercising powers of sanction of any credit facility.25. Credit facilities
. (b) any firm in which any of the directors of other banks is interested as a partner or guarantor. but the matter should be reported to the Board. banks should also not grant loans and advances aggregating Rs. an officer as member. Unless sanctioned by the Board of Directors/Management Committee. The above norms relating to grant of loans and advances will equally apply to awarding of contracts. The scope of the term ‘relative’ will be as under:
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Spouse Father Mother (including step-mother) Son (including step-son) Son's Wife Daughter (including step-daughter) Daughter's Husband Brother (including step-brother) Brother’s wife Sister (including step-sister) Sister’s husband Brother (including step-brother) of the spouse
Restrictions on Grant of Loans & Advances to Officers and Relatives of Senior Officers of Banks: The statutory regulations and/or the rules and conditions of service applicable to officers or employees of public sector banks indicate. the precautions to be observed while sanctioning credit facilities to such officers and employees and their relatives.(a) directors (including the Chairman/Managing Director) of other banks.25. The proposals for credit facilities of an amount less than Rs. (b) any relatives of the Chairman/Managing Director or other directors of other banks . to a certain extent.00 lakhs and above to a) any relatives of their own Chairmen/Managing Directors or other Directors.
operating and maintaining any infrastructure facility that is a project in any of the following sectors. sanitation and sewerage system or solid waste management system.A water supply project. xii. the matter has been reviewed in consultation with Government of India and the revised guidelines on financing of infrastructure projects are set out as under. x. Construction relating to projects involving agro-processing and supply of inputs to agriculture. FIs or NBFCs) to an infrastructure facility as specified below falls within the definition of "infrastructure lending". or any infrastructure facility of a similar nature :
i. A port. vii. Telecommunication services whether basic or cellular. irrigation project. water treatment system. iv . Construction of educational institutions and hospitals.. inland waterway or inland port. A road.e. Banks should ensure that the individual components of financing and returns on the project are well defined and assessed. iii . airport. Laying down and/or maintenance of gas. including toll road. banks/Financial Institutions should undertake due diligence on the viability of the projects. v. Construction for preservation and storage of processed agro-products. In other words.sanctioned to senior officers of the financing bank should be reported to the Board. Transmission or distribution of power by laying a network of new transmission or distribution lines. a credit facility provided to a borrower company engaged in
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developing or operating and maintaining. Generation or generation and distribution of power. vegetables and flowers including testing facilities for quality. or developing. ii. ix. a satellite owned and operated by an Indian company for providing telecommunication service). viii. Definition of ‘infrastructure lending’ Any credit facility in whatever form extended by lenders (i. vi. banks. crude oil and petroleum pipelines xiii.
Guidelines for Financing of Infrastructure Projects In view of the critical importance of the infrastructure sector and high priority being accorded for development of various infrastructure services. network of trunking.e. a bridge or a rail system. An industrial park or special economic zone. Any other infrastructure facility of similar nature Appraisal (i) In respect of financing of infrastructure projects undertaken by Government owned entities. broadband network and internet services. including radio paging. State Government guarantees may not be taken as a substitute for satisfactory credit appraisal and such appraisal requirements should not be diluted on the basis of any reported
. domestic satellite service (i. perishable goods such as fruits. A highway project including other activities being an integral part of the highway project. xi.
the size of the funding requirement would necessitate joint financing by banks/FIs or financing by more than one bank under consortium or syndication arrangements. 3) Promoters agree. while the proposals could be sanctioned in normal course. In order to contain this risk. Project Finance Portfolio of Banks At the time of financing projects banks generally adopt one of the following methodologies as far as determining the level of promoters’ equity is concerned. for the purpose of their own assessment. Financing of these projects would. it has been observed that the last method has greater equity funding risk. participating banks/ FIs may. banks/FIs may consider constituting appropriate screening committees/special cells for appraisal of credit proposals and monitoring the progress/performance of the projects. evaluation of risk mitigation through appraisal of project contracts and evaluation of creditworthiness of the contracting entities and their abilities to fullfill contractual obligations will be an integral part of the appraisal exercise. banks are advised in their own interest to have a clear policy regarding the Debt Equity Ratio (DER) and to ensure that the infusion of equity/fund by promoters should be such that the stipulated level of DER is maintained at all times. Loans and advances to Small Scale Industries SSI units having working capital limits of up to Rs. While it is appreciated that such decisions are to be taken by the boards of the respective banks. call for special appraisal skills on the part of lending agencies. wherever required.arrangement with the Reserve Bank of India or any bank for regular standing instructions/periodic payment instructions for servicing the loans/bonds. Identification of various project risks. ab initio. 5 crore from the banking system are to be provided working capital finance computed on the basis of 20 percent of their projected annual turnover. Often. 2) Promoters bring certain percentage of their equity (40% – 50%) upfront and balance is brought in stages. the disbursements should be made only after the borrower has obtained requisite clearances from the government authorities. In such cases. Further they may adopt funding sequences so that possibility of equity funding by banks is obviated. In order that the loan approval process is not hampered on account of this. banks should ensure that the borrowers have obtained prior permission from government / local governments / other statutory authorities for the project. 1) Promoters bring their entire contribution upfront before the bank starts disbursing its commitment. refer to the appraisal report prepared by the lead bank/FI or have the project appraised jointly. In this connection. that they will bring in equity funds proportionately as the banks finance the debt portion. The banks should adopt the simplified procedure in respect of all SSI units (new as well as existing).
. (ii) Infrastructure projects are often financed through Special Purpose Vehicles. therefore. Loans and advances to Real Estate Sector While appraising loan proposals involving real estate.
payable for processing. pre-payment options and any other matter which affects the interest of the borrower. It should include information about the fees/ charges. d) In the case of lending under consortium arrangement.2 lakhs will be disposed of should also be indicated in acknowledgement of such applications. (b) Banks and financial institutions should devise a system of giving acknowledgement for receipt of all loan applications. These may include approval or disallowance of facilities. the amount of such fees refundable in the case of non acceptance of application. (c) Banks / financial institutions should verify the loan applications within a reasonable period of time. the banks must inform ‘all-in-cost’ to the customer to enable him to compare the rates charges with other sources of finance.Guidelines (i) Applications for loans and their processing (a) Loan application forms in respect of all categories of loans irrespective of the amount of loan sought by the borrower should be comprehensive. If additional details / documents are required. particularly in respect of loans up to Rs. and disallowing drawing on a borrowal account on its classification as a nonperforming asset or on account of non-compliance with the terms of sanction. and communicate their decisions on financing or otherwise within a reasonable time. Time frame within which loan applications up to Rs. b) The lender should convey to the borrower the credit limit along with the terms and conditions thereof and keep the borrower's acceptance of these terms and conditions given with his full knowledge on record. c) As far as possible.
. so that a meaningful comparison with that of other banks can be made and informed decision can be taken by the borrower. They should not use margin and security stipulation as a substitute for due diligence on credit worthiness of the borrower. they should intimate the borrowers immediately. honouring cheques issued for the purpose other than specifically agreed to in the credit sanction. such as. (ii) Loan appraisal and terms/conditions a) Lenders should ensure that there is proper assessment of credit application by borrowers. Further. if any. Banks/FIs should ensure that all information relating to charges/fees for processing are invariably disclosed in the loan application forms. drawings beyond the sanctioned limits. 2 lakh. (iv) Post disbursement supervision a) Post disbursement supervision by lenders. the participating lenders should evolve procedures to complete appraisal of proposals in the time bound manner to the extent feasible. It may also be specifically stated that the lender does not have an obligation to meet further requirements of the borrowers on account of growth in business etc. should be constructive with a view to taking care of any" lender-related" genuine difficulty that the borrower may face. without proper review of credit limits. the loan agreement should clearly stipulate credit facilities that are solely at the discretion of lenders.
c) In the matter of recovery of loans. c) Lenders should release all securities on receiving payment of loan or realisation of loan subject to any legitimate right or lien for any other claim lenders may have against borrowers. borrowers shall be given notice about the same with full particulars about the remaining claims and the documents under which lenders are entitled to retain the securities till the relevant claim is settled/paid (v) General a) Lenders should restrain from interference in the affairs of the borrowers except for what is provided in the terms and conditions of the loan sanction documents (unless new information. if any. either from the borrower or from a bank/financial institution. not earlier disclosed by the borrower. as specified in the loan agreement or a reasonable period. should be conveyed within 21 days from the date of receipt of request.over the account. d) In case of receipt of request for transfer of borrowal account. the consent or otherwise i. If such right of set off is to be exercised. persistently bothering the borrowers at odd hours. this does not preclude lenders from participating in credit-linked schemes framed for weaker sections of the society. objection of the lender. However.
. has come to the notice of the lender). etc. caste and religion in the matter of lending. the lenders should not resort to undue harassment viz. b) Lenders must not discriminate on grounds of sex. which proposes to take.b)Before taking a decision to recall / accelerate payment or performance under the agreement or seeking additional securities. lenders should give notice to borrowers. use of muscle power for recovery of loans.e. if no such condition exits in the loan agreement.
it remains in the possession of the borrower. PRIMARY SECURITY: Primary security is the asset created out of the credit facility extended to the borrower and / or which are directly associated with the business / project of the borrower for which the credit facility has been extended. etc. 2. Pledge: Under this agreement. If the borrower defaults on a loan. The bank has a right of lien and can retain possession of the goods pledged unless payment of the principle. a Bank has financed the purchase of machinery by a Pharmaceutical manufacturing company. it is frequently referred as secondary source of repayment. as additional security. Hypothecation: Under hypothecation. exposing the Bank to a higher risk than it had originally bargained for. This machinery would be the primary security for this loan. The borrower does not transfer the property to the bank. however. bank’s fall on the security for realisation of the defaulted amount. say. interest and any other expenses is obtained from
. the borrower is provided with working capital finance by the bank against the security of movable property. title of property is transferred in the name of Bank or lending institution. FORMS OF SECURITY The forms of security either by way of primary security or collateral security is given here under:1. hypothecation of jewellery.FINANCIAL TERMS
The appraising officer come across following Financial terms and jargons that are used for credit appraising and decision making as follows:-
Sound Banking practices in respect of credit portfolio require loans & advances backed by adequate security. Therefore. For example. generally inventories. Banks generally grant credit under hypothecation only to first class customers with highest integrity. Sometimes. Banks do not usually grant hypothecation facility to new customers. For example. Thus hypothecation is a charge against property for an amount of debt where neither ownership nor possession is passed to the creditor. There are two types of securities available to Banks to secure a loan. mortgage of house. on account of adverse market conditions. the Bank may obtain collateral security in the form of the factory building owned by the company. COLLATERAL SECURITY: Collateral security is any other security offered for the said credit facility. the value of the primary security gets eroded. They are Primary security and Collateral security. Collateral Security refers to certain additional security obtained by the Bank to secure the loan. the borrower is required to transfer the physical possession of the property offered as security to the bank to obtain credit. In addition. Securities reduce the Banks risk when it makes a loan. This will guard Bank's interests in the event of the primary security not having sufficient value to liquidate the loan.
rather he can withdraw periodically to the extent of his requirements and repay by depositing surplus funds in his cash credit account 3. Term Loans: A term loan is usually a single loan for a stated period of time or a series of loans on specified dates. Financial institutions and banks are in the business of financing as they provide capital to businesses. Moratorium Period: Holiday period given to repay the term loan. There are two ways of providing funds i. or b) sue for the sale of goods pledged. Under cash credit facility. The term loans are mostly given to the borrowers who propose to set up a unit (project) for example a manufacturing unit. Mortgage: Mortgage is the transfer of the legal or equitable interest in a specific immovable property for security against the debt. making purchases or investing. however. The transferor of interest (borrower) is called mortgagor. In case of default. c. 2. or c) after giving due notice to s 3. entering into new business and so on and so forth. Over draft:
. or it may be to set up of power plant or construction of complexes. He is not required to borrow the entire credit sanctioned once. which must be provided by before hands. refinancing debt. Cash Credit limit. a borrower is allowed to withdraw funds from the bank upto the sanctioned credit limit. the possession of the property may remain with the borrower. the bank may either a) sue the borrower for the amount due. the transferee is called mortgagee and the instrument of transfer is called the mortgage deed. buildings.e. 1. Cash Credit: Cash credit facility is the most popular method of bank finance to the borrowers adopted by the lenders. Term loans are of maturity of 1 year and above and are re paid on an amortized basis. They are used for specific purposes such as acquiring machinery. renovating a building. Construction Period: Time taken for completion of construction activity by the unit holder. financing to the borrowers used by Banks or financial institutions as given below:A. the lender get the full legal title. consumers and investors to help them achieve their respective goals. over draft etc. This facility includes Term Loan facilities. In case of mortgage.
Financing is the act of providing funds for business activities. The maturity of term loan called tenor of the loan comprises of following components: a. b. roads etc. Fund Based Financing: The fund based financing provided by banks involve immediate outlay of funds. Repayment Period: Period in which the term loan is repaid.the borrower.
It is composed of long term debt. Banks extend such facility to financially sound customers.
In order to run and manage a company. At the start of a business owners put some funding into the business to finance assets this creates liability on the business in the shape of capital as the business is a separate entity from its owners. A bank opens an L/C in favour of a customer to facilitate his purchase of goods. finances play an important role in a company’s life. preference share capital and share holders’ funds. spread among individual shareholder of common or preferred stock. When the inventory is sold.
B. Bank charges the customers for opening the L/C. The capital structure is made-up of debt and equity securities and refers to permanent financing of a firm. Letter of credit: Suppliers particularly the foreign suppliers insist that the buyer should ensure that his bank will make the payment if he fails to honour its obligations. Right from the promotional stage upto end. If the customer does not pay the supplier within the credit period. Equity Capital: Equity capital represents the remaining interest in assets of a company. This is ensured through a letter of credit (L/C) arrangement. Bank Guarantee: Bank guarantee is a commitment to a foreign buyer that the bank will pay an exporter for goods shipped if the buyer defaults or it is an undertaking by a bank to be answerable for payment of a sum of money in the event of non performance by the party on whose behalf the guarantee is issued. Overdrawn amount is repaid on demand. Over draft generally continue for a long period by annual renewals of the limits. Non-Fund Based Financing: Non-fund based financing are essentially in nature of promises made by banks in favour of a third party to provide monetary compensation on behalf of their clients if certain situations emerge. Line of credit: The line of credit is the maximum amount that can be borrowed under the terms of the loan. It is therefore necessary that there should be an optimal capital structure which will help the organisation to run its work smoothly. the bank makes the payment under the L/C arrangement. The loans are made for the periods of one year or less. Debt:
.Under the over draft facility. and they should be used to finance the seasonal increase in inventory and accounts receivables. The loans are usually payable on demand by the bank or within ninety days. funds are needed. receivables are collected and the funds are used to reduce the loan. If funds are in adequate the business suffers and if the funds are not properly managed the entire organisation suffers. the borrower is allowed to withdraw funds in excess of balance in his current account upto a certain specified limit during a stipulated period. These non-fund based facilities may be in the nature of bank guarantee or letters of credit.
wherein the bank is a member of the consortium.
Types of debt:Senior Debt: Debt which has a priority claim on the assets of a company. sole banking should not be encouraged as it exposes the Bank to concentration risk MULTIPLE BANKING ARRANGEMENT: Multiple Banking is a banking arrangement where a borrower avails of finance independently from more than one bank. In multiple banking.00 crores and above. bank should also make an independent appraisal regarding the viability of the project and the recommendations of the bank should be based on such appraisal. in addition to the appraisal made by the leader bank. However. Usually this covers all the assets of a corporation and is often used for revolving credit lines.ordinate Debt: It is the debt whose holders have a claim on the firm’s assets only after senior debt holder’s claims have been satisfied.Debt is the capital that a business raises by taking a loan. This debt has a lower priority than other bonds of the issuer in case of liquidation during bankruptcy below the liquidator. rate of interest etc.
. Subordinate debt is referred as subordinate because the debt provides have subordinate status in relationship to the normal debt. common documentation. government tax authorities and senior debt holders in the hierarchy of creditors. In case of lending under consortium arrangement. different banks provide finance and different banking facilities to a single borrower without having a common arrangement and understanding between the lenders. As such. where the borrower enjoys working capital limits from more than one bank. details about borrowings should be obtained from other banks and regular exchange of information amongst financing banks should be ensured. Under multiple banking arrangements. including margin. in case of larger credit exposure. Sub. Thus. Actually it is a loan made to a company that is normally repaid at some future date. say Rs 25. CONSORTIUM BANKING ARRANGEMENT: Under consortium financing. the appraisal method followed by the lead bank may be adopted provided it does not result in any major deviation of credit assessment. Debt capital differs from the equity or share capital because subscribers to debt capital do not become the part owners of the business but are merely creditors. there is no contractual relationship between various bankers of such borrower.
The lenders arrange fund (debt) to the borrowers by way of following methods:SOLE BANKING ARRANGEMENT: Under this arrangement credit facilities in favour of the single borrower are sanctioned by a single bank. joint supervision and follow-up exercises. Also in such arrangement each banker is free to do his own credit assessment and old security independent of other bankers. This refers to debt secured by collateral on which the lender has put in place a first lien. each bank is free to negotiate terms and conditions. In consortium arrangement. several banks (or financial institutions) finance a single borrower with common appraisal.
On the basis of these activities loan book of a bank is divided into different sectors. Profit and Loss account and cash flow statement A.Banks may consider opting out from the consortium. Syndicate Banking: It is a group of investment banks which jointly underwrite and distribute a new security offering or jointly lend money to a specific borrower. Sectors can be broadly classified in to Priority and Non Priority sectors
Priority Sector: Some areas or fields in a country depending on its economic condition or
government interest are prioritised and are called Priority sectors. construction etc. One such analysis includes financial analysis. Most specifically Balance sheet contains information about resources and obligations of a business entity and about its owners or in other language Balance sheet gives clear information about Assets . Banks are directed by the Reserve bank of country that loans must be given on reduced interest rates with discounts to promote these fields.
Financial analysis includes through analysis by the banks or financial institution of the financial statements of the applicant borrower. Balance Sheet: Balance sheet is the most significant financial statement. profit & loss account and cash flow of the applicant company. This financial information of an enterprise is contained in the financial statements and the three basic financial statements of great significance to investors are Balance Sheet.
Financial statements are required in investment and financing decision making. where it is not satisfied with the performance/financials/operation of the borrower. It indicates the financial condition of a business at a particular moment of time. A bank syndicate is not a permanent entity but forms specifically to handle a deal that might be too difficult or too risky for a single underwriter
Lending involves extending of credit facilities to different activities viz trade. Financial analysis is supported by ratio analysis. Main aim of these sectors is to mitigate the concentration risk. liabilities and owners equity of a business firm. Financial analysis includes analysing the balance sheet. Such lending is called priority sector lending: SECTOR Percentage of adjusted net Bank credit under the category Total Priority sector out of which under 40% Agriculture 18% Weaker sections 10% DRI 1%
The banks analyse the borrowers thoroughly to check their credit worthiness before financing the borrowers. manufacturing. Balance sheet
is considered the most liquid of all assets. current assets. especially that which could be converted to cash. investments. such as real estate or machinery. are less likely to sell overnight or have the capability of being quickly converted into a current asset such as cash. Cash. Format of Balance Sheet
Liabilities Current liabilities: Income received in advance Outstanding expenses Provisions Bank overdraft Bills payable Sundry creditors Fixed liabilities: Long term loans Share capital Reserve and surplus
Assets Current assets: Cash in hand Cash at bank Short term investments Bills receivable Book debts Closing stocks: Finished goods Goods sent on consignment Work-in progress Raw materials Prepaid expenses Long-term investments Fixed assets: Loose tools stores Live stock furniture Plant & machinery Patents Goodwill Fictitious assets: Losses & expenses not written off
Elements of balance sheet: a. secured loans. loans and advances on the asset side. unsecured loans and current liabilities on the liabilities side and fixed assets. reserves and surplus . Current assets:
.includes items like share capital. Asset is any item of economic value owned by an individual or corporation. Assets Side: The term “Asses” denotes the resource acquired by the business from the funds made available either by owners of the business or by others. for obvious reasons. Assets are subdivided into current and long-term assets to reflect the ease of liquidating each asset. Long-term assets.
and unsecured loans from banks. or a printing press. because land is considered an asset that never wears out.
INVESTMENTS: This includes investment of the company in shares of other companies. Unsecured loans: borrowings of the firm against which no tangible security is provided are referred to as unsecured loans. Equity capital being risk capital carries no fixed rate of dividend. fax machines. stock in process and finished goods). inter corporate borrowings.Current assets are any assets that can be easily converted into cash within one calendar year and comprise of debtors. who are theoretically the owners of the firm.Buildings are categorized as fixed assets and are depreciated over time. Buildings .
• • • • •
Land . Secured loans: borrowings of the firm against which tangible security is provided are referred to as secured loans. and loans from commercial banks. Main components of current assets are: Fixed assets: Fixed assets include land. is not depreciated. Revenue reserves represent accumulated retained earnings from the profits of normal business operations. and vehicles that are used in connection with the business. debentures. printers.This would include any vehicles used in the business. investment in mutual funds etc. Office equipment . capital reserves arise out of gains which are not related to normal business operations. Preference capital carries a fixed rate of dividend. capital redemption reserve. and computers used in your business. inventories (Raw material. The important components of secured loans are: loans from financial institutions. conveyor belts. Examples of machinery might include lathes. Reserve and surplus: Reserves may be classified into two broad types: revenue reserves and capital reserves. The major components of unsecured loans are: fixed deposits. Vehicles . unlike other fixed assets. LIABILITY SIDE: Share capital: This is divided into two types: equity capital and preference capital. Examples of current assets would be checking or money market accounts. Machinery . accounts receivable. etc.This includes office equipment such as copiers. investment allowance reserve. machinery.Land is considered a fixed asset but. (both short and long term) B. buildings. and notes receivable that are due within one year’s time. Examples of such gains are the premium on issue of shares and the appreciation recognised on revaluation of assets. Current liabilities and provisions: This category includes liabilities that are to be paid within 1 year and provision for taxes dividends. The first represents the contributions of equity shareholders. These may be divided into general reserve.This figure represents machines and equipment used in your plant to produce your product. loans and advances from promoters. dividend equalisation reserve.
. AII INCOMES & GAINS)
Components of Income statement: Revenue: Revenue reflects Cash inflows or other enhancements of assets of an entity during a period from delivering or producing goods. Repairs & Depreciation Losses & Expenses.g.e. rendering services. Selling & Distribution Expanses Financial Expanses.
Profit and Loss account:
Profit and loss account is a score board of the firm’s performance during a period of time. ………… ………… ………… Particulars (Debit side) By Gross profit b/d By Interest received By Discount received By Commission received By Sundry receipts By Net loss Amount (Rs. or carrying out other activities that constitute the entity's ongoing major operations. ……….represent expenses needed to sell products (e. office supplies) o Selling expenses . advertising. ALL LOSSES) Amount (Rs.
o General and administrative expenses (G & A) . depreciation of sales store buildings and equipment)
. expenses and net income of a firm. rendering services. depreciation of office building and equipment.) ……….
Format of Profit & Loss Account. freight.etc. office rents. Creditors particularly bankers and financial analysts have recently started paying more attention to the firms earning capacity as a measure of its financial strength. and allowances Expenses: Expenses reflects Cash outflows or other using-up of assets or incurrence of liabilities during a period from delivering or producing goods. commissions and travel expenses. insurance.e. utilities. EXPENSES &
(I. ………. It serves as a measure of the firm’s profitability.represent expenses to manage the business
(officer salaries. returns. (I. sales salaries. It gives the summary of revenues.. Usually presented as sales minus sales discounts.) ……… ……… ……… ……… ……… ………
Miscellaneous ………… ………. Particulars (Credit side) To Gross loss b/d: Office & Management Expenses. shipping. or other activities that constitute the entity's ongoing major operations.. legal and professional fees. To Net profit.
repayment of long term borrowings) • Net cash from financing activities Net increase (Decrease) in cash Cash at the beginning of period. o Other expenses or losses . FORMAT OF CASH FLOW STATEMENT. year.is the charge for a specific period (i. • Cash generated from operations • Extraordinary items • Net cash from operating activities CASH FLOWS FROM INVESTING ACTIVITIES: • Individual items of cash inflows and outflows from financing activities( purchase/sale of fixed assets.
Rs.o R & D expenses .expenses or losses not related to primary business operations.represent expenses included in research and development o Depreciation . CASH FLOWS FROM OPERATING ACTIVITIES: • Cash receipts from customers.
. accounting period) with respect to
fixed assets that have been capitalized on the balance sheet. • Cash paid to suppliers & employees.e. Such a statement enumerates net effects of various business transactions on cash and its equivalent and takes into account receipts and disbursements of cash. Cash at the end of period Rs. interest received) • Net cash from investing activities CASH FLOWS FROM FINANCING ACTIVITIES: • Individual items of cash inflows and outflows from financing activities(long term borrowings.
Cash flow statement:
This statement describes the inflows and outflows of cash and cash equivalent in an enterprise during a specified period of time.
30:1(minimum) and 1. Bench mark of key Financial Ratios in J&K Bank: Financial ratios are only tools and not an end in credit appraisal process. upto 3:1 in case of SME and large industries sector and 2.RATIO ANALYSIS
Ratio analysis is a technique of analysis and interpretation of financial statements.33:1 May be relaxed: 1. The important liquidity ratios are:
.60::1(Average) scenarios of decrease in sales price by 5% increase in critical inputs by 5%. upto 12.25:1 The ratio is an indicator of ability of the unit to pay interest coverage ratio and is arrived at by dividing PBIT by interest and has to be analysed in combination with other financial indicators Some important ratios used during analysis of the financial statements by the Banks to ascertain the credit worthiness of the borrowers is described as under: Liquidity Ratio: These ratios are also called as Working Capital Ratio or Short Term Solvency Ratio. Analysis of a combination of critical financial ratios can help in proper decision making. However following minimum levels of key financial indicators are proposed to be accepted. An enterprise must have an adequate WC to run its day-to-day operations. Key ratios Minimum Remarks Current ratio 1.30:1(Minimum) The acceptable level in base case scenario is prescribed as and 1.10:1 in case of export credit DER 2:1 May be relaxed 1. increase in project cost by 5% and increase in operational expenditure by 5% < DSCR at minimum of 1. It is the process of establishing and interpreting various ratios for helping in making certain decisions. However under the 12. in other sectors may be accepted at a level higher than 2:1 as in case of units having stable income and faster generation of operating profits after commencement of proposed activity DSCR under various scenarios is minimum of 1.60:1(average).25:1 in case of SME sector and 2. upto 1. upto 4:1 in case of infrastructure projects 3. They are also practical constraints in evolving industry wise benchmarks for key financial indicators.15:1 and average of 4. They are means to an end and only pass guiding signals.75:1 DSCR 1.40:1 is prescribed to be accepted interest 1.
Higher gearing ratio indicated that the firm is more leveraged to the external sources of funds and in turn will expose it to high debt cost. When current ratio equals 1 NWC is zero. Leverage Ratios: A firm should have both strong short term as well as long term financial position.e. shareholders) against the firm’s assets. It is expressed as: QR = Liquid Assets / Current Liabilities The ideal QR is 1. Following ratios are commonly used to analyze financial leverage. Net working capital (NWC): The NWC is a measure of owner’s stake or long term liquid fund in the firm. 1 instead of 2. Interest Coverage Ratio: It is used to test the firm’s debt servicing capacity. It is calculated as Debt Equity ratio= Debt/Equity It is relaxed upto 3:1 in case of SME and large industries sector and upto 4:1 in case of infrastructure projects. This ratio is ascertained by comparing the liquid assets (i. the one having the larger NWC has the greater ability to meet its current obligations. It is calculated as
. NWC = Current assets . assets which are immediately convertible into cash without much loss) to CL. It may be relaxed upto 1. It is calculated by dividing the total of current assets by total of current liabilities. then also the creditor will be able to get their payments full. The ratio is also an indicator of short-term solvency of the company. Negative NWC implies that lending bank is running a more than normal financial risk in respect of borrower. It is considered that between two firms. Debt Equity Ratio: Debt Equity ratio is calculated to measure the relative claims of outsiders and the owners (i. TOL/TNW: This is also called gearing ratio. To judge the long term financial position of the firm Financial Leverage ratios are calculated.25:1 in case of SME sector and upto 1..e.10:1 in case of export credit.Current liabilities NWC is sometimes used as a measure of firm’s liquidity. This ratio is a measure of general liquidity and is most widely used to make the analysis of short term financial position or liquidity of a firm.e. The ratio of 2 is considered as safe margin of solvency due to the fact if the CA are reduced to half. CR = CA/ CL Accepted benchmark for determining satisfactory current ratio is 1. Quick Ratio: This ratio is also termed as Acid Test Ratio or Liquidity Ratio.331. i. It has a close relationship with current ratio. A high interest coverage ratio means that the firm can easily meet its interest even if earnings before interest and taxes suffer a considerable decline. When current ratio is more than 1 NWC is positive and vice versa.Current Ratio: It is defined as a relationship between current assets and current liabilities. An ideal CR is 2. This ratio indicates the relationship between the external equities or the outsider’s funds and the internal equities or the shareholders funds. This ratio indicates leverage to the owned funds of the firm.
Owners are interested to know the profitability as it indicates the return.Interest Coverage=Earnings before interest and tax/interest
Debt service coverage ratio (DSCR): DSCR is the ratio of cash available for debt servicing to interest. Bankers. principle loan payments.30:1(Minimum) and 1. interest and taxes are subtracted from gross profit. administration. It shows the percentage of gross profit to sales Gross Profit margin=Gross Profit/Sales More the gross profit margin more is the efficient production and better is the operating performance. financial institutions and other creditors look at profitability ratios as an indicator whether or not the firm earn sustainability more than it pays interest for the use of borrowed found &whether the ultimate repayment of their debt appears reasonably certain. the easier is to repay a loan. However under the scenarios of decrease in sales price by 5%.60:1(Average). increase in critical inputs by 5%. Net Profit Margin: Net profit is obtained when operating expenses. This ratio reflects the efficiency of manufacturing. It is a popular benchmark used in the measurement of an entity’s ability to produce enough cash to cover its debt payments. It is calculated as: Net profit margin= Profit after tax/ sales Net profit margin shows the percentage of net profit to sales. DSCR = EBIT + Depreciation+ principal repayment on existing & proposed loans Principal repayments +interest payments Typically most commercial banks require the ratio of 1. which they can get on their investment.15-1. It indicates the percentage of the total capital employed in the business. Profitability Ratios: Profitability is the indication of the efficiency with which the operations of the business are carried on. It is calculated as ROI = Operating Profit / Capital Employee * 100
. The higher the ratio.40:1 is prescribed to be accepted. DSCR at minimum of 1. In J&k Bank the acceptable levels in base case scenario are prescribed as 1. The following are important profitability ratios: Gross Profit Margin: Gross profit margin reflects the efficiency with which the management produces each unit of product.15:1 and average of 1.35 times (net operating income /Annual debt service) to ensure cash flows is sufficient to cover loan payments on an ongoing basis. increase in project cost by 5% and increase in operational expenditure by 5%. and selling the products Overall profitability ratio: It is also called “Return on Investment” (ROI) or Return on Capital Employed (ROCE).
Analysis of financial statements including ratio analysis is followed by the risk analysis of the said borrower by the banks to ascertain the risk involvement in granting loan to the borrower. RISK Risk may be defined as uncertainties resulting in adverse outcome. ability of the promoters to infuse the required equity. It also helps in estimating the company’s capacity to its equity shareholder.The ROI invested is a concept that measures the profit. Market Risk It is the risks that involves the possibility of losses associated in. The possible unfavourable impact is the RISK of the business.P. marketing arrangements and future financials are taken into consideration. This could be favourable as well as unfavourable. In banks losses arise due to inability or unwillingness of a customer to meet commitments in relation to lending.E. on balance sheet and off balance sheet items due to movements in the market prices Types of Market Risk includes:-
.R. Banking risks: The major banking risks are as under: 1. Price earnings ratio (P. The return on capital employ also shows whether the company’s borrowing policy was economically & whether the capital had been employed fruitfully. Of Equity Shares The E. which a firm earns on investing a unit of capital.S= PAT & Preference dividend / No.): This ratio indicates the no. Under Risk analysis promoter’s experience. Uncertainties associated with risk elements impact the net cash flow of any business or investment.S. adverse in relation to planned objective or expectations. the overall profitability can also be judged by calculating earnings per share with the help of the following formula: E. at a particular market price. helps in determining the market price of the equity shares of the company.R =Market price per equity share / Earning per share It helps the investor in deciding whether to buy or not to buy the shares of a co. Under the impact of uncertainties. This is calculated according to the following formula: P. variations in net cash flow take place. Default / Credit Risk: Credit risk is defined as the probability of losses associated with reduction of credit quality of borrower.): In order to avoid confusion on account of the varied meaning of the term capital employed.S.E. of times the earning per share is covered by its market price.P.
Earnings per share (E.P. 2.
This minimum level corresponds to the risks in the economy in which it is operating. Here non-performance is external factors on which the borrower has no control. Compliance risk: Compliance risk is the risk of legal or regulatory sanction. IRR refers to potential impact on Net Interest Income or Net Interest Margin or Market value of Equity caused by unexpected changes in the market. Gap or Mismatch Risk: A gap or mismatch risk arises from holding assets and liabilities and off balance sheet items with different principal amounts. people.
. diversified across geography. liabilities and off balance sheet items may change in different magnitude is termed as basis risk. This is called intrinsic or systematic risk. Basis risk: The risk that the interest rate of different assets.
b.. 5. 6. b. both Internal and external.e. 4. systems or external events. Systematic or Intrinsic Risk: If a portfolio is diversified fully i. Concentration Risk: If the loan portfolio is not diversified fully that is to say that it has higher weight in respect of a borrower or geography or industry etc. etc then the portfolio risk is reduced to a minimum level.a. Interest rate risk: It is the exposure of banks financial condition to adverse movements in interest rates. Transaction Risk: It is the risk arising from fraud. financial loss or reputation loss that a bank may suffer as a result of its failure to comply. Operational risk: Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes. c. Country risk: This is also a type of credit risk and is related to non-performance of borrower or counter party arises due to constraints or restrictions imposed by a country. Liquidity Risk: The liquidity risk arises from funding of long-term assets by short-term liabilities. 3. d. failed business processes and the inability to maintain business continuity. industry. borrowers. maturity. the portfolio gets concentration risk. Types of operational Risk: a.
Centralize the entire borrower database of the bank. Internal Rating of Borrower accounts is one of the processes for effective Credit Risk identification and in this context J&K bank has developed a tool to rate the account on an ongoing basis. Large Corporate 2.
BRIEF ABOUT IMACS SOFTWARE
Bank has been working on several initiatives to streamline and upgrade the existing Risk Management Systems to bring them in tune with the current Regulatory guidelines (enunciated in the RBI and Basel-II guidance notes) and prevailing International Best Practices in the rapidly evolving domain of Integrated Risk Management. credit processing and approval system across the bank
Provide a real time and effective decision support system in the form of ratings and accompanied likely probability of default. Risk Scorer Application as the Business Process Transformation tool: Risk Scorer application has been designed to act as the automated credit processing system and replace the existing manual system of credit processes in the bank. SME
. Risk Rating Models: Risk Rating Models are the tools to score a borrower on significant quantitative (Financial data) and qualitative (Non-Financial data) parameters to assess its likelihood of loss (Probability of Default). the Risk Scorer Application has been designed to help the bank in automating the entire credit process right from Loan origination to its final sanction including Borrower Selection. J&K Bank has devised Risk-Rating Models for five broad lending segments of: 1. This is called risk mitigation. rating and final sanction. J & K bank use IMACS software tool to ascertain the credit risk involved in the credit financing and also ascertain to price the borrower based on the risk involved. The system help the bank in selecting right kind of borrowers and managing the portfolio both at micro (branch) level and macro (Bank) level. Each proposal follows a workflow system with predefined business rules for its analysis.Risk mitigation: Since risk arises from uncertainties associated with the risk element. risk reduction is achieved by adopting strategies that eliminate or reduce the uncertainties associated with the risk element. Credit Proposal Creation and Analysis.
Deployment of Risk Scorer Application and Credit Risk Rating Framework in J&K Bank:
An appraising officer at A&AP department. The Risk Scorer application performs following functions:
Standardize the borrower selection. Risk Scorer Application: In order to bring about a qualitative change in the existing credit processes in the bank.
50. Bridges. Airports. Project Finance: Project Finance sub-module sits on top of the Large Corporate and SME rating models to help the bank in rating the borrower where they want to finance some project or give advance in the form of medium and long term loans for creation of specific tangible assets.00 Crores and more. any size. SBS (Small Business in Trade and Services): These are concerns / companies in the trade and services business segment where aggregate exposure of the bank is less than Rs.00 Crores. 50.00 Crores (Aggregate exposure means Fund and Non-fund based limits or Outstanding balances whichever is higher) and / or where average annual turnover of the company / concern for preceding three years is less than Rs. 5. In case of companies / concerns with no financial history three years projected turnover shall be taken and in case of companies which are yet to complete three years. Personal In addition.00 Crores (Aggregate exposure means Fund and Non-fund based limits or Outstanding balances whichever is higher) and / or where average annual turnover of the company / concern for preceding three years is Rs. and Telecom etc. Definition of Lending Segments and applicability of suitable Rating Model:
Large Corporate: Large corporate exposures would be those where aggregate exposure of the bank to a borrower is more than Rs. Infact. SBS 4. NBFC and Project Finance.00 Crores. 50. Housing 5. Infrastructure: All infrastructure exposures like Highways. executed by way of a SPV (Special Purpose Vehicle) or a newly created company (with no recourse to the Balance sheet of the Promoter companies) shall be rated with the help of Infrastructure Model. The Project Risk rating Module generates a separate Project Risk Score. both actual and projected turnover shall be considered. Project Finance module is the sub module of Large Corporate and SME Rating Model. which shall modify the basic borrower Risk Score for Project activities and give a final risk grade. SBS rating model would be used for borrower rating in case of Fund and Non-Fund based working capital and Term lending exposure to SBS lending segment.3. Large Corporate rating model would be used for borrower rating for the Fund / Non Fund based working capital and / or other short term lending to large Corporate Segment SME (Small and Medium Enterprises): These are manufacturing concerns / companies where aggregate exposure of the bank to a borrower is less than Rs. 5. there are three additional rating models for Infrastructure.00 Crores (Aggregate exposure means Fund and Non-fund based limits or Outstanding balances whichever is higher) and / or where average annual turnover of the company / concern for preceding three years is less than Rs. Thus. In case of projects
. 5. SME rating model would be used for borrower rating for the Fund and Non-Fund based working capital and / or Short term exposure to SME lending segment. Project Finance Module shall be used in case of Large Corporate and SME borrowers who undertake projects of any sort.
Sales growth recorded in the latest year shall have more weightage) Profitability calculated as ROCE (Return on Capital Employed) Coverage (This is the Operating Cash Flows over total Interest. The PD of such borrowers shall be highest. EC (Emerging Corporate) for Infrastructure and likewise) to JKB 10. Similarly SME Model shall generate output in the form of JKBSME 1………SME10 and so on.due to group Internal Control Succession Planning Intra-group conflicts Project Risk Score Parameters: (Both for LC and SME Models) Status of Project clearances Infrastructure availability
. LC Model with Project Risk Score Sub module shall be used.. RISK SCORING PARAMETERS Financial Risk Scoring Parameters: Growth (Sales growth over the preceding two years. Risk grade 1 denotes the borrowers having highest safety and credit quality (Consequently lowest PD) whereas JKB 10 represents the borrowers who are most likely to default over one year horizon. SME for Small and Medium Enterprises.executed by existing companies with previous financial history. Range of Risk Grades: The J&K bank has used a range of 10 risk grades starting from risk grade 1 denoted as JKB 1(plus the lending model acronym like LC for Large Corporate. LC10. Operating Cash Flows is the Net Profit plus Depreciation adjusted for change in Net Working Capital) Industry Risk Scoring Parameters: Cyclicality of the industry Technology dependence Environmental impact Demand-supply situation Business Risk Scoring Parameters: Customer quality and concentration Supplier reliability and concentration Competition impact on GP margin Industrial/employee relations Management Risk Scoring Parameters: Integrity Business Commitment Credit track record General reputation Competence Business Experience Ability to raise funds Financial strength/burden . LC2 …….. Thus large corporate Model will generate rating grades of JKBLC1.
SME. SBS. The financial data includes balance sheet.
Legal/regulatory environment Market for project output Ability to handle projects in hand Force majeure risk Project Debt-Equity Debt repayment period Sensitivity analysis
The appraising officer put audited financial data and non financial date in IMACS software. The details of subjective parameters for the infra model is given briefly as below:-
SUBJECTIVE PARAMETERS CONFIGURATION FOR INFRASTRUCTURE/ PROJECT FINANCE MODEL
REGULATORY. Subjective parameters are different for Different models i.e. put non financial data called subjective parameters. profit and loss account of the borrower. POLITICAL AND LEGAL RISK ASSESSMENT: Regulatory Environment Demerits and licences Tax and fiscal incentives Political stability Environmental impact PROJECT STATUS: Project structure Term of agreement Detailed project feasibility report Status of project clearances SPONSOR RISK ASSESSMENT: Financial strength of promoters Competence of senior management in the sector Competence of senior management in project execution Competence of the project management team in the sector Competence of the project management team in the project execution
. the appraising officer. LC or INFRA has to put different subjective parameters. After putting audited financial data.
Banking history CONCESSION AGREEMENT RISK ASSESSMENT Toll pricing Regulatory approvals Toll risks TECHNOLOGY RISK ASSESSMENT Contemporariness of technology Technology _ Regional relevance Technology – Appropriateness of scale Performance guarantees offered by the technology supplier CONSTRUCTION RISK ASSESSMENT: Selection procedure of contractors Contractors Ability_ sector Contractors Ability_ technology
Land& labour availability
Transportation infrastructures Contingencies MARKET RISK ASSESSMENT Traffic Assessment Alternate source of revenue Demand supply Situation Credit worthiness of the consumer Competition Analysis SUPPLY RISK ASSESSMENT Identification of supplier Quantity of supply Input price of supply
although the changes/ reforms needed have been slow in coming The regulatory regime is somewhat unfavourable from a financier's standpoint. as changes are unpredictable. the IMACS software automatically generates its report indicating the final risk grade as per the detail given here under:-
Final Rating Grade
Construction Risk Assessment Market Risk Assessment Supply Risk Assessment Project Cost And Viability Basic Borrower Risk Score Borrower Risk Score (with Project Status Cap) Final Risk Grade Probability of Default ****** ****** ****** ***** ***** ***** ***** *****
The final risk grade provides the appraising office information that in which category of risk the borrower falls. More the risk more is the probability of the default and therefore higher the borrower will be priced. & not necessarily making projects viable in a predictable manner NA
After putting the required data by the appraising officer.
. Supplier track record PROJECT COST AND VIABILITY Financial structure of loan Projected debt service coverage ratio Price of equipment Debt equity ratio An example how remarks are attributed to Subjective Parameters
Please select appropriate option
Excellent Regulatory Environment
The regulatory regime is progressive and sensitive to the needs of the sector The regulatory regime is reasonably favourable to the sector.
Nature of proposal Existing banking arrangement Proposed banking arrangement Activity Sector Priority classification Particulars of the existing facilities sanctioned by our Bank. (40 Sub 25 2% above quarterly debt the interest instalments) rate applicable to senior debt In addition.50% 180 months i..
. linked to moratorium PLR of period including respective construction bank. with period of 60 5 years annual months and resets. Recommendation s of the Branch 12.M/S ARYAN POWER PRIVATE LTD B/O XXX
GENERAL INFORMATION ON THE PROPOSAL Date of receipt of the proposal. debt 175
Moratori Total tenor um TL Including moratorium
Floating interest rate of 11.2010 Fresh connection Nil Consortium banking arrangement Power generation Power sector Non–priority sector Fresh connection
(amount in crores of Rs) Type Limit Rate of Interest Sr.85.00 crores as sub limit of term loan.03. repayment period of 10 years.e. branch has also recommended for LC/ BG/ Letter of comfort limit of Rs.
Security: The Facility. approvals.30 Max DSCR 2.0% 8. (c) assignment of contractor guarantees.8% 11. titles.91 Average 1.0% 8. (d) assignment in favour of Lenders / security trustees of all insurance policies taken in respect of the Project. to and in respect of all its assets. permits. receivables and intangible properties) both present and future in favour of Lenders / security trustee.59 Expected date of 48 months from NTP COD Moratorium 12 months from the COD Repayment period Repayable in 40 structured quarterly instalments such that the door-to-door maturity shall not exceed the Tenor.0% 10. and DER DSCR 4:1 Min DSCR 1. clearances. agreements (including but not limited to the power purchase agreement(s).8% 13.0% 8. consents in favour of Lenders / security trustee. fees thereon and all other amounts in respect thereof shall be secured inter alia by a first ranking: (a) mortgage / hypothecation and charge on all the Company’s movable and immovable assets (including all revenues.0%
. receipts. (e) charge on the Company’s bank account(s). permits.0% 8. (b) assignment of all rights. including but not limited to the trust and retention account(s) created in relation to the Project. Repayment schedule for the Facility is proposed as follows: Year of repayment 1st year 2nd year 3rd year 4th year 5th year 6th year 7th year 8th year 9th year 10th year % of Facility 8. fuel supply / fuel off-take agreement(s)).0% 12. performance bonds and any letter(s) of credit that may be provided by any party for the Project in favour of Lenders / security trustee. approvals and interests of the Company in. (f) pledge over 30% of the total issued share capital of the Company held by Promoters and/or Coal block allottee.4% 12. Interest.
Plot No. BOARD OF DIRECTORS Mr.
Whether directors of the applicant company are a director or No specified near relation of a director of a banking company.10/. Udyog Vihar.
CAPITAL STRUCTURE OF THE COMPANY: (Amount in lacs of Rs) Share Capital Authorised Share Capital (10. 2007 Aryan Power Pvt.each) SHARE HOLDING PATTERN OF APPL: Name of Shareholder Aryan Group Aryan Infratech Ltd.4. Hitec City Mirpur. Bihar 12310056 Aryan House. He is currently the Executive Vice-Chairman of Aryan Infratech Ltd and heads the
.. subscribed Paid up capital (10000 equity shares of Rs. Whether directors of the applicant company is a near No specified relation of any Bank’s senior officer of the rank of scale-IV and above. Charon Trading Pvt Ltd.BORROWER INFORMATION: Name Date of Incorporation Corporate Office Registered Office Constitution Project Site Sector Project Aryan Power Pvt. Total OTHER RELATED INFORMATION
Amount 100000.each) Issued. water arrangement and coal transportation / infrastructure arrangement in relation to the power plant.397. Ali Hyder is one of the founder members of the Aryan Group. 30th May. Public Limited Company Village Kurunti. Aliabad 500081. Plot No. Phase III. Ltd.10/. Kishan nagar Bihar Power 1320 MW (2 x 660 MW) Coal Based Power Project using super critical technology being set up in Kishan nagar Bihar The Project includes power evacuation arrangements. Software Units Layout.000 Equity Shares of Rs. Ltd.00
Stake 51% 26% 23% 100%
Whether name of the applicant company/its directors are appearing in the caution/defaulter list of RBI/CIBIL/ECGC.00 100000.
Mergers and Acquisitions.E. He is extensively involved in financing of AITL’s projects and overseeing the resources function of all the group companies. Mr. L. Vinay Kumar: is Managing Director of Aryan Infratech Ltd. Sridhar: is Director with Aryan Kondapalli Power Pvt. He has more than 30 years of experience in power projects as Original Equipment Manufacturer and also as Independent Power Project Developer. BRIEF FINANCIALS OF APPL: (Amount in Rs)
. In addition to this. He also holds an M. especially in the Construction and Infrastructure segments. USA. Aryan Amarkantak Power Pvt.. (Civil Engineering) from Siddaganga Institute of Engineering in Tumkur. of Aryan Infratech Ltd. Ltd. He has varied experience in Commercial Banking. He has joined Aryan Group after working with Acon Building Constructions in Sanjose. Mr. Kumar is a Mechanical Engineer with Finance Management Certification course from IIM. Pradeep Kumar is the Chief Executive Officer – Thermal. Karnataka and MS (Construction Management in Civil Engineering) from University of Eastern Michigan in the United States. Mr. He is respected as a strategist who can foresee opportunities. Corporate Advisory.Construction Division of AITL. Project Finance and Equity Capital Markets. He has done B.Hyder is respected for his expertise and achievements in the Construction industry. and Aryan Green Power Pvt.E degree in Machine Design from the Indian Institute of Science.Hyder holds a Bachelor’s degree in engineering with Production as specialisation. Mr. Aban Power Company Ltd. He is a Bachelor of Commerce from Madras Christian College and also a Chartered Accountant and Cost Accountant. Bangalore. new horizons and give a rapidly growing organization an impetus to achieve desired goals. His experience in project planning and execution continues to give a firm direction to Aryan’s strategic growth. Ltd. he also plays a key role in strategic planning and technology. He had worked as Joint Managing Director of AITL from 1997 to 2003. He focuses on Aryan's strategic partnerships and growth initiatives. Ltd. Mr.. He has led the implementation of over 15 power projects based on coal. He currently looks after Aryan Infratech's Finance functions and is a member of the Aryan's strategy team. oil and gas in public and private sectors. Mr. Bangalore.
Shareholders’ Funds Share Capital Share Application Money Pending Allotment Total Application of Funds 1. Rajasingh. hydro and wind sources. L. The group was founded by Mr. the group traded about 2.565 MW capacity is presently in advanced stage of construction. exited from the steel business in order to become a focused player in the infrastructure segment. in 2003. civil engineering. Fixed Assets a) Gross Block b) Less: Deprecation c) Net Block Capital Work in progress (incl.08
100000 770100000 770200000
100000 140100000 140200000
16551526 1234051 15317476 71281678 142826198 537974785 17472 11714078 549706335 8931687 540774648 770200000
7882727 278380 7604347 36551830 44927629 55111406 2131847 17502 4872659 7022008 11017220 (3995212) 140200000
BRIEF ABOUT THE PROMOTER COMPANY Aryan group. In power sector. During FY 2002 the group. representing Vijaywada constituency in the State of Andhra Pradesh. a second generation entrepreneur. Besides this.044 MW capacity based on gas. In addition. The group also has entered into real estate sector by undertaking property development of 20 million square feet (msf) of built-up area in Hyderabad. In 2000. The group has experienced significant growth in recent years through various projects undertaken in power sector. who started civil construction business and later ventured into manufacturing of pig iron/steel. has diversified businesses covering power generation and trading. construction. Mr.09
31. infrastructure and real estate.250 MW out of which about 3. established in FY 1989. Mr. Capital Advances) Pre operative expenses – pending allocation 2. the group has 7 operational projects aggregating 1. Madhusudan singh his younger brother joined the Aryan group in 1992 after completing his studies from USA. road and civil construction.03.900 million
. Loans & Advances a) Loans and advances b) Other current assets c) Cash and Bank Balances Less: Current Liabilities and Provisions Net Current Assets
31. Andhra Pradesh.Particulars I Sources of Funds 1. Investments 3. L. coal. L. Rajasingh moved into active politics by becoming a member of Parliament. Current Assets. the group has undertaken development of 11 power projects and the total generation capacity post the implementation of all these projects by FY 2014 would aggregate to about 7. Madhusudan singh is the Chairman of the Aryan group. In power trading business.03. Mr. L. the group ventured into power business by setting up a 368 MW gas based power plant in Kondapalli.
Plot No.93% External Credit BBB+ by CRISIL Rating Board of Directors of the promoter company( AITL) : The composition of Board of Directors of Aryan Infratech Limited is as follows: Name of Director Mr.10 each at a premium of Rs. Constitution Public Limited Company Date of March 26.75 billion.. P Narasimharamulu Shareholding Pattern of AITL: Shareholding pattern of AITL as on September 30. P. Sridhar Mr. The proceeds from the IPO have been utilized primarily towards development of infrastructure projects in power and real estate sectors. In November 2006. Madhusudhan Singh Mr. Particulars Corporate Office Detail Aryan Power Pvt. B. Phase III. Abraham Dr. 230 per share. 10.95% Institutions/FIIs – 23. Vasanthan Dr. In order to increase the power generation portfolio and capitalize on the increasing opportunities in the fast growing power sector. O. operate and maintain a 1. AITL made an Initial Public Offer (IPO) of Rs. L. Udyog Vihar.320 MW (2x660 MW) domestic coal based power project in kishan nagar Bihar Promoter: Aryan Infratech Ltd. 2009 Designation Executive Chairman Executive Vice Chairman Vice Chairman Managing Director Director Director Director Director Director
. Hitec City Mirpur. G.5 million equity shares of Rs. Bihar 12310056 Registered Office Aryan House. Plot No. 142.units (MUs) of power for FY 2009 and emerged as the largest private sector power trading participant (market share of about 15%). Alihyder Mr. the group has promoted APPL to construct. Software Units Layout. Uddesh Kumar Kohli Mr. (AITL) is the main operating cum holding company of the group.67 billion by issuing 44.12% Non-institutions/Public – 8.4. Aliabad 500081. Kotaiah Mr. L. AITL is a listed company with market capitalisation of about Rs. Vinay Kumar Dr. Ltd.397. 1993 incorporation External credit BBB+ by CRISIL rating Ownership pattern Promoters – 67. The IPO was oversubscribed by around 11 times and well received by the investors.
Category shareholder Promoters Institutions / FIIs Non-Institutions Public Total
of No. of shares % of shareholding (Rs. 10/- per share fully paid up) 163,605, 400 67.95% 55, 664,020 / 21,511,072 240,780,492 23.12% 8.93% 100.00%
various sectors of AITL : Brief detail of presence of AITL in various sectors is as follows: 1. Power sector Presently, the subsidiaries of AITL are operating 7 power plants with total operational capacity of 1,044 MW. With power projects in operations, under construction and development, the aggregate power generation capacity of Aryan group shall be close to 7,250 MW by FY 2014. List of power plant Kondapalli,Andhra Pradesh Chitraguda,wind project, Karnataka Aban-Power,Tamil Nadu Tirunnelveli-wind project, Tamil Nadu Amarkantak– Chhattisgarh Vamsi Hydro Energy, Kangra, HP Kondapalli expansion, AP Vamshi Industrial power, (HP) Amarkantak IIChhattisgarh Kondapalli expansion, AP Udupi Power, Karnataka Aryan Green, HP Anpara “C”, Uttar Pradesh Aryan-Hydro, Uttranchal Phata Byung project Operational Under (MW) constructio n (MW) 368 3 120 10 300 10 233 10 300 133 1,200 70 1,200 76 76 Under Actual/Expected developmen completion date t (MW) October, 2000 March, 2002 August, 2005 September, 2006 May, 2009 June, 2009 October, 2009 December, 09 March, 2010 April, 2010 June, 2010 October, 2010 March, 2011 March, 2012 March, 2013
- Rambara project Aryan Teesta, Sikkim Amarkantak III & IV, Chattisgarh Babandh project, Bihar Total
1,320 1,320 2,640
November, 12 November, 13 March, 2014
On completion of above power projects, the group would become one of the leading power generating company in India with a well diversified power portfolio based on all types of fuel, as tabulated below: Type of Fuel Coal Gas Hydro Wind Total Capacity (in MW) 5,640 854 742 13 7,249 % of total capacity 77.80% 11.80% 10.22% 0.18% 100.00%
Key Financial Indicators of the promoter company: (Amount in crores of Rs)
For the period ended, No of months Total operating income (TOI) EBIDTA EBIDTA/TOI (%) Interest Depreciation Operating Profit (OP) Non-operating Income PBT PAT PAT/TOI (%) Net Cash Accruals (NCA) Net fixed assets Tangible Net worth (TNW) Long term debt (LTD) (A) Short term debt (STD) (B) Working Capital Bank Finance (C) Guarantee (D) Total Debt (A+B+C+D) Total Debt /TNW LTD/ TNW Total Current Assets Total Current Liabilities Net working capital Current ratio ROCE (%) Interest cover Total debt/ EBIDTA Total debt/ NCA Comments: Total Operating Income:
Mar 2007 Mar 2008 Mar 2009 Audited Audited Audited 12 12 12 16057.7 32,412.6 60,719.6 4,198.0 6,994.5 8,873.6 26.14% 21.58% 14.61% 828.6 921.4 2,184.9 655.6 775.7 1,073.4 2,713.8 5,297.4 5,615.3 415.8 952.9 562.4 3,129.6 6,250.3 6,177.7 2,657.7 4,845.6 4,487.3 16.55% 14.95% 7.39% 3,375.4 5,702.7 5,562.4 24,390.0 38,029.4 15,104.8 18,333.4 20,976.2 16,411.2 30,308.0 49,439.0 0.0 0.0 0.0 687.5 0.0 17,098.8 1.1 1.1 17,173.9 11,533.7 5,640.2 1.5 11.80% 5.0 4.1 5.1 1,341.7 0.0 31,649.7 1.7 1.7 38,768.8 27,038.8 11,730.0 1.4 12.50% 7.1 4.5 5.5 6,530.8 0.0 55,969.7 2.7 2.4 49,342.4 31,331.3 18,011.2 1.6 10.50% 3.5 6.3 10.1
The total operating income (TOI) during FY 2009 has increased to Rs. 60719.6 crores from Rs. 32412.6 crores in FY 2008. The increase in TOI was primarily on account of increased revenue income from various construction and EPC contracts and power business. Profitability: Despite increase in operating income, Profit before Tax (PBT) has remained stagnant at Rs. 6177.7 crores during FY 2009 against Rs. 6250.3 crores during FY 2008. The EBIDTA margin has reduced on account of increase in cost of construction material and higher administrative/development expenses and finance charges due to increased leverage. Leverage:
in 2003.47 billion) and equity (Rs. The company proposes to enter into long term PPA with state utilities/industrial bulk consumers based on competitive bidding for additional 25% of capacity (at a price not less than or equivalent to the tariff calculated as per CERC regulations) and the balance 50% of the capacity (660 MW) is proposed to be tied up by way of short term/bilateral sale. who started civil construction business and later ventured into manufacturing of pig iron/steel.97 billion). L. Madhusudan Rao is the Chairman of the Aryan group. The entire equity requirement of the project of Rs. 3. APPL has also applied for tapering coal linkage for the balance capacity of 660 MW till the allotted captive mine is operationalised.
. Rajasingh. The estimated project cost of Rs. In 2000. proposes to provide sponsor support for the same. exited from the steel business in order to become a focused player in the infrastructure segment.7 crores in FY 2008. The total debt to net cash accruals is at 10. Rajasingh moved into active politics by becoming a member of Parliament. The subordinated debt of Rs. 69. 51. 55969. Mr. L. 31649. Andhra Pradesh. APPL has entered into long term power purchase agreement (PPA) for sale of 25% of total capacity at Central Electricity Regulatory Commission (CERC) tariff to Grid Corporation of Bihar (GRIDCB).30 billion is proposed to be financed in the ratio of 75:5:20 comprising senior debt (Rs. the group ventured into power business by setting up a 368 MW gas based power plant in Kondapalli. operate and maintain a 1. the group has promoted APPL to construct. established in FY 1989. Mr.09 million tonnes per annum and is proposed to be sourced through allocated coal linkages/captive mine. The project is being implemented on super critical technology by way of a turnkey Engineering.320 MW (2x660 MW) domestic coal based power project in Dhenkanal district. The group was founded by Mr. L. The project is expected to achieve commercial operation within 48 months of financial closure.47 billion (5% of project cost) is proposed to be availed by the company after successful commercial operation of each of the two units of 660 MW. Besides this.7 crores in FY 2009 from Rs. 3. PRESENT PROPOSAL OF THE APPLICANT COMPANY Aryan group. In order to increase the power generation portfolio and capitalize on the increasing opportunities in the fast growing power sector. has diversified businesses covering power generation and trading. Mr. Further. Madhusudan singh. Bihar. During FY 2002 the group. 13. a second generation entrepreneur. Ministry of Coal has allotted Rampia and dip side of Rampia captive coal blocks to APPL along with 5 other independent power producers (IPPs) and the same is expected to be operational in FY 2017. construction.86 billion) respectively. infrastructure and real estate. Procurement & Construction (EPC) contract. his younger brother joined the Aryan group in 1992 after completing his studies from USA. representing Vijaywada constituency in the State of Andhra Pradesh.Total debt increased to Rs. 13. civil engineering. The company has received long term coal linkage for 660 MW capacities in December 2008 from Mahanadi Coalfields Ltd (MCL) which is located at a distance of about 26 kms from the project site. The total coal requirement of the project at 85% plant load factor (PLF) is estimated at 6. Of the total debt about 6% of the total debt is unsecured in nature.1 times. L. the flagship company of the Aryan group.86 billion shall be brought in by Aryan group and AITL. subordinated debt (Rs.
interest during construction and margin money for working capital. The total land required for the project is estimated to be acquired at a cost of Rs. is of 292 acres. and land for ash pond and green belt will be acquired subsequently.30 billion has been earmarked towards site development consisting of levelling and boundary wall. R&R cost and contingency in land acquisition cost. The company proposes to acquire land in tranches. In first tranche. 55. water line.21 Total cost 69. 50. A summary of the components of project cost is presented below: Rs. 23 acres is Government land.30 ITEMWISE DESCRIPTION OF PROJECT COST Land & site development: Total land requirement of the project is 497 acres including 105 acres for green belt and 100 acres for ash pond.60 EPC cost including civil works 55. water reservoir. the company proposes to acquire land for main plant. transmission line. contingencies. Further.51 Margin money for working capital 1. EPC cost: The complete plant and machinery for the project would be procured through a turnkey EPC contract. preliminary & preoperative expenditure. Till date. water reservoir.30 billion comprising expenditure towards land & site development. EPC cost. 69.6 million per acre).76 Interest during construction 8.9 million towards compensation for the land. the company has initialled a bulk power transmission agreement (BPTA) with PGCIL in this regard. billion) Particulars Amount Land & site development 0. captive coal block development contribution. an amount of Rs. The land requirement for main plant. transmission system etc. township. The total EPC cost is estimated at Rs. 0. Further. transmission system etc. The company has so far paid Rs. Out of the total land acquired. 91 acres is private land and 16 acres is forest land.86 billion
.86 Pre-operative expenditure 1. COST OF PROJECT: The 1320 MW project is proposed to be set up by way of a turnkey fixed price fixed time EPC contract using super critical technology at an estimated cost of Rs.30 billion (497 acres @0.36 Contingencies 1. railway line.GRIDCB would be procuring the power from the power station bus bar and the balance power shall be evacuated through Power Grid Corporation of India Limited (PGCIL) pooling station at Angul which is located at a distance of about 25 kms from the project site. the company has acquired around 130 acres of land. ash pond. 0.
76 billion and include fees to be paid towards technical studies conducted by owner’s engineer and lenders’ independent engineer.27 billion. financing and insurance charges is estimated at Rs. concessional duty payments and mega power benefits. primary fuel stock of 1 month. facility agent fees etc.21 billion etc. cooling water system.(including USD 500.e. 8.51 billion. 1. ash handling plant etc. The civil works and infrastructure includes expenditure on development of independent systems such as main plant building. secondary fuel stock of 2 months and O&M cost for 1 month and spares requirement equal to 5% of the O&M cost has been assumed. 3. RCC chimney. 1. start up fuel. Subordinated debt is proposed to be availed for payment of retention money to EPC contractor and will be availed proportionately after COD of each of the two units of 660 MW i. insurance advisor’s fees. 4. The debt drawdown schedule has been made with provision of 25% upfront equity and balance by way of equity and debt drawdown on a prorata basis. bank guarantee commission.47 billion to be availed after COD of unit 1 and balance 50% after COD of unit 2. establishment & admin overheads cost – Rs. 51. coal handling plant. processing fees. establishment and other expenses etc. Pre-operative expenses: Pre-operative expenses are estimated to cost Rs. For the purpose of estimates. employees recruitment. 0.25% of the total project cost (excluding working capital margin).21 billion. 50% of Rs. Margin money: The provision for margin money for working capital has been made at Rs. Expenses towards start up fuel are estimated at Rs. a contingency provision has been considered at 2.0 million) which represents EPC cost of Rs. considering the wide fluctuation in the forex conversion rate for USD (@ Rs.36 billion. legal expenses for fees payable to the lenders’ and owner’s legal counsel. 0. However.31 billion includes salaries. 0. 1. 1. The cost includes interest on rupee term loan during construction.00 /USD). Interest during Insurance): construction and Financing charges (including
The total interest during construction (IDC). hedging cost.60 billion. training and salaries. balance of plants & related civil works and Non EPC cost of Rs.
. various pump house buildings. The IDC has been calculated assuming an implementation period of 44 months for Unit 1 with subsequent completion of second unit with a gap of 4 months from Notice to Proceed (NTP) to EPC contractor. equivalent to Rs. Other preoperative expenses of Rs.45 billion. 49. The margin money has been estimated at the rate of 25% of projected net working capital requirement of APPL. storage tanks. insurance cost. consultancy charges – Rs. the current assets comprising of receivables of 16 days.59 billion for supply of BTG package. Contingency: The company proposes to implement the project by way of a turnkey EPC contract which will be a fixed price and fixed time contract.
The disbursement of sub debt is proposed to be availed after successful implementation of each of the two units of 660 MW. in billions) (Amount in crores of Rs) Source Percentage (%) Amount Equity 20% 13. 3. 51. subordinated debt and equity in ratio of 75:5:20.0 million.47 69. The group has cash and cash equivalents of Rs. sub debt will be additionally secured by corporate guarantee of AITL. PROJECT IMPLEMENTATION SCHEDULE: The company is negotiating the EPC contract with AITL and is expected to finalize it before financial closure of the project.97 Subordinated debt (Sub debt) Total Equity The equity contribution aggregating to Rs.30 billion.86 Senior debt 75% 51. 25% of the total equity requirement would be brought in prior to first drawdown of debt and balance 75% shall be brought in over 48 months period.MEANS OF FINANCE: The cost of the 1. Particulars Notice to proceed (NTP) to EPC contractor Start of trial run – unit I Start of trial run – unit II Commercial operation date .666. estimated at Rs. Subordinate debt Total sub debt requirement of project of Rs. 69.86 billion is proposed to be brought in as equity investment by AITL and its associates. The project will be implemented as per the following implementation schedule.30 times.97 billion is proposed to be sourced by way of Rupee term loans (RTL) from various banks/financial institutions. 13. Senior debt Senior debt requirement of the project of Rs. The corporate guarantee shall fall off if the average DSCR for the first 2 years of operations or at anytime thereafter is at least 1. The proposed components of financing are as under: (Rs. is proposed to be financed with senior debt.40 times and subject to the average DSCR for the balance tenor being maintained at 1. AITL will provide undertaking for balance equity requirement of the project.320 MW project. AITL completed Qualified Institutional Placement (QIP) issue of USD 150.47 billion is proposed to be sourced by way of Rupee term loan from various banks/financial institutions.unit I Completion time Day 0 Day 0 + 39 months Day 0 + 43 months Day 0 + 44 months 5% 100% 3.0 million as on September 30. Further. 10. Aryan Group has satisfactory visibility of earning and access to capital markets for meeting equity infusion requirements.30
. 2009. In July 2009.
449 Diesel 603 597 1. 6 kms from Budhapank railway station on the East Coast Railway. transformer yard.00 1.455 6. the project land is above the highest flood level of the area.0% by the private sector. 32.396 Gas/liquid fuel 3.00 1. ash disposal area and green belt is estimated at 497 acres.120 4. The site location has been selected considering the proximity of site to coal mines and availability of water from Brahmani River.885 Nuclear 4.09 1.310 Total 76627 49843 25891 152360 Source: Ministry of Power As may be observed from the above.00 1. The break-up of installed capacity as on September 30. power house. with
.991 80. The power generating capacity has increased from 1.16%
INDUSTRY ANALYSIS The Indian electricity sector has grown manifold since 1947 and India today is the third largest producer of power in Asia. water system.Commercial operation date .233 36.
Construction Risk Assessment Market Risk Assessment Supply Risk Assessment Project Cost And Viability Basic Borrower Risk Score Borrower Risk Score (with Project Status Cap) Final Risk Grade Probability of Default 1.120 Renewable Energy Resources 2. 2009 is as follows: (In MW) Source/ownership State Central Private Total Coal/lignite 42.4% of the country's installed capacity for power generation.3% is owned by the state sector.362 MW in 1947 to about 152.075 16.950 30. 2009. coal & ash handling system.360 MW as on September 30.995 13. Further. 120 kms from Bhubaneswar airport and 220 kms from Paradip port.09 JKB-INFRA-1 3.565 1.702 6. 50. switchyard.315 10.7% is owned by the central sector and the balance 17.672 6.00 2. thermal power based power plants account for about 64.200 Hydro 27.087 8. Total land requirement for main plant. The site is 1 km from NH 42 (Angul – Kishan nagar). Out of the total installed generation capacity.unit II
Day 0 + 48 months
OTHER INFORMATION WITH RELATED TO THE PROJECT Location and site The proposed power plant would be located at village Kurunti in Kishan nagar Bihar state.
608 2.8) (1.208 2.980 2. 0)
.905 3.125 2003-04 13. 2) (11.9) (2.6) Peak deficit (%) Eastern Bihar Region (7.4)
Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
All India (7.132 2002-03 13.8) (4.8) (1. 8) (16.5) (8.3) (3.6) (9.040 Energy (MU) (10) (306) (235) (105) (198) (305) (346) (308) Peak(MW) (155) (137) (138) (41) (87) (237) (27)
Peak Demand (MW)
2001-02 12.173 Surplus/deficit Peak Supply (MW) 1.988 1.9) (4. The annual per capita consumption of electricity in India is one of the lowest in the world and is estimated at about 704 units.500 20.010 16.7) (3.7) (4.2) (4.846 3.087 13. USA and UK is 2.3) (1.8% and gas/liquid fuel constituting about 10.3) (1. The per capita consumption for China.5) (1.101 2.4) (9.0) (10.1) (2.5) (0. 7) (12.8% of the total installed capacity.977 1.250 units respectively.2) (7.220 2.125 2004-05 13.6) (3. Demand – supply position The electricity demand and supply position in Bihar over the eight-year period ended FY 2009 is given below: Demand Energy demand (MU) Supply Energy Supply (MU) 12.8) (1. 6) (12. 8) (12.481 3.610 2.1) (9.875 15.0)
All India (11. 3) (13.7) (5.400 units.396 2.067 Source: Ministry of Power/Infraline
The electricity demand-supply gap in Bihar and the corresponding position in the Eastern and on an all India basis is as follows: Energy deficit (%) Eastern Bihar region (0.220 2005-06 15.8) (7.9) (3.5) (1.796 18.987 2.640 units and 6.4) (2.3) (8. India’s per capita consumption for electricity is about one fourth of the world’s average. 13.393 2.142 2008-09 20.1) (7.1) (11.0) (2.695 2007-08 18.3) (6.328 2.0) (4.9) (11.coal/lignite constituting about 52.7) (0. 2) (11.318 13.4) (6.375 13.437 2006-07 17.
1995 and the unbundling of Bihar State Electricity Board (BSEB) into generation. which has satisfactory visibility of earning and access to capital markets for meeting equity infusion requirements. Additionally.0 million. commercialization and privatization of the distribution entities and the creation of a statutory authority namely Bihar Electricity Regulatory Commission (BERC). The company has received long term coal linkage for 660 MW capacity from Mahanadi Coalfields Ltd (MCL). Ministry of Coal has allotted Rampia and dip side of Rampia captive coal blocks to APPL for 1000 MW capacity.
Weaknesses • PPA for 330 MW is yet to be tied up. AITL would be providing sponsor support in the form corporate guarantee to the lenders to secure the Lenders debt obligation. The company has already started land acquisition process and acquired 130 acres of land (26% of total land requirement). SWOT Analysis Strength • Aryan Group has considerable experience in setting up and operating power projects successfully and APPL will be leveraging the same in effective execution and operation of the proposed project. On a comparative basis. AITL completed Qualified Institutional Placement (QIP) issue of USD 150.It may be observed that Bihar is better-off in terms of energy deficiency in Comparison to other states in India. APPL has also applied for tapering coal linkage for the balance capacity of 660 MW till the allotted captive mine is operationalised. transmission and distribution entities. there will be marginal or no deficit of power in the state of Bihar considering the fact that a number of power projects are being developed in the state. which exposes the company to off take risk. which exposes the company to fuel supply risk. 10. while the demand-supply gap in Bihar is much in line with the average for the eastern region. MOU has been signed with State Government of Bihar. This was followed by the corporatisation. The group has cash and cash equivalents of Rs. Further. which interalia would facilitate land acquisition. APPL has undertaken to execute long term PPA with state utilities/industrial bulk consumers for the above mentioned 25% capacity based on competitive bidding (at a price not less than or equivalent to the tariff calculated as per CERC regulations) within 18 months of first drawdown of debt. The equity in APPL will be infused by Aryan Group.666. captive mine/ coal linkage. 2009. Further. and is expected that in the near future.0 million as on September 30. Since development of the
. Further. Fuel supply for 660 MW of capacity for initial year of operation is yet to be tied up. Bihar was the first state in the country to go in for a comprehensive restructuring of the electricity sector starting with the enactment of the Bihar Electricity Reform Act. it is significantly lower than the corresponding national average. water allocation and power required during construction period. The company has received long term coal linkage for 660 MW capacity from MCL. In July 2009. environmental clearance. Ministry of Coal has allotted Rampia and dip side of Rampia captive coal blocks to APPL for 1000 MW capacity.
Additionally. The sponsor. On production of the coal from the captive coal blocks. APPL has also applied for tapering coal linkage for balance 660 MW capacities till the allotted captive mine is operationalised. and further strengthening and opening of the sector. fixed price EPC contract.
Threats The other power plants coming up in the surrounding region may provide competition to APPL with regard to tie-up of plant capacity with other State utilities/ Industrial bulk consumers The company has already tied up 25% of its total plant capacity with GRIDCB and has undertaken to enter into long term PPA with State utilities/ Industrial bulk consumers for additional 25% of capacity based on competitive bidding (at a price not less than or equivalent to the tariff calculated as per CERC regulations) within 18 months from the date of first drawdown of debt. which is beyond the scheduled commercial operation date of the project. AITL. would be providing an undertaking to arrange for an acceptable credit support for meeting any cost overrun in respect of the project. The EPC contract is expected to be finalized prior to financial closure in a form and manner acceptable to the lenders. is an experienced player in power sector and so far implemented 7 power projects aggregating to 1. with 3.captive coal block is expected to be completed by FY 2017.
. Further. APDRP etc. the company has undertaken to procure the tapering coal linkage within 18 months of first drawdown of debt. National Tariff Policy 2006. it is expected that more and more opportunities would emerge for private sector parties in the energy sector in India. AITL would be providing sponsor support in the form of corporate guarantee to the lenders to secure the Lenders debt obligation
RISK ANALYSIS AND MITIGATION MECHANISM: The key risks of the project and mitigation measures are analyzed below: Increase in project cost and delays in construction: The company proposes to implement the project by way of a fixed time.565 MW capacity under advanced stage of construction.044 MW. The Lender’s Engineer (LE) would monitor progress of construction of the project on quarterly basis. Opportunities • With several reforms implemented in past by Government like The Electricity Act 2003. the cost of power generation is expected to reduce further. AITL would be providing sponsor support in the form of corporate guarantee to the lenders to secure the Lenders debt obligation. therefore. AITL. Additionally. APPL has already obtained key clearances for implementation of the project. To mitigate coal supply risk for balance 660 MW capacity. the promoter of APPL.
Further. The EPC contract is expected to finalise before financial closure in a form and manner acceptable to the lenders. transmission system etc. AITL would be providing sponsor support in the form of corporate guarantee to the lenders for acquisition of balance 200 acres of land by APPL within 18 months from first drawdown of debt. APPL shall have a right to sell the power to any third party. Financing risks
Regulatory Approvals and permits
. APPL has executed long term PPA for 25% of its total capacity and shall execute long term PPA for additional 25% capacity within 18 months of first drawdown of debt. In addition. Procurement and Construction (EPC) contract. Out of total land requirement of 497 acres. The list of major approvals/clearances and status thereof is detailed out earlier in the note. APPL has undertaken to execute long term PPA for additional 25% capacity within 18 months of first drawdown of debt. proposed to be acquired prior to first disbursement. In case GRIDCB is unable to honour the terms of the PPA. APPL is also entering into BPTA with PGCIL for ensuring evacuation of power from the plant. 297 acres is sufficient for main power plant.Off-take risk APPL has executed long term PPA for about 25% (330 MW) of its power generation capacity. The power will be sold to GRIDCB at SERC/CERC tariff. A comprehensive analysis of other identified risks and measures for mitigation of the same is given below:Allocated to Pre construction risks Finalization APPL of-key contracts Risk Remarks The project is proposed to be implemented by way of a fixed price fixed time turnkey Engineering. APPL has received all major clearances including Chimney height clearance and pollution clearance from State Pollution Control Board. water reservoir. The company has so far acquired 130 acres of land. For sale of power. APPL proposes to sell additional 25% capacity on long term basis for which it proposes to enter into PPA with state utilities/industrial bulk consumers based on competitive bidding (at a price not less than or equivalent to the tariff calculated as per CERC regulations) and the residual 50% capacity on short term/bilateral sale basis.
Consent to Establish received from Bihar State
Pollution Control Board (BSPCB) on May 20. 2009.47 billion (25%) shall be deployed prior to first disbursement. completion schedule.86 billion.MoEF clearance has been recommended by
the Expert Appraisal Committee (EAC) on environmental impact assessment of thermal power and coal mine projects during its 54 th meeting held on September 10-12.
⇒ Clearance for private railway siding (6 kms) . Further. 10. Balance equity requirement of Rs. and liquidated damages for failure in meeting performance guarantees and warranty period.
⇒ Environmental clearance . These contracts will be finalised prior to financial closure of the project in a form and manner acceptable to the lenders and will be reviewed by the Lender’s Engineer. Aryan Group has satisfactory visibility of earning and access to capital markets for meeting equity infusion requirements. Letter for environment clearance is awaited. The EPC/BTG contracts would include provisions for guaranteed performance parameters. liquidated damages for failure in meeting completion. SENSITIVITY ANALYSIS
⇒ Forest Clearance: The forest clearance for 16 acres of land has been
submitted to the nodal agency for approval on October 30. The total debt of Rs. ⇒ Chimney Height clearance – No objection for construction of chimney received from Airport Authority of India on September 03.
Operational risks Equipment Equipment undersupplier performance
Approvals & clearances:
⇒ Pollution clearance . the Lenders Engineer would also review the construction and operations of the Project. 13.Risk Equity
Allocated to AITL
Remarks Of the total equity requirement of Rs. Rs. 3.39 billion shall be brought in over a period of 4 years. ICICI Bank has been mandated to raise the balance debt and tying up of entire debt is a condition precedent to first disbursement. 2009.44 billion is proposed to be syndicated with various banks/financial institutions. 2009 and clearance is awaited. 55. 2008.Clearance received from
East Coast Railway on August 28. 2008.
Base Case Case I Case II
1. The impact on DSCR in case of increase in linkage price is as under: Linkage coal Price for first year ADSCR price of operation (FY (Rs. The base case coal price has been assumed at Rs.00/unit.32 1.30 1. profitability position of promoter companies and economic and financial viability
.18 1. 3. royalty.f October 15.00 2. The transportation charges have been assumed at Rs.50 ADSCR MDSCR
Base Case Case I Case II
RECOMMENDATION: Keeping in view the above.42 1.07
Coal price sensitivity The company has obtained long term coal linkage for 660 MW from Mahanadi Coalfields Limited (MCL) and has applied for tapering coal linkage for balance capacity of 660 MW. 480/tonne for run-of-mine coal from MCL region.05
Base Case Case I Case II
Short term/bilateral tariff sensitivity The base case short term/bilateral tariff has been assumed at Rs.45 1.a. 125/tonne with 2.45 925 1000 1.23
1.a. the experience of the promoter in the existing field.19 1. (with average gross calorific value of 3600 Kcal/Kg).30 1./tonne 845 978 1.071 1. 2009 is Rs.e. 720/tonne (inclusive of taxes./tonne) 2014) (Rs.Sensitivity analysis has been carried out to study the impact of the following critical parameters on the ability of the project to service its debt obligations. duties.159 1.00% escalation p./tonne) 3.26 1.30 1. The following key parameters have been considered: • • • Plant load factor (PLF) Short term/bilateral tariff Linkage coal price
The base case PLF has been assumed at 85% PLF. handling charges etc) for ‘F’ grade coal with 4.75 2. The notified price for ‘F ‘grade coal w. The impact on DSCR in case of decrease in PLF is as under: PLR (%) 85% 80% 75% ADSCR 1.45 1.34 1.00% escalation p. The impact on DSCR in case of decrease in short term/bilateral tariff is as under: Short term/bilateral tariff (Rs.19 MDSCR 1.
water arrangement and coal transportation/infrastructure arrangement in relation to the power plant.25. 69.00 Crores). 3. The Project includes power evacuation arrangements. 1. ICICI Bank.320 MW (2 x 660 MW) coal based power project using super critical technology being set up in Kishan nagar. ICICI Bank.00 crores (Rupees Two Hundred Crores only) and Sub-Limit as Non-fund Based facility by way of LC/BG/Letter of Comfort to the extent of Rs. 51. 13. collectively the “Lenders” to be arranged by the Arranger. Aryan Infratech Limited (AITL).00 Crores and Subordinated Debt Rs. 12 square kilometres of coal mines in the Rampia and dip side of the Rampia coal fields (“Captive Mines”) allocated by Ministry of Coal. the case is recommended for sanction of Long term loan (Senior Debt Rs. and Equity: Rs. and interest accrued during the construction period.47 billion (Our Share Rs. the Facility will be available for drawdown from the Signing Date up to: (i) the date falling 6 months after Commencement Date. The Project Cost is to be funded in the following manner: Senior debt: Rs.25.97 billion (Our Shares Rs. or (ii) the date on which Facility is fully disbursed.175.30 billion ("Project Cost"). its affiliates and subsidiaries.of the project.00 Crores (Rupees Eighty Five Crores only) directly or by way of fronting risk –cumremuneration basis on any of the part of the Lending Institutions in favour of M/s Aryan Babandh Power Pvt. ICICI Bank and other banks / financial institutions. Ltd. including appropriate provisions for contingencies. Project Cost covers direct costs related to the implementation of the Project. Subordinated debt: Rs. Subject to terms and conditions contained in the Financing Documents and the satisfaction of the conditions precedent set out therein.86 billion. Bihar (the "Project").00 Crores) aggregating Rs. ICICI Bank shall be the sole lead arranger to tie-up the entire debt required for the Project. The cost of the project is estimated at Rs.00 Crores ).85. India for sole utilization by the Project. cancelled or terminated Whichever is earlier
Captive Mines Project Cost
Means of finance :
Lenders Facility Agent Purpose
: : :
Availability Period :
. on the following securities terms and conditions:Borrower Promoter Project : : : Aryan Power Private Limited (“APPL” or the "Borrower" or the “Company”).175. The finalization of the rupee term loan syndicate would be by way of a book building process and on best efforts basis. The proceeds of the Facility shall be utilized solely for the purpose of part financing the Project Cost.200. etc. jointly and severally.
The Applicable Rate as on date is 11. At the end of 48 months from the Signing Date or actual commercial operation of the last unit of the Project (2 x 660 MW).50% per annum. The date on which the financing agreements / documents (the “Financing Documents”) in relation to the Facility are executed. The rate of interest for each tranche of the Facility for each Lender ("the Applicable Rate") shall be a sum of Margin and the Prime Lending Rate ("PLR") prevailing on the date of disbursement of such tranche of the Facility for each Lender. 12 months from the COD.Signing Date Commencement Date
Interest rate for : Senior debt
Interest rate for : Subordinated debt Interest Period / : Payment Dates
Amounts remaining undrawn at the end of the Availability Period shall be automatically cancelled. over applicable interest rate. fees thereon and all other amounts in respect thereof shall be secured inter alia by a first ranking: (g) mortgage / hypothecation and charge on all the Company’s movable and immovable assets (including
Tenor Moratorium Liquidated damages/ additional interest on defaulted payments Security
: : :
. on the total outstanding of the Facility in the event of any defaults in payment of Interest.a. plus interest tax or other statutory levy. payable monthly with annual reset The Company shall pay to Lenders Interest on the principal amount of Facility outstanding from time to time monthly in each year on 15th day of each calendar month. if any. The Facility. The Margin for each Lender is the difference between the Applicable Rate as on date and the PLR for the respective Lender as on the Agreement Date. upfront fee or any other monies due to Lenders on their respective dates during the currency of the Facility for the relevant period. principal. Applicable Interest rate for Senior debt plus 2.a. Interest payments shall be made in arrears at the end of each Interest Period (“Interest Payment Date”) and calculated on the basis of the actual number of days elapsed in a year of 365 days.00% p. The Borrower shall pay to Lenders the interest on the principal amount of the Facility outstanding from time to time monthly in each year on 15th day of each calendar month.0% p. The Borrower shall pay additional interest at the rate of 2. whichever is later (“COD”). payable monthly. The final maturity will not exceed 180 months from the date of first drawdown. plus applicable interest tax or other statutory levy. if any. Interest. Provided that the aforesaid interest rate payable to the Lenders for each tranche shall be reset at the end of every 12 months from the date of first disbursement ("Reset Date") based on the then prevailing PLR of each bank / financial institution and the Borrower shall thereafter pay interest at such reset rate till the following Reset Date.
receipts. to the satisfaction of Lenders: (a)submit up to date copies of constitutional documents of the Company (including memorandum. including but not limited to the trust and retention account(s) created in relation to the Project. 55. (d) provide copy of the shareholders resolution under section 293(1)(a) and 293(1) (d) of the Companies Act. (c) provide copy of the resolution of the board of directors of the Company approving the terms of this transaction and authorizing specified person(s) to execute. (b)amend its memorandum and articles of association for increasing the share capital. and (e) Provide certificate from the statutory auditors of the Company confirming that the borrowing or the availing of the Facility would not cause any borrowing limit binding on the Company to be exceeded. (i) assignment of contractor guarantees. consents in favour of Lenders / security trustee. borrowing power and incorporate any other change. permits. to and in respect of all its assets. the Company shall. Prior to first disbursement the Company shall. fuel supply / fuel offtake agreement(s)). permits. performance bonds and any letter(s) of credit that may be provided by any party for the Project in favour of Lenders / security trustee. (l) pledge over 30% of the total issued share capital of the Company held by Promoters and/or Coal block allottee. agreements (including but not limited to the power purchase agreement(s). approvals. clearances. articles of association). (h) assignment of all rights. titles. if applicable. receivables and intangible properties) both present and future in favour of Lenders / security trustee.Coal Block Allottee EPC Contractor Guarantor Conditions precedents to effectiveness
: : : :
all revenues. (j) assignment in favour of Lenders / security trustees of all insurance policies taken in respect of the Project. (k) charge on the Company’s bank account(s). sign and / or dispatch all documents and notices to which it will be a party. AITL AITL Before the Facility becomes effective. to the satisfaction of Lenders: a) demonstrate that the entire debt amounting to Rs.44 billion required for the Project has been tied up and
Conditions : precedent to first drawdown
. as may be deemed necessary and to reflect the necessary conditions for the envisaged means of financing. and Aryan Group Limited. approvals and interests of the Company in.
to the Company to the satisfaction of Lenders. d) appoint the Lenders’ Legal Counsel (LLC) mutually agreed between the Company and Lenders to assist Lenders including the review of project documents and finalization of the financing and security documents required in relation to the Project. h) ensure that the EPC and BTG contract shall stipulate liquidated damages as are customary (as reviewed by LE). including the equity requirement to meet any cost overrun (in addition to cost overrun on account of non-receipt of mega power status for the Project). i) agree that Lenders will have a right to appoint an owner’s engineer in case there is cost / time over-run. which would be
. f) have appointed statutory auditor for the Company. consents required for the Project have been obtained and shall remain in full force and effect. b) ensure that at least 25% of the total equity requirement for the Project has been brought in up front. to the satisfaction of Lenders: (a) ensure no event of default has occurred and is continuing. procurement & construction (EPC) contract for the implementation of the Project and ensure the effectiveness of the same. g) execute the engineering. including but not limited to ministry of environmental and forest clearance to the satisfaction of Lenders During the currency of the Facility. railway transport clearance. c) provide an undertaking from AITL for meeting the balance equity required for the Project. j) shall have procured a firm coal linkage (supported by Letter of Assurance) from Coal India Limited (CIL) for 660 MW for entire tenor of the Facility. if any. for delay in commissioning of power plant/supply of equipments and shortfall in performance guarantees. approvals. DPR for railway transportation. etc as per the implementation schedule as certified by the LE). (b) agree not to change its articles or memorandum of association in any manner. k) ensure that the Company shall make satisfactory arrangements for the transportation of coal from the various coal mines providing coal to the Project and achieve the requisite milestones (including but not limited to route survey study. l) transfer all approvals / clearances / consents / memorandum of understanding (MoU) in relation to the Project received by any other party. the Company shall inter-alia. m) ensure that all clearances. e) appoint the Lenders’ Insurance Advisor (LIA) mutually agreed between the Company and Lenders to assist Lenders in the review and finalization of the insurance package with respect to the Project.Other Conditions :
can be drawn. liquidated damages as well as to meet any shortfalls in DSRA to meet the stipulated DSCR. without any recourse to the Lenders.
(j) at least 12 months prior to commercial operations: make adequate arrangements for the operations & maintenance (O&M) of the Project. (i) within 18 months from the first drawdown: shall enter into long term Power Purchase Agreement for 330 MW of the capacity with state utilities / industrial bulk consumers at a price not less than or equivalent to the tariff calculated as per CERC regulations. balance land area (at least measuring 200 acres) required for the Project (including right of way for the railway siding / transmission line/ water intake). or with any of the Financing Documents (including security documents). such that the entire fuel requirements for the Project is tied up and execute the fuel supply agreement for the same within the stipulated timeframe under the LOA. free from all encumbrances and completed the transfer of the same to the Company. (l) ensure that all the approvals / clearances / consents / MoUs as stated in clause (y) of “Conditions precedent to first drawdown” required for the project have been obtained and shall remain in full force and effect before COD.30 times
. (k) at least six months prior to commercial operations: make satisfactory arrangements for meeting its working capital requirements. (d) notify Lenders upon becoming aware that the actual Project Cost exceeds or is expected to exceed the Project Cost as per the Base Case Business Plan. as certified by the LE. including coverages and risks and periodically provide Lenders with such policies and premium receipts. (g) within 18 months from the first drawdown: shall have acquired. (f) enter into fuel supply / fuel off-take agreement (FSA) within the stipulated time frame in the letter of assurance (LOA) pertaining to the firm coal linkage from CIL. (h) within 18 months from the first drawdown: shall have procured for the balance 660 MW a firm tapering long term coal linkage from Coal India Limited (CIL) for not less than 4. (c) ensure that all required statutory / non-statutory approvals and clearances as may be required under the existing laws in relation to the Project. (e) agree to pay dividends only after meeting TRA mechanism flows as agreed (including no event of default existing) and with prior approval of Lenders. (n) ensure that after COD.inconsistent with undertaking the Project. to the satisfaction of Lenders. are in full force and effect. including inter-alia recruitment of qualified and experienced manpower. (m) maintain adequate insurance with reputable insurers. training of personnel and shall be reviewed by the LE. the debt service coverage ratio (DSCR) shall be maintained at atleast 1.0 mtpa.
(u) agree that in the case of any default in the payment of dues to Lenders. Lenders / the Reserve Bank of India (RBI)/Credit Information Bureau (India) Limited (CIBIL) shall have an unqualified right to disclose or publish the details of the default and the name of the Company and its directors as defaulters in such manner and through such medium as Lenders or RBI in their absolute discretion may think fit. (t) ensure that the none of the directors of the Company appear in RBI willful defaulters’ list. both technical and professional. (p) agree not to effect any change in its shareholding pattern without prior written consent of Lenders. representation & warranties from the Borrower. events of defaults by the Borrower and the consequences of the event of default. as applicable. Any dispute resolution shall be at courts of Mumbai. cross defaults. PROJECTED FINANCIALS OF THE APPLICANT COMPANY 1. India. etc. additional covenants. In addition to the terms and conditions contained in this Term Sheet.
The Proposal requires the approval of the chairman.Documentation
Governing Law : and Jurisdiction
during the first 2 years of operation and thereafter at atleast 1. the final documentation will contain other customary/ additional stipulation/ clauses such as. (v) Maintain adequate books of accounts which should correctly reflect its financial position and scale of operations and should not radically change its accounting. Shall be governed by laws of India. (s) agree that Lenders will be entitled to appoint one nominee directors on the Board. Projected Cash Flow Statement
. conditions precedent to the effectiveness and condition precedents to each disbursement. affirmative covenants. (o) agree to not undertake any additional indebtedness.20 times. (q) agree that Lenders reserves the right to appoint any independent/concurrent auditors for the review of the Project as deemed fit. information covenants. Projected Balance Sheet 3. RBI disclosure norms. negative covenants. Projected Profit & Loss account 2. financial covenants. (r) agree to broad base the board of directors by induction of independent professionals and/or professional nominees.
But in the J & K bank Credit & Advanced Department plays 69
. Among these banks J & k Bank is the leading bank in the valley. which is trying to give all the facilities to their customers. There are many banks in the state of Jammu & Kashmir helps in fulfilling the needs of customers. DSCR Attached as an Annexure
Banking sector plays the main role in the developing economy of the country.4.
.the main role in gaining the profits. It is the Credit Department of J & K Bank.N. Thus Credit Department of the J & K Bank is generally called as the backbone of the bank.
BIBLIOGRAPHY Financial Management By Financial & Management Account By I M Pandey Dr. S. which sanctions the loan facility to both large as well as small industries throughout the India.
com www.K.com www.com
.moneycontrol.Management Accounts By Risk Management By Financial Management By
R.jkbank.google.net www.wikipedia. Sharma Macmillan Prasana Chandra
o o o o