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RISK MANAGEMENT DEPT

REGIONAL OFFICE JAIPUR


WELCOMES YOU !

THREE Ps OF CREDIT
PARTY Credentials of party and Group concerns must be beyond doubt ( Character - Capacity Credit-worthiness ) Due Diligence of borrower and guarantor to be done from suppliers, buyers, bankers and other players in same line / market in case of new connection. Govt dues, litigations give adverse reading. Net worth statement to know the means- complete address of properties PROPERTY Clear Title, Marketability, Fair Valuation Residential property better than others Adequate coverage PAPERS Papers are least important of the 3 Ps Bank norms / guidelines are to be complied with

LOAN POLICY
Credit Rating >Rs. 2 lac (except exempted category) a) b) CR-4 for Takeover CR-5 for new connection

Hurdle rate Low Priority Areas Takeover Due Diligence Credit Grid Approval Even under Branch powers

Permission of RH Compliance with norms Permission of RH a)Borrower c)Property b)Guarantor

New connections with exposure Rs.50 lac or more

Credit Process Audit >Rs. 1 crore (After vetting of EM, documents as New limit or enhancement per sanction) Ratios Trade- CR-1.17, TOL/TNW-5:1 Other- CR-1.33, TOL/TNW-4:1

LENDING METHODS / ASSESSMENT OF LIMITS


a) Turnover Method Limit = 20% of sales Margin = 5% of sales a) b) a) b) SSI upto Rs. 5 crore Others upto 1 crore SSI - >Rs. 5 crore Others - >Rs.1 crore b) Flexible Bank Finance Method c) Cash Budget Method d) Net Owned Funds Method TERM LOANS

Seasonal activitiesSugar, fertilizers etc. NBFCs a)DER 2:1 b)DSCR 1.50 (Min.1.20) c)Tenor- 84 Months (Max.)

LC(DA)

Part of WC FinanceAs per cycleCreditors to be reckonedNeed based

LG

BALANCE SHEET ANALYSIS , LIMIT COMPUTATION


SOURCES (Liabilities) USES (Assets) a) LONG TERM i) Own Funds ii) Borrowed Funds b) SHORT TERM ( Current Liabilities) a) LONG TERM i) Net Block ii) Non-current Assets B) SHORT TERM (Current Assets)

i) Bank Borrowings ii) Others

i) Lendable Assets ii) Others

Long Term Sources Long Term Uses = NWC or Margin OR Current Assets Current Liabilities = NWC or Margin Current Liabilities Short Term Bank Borrowing = OCL Current Assets OCL = Working Capital Gap Working Capital Gap Margin = MPBF / FBF

IMPORTANT RATIOS

FINANCIAL RATIOS Current Ratio TOL / TNW Ratio TL/ TNW Ratio TURNOVER RATIOS TCA to Sales Debtors to Sales Inventory to Sales SOURCES FOR CURRENT ASSETS (TCA) NWC or MARGIN Promoters contribution (excess of LTS over LTU) OCL Liabilities towards outsiders STBB or FBF or MPBF Liabilities towards Bankers

Calculation of Permissible Limit (Adequate margin)


SOURCES TNW LTL STBB OCL AMT 35 5 50 10 USES NET BLOCK NCA LENDABLE ASSETS OCA AMT 10 10 70 10

(i) W C Gap=TCA-OCL=80-10 (ii) Margin a) Required @25% of WCG


b) Actual WCG Required margin = 70.0-17.5 WCG Actual Margin = 70.0-20.0
MPBF = Lower of the two

=70.0 = 17.5
= 20.0 = 52.5 or =50.0
= 50.0

Calculation of Permissible Limit


(Negative NWC)
SOURCES TNW LTL STBB OCL AMT 20 0 25 55 USES NET BLOCK NCA LENDABLE ASSETS OCA AMT 15 10 70 5

(i) W C Gap=TCA-OCL=75-55 (ii) Margin a) Required @25% of WCG


b) Actual WCG Required margin = 20.0 - 5.0 MPBF =
Short fall in margin Excess Finance

=20.0 = 5.0
= 5.0 neg = 15.0 = 15.0
=10.0 or =10.0

Calculation of Permissible Limit


(After allowing WCTL)
SOURCES AMT USES TNW 20 NET BLOCK LTL +10 10 NCA STBB 25-10 15 LENDABLE ASSETS OCL 55 OCA
(i) W C Gap=TCA-OCL=75-55 (ii) Margin a) Required @25% of WCG
b) Actual WCG Required margin = 20.0 - 5.0 MPBF =

AMT 15 10 70 5

=20.0 = 5.0
= 5.0 = 15.0 = 15.0

Calculation of Permissible Limit (After induction of capital)


SOURCES AMT USES TNW 20+10 30 NET BLOCK LTL 0 NCA STBB 25-10 15 LENDABLE ASSETS OCL 55 OCA
(i) W C Gap=TCA-OCL=75-55 (ii) Margin a) Required @25% of WCG
b) Actual WCG Required margin = 20.0 - 5.0 MPBF =

AMT 15 10 70 5

=20.0 = 5.0
= 5.0 = 15.0 = 15.0

Calculation of Permissible Limit


(Increase in CA & BB without bringing in margin)

SOURCES
TNW LTL STBB50+500 OCL

AMT USES
35 NET BLOCK 5 NCA 550 LENDABLE ASSETS 70+500 10 OCA

AMT
10 10 570 10 =570.0 = 142.5
= 20.0 = 427.5 or = 550.0 = 427.5 = 122.5

(i) W C Gap=TCA-OCL=580-10 (ii) Margin a) Required @25% of WCG


b) Actual WCG Required margin = 570.0-142.5 WCG Actual Margin = 570.0- 20.0 MPBF = Lower of the two Short fall in margin or excess borrowing

Calculation of Permissible Limit


(Increase in CA & BB after bringing in margin)

SOURCES
TNW35+122.5 LTL STBB550-122.5 OCL

AMT USES
157.5 NET BLOCK 5.0 NCA 427.5 LENDABLE ASSETS 70+500 10.0 OCA

AMT
10.0 10.0 570.0 10.0

(i) W C Gap=TCA-OCL=580-10 (ii) Margin a) Required @25% of WCG


b) Actual WCG Required margin = 570.0-142.5 WCG Actual Margin = 570.0-142.5 MPBF = Lower of the two Short fall in margin or excess borrowing

=570.0 = 142.5
= 142.5 = 427.5 or = 427.5 = 427.5 = NIL

Calculation of Permissible Limit


(Increase in CA without bringing in margin)

SOURCES
TNW LTL STBB50+10 OCL10+490

AMT USES
35.0 NET BLOCK 5.0 NCA 60.0 LENDABLE ASSETS 70+500 500.0 OCA

AMT
10.0 10.0 570.0 10.0

(i) W C Gap=TCA-OCL=580-500 (ii) Margin a) Required @25% of WCG


b) Actual WCG Required margin = 80.0-20.0 WCG Actual Margin = 80.0-20.0 MPBF = Lower of the two Short fall in margin or excess borrowing

= 80.0 = 20.0
= 20.0 = 60.0 or = 60.0 = 60.0 = NIL

3 TIPS
How the money came and where it has gone?
Look only at long term sources & long term uses Analyse the deviations between two periods Difference in LTS & LTU is always equal to change in NWC

How much limit can we sanction?


3 times of NWC if margin is 25% 4 times of NWC if margin is 20% TCA to sales ratio should be reasonable/ declining TOL/TNW ratio to be below acceptable level Calculate DP, ensure that STBB is within DP & lendable assets are current

How to get quick sanction from Higher Office/s?


Submit the proposal with complete / required details as per check list Queries are more or less similar avoid them