The following Financial Institutions cater major part of the financial needs of the Industrial Sector: • • • • • • • • • • Industrial Development Bank of India (IDBI) Industrial Credit and Investment Corporation of India (ICICI) Industrial Finance Corporation of India (IFCI) State Finance Corporations (SFCs) State Industrial Development Corporations (SIDCs) Industrial Reconstruction Bank of India (IRBI) Small Industries Development Bank of India (SIDBI) Life Insurance Corporation (LIC) Unit Trust of India (UTI) General Insurance Corporation and its subsidiaries. • .New India Assurance Company Ltd .United India Assurance Company Ltd .National Insurance Company Ltd Shipping Credit and Investment Company of India Ltd (SCICI).Oriental Insurance Company Ltd . .

Sheets as at the end of each financial year during period of loan .cost of project and means of financing .cash-flow estimates during currency of loans .PROJECT APPRAISAL BY FINANCIAL INSTITUTIONS Project appraisal is the process by which a financial institution makes an independent and objective assessment of the various aspects of the investment proposition for arriving at a financing decision. Broad Aspects of Appraisal: 1.proforma B. Financial Feasibility: The basic data required for a financial feasibility analysis can be grouped as under: .cost of production and profitability .

Transportation.Contingency expenses .Preliminary and pre-operative expenses’ . Erections and commissioning .Miscellaneous assets .Plant and Machinery .Working capital margin .a) Cost of the project: The cost of the project can be broadly classified into the following:.Building .Land and site development .

risk associated with the enterprise.There is no ideal pattern concerning means of financing for a project.Share Capital . prevailing taxation laws etc. The means of financing is determined by a variety of factors and considerations like magnitude of funds required. nature of industry. . The following are the sources of finance :.Subsidies .Loans from friends and relatives .Long term borrowing (financial institutions / Banks) .Retained earnings Financial institutions specify certain debt equity ratios and promoters will have to raise own finance to match these ratios.(b) Means of Financing:.

The debt service coverage ratio is arrived at by dividing cash accruals comprising net profits (after taxes. The cost of production and sale estimates are also useful in working out the break-even point. .( c) Cost of production and profitability:. the point at which the income sales would cover the working costs of the project. The profitability of an enterprise depends on the total cost of production and the aggregate sale price of the output. This will indicate whether the cash flow would be adequate to meet the debt obligations and also provide sufficient margin of safety. interest on term loans and depreciation added back) by total interest charges and instalments. The unit should be in a position to manufacture the product at a reasonable cost and sell them at a reasonable price which would allow adequate profit margin even in a competitive market. (d) Cash-flow Estimates:. The cash-flow estimates will show the sources of funds including those arising from depreciation and profits as well as uses of funds including repayment of term loan instalments.The cash flow estimates are essential to ensure availability of cash to meet the requirements of the project from time to time. At this point the unit begins to make profit. the repayment of term loans being drawn taking into consideration the above aspect.The next step is the assessment of the earning capacity of the project.

labour. Various ratios are derived from the Balance Sheet and inferences drawn therefrom. Technical Feasibility: The project needs to be examined with particular reference to the following points regarding the technical feasibility. However in the case of existing concerns going for expansion the Balance Sheets for the past three years are also analysed and compared. The subsidies and other concessions available at certain specified areas are to be compared with these basic infrastructural aspects. availability of power and transport facilities and market. with the projections.The success of a project generally depends on its proper location yielding the advantages of nearness to the sources of raw material. 2. The projected balance sheets can be drawn for the cash-flow estimates and profitability projections. . (a) Location:.Proforma Balance Sheets are drawn for existing concerns going for expansion as well as for new projects.(e) Proforma Balance Sheet:.

The land should necessarily be sufficient to take care of future expansion. Technical Competence: The technology may be indigenous or imported through foreign collaboration.(a) Land and Building:. Actual plant lay out is to be studied before deciding on the size of the building. 3. . If the land is on lease the terms and conditions of the lease to be verified and so also whether the municipal laws regarding construction of building.

royalties etc. training expenses. drawings. The cost of the project should provide for the know-how fee. . process know-how. • Performance guarantee and it’s adequate in relation to rated capacity of plant and machinery. trial operations and performance test. • Reasonableness of financial and other costs by way of down payment. • Adequate of the scope and competitiveness of the terms of the collaboration in relation to the requirements of the project. training facilities etc. erection and commissioning of the plant. project engineering. foreign trips etc. equipment specifications.In the case of indigenous technology it should be ensured that suitable technical personnel are available for technology acquired through collaboration tie-ups the key areas to be probed are: • The standing of the collaborations and past experience concerning tie-up arrangements with them.

and also the homogeneity of the management set up. Basic data regarding demand and supply of a product in the domestic market and foreign market should be analyzed. Economic Feasibility:. production.The economic feasibility basically deals with the marketability of the product. 5. finance etc. Managerial Competence:. However assessment of managerial competence has to be necessarily qualitative. For a new entrepreneur it will always be advisable to build up a competent team of specialists in the required discipline to join hands with an entrepreneur who has the requisite organizational and managerial expertise in the implementation and operation of the project. maintenance. .4. competence and integrity of its management.The success of a business enterprise depends largely on the resourcefulness. Projection or forecasting of demand is no doubt a complicated matter but is of vital importance. marketing. Equally important is to examine the sales promotion proposed by the enterprise and its adequacy. calling for understanding and judgment. The adequacy of the management set up for day to day operations like. The managerial requirements are the experience and capability of the principal promoters to implement and run the project.

capital structure etc.The overall decision in a financing proposition is a composite of several sub-decisions on the various aspects gone into above.6. market stratergy. phasing of output. product mix. plant-size. . These sub-decisions provide the frame work for involving location. Financing Decisions:. Even after taking a financing decision the bank has to be associated with the venture on a continuing basis financing partners and continuing to provide requisite assistance.

. A project report consists of analytical study of the proposed project and conclusion can be drawn about is viability. Technical. Managerial and social. Marketing. Financial.A Project Report is a detailed plan of action and particulars about the proposed project. The company will submit the copies of the detailed project report to the Banks and Financial Institutions for their participation in the scheme of finance and also the working capital requirements of the project. The promoters capacity and competence will also reflect in the project report.. The project report will be prepared for plan of action to be undertaken which covers various aspects viz.

Registered Office. 2.Profile of the industry in the country. Background of other directors.Contents of Project Report: A detailed project report. Scheme of project.Location of the factory.Industry position in the country .Line of activity. Building and civil works. generally contain the following information: 1. Project Details: Promoters. Plant and machinery. Land and site development. Management etc.Industry position in the world scenario .Value addition by the industry . Introduction to Project and Industry: . . Utilities.

Annual requirement .Varieties and grades of raw material .Situation of raw material availability indigenously .Linkages with suppliers of raw material .Cost of raw materials and transportation cost to the factory .Areas from which raw material can be procured .Feasibility of import of raw materials .Suppliers of raw materials .Requirement of raw materials .Transportation of raw materials .3. Raw Materials Details: .

5.Compressed air .4. Utilities Details:.Plant Capacity .Plant layout .Fuel .Effluent and waste disposal etc.Chilled water .Capacity utilization .Technical know-how .Power . Technical Details: .Steam .Product description and properties .Plant and machinery details .Packaging and its cost .Manufacturing process with flow chart .Water .

Manpower requirement .Estimated funds flow statement . fuel.Means of finance . . Man Power Details:. method of working capital requirement computed etc. power.Availability of manpower 7.Assumptions made in financial projections about capacity utilization.Organization chart .6. Financial Details:.Estimates of production and sales .Projected Balance Sheet .Statement of Debt Service Coverage Ratio etc .Cost of project with details to individual cost items .Estimated cost of production and profitability . transportation. prices of raw materials.

Import substitution .Market requirements .Foreign exchange earnings .Present state of the industry .Distribution channels .Value addition .Marketing and selling arrangements 9.Market segments .8.Technology absorption etc. Project Evaluation – Social Angle:.Consumer preferences . .Export prospects and international market .Labour availability .Socio Economic benefits . Marketing Details:.Impact on ecology .