ing vysya-gaurav arora
TRANSCRIPT
A dissertation submitted to ING Vysya Bank, Punjabi Bagh Branch, New Delhi towards fulfillment of Summer Internship
A Report on
“SMEs Lending in Private Sector Bank”MAY’11-JULY’11
Under the guidance of Submitted By
Mr. ASEEM ANAND GAURAV ARORA
Mr. SUMIT KHARI PGP 20102112
Mr. DEEPAK GUPTA
Mr. ABHISHEK ASHISH
IILM INSTITUTE FOR HIGHER EDUCATION
DLF , GOLF COURSE, GURGAON SEC- 55
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ACKNOWLEDGEMENT
I would like to express my deep gratitude to the people involved in the successful completion of
an endeavour which is always a result of people involved explicitly therein and it is impossible
without the help and guidance of the people around.
At the outset, I wish to express my sincere thanks to almighty for showering his blessing on me
to develop this project.
I express my sincere thanks to MR. ASEEM ANAND, BRANCH HEAD for giving
permission to carry out this study in his esteemed organization.
I would like to acknowledge my sincere thanks to MR. SUMIT KHARI for his excellent
guidance and supervision for the completion of this project successfully.
I am extremely thankful to MR DEEPAK GUPTA, RM, Punjabi Bagh Branch, New Delhi for
his expert guidance, cooperation and help.
I wish to express my sincere regards to MR. ABHISHEK ASHISH (BOSH), for his help,
valuable guidance and kind supervision, which was the main stream to accomplish this study.
Last but not the least I wish to thank my parents who always believed me and have faith
in me in whatever I wished to do.
GAURAV ARORA
PGP20102012
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CONTENT
S.No. Content Page No.
1. About ING Vysya 4
2. Background 9
I Micro, Small and Medium Enterprises 10
II Business Loan 16
III Business Banking at ING Vysya 21
IV SME lending at ING Vysya 23
(a) Code of Bank’s Commitment to Micro and Small
Enterprises
23
(b) Products for SMEs at ING Vsysa 24
V Credit Management 30
3. Objective of my internship 50
4. Methodology Followed 51
I STAGE 1: Drawing Power 52
II STAGE 2: Monitoring 52
III STAGE 3: Credit Appraisal 52
5. Abstract of cases done during internship 54
I Drawing Power Calculation 55
II Credit Appraisal 56
(a) Case 1: ABC Agency 56
(b) Case 2: XYZ Chemicals 69
6. Result & Discussion 87
7. Summary 88
8. References 89
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ABOUT ING VYSYA
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ING Vysya Bank Ltd., is an entity formed with the coming together of erstwhile, Vysya Bank
Ltd, a premier bank in the Indian Private Sector and a global financial powerhouse, ING of
Dutch origin, during Oct 2002. The origin of the erstwhile Vysya Bank was pretty humble. It
was in the year 1930 that a team of visionaries came together to form a bank that would extend a
helping hand to those who weren't privileged enough to enjoy banking services. It's been a long
journey since then and the Bank has grown in size and stature to encompass every area of
present-day banking activity and has carved a distinct identity of being India's Premier Private
Sector Bank.
In 1980, the Bank completed fifty years of service to the nation and post 1985; the Bank made
rapid strides to reach the coveted position of being the number one private sector bank. In 1990,
the bank completed its Diamond Jubilee year. At the Diamond Jubilee Celebrations, the then
Finance Minister Prof. Madhu Dandavate, had termed the performance of the bank
‘Stupendous’. The 75th anniversary, the Platinum Jubilee of the bank was celebrated during
2005.
The long journey of seventy-five years has had several milestones…
1930 Set up in Bangalore
1948 Scheduled Bank
1985 Largest Private Sector Bank
1987 The Vysya Bank Leasing Ltd. Commenced
1988 Pioneered the concept of Co branding of Credit Cards
1990 Promoted Vysya Bank Housing Finance Ltd.
1992 Deposits cross Rs.1000 crores
1993 Number of Branches crossed 300
1996
Signs Strategic Alliance with BBL., Belgium. Two National Awards by
Gem & Jewellery Export Promotion Council for excellent performance
in Export Promotion
1998 Cash Management Services, & commissioning of VSAT. Golden
Peacock Award - for the best HR Practices by Institute of Directors.
Rated as Best Domestic Bank in India by Global Finance (International
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Financial Journal - June 1998)
2000State -of - the -art Date Centre at ITPL, Bangalore.
RBI clears setting up of ING Vysya Life Insurance Company
2001 ING-Vysya commenced life insurance business.
2002
The Bank launched a range of products & services like the Vys Vyapar
Plus, the range of loan schemes for traders, ATM services, Smartserv,
personal assistant service, Save & Secure, an account that provides
accident hospitalization and insurance cover, Sambandh, the
International Debit Card and the mi-b@nk net banking service.
2002 ING takes over the Management of the Bank from October 7th , 2002
2002RBI clears the new name of the Bank as ING Vysya Bank Ltd, vide
their letter of 17.12.02
2003Introduced customer friendly products like Orange Savings, Orange
Current and Protected Home Loans
2004 Introduced Protected Home Loans - a housing loan product
2005Introduced Solo - My Own Account for youth and Customer Service
Line – Phone Banking Service
2006Bank has networked all the branches to facilitate ‘AAA’ transactions
i.e. Anywhere, Anytime & Anyhow Banking
In terms of pure numbers, the performance over the decades can better be appreciated
from the following table:
Rs. in millions
Year Networth Deposits Advances Profits Outlets
1940 0.001 0.400 0.400 0.001 4
1950 1.40 5.30 3.80 0.09 16
1960 1.60 20.10 13.50 0.13 19
1970 3.00 91.50 62.80 0.74 39
1980 11.50 1414.30 813.70 1.13 228
1990 162.10 8509.40 4584.80 50.35 319
2000 5900.00 74240.00 39380.00 443.10 481
2001 6527.00 81411.10 43163.10 371.90 484
2002 6863.24 80680.00 44180.00 687.50 483
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2003 7067.90 91870.00 56120.00 863.50 456
2004 7473.20 104780.00 69367.30 590.01 523
2005 7094.00 125693.10 90805.90 (381.80) 536
2006 10196.70 133352.50 102315.20 90.6 562
2007 11101.90 154185.70 119761.70 889.0 626
2008 14260.00 204980.00 146500.00 1569.00 677
2009 15940.00 248900.00 167510.00 1888.00 857
2010 2223.00 258650.00 185070.00 2422.00 866*
*Outlets comprises of 468 branches, 13 ECs, 28 Satellite Offices and 357 ATMs as of March
31st 2010. Additionally the bank also has Internet Banking, Mobile Banking and Customer
Service Line for Phone Banking Service.
The origin of ING Group
On the other hand, ING group originated in 1990 from the merger between Nationale –
Nederlanden NV the largest Dutch Insurance Company and NMB Post Bank Groep NV.
Combining roots and ambitions, the newly formed company called “Internationale
Nederlanden Group”. Market circles soon abbreviated the name to I-N-G. The company
followed suit by changing the statutory name to “ING Group N.V.”
Profile
ING has gained recognition for its integrated approach of banking, insurance and asset
management. Furthermore, the company differentiates itself from other financial service
providers by successfully establishing life insurance companies in countries with emerging
economies, such as Korea, Taiwan, Hungary, Poland, Mexico and Chile. Another
specialisation is ING Direct, an Internet and direct marketing concept with which ING is
rapidly winning retail market share in mature markets. Finally, ING distinguishes itself
internationally as a provider of ‘employee benefits’, i.e. arrangements of nonwage benefits,
such as pension plans for companies and their employees.
Mission
ING`s mission is to be a leading, global, client-focused, innovative and low-cost provider of
financial services through the distribution channels of the client’s preference in markets
where ING can create value
.
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The new identity
The immediate benefit to the bank, ING Vysya Bank, has been the pride of having become a
Member of the global financial giant ING. As at the end of the year December 2010, ING's
total assets exceeded Rs. 87290 billion, with a underlying net profit of Rs. 272510 million,
employed around 105000 people, serves over 85 million customers, across 40 countries. This
global identity coupled with the backup of a financial power house and the status of being the
first Indian International Bank, would also help to enhance productivity, profitability, to
result in improved performance of the bank, for the benefit of all the stake holders.
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BACKGROUND
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Micro, Small and Medium EnterprisesMicro, small and medium enterprises (MSME) sector has been recognised as an engine of
growth all over the world. The sector is characterised by low investment requirement,
operational flexibility, location wise mobility, and import substitution. In India, the Micro,
Small and Medium Enterprises Development (MSMED) Act, 2006 is the first single
comprehensive legislation covering all the three segments. In accordance with the Act, these
enterprises are classified in two:- (i) manufacturing enterprises engaged in the manufacture or
production of goods pertaining to any industry specified in the first schedule to the Industries
(Development and regulation) Act, 1951. These are defined in terms of investment in plant and
machinery; (ii) service enterprises engaged in providing or rendering of services and are defined
in terms of investment in equipment.
Both categories of enterprises have been further classified into micro, small, medium and large
enterprises based on their investment in plant and machinery (for manufacturing enterprises) or
on equipments (in case of enterprises providing or rendering services). The present ceiling on
investment to be classified as micro, small or medium enterprises is as under:
Manufacturing Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five lakh rupees but does not exceed five crore
rupees
Medium Enterprises More than five crore rupees but does not exceed ten crore rupees
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Service Sector
Enterprises Investment in equipments
Micro Enterprises Does not exceed ten lakh rupees
Small Enterprises More than ten lakh rupees but does not exceed two crore rupees
Medium
Enterprises
More than two crore rupees but does not exceed five core rupees
Profile of Indian MSME Sector
S.No. Particular Value
1 Number of micro and small enterprises 140 Lakhs
2 Employment 600 Lakhs
3 Share in GDP 8-9%
4 Share in manufacturing output 45%
5 Share in exports 40%
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Small and Medium Enterprises (SMEs) sector in India is definitely growing at an exceptional
rate. Still, there are some important things that need to be focused upon so that best out of these
enterprises can be obtained. Here is a brief analysis of the Indian SME sector.
Some Figures of Interest
The Indian SME market is worth $5 billion.
There are around 14 million SME units in India that produce more than 8,000 products.
Nearly 90 percent of the Indian industrial units belong to the sector of small and medium
enterprises.
The SMEs contribute 40 percent to the overall industrial output of the country.
The sector accounts for about 39% of the manufacturing output and around 40% of the
total export of the country. The major advantage of the sector is its employment potential
at low capital cost.
As per available statistics, this sector employs an estimated 60 million persons and the
labour intensity in the MSE sector is estimated to be almost 4 times higher than the large
enterprises.
It is source of innovative products.
This sector creates 1.3 million jobs per annum.
Finally, these enterprises are estimated to grow at the rate of 20 percent per year for
upcoming years. In recent years the MSE sector has consistently registered higher
growth rate compared to the overall industrial sector.
Main Reasons for SME Growth
Foreign and local fund providers are taking huge interest in the small and medium
enterprises of India.
Banking sector has also shown a keen interest in lending credit to these enterprises.
Many recent mergers have taken place in the sector.
The sector has significantly contributed towards the domestic production as well as the
export earnings.
Low investment is required to start and maintain these enterprises.
The sector has contributed impressively towards job creation and increase in individual
incomes. IILM 12
Technological growth is also a factor for growth of SME's in India as there are several
trade portals and business directories available online with huge database of buyers,
sellers, manufacturers who are basically back bone of SME's.
The SME’s are dominant players in some of India’s major export sectors namely Textiles
and Garments, Leather products, Sports goods, Gems and jewellery, Handicrafts among
others. They also contribute substantially in industrial goods segments in sectors such as
electrical, engineering, rubber and plastics.
Opportunities for SMEs in INDIA
With their inherent strength and resilience SMEs can weather adverse situations like global
financial crisis and economic slowdown, as they are not dependent on public money. Many
overseas companies are approaching Indian SME to out source their manufacturing activities. In
service sector too, many are setting up BPO and KPO in India, which are a real boon for the
Indian SME sector. Unless and until the SMEs equip themselves with the latest technologies,
processes and machinery, they will not be in a position to meet the stringent quality standards set
out by the buyers. Even if they are exploring new markets, the products and services have to be
suitably modified to meet the market requirements with innovative designs and features. It is an
excellent opportunity for the Indian SMEs to convert the present global melt down condition to
their advantage by catering to the needs of the markets, which are already reeling under the
recession.
Challenges Ahead
Even after recording an impressive growth in the recent years, the small and medium enterprises
of India face many challenges:
Infrastructure needs to be developed for setting up the SMEs in the rural sector of the
country. Transportation, electricity and communication are the main parts of the
infrastructure required.
Technology need to be evolved so that quality products are manufactured by the sector.
Lack of information about the inputs, including raw material, machinery and skills, is
one critical challenge in front of the owners of these enterprises.
High level of research and development is required.
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Administrative framework for MSME’s
The Government has been encouraging and supporting the SME sector through policies for
infrastructural support, technology up gradation, preferential access to credit, reservation of
products for exclusive manufacture in the sector, preferential purchase policy, etc. It has been
offering packages of schemes and incentives through its specialized institutions in the form of
assistance in obtaining finance; help in marketing; technical guidance; training and technology
up gradation, etc.
Government of India has set up a new governing body for promotion and development of Micro,
Medium and Small Scale Enterprises via “MSME Development Act”, which came into force
from 2nd October 2006. The President under Notification dated 9th May 2007 amended the
Government of India (Allocation of Business) Rules, 1961 by which, Ministry of Agro and
Rural Industries (Krishi Evam Gramin Udyog Mantralaya) and Ministry of Small Scale
Industries (Laghu Udyog Mantralaya) have been merged into a single Ministry, namely,
“Ministry of Micro, Small and Medium Enterprises”.
The Ministry of “Micro, Small and Medium Enterprises” (MSME) is the administrative Ministry
in the Government of India for all matters relating to Micro, Small and Medium Enterprises. It
designs and implements policies and programmes through its field organizations and attached
offices for promotion and growth of MSME sector. The Office of the Development
Commissioner (MSME) is an attached office of the Ministry of MSME, and is the apex body to
advise, coordinate and formulate policies and programmes for the development and promotion
of the MSME Sector. The office also maintains liaison with Central Ministries and other
Central/State Government agencies/organizations financial institutions.
In view of the Government of India’s ambitious target of average GDP growth rate of 9% during
the 11th Five Year Plan, SME’s is playing a vital role in achieving this target. It is imperative
for the government to address the major issues plaguing the sector and take further inclusive
growth oriented policy initiatives to boost the sector. This includes measures addressing
concerns of credit, fiscal support, cluster-based development, infrastructure, technology, and
marketing among others. As mentioned earlier, SME’s constitute 40% of India’s merchandise
exports and in order to increase India’s export share to the global trade, SME’s are expected to
enlarge their scope manifold.
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Business Loan
Assets of banks consist mainly of loans to businesses and consumers and their liabilities
comprise of various forms of deposits from consumers. Their main source of income is from
what is called as the interest rate spread, which is the difference between the lending rate (rate at
which banks earn) and the deposit rate (rate at which banks pay). Banks generally do not lend
100% of their deposits. They are statutorily required to maintain a certain portion of the deposits
as cash and another portion in the form of liquid and safe assets (generally Government
securities), which yield a lower rate of return. These requirements, known as the Cash Reserve
Ratio (CRR ratio) and Statutory Liquidity Ratio (SLR ratio) in India, are stipulated by the
Reserve Bank of India and banks need to adhere to them.
Bank gives loan to companies to meet their working capital requirement or as guarantee.
Working Capital refers to that part of the firm’s capital, which is required for financing short
term or current assets such as cash marketable securities, debtors and inventories. Funds thus,
invested in current assets keep revolving fast and are constantly converted into cash and this
cash flow out again in exchange for other current assets. Working Capital is also known as
revolving or circulating capital or short-term capital.
FACTORS DETERMINING WORKING CAPITAL
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_ Nature of the Industry
_ Demand of Industry
_ Cash requirements
_ Nature of the Business
_ Production Cycle
_ Credit control
_ Inflation or Price level
changes
_ Profit planning and control
_ Manufacturing time
_ Volume of Sales
_ Attitude towards Risk
_ Terms of Purchase and
Sales _
Inventory Turnover
_ Business Turnover
_ Business Cycle
_ Current Assets
requirements
_ Repayment ability
_ Cash reserves
_ Operation efficiency
_ Change in Technology
_Firm’s finance and
dividend policy
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SOURCES OF WORKING CAPITAL
Sources of working capital are:
_ Owned fund (Equity, Reserves, etc.)
_ Bank borrowings (Cash Credit, Packing Credit, B/D, L/C)
Sources of additional working capital include the following:
_ Existing cash reserves
_ Profits
_ Payables (credit from suppliers)
_ New equity or loans from shareholders
_ Bank overdrafts or lines of credit Long-term loans
To help companies in meeting their requirements, banks provide fund based and non fund
based loans to the companies depending upon the requirement.
Fund Based
Non-fund based facilities are such facilities extended by banks which involve outgo of funds
from the bank when the customer avails the facilities.
Cash credit/Overdraft facility
Cash credit/overdraft is a form of credit facility in which a borrower is sanctioned a
pre - arranged limit with the freedom to borrow as much money as he requires. In
case of flow of credit to the account, he can withdraw afresh subject to the limit
sanctioned. As such, the limit works
as a revolving line of credit. Bank charges interest on the outstanding balances.
An overdraft allows the individual to continue withdrawing money even if the
account has no funds in it. Basically the bank allows people to borrow a set amount of
money. As security is always taken from the client against overdraft limit, it is a
secured limit and thus it is also called Secured Overdraft facility (SOD).
Cash Credit (CC) is same as Overdraft facility, Only difference between cash credit
and over draft is that in cash credit both stock and debt are considered while in
overdraft facility only debt is considered. Thus, client has to send monthly stock
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statements and list of debtors to the bank from with monthly drawing power is
calculated.
Bill Discounting
Bill discounting is a major activity with some of the smaller Banks. In case of
discounting of a bill, a bank buys the bill (i.e. Bill of Exchange or Promissory Note)
before it is due and credits the value of the bill after discount charges to the
customer’s account. The transaction is practically an advance against the security of
the bill and the discount represents the interest on the advance from the date of
purchase of the bill until it is due for payment. Only usance bills are discounted.
Under this particular type of lending, Bank takes the bill drawn by borrower on
his(borrower's) customer and pay him or her immediately deducting some amount as
discount/commission. The Bank then presents the Bill to the borrower's customer on
the due date of the Bill and collects the total amount. If the bill is delayed, the
borrower or his customer pays the Bank a pre-determined interest depending upon the
terms of transaction.
Term Loan
Term Loans are the counter parts of Fixed Deposits in the Bank. Banks lend money in
this mode when the repayment is sought to be made in fixed, pre-determined
installments. This type of loan is normally given to the borrowers for acquiring long
term assets i.e. assets which will benefit the borrower over a long period (exceeding
at least one year). Purchases of plant and machinery, constructing building for
factory, setting up new projects fall in this category. Financing for purchase of
automobiles, consumer durables, real estate and creation of infra structure also falls in
this category.
Pre shipment Credit
Pre-shipment Credit is offered to an exporter by way of packing credit to enable him
to finance purchase/import of raw materials, processing and packing of the goods
meant for exports. Import can be on DA (Payment against acceptance) or DP
(payment against receipt of document) basis.
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DP means documents against payment (a sight payment) . In this case the documents
are sent to the buyers bank who holds the documents until payment is receieved by
that bank. Once payment is received, the bank releases the documents to the buyer.
DA means documents against acceptance. This is NOT a banker's acceptance and it
is NOT a deferred payment undertaking by the bank. In this case, the documents are
sent to the buyers bank who releases only the draft to be accepted by the buyer. Once
the draft is accepted with a stated maturity date and returned to the buyers bank, the
bank will release the documents to the buyer. The buyer has the obligation to make
payment at maturity, but if they do not pay, the bank will NOT make payment to the
seller.
Post shipment Credit
Post-shipment Credit is offered to an exporter to finance export sales receivables after
the date of shipment of goods till the date of realisation of export proceeds. Like pre
shipment, payment for post shipment can also be on DA or DP basis.
Non-Fund based
Non-fund based facilities are such facilities extended by banks which do not involve outgo of
funds from the bank when the customer avails the facilities but may at a later date crystallise
into financial liability if the customer fails to honour the commitment made by availing these
facilities.
Letter of credit
A Letter of Credit (LC) is a letter from a bank guaranteeing that a buyer's payment to
a seller will be received on time and for the correct amount. In the event that the
buyer is unable to make payment on the purchase, the bank will be required to cover
the full or remaining amount of the purchase.
LC are of two types- usance and sight. The main difference between the two is that in
Sight LC where the purchaser is not provided any credit period while in Usance LC
credit period is provided by the seller to make payment for the goods. Thus in Sight
LC the bank send the LC first and then the goods arrive whose papers remain with the
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bank till the time the buyer make payment to the bank and signs these papers. On the
seller’s side, the LC will be payable only once the goods are under the possession of
bank and on buyer’s side goods can be received only after the payment is done to the
bank. In case of Usance LC, goods are first dispatched and then the client is given a
credit period in which he has to make the payment to the seller. If the client does not
make payment in the given credit period, bank send the LC to the seller.
LC can be used for buying material from its own country or from foreign country. If
the goods are bought from its own country, in our case from India, it is called Inland
Letter of Credit (ILC). If the goods are bought from a foreign country i.e. imported, it
is called Foreign Letter of Credit (FLC).
Bank Guarantee
Bank Guarantee (BG) is a guarantee from a lending institution ensuring that the
liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt,
the bank will cover it.
A bank guarantee and a letter of credit are similar in many ways but they're two
different things. Letters of credit ensure that a transaction proceeds as planned, while
bank guarantees reduce the loss if the transaction doesn't go as planned. A letter of
credit is an obligation taken on by a bank to make a payment once certain criteria are
met. Once these terms are completed and confirmed, the bank will transfer the funds.
This ensures the payment will be made as long as the services are performed. A bank
guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a
line of credit, the sum is only paid if the opposing party does not fulfil the stipulated
obligations under the contract. This can be used to essentially insure a buyer or seller
from loss or damage due to non performance by the other party in a contract.
LEF (Loan Equivalent Factor)
For commercial loans, when granting a revolving line of credit, a bank usually
provides a credit limit. A borrower obtains an immediate loan amount and the future
availability of the total loan amount. Accordingly, the corresponding exposure for the
bank has two parts: the outstanding balance (NB) and the current commitment (NE).
The outstanding balance refers to the amount drawn by the obligor, while the current
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commitment includes drawn and undrawn portions that the bank has promised to lend
to the borrower at his or her request. The probability of drawing the undrawn portion
in the next 12 months is defined as the loan equivalency factor (LEF) off balance
sheet. Since a probability always has values from 0 to 1, LEF is constrained into a
range of 0 to 1.
Buyer’s Credit – Raw Material
A Raw Material Guarantee (an import credit guarantee) may be issued as security for a loan granted to a fo
foreign borrower in connection with a long-term contract with an Indian buyer concerning import of
raw materials (for example, concentrates for the basic metals industry).
While giving loans bank does the analysis of various parameters to check the risk associated
with the repayment of loan. One of the major parameter is financial analysis where key ratios
are analysed. In general the levels and risk associated with these key ratios are:
Particulars Formula Low
Risk
Medium
Risk
High
Risk
Current Ratio Current Assets
Current Liability
>1.40 1.20-1.40 <1.20
TOL/TNW Total Outstanding
Liabilities
Total Net Worth
<2.00 2.00-3.50 <3.50
Interest Coverage EBITDA
Interest & other
finance charge
>3.50 2.00-3.50 <2.00
PAT/Sales % (PAT/Sales)*100 >10.00 4.00-10.00 <4.00
Inventory (N o.
Of days)
Ending Inventory
Cost of Goods Sold /
365
<60 60-90 >90
Debtors (No. of Average Gross <45 45-90 >90
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days) Receivables
Annual Net Sales /
365
Debt-Equity Ratio Total Debt
Total Equity
<1.25 1.25-1.75 >1.75
DSCR ( For TL) EBITDA
Interest+Current
maturities in long term
debt
>2.00 1.25-2.00 <1.25
Business Banking at ING
Business Banking at ING Vyasya, Punjabi Bagh deals with SMEs lending. The SMEs
lending has following four subparts:
Sales and marketing – Every bank want to have clients with good past record and proper
business planning. Thus it is very important to market the facilities available at the bank and
convince good clients to take them. Giving right facility to the clients depending on their
requirement comes under sales. Proper execution of these two steps insures long term
relationship with the clients and helps to develop relationship with new and better clients.
Credit Appraisal – Once the overall information about the client is got, we make a proposal
based on the requirement of the client and purpose for which he needs debt. There are various
types of fund based and non fund based facilities available depending on the requirement of
the clients. Depending on the requirement of the client various parameters are analysed to
know the credit worthiness of the client. Deviation in the guidelines setup by the IVBL, RBI
and other government institution is checked for the firm and promoters. Financial data for
past years and projections for next years, balance sheet and income statement, are analysed to
know the financial strength of the firm. This is important as it insures that all the facilities
will be repaid on time. Apart from this credit rating is also done by the bank to know the risk
associated with the client.
Monitoring – After the account has been created with IVBL and disbursement of loan has
been done, monthly monitoring is of the account is important to know that facility diven to
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the client is properly utilised. Under monitoring we monthly check the churning in the
account, inward check returns, outward check return, stocks, debtors, creditors and average
utilization of the facility given. This helps to see whether the account bearer is doing business
in accordance with the reports given by it. Apart from this quarterly visits are also made to
the godowns and factories to make sure everything is same as required and reported. Bank
remains in contact with the client’s promoters to see if there is any major change in the
business structure taking place which could go against the post disbursement conditions and
other bank’s norms. This part helps to prevent any fraud or loss to the bank because of
default.
Collection – Sometimes the clients is unable to repay the loan amount to the bank due to
various reasons. In this case, reason for default has to be checked and then legal proceedings
are made accordingly to get the loan amount from the client. To avoid any major loss in such
cases bank always take papers of primary cover and collaterals before disbursement of the
facility is done. If such situation arises, legal help is required to collect the money from the
client.
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SME lending at ING Vyasya
Code of Bank's Commitment to Micro and Small Enterprises
This is a voluntary Code, which sets minimum standards of banking practices for banks to
follow when they are dealing with Micro and Small Enterprises (MSEs ) as defined in the
Micro Small and Medium Enterprises Development (MSMED) Act, 2006. It provides
protection to MSEs and explains how banks are expected to deal with them for their day to -
day operations and in times of financial difficulty. The Code does not replace or supersede
regulatory or supervisory instructions issued by the Reserve Bank of India (RBI) and we will
comply with such instructions /directions issued by the RBI from time to time. The
provisions of the Code may set higher standards than what is indicated in the regulatory or
supervisory instructions and such higher standards will prevail, as the Code represents best
practices agreed by IVBL as their commitment to MSMEs.
Objectives of the Code
The Code has been developed to
a. Give a positive thrust to the MSE sector by providing easy access to efficient banking
services.
b. Promote good and fair banking practices by setting minimum standards in dealing with
MSEs. Increase transparency so that they can have a better understanding of what they can
reasonably expect of the services.
d. Improve IVBL understanding of MSEs business through effective communication.
e. Encourage market forces, through competition, to achieve higher operating standards.
f. Promote a fair and cordial relationship between MSEs and IVBL and also ensure timely
and quick response to MSEs’ banking needs.
g. Foster confidence in the banking system.
IILM 24
Products for SMEs at ING Vyasya
At ING Vysya, following types of products are offered under Business Banking:
MPower Rent
Product Definition
A product that offers immediate liquidity against commercial property owned.
Avail of a loan at competitive rates, against rent receivables.
Key Features
The loan is self - liquidating in nature and offers immediate liquidity to the property
owners.
The Product envisages grant of Term Loans to the Lessors of the property by
discounting/scrutinizing the lease rentals receivable from the lessees of the property.
Target Customers
Individuals
Proprietary Concerns
Partnership Firms
Public & Private Limited Companies
Trusts & Registered Bodies like Educational Institutions, Association of persons etc.,
owning Commercial Properties
Eligibility Criteria
A. Borrower
Credit Investigation Report.
Details like background of promoters, activities of group companies, their
financial status. IILM 25
IT/ Wealth Tax Returns, Assets & Liability statements of individuals &
promoters.
Financial statements of the Lessor firm/ Company/ Institution/ Association of
Persons.
B. Tenant (Lessee)
Well known Multinational Companies (MNC), Public Sector Undertakings (PSU),
Private Sector Companies including their subsidiaries, Banks, All India Financial
Institutions, National & International Airlines, Insurance Companies, Central
Government Offices. In such cases, the financial statements need not be insisted
upon.
Other Companies / Institutions / Firms which are in existence for a period of at least 3
years and are earning Cash Profits for a minimum period of 2 years.
New companies promoted by High Net Worth Individuals.
C. Property
Commercial properties located in Metros and Urban areas with an unencumbered,
clear and marketable title. Property should be suitably located for easy marketability.
Value of the commercial property should be at least 125 to 150 % of the Loan
Amount.
D. Lease Agreement
Normally the unexpired lease period should not be less than the period of loan, and
terms of lease agreement should prohibit the Lessee from vacating the premises
before expiry of lease agreement without paying rent for the full period, discounted at
the rate not higher than the rate applied by the Bank on the loan.
In case the lease agreement is for a period less than the loan period, and the lessee is
not bound to renew the lease, or he has option to vacate the premises after giving
notice, it must be ensured that:
IILM 26
-The lessee has a greater financial disincentive not to renew the Lease at least for the
remaining period of the loan, or
-The lessor signs an agreement with the Bank, that, in the event the present Lessee
vacates the property and the lessor is unable to find new tenant within a period of 1
month, the Bank will have the right, but will be under no obligation to select a new
lessee. The lessor will be bound to sign the agreement with the new lessee.
MPower Business Loans Trade
Product Definition
A scheme formulated specifically to provide credit facilities to Small and Medium Enterprise
engaged in Trading, Small Businesses and Service activities.
The scheme offers Secured Overdraft Limits (SOD) (Fund and Non-fund) Term Loans and
Composite Loans covering both Working Capital as well as Term loan with a maximum
exposure of Rs.200 lakhs per customer.
Key Features
Granting of Secured Overdraft Limits (SOD) (Fund and Non-fund) Term Loans and
Composite Loans covering both Working Capital as well as Term loan with a
maximum exposure of Rs.200.00 0 lakhs per customer.
Bank Guarantees, LCs and Solvency Certificates can be issued.
Target Customers
Retail Traders and Small Business.
Professionals including Practicing Doctors / Advocates / Consultancy Units /
Travel Agencies/Advertising and Publicity agencies etc.
Wholesale Distributors & Dealers / Stockists, Commission Agents.
Jeweler Shops, Nursing Homes.
IILM 27
Contractors.
Transport Operators (only for working capital)
Other thriving commercial activities characterized by major share of cash
transactions.
Eligible borrowers are:
Individuals – Self Employed Persons, Women Entrepreneurs, Agri- businessmen,
etc.
Proprietorship concerns / Partnership concerns.
HUF, Limited Companies.
Borrowers should necessarily consider ING Vysya Bank as their Sole Bankers.
Eligibility Criteria
Past track record of the entrepreneur in the business.
Overall financial standing of the business enterprise.
Market reputation and integrity of the borrower.
Acceptable level of trade activity.
Credit needs for stock-in-trade and credit sales.
Risk coverage by way of the adequate securities offered for the proposed credit
exposure.
MPower VIDYALAYA
Product Definition
A customized package for financing to Educational Institutions by capitalizing on the lending
opportunities arising out of the privatization of the Educational Sector.
IILM 28
Key Features
Term loan for construction of Buildings to accommodate classrooms, Laboratories, Hospitals
(in case of Medical Colleges), Staff rooms, Hostel Accommodation etc. and for acquiring the
required equipments such as Computers, Library books, Furniture, Sports equipments/
facilities etc.
Target Customers
Institutions imparting Primary / Secondary Education at School level.
Pre-University Colleges.
Medical Colleges (on selective basis)
Engineering Colleges - as far as possible are to be avoided and not to be encouraged
except in case of existing relationships which are healthy and worth pursuing.
Institutions offering other Professional Courses such as Business Management,
Computer Science.
New institutions - on a very selective basis where the promoters command high
integrity, respect and successful track record of being associated with such ventures
earlier.
Eligibility Criteria
Institution must be in existence for at least 5 years and must be generating surpluses
for the past 3 years.
The Institution should have a minimum Student strength of 500 and minimum
Teaching Staff strength of 25.
Audited financial statements to be furnished within 3 months from the close of each
accounting period.
IILM 29
M Power SSI
Product Definition
A scheme formulated specifically to provide credit facilities to Small Scale Industry units
engaged in activities like manufacturing, processing or SSSBEs, including Information
Technology and / or Software industry.
Key Features
Granting of Term Loan / Working Capital/ Non funded limits such as Sight and Usance
LC’s, Bank Guarantees, LEF limits for forward contracts.
Target Customers
Small Scale Industries.
Small Scale Processing Industry.
SSBE engaged in Information Technology and /or software industry.
Eligibility Criteria
Unit should have been in existence for a minimum period of two years or the
promoter should have been in the line of business for a minimum period of 3 years.
Start-up units would not be covered under this scheme.
Borrower should have shown cash profit at least in the preceding year.
Minimum Debt Service Coverage Ratio (DSCR) shall be 1.25 for Term loans during
the tenor of the loan.
MPower RICE MILLS
Product Definition
A scheme formulated specifically to provide credit facilities to Rice Millers engaged in
processing and / or trading of rice.
The scheme offers Term Loans, Working Capital and Non Fund based Limit (LCs &
BGs)
IILM 30
Key Features
Granting of Term loan for establishment of Rice Mills and working Capital limits viz.
ODSIT & Book Debts, Bill Purchase / Discounting, Produce / Key Loan, Loan against
WHRs and Non Fund based Limits ( LCs & BGs) without ceiling on the exposure.
Target Customers
Existing as well as new customers engaged in this line of activity.
Eligible borrowers are:
Individuals, HUF, Sole Proprietorship, Partnership, Associations Individuals, HUF, Sole
Proprietorship, Partnership, Associations.
Eligibility Criteria
Good past track record of the entrepreneur in the business.
Overall financial standing of the business enterprise.
Market reputation and integrity of the borrower.
Acceptable level of trade activity.
Credit needs for stock-in-trade and credit sales.
Risk coverage by way of the adequate securities offered for the proposed credit
exposure.
IILM 31
Credit Management
Credit management is a process of managing credit related activities in bank. Credit
management involve:
Loan scrutiny and credit appraisal
Documentation and sanction
Disbursement
Monitoring the account
Review
Recovery
Loan Scrunity and credit appraisal
This is the first step to be followed after a client gives application for the approval of
one/more facility from the bank. For sanctioning process to start, first the credit appraisal is
done for which the required information is taken from the client and verified by bank. The
purpose of credit appraisal can be:
1. Fresh Proposal – The proposal of the company which has approached the bank for the first
time, i.e. which does not have any previous relationship with the bank.
2. Enhancement – When a company is already enjoying one or more of the FB or NFB facilities
from the bank and want to increase the limit for the same then enhancement proposal is
made.
3. Adhov – Sometimes for a certain period the given limit is not sufficient for the company to
meet its requirements. In such case Adhov limit, over and above the average sanction limit, is
provided to the client. Adhov is provided for maximum 90 days.
4. Review – If the client is new or the performance of the company as per projected is doubtful
then a mid review date is decided while approving fresh/enhancement proposal. Is such cases
mostly the client asks for more limit as predicted by bank to fullfill its requirement. So post
sanction conditions are put to the proposal, for example company has to maintain a turnover
of 12 million and its TOL/TNW should not be more than 6. To monitor whether these
conditions are meet review proposals are made before the end mid review month. The facility
limit will remain same after sanction of review proposal only if all the conditions are
fulfilled.
IILM 32
5. Renewal – If the clients want to keep the facility limit same as existing limit, renewal
proposal is made before the end of existing facility.
Credit Appraisal Memo (CAM) is prepared for the purpose of credit appraisal. In the CAM
bank compile and verify the information about the client. This information is then analysed to
find the risk associated with the client and predict the profitability that bank can expect after
the sanctioning of the concerned proposal.
For making CAM various documents are required to verify the information of the client.
These documents are:
1. Duly filled prescribed application form.
2. Memorandum & Articles of Association/Partnership Deed.
3. Audited Balance Sheets and Profit & Loss Accounts along with schedules,
Auditor’s Report/Tax Audit report for last 3 years.
4. Duly signed provisional financial statements for immediate previous year along
with schedules etc. If audited is not available.
5. Up-to-date Figures of sales/purchase.
6. Duly signed projected Balance Sheets and Profit & Loss Accounts for next
year/full tenor in case of loan.
7. Latest IT returns of the borrower/partners/directors etc.
8. Copy of latest sanction letter (for the credit facilities) from the existing
banker/financial institute.
9. Form 311 duly signed by RM/Copy of valuation report for the properties offered
as collateral security.
10. Duly filled & signed latest Net Worth statements of directors/partners/guarantors
in the bank’s prescribed format ( Form No 479/480 ).
11. Call Memo signed by RM.
12. CIBIL reports of proprietor/partner/directors.
13. Statement of account latest for last 6 months along with reasons for lower/excess
credit turnover/cheque returning etc. /Banking Summary/Repayment Track of
loans.
14. Copies of various registration certificates i.e. VAT/DIC etc.
15. GRID ID creation proof whenever applicable.
After above documents are received and verified CAM is made. CAM includes following
details:
IILM 33
I. Borrower’s Background – This include details about line of activity and end product
of client, business process of the factory, promoter’s background, information about
promoter’s share in the company and their experience, infrastructure details of the
company i.e. name and address of factories/offices/godowns of the clients and
information about the FB and NFB loan facilities enjoyed by the client from different
banks.
II. Credit Base - It includes future expansion plans of the firm, in case there is any
major change in business process. Details regarding major customers and suppliers of
the company, their contribution percentage, their contact person with contact number.
Details about contact person of suppliers and customers are required to cross check
the details about the company and their business.
III. Relationship/Business Rationale – This includes details about relationship
experience if the client is already having relationship with the bank. Business
rationale include the estimates of the earning that the bank will get after the proposal
is passed in the form of processing fee and gross interest.
IV. Financial Analysis of Client – This includes the financial summary of the client for
current year, audited details of previous year and projections for next year. In this
financial summary some ratios are also included, they are TOL/TNW, inventory
turnover, debtors turnover, creditors turnover and NP margin. This financial summary
is used to analyse various parameters about the company and reason behind any major
change in the company. The parameters that are analysed are turnover, profitability,
leverage and liquidity of the company.
V. Risk Appraisal - Once the proposal comes we analyse the profile of the company to
calculate the risk involved in giving the asked facility to it. The risk appraisal is done
based on following risks:
1. Business Risk and outlook - It covers Market Dynamics, Competitive Positioning, Supply
Chain Management, Technological Development/ Obsolescence Risks, Dependence on
Single Supplier, Dependence on single Buyer and Products are dependent on a Single
industry.
2. Management Risk - It covers Management capabilities, Dependence on few individuals,
Presence of professionals and succession plan.
3. Performance Risk - It covers Technical know-how, Raw material souring/availability,
Product delivery capabilities and Competition comparatives - cost, product features.
4. Structure Risk - It covers Product Structure, Document structure and Process Structure.
IILM 34
5. Industry Sector Concentration - It concentrates over exposure to a Particular industry by the
Bank.
6. Country Risk - It covers convertibility, bans/sanctions on the country, Currency Risk.
7. Environment Risk - It covers the risks arising out of dealing with hazardous materials,
disposal of waste/effluent, Activities/Location dealing with social/environment issues.
8. Regulatory Risk - It covers compliance with statutory/Regulatory requirements, legal
requirement and lending regulations.
9. ING Vysya Bank’s Reputation Risk - It covers Moral and Ethical issues and
Social/Governance Issues.
10. Specific Purpose of Asset Collateral - It cover the risks arising out of assets put to specific
usage and tailor made assets and the problems in disposal in case of need.
11. Financial Risks - It covers Operating Efficiency, Financial Stability and Cash Flows.
12. Transaction Risk - It covers Documentation Risk, Covers/Collateral Valuation Risk and
Interest Rate Risk.
13. Any other Risk
VI. Take Out – It covers both primary and secondary takeouts. It is the hypothecation
and collateral securities kept by the company with the bank which can be taken by the
bank in case of default.
VII. SWOT – It includes the strength, weakness, opportunities and threat of the company.
This is found by the analysis of the sector with which the client is associated. This
helps to understand the market position of the client.
VIII. Policy Deviation – Deviation from credit policy is also checked for the clients. There
are three parameters across which deviation is analysed and observed. They are
deviation in credit policy financial parameters, deviation in policy other parameters
and verification of defaulter list.
(a) Deviation in Credit Policy Financial Parameters: The limits for the financial parameters
is decided by IVBL, across which deviation is to be calculated. Under this explanation /
justification for considering the request despite deviation has to be mentioned along with the
time frame within which the deviation has to be corrected and brought within the threshold
level has to be mentioned. The parameters and its limits are:-
Parameter Median Threshold Actual as of Remarks
IILM 35
last audited
B/s dated 31-
03-XX
*
Minimum EBITDA/Net
Sales
0.03 0.02
Minimum Interest Coverage
Ratio (EBITDA/Interest &
other finance charges)
1.75 1.50
Minimum Current Ratio
(Current Assets/Current
Liabilities)
1.15 1.00
Maximum Debt Equity
(Total interest bearing
Debt/TNW)
2.00 3.00
Maximum TOL/TNW 3.50 4.50
Minimum DSCR
(EBITDA/interest plus
current maturities in long
term Debt)
1.40 1.25
*Here justification for considering with deviation is given. If the minimum value is above
median then it is accepted, if its between median and threshold then also the deviation is
considered but if the minimum value is less than threshold then the parameter fails.
(b) Deviation in Other Credit Policy Parameters: It includes exposure norms in unit and
industry/sector, tenor norms for exposure & rating, regulatory restrictions, takeover norms,
FEMA/FERA requirements and Sec 19(2) of Firm act. All these are supposed to be compiled
with the proposal and if not compiled then time lines has to mentioned within which
compliance will be done. This is important as it states various norms to be followed by the
firm across which deviations are checked to insure that in future company would not be
facing any legal issues related to these norms. This information also helps to understand the
firm better and thus if any change occurs in future the bank would be in a better position to
examine the risk associated with it and problems that bank could face in future.
(c) Verification of Defaulters List: We also check for the promoters in the default lists and
take out their CIBIL to check the credibility of the promoters. These defaulter lists are RBI
Defaulters list, wilful defaulters list, RBI Caution list, and ECGC and Special Approval list.
IILM 36
IX. Highlights of credit investigation done – It contains the summary of credit
investigation report. CIR includes:
- Observations made in the statement of account of the client
- Personal enquiries made with banks/financial institutions
- Market opinion with customer of the client, creditors of the clients and independent
sources.
- Details about visit to factory/office
- Information through any other source
- Conclusion to credit investigation.
X. Compliance with statutory requirements – It includes confirmation that all IT/ST/
PF/ESI payments have been made and there are no over dues and that all statutory
approvals have been taken for conducting the business/ manufacturing activity.
XI. Summary of conduct of the account – It is done in case
enhancement/review/renewal. It includes very short summary of Account
performance and covered in detail in Account relationship and monitoring sheet.
Summary of account performance include earning of bank from this relationship and
detail about utilisation of working capital limit. Utilisation of working capital is found
from MIS system of IVBL.
XII. Cover/Collaterals and covenants – It includes details about primary cover,
collaterals and net worth of the guarantees. This is done to insure that in case of
default in repayment of facility, cover and collaterals provided by the firm to the bank
are sufficient to overcome losses.
XIII. Risk rating/Risk-reward/Profitability – Bank earns profit from the facilities given
in the form of the gross interest and income through commission.
Interest rate is decided at the time of approval of facilities. This interest rate varies
from client to client depending on their credit rating and previous relationship with
bank. Base Rate of the bank, IVBR (ING Vysya Base Rate), is the minimum interest
rate that can be enjoyed by the customer.
IILM 37
The Commission earned by the bank depend on the type of proposal/facility. IVBL
charges 0.5% on the renewal of the existing limit. While if it is a case of enhancement
of limit or fresh proposal, 1% is charged on the limit provided.
Credit Risk Rating is an important part of Credit Appraisal as it determines the risk
associated with the bank and thus profitability of the bank. To do credit risk rating we
first calculate the credit risk which is further divided into three heads – Business Risk,
Financial Risk and Management Risk.
While calculating cumulative risk of the firm, we give marks to the firm on the basis of
various parameters under each head and find risk in respective head. Once individual risks
are found, we do weighted summation to find the overall score of the firm based on which
Credit Risk Rating is given to the firm.
Credit Risk rating varies from CRR1 to CRR7. The parameters are rated based on following condition:
Par
amet
er
Exc
elle
nt
Str
ong
Goo
d
Sat
isfa
ctor
y
Ad
equ
ate
Mar
gin
al
Vu
lner
able
(1) (2) (3) (4) (5) (6) (7)
Bu
sin
ess
Ris
k
Industry/
Business
Status
Indu
stry
wel
l es
tabl
ishe
d a
nd g
row
ing
very
fas
t, i.e
. >20
% a
nnua
lly
Indu
stry
wel
l es
tabl
ishe
d a
nd g
row
ing
fast
, i.e
. >10
% a
nnua
lly
Indu
stry
wel
l es
tabl
ishe
d a
nd g
row
ing
mod
est,
i.e. >
5% a
nnua
lly
Mat
ure
indu
stry
but
wit
h m
odes
t gro
wth
Reg
ulat
ory
cha
nge/
pri
ce f
luct
uati
ons
are
freq
uent
Indu
stry
su
bjec
t
to
wid
e
cycl
ical
swin
gs/ H
azar
dous
Indu
stry
in
lo
ng
term
de
clin
e/
Unf
avou
rabl
e
IILM 38
Client’s
Growth
Suc
cess
ful
tr
ack
re
cord
fo
r
mor
e th
an 2
5 ye
ars
Goo
d t
rack
rec
ord
for
mor
e
than
15
year
s
Goo
d t
rack
rec
ord
for
mor
e
than
10
year
s
Goo
d tr
ack
reco
rd o
r m
ore
than
5 ye
ars
Acc
epta
ble
tr
ack
re
cord
fo
r
mor
e th
an 3
yea
rs
Est
abli
shed
for
mor
e t
han
3
year
s, v
iabi
lity
not
yet
pro
ven/
esta
blis
hed
Bor
row
er is
a s
tart
up
vent
ure
Competitive
PositionM
onop
oly
in L
ocal
Mar
ket
Loc
al
mar
ket
le
ader
.
Wea
k
com
peti
tion
Cli
ent
has
sig
nifi
cant
mar
ket
shar
e
(>20
% m
arke
t sha
re)
Cli
ent
is o
ne o
f t
he s
ever
al l
arge
play
er w
ith
>10
% m
arke
t sha
re
Les
s th
an 5
% m
arke
t sha
re
Los
ing
mar
ket
shar
e o
r f
acin
g c
ut
thro
at c
ompe
titi
on
Insi
gnif
ican
t
play
er
com
pare
d
to
com
peti
tion
Suppliers
Lon
g
term
re
lati
onsh
ip
wit
h
wel
l
esta
blis
hed
supp
lier
s.
Lon
g t
erm
con
trac
t w
ith
sup
plie
rs i
s in
plac
e.
Bor
row
er i
s v
ery
im
port
ant
to
the
supp
lier
s.
Dep
enda
nt o
n on
e/ tw
o la
rge
supp
lier
s.
Com
mod
ity
bus
ines
s. S
uppl
ier-
Buy
er
rela
tion
ship
is u
nim
port
ant.
Bor
row
er
is
unim
port
ant
to
th
e
supp
lier
s.
Sup
plie
r re
lati
onsh
ip is
uns
tabl
e.
Customers
Lon
g te
rm r
elat
ions
hip
wit
h w
ell
esta
blis
hed
Cus
tom
ers.
Lon
g t
erm
con
trac
t w
ith
cus
tom
ers
is
in
plac
e.
Bor
row
er is
ver
y im
port
ant t
o th
e cu
stom
ers.
Dep
enda
nt o
n on
e/ tw
o la
rge
cust
omer
s.
Com
mod
ity
bu
sine
ss.
S
elle
r-C
usto
mer
rela
tion
ship
is u
nim
port
ant.
Bor
row
er is
uni
mpo
rtan
t to
the
cust
omer
s.
Cus
tom
er r
elat
ions
hip
is u
nsta
ble.
IILM 39
Fin
anci
al R
isk
Liquidity
Cur
rent
Rat
io >
2.0
Cur
rent
Rat
io >
1.5
Cur
rent
Rat
io >
1.33
Cur
rent
Rat
io >
1.20
Cur
rent
Rat
io >
1.0
Cur
rent
R
atio
<1.
0
Cur
rent
R
atio
<0.
75
Leverage
TO
L/T
NW
< 0
.5
TO
L/T
NW
< 1
.0
TO
L/T
NW
< 1
.5
TO
L/T
NW
< 2
.0
TO
L/T
NW
< 2
.5
TO
L/T
NW
> 2
.5
TO
L/T
NW
> 4
.0
Sales Growth
Ann
ual
av
erag
e
grow
th >
20%
Ann
ual
av
erag
e
grow
th >
10%
Ann
ual
av
erag
e
grow
th >
5%
No
gr
owth
bu
t
very
sta
ble
sale
s
Sal
es
wid
ely
fluc
tuat
ing
Sal
es
show
decl
inin
g tr
end
No
sale
s hi
stor
y
PBDIT/Sales
PB
DIT
>
25%
PB
DIT
>
20%
PB
DIT
>
15%
PB
DIT
>
10%
PB
DIT
>
5% PB
DIT
<
5% PB
DIT
Neg
ativ
e
DSCR
DS
CR
>
3.0
DS
CR
>
2.5
DS
CR
>
2.0
DS
CR
>
1.5
DS
CR
>
1.25
DS
CR
>
1.0
DS
CR
<
1.0
Integrity
Unq
uest
iona
ble
in
tegr
ity.
Hig
hly
resp
ecta
ble.
Unq
uest
iona
ble
in
tegr
ant.
Hig
hly
resp
ecta
ble.
Gen
eral
ly
resp
ecte
d
for
inte
grit
y bu
t, no
t yet
test
ed
Pro
min
ent
m
embe
r
of
com
mun
ity.
N
o
adve
rse
No
adve
rse
repo
rts.
Not
wel
l kn
own
in m
arke
t. N
o
repo
rts
avai
labl
e.
Inte
grit
y s
uspe
ct b
ut n
o p
roof
or e
vide
nce
avai
labl
e
Family
Standing/
History
Mos
t pr
omin
ent
and
res
pect
ed
fam
ily
wit
h lo
ng h
isto
ry.
Hig
hly
re
spec
ted
cl
osel
y
knit
fam
ily
wit
h v
arie
d b
usin
ess
and
Wel
l re
gard
ed f
amil
y w
ith
a lo
ng
hist
ory.
M
embe
rs
oper
ate
Wel
l
esta
blis
hed
fa
mil
y.
Gen
eral
ly f
avou
rabl
e re
port
s.
Wel
l
esta
blis
hed
fa
mil
y.
No
adve
rse
repo
rts.
Fam
ily
his
tory
is
sho
rt.
Fir
st
gene
rati
on. N
o ad
vers
e re
port
s.
Kno
wn
fam
ily
feu
ds.
New
ric
h
wit
h po
tent
ial c
onne
ctio
ns.
IILM 40
Man
agem
ent
Ris
k
Financial
Standing
Eno
rmou
s
wea
lth.
In
sign
ific
ant
debt
. Str
ong
liqu
idit
y.
Fre
e as
sets
> 2
00%
gro
ss l
iabi
liti
es.
Goo
d li
quid
ity.
Fre
e
asse
ts
>
100%
li
abil
itie
s.
Sat
isfa
ctor
y li
quid
ity.
Fre
e as
sets
> 5
0% g
ross
Lia
bili
ties
.
Fai
r li
quid
ity.
Fre
e a
sset
s a
vail
able
but
liq
uidi
ty
are
susc
epti
ble.
Fre
e as
sets
neg
ligi
ble.
Sti
ll h
as s
ome
capa
city
to b
orro
w c
lean
.
Poo
r fu
nd r
aisi
ng c
apac
ity
in c
ase
of
need
.
Management
Competence
Mos
t co
mpe
tent
in
busi
ness
com
mun
ity.
Hig
hly
enli
ghte
ned.
Hig
hly
co
mpe
tent
,
ente
rpri
sing
an
d
know
ledg
eabl
e.
Abo
ve A
vera
ge c
ompe
tenc
e.
Goo
d b
usin
ess
sens
e, b
ut p
erha
ps w
eak
in f
inan
ce/ a
dmin
istr
atio
n.
Ave
rage
com
pete
nce.
Lac
ks s
trat
egic
thin
king
.
Ave
rage
com
pete
nce
leve
l.
Unp
rove
n co
mpe
tenc
e.
Management
Commitment
Thi
s
is
the
on
ly
busi
ness
.
Unw
aver
ing
com
mit
men
t.
Str
ong
com
mit
men
t. T
his
busi
ness
is
the
mai
n co
ntri
buto
r.
Goo
d c
omm
itm
ent.
Thi
s is
one
of
the
few
mai
n bu
sine
sses
.
Thi
s is
one
of
the
seve
ral
acti
viti
es.
Com
mit
men
t is
adeq
uate
.
Lev
el o
f co
mm
itm
ent c
hang
ing
from
year
to y
ear.
Thi
s
is
a
min
orit
y
acti
vity
.
Com
mit
men
t is
uncl
ear.
Man
agem
ent
lack
s co
mm
itm
ent
to
this
bus
ines
s.
Succession
Pro
fess
iona
l
man
agem
ent.
Suc
cess
ion
no is
sue.
Suc
cess
or i
s al
read
y i
dent
ifie
d
and
read
y to
ste
p-in
.
Ow
ner/
s ha
ve w
ell
defi
ned
and
prac
tica
l suc
cess
ion
plan
.
No
di
ffic
ulty
an
tici
pant
in
succ
essi
on.
One
man
sho
w.
His
leg
al h
eir
may
be
able
to ta
keov
er.
One
m
an
show
.
But
prof
essi
onal
m
anag
ers
w
ill
ensu
re c
onti
nuit
y.
Suc
cess
ion
may
pos
e a
prob
lem
if o
wne
r di
es.
IILM 41
Employee
Quality
All
key
pos
itio
n h
eld
by
wel
l
qual
ifie
d m
embe
r of
fam
ily.
Hig
hly
qua
lifi
ed a
nd m
otiv
ated
empl
oyee
s at
all
leve
ls.
Mot
ivat
ed a
nd l
oyal
em
ploy
ees
wit
h so
und
know
ledg
e.
Loy
al a
nd h
ones
t em
ploy
ees
but
lack
s m
otiv
atio
n.
Mot
ivat
ed
empl
oyee
s,
but
ques
tion
able
loya
lty.
Em
ploy
ees
are
new
and
/or
not
expe
rien
ced.
Em
ploy
ees
ha
ve
litt
le
com
pete
nce
and/
or a
utho
rity
.
Internal
Controls
Exc
elle
nt
inte
rnal
co
ntro
l
syst
em w
ith
freq
uent
test
ing.
Goo
d i
nter
nal
cont
rols
. H
ave
stoo
d th
e te
st o
f ti
me.
Goo
d in
tern
al c
ontr
ol s
yste
ms.
No
maj
or la
pses
so
far.
Inte
rnal
co
ntro
ls
exis
t
but
larg
ely
unte
sted
.
Not
for
mal
int
erna
l co
ntro
ls.
Ow
ner’
s su
perv
isio
n st
rong
.
Not
for
mal
int
erna
l co
ntro
ls.
Ow
ner’
s su
perv
isio
n av
erag
e.
Min
or l
apse
s n
otic
ed d
ue t
o
the
lack
of
inte
rnal
con
trol
s.
Repayment
Record
Bor
row
er a
lway
s pr
epay
s am
ount
due
.
Exc
elle
nt tr
ack
reco
rd o
f pa
ymen
t.
Goo
d r
epay
men
t re
cord
. O
ccas
iona
lly
prep
ays.
All
pay
men
ts a
re m
ade
on ti
me.
Pay
men
ts a
re o
ccas
iona
lly
del
ayed
for
a
few
day
s or
ext
ensi
ons
soug
ht.
A f
ew p
aym
ents
del
ayed
up
to 3
0 da
ys o
r
new
rel
atio
nshi
ps.
Fre
quen
t ov
erdu
e b
ut s
ettl
ed.
Mos
tly
sett
led
wit
hin
30 d
ays.
Mos
t pa
ymen
ts a
re d
elay
ed f
or m
ore
than
30
days
.
Compliance
Record
Str
ong
com
mit
men
t to
com
plia
nce
in
lett
er a
nd s
piri
t.
Com
plie
s w
ith
all
con
diti
ons
and
cove
nant
s.
All
maj
or/
crit
ical
con
diti
ons
are
com
plie
d w
ith.
See
ks
prio
r
appr
oval
w
hen
cond
itio
ns c
anno
t be
com
plie
d w
ith.
Att
itud
e to
com
plia
nce
is l
ax o
r N
ew
rela
tion
ship
.
Uns
atis
fact
ory
com
plia
nce
reco
rds.
Chr
onic
def
ault
er in
com
plia
nce.
IILM 42
After giving score to each parameter, risk rating is calculated for business risk, financial risk
and management risk. It is an average of all sub parameter under a particular group.
The final score of the firm is the cumulative summation of all twenty parameters. On the
basis of this cumulative score overall Credit Risk Rating of the firm is done as follows:
Total Score Credit Risk Rating Remark
1 20 to 29 Excellent
2 30 to 49 Strong
3 50 to 69 Good
4 70 to 89 Satisfactory
5 90 to 109 Adequate
6 110 to 129 Marginal
7 130 to 140 Vulnerable
Credit Risk Rating of a firm is always done based on the details of latest available audited
Balance Sheet and Profit & Loss statements.
XIV. Summary of Assessment – While making CAM (Credit Appraisal Memo), we also
find the assessment of Limits and Guarantees, i.e. the amount of limit for different
facilities that can be issued. These assessment methods are:
1. TERM LOAN ASSESSMENT- Assessment of term loan includes term loan eligibility, total
number of instalments to be made to repay loan and amount of each instalment. Apart from
instalment interest on loan is also considered while making assessment. After finding term
loan eligibility DSCR, debt service coverage ratio, sensitivity is found.
DSCR= (Net profit after Tax + Interest on TL + Depreciation)
(Interest on term loan + Term loan Repayment)
Debt service coverage ratio sensitivity is found by find DSCR over the loan period with
present profitability, 5% reduction in total income, 10% reduction in total income, 15%
reduction in total income, 5% increase in COGS and 10% increase in COGS.
Minimum debt service ratio (DSCR) shall be 1.25 for Term Loans during the tenor of the
loan.
2. WORKING CAPITAL ASSESSMENT. Methods of assessment are: Cash Flow Method,
MPBF Method and Turnover Method. IILM 43
Turnover Method
_ Mainly used for small trading companies
_ Not appropriate for manufacturing and big trading companies
_Applicable for limits up to 6 corores.
_Originally suggested by Nayak Committee for SSI units. The method is:
Sales Turnover (a)
25% of Sales turnover (b) { = 0.25*(a) )
5% of sales turnover projected as margin (c)
Actual NWC existing as per last financial
statement
(d)
(b) – (c) (e)
(b) – (d) (f)
Maximum permissible bank finance (g) { = minimum of (e) and (f)
}
Additional Lending to be brought in (h) { = (c)-(d) }
Cash budget system/ Cash flow method
_ Mainly used for service sector companies
_ Cash outflow – Cash inflow = Bank finance in form of WC
Maximum Permissible Bank Finance (MPBF)
_ Also known as Tondon’s method, Tondon Committee Recommendations, is mainly used
by the banks for assessment of WC finance. Method used is as follows:
Stocks (a)
Receivables (b)
Other Current Assets (c)
Total Current Assets (d)
Less: Credit Available on Purchases (e)
Other current Liabilities (f)
Total Current Liabilities excluding bank
borrowings
(g)
Working Capital Gap (h) {= (d) – (g) }
25% of current assets (i) {= 0.25*(d) }
Projected NWC (j)
IILM 44
(h) - (i) (k)
(h) – (j) (l)
Maximum Permissible Bank Finance (m) { minimum of (k) and (l) }
3. ASSESSMENT OF SOD- The method used for the assessment of SOD is-
(i) 20% 0f Projected Turnover
(ii) 3 Times of the Promoter’s Net Owned Funds in the business.
{For computation of Net Owned Funds, eligible Quasi Capital Component
deployed in the business on a long-term basis can be included}
(iii) Lower of above items- (i) or (ii)
4. ASSESSMENT OF PCL- The method used for assessment of pre shipment cash limit is:
PCL Requested (a)
Export Sales Estimated (b)
Raw materials, stores & spares, labour cost estimates (c)
Period required to convert the Raw material to
Finished goods
(d)
No. of export cycles in a year (e) {= 360/(d) }
Amount of material/labor required for one cycle (f) {= (c)/(e) }
Margin Stipulated (g)
Eligible PCL (h) {= (f)*(1-(g)) }
Limit Recommended (i)
5. ASSESSMENT OF PSL- The method used for assessment of post shipment cash limit is:
PSL Requested (a)
Export Sales estimated (b)
Usance period extended (including normal Transit
period)
(c)
No. Of Cycles (d) {= 12/(c)}
Eligible PSL (e) {= (b)/(d)}
PSL recommended (f)
6. ASSESSMENT OF INLAND LETTER OF CREDIT
Annual Purchase of Client (a)
IILM 45
Domestic Purchase in percentage (b)
Total Domestic Purchase (c) {= (a)*(b) }
Domestic Cash Purchase (d)
Domestic Credit Purchase (e) {= (c) – (d) }
Domestic credit Purchase on DA basis (f)
Domestic credit Purchase on DP basis (g) {= (e) – (f) }
Transit period for Inland DP LC {months} (h)
Usance period for Inland DA LC {months} (i)
Total Lead Time for DA-LC {months} (j) {= (h) + (i) }
Total Lead Time for DP-LC {months} (k) {= (h) }
ILC requirement for DP-LC {months} (l) {= (f)*(j) }
ILC requirement for DA-LC {months} (m) {= (g)*(k) }
Total ILC requirement (n) {= (l) + (m) }
7. ASSESSMENT OF FOREIGN LETTER OF CREDIT
Annual Purchase of Client (a)
Import Content in percentage (b)
Total Import (c) {= (a)*(b) }
Average monthly import purchases (d) {= (c)/12 }
Import duty element in percentage (e)
Duty amount/month (f) {= (d)*(e) }
Net Import Value/month (g) {= (d) – (f) }
Imports on DA basis (h)
Imports on DP basis (i) {= (g) – (h) }
Transit period for imports – months (j)
Usance period for imports – months (k)
Transit period for imports (l)
Total lead time for DA-LC – months (m) {= (j) + (k) }
Total Lead time for DP-LC – months (n) {= (j) + (l) }
FLC requirement for DA-LC (o) {= (h)*(m) }
FLC requirement for DP-LC (p) {= (i)*(n) }
Total FLC requirement (q) {= (o) + (p) }
FLC Proposed (r)
8. ASSESSMENT OF GUARANTEES IILM 46
Guarantee requirement for contractors
No. of contracts to be bid during the year (a)
% of contactors that require bid bond guarantee (b)
Hit rate (%) (c)
Contracts that will be assigned during that year (d) { = (a)*(c) }
Contracts that require bid bond guarantees (e) { = (a)*(b) }
% amount to be guaranteed (f)
Bid bond guarantee amount required during the year (g) { = (e)*(f) }
Security deposit % to be kept (h)
Security deposit guarantee requirement (i) { = (d)*(h) }
Mobilization advance guarantee % (j)
Mobilization advance guarantee requirement (k) { = (d)*(j) }
Performance guarantee % (l)
Performance guarantee requirement (m) { = (d)*(l) }
Retention money guarantee % (n)
Retention money guarantee requirement (o) { = (d)*(n) }
Total financial guarantee requirement (p) { = (g) + (i) + (k)
+ (o) }
Total performance guarantee requirement (q)
Total performance guarantee requirement (r)
Total Guarantee requirement (s)
Assumption: All contracts assigned during the year require all types of guarantees.
Note: If all the contracts do not require all the types of guarantees, the individual guarantee
requirements have to be worked out based on only the contracts that require them.
XV. Conclusion/Recommendation – On the basis of analysis of above discussed
parameters, it is decided by the author of the report whether it is beneficial for the
bank to sanctioned the concerned facility limit to the client.
After CAM is made, it is passed to higher authorities for approval.
Sanction & Documentation
If sanctioning committee finds the proposal in favour of bank and all documents are as per
bank’s norm, proposal is approved. After the approval of the proposal, documentation is done
depending on the facility client is approved of.
IILM 47
Disbursement
After the proposal is approved by the sanctioning authority, disbursement process started.
Before disbursement the bank follows some processes to ensure protection against future
risks. These processes include valuation of collaterals provided, transfer of documents of
collaterals from client to bank, opening an account of the client, charging processing fee, etc.
After all the pre disbursement documents are signed and processes completed, disbursement
of facility is done depending on the type of facility and conditions stated in the
sanctioning/decision letter.
Monitoring the account
After disbursement of facilities to the client, it is very important to monitor whether these
facilities are properly utilized. For this credit monitoring is done. Details observed while
monitoring are:
Background the customer- This includes name of the customer (company), Its constitution
(Private limited, Limited, Sole Proprietorship, Joint venture company and partnership) ,
industry to which the company belong ( steel, textile, manufacturing, service, polymer and
trading), the application of products produced by the company. Information about firm’s
registered office, godowns and factories, major change in business structure, date and year of
establishment and promoters is also included.
Account Number- This includes the type of accounts the customer is having with the bank.
This may be current account or working capital demand loan (short term loan) or both. This
gives the glimpse of the limits being sanctioned to the customer.
Relationship with the bank- This includes the time from which the company is with IVBL,
last sanction of limits to the customer. This helps to understand the relationship customer is
sharing with the bank.
Details of limits- This includes the type of limit customer is availing from the bank, its
amount, the return that the bank gets from this sanction, i.e. pricing of the limit and the
margin on which limit is approved on. This also contains the types of limits availed by the
customer from banks other than IVBL and the amount of these limits. The limits are
considered separately under fund based and non fund based limits to better understand the
need of the customer.
IILM 48
Collateral Details – It includes the type of collateral client has provided, i.e. whether it is
residential, commercial or industrial plot. The value of the land, building and property as a
whole. The date on which valuation was done and if there is insurance of the property then
insurance details, which includes insurance amount and date till which it is valid.
Stock Insurance details- This includes the amount and date of expiry of stock insurance, if
done. This taken as stock is among the primary covers taken by the bank and insurance
details tells the amount that is assured to be received by the bank in case damage causes to
stock.
Deferrals pending- This include details of the deferrals pending and sanction terms which are
non compliance till now.
Financial Details- This includes the audited or provisional details of current year and
projections of next year. Financials that are included are Net Sales, Stocks, Debtors,
Creditors and Net worth of the company. This information is used from time to time analyses
for checking whether the account transaction are in accordance with the monthly information
given. This indicates whether the given facility is properly utilized for the purpose it is being
given.
Monthly analysis of Account and Stock Statement - till now we have monitored those details
which are more or less common for whole of the year. Now we analyse the companies’
activity and utilisation of the limits. We ask the clients availing cash credit limit to send
monthly stock statements to the bank office. These details are then matched with the
transactions made in the account of the client. Monthly stock statements have details about
sales, stock, debtors and creditors for that particular month. These details are used to
calculate DP, drawing power, of the client. This DP is the maximum amount that the
company can debit once the bank balance is zero. Thus to check if the client is not
overdrawing we find the churn in the account and the average utilization of the limit by
seeing the turnover of the account for that particular month. We also check for check return,
both inward and outward, to check the authenticity of the client’s customer. If there are more
o/w, outward, check returns and that too with the majority of same customers repeating every
time, then this means that the customer of the client is not capable to do payment and thus the
relationship of our client and this customer is a matter of concern. In the same way if there
are more i/w, inward, check return, then commitment of our client is questionable as he is
trying to do beyond his capacity which would be concern for bank.
IILM 49
Unit Visits- Regular visits are made to the client’s office/factory/godown to check if the
things really happening are as stated by the customer. This also helps in understanding the
business of the client in a better way and thus helps the bank to predict any unwanted
situation. At least one unit visit has to done in a quarter.
Multiple banking exchange dates- If the client is having account/limits with other banks also,
information regarding the same is exchanged between the banks.
At the end of the year, these monthly information are used to analyse the account of the
client, collateral related issues and seeing whether the projected figures are met. Property
these days is one of those things whose prices changes very rapidly. Because of this valuation
of the collaterals are done within 2 years, according to RBI collateral taken should not have
valuation more than 5 years and regular valuation is necessary in every 5 years.
At the end of the year the monthly information that we have collected for the clients is
changed into average which is compared with the projections. If some deviations are found,
these monthly information helps to understand the reason behind it and further inquiry is
done with the client.
Drawing Power : While doing monitoring, drawing power for the clients, availing cash credit
facility from the bank, is calculated monthly. Drawing Power is the maximum permissible
credit limit given to client, once his account balance reaches zero. To take out cash beyond
drawing power limit, client has to take special permission from the bank. In such cases bank
provide two types of facilities to the client
– TOD (Temporary Over Draft, valid for maximum of 15 days) and Adhoc (Over and above
the average sanction limit, valid for maximum of 90 days).
For calculating monthly drawing power of the client, stock statements are analysed and
checked to see whether the given creditors and debtors are in accordance with the details
given by clients to the bank. The method used to calculate DP is:
1. We take monthly information of stock, Creditors and debtors from the client
2. We find the eligible debtors from the information given. This is found by calculating the
number of debtors less than certain days, specified by the bank during approval of loan.
3. Then we find the DP on Debt by the formula: eligible Debt x (1- margin on debt)
4. Similarly we find value of paid stock by subtracting creditors from total stock.
5. Once paid stock is found, we find DP on stock by the formula: Paid stock x (1-margin on
stock)
IILM 50
6. Then we find total DP required by adding DP on stock and DP on Debt.
7. Then we subtract this total DP by the outstanding facility enjoyed by the client from other
bank. This gives us net DP
8. If the net DP is less than the limit given by us then the Available DP is equal to net DP,
otherwise Available DP is equal to the credit limit given by IVBL.
All these steps can be summarized in the form of following formulas:
DP on Stock = ( Stock – Creditors ) * ( 1 – Margin on Stock )
DP on Debt = Eligible Debt * ( 1 – Margin on Debt )
Net DP = DP on Stock + DP on Debt
Available DP = Net DP – outstanding facilities
Review
The financial details and business structure of the client are periodically reviewed to check
whether all post disbursement conditions are being fulfilled by the client.
Recovery
Bank gives loan to earn from the facilities it is providing. Whenever a loan is sanctioned,
pricing of facility being providing is stated in the sanction letter. Client has to repay the loan
amount according to the instructions mentioned in the sanction letter. Repayment method
IILM 51
differs for different facilities. For example, for term loan repayment has to be done
periodically till a fixed tenor while for cash credit facility repayment is done on demand
basis. If the customer is unable to repay the amount then the security provided by him is used
to recover the loan amount. For this a proper legal action is taken and thus a legal advisor is
required.
IILM 52
Objective of Internship
The objective of this internship is to understand the procedure of lending to SMEs at ING
Vysya bank. I did my internship at Punjabi Bagh branch of ING Vysya, in New Delhi, under
the guidance of Mr. Sumit Khari and Mr Deepak Gupta. The objective of this internship was
to understand SMEs lending at ING Vysya bank. There are different schemes for SMEs to
get easy fund based loans and non fund based loans at ING. Knowing these schemes and
understanding various types of risks associated with the clients and practices adapted by
banks to hedge these risks is one of the main aim of this internship.
During my internship I am supposed to work on different projects to understand credit
appraisal and monitoring in details and to work on it to understand the importance and
significance of various issues related to them. Through these projects, I wanted to get a real
time experience of procedure followed while doing credit management. My internship
includes projects on drawing power calculation, monitoring and credit appraisal. These
projects are provided to me with the aim to obtain knowledge and experience about keeping
the track of the accounts of the clients, to see if all the conditions are properly followed by
them, finding the risk associated with the client and figuring out the limit that should be
sanctioned to minimize possible losses.
IILM 53
METHODOLOGY
FOLLOWED
IILM 54
Whole of my internship can be divided into three stages. At stage one I worked on drawing
power. This helped me to understand the significance of drawing power and method of its
calculation. At stage two I did project on monitoring. This stage is a very important part of
business banking as through this track of the client’s account to confirm proper utilisation of
the limit facility given to him. Stage three of my internship is credit appraisal. Methodology
followed in all these stages are described below:
STAGE 1: Drawing Power
Clients who have availed cash credit facilities from the bank, have to sent their monthly stack
statements to the bank by the end date allotted to them. End date is same for each month and
by this date stack statements of previous month are supposed to reach at the bank. For
example if the end date of a client is 7 th, stock statement of April should reach bank by 7 th
May. Details from these stock statements are then used to calculate drawing power using the
formula, which is already described under the section of background.
STAGE 2: Monitoring
After completing the project on drawing power, I did monitoring of the clients enjoying
various facilities from IVBL and having their accounts in Punjabi Bagh Branch, ING Vysya
Bank. In this I went through the files of clients which helped me understand the history of the
client. While doing monitoring, I accessed the information related to the account from the
MIS of ING. The details regarding monthly sales and stock statement are asked from the
clients itself. Audit reports and updated financial statements are used while doing monitoring
to understand the current situation the client. Any major issues related to the stock or credit
audit is also checked. And if there is any such issue with the client, present status of the
issues are stated in the monitoring sheet. This helps to keep track of such issues.
STAGE 3: Credit Appraisal
After Monitoring, I worked on credit appraisal. For this credit appraisal memo, CAM is
made. Before making CAM, purpose of the proposal is decided depending on the application
of the client. Depending on the purpose and the relationship of client with the bank necessary
documents are asked from the client.
IILM 55
For the existing clients, the information about the client is already with the bank. But the
documents are verified to know if there is any major issue or major change in business
structure of the client.
Once all documents are found as per bank’s norm, proposal is made depending on the
requirement of the client. I started making CAM with financial analysis part. In this part, the
balance sheets and profit & loss account of used to get the financial summary of the client for
previous years, current year and next years. This financial summary is then used to find if
there is any deviation in the financial policies set by IVBL. Profitability and earning of bank
after the sanctioning of proposal is also estimated through this summary. Previous years
actual earning is also compared with the estimated earnings during previous proposal and
reason for the deviation is analysed. Monthly sales of current year are taken to make out any
major change in the pattern of yearly sales and to predict if the projected sales would be
achieved. Apart from this any major change, for example government policies and regulation,
in the sector with which the client is associated is also analysed. If client is into importing or
exporting then country risk is also estimated. This includes political and financial stability in
that country. Once all these information are collected and analysed, CAM is prepared. If the
proposal is found satisfactory, this CAM is then passed to sanctioning authorities.
For a fresh proposal, i.e. new client, first the primary verification about the client is done.
The primary verification about the fresh client is done by searching for his website on
internet. Through this primary information, line of products and industry of the client is
verified. After this, information about the firm/client and its directors is found from the
website of Ministry of Corporate Affairs. After the primary verification of client and its
promoters are found satisfactory, its suppliers’ and customer’ information is also verified
through internet. Other sources are also used to find the market position of the client. Once
these information are found as per the information given by the client, client is approached
and asked for all the required documents. These documents are used for secondary
verification. The suppliers and customers of the client are then contacted to know more about
the clients and also to verify their relationships with the client. The factories and offices of
the clients are also visited to understand the working of the client. The proposed collateral is
also visited and its value is estimated to find whether the collateral is enough to cover the risk
associated with the facility asked by the client. Once every document is as per bank’s norms,
proposal is prepared depending on the requirement of the client. After this the procedure
followed for making CAM is same for the existing clients and new clients.
IILM 56
ABSTRACT OF CASES DONE
DURING INTERNSHIP
IILM 57
Drawing Power Calculation: Here I have provided data for 9
cases, which i found different from each other and covers almost
all possible situations.D
P
Ava
ilab
le
300.
00
484.
13
300.
00
75.0
0
200.
00
60.0
0
0.00
1200
.00
600.
00
Net
DP
420
484.
13
720.
75
387.
07
293.
44
112.
24
- 159.
27
2242
.0
9 1151
.8
0
Tot
a
l O/s
0 0 900
350
0 0 0 2500
400
Tot
al
DP
420
484.
13
1620
.7
5 737.
07
293.
44
112.
24
- 159.
27
4742
.0
9 1551
.8
0
DP
on
Deb
t
304.
44
346.
34
1962
.75
751.
12
123.
83
187.
11
13.3
1
2024
.91
1047
.80
Mar
gin
% 35%
25%
25%
35%
35%
25%
40%
25%
35%
Val
id
Deb
t
468.
37
461.
78
2617
1155
.57
190.
51
249.
48
22.1
9
2699
.88
1612
Val
id
up
to
90 D
ays
180
Day
s
90 D
ays
90 D
ays
90 D
ays
90 D
ays
90 D
ays
90 D
ays
90 D
ays
Tot
al
Deb
t
518.
21
462.
12
3249
1382
.89
257.
8
249.
48
222.
19
3234
.54
1612
DP
on
Sto
ck
115.
56
137.
79
-342
-14.
06
169.
61
-74.
87
-172
.58
2717
.18
504.
00
Mar
gin
% 25%
25%
25%
25%
25%
25%
25%
25%
25%
Pai
d S
tock
154.
08
183.
72
-456
-18.
74
226.
14
-99.
826
-230
.11
3622
.9
127.
74
Cre
dit
ors
0.00
241.
19
2714
1071
.48
33.7
1
253.
506
787.
12
2303
.67
46.3
6
Sto
ck
154.
08
424.
91
2258
1052
.74
259.
85
153.
68
557.
01
5926
.57
174.
1
Lim
it
(in
lak
hs
300
500
300
75 200
60 400
1200
200
IILM 58
Cas
e
1. 2. 3. 4. 5. 6. 7. 8. 9.
Credit Appraisal:
I have made the proposal for the enhancement of limit of two firms during my internship.
Data related to these proposals are given below. The name of the firms is not mentioned to
keep their identities concealed, though most of the key informations about the project are
kept intact. Some other changes are also done to keep the privacy of bank and client.
Case 1: ABC Agency
Control Information
Application No. Application date 10/05/2011
Borrower Name ABC Agency
Banking
arrangement
Sole Asset Classification Standard
Line of activity Trading of Yarn Priority Sector No
Constitution Partnership Banking with IVBL since June-2010
Sub-section for PSA Manufacturing Service Enterprise Micro Small
Type of Exposure Renewal Review Enhancement Fresh Ad hoc Others
Limits valid till 30.06.2011 Last approval on 25.06.10
Credit Risk Rating
Particulars 1 2 3 4 5 6 7 Remark
(Financial Information per last
audited accounts as on 31-Mar-10)
Industry/Business
Status
Industry with consistent need
based demand and adequate
margins
Client’s History-
Growth in
Turnover &
Profitability
Strong financial backing and
vintage business. Good turnover
looking at IVBL proposed
exposure.
Competitive
Position
Less than 5% market share
IILM 59
Suppliers Depend up one -two large
suppliers
Customers Borrower is important to the
customers
Liquidity Adequate liquidity with current
ratio of > 2
Leverage
[TOL/TNW]
The leverage is satisfactory
looking at substantial USL of
family members. It is less than
1.0
Sales Growth Satisfactory growth in turnover
during last financial years
PBDIT/Sales More than 20% in FY 10
DSCR We are not taking any TL
exposure, however DSCR is
well above median.
Integrity General respect for integrity
Family
Standing/History
Ethical and traditional business
family
Financial
Standing
Free assets >50% of Gross
liabilities
Management
Competence
Sound
Management
Commitment
Good
Succession No difficulty to anticipate the
succession
Employee
Quality
Motivated Employee
Internal Controls Internal Control exists
Repayment
Record
All Payments are made on time
Compliance
Record
All Major /Critical conditions
are complied with
Business Risk Score 3.6
Financial Risk Score 1.8
Management Risk Score 3.3
Total 60
IILM 60
CRR 3
Exposure to Borrower/ Group and CRR
Existing Proposed
Borrower Group Borrower Group
Exposure Rs. 300.00 lacs Rs. 300.00
lacs
Rs. 500.00 lacs Rs. 500.00 lacs
CRR 3 3 3 3
PURPOSE OF APPLICATION:
Credit facilities recommended INR in lakhs
Sl
No
Nature
of
facility
Existing
Limit
O/S as
on
12.05.2
011
O/
D
if
any
Proposed limit Terms- RoI, margin, tenor,
usance period, commission
details, etc)
By Br/
RM
By RO Existing Proposed
1. Cash
Credit
300.00 239.27 500.00 500.00 - ROI: IVBR +
4.35%
(i.e.13.25%p.a.)
(Presently IVBR
is at 8.9%)
Margin: 25% on
stocks and book
debts upto 90
days
TOTAL 300.00 500.00 500.00
FINANCIAL ANALYSIS OF CLIENT
Particulars Previous
Year
(audited)
Previous
Year
(audited)
Previous
Year
(audited)
Current
Year
(provisional)
Next Year
(Projections)
IILM 61
2008 2009 2010 2011 2012
1) Sales 35.03 74.61 94.88 1,657.19 3,000.00
2) PBDIT 15.02 32.05 37.07 179.55 315.34
3) Interest 8.73 13.77 15.53 42.66 60.00
4) Depreciation 0.57 1.51 1.22 1.04 1.00
5) Taxes 0.00 0.00 0.00 42.00 84.78
6) PAT 5.71 16.78 20.32 93.85 169.56
7) Capital 90.57 100.82 101.92 360.75 530.31
8) Unsecured
Loans
16.51 8.00 36.06 55.64 55.64
9) Loans from Other/Our Banks
a) Term Loans 0.00 4.46 2.38 0.00 0.00
b) OD/CC 27.19 32.10 47.22 284.94 500.00
10) Current Lia. 33.98 42.77 61.91 303.43 537.00
11) Non Current
Liabilities
0.00 1.95 0.00 0.00 0.00
12) Fixed Assets 3.25 7.88 6.66 5.85 4.85
13) Current
Assets
137.80 145.66 193.24 713.15 1,117.50
a) Stocks 0.00 0.00 3.86 154.08 275.00
b) Debtors 16.49 26.97 92.04 518.36 770.00
c) Cash & Bank
Bal. In current
a/cs
1.22 0.62 0.14 0.34 0.50
14) Non CA 0.00 0.00 0.00 0.00 0.00
15) Current Ratio 4.06 3.41 3.12 2.35 2.08
IILM 62
17)TOL/TNW
(without USL)
0.56 0.52 0.96 1.00 1.12
(with USL) 0.32 0.41 0.45 0.73 0.92
18) Inventory
Turnover
0 0 44 40 40
19) Debtors
Turnover
172 132 354 114 94
20) Creditors
Turnover
300 36 65 3 4
21) NP margin 16.3 22.5 21.42 5.66 5.65
Turnover:
Turnover the firm comprises primarily of commission income till date as firm has shown
only consignment sale till last FY to avoid sales tax . In FY 2009 commission income has
been shown as actual sales, for better understanding in audited balance sheet the same is
being represented in terms of commission income . But from current FY the firm plans to do
direct sales and has projected a turnover of approx. 3000 Lacs . Further there is another
change in business model from 2009 as till 2009 majority of consignment sale was to group
firm ABC Textiles but now as the two firms are now merged, firm will do direct sale so the
sale of the group will increase and double counting of sale will not happen.
In the FY 11 firm has achieved Rs 1657.19 lacs which is more than 1750% increase over the
FY 10.The turnover break up of the firm are as follows:-
Month Sales Turnover (In
lacs)
April 105.86
May 126.21
June 134.61
July 149.74
IILM 63
Aug 175.19
Sept 224.26
Oct 200.53
Nov 215.12
Dec 266.76
Jan 203.61
Feb 250.34
Mar 306.10
Total 2358.34
The company’s products are in huge demand with almost all the product pre booked even
before reaching Delhi. And as per customer is not even servicing 40 % of customer demands
and with availability of funds he can increase the turnover easily. As the business model
which he has he has to pay both for RM and job work well in advance and gives goods on
credit. Their will be no inter group sales in future further the firm does not keep any group
concern as debtor same can be verified from previous years debtor balances there was some
balance only in last FY financials which was only a month end figure.
Profitability:
Net profit margin of the firm was at 21.42% in FY09, which decreased to 5.6% for FY10 and
remained almost constant to 5.5% in FY 11. The reason for same is that for FY 09 the same
has been calculated on commission income and in FY 10 and FY 11 same has been calculated
on actual sales.
Leverage:
TNW of the firm comprises of partners capital, reserves.
TOL of the firm comprises of sundry creditors, working capital bank finance, unsecured
loans from bank and other short-term liabilities.
TOL/TNW of the firm is 0.41 for FY 09, which has increased to 0.45 for FY 10. Further in
the provisional for FY 11 it was 0.73 times which itself is with in the norms. Now after
having more exposure from us, still it is projected to be 0.92 times only.
Liquidity:
IILM 64
Current assets of the firm comprise of debtors and inventory & Cash & bank Balances, and
Current Liabilities of the firm comprises of sundry creditors and working capital bank
finance.
Current ratio of the firm is comfortable in all financial year. In FY 12 it is projected to be
2.08 times.
Turnover in days
Raw material is sourced on cash or Avg credit of 25-45 days. The firm gives an Avg credit of
90-120 days to its customer and new customers are given credit after good reference check
only, there have been no bad debts in the business.
Till now the firm doesn’t maintain the holding period for the inventory. After being
separation of sales from the group concern, now the firm is going maintain the inventory in
the projections. The payment terms varies from party to party from 7-90 days with avg being
2 months . The debtors are higher for 31.3.2010 on account of higher sale to one regular
party KPY Ltd. Rs. 232.25 lakh to this party firms provide a credit of 90 days. Out of total
debtors of 518.20 Lakhs debtors more than 90 days is only 49.83 Lacs that to only few days
more than 90 days and subsequently settled. More often firm has debtor less than 90 days.
RISK APPRAISAL
Business Risk and Future Outlook
A report entitled “Cotton Contamination Survey 2009” released by ITMF (the International Textile
Manufacturers Federation) indicates that the level of cottons modestly or seriously contaminated as
perceived by the spinning mills all around the world remained constant at 22% (same as to last survey in
2007), of which 6% was seriously contaminated by some sort of foreign matter while 16% was
moderately contaminated. 42% of all cottons processed were contaminated by organic matter such as
leaves, feathers, paper, leather, etc. and 4% was from tar contamination. Other serious contaminants were
strings made of jute Hessian, strings made of woven plastic, fabrics made of cotton, fabrics made of
plastic film, and strings made of cotton. This survey shows that cotton originated from India, Pakistan,
Egypt, Uzbekistan and Mali was found to be the most contaminated cotton. On the contrary, very clean
raw cottons could be found in the USA (Texas High Plains, Memphis, Pima, South Eastern and
California), Israel, Australia, Brazil, and the Ivory Coast. The survey indicates that the presence of sticky
cotton as perceived by the spinning mills dropped from 21% in 2007 to 16% in 2009. However, this level
of stickiness is still high and remains a major problem to the spinning industry
IILM 65
Management Risk
ABC Agency is promoted by Mr. XY, who manages the business affairs of the as a partner. He is well-
experienced business persons, manages the affairs of the firm with the help of professionals persons and
skilled employees.
Performance Risk
The firm financial position is satisfactory and meets various financial parameters. Presently the firm is
doing well in printing business but now with increased pressure from the existing customers, firm feels
the need to enhance its production capacity in printing business. Further the firm also planning to
diversify into flour mill business, in which they have sufficient exposure and expertise. Thus low
performance is perceived.
Structure Risk
Limits are being offered to the customer as CC limit.
Industry Sector Concentration
Within norms.
Country Risk
No country risk is involved in the exposure.
Environmental Risk
Firm is in the business of trading of yarn. So no environmental risk is there.
Regulatory Risk
The firm complies with all significant statutory and regulatory requirements and no risk is associated
with the same.
ING Vysya Bank’s Reputation Risk
There are no risks associated with the moral or ethical issues. Infact, the management is employee
friendly and in spite of having huge property, they are running business to earn profits as well as serve
and help the families of the workers working in the firm.
Specific Purpose of Asset Collateral
IILM 66
The property being offered as residential property on which printing press is located. The flour mill
division is also going to be located therein. The property on which these units are being set up is located
in a prime industrial area and low risk is associated with disposal in case need arises.
Financial Risk
The firm’s financial position is satisfactory and meets various financial parameters. Presently the firm is
doing well in printing business but now with increased pressure from the existing customers, firm feels
the need to enhance its production capacity in printing business. Further the firm also planning to
diversify into flour mill business, in which they have sufficient exposure and expertise, thus low financial
risk is perceived.
Transaction Risk
Documentation risk: All documentation as advised shall be carried on and no documentation risk is
envisaged.
Covers/Collateral valuation Risk: empanelled valuer has valued the collateral and it is above the 100% of
the facility. Thus no risk is envisaged with regard to the same.
Interest Rate Risk: The rate of interest is a floating rate linked with IVBR and thus shall be taken care of.
Any Other Risk
No other risk envisaged.
COVER / COLLATERALS AND COVENANTS
Collaterals
Land Building Machinery Others Total Cover
%
Present Rs 550 lakhs - - Rs.550
lakhs
183.33%
Proposed Rs.550 lakhs - - Rs.550
lakhs
110%
IILM 67
NW of Guarantors - Personal / Corporate guarantees:
Promoters Other
persons
Corporate / Group
concerns
Total
Present Rs.2000.67
lakhs
- - Rs.2000.67
lakhs
Proposed Rs.2399.30
lakhs
- - Rs.2399.30
lakhs
RISK RATING/RISK-REWARD/PROFITABILITY
Risk Rating
As on 31.03.11 Previous rating
Risk rating 3 3
Rewards / Profitability
Gross
Interest
Commission Other
charges
Total
Revenue projected last
year
36.00 3.00 1.5 40.5
Actual – last year 37.00 3.00 _ 40.00
Revenue projected
current year
60.00 3.50 _ 63.5
Actual – Current year
YTD
_ _ _ _
IILM 68
DEVIATIONS
There is no deviation in the policy financial parameters.
Parameters Median Threshold
Actual as of
B/s dated
31.03.10
Remarks
Minimum EBITDA / Net Sales 0.03 0.02 0.39Above
median-Ok
Minimum Interest Coverage
Ratio (EBITDA / Interest &
other finance charges)1.75 1.50 2.39
Above
median-Ok
Minimum Current Ratio
(Current Assets / Current
Liabilities)
1.15 1.00 3.12Above
median-Ok
Maximum Debt Equity (total
Interest bearing debt / TNW)2.00 3.00 2.31
Above
threshold
Maximum TOL/TNW 3.50 4.50 0.45Above
median-Ok
Minimum DSCR (EBITDA /
interest plus current maturities
in long term debt)
1.40 1.25 2.05Above
median-Ok
ASSESSMENT OF LIMITS
IILM 69
MPBF Method
1 Holding Levels
Previous year Curren
t Year
Projns
for next
year
Taken for assessment
Actual Sales 98.88 1,657.1
9
3,000.00 3,000.00
Stocks 3.86 154.08 275.00 275.00
Stock holding- days 44 40 40 40
Receivables 92.04 518.36 770.00 770.00
Receivables
holding- days
354 114 94 94
Other Current
Assets 97.34 40.71 72.50
72.50
Total Current Assets 193.24 713.15 1,117.50 1,117.50
Creditors 5.65 11.37 25.00 25.00
Creditors holding-
days
65 3 4 4
Other Current
Liabilities
9.04 7.12 12.00 12.00
Total Current
Liabilities 14.69 18.49 37.00
37.00
Reasoning for the above
2 Monthly Holding Levels based on stock statement (in days)
Stock Debtors Creditor
s
Sales
IILM 70
Average Monthly
levels
Last year end
figures
44 354 65 98.88
Estimated for
current year
40 114 3 1657.19
Projected for
ensuing year
40 94 4 3000.00
Accepted levels 40 94 4 3000.00
Linkages between the monthly averages and the
year end figures
3 Working Capital Requirement
Details Days Rs.lakhs
Stocks 40 275.00
Receivables 94 770.00
Other current assets 72.50
Total Current Assets (a) 1,117.50
Less: Credit available on purchases 4 25.00
Other current liabilities 12.00
Total Current Liabilities excluding Bank Borrowings (b) 37.00
Working Capital Gap (a-b)--(c) 1080.50
25% on Current assets (d) 279.38
Projected NWC (e) 580.50
(C) - (d) 801.00
IILM 71
(c) - (e) 500.00
Maximum Permissible Bank Finance - Minimum of (f) or( g) 500.0
CONCLUSION & RECOMMENDATION
The firm is doing well and has good relationship with IVBL. The past records of the firm’s
account shows proper utilization of the availed facility. Thus, enhancement of limit is
recommended.
Case 2: XYZ Chemicals
Control Information
Application No. Application date 23/05/2011
Borrower Name XYZ Chemicals Ltd.
Banking
arrangement
Sole Asset Classification Standard
Line of activity Trader Of
Industrial
Chemicals &
Adhesives
Priority Sector No
Constitution Limited Banking with IVBL
since
June-2009
Sub-section for PSA Manufacturing Service Enterprise Micro
Small
Type of Exposure Renewal Review Enhancement Fresh Ad
hoc Others
Last approval on 31.08.2010
Limits valid till 31.07.2011 Mid review date (if
any)
None
IILM 72
No of Policy
deviations
1 Group Name NA
Credit Risk Rating
Particulars 1 2 3 4 5 6 7 Remark
(Financial Information per
last audited accounts as on
31-Mar-10)
Industry/Business Status Industry well established
and growing modest
Client’s History-Growth in
Turnover & Profitability
Acceptable track record
for last nine years
Competitive Position Less than 5% market
share
Suppliers Borrower is very
important to supplier
Customers Supply products to many
customers
Liquidity Current ratio is 1.41
Leverage [TOL/TNW] Leverage is 1.75
Sales Growth More than 20%
PBDIT/Sales PBDIT<5
DSCR DSCR is >2
Integrity Highly respected in
market an experienced
player
Family Standing/History well established family
no adverse report
Financial Standing Free assets available
Management Competence Good business sense and
good business
knowledge
Management Commitment Strong commitment
Succession Son is already in
business for a few years
IILM 73
now
Employee Quality Motivate employees
Internal Controls Internal control exit but
largely untested
Repayment Record Occassionaly
Delayed
Compliance Record All critical
conditions compiled
with
Business Risk Score 3.2
Financial Risk Score 3.4
Management Risk Score 2.9
Total 62
CRR 3
Exposure to Borrower/ Group and CRR
Existing Proposed
Borrower Group Borrower Group
Exposure 400.00 400.00 600.00 600.00
CRR 3 3 3 3
IILM 74
PURPOSE OF APPLICATION:
Credit facilities recommended
INR in lakhs
Sl
No
Nature
of
facility
Existing
Limit
O/S as
on
(23/05/2
011)
O/
D
if
any
Proposed limit Terms- RoI, margin, tenor,
usance period, commission
details, etc)
By Br/
RM
By
RO
Existing Proposed
1. Cash
Credit
350.00 273.77 500.00 ROI:
IVBR +
4.25%
(i.e.11.50
%p.a.)
(Presently
IVBR is
at 8.9%)
Margin:
25% on
stocks
and 40%
on book
debts upto
90 days
ROI: IVBR +
2.05%
(i.e.11.50%p.a.)
(Presently IVBR
is at 9.45%)
Margin: 25% on
stocks and 40%
on book debts
upto 90 days
IILM 75
2. FLC 50.00 150.00 Commis-
sion on: -
1.2% p.a.,
Cash
Margin:
20%,
Tenor:180
days
Commission
on:-1.2% p.a.,
Cash Margin:
20%, Tenor: 180
days
TOTAL 400.00
600.00
*
*The FLC has to be released up to Rs.100.Lacs and the rest of Rs.50 Lacs is to be released such that
the total limit remains Rs.600Lacs.
FINANCIAL ANALYSIS OF CLIENT
Particulars Immediate
Previous
Year
Actual
(2008)
Previous
year
Audited
(2009)
Previous
year
Audited
(2010)
Next Year
Prov. (2011)
Next Year
Projections
(2012)
1) Sales 3,340.40 3,111.95 3,972.16 4,356.08 5,250.00
2) PBDIT 36.83 70.52 77.85 101.34 120.88
3) Interest 22.44 30.76 37.05 49.42 60.00
4) Depreciation 4.77 11.43 14.74 13.95 14.00
5) Taxes 3.53 10.65 9.01 11.39 15.63
6) PAT 6.09 17.68 17.05 26.58 31.25
7) Capital 63.63 279.31 416.35 462.93 494.18
8) Unsecured
Loans
233.34 114.25 120.15 120.15 120.15
9) Loans from Other/Our Banks
IILM 76
a) Term
Loans 1.90 14.46 8.38 5.45 2.73
b) OD/CC 59.42 165.33 262.19 267.30 500.00
10) Current
Liabilities
616.75 834.09 934.13 692.40 1,101.54
11) Non Current
Liabilities
0.00 9.64 5.45 2.73 0.00
12) Fixed Assets 17.33 58.66 45.34 38.42 38.37
13) Current
Assets
891.82 1,060.86 1,317.29 1,147.36 1,617.00
a) Stocks 236.89 430.75 391.39 351.68 475.00
b) Debtors 627.46 533.39 876.90 743.40 1,080.00
c) Cash & Bank
Bal. In current
a/cs
11.09 58.87 14.17 20.03 23.00
14) Non CA 4.58 118.47 113.45 92.30 59.90
15) Current
Ratio
1.45 1.27 1.41 1.66 1.47
17)TOL/TNW
(without USL)
13.36 3.43 2.55 1.76 2.47
(with USL) 2.08 2.14 1.75 1.19 1.79
18) Inventory
Turnover
27 53 37 31 35
19) Debtors
Turnover
69 63 81 62 75
20) Creditors
Turnover
57 65 57 34 40
21) NP margin 0.2 0.6 0.4 0.61 0.60
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Historical & future Turnover:
Turnover of the company has shown good increase from FY06-08 it increased by 49%in 07
and 53% in 08 and fell by 6.8% in 09. The main reason that the turnover declined was that in
2007-08 the prices as compared to 09 were very volatile and such an environment one has to
be very cautious in inventory level and thus sales tend to be on a lower side. But the company
is continuously performing well as in the FY10 it has achieved the audited sales figure of
Rs.3972.16/- lacs, which is an increase of approx 27.64% and in FY11 it is showing a
projected sales of Rs.4356.08/- which is an increase of approx 9.67%.
In current year with good domestic demand the company expects to achieve a turnover of
Rs.5250 lacs which is an increase of approx 20.52 %.
FY08 FY09 FY10 FY11
Sales 3,340.40 3,111.95 3,972.16 4,356.08
Growth% _ -6.839 27.64215 9.66527
Last 12 Months monthly sale details are as follows:-
Month 2010-11
April 328.59
May 371.47
June 482.41
July 427.16
August 406.86
September 387.90
October 296.36
November 244.27
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December 353.20
January 266.40
February 374.05
March 417.42
4356.08
The comparison of provisional and audited financial for FY 2009-10 are:
Particulars Provisional of
FY-10
Audited of
FY-10
Remarks
Sales 3972.16 3,972.16 No deviation is observed.
PBDIT87.62 77.85
Negative deviation due to the increase in general
& administrative expenses and salaries
Interest 37.88 37.05 No deviation observed, almost same
PAT23.58 17.05
Decreased due to the increase in general &
administrative expenses and salaries
Capital425.30 416.35
Negative deviation of 8.95 due to the decrease in
net profit.
Unsecured
Loans136.34 120.15
Decreased by 16.19 lakhs.
Net Worth561.64 536.50
Decreased due to the decrease in capital and
USLs.
The comparison of projected and provisional financial for FY 2009-10 are:
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Particulars Projected
of FY-11
Provisional
of FY-11
Remarks
Sales 5473.00 4,356.08
Decreased due to increase in the
foreign goods, which increased the
cost of goods. Apart from this one of
the major supplier also stopped
producing the material required by the
firm which further decreased the
amount of raw material and thus sales.
PBDIT 126.00 101.34 Decreased due to the decrease in sales
Interest 46.00 49.42 Improved by 3.42 lakhs.
PAT 46.44 26.58 Decreased due to the decrease in sales.
Capital 471.80 462.93 Decreased due to the decrease in sales.
Unsecured
Loans117.70 120.15 Improved by 2.45 lakhs.
Net Worth 589.5 583.08 No deviation observed, almost same
Profitability:
The PBDIT margin has been increasing continuously except for FY10 due to increase in
general expenses and interest.
The net profit margins have also shown steady increase till now except FY10. The company
is projecting an improvement in NP margin from 0.43 to 0.61 in FY11 compared to FY10.
Leverage:
TNW of the company comprises of share capital, reserve and surplus and unsecured loans.
TOL of the company comprises of sundry creditors, working capital bank finance and short-
term loan from banks and financial institutions.
The TOL/TNW of the company is at comfortable level in all the years. TOL/TNW in FY07
to FY10 was at less than 3. In FY 11 the same had been projected 1.89 but as per provisional
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the ratio has improved to 1.19 because of regular infusion of either capital or USL in business
in FY 11.
Given is a tabular representation of capital and USL being maintained by the company over
the period of time:
Liquidity:
Current assets of the company comprises of inventory, debtors and cash & bank balance.
Current liabilities of the company comprises of sundry creditors and working capital bank
finance and other short-term liabilities.
The current ratio of the company is at comfortable level and is around 1.5 or below
throughout it is 1.41 in FY 09. The ratio has further improved to the level of 1.56 in FY 09-
10.
The company maintains an average inventory of 60-90 days at all time. . Further, the
company extends a credit of 90 days to its customers. The company purchases stocks on
terms of 90 days credit.
RISK APPRAISAL
Business Risk and Future Outlook
The business risk is mainly from competitors as there are lots of players in this segment. But the
advantage the XYZ has is that is has a vast experience of almost three decade in this field and have the
technical competency and good relationship with its customers. Further it enjoys a good reputation in
market with proven track of providing desired quality and quantity.
Management Risk
Although the main promoter of the company still associated with the business is Mr.ABC but next
generation has already stepped in to the business. And have at least 3 years of experience in the
business.
Performance Risk
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2007-08 2008-09 2009-2010 2010-11
Capital 63.63 279.31 416.35 462.93
Unsecured Loans 233.34 114.25 120.15 120.15
TOL / TNW 2.08 2.14 1.75 1.19
The company has requisite technical knowhow, acquired over a period of time, and has the required
knowledge required to do chemical business, one of the key success ingredient in the industry.
Structure Risk
The customer shall be offered with recommended cash credit, FLC as it does not entail any structural
risk
Industry Sector Concentration
There is no major exposure on the same sector in North India.
Country Risk
The company is dealing with customers in local market in north India and as such doesn’t entail any
country risk.
Environmental Risk
The company is into trading of chemicals used in manufacturing and as such does not have any
environmental risk.
Regulatory Risk
The company complies with all significant statutory and regulatory requirements and no risk is
associated with the same.
ING Vysya Bank’s Reputation Risk
There are no risks associated with the moral or ethical issues. No risk is envisaged with the lending.
Specific Purpose of Asset Collateral
We are taking one residential property at a prime location in Area X and one Industrial property used
as godown in Area Y. All the properties are located at prime locations thus no risk is associated with
the same.
Financial Risk
The customer has been into the same business for 29 years and has developed his clientele over years
and has been getting repeated orders from the same customers. Further, the business has been
increasing year on year and now the company has built a reputation amongst its customers.
Transaction Risk
Documentation risk: All documentation as advised shall be carried on and no documentation risk is
envisaged.
Covers/Collateral valuation Risk: empanelled valuer shall value the collateral and thus no risk is
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envisaged with regard to the same.
Interest Rate Risk: The rate of interest is a floating rate linked with IVBR and thus shall be taken care
of.
Any Other Risk
The business does not entail any other risks.
SWOT
Strength: The strength of company is Good knowledge and experience in the field.
Established existing loyal customer base developed with relationship of several decades.
The business is very well diversified and is not dependent on one segment.
Weakness: - The entry barriers in business are very low and company has to be on its toes all
the time.
Opportunity: - Presently the company is in north India and can explore the possibilities in
other parts of India which is a very huge market.
Threat: - Major threat in the segment is competition as there are many players in the segment
and the retention of customer is a tough ask. But keeping in mind the experience of the
company and relationship it has with customer it has been able to retain its share and grow
steadily.
COVER / COLLATERALS AND COVENANTS
Collaterals
Land Building Machinery Others Total Cover
%
Present Rs.575.00 Lacs 143.75
%
Proposed
(valuation yet to be
done)
Rs.575.00 Lacs 88.46%
NW of Guarantors - Personal / Corporate guarantees:
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Promoters Other
persons
Corporate /
Group
concerns
Total
Present Rs.1427.84lakhs Nil Nil Rs.1427.84lakhs
Proposed Rs.1427.84lakhs - - Rs.1427.84lakhs
RISK RATING/RISK-REWARD/PROFITABILITY
Risk Rating
As on 31.03.11 Previous rating
Risk rating 3 3
Rewards / Profitability
Gross
Interest
Commission Other
charges
Total
Revenue projected last
year
46.00 1.00 _ 47.00
Actuals – last year 49.42 1.00 _ 50.42
Revenue projected current
year
60 0.60 _ 60.60
Actual – Current year
YTD
Other benefits including FTP from
deposits
TPP Products can be cross sold to the
customer.
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DEVIATIONS
EBITDA/Net Sales is equal to the Thresh hold limit and thus fails. This is due to the increase
in the operating expenses and hence acceptable.
a. Deviations in Credit Policy Financial Parameters
Parameters Median Threshold
Audited as of
B/s dated
31.03.10
Remarks
Dated
31/3/2010
Minimum EBITDA / Net Sales 0.03 0.02 0.02 Fails
Minimum Interest Coverage
Ratio (EBITDA / Interest & other
finance charges)1.88 1.50 2.10
Above
median- OK
Minimum Current Ratio (Current
Assets / Current Liabilities)1.81 1.00 1.41
Above
median- OK
Maximum Debt Equity (total
Interest bearing debt / TNW).52 2.00 0.50
Above
median- OK
Operating Cash FlowPositive for atleast 2 years in
immediate past 3 yrs1.75
Above
median- OK
Minimum DSCR (EBITDA /
interest plus current maturities in
long term debt)
1.25 1.85 1.86Above
median- OK
The operating cash flow is negative mainly due to higher level of Debtors due to increased
sales and also because of higher stock level.
ASSESSMENT OF FACILITIES
WORKING CAPITAL ASSESSMENT
MPBF Method
1 Holding Levels
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Previous
year
Current Year Projns for
next year
Taken for
assessment
Actual Sales 3,972.16 4,356.08 5,250.00 5,250.00
Stocks 391.39 351.68 475.00 475.00
Stock holding- days 37 31 35 35
Receivables 876.90 743.40 1,080.00 1,080.00
Receivables holding- days 81 62 75 75
Other Current Assets 49.00 52.28 87.00 87.00
Total Current Assets 1,317.29 1,147.36 1,617.00 1,617.00
Creditors 598.54 391.82 550.18 550.18
Creditors holding- days 57 34 40 40
Other Current Liabilities 70.47 33.28 51.36 51.36
Total Current Liabilities 669.01 425.10 601.54 601.54
Reasoning for the above
2 Monthly Holding Levels based on stock statement (in days)
Stock Debtors Creditors Sales
Average Monthly levels
Last year end figures 37 81 57 3972.16
Estimated for current year 31 62 34 4356.08
Projected for ensuing year 35 75 40 5250.00
Accepted levels 35 75 40 5250.00
Linkages between the monthly averages and the year end
figures
3 Working Capital Requirement
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Details Days Rs.lakhs
Stocks 35 475.00
Receivables 75 1,080.00
Other current assets 62.00
Total Current Assets (a) 1,617.00
Less: Credit available on purchases 40 550.18
Other current liabilities 51.35
Total Current Liabilities excluding Bank Borrowings (b) 601.54
Working Capital Gap (a-b)--(c) 1,015.46
25% on Current Assets (d) 404.25
Projected NWC (e) 515.46
(C) - (d) 611.21
(c) - (e) 500.00
Maximum Permissible Bank Finance - Minimum of (f) or( g) 500.00
FOREIGN LETTER OF CREDIT – Based On Projections
Formula Amount-Rs. Lakhs
1 Annual Purchase of Client 5019.00
2 Import Content % 31%
3 Total imports (1) x (2) 1,555.89
4 Average monthly import purchases (3)/12 129.66
5 Import duty element % 5%
6 Duty amount/month (4) x (5) 6.48
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7 Net import value/ month (4)-(6) 123.18
8 Imports on DA basis 100%
9 Import on DP basis (6)-(7) -
10Transit period for imports-mths
30 days
11 Usance period for imports-mths 90 days
12 Transit period for imports -
13 Total Lead time for DA-LC-mths (10)+(11) 120 days
14 Total Lead time for DP-LC-mths (9) -
15 FLC requirement for DA-LC (7)x(13) 369.54
16 FLC requirement for DP-LC (9) x (14) -
17 Total FLC requirement (15)+(16) Rs.369.54 lakhs
18 Proposed LC limits Rs.150 Lakhs
CONCLUSION & RECOMMENDATION
The firm is doing good and have good relationship with IVBL from last one year with proper
utilization of the facility. Thus, enhancement of limit is recommended.
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RESULT & DISCUSSION
This project helped me to understand credit management. My mentors provided me enough
opportunities to get real time experiences of different stages of credit management. I worked
in detail on monitoring and credit appraisal. I also learn what is drawing power, its
significance and how to decide the drawing power of the clients.
I worked extensively on Credit Appraisal and Monitoring. These two projects helped me to
understand the significance of monitoring/follow-up and the procedure followed to do the
same. Through credit appraisal I learned the procedure to make and credit appraisal memo
and details about the documents required to do the same. This gave me the opportunity to
know the guidelines set up by ING Vysya for making CAM. I got to know the verification
methods for cross checking information that is given by the client.
Through Financial Analysis under CAM, I have done the practical implementation of the
financial knowledge given to me at my college, IILM INSTITUTE FOR HIGHER
EDUCATION , GURGOAN. Monitoring project gave me the opportunity to experience the
power of fast moving technology through the MIS system of ING Vysya. From MIS system
authorized persons can access and feed information related to client’s account. A change
made in one branch can be seen at any other bank. This helps the bank to save time and
provide fast services to the clients.
I also got the opportunity to do a unit visit with Mr. Sumit Khari at the factory of new client.
This visit was made before preparing credit appraisal memo for the client. This visit helped
me to understand the importance of unit visits, what all things has to enquired to check the
authenticity of the information given by client and what all documents are required for credit
appraisal.
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SUMMARY
SME sector is one of the fastest growing sector in India and one of leading contributor to
country’s total export. It has been seen as a driving factor and an important element in
achieving the targets of the Indian economy. Because of the low capital requirement and its
exponentially growing speed, SME sector is continuously provided with various schemes and
facilities from the banks.
ING has a separate branch for the promotion of SMEs and offers various schemes to them to
achieve their targets. At ING facilities given to SMEs are as per “Code of Bank’s
commitment to Micro and Small Enterprises” with the objective of encouraging this sector
through easy availability of facilities. Bank takes care of complaints of the client by promptly
responding to it. The personal and business information of the client is treated as private and
confidential, and is guided by principles and policies stated in the code. The method followed
at ING for lending to SMEs is as per the norms set up by RBI and the above mentioned
Code.
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REFERENCES
“About ING”, official website of ING Vysya Bank.
About Small and Medium enterprises, official website of Ministry of Micro, Small
and Medium Enterprises.
Credit Appraisal Method is referred from the documents of ING Vysya, Punjabi Bagh
Branch, New Delhi.
Definition about Fund Based and Non Fund based are taken from: “Code of Bank’s
Commitment to Small and Medium Enterprises” and website: www.investopedia.com
“Code of Bank’s Commitment to Small and Medium Enterprises”, official website of
ING Vysya Bank: http://msme.gov.in
Document on “Lending to SME Sector”, official website of Reserve Bank of India.
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