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LO A N S & A DVA N C E S . TYPES OF CREDIT FACILITIES:

TERM LOANS:

DEMAND LOANS:

OVERDRAFTS:

CASH CREDIT:

BILL FINANCE:

PECK ING CREDIT:

POST-SHIPMENT CREDIT:

NON FUNDBASE LIMITS:

LETTER OF CREDIT:

BANK GUARANTEE:

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A S S E S M E N T O F T E R M LOA N As sessm ent of Earning Potent ial & generat ion of Cash Surplus .

Earning subject to all expenses, taxes & var ious p rovis ionsshould be adequate to service interest & ins tallment on TL.

Appraisal invo lves analyt ical assessm ent as fol lowing :

i . Purpos e; Cost of Project & how it is to be tied up .

i i . Future trend of prod uc t ion & capacity ut i l izat ion.

i i i . Est imated Sales volum e; Earning; c ost ; expenses p rof i tabi l i ty.

i v . Pro jec ted Cash f low statement cover ing loan period .

The fol lowing fo ur essent ia l fund amentals shou ld be analyzed.

A . Technical feas ib il i t y;

B . Econom ic v iab il i ty ;

C. Financ ial Viab il i ty ;

D. Manager ial Competence.

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Appraisal of Term Loan. Techn ical Feasibi l i ty: Govt. clearance & license where require. Technicalspecification of Plant & Machineries & suppliers credentials.

Where applicable, geological report for the land at the site.

Justification for selection of specific plant. other alternative plants used

in the industry.

Technology used for the manufacturing process.

Other infrastructure facilities.

Supply of consistent & durable Power supply and its cost.

In case of irregular power supply, alternate power arrangement &

Transformer station etc.

Quality & consistent availability of Raw Material. Availability of Skilled & semi skilled labor force.

Serviceability and maintenance of Plant & Machinery.

Production Capacity of the plant and demand of the products.

Affluent treatment details where applicable.3

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Appraisal of Term Loan. E c o n o m i c V i a b i l i t y : T h e e a r n i n g c a p a c i t y o f t h e p r o j e c t d e p e n d s o n

p r o j e c t e d s a l e s v o l u m e a n d B r e a k E v e n s a l e s . 1 . D e m a n d & s u p p l y p o s i t i o n o f t h e p r o d u c t a n d

i t s s u b s t i t u t e s ( L o c a l & / o r I m p o r t s ) i n t h em a r k e t . L e v e l o f c o m p e t i t i o n i n t h e m a r k e t .

2 . S e l l i n g p r i c e v i s a - a - v i s p r i c e s o f c o m p e t i n gp r o d u c t s ( l o c a l a s w e l l a s i m p o r t e d )

3 . Q u l i t y o f p r o d u c t a s a g a i n s t c o m p e t i n gp r o d u c t s . ( B o t h l o c a l & i m p o r t e d )

4 . L o c a t i o n ; M a c r o e c o n o m i c & G e o - p o l i t i c a ls i t u a t i o n

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Appraisal of Term Loan. F i n a n c i a l V i a b i l i t y : C o s t o f P r o j e c t & m e a n s o f f i n a n c e a r e r e a l i s t i c .

P r o v i s i o n t o m e e t c o n t i n g e n c i e s & C o s t e s c a l a t i o n

b e s i d e i n f l a t i o n i s i n c o r p o r a t e d i n t h e p r o j e c t c o s t .

W h e t h e r p r o j e c t c a n r u n w i t h p r o f i t a b l e o p e r a t i o n ;

T h e p e r i o d t o r e a c h b r e a k e v e n p o i n t .

C a p a b i l i t y o f t h e p r o j e c t t o g e n e r a t e a d e q u a t e

s u r p l u s e s f o r s e r v i c i n g t h e d e b t ; i n t e r e s t a n d t h e

c a p i t a l . F u t u r e g r o w t h p l a n s & p r o s p e c t .

W h e t h e r s o u r c e s o f f i n a n c e a r e r e a l i s t i c & a d e q u a t e !

W h e t h e r e s t i m a t e d c o s t o f p r o d u c t i o n c o v e r s a l l

i t e m s o f e x p e n d i t u r e s .

W h e t h e r t h e a s s u m p t i o n s f o r t h e b a s i s o f

p r o f i t a b i l i t y p r o j e c t i o n s a r e r e a l i s t i c .

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Appraisal of Term Loan. M a n a g e r i a l C o m p e t e n c e : F i n a n c i a l s t a n d i n g & r e s o u r c e f u l n e s s o f p r o m o t e r s .

H o w t o m e a s u r e q u a l i t y a n d t a l e n t o f

m a n a g e m e n t !

P a s t t r a c k r e c o r d ;

P r o f e s s i o n a l E d u c a t i o n a n d t h e l e v e l o f e x p o s u r e .

P a s t P e r f o r m a n c e a n d r e l e v a n t s u c c e s s s t o r y .

T h e q u a l i t y & l e v e l o f k e y p e r s o n n e l a n d S e n i o r

E x e c u t i v e s i n t h e c o m p a n y.

T h e m a n a g e m e n t S t r u c t u r e i n t h e o r g a n i s a t i o nw i t h d e l e g a t i o n o f p o w e r s a n d i t s r e l e v a n c e w i t h

t h e n a t u r e o f b u s i n e s s .

O t h e r a s s o c i a t e c o n c e r n s & t h e i r p e f o r m a n c e .

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Appraisal of Term Loan . M e a n s o f F i n a n c e : Promoters Capital +T L + W C.

Stage wise implementation program:

Stage wise progressive disbursement of finance on work completion & funds

deployment certificates from Architect & C A respectively.

Moratorium period :

Break-even Point: = Fixed Cost * Sales..

(Sales Volume in Rs.) (Sales) - (Variable Cost)For Sales Volume in Unit: B E= T o t a l F i x e d C o s t .

(Sales price per Unit) (Variable Cost unit)

Fixed Costis which does not change over particular level of volume/Turn Over.

Variable Costchange in direct proportion to volume/Turn Over.

Cash flow statement: gives the information of periodical cash

accruals and periodical use of fund to decide repayment period.

Ratios: Debt-Service Coverage ratio; Debt-Equity ratio;

TNW to outside liability ratio; Profit-sales ratio; Sales-Tangible Asset ratio

Output-Investment ratio; Current Ratio. 7

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PROJECT APPRAISAL. In credit management, the efficient appraisal of project is

fundamentally very significant to control future NPA in the bank. Its advisable to apply SWOT analysis in any project appraisal.

Industry Risk: Govt. regulations & policies; available infrastructure;facilities; industry rating; technological up gradation; availability ofspares & inputs. Product obsolescence , location/site etc.

Business Risk: Operating efficiency, competition, demand/supplyscenario; labor cost; basic input cost; surplus available marketing ,consumers psychology and market survey report.

Management Risk:background; integrity; market standing ofpromoters; management structure; competency of key personals;

Delegation of power & decentralized structure; HR policy etc. Financial Risk: Financial standing/strength of promoters;

Reference of existing bankers; reliability & reasonableness of theproject; & means of funding; reliability of information on financialdata; operational & financial ratios; qualifying remarks by auditors

etc. 8

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