CHAPTER NO. 1 RESEARCH DESIGN
1.1 Introduction
Abhyudaya Co-op. Bank Ltd., one of the leading Urban Co-operative Banks in India, in its outlook and approach, has the objective of progress and prosperity of all. From a humble beginning in January 1964 as a Co-operative Credit society with a share capital of a merelyRs.5,000/- held by 83 members, today Abhyudaya Co-op bank has become one of the large Urban Co-operative Banks with a "Scheduled Bank" status. The bank has been converted into a " Multi-State Scheduled Urban Co-op. Bank " w.e.f. 11th January, 2007. The area of operation which was restricted to the State of Maharashtra has now been extended to Karnataka & Gujarat State. Currently, the capital base of the bank stands at Rs. 72 crores and Reserves and surpluses at Rs.804.18 crores as on 31.03.2011. The bank has 1,38,000 members and more than 14 lakhdepositors. The Bank has seen a tremendous growth in deposits. The deposits of the bank are over Rs. 5260.63 crores as on 31.03.20011, which were Rs. 4170.62 crores as at the end of the financial year 2009-2010. The loans and advances stood at Rs. 3453.61 crores as on 31.03.2011. The bank had posted a Net profit of Rs.77.65 Crores as on 31.03.2011. " The growth rate of the bank compares well with that of others in the sector. The Bank has maintained a steady growth. The bank has been paying dividend @ 15% to its members which is maximum permissible as per the MCS Act.
The Bank has launched different loan schemes tailor-made to suit the needs of various customers. The schemes aim at providing loans for purchase or construction of residential premises, repair/renovation of house property, purchase of car, seeking higher education and for purchase of household consumer durable. One of the loan schemes, viz. "Udyog Vikas Yojana" is specially designed for the benefit of small entrepreneurs and businessmen. The procedure for sanctioning of loans under the schemes has been simplified and relaxed with a view to attract new customers and facilitating speedy sanction of loans.
Industrial Finance In Abhyudaya Co-operative Bank Innovative Banking is another area of operation that Abhyudaya is currently focusing on for a sustainable long term growth. The Bank has always endeavored for providing satisfactory customer service the help of the latest technology. The Bank has provided fully computerized services to its valued clients. Bank is offering 11 Hours fully computerized services and 7 days working at 15 branches and 24 hours ATM service at 59 branches.
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1.2 Objective of Study
• • • • To study the concept of Industrial Finance. To study the loan procedure and scrutiny procedure of the bank. To study the ways to reduce the risk of bad debts To study the analysis of financial statement for different loan proposals.
1.3 Limitation of study
• Many records related to my project is very confedential and hence bank records are not fully disclosed. • Some of the records regarding my project were available at branches, so that records were not available to me for refernce. • Though some data was provided to me, but due to company secrecy policy I am unable to put it in my project.
1.4 Methodology:
Various fact finding technique used in system are: 1. Primary Source: Most of the data is collected through unstructured interviews /discussion with project guide and bank employees. 2. • • • Secondary Source:
Library: Various project related books were referred especially to analyze the system. Also various books from college library referred. Company in-house documents such as branch scrutiny, credit rating report, zonal office report were referred. Visted the site:http://www.abhyudaya.com/
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Industrial Finance In Abhyudaya Co-operative Bank • Credit Policy, and Rules & procedure of year 2010-11
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Industrial Finance In Abhyudaya Co-operative Bank
CHAPTER NO. 2
2.1 Achievements
• • • EXCELLENT URBAN CO-OP. BANK" AWARD 2007-2008 Maharashtra Gaurav Award 2nd best co-operative bank award 2005-06.
2.2 Organization Chart:
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Industrial Finance In Abhyudaya Co-operative Bank
CHAPTER NO. 3
CONCEPTUAL BACKGROUND OF STUDY 3.1 Analysis of financial statement: A basic limitation of the traditional statements comprising the Balance sheet and the profit and loss account is that they do not give all the information related to financial operation of the firm. Neverthless, they provide some extremely useful information to the extent that the balance sheet mirrors the financial statement on a particular date in terms of structure of assets, liablities and owner,s equity, and so on and the profit and loss account shows the results of operations during a certain period of time in terms of the revenues obtained and the cost incurred during the year. Thus, financial statements provide a summarized view of the financial position and operations of a firm. Therefore, much can be learnt about a firm from a careful examination of of its financial statements as invaluable documents/ performance reports. The analysis of financial statements is, thus, an important aid to financial analysis. The focus of financial analysis is on key figures in the financial statementsand the significant relationship that exists betwee them.The analysis of financial statements is a process of evaluating the relationship between component parts of financial statements to obtain better understanding of the firm’s position and performance. The first task of the financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second step is to arrange the information in a way to highlight significant relationships. The fnal step is interpretation and drawing of infernces and conclusions, In brief, financial analysis is the process of selection,relation and evaluation.
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Industrial Finance In Abhyudaya Co-operative Bank
3.2 Working Capital Management Working Capital Management is concerned with the problems that arise in attempting to amnage the current assets, the current liabilities and the interrelationship that exists between them. The term, current asset, refer to thse asset which in ordinary course of business can be, or will be, converted into cash within one year without undergoing a dimunition in value and without disrupting the operations of the firm. The major current assets are cash, marketable securities, accounts receivable & inventory. Current Liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current asstes or earnings of the concern. The basic current liabilities are accounts payable, bills payable, bank overdraft and outstanding expenses. The goal of working capital management is to manage the firm’s current assets and liabilities in such a way that a satisfactory level of Working Capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent may even forced into bankruptcy. There are two concepts of Working Capital : gross and net The term gross working capital means the total current assts and the term net working capital means the differnce between current assets and current liabilities. Calculation of Working Capital requirements/ Term Loan. Branches should calculate all types of Working Capital requirements for next one year. It should be based on projected Profit and Loss account and Balance submitted by the applicant. The projected figures should be compared with the actual figures based on Audited Balance sheets submitted by the party. The projection to be acceptable to the Bank must be realistic/ achievable. If there is major deviation on Sundry Debtors, Creditors, stock etc., proper explanation should be obtained from the applicant and branches should satisfy themselves about the genuineness of the projections. If the branch/ Zonal office are not satisfied with the given projections, they should recalculate the projections based on past trend and their perception and decide actual working capital requirement. The requirements of CC, bills facility, against clearing and cheque discounting should be within the projected the projected MMS-Finance studies & research Pillai’s Institute of Management 7
Industrial Finance In Abhyudaya Co-operative Bank maximum permissible Bank finance limit. Normally, no separate Against clearing and Cheque Discounting facility to be sanctioned and this should be part of working capital facility sanctioned to the borrower. As per RBI guidelines, Bank may consider the total working capital limit to a borrower up to 20% of the projected Sales Turnover. However, the bank to allow operations always within Drawing Power based on the monthly stock and Book Debts less Credit Purchases (Creditors for goods) after maintaining a margin of 40%/25% for traders and manufacturers respectively. To make the facilities sanctioned under “Against Clearing” and “Cheque Discounting” secured it should be ensured that the borrower should have sufficient Drawing Power to cover them alongwith the Cash Credit and DBD limits. It shall be noted that all credit limits for working capital purpose like Cash Credit, Bills Discounting, Letter of Credit for purchase of raw material on continuous basis etc. will form a part of MPBF. Working (Capital/Cash Credits/DBD/SBD/WCTL/Channel Credit/LC) Limits. A) Upto Rs.1.00 Crore for Borrowers other than SME units and Rs.5.00 Crore for SME units: a) The Assessment of working capital requirements of borrowers other than SME Units requiring fund based Working Capital Limits upto Rs. 1.00 Crore and SME units requiring fund based Working Capital limit upto Rs 5.00 Crore from banking system be made on the basis of their realistic projected annual Turnover. b) The working Capital requirement is assessed at 25% of the realistic projected turnover to shared between the borrower and the Bank i.e. The borrower contributing 5% of the turnover as Net working Capital and bank providing minimum of 20% of the turnover. c) Drawals against the limit should however be allowed on the basis of the drawing power calculated based on timely submission of monthly statements of stocks, reveicables and sundry creditos and also periodical verification of such statements vis-à-vis physical stocks by Branch Officials.
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Industrial Finance In Abhyudaya Co-operative Bank B) Above Rs. 1.00 crore for borrowers other than SME Units and Rs. 5.00 Crore for SME Units: Here the Bank may adopt Working Capital Gap Method or Production /Process Cycle Method for assessing the Working Capital requirements. a. Working Capital Gap Method:Working Capital Gap (WCG)= Current Assets – Current Liabilities Eligible MPBF = WCG – 25% of WCG
b. Production / Processing Cycle Method Sr. Manager / Manager Industrial Finance Dept. will visit the industrial unit and work out requirement of working capital based on the existing production / processing cycle. He will take into account credits received on purchase of raw material, credits allowed on sales, inventory levels of raw materials, work in process, finished goods etc. In order to arrive at the future requirements of the unit, he will scrutinize the projected sales for next two years and work out the requirement of the working capital. It is necessary for him to discuss with the loanee / officials of the unit and ascertain need based working capital limit. He will also compare the working capital ascertained under Method-I and Turnover method and give his recommendations. c. For New Projects: Working Capital for new projects will be worked out on the basis of projections, production / processing cycle. Hence, DGM and IF Dept. will take into account realistic projections, industry standards etc.
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3.3 Loan Process: The following flow chart shows the process of loan:
Loan Proposal from the borrower
Acceptance, Scrutiny and Recommendation of Loan Proposal
Sanction of credit facilities
Documentation & Release
Monitoring, Review and Post Sanction follo-up
Let us discussed it in detail: I. Loan Proposal The first step in the loan proposal is borrower will approach the bank and he has to submit preliminary documents to branch. Branch will scrutinize that the borrower provides following documents for CC/TL/WCTL facilities: 1. 2. 3. 4. Check List / Index. Cash Credit security note. Visit report of Branch Manager. Liability Information sheet of Applicant. MMS-Finance studies & research Pillai’s Institute of Management 10
Industrial Finance In Abhyudaya Co-operative Bank 5. 6. 7. 8. 9. 10. 11. 12. 13. Liability Information sheet of Surety. Account Information of Applicant. Account Information of Surety. CC Sanction sheet/ Scrutiny note of previous year. Copy to previous year Disbursement Advice. Copy to insurance policy. Cash Credit Application form duly filled in and signed by all Partners / Directors / Proprietor of the firm / company. Proof of business place- office /go down/ factory: Copy of Agreement for sale / lease and license. Agreement / Rent Receipt / electricity bill etc. Proof of residence. Proprietor / partner / Director: Ration card/ electricity bill / Receipt. 14. Trade Licenses: A) B) 15. Shop and establishment SSI Registration Certificate. Rent
Copy of Partnership Deed / Memorandum and Articles of Association etc. A) Board Resolution for availing credit facility from bank in case of Private and Public Limited companies.
16. 17. 18. 19. 20.
Bio-Data of Proprietor/ Partner/Director. In case of new application. Statements of Collateral Securities Certified by manager. Mortgaged Registration receipt/ Mortgage Deed, if property is already mortgaged. Original documents of property; if offered for mortgaged. ROC change registration certificate (in case of Private and Public Limited
companies). 21. Stock statement and age wise Book Debt statement of latest visit date. 22. Statement of account for current year and previous year Audited Statement of account; if • • • Sales /turnover is more than Rs. 40.00 lacs. Facility applied is more than Rs. 10.00 Lacs. In case of Private and Public Limited companies.
23. Up-to-date sales and purchase figures subsequent to last balance sheet on record. 24. Sale tax challan copy / assessment order copy. MMS-Finance studies & research Pillai’s Institute of Management 11
Industrial Finance In Abhyudaya Co-operative Bank 25. Income tax challan for current year and previous year assessment order or acknowledged copy of return. 26. Computation of Income/TDS Certificate. 27. Copy of professional tax challan. 28. Credit from other bankers 29. Any other documents as per the proposal. Documents of Surety: 1. Surety consent letter duly filled in and signed by all partner / proprietor of surety firm /company. 2. Board resolution to stand as surety (if surety firm is ltd./private ltd. companies). 3. Proof of business place. 4. Proof of residence. 5. Copy of Partnership Deed/ Memorandum and Articles of Association etc. 6. Shop establishment license/ SSI registration certificate. 7. Statement of account for current year. 8. Sales tax / Income tax papers. 9. Credit from the bank if surety is operating account with some other bank. 10. Any other documents as per the proposal. Borrower should provide at least one surety for loan proposal upto Rs. 5 lacs and two sureties above R. 5 lacs with their documents mentioned above.
I] Primary Documents These determine our rights to recover the amount lent by us together with interest thereon. 1. Demand Promissory Note 2. Loan Agreement. 3. Letter of guarantee. MMS-Finance studies & research Pillai’s Institute of Management 12
Industrial Finance In Abhyudaya Co-operative Bank 4. Counter guarantee. II] Security Documents These are obtained for changing the property of the borrower to the bank as security. 1. Hypothecation Deed. 2. Bills Agreement. 3. Letter of Lien. 4. Mortgaged Deed and its original registration receipt/ Memorandum of equitable mortgage. III] Auxiliary Documents These are supplementary to the primary and security documents. 1. Application for facility. 2. Consent letter of surety. 3. Partnership Deed, duly registered/ Memorandum and Articles of Association/ Trust Deed. 4. Irrevocable power of attorney. 5. Resolution of company/trust. 6. Permission from charity commissioner etc. Attestation The following documents are to be compulsorily witnessed by at least two witnesses. 1. 2. 3. 4. 5. 6. 7. Assignment on the instrument itself (e.g. LIC policy) Assignment on separate instrument. Sale Deed. Mortgage Deed. Any other documents requiring Ad-valorem stamp duty. A gift Deed of immovable property. A will.
Following documents do not require to be witnessed: 1. 2. Demand Promissory Note. Letter of Lien. Pillai’s Institute of Management 13
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Industrial Finance In Abhyudaya Co-operative Bank 3. 4. 5. 6. Agreement for hypothecation of goods and book debts, vehicles, plant and machineries etc. Letter of guarantor. NSC/ Gold loan agreement. B.D./B.P. Agreement.
After scrutinizing the documents branch will make the visit and submit scrutiny note. II. Acceptance Scrutiny and Recommendations of loan proposal 1. All the loan proposals continue to be accepted by the branches and scrutinized at branch level except loans and advances application from new applicants of above Rs.50.00 lacs. 2. Whenever prospective borrowers ask for loan application, they should be
properly guided and correct set of application forms/Annexure be given to them and properly briefed/guided about the documents to be submitted along with the application. 3. On receipt of the application duly filled-up, the loan receipt should be fully
scrutinized and required documents to be obtained and file to be sent to next higher authorities within 30 days from the receipt of the file in the branch. In case, the file is kept pending for more than 30 days, the reasons for doing so along with the detailed explanation giving reason for keeping the file pending be sent to next higher authorities. Existing guidelines for scrutinizing be followed like required documents and compulsory visit to the applicants residence and business places etc. as advised from time to time. Inordinate delay in file processing will not be tolerated. Details of requirements to be informed within 3 working days. On receipt of the application duly filled-up, branch should inform all details of requirements to the loanee in writing within 3 working days. 4. Whenever the file is received with incomplete documents, the file should be
accepted and requirements of documents should be informed to the applicant in writing giving time limit of 7 days within which they should be submitted. In case the documents are not received within 7 days, reminder should be sent giving further time MMS-Finance studies & research Pillai’s Institute of Management 14
Industrial Finance In Abhyudaya Co-operative Bank of 7 days. Thus loanee will be given period of 14 days for submission of documents from the date of receipt of loan application. If loanee fails to submit the same, the file should be forwarded to next higher authority for rejection within 20 days from the receipt of application with detailed reasons. It should be our endeavor to also contact loanee over telephone, guide him and ensure that loan is granted to applicants on the basis of repayment capacity. 5. Proposals upto the delegated power of the branch-in-charge be sanctioned at
branches. Proposals beyond branch-in-charge delegation but upto delegated powers of DGM (Zones) be sent to zonal offices for sanction. The loans and advances proposals beyond the delegated powers of DGM and upto Rs.10.00 lacs would continue to be sent to Head Office directly. The proposals above Rs. 25.00 lacs would be routed through Zonal offices for scrutiny and recommendations of the Dy. General Manager. 6. The Zonal offices should scrutinize the loans and advances proposals with
limits of above Rs. 25.00 lacs and upto Rs.35 lacs, and forward the same to Head office along with their scrutiny, recommendations and grading of the accounts. 7. Branches should use the proper application forms as well as scrutiny forms for
different types of advances. There are different forms for loans upto Rs. 15.00 lacs, CC facility upto Rs. 15.00 lacs and facility above Rs. 15.00 lacs. In the form for the facilities above Rs. 10.00 lacs, there are separate forms of fund based limits, for Term Loan, loans for contractors and manufacturing units. Branches should fill-up the appropriate scrutiny forms while scrutinizing the application. 8. A borrower enjoying fund based limit above Rs. 100.00 lacs and fund plus
non-fund based limit of Rs. 200.00 lacs have to be a Private Ltd./ Ltd. Company. Hence Proprietary/Partnership firms should take necessary steps to convert them into Pvt. Ltd./Ltd. Companies in due course. 9. For obtaining credit information of party and CR from other banks,
verification of Audited Balance Sheet, Income Tax Returns etc. for new proposals
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Industrial Finance In Abhyudaya Co-operative Bank above Rs. 2.00 Crore, Bank may take the help of Professionals by fixing the fees if any and as decided by the Managing Director. 10. If it is observed from the balance sheet that the finance given by the bank is diversified for any purpose other than for business purpose or the capital is withdrawn substantially affecting the debt equity ratio adversely, enhancement of facility should not be considered unless the said diversion or withdrawn funds are restored. The loans and advances proposals above Rs. 50.00 lacs from associate firm of our existing borrower account will be accepted and scrutinized at branches and forwarded to zonal offices for further scrutiny and onward submission to Head Office. Thus, these proposals will not require in principle scrutiny. III. Sanction of Credit Facilities 1. All the applications for credit facilities above Rs. 50.00 Lacs will be sanctioned/ rejected by the Board as per the existing practice. 2. Delegation of Powers: The board has delegated the powers to sanction facilities upto Rs. 50.00 lacs to the Managing Director, Rs. 35.00 lacs to the General Manager/Addl. General Manager, Rs. 25.00 lacs to the DGMs of Western, Central and Navi Mumbai Zones. Similarly, Board has delegated the powers to the branch AGM, Sr. Managers and Managers to sanction surety loans upto Rs. 2.00 lacs Cash Credit limit and Secured Loans upto Rs. 7.00 lacs, Rs. 5.00 lacs, Rs. 3.00 lacs respectively including housing loans, vehicles, consumer durables, furniture/ fixtures, repairs and maintenance etc. 3. The statement of the loans and advances sanctioned by the Branch Managers should be sent to Zonal Office on monthly basis, which in turn will consolidate the same and send to Head Office for placing the same before the Board. Zonal Offices should also send monthly statement of loans/CC facilities/ other facilities sanctioned by them to Head Office for placing the same before the Board. Head office will also place the statement of credit
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Industrial Finance In Abhyudaya Co-operative Bank facilities sanctioned by Addl. General Manager/ General Manager / Managing Director on monthly basis before the Board. 4. If the sanctioning authority sanctions amount mare than the recommendation, specific reasons for the same should be mentioned in the sanction note. 5. Sanctioning authority is responsible for sanction of loans and advances based on the facts given by the scrutinizing and recommending authorities. The scrutinizing officials are responsible for giving full facts in the Scrutiny note. Any hiding of the facts in scrutiny and subsequent loss to the Bank will attract disciplinary action against the concerned recommending officials. 6. The sanctioning authorities are also authorized to make subsequent alterations in the sanction within sanctioning power like change of sureties, change of quotations, suppliers, exchange of securities etc. as per prevailing practice. 7. The Addl. General Manager/ General Manager / Managing Director at the Head Office are authorized to make deviations even for the loans sanctioned by the Board considering the urgency of situation, but it should be later ratified by the Board. 8. The sanction and renewal of fund based and non-fund based Working Capital limits are valid for a period of 1 year. 9. The applications for reconsideration for sanction or enhancement of facilities are normally to be entertained after a period of six months from documentation. 10. Branch Managers are authorized to exchange the collateral securities of equivalent amount. The decision shall be noted by the Zonal DGMs. Other cases should be referred to Head Office where Addl. General Manager/ General Manager / Managing Director are authorized to take decision based on merit of each case. MMS-Finance studies & research Pillai’s Institute of Management 17
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IV. Documentation and Release 1. The sanction letter should be prepared and sent by the disbursement authorities giving all the Terms and Conditions of sanction. The borrower and the sureties should give a letter accepting unconditionally all the terms and conditions of sanction and it should be kept alongwith other documents. The copy of sanction letter should be sent to all sureties.
2. All documents should be executed as per the manual of documentation. It should be ensured that proper documents are executed with right amount of stamp duty as per H.O. guidelines issued from time to time. It should be ensured that loanee fulfills all terms and conditions stipulated by the Board/ sanctioning authorities. 3. All the credit facilities upto Rs. 50.00 lacs will be disbursed at HO branches. Documentation of Pvt. Ltd./Ltd. companies/ Trusts will also be done at branches with limit upto Rs. 50.00 lacs. Branches shall submit copies of documents for creating charge with ROC to loans and Advances Dept. within 5 days of execution of documents. 4. All other facilities will be documented and released at Head office after compliance of terms and conditions of sanction and adhering to the guidelines issued from time to time. 5. The releasing of loan should be after the borrower brings the proportionate margin in the account. 6. The releasing officials should make the payment directly to the suppliers and obtain the stamped receipts for the same. Wherever the borrowers have already paid to the suppliers, the details of such payment should be verified like whether cheque is debited in the account etc. and satisfy themselves that suppliers have already received the payment against the order for supply of MMS-Finance studies & research Pillai’s Institute of Management 18
Industrial Finance In Abhyudaya Co-operative Bank articles/machinery etc. Cash payment above Rs. 50,000/- to the supplier cannot normally be treated as payment to the supplier unless their Chartered Accountant certifies that such payment is made and it will be accounted in the Books of account of the borrower to be prepared for the year. The Pay Order should be drawn in favor of “ Bank, Branch name of the supplier Account No.”. The pay Order of payment to the supplier should not be given to the loanee. It should be sent by Regd. A.D./ Speed Post or By deputing staff. The copy of Pay Order be handed over to the loanee. 7. For Vehicle/Shop/Gala/Machinery loan, reimbursement is allowed if application is made within one year from the date of purchase only to the extent of payment made by cheque/ eligible amount. No reimbursement against cash payment is allowed. 8. Normally no payment shall be made to the borrower directly. If the Bank is fully satisfied that they have made payment to the supplier and the supplier and the suppliers have already supplied the goods in good condition, the Bank may consider reimbursement to the borrower after verification of the above. 9. All the Documentation done at Head office will be verified by the Legal Dept. at Head Office. However, in case of complications, the documentation be prepared and approved by the Bank’s approved Advocates and Solicitors. 10. The branches and disbursement staff at Head Office should prepare and keep a certificate in the file duly signed by the Documentation clerk, In-charge of Disbursement Section as well as the Manager/Sr. Manager/ Asst. General Manager certifying that all the documents are executed as per the terms of sanctionand specify if any further compliance is required to be done in this regard. Such further compliance should be done within reasonable time to ensure that Documentation is complete and up-to-date in all respect.
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Industrial Finance In Abhyudaya Co-operative Bank 11. Branches should at the time of renewal / reviews verify the security documents and confirm themselves that all security documents are available in the branch. 12. Branches should obtain Letter of Acknowledgement of Debt for all the facilities including Term Loans atleast once in a year. If only Term Loan is availed, LAD should be obtained every year preferably for 31st March of the year during the month of April. The Legal Dept. shall make necessary changes in the Documentation in consultation with Bank’s Advocates considering the changes in the Loan Policy. V. Monitoring, Review and Post Sanction Follow-up: 1. The branches are prime centers for monitoring, review and post sanction follow-up of all the loans. They will be guided and supported by respective zonal offices. 2. For CC accounts, the branches should obtain the Stock and Debtor statement on monthly basis and workout DP for all borrower accounts and allow withdrawal in the account within DP. 3. Where the client has been sanctioned sub limit against FDR within the overall cash credit limit then branch should add the sub limit against FDR to the DP to ascertain total DP available to the borrower. It may be noted that when the bank considers sub limit against FDR, the later becomes a Prime Security for Cash Credit. 4. While executing cheque discounting/ against clearing and allowing withdrawals in the account, the DP shall be observed by the branches so that the facilities does not go unsecured. 5. The branches should restrict cash transactions in the account as much as possible as per various guidelines issued in this regard. MMS-Finance studies & research Pillai’s Institute of Management 20
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6. The branches should renew all the CC accounts atleast one month before expiry of limit. 7. Branches should visit all loans and CC accounts atleast once in a quarter and identify the problem areas if any and keep the record in the file/report to higher authorities. 8. If any of the account going bad is observed immediate steps should be taken in consultation with the zonal office to rectify the problems in time. 9. In case, stock/debtors statements are not submitted, the branches should visit to the borrower and get the stock/ book debt statements from the borrower prepared and work out DP accordingly. 10. The Branches will prepare NPA statements as required by the R.B.I. and advised by Legal and Recovery Department from time to time. 11. After disbursement of the Term Loan, the branches should visit and verify whether the machinery/equipment for which the loans are sanctioned are installed and as per the specification given by them within three months from the date of last disbursement and keep a certificate in the file. If there is discrepancy immediate corrective action should be taken. Such visit report should be available in each file duly signed by the person visited and the Incharge of the Loan Dept. alongwith Branch Manager. 12. The branches should also closely watch the gradation of standard accounts and movement of the accounts from one grade to another in the branch and try to have maximum higher-grade accounts. 13. The present system of review of borrower accounts above Rs. 5.00 lacs will continue to be done by Zonal Office atleast twice a year.
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Industrial Finance In Abhyudaya Co-operative Bank 14. The present system of review of borrower accounts above Rs. 100.00 lacs will continue to be done Head Office level by Industrial Finance Dept. on quarterly basis. 15. All the accounts outstanding above Rs. 10.00 Lacs at Recovery Dept. shall be reviewed atleast twice a year and a report should be placed before the Board. The Board shall constitute a “Loan Monitoring Committee” consisting of some members of Board and/or all Sr. Executives of the bank who should meet twice a month at the Head Office, preferably after 2.00 p.m. on alternate Saturdays at the Head Office and review all such problematic accounts both at recovery dept. and branches and initiate necessary corrective action. In addition to total review of each account, the committee would ensure regular submission of stock and book debt statement, drawings within DP limits, verification of securities by periodical inspection etc.
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Industrial Finance In Abhyudaya Co-operative Bank 3.4 Industrial Finance Department Scrutiny Note Industrial Finance Department at head office is taken care of by senior manager/ managers. Their duties in brief in respect of the report and monitoring of loans and advance are as under: A) Determination of working capital for SSI and other manufacturing units –new proposals with limits above Rs.25.00 lacs and renewal/enhancement above 50.00 lacs. B) For all Term Loans above Rs.10.00 lacs, projected cash flow statement should be obtained to ensure generation of adequate funds for repaying the loans and interest thereon. In case of new term loan in addition to existing term loans, average DSCR to be calculated to confirm satisfactory repayment as per schedule. C) For loans for purchase of machineries above Rs.15.00 lacs, Industrial Finance Department will verify the genuineness of quotation, competitive rates and available better alternate machineries at cheaper rate as well as better qualities. D) The eligibility Term Loan for the project/machineries etc. should be calculated as per the margins prescribed by the Bank and proper scrutiny by the Industrial Finance Department independently. E) Genuineness of supplies and reasonable rates quoted by them shall be certified by the Industrial Finance Department. Industrial Finance Department should also check infrastructure facilities like electricity, water etc. available with the factory, all government dues are paid or not etc. F) Industrial Finance Department shall always update themselves in respect of various types of supplies of machineries/equipments, pricelist through market contacts/internet.
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Industrial Finance In Abhyudaya Co-operative Bank G) Technical report by Rs.10.00 lacs. H) Industrial Finance Department should also give list of machinery observed during visit. If required, valuation report may be obtained from approval valuer. In case of new large proposal /existing large borrower, the valuer should accompany the zonal office DGM/ Industrial Finance manager during the visit. I) Industrial Finance Department should mention the current market position, competition to the borrower and his products. J) Industrial Finance Department should given recommendations based on eligibility, technical viability, security, project viability, etc. K) At the time of each disbursement of Term Loan/CC facility above 10.00 lacs, Industrial Finance Department has to visit site of the borrower for assessment of progress of work done along with photographs of the site and how much amount to be disbursed accordingly. L) In respect of determination of working capital, he will study the production process cycle of the industrial unit and decide working capital limit based on credit purchases, credit allowed on sales, minimum inventory levels, raw material, work in progress, finished goods, etc. M) Industrial Finance Manager should work out the working capital requirement based on the production/processing cycle of the SSI and manufacturing units enjoying/applying limit above Rs. 50 lacs. He should also arrange for photographs of the unit/machineries. N) Monitor loans and advances above Rs. 1.00 crore independently by visit on half yearly basis (twice in a year) and to submit detailed report. Industrial Finance Department is to be given before
branch/zonal offices recommendations in all term loan accounts with limit above
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Industrial Finance In Abhyudaya Co-operative Bank O) Analytical study of each sector of the industry in respect of the following: • • • Sanction of Industry-wise new loans and advances. Movement of NPAs and overdue in each industrial sector and the reasons for increasing NPAs/overdue in particular sector. Similarly, industry-wise reduction in NPAs and overdue report is prepared and if there is revival of any particular sector/industry, then it should be highlighted. General report highlighting revival/better prospects in some industrial sectors for the current year so that bank may take necessary steps for deployment of more funds in those sectors.
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Industrial Finance In Abhyudaya Co-operative Bank 3.5 Zonal Office report Zonal office should comment in respect of the following as per the guidelines given in Annexure-I 1. Capital Increase: over last year-whether plough back of profit? Addition by introduction of fresh capital by proprietor/ partner-CA’s certificate- Source of capital (additional). How they intend to increase it to certain level to make debt equity ratio favorable. Reduction: whether by main partner-reasons for withdrawal-discrete enquiry to be made. 2. Reserves Whether increased or decreased with details. 3. Unsecured Loans a) Long term loans by family members / relatives / directors and associates, undertaking from them not to withdraw these loans without written permission from the bank. These loans would be treated as Quasi Capital and excluded from current liabilities. b) Other short term unsecured loans- Repayable on demand to form current liabilities. 4. Other Liabilities Whether they include Government dues payable. 5. Fixed Assets Whether Fixed Asset are finance through working Capital (Diversion of Funds). 6. Current Asset Command on quality of assets- stock and book debts upto 90 days will only qualify for Drawing Power (DP). 7. Losses Reasons for Losses – whether chances of profit making –Is net worth affected. 8. Diversion of Funds Whether funds transferred to associate accounts for genuine business/ commercial purpose or utilization for business of associate Account. When these funds were bought back, If not, whether they would be bought beck or chances for the same are
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Industrial Finance In Abhyudaya Co-operative Bank remote due to siphoning off. CA’s Certificate of bringing funds back to business to be obtained.
9. Performance of the borrower/individual unit compared to past achievement and projected sales, Gross Profit, Net Profit, Profitability, etc. State about achievement of past year with previous year- performance till current year till review- whether they would be in a position to achieve projected sales, gross profit, net profit, etc.- new work orders, new products, increase in capacity of output/ product-new technology- cost reduction measure, government policies, import substitutes, of another unit, etc. • Sales and Purchase from the date of last balance sheet till last month. Certified by the borrower and also their Chartered Accountant. Whether current year sales indicate improvement in performance of the unit and tentative sales they would achieve by the current year-end. 10. Analysis of Balance sheet and Profit and Loss account and interpretation of ratios • Current Ratio Current Asset Current Ratio = Current Liabilities The ratio 2:1 shows excellent liqudity position. The ratio between 1:1 to 2:1 shows satisfactory liqudity position. The ratio less than 1:1 shows no liqudity at all. For Ssi units it should be atleast 1.33:1.
• Debt Equity Ratio All outside borrower funds MMS-Finance studies & research Pillai’s Institute of Management 27
Industrial Finance In Abhyudaya Co-operative Bank Debt equity Ratio = Net Worth – Intangible Assets The follwing benchmark denotes good solvency 2 : 1 ----> Manufacturing units. 3 : 1 ----> Trading units. 3 : 1 ----> SSI units. • Credit availed on Purchases or Creditors’ Ratio Creditors X 365 Creditors Ratio = Purchase • Credit allowed on sales or Debtors’ Ratio Debtors X 365 Debtors Ratio = Sales Sundry debtors beyond 90 days should not be reckoned for calculation of Drawing Power (DP). 11. Payment of Statutory Dues Whether audit report to Balance sheet and Profit and Loss account contains information about non-payment of dues like sales tax, Income Tax, Excise duty, electricity charges and other statutory dues etc. Branches should make reference to various authorities on quarterly basis in this matter and ascertain position by visits to take authorities. 12. Utilization of cash credit limits • DBD/SBD Limits No. of bills drawn- Amount during last 12 months. Whether bills are returned/ dishonored. If yes, give details-whether bills drawn on such partner are further discounted? Are payments of these bills received from drawee? • Utilization of BG Limit MMS-Finance studies & research Pillai’s Institute of Management 28
Industrial Finance In Abhyudaya Co-operative Bank No. of BGs issued- Amount of BGs. Details of invoked BGs- payment made by borrower and details of outstanding invoked BG. • Utilization of Letter of credit Limit (Import/Inland) No. of L/C developed (payment made by debiting to forced loan under L/C). Payment made by borrower-Details of outstanding forced loan under L/C. • Repayment of existing Term Loan
13. RBI Inspection report observation and compliance thereof (if applicable) • • • • Compliance of deficiencies by client Compliance of deficiencies by Branch/Zonal office. Reasons for non-compliance. Progress/latest position in compliance.
14. Internal and concurrent audit observation and compliance thereof (if applicable) • • • • Compliance of deficiencies by client Compliance of deficiencies by Branch/Zonal office. Reasons for non-compliance. Progress/latest position in compliance.
15. Non-compliance of sanction stipulations of board • • Reasons for non-compliance by client. Non-compliance by staff/official – reasons for deviations by staff/ officials and what action zonal office / Head office initiates in the matter. 16. Insurance of stock/machineries hypothecated etc. Whether adequate insurance is obtained? Whether place of storage of goods is the same incorporated in insurance policy. MMS-Finance studies & research Pillai’s Institute of Management 29
Industrial Finance In Abhyudaya Co-operative Bank
17. Credit Rating/Gradation On the basis of Audited Balance Sheet and Profit and Loss account as on ____ What are the reasons for upward/ downward gradation? What steps the borrower has promised to take to improve the gradation. 18. Reconstitution of partnership Whether there is a dispute among partners. Whether the remaining partners are all family members / close relatives- whether main partner has retired/ resigned – what would be impact on business- whether our finance is secured? What is change in capital- whether retiring partner is willing to stand as surety at least for 2/3 years? Whether he would continue his capital as unsecured loan on long-term basis? 19. Mortgage of Immovable properties Full details like flat/gala etc. No. in building/ society- area- market value – by (valuer) Branch In charge / by whom it is occupied- mortgaged on _______. Whether mortgage change is recorded with society builder- to affix/ paste mortgage poster- Present market value as per O.C. No. 66- The description and area should be based on title Deeds and it should be correctly reported in branch scrutiny note, Branch visit report and zonal office report. 20. Group Exposure 21. Special request of the borrower (if any) 22. Need of working capital Term Loan 23. DSC ratio (for Loans) Brief particulars of weak financial deviations/deficiencies/ irregularities in the proposal. 24. Zonal Office Recommendations with justification in details Justification of each funded and non-funded limits. MMS-Finance studies & research Pillai’s Institute of Management 30
Industrial Finance In Abhyudaya Co-operative Bank
25. In view of the above, we recommend following credit limits/ we do not recommend following credit limits. Amount Rs. 1. Cash Credit _______________ 2. DBD/ SBD _______________ 3. Bank Guarantee 4. Letter of credit 5. (Import/ Inland) 6. Term Loan _______________ 7. W.C.T.L. ___________________ _______________ ___________________ _______________ ___________________ _______________ ___________________ ___________________ Margin %
___________________
Note: - The DGM should not omit any one of the above 1 to 24 points. There must be specific comment saying that this point is not applicable to borrower or specific comment be given. Report of all zonal office should be identical and there should not be any change as far as the standard format of this report. The manner of reporting should be strictly in conformity with the guidelines given in annexure. Though observations will differ from case to case, the method of reporting has to be identical. Hence annexure should be strictly adhered to.
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Industrial Finance In Abhyudaya Co-operative Bank 3.7 Guidelines for Credit Rating The weight ages for different parameter are given as under S.No. 1 2 3 4 5 Financial Parameters Security Prime and Collateral Conduct of Account Management Business and Other Parameters Total Marks 36 15 28 10 11 100
A] Financial Parameters For the reference and Clarifications of financial ratios following clarifications are given Current Asset a) Current Ratio = Current Liabilities Current Asset - Stock b) Quick Ratio = Current Liabilities All outside borrower funds c) Debt equity Ratio = Net Worth – Intangible Assets d) Net Worth = Capital + Reserves + Accumulated profit – Revaluation Reserves. e) Capital = Fixed Capital + Current capital + Quasi capital f) Quasi Capital = that portion of long term loan taken from Directors/Partners and their not withdraw family members where undertaking is given that they will the same without the consent of the bank.
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Industrial Finance In Abhyudaya Co-operative Bank g) Diversion of funds = Loans and advances given to Directors, their family members, sister concerns and others for any purpose other than for business purpose out of Bank’s borrowers funds. h) Debt Services Coverage ratio (DSCR) Net profit + Depreciation + Payment towards interest (Including CC/TL/BD etc.) DSCR = Installments + Interest on the loan CC/TL/BD etc. in the year i) Retention of Profit = Net Profit after Tax – Drawings and dividends 1. For Companies: Retained Profit = NPAT – Drawings and Dividends 2. For proprietorship & Partnership Concerns: Retained Profit = Closing Capital – Opening Capital – I.T. of firms and partners 3. Retention of Profit ( %) Retained Profit Net PAT Debtors X 365 j) Debtors Ratio = Sales Creditors X 365 k) Creditors Ratio = Purchase X 100
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Industrial Finance In Abhyudaya Co-operative Bank
No. Ratio Standard Ratio Financial Parameters (maximum marks 40) 1 Current Ratio 1.33 or above 1.17-1.32 1.10-1.17 Less than 1.10 2 Debt Equity Ratio Less than 2.00 2.01-3.00 3.01-4.00 4.01-5.00 5.01 or above 3 Total Liabilities/ TNW Less than 3.00 3.01-4.00 4.01-5.00 5.01 or above 4 Sales achieved (compare Above 90% 80%-90% with targets accepted by 70% - 80% bank as per projections) Less than 70% OR (compared with increase over previous year if no projections given ) Above 25% Above 15% upto 25 % Above 5% to 15% Upto 5% Constant or Negative 5 Net Profit as % of sales Above 5% Above 3% to 5% (projected and actual) Above 2% to 3% Upto 2% Loss 6 Retention of profit (Avg. 2 70%-100% 40%- 69% years) 20%- 39% Less than 20% 7 a)DSCR(Every projected Greater than 2.00 1.50 to 1.99 year for project finance) 1.25 to 1.49 Less than 1.25 b) Diversion of funds (For No Diversion Minor Diversion working Capital facilities) Huge Diversion Note: If both are applicable, avg. Marks be given 8 Trend in sales Consistently increasing MMS-Finance studies & research Pillai’s Institute of Management
Marks 4 3 2 0 4 3 2 1 0 4 3 2 0 4 3 2 0 4 3 2 1 0 4 3 2 1 0 4 2 1 0 4 3 1 0 4 1 0 4 34
Industrial Finance In Abhyudaya Co-operative Bank More or less stable Decreasing 9 Trends in Profits (Amount) Increasing Profits Stable Profits Decreasing Losses Security Prime and Collateral (Maximum Marks-15) 1 Security Prime (in relation to More than D.P. Just adequate=D.P. DP) Upto 10% Below DP More than 10% Below DP 2 Collateral Cover (As per the 100% and above 50%- 99% present market value) 20% - 49% Less than 20% No Collateral Conduct of Account (Maximum Marks-28) 1 Submission of monthly Prompt/Regular Late but less than 1 month security statements (last12 Late but > 1 month to 3 months months) Late but > 3 months 2 2 0 4 3 1 0 8 6 4 0 7 5 3 1 0 4 3 1 0
Repayment of Installment Timely- on or before due date (15th of 4 and (CC/TL/WCTLetc.) Interest succeeding Month) Within 15 days from due date(Last 3 0 4 3 2 0
3
day of succeeding month) After last date of succeeding month Overall Operation of the Excellent Good A/c(like regular overdrawing Satisfactory against clearing, cheque Poor
4
returns, etc.) Sales and other business Sales greater than 90% 4 Sales 80%-89% 3 routed through us Sales 70% to 79 % 2 Sales routed below 70% 0 Note : If CD A/c with other Bank is permitted , the turnover with other banks to be clubbed with turnover in our Bank. Recoveries of bills No overdue 4 Overdue regularized within 10 days 3 purchased/LC Bills/ others/ from due date guarantees Invoked Overdue regularized within 1 month 2 from due date
5
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Industrial Finance In Abhyudaya Co-operative Bank Overdue regularized beyond 1 month 1 from due date Overdue not regularized Compliance of Audit and No compliance required Major Items Complied inspection Compilance Pending requirement/Statutory Auditors observations 7 Security Documentation Complete and in order 4 Documents incomplete due to valid 3 (Mortgage, Noting, Power of reason Attorney etc.) Incomplete or pending 0 0 4 2 0
6
Management (Maximum Marks-10) 1 Promoters Professionally/Technically
5
competent/experienced Professionally/Technically competent 3 persons employed Absence of 1
Professionally/Technically competent 2 Active Management persons Stable-no change in past 3 years 5 (except within family) Stable-but not more than one change 3 in last 3 years Frequent change in recent past Business and other parameters (Maximum Marks-11) 1 Business parameters Core/ Approved sectors Sensitive sectors 2 Satisfactory Account Above 5 Years 3 to 5 years relationship 1 to 3 years New or less than 1 year 3 Ind./business prospects Excellent Good Poor 4 Irregular Direct/ Indirect No Irregular Direct/ Indirect Liabilities Liabilities Irregular Indirect Liabilities Irregular Direct Liabilities 1 2 1 3 2 1 0 4 3 1 2 1 0
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Industrial Finance In Abhyudaya Co-operative Bank
Note: 1. The above grades are on liberal terms and will be improved upon in future. 2. If any of the item is not applicable, then mark NA and total marks should be calculated on proportionate basis i.e. actual marks given have to be divided by maximum total marks applicable multiplied by 100. The account shall be graded as under Grade AAA AA A BB B Secured loans/ cash credit facilities upto Rs. 10.00 lacs a. Priority Sector Advances b. Non-Priority Sector Advances 12.00 % p.a. 13.00 % p.a. Marks Above 90 81 – 90 71 – 80 61 – 70 Upto 60
Secured Loans/ Cash Credit facilities (above Rs. 10.00 lacs): The applicable interest rate will depend on the credit rating given to the borrower/ account as indicated in the table given below
Credit Rating Grade AAA AA A BB
Priority Sector & Other Manufacturing Units % P.a. PLR-0.50 EQUAL TO PLR PLR+ 0.50 PLR + 1.50 11.50 12.00 12.50 13.50
Non-Priority Sector (Excusing those Accounts which are not linked to credit rating) PLR + 0.50 PLR + 1.00 PLR + 1.50 PLR + 2.00 37 12.50 13.00 13.50 14.00
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Industrial Finance In Abhyudaya Co-operative Bank B PLR + 2.50 14.50 PLR + 3.00 15.00
Notes: a. The interest rate for CC and TL will be the same on the basis of gradation. b. The new clients will be charged interest at 12% p.a. for the first year for both cash credit and Loan Facilities. Normal gradation will be applicable for the account from the second year, based on final year balance sheet and profit and Loss Account, etc. c. In case of default, interest will be charged 14% p.a. till the default continues. d. For Defaulters in builders/developers/contractors category with “B” grade rating, the interest chargeable for the period of default will be 15% p.a. 3.8 Time Frame for disposal of loan proposal The prospective borrower approaching the branch should be advised in detail the procedural formalities required to be completed by him at the time of issuing the loan application itself. A list of documents required alongwith loan application form should be handover to him. Branch should accept all loan/cash credit application and issue receipt of acknowledgement immediately. Advise staff not to issue on-dated receipt. Further no loan file should be returned back to the applicant even though it is not complete in all respects. The Timeframe for disposal of proposals is as under: 1. After receipt of application, branch should write to the applicant about the requirements within 3 days of receipt of the application giving him a period of 10 days for completing the requirements. 2. In case of non-receipt of documents within 10 days from despatch of the first letter, a further period of 10 days be given to complete all the requirements. Thus, MMS-Finance studies & research Pillai’s Institute of Management 38
Industrial Finance In Abhyudaya Co-operative Bank a total period of 23 days will be available to the branch and the applicant. The last date for compliance by the applicant should be syated specifically in the letters to the applicant instead of mentioning only 10 days. 3. If the loan could not be sanctioned or rejected by the branch by 23rd day, file should be forwarded to the zonal office for further action on 24 th day.The zonal office will examine scrutiny notes etc. of the branch and ensure that only genuineand minimum requiremnts are raised. If found necessary the zonal office will advise the concerned branch to delete/waive some of the requirements, provided that in the latter’s view such deletion/waiver may not have material importance from the point of safety and security of the bank’s advance. 4. After verification of the loan proposal file in respect of the actions initiated by the branch and response of the applicant, zonal office will write to the borrower to comply with all the remaining requiremnts within period of 7 days. The zonal office will thereafter return the file back to the branch for further compliance within 10 days of receipt. 5. After receipt of the file from the zonal office, the in-charge of the branch will arrange for further follow-up with the applicantand ensure that all requirements as advisedby the zonal office are compiled with by the applicantat the earliest. He will thereafter recommend sanction or rejection of the proposal and send the loan proposal file to zonal office. Thus, loan proposal fallimg within the delegated powers of the branch-in-charge. I.e. upto Rs. 4.00 lacs as also upto Rs. 10.00 lacs and falling within the powers delegated to the zonal Dy. General Manager which have remained pending beyond the prescribed time limit of 23 days from the receipt of application and in respect of which the aforesaid procedure has been followed will be sanctioned/ rejected by the zonal Dy. General Manager. 6. A similar procedure as to the timeframe for disposal of loan application, will be followed by branches and the Loans and advances Dept. In respect of proposal for amount above Rs. 7.00 lacs and upto Rs. 10.00 lacs. 7. The applications/proposals for facilities of higher amounts will continue to be approved/ rejected at appropriate higher levels i.e. Addl. General Manager/ Managing Director as at present.
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Industrial Finance In Abhyudaya Co-operative Bank 8. Sanctioing of Loans and Advances proposals pending beyond 23 days at branch level will be viewed as violation of delegated authorities attracting disciplinary action against the in-charge of the branch. 9. If it is found by the zonal office that branches are not complying even with the relaxed time schedule as above and there is delay on the part of any branch, the DGM should write to concerned branch-in-charge and seek his explanation by issuing memo / showcause.
Benchmark parameter for the purpose of scrutiny/ recommendations and sanction of CC, TL etc. above Rs. 10.00 lacs. For Core and For sensitive Category For Builders and For Developers
General Sector
Civil
contractors,iron and steel traders etc.
Current Ratio Quick Ratio Debt Equity Ratio Total Liabilities/TNW Act.sales/ proj.sales DSCR Margin on prime security Total security Debtors ratio Creditors ratio Profit sale
1.00 2:1 3:1 Minimum 90% 1.5 or above but not less than 1.25 As given 50% 160% 300% Maximum 90 days Should be less than Debtors ratio > 10% > 10%
1.33 1.00 4:1 5:1
1.33 1.00 3:1 4:1 40% 200% > 5%
The existing margins as under should continue:I. Stock and Book Debts (Older than 3 months do not qualify for DP stock should be paid stocks.) MMS-Finance studies & research Pillai’s Institute of Management 40
Industrial Finance In Abhyudaya Co-operative Bank a. For Ssi and Manufacturing and other Priority Sector including retailers and commission Agents. b. For others II. a.New machineries and Imported Reconditioned TL) b.Secomd Hand Indian Machines/ Second hand imported machines used in India (Valuation Report by contract engineer is required giving present value) c. Big host moulds d.New Contract Equipments III. Gold/Jewellery ornaments IV. Purchase of real estate a. Shop/ Gala/ Commercial/ Factory b. Land and Building ( Construction) ( In case of manufacturing project only.) c. Renovation/ repairs of shop/ factory 25 40 25 25 25 25 50 Machineries not 40 25 25
used in India ( Import documents required for assessing the value for
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Industrial Finance In Abhyudaya Co-operative Bank
CHAPTER NO. 4 ANALYSIS AND REPRESENTATION OF DATA
PQR COMPANY LTD Cost of Project and Means of Finance
Cost of Project Land and building development Equipment and vehicles Furniture and Fitting Muncipal Taxes and deposit Rs. Lacs 600.00 252.50 45.20 18.00 915.70 Means of Finance Promoter's Contribution 25% Loan 75% 228.93 686.78 915.70
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Industrial Finance In Abhyudaya Co-operative Bank
Projected Profit & Loss For the year ended
Year 1 Pecent Capacity Utlilization Income Sales & Other Income Less:Expenses Material purchases Wages Factiry overheads Selling & Distribution Expenses Administration Expenses Profit Before Interest & Depriciation and Tax Less: Interest Depriciation Profit Before Tax Less: Tax Profit after Tax Balance Forward from last year Profit available for appropriation Appropriations Dividend Transfer to reseves Total Appropriations Balance carry forward 30 Year 2 60 Year 3 65 Rs. In lacs Year 4 Year 5 70 80
2750.00
5000.00 6000.00 6500.00
6800.00
1045.00 660.00 302.50 275.00 302.50
1900.00 2280.00 2470.00 1200.00 1440.00 1560.00 550.00 660.00 715.00 500.00 600.00 650.00 550.00 660.00 715.00
2584.00 1632.00 748.00 680.00 748.00
165.00 47.30 119.54 -1.84 0.00 -1.84 0.00 -1.84
300.00 47.30 101.63 151.07 45.32 105.75 -1.84 103.91
360.00 47.30 86.71 225.99 67.80 158.19 53.13 211.32
390.00 47.30 74.22 268.48 80.54 187.94 119.06 306.99
408.00 47.30 63.75 296.95 89.09 207.87 170.59 378.46
0.00 0.00 0.00 -1.84
20.78 30.00 50.78 53.13
42.26 50.00 92.26 119.06
61.40 75.00 136.40 170.59
113.54 75.00 188.54 189.92
s
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Industrial Finance In Abhyudaya Co-operative Bank Balance sheet as on Year 1 Sources of Funds Share capital Reserves Net Profit Secured Loans Total Application of funds Fixed Asset Less: Depriciation Net Fixed Asset Current Asset Sundry Debtors Stock Cash i> Less:Current Liabilities Sundry Creditors Bills payable Other Current Liabilities ii> Net Current Asset (b=i-ii) Total (a+b) 228.88 0.00 -1.84 686.78 913.82 Year 2 228.88 30.00 53.13 549.42 861.43 Year 3 228.88 80.00 119.06 412.07 840.00 Rs. In lacs Year 4 Year 5 228.88 155.00 170.59 274.71 829.19 228.88 230.00 189.92 137.36 786.16
a>
897.70 119.54 778.16
778.16 101.63 676.53
676.53 86.71 589.82
589.82 74.22 515.60
515.60 63.75 451.85
220.00 275.00 137.50 632.50 166.84 220.00 110.00 496.84 135.66 913.82
350.00 432.00 525.00 561.00 484.90 598.18 647.39 657.31 250.00 300.00 311.20 340.00 1084.90 1330.18 1483.59 1558.31 300.00 360.00 390.00 408.00 400.00 480.00 520.00 544.00 200.00 240.00 260.00 272.00 900.00 1080.00 1170.00 1224.00 184.90 861.43 250.18 840.00 313.59 829.19 334.31 786.16
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Industrial Finance In Abhyudaya Co-operative Bank
DSCR Calculation Year 1 Profit after tax (1) Depriciation (2) Interest on Term Loan (3) Cash Accruals (4) = (1+2+3) Term Loan Installment (5) Interest on Term Loan (6) Total Repayment (7)= (5+6) DSCR (4/7) Average DSCR N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. Year 2 105.75 101.63 47.30 254.68 137.36 47.30 184.66 1.38 Year 3 158.19 86.71 47.30 292.20 137.36 47.30 184.66 1.58 1.59 Year 4 187.94 74.22 47.30 309.46 137.36 47.30 184.66 1.68
Rs. In lacs Year 5 207.87 63.75 47.30 318.92 137.36 47.30 184.66 1.73
Remark: DSCR is above 1.5. It is acceptable.
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Industrial Finance In Abhyudaya Co-operative Bank
Ratio Calculation
Year 1 Net Profit Ratio= (PAT / sales)*100 Return on Capital Employed profit/ employed Return = Net capital on N.A. 0.34 0.37 0.34 0.32 More or less stable N.A. Year 2 2.11 Year 3 2.64 Year 4 2.89 Year 5 3.06 Remark Increasing
N.A.
0.12
0.19
0.23
0.26
Increasing
Proprietors' capital = Net profit/ (capital +Reserves) Total Liabilities/ Total Net Worth Debt Equity Ratio Debtors Ratio Creditors Ratio
5.21 3.02 29 24
4.65 1.76 26 23
3.49 0.96 26 23
2.61 0.50 29 23
2.10 0.21 30 23
Decreasing Decreasing Less than 90 days Less than DTR
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Industrial Finance In Abhyudaya Co-operative Bank
Working Capital Eligibility Year 1 a. Under Method I Current Asstes Less: Current Liabilities Net Current Asstes Less: 25% Net current assets Eligible MPBF Year 2 Year 3
Rs. In Lacs Year 4 Year 5
632.50 496.84 135.66 33.92 101.75
1084.90 1330.18 1483.59 1558.31 900.00 1080.00 1170.00 1224.00 184.90 250.18 313.59 334.31 46.23 62.55 78.40 83.58 138.68 187.64 235.19 250.73
b. Under Method II Current Asstes Less: Current Liabilities Net Current Asstes Less: 25% current assets Eligible MPBF
632.50 496.84 135.66 158.13 -22.47
1084.90 1330.18 1483.59 1558.31 900.00 1080.00 1170.00 1224.00 184.90 250.18 313.59 334.31 271.23 332.55 370.90 389.58 -86.32 -82.37 -57.31 -55.27
c. Under Method III Sales 20% of the realisic projeted sales turnover Remarks:
2750.00 550.00
5000.00 6000.00 6500.00 6800.00 1000.00 1200.00 1300.00 1360.00
Method II is can not applicable in above example. The selection of method is depending on the sector.For new entity above method is not applicable.
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Industrial Finance In Abhyudaya Co-operative Bank
CHAPTER NO. 5 FINDINGS AND SUGGESTIONS
5.1 Findings:
1. While applying for loan,it was found that the stetements provided by the customer was manipulated like they showed the growth sales without proper justification, which are unreliastic. 2. There is no uniformity in charging depreciation,and some cases it was tool use to show the better projected figures. 3. While selecting sales figure ,there is assumption of demand for their product in market as they have mentioned 4. As per bank policy there is conservative approach towards bigger project for granting loan 5. In the analysis of financial statement, it is found that the ratio “ Return on capital employed” is not included in the analysis. This ratio shows the overall profitability of the firm.
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5.2 Suggestions:
1. The bank should done gradation for new proposals also. If the financial statements are not available, the bank can give rating on the basis of other parameters like security prime and collateral, Management, business and other parameters etc. This rating may not be useful for fixation of rate of interest. But on the basis of this the bank can keep records of the party and can judge these parameters for the next gradation for any deviation. 2. As the party is consistently achieving highest grade, it reduces the risk of bankruptcy. This, in turn, reduces the bad debts of the bank. The bank should provide some concessions to the party apart from the lower rate of interest like some gift vouchers at the end of last installment, some concessions for next loan etc. This will help the bank to increase the value of the bank in the minds of cutomers. This may act as a marketing tool. 3. There should be strict control on the projected sales figures by considering the factors like future investment projected etc. 4. The depriciation is a non cash expense. Therefore, it may use to manipulate the projected figures. There should be some restrictions for selecting the method of depriciation as well as rate of depriciation. 5. The magin for CC,TL proposals is different for different proposals. There should be provided some reference for the margin to ensure that the particular margin is taken from policy no._______ under the clause no._______. This will help both i.e. top management to ensure that the paricular margin taken by the executive is correct and junior management who actully take from the correct source.
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BIBLIOGRAPHY
•
Financial Management Authors: - Prasanna Chandra
•
Credit Policy 2010-11 Abhyuday Co-op. Bank Ltd. (Scheduled Bank)
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ANNEXURES
I] Credit Rating:
S. Particulars No. Actual Marks H.O. Remarks by Zone
Financial Parameters (maximum marks 40) 1 Current Ratio 2 Quick Ratio 3 4 5 6 7 8 Debt Equity Ratio
Total TNW Liabilities/
Sales achieved (compare with targets accepted by bank as per projections)
Net Profit as % of sales (projected and actual)
Retention of profit (Avg. 2 years) a)DSCR(Every proj.
year for finance) project
b) Diversion of No Diversion funds (For Minor Diversion working Capital Huge Diversion facilities) Note: If both are applicable, avg. marks be given 9 Trend in sales Consistently increasing More or less stable Decreasing 10 Trends in Profits Increasing Profits (Amount) Stable Profits Decreasing Losses Security Prime and Collateral (Maximum Marks-15) 1 Security Prime in More than adequate relation to DP Just adequate Inadequate 2 Collateral Cover 100% and above (As per the present 50%- 99% market value) 20% - 49% Less than 20% No Collateral 3 Collateral Cover Cash Security/FD/Bonds/Insu policy Equitable Mortgage of Busi. Premise Type
Equitable Mortgage of Resi. Premise
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Second Charge on fixed mortgage of open land etc. No collaterals assets/
Note: In case of multiple sec., give proper weight age as per present M.V. Conduct of Account (Maximum Marks-27) 1 Sub. of monthly Prompt/Regular security Late but not less than 1 month statements (last12 Late but greater than 1 month months) 2 Repayment of Timely within 10 days from due date Installment Within 30 days from due date Interest Beyond 30 days from due date (CC/TL/WCTL etc.) Overall Operation Excellent 3 of the A/c(like Good regular overdrawing Satisfactory against clearing, Poor
cheque returns, etc.)
4 5
Sales and other business routed through us Recoveries of bills purchased/LC Bills/ others/ guarantees
Sales greater than 90% Sales 80%-89% Sales less than 80% No overdue
Overdue regularized within 10 days from due date Overdue regularized within 1 month from due date Overdue regularized beyond 1 month from due date
6
7
Overdue not regularized Compliance of No compliance required Audit and Prompt within 10 days inspection Within 1 month requirements After 1 month Not complied since initiated Security Complete and in order
Documentation (Mortgage, Noting, Power of Attorney etc.) Documents incomplete due to valid reason
Incomplete or pending
Management (Maximum Marks-8) Professionally/Technically 1 Promoters
Active Management
competent/experienced Professionally/Technically competent persons employed Absence of Professionally/Technically competent persons Stable-no change in past 3 years (except within family) Stable-but not more than one change in last 3 years
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Industrial Finance In Abhyudaya Co-operative Bank Frequent change in recent past Business and other parameters (Maximum Marks-10) 1 Business Core/ Approved sectors parameters Sensitive sectors 2 Satisfactory 10 years and above Account 6 to 10 years relationship 1 to 5 years New or less than 1 year Ind./business 3 Excellent prospects for and Good effect of expected Poor
Govt. changes policy in
4
Irregular Direct/ No Irregular Direct/ Indirect Indirect Liabilities Liabilities Irregular Direct/ Indirect Liabilities
Prepared By
Accountant/Asst. Accountant
Branch Manager
For Zonal office Use
Received on ________________ S.No. 1 2 3 4 5 Financial Parameters Security Prime and Collateral Conduct of Account Management Business and Other Parameters Total Marks 40 15 27 8 10 100 Dy. General Manager ________________zone Marks obtained Grade Rate of Interest
Accountant sent to Head Office on_____________________
For Head Office Use
Received on:_________________ Remarks :____________________ Rate of Interest fixed: __________ Reason for deviation if any:
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II] Zonal Report M/S Branch
Zonal Office report
1. Brief History of Proprietor / Partner / Director & Firms: _______________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________ 2. Details of Associate Accounts______ ______________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________ 3. Product Dealt/ Manufactured______ _______________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________ 4. Capital ______________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________ 5. Reserves ____________________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 6. Unsecured Loans ______________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 7. Other Liabilities ______________________________________________________ __________________________________________________________________ MMS-Finance studies & research Pillai’s Institute of Management 55
Industrial Finance In Abhyudaya Co-operative Bank __________________________________________________________________ ______ 8. Fixed Assets _________________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 9. Current Asset ________________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 10. Losses ______________________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 11. Diversion of Funds _____________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 12. Performance of the borrower _____________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 13. Analysis of Balance sheet and Profit and Loss account and interpretation of ratios • Current Ratio ___________________________________________________ __________________________________________________________________ ____________________________________________________________ • Debt Equity Ratio _______________________________________________ __________________________________________________________________ ____________________________________________________________ • Creditors’ Ratio _________________________________________________ __________________________________________________________________ ____________________________________________________________ • Debtors’ Ratio __________________________________________________ __________________________________________________________________ ____________________________________________________________ 14. Comment on report of Industrial Finance Department _________________________ __________________________________________________________________ __________________________________________________________________ ______ 15. Payment of Statutory Dues ______________________________________________ __________________________________________________________________ MMS-Finance studies & research Pillai’s Institute of Management 56
Industrial Finance In Abhyudaya Co-operative Bank __________________________________________________________________ ______ 16. Utilization of cash credit limits ___________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 17. RBI Inspection report observation and compliance thereof ____________________ __________________________________________________________________ __________________________________________________________________ ______ 18. Internal and concurrent audit observation & compliance thereof _________________ __________________________________________________________________ __________________________________________________________________ ______ 19. Non-compliance of sanction stipulations of board ____________________________ __________________________________________________________________ __________________________________________________________________ ______ 20. Insurance of stock/machineries hypothecated etc. _____________________________ __________________________________________________________________ __________________________________________________________________ ______ 21. Credit Rating _________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________ 22. Reconstitution of partnership _____________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 23. Mortgage of Immovable properties _______________________________________ __________________________________________________________________ __________________________________________________________________ ______ 24. Group Exposure ______________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ MMS-Finance studies & research Pillai’s Institute of Management 57
Industrial Finance In Abhyudaya Co-operative Bank 25. Special request of the borrower (if any) ____________________________________ __________________________________________________________________ __________________________________________________________________ ______ 26. Need for working capital Term Loan ______________________________________ __________________________________________________________________ __________________________________________________________________ ______ 27. DSC ratio ___________________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 28. Zonal Office Recommendations with justification in details ____________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _____________________________________________
Assistant Accountant/ Accountant Name Date
Dy.General Manager Name Date
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doc_869700450.doc
1.1 Introduction
Abhyudaya Co-op. Bank Ltd., one of the leading Urban Co-operative Banks in India, in its outlook and approach, has the objective of progress and prosperity of all. From a humble beginning in January 1964 as a Co-operative Credit society with a share capital of a merelyRs.5,000/- held by 83 members, today Abhyudaya Co-op bank has become one of the large Urban Co-operative Banks with a "Scheduled Bank" status. The bank has been converted into a " Multi-State Scheduled Urban Co-op. Bank " w.e.f. 11th January, 2007. The area of operation which was restricted to the State of Maharashtra has now been extended to Karnataka & Gujarat State. Currently, the capital base of the bank stands at Rs. 72 crores and Reserves and surpluses at Rs.804.18 crores as on 31.03.2011. The bank has 1,38,000 members and more than 14 lakhdepositors. The Bank has seen a tremendous growth in deposits. The deposits of the bank are over Rs. 5260.63 crores as on 31.03.20011, which were Rs. 4170.62 crores as at the end of the financial year 2009-2010. The loans and advances stood at Rs. 3453.61 crores as on 31.03.2011. The bank had posted a Net profit of Rs.77.65 Crores as on 31.03.2011. " The growth rate of the bank compares well with that of others in the sector. The Bank has maintained a steady growth. The bank has been paying dividend @ 15% to its members which is maximum permissible as per the MCS Act.
The Bank has launched different loan schemes tailor-made to suit the needs of various customers. The schemes aim at providing loans for purchase or construction of residential premises, repair/renovation of house property, purchase of car, seeking higher education and for purchase of household consumer durable. One of the loan schemes, viz. "Udyog Vikas Yojana" is specially designed for the benefit of small entrepreneurs and businessmen. The procedure for sanctioning of loans under the schemes has been simplified and relaxed with a view to attract new customers and facilitating speedy sanction of loans.
Industrial Finance In Abhyudaya Co-operative Bank Innovative Banking is another area of operation that Abhyudaya is currently focusing on for a sustainable long term growth. The Bank has always endeavored for providing satisfactory customer service the help of the latest technology. The Bank has provided fully computerized services to its valued clients. Bank is offering 11 Hours fully computerized services and 7 days working at 15 branches and 24 hours ATM service at 59 branches.
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1.2 Objective of Study
• • • • To study the concept of Industrial Finance. To study the loan procedure and scrutiny procedure of the bank. To study the ways to reduce the risk of bad debts To study the analysis of financial statement for different loan proposals.
1.3 Limitation of study
• Many records related to my project is very confedential and hence bank records are not fully disclosed. • Some of the records regarding my project were available at branches, so that records were not available to me for refernce. • Though some data was provided to me, but due to company secrecy policy I am unable to put it in my project.
1.4 Methodology:
Various fact finding technique used in system are: 1. Primary Source: Most of the data is collected through unstructured interviews /discussion with project guide and bank employees. 2. • • • Secondary Source:
Library: Various project related books were referred especially to analyze the system. Also various books from college library referred. Company in-house documents such as branch scrutiny, credit rating report, zonal office report were referred. Visted the site:http://www.abhyudaya.com/
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Industrial Finance In Abhyudaya Co-operative Bank • Credit Policy, and Rules & procedure of year 2010-11
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CHAPTER NO. 2
2.1 Achievements
• • • EXCELLENT URBAN CO-OP. BANK" AWARD 2007-2008 Maharashtra Gaurav Award 2nd best co-operative bank award 2005-06.
2.2 Organization Chart:
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CHAPTER NO. 3
CONCEPTUAL BACKGROUND OF STUDY 3.1 Analysis of financial statement: A basic limitation of the traditional statements comprising the Balance sheet and the profit and loss account is that they do not give all the information related to financial operation of the firm. Neverthless, they provide some extremely useful information to the extent that the balance sheet mirrors the financial statement on a particular date in terms of structure of assets, liablities and owner,s equity, and so on and the profit and loss account shows the results of operations during a certain period of time in terms of the revenues obtained and the cost incurred during the year. Thus, financial statements provide a summarized view of the financial position and operations of a firm. Therefore, much can be learnt about a firm from a careful examination of of its financial statements as invaluable documents/ performance reports. The analysis of financial statements is, thus, an important aid to financial analysis. The focus of financial analysis is on key figures in the financial statementsand the significant relationship that exists betwee them.The analysis of financial statements is a process of evaluating the relationship between component parts of financial statements to obtain better understanding of the firm’s position and performance. The first task of the financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second step is to arrange the information in a way to highlight significant relationships. The fnal step is interpretation and drawing of infernces and conclusions, In brief, financial analysis is the process of selection,relation and evaluation.
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3.2 Working Capital Management Working Capital Management is concerned with the problems that arise in attempting to amnage the current assets, the current liabilities and the interrelationship that exists between them. The term, current asset, refer to thse asset which in ordinary course of business can be, or will be, converted into cash within one year without undergoing a dimunition in value and without disrupting the operations of the firm. The major current assets are cash, marketable securities, accounts receivable & inventory. Current Liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current asstes or earnings of the concern. The basic current liabilities are accounts payable, bills payable, bank overdraft and outstanding expenses. The goal of working capital management is to manage the firm’s current assets and liabilities in such a way that a satisfactory level of Working Capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent may even forced into bankruptcy. There are two concepts of Working Capital : gross and net The term gross working capital means the total current assts and the term net working capital means the differnce between current assets and current liabilities. Calculation of Working Capital requirements/ Term Loan. Branches should calculate all types of Working Capital requirements for next one year. It should be based on projected Profit and Loss account and Balance submitted by the applicant. The projected figures should be compared with the actual figures based on Audited Balance sheets submitted by the party. The projection to be acceptable to the Bank must be realistic/ achievable. If there is major deviation on Sundry Debtors, Creditors, stock etc., proper explanation should be obtained from the applicant and branches should satisfy themselves about the genuineness of the projections. If the branch/ Zonal office are not satisfied with the given projections, they should recalculate the projections based on past trend and their perception and decide actual working capital requirement. The requirements of CC, bills facility, against clearing and cheque discounting should be within the projected the projected MMS-Finance studies & research Pillai’s Institute of Management 7
Industrial Finance In Abhyudaya Co-operative Bank maximum permissible Bank finance limit. Normally, no separate Against clearing and Cheque Discounting facility to be sanctioned and this should be part of working capital facility sanctioned to the borrower. As per RBI guidelines, Bank may consider the total working capital limit to a borrower up to 20% of the projected Sales Turnover. However, the bank to allow operations always within Drawing Power based on the monthly stock and Book Debts less Credit Purchases (Creditors for goods) after maintaining a margin of 40%/25% for traders and manufacturers respectively. To make the facilities sanctioned under “Against Clearing” and “Cheque Discounting” secured it should be ensured that the borrower should have sufficient Drawing Power to cover them alongwith the Cash Credit and DBD limits. It shall be noted that all credit limits for working capital purpose like Cash Credit, Bills Discounting, Letter of Credit for purchase of raw material on continuous basis etc. will form a part of MPBF. Working (Capital/Cash Credits/DBD/SBD/WCTL/Channel Credit/LC) Limits. A) Upto Rs.1.00 Crore for Borrowers other than SME units and Rs.5.00 Crore for SME units: a) The Assessment of working capital requirements of borrowers other than SME Units requiring fund based Working Capital Limits upto Rs. 1.00 Crore and SME units requiring fund based Working Capital limit upto Rs 5.00 Crore from banking system be made on the basis of their realistic projected annual Turnover. b) The working Capital requirement is assessed at 25% of the realistic projected turnover to shared between the borrower and the Bank i.e. The borrower contributing 5% of the turnover as Net working Capital and bank providing minimum of 20% of the turnover. c) Drawals against the limit should however be allowed on the basis of the drawing power calculated based on timely submission of monthly statements of stocks, reveicables and sundry creditos and also periodical verification of such statements vis-à-vis physical stocks by Branch Officials.
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Industrial Finance In Abhyudaya Co-operative Bank B) Above Rs. 1.00 crore for borrowers other than SME Units and Rs. 5.00 Crore for SME Units: Here the Bank may adopt Working Capital Gap Method or Production /Process Cycle Method for assessing the Working Capital requirements. a. Working Capital Gap Method:Working Capital Gap (WCG)= Current Assets – Current Liabilities Eligible MPBF = WCG – 25% of WCG
b. Production / Processing Cycle Method Sr. Manager / Manager Industrial Finance Dept. will visit the industrial unit and work out requirement of working capital based on the existing production / processing cycle. He will take into account credits received on purchase of raw material, credits allowed on sales, inventory levels of raw materials, work in process, finished goods etc. In order to arrive at the future requirements of the unit, he will scrutinize the projected sales for next two years and work out the requirement of the working capital. It is necessary for him to discuss with the loanee / officials of the unit and ascertain need based working capital limit. He will also compare the working capital ascertained under Method-I and Turnover method and give his recommendations. c. For New Projects: Working Capital for new projects will be worked out on the basis of projections, production / processing cycle. Hence, DGM and IF Dept. will take into account realistic projections, industry standards etc.
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3.3 Loan Process: The following flow chart shows the process of loan:
Loan Proposal from the borrower
Acceptance, Scrutiny and Recommendation of Loan Proposal
Sanction of credit facilities
Documentation & Release
Monitoring, Review and Post Sanction follo-up
Let us discussed it in detail: I. Loan Proposal The first step in the loan proposal is borrower will approach the bank and he has to submit preliminary documents to branch. Branch will scrutinize that the borrower provides following documents for CC/TL/WCTL facilities: 1. 2. 3. 4. Check List / Index. Cash Credit security note. Visit report of Branch Manager. Liability Information sheet of Applicant. MMS-Finance studies & research Pillai’s Institute of Management 10
Industrial Finance In Abhyudaya Co-operative Bank 5. 6. 7. 8. 9. 10. 11. 12. 13. Liability Information sheet of Surety. Account Information of Applicant. Account Information of Surety. CC Sanction sheet/ Scrutiny note of previous year. Copy to previous year Disbursement Advice. Copy to insurance policy. Cash Credit Application form duly filled in and signed by all Partners / Directors / Proprietor of the firm / company. Proof of business place- office /go down/ factory: Copy of Agreement for sale / lease and license. Agreement / Rent Receipt / electricity bill etc. Proof of residence. Proprietor / partner / Director: Ration card/ electricity bill / Receipt. 14. Trade Licenses: A) B) 15. Shop and establishment SSI Registration Certificate. Rent
Copy of Partnership Deed / Memorandum and Articles of Association etc. A) Board Resolution for availing credit facility from bank in case of Private and Public Limited companies.
16. 17. 18. 19. 20.
Bio-Data of Proprietor/ Partner/Director. In case of new application. Statements of Collateral Securities Certified by manager. Mortgaged Registration receipt/ Mortgage Deed, if property is already mortgaged. Original documents of property; if offered for mortgaged. ROC change registration certificate (in case of Private and Public Limited
companies). 21. Stock statement and age wise Book Debt statement of latest visit date. 22. Statement of account for current year and previous year Audited Statement of account; if • • • Sales /turnover is more than Rs. 40.00 lacs. Facility applied is more than Rs. 10.00 Lacs. In case of Private and Public Limited companies.
23. Up-to-date sales and purchase figures subsequent to last balance sheet on record. 24. Sale tax challan copy / assessment order copy. MMS-Finance studies & research Pillai’s Institute of Management 11
Industrial Finance In Abhyudaya Co-operative Bank 25. Income tax challan for current year and previous year assessment order or acknowledged copy of return. 26. Computation of Income/TDS Certificate. 27. Copy of professional tax challan. 28. Credit from other bankers 29. Any other documents as per the proposal. Documents of Surety: 1. Surety consent letter duly filled in and signed by all partner / proprietor of surety firm /company. 2. Board resolution to stand as surety (if surety firm is ltd./private ltd. companies). 3. Proof of business place. 4. Proof of residence. 5. Copy of Partnership Deed/ Memorandum and Articles of Association etc. 6. Shop establishment license/ SSI registration certificate. 7. Statement of account for current year. 8. Sales tax / Income tax papers. 9. Credit from the bank if surety is operating account with some other bank. 10. Any other documents as per the proposal. Borrower should provide at least one surety for loan proposal upto Rs. 5 lacs and two sureties above R. 5 lacs with their documents mentioned above.
I] Primary Documents These determine our rights to recover the amount lent by us together with interest thereon. 1. Demand Promissory Note 2. Loan Agreement. 3. Letter of guarantee. MMS-Finance studies & research Pillai’s Institute of Management 12
Industrial Finance In Abhyudaya Co-operative Bank 4. Counter guarantee. II] Security Documents These are obtained for changing the property of the borrower to the bank as security. 1. Hypothecation Deed. 2. Bills Agreement. 3. Letter of Lien. 4. Mortgaged Deed and its original registration receipt/ Memorandum of equitable mortgage. III] Auxiliary Documents These are supplementary to the primary and security documents. 1. Application for facility. 2. Consent letter of surety. 3. Partnership Deed, duly registered/ Memorandum and Articles of Association/ Trust Deed. 4. Irrevocable power of attorney. 5. Resolution of company/trust. 6. Permission from charity commissioner etc. Attestation The following documents are to be compulsorily witnessed by at least two witnesses. 1. 2. 3. 4. 5. 6. 7. Assignment on the instrument itself (e.g. LIC policy) Assignment on separate instrument. Sale Deed. Mortgage Deed. Any other documents requiring Ad-valorem stamp duty. A gift Deed of immovable property. A will.
Following documents do not require to be witnessed: 1. 2. Demand Promissory Note. Letter of Lien. Pillai’s Institute of Management 13
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Industrial Finance In Abhyudaya Co-operative Bank 3. 4. 5. 6. Agreement for hypothecation of goods and book debts, vehicles, plant and machineries etc. Letter of guarantor. NSC/ Gold loan agreement. B.D./B.P. Agreement.
After scrutinizing the documents branch will make the visit and submit scrutiny note. II. Acceptance Scrutiny and Recommendations of loan proposal 1. All the loan proposals continue to be accepted by the branches and scrutinized at branch level except loans and advances application from new applicants of above Rs.50.00 lacs. 2. Whenever prospective borrowers ask for loan application, they should be
properly guided and correct set of application forms/Annexure be given to them and properly briefed/guided about the documents to be submitted along with the application. 3. On receipt of the application duly filled-up, the loan receipt should be fully
scrutinized and required documents to be obtained and file to be sent to next higher authorities within 30 days from the receipt of the file in the branch. In case, the file is kept pending for more than 30 days, the reasons for doing so along with the detailed explanation giving reason for keeping the file pending be sent to next higher authorities. Existing guidelines for scrutinizing be followed like required documents and compulsory visit to the applicants residence and business places etc. as advised from time to time. Inordinate delay in file processing will not be tolerated. Details of requirements to be informed within 3 working days. On receipt of the application duly filled-up, branch should inform all details of requirements to the loanee in writing within 3 working days. 4. Whenever the file is received with incomplete documents, the file should be
accepted and requirements of documents should be informed to the applicant in writing giving time limit of 7 days within which they should be submitted. In case the documents are not received within 7 days, reminder should be sent giving further time MMS-Finance studies & research Pillai’s Institute of Management 14
Industrial Finance In Abhyudaya Co-operative Bank of 7 days. Thus loanee will be given period of 14 days for submission of documents from the date of receipt of loan application. If loanee fails to submit the same, the file should be forwarded to next higher authority for rejection within 20 days from the receipt of application with detailed reasons. It should be our endeavor to also contact loanee over telephone, guide him and ensure that loan is granted to applicants on the basis of repayment capacity. 5. Proposals upto the delegated power of the branch-in-charge be sanctioned at
branches. Proposals beyond branch-in-charge delegation but upto delegated powers of DGM (Zones) be sent to zonal offices for sanction. The loans and advances proposals beyond the delegated powers of DGM and upto Rs.10.00 lacs would continue to be sent to Head Office directly. The proposals above Rs. 25.00 lacs would be routed through Zonal offices for scrutiny and recommendations of the Dy. General Manager. 6. The Zonal offices should scrutinize the loans and advances proposals with
limits of above Rs. 25.00 lacs and upto Rs.35 lacs, and forward the same to Head office along with their scrutiny, recommendations and grading of the accounts. 7. Branches should use the proper application forms as well as scrutiny forms for
different types of advances. There are different forms for loans upto Rs. 15.00 lacs, CC facility upto Rs. 15.00 lacs and facility above Rs. 15.00 lacs. In the form for the facilities above Rs. 10.00 lacs, there are separate forms of fund based limits, for Term Loan, loans for contractors and manufacturing units. Branches should fill-up the appropriate scrutiny forms while scrutinizing the application. 8. A borrower enjoying fund based limit above Rs. 100.00 lacs and fund plus
non-fund based limit of Rs. 200.00 lacs have to be a Private Ltd./ Ltd. Company. Hence Proprietary/Partnership firms should take necessary steps to convert them into Pvt. Ltd./Ltd. Companies in due course. 9. For obtaining credit information of party and CR from other banks,
verification of Audited Balance Sheet, Income Tax Returns etc. for new proposals
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Industrial Finance In Abhyudaya Co-operative Bank above Rs. 2.00 Crore, Bank may take the help of Professionals by fixing the fees if any and as decided by the Managing Director. 10. If it is observed from the balance sheet that the finance given by the bank is diversified for any purpose other than for business purpose or the capital is withdrawn substantially affecting the debt equity ratio adversely, enhancement of facility should not be considered unless the said diversion or withdrawn funds are restored. The loans and advances proposals above Rs. 50.00 lacs from associate firm of our existing borrower account will be accepted and scrutinized at branches and forwarded to zonal offices for further scrutiny and onward submission to Head Office. Thus, these proposals will not require in principle scrutiny. III. Sanction of Credit Facilities 1. All the applications for credit facilities above Rs. 50.00 Lacs will be sanctioned/ rejected by the Board as per the existing practice. 2. Delegation of Powers: The board has delegated the powers to sanction facilities upto Rs. 50.00 lacs to the Managing Director, Rs. 35.00 lacs to the General Manager/Addl. General Manager, Rs. 25.00 lacs to the DGMs of Western, Central and Navi Mumbai Zones. Similarly, Board has delegated the powers to the branch AGM, Sr. Managers and Managers to sanction surety loans upto Rs. 2.00 lacs Cash Credit limit and Secured Loans upto Rs. 7.00 lacs, Rs. 5.00 lacs, Rs. 3.00 lacs respectively including housing loans, vehicles, consumer durables, furniture/ fixtures, repairs and maintenance etc. 3. The statement of the loans and advances sanctioned by the Branch Managers should be sent to Zonal Office on monthly basis, which in turn will consolidate the same and send to Head Office for placing the same before the Board. Zonal Offices should also send monthly statement of loans/CC facilities/ other facilities sanctioned by them to Head Office for placing the same before the Board. Head office will also place the statement of credit
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Industrial Finance In Abhyudaya Co-operative Bank facilities sanctioned by Addl. General Manager/ General Manager / Managing Director on monthly basis before the Board. 4. If the sanctioning authority sanctions amount mare than the recommendation, specific reasons for the same should be mentioned in the sanction note. 5. Sanctioning authority is responsible for sanction of loans and advances based on the facts given by the scrutinizing and recommending authorities. The scrutinizing officials are responsible for giving full facts in the Scrutiny note. Any hiding of the facts in scrutiny and subsequent loss to the Bank will attract disciplinary action against the concerned recommending officials. 6. The sanctioning authorities are also authorized to make subsequent alterations in the sanction within sanctioning power like change of sureties, change of quotations, suppliers, exchange of securities etc. as per prevailing practice. 7. The Addl. General Manager/ General Manager / Managing Director at the Head Office are authorized to make deviations even for the loans sanctioned by the Board considering the urgency of situation, but it should be later ratified by the Board. 8. The sanction and renewal of fund based and non-fund based Working Capital limits are valid for a period of 1 year. 9. The applications for reconsideration for sanction or enhancement of facilities are normally to be entertained after a period of six months from documentation. 10. Branch Managers are authorized to exchange the collateral securities of equivalent amount. The decision shall be noted by the Zonal DGMs. Other cases should be referred to Head Office where Addl. General Manager/ General Manager / Managing Director are authorized to take decision based on merit of each case. MMS-Finance studies & research Pillai’s Institute of Management 17
Industrial Finance In Abhyudaya Co-operative Bank
IV. Documentation and Release 1. The sanction letter should be prepared and sent by the disbursement authorities giving all the Terms and Conditions of sanction. The borrower and the sureties should give a letter accepting unconditionally all the terms and conditions of sanction and it should be kept alongwith other documents. The copy of sanction letter should be sent to all sureties.
2. All documents should be executed as per the manual of documentation. It should be ensured that proper documents are executed with right amount of stamp duty as per H.O. guidelines issued from time to time. It should be ensured that loanee fulfills all terms and conditions stipulated by the Board/ sanctioning authorities. 3. All the credit facilities upto Rs. 50.00 lacs will be disbursed at HO branches. Documentation of Pvt. Ltd./Ltd. companies/ Trusts will also be done at branches with limit upto Rs. 50.00 lacs. Branches shall submit copies of documents for creating charge with ROC to loans and Advances Dept. within 5 days of execution of documents. 4. All other facilities will be documented and released at Head office after compliance of terms and conditions of sanction and adhering to the guidelines issued from time to time. 5. The releasing of loan should be after the borrower brings the proportionate margin in the account. 6. The releasing officials should make the payment directly to the suppliers and obtain the stamped receipts for the same. Wherever the borrowers have already paid to the suppliers, the details of such payment should be verified like whether cheque is debited in the account etc. and satisfy themselves that suppliers have already received the payment against the order for supply of MMS-Finance studies & research Pillai’s Institute of Management 18
Industrial Finance In Abhyudaya Co-operative Bank articles/machinery etc. Cash payment above Rs. 50,000/- to the supplier cannot normally be treated as payment to the supplier unless their Chartered Accountant certifies that such payment is made and it will be accounted in the Books of account of the borrower to be prepared for the year. The Pay Order should be drawn in favor of “ Bank, Branch name of the supplier Account No.”. The pay Order of payment to the supplier should not be given to the loanee. It should be sent by Regd. A.D./ Speed Post or By deputing staff. The copy of Pay Order be handed over to the loanee. 7. For Vehicle/Shop/Gala/Machinery loan, reimbursement is allowed if application is made within one year from the date of purchase only to the extent of payment made by cheque/ eligible amount. No reimbursement against cash payment is allowed. 8. Normally no payment shall be made to the borrower directly. If the Bank is fully satisfied that they have made payment to the supplier and the supplier and the suppliers have already supplied the goods in good condition, the Bank may consider reimbursement to the borrower after verification of the above. 9. All the Documentation done at Head office will be verified by the Legal Dept. at Head Office. However, in case of complications, the documentation be prepared and approved by the Bank’s approved Advocates and Solicitors. 10. The branches and disbursement staff at Head Office should prepare and keep a certificate in the file duly signed by the Documentation clerk, In-charge of Disbursement Section as well as the Manager/Sr. Manager/ Asst. General Manager certifying that all the documents are executed as per the terms of sanctionand specify if any further compliance is required to be done in this regard. Such further compliance should be done within reasonable time to ensure that Documentation is complete and up-to-date in all respect.
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Industrial Finance In Abhyudaya Co-operative Bank 11. Branches should at the time of renewal / reviews verify the security documents and confirm themselves that all security documents are available in the branch. 12. Branches should obtain Letter of Acknowledgement of Debt for all the facilities including Term Loans atleast once in a year. If only Term Loan is availed, LAD should be obtained every year preferably for 31st March of the year during the month of April. The Legal Dept. shall make necessary changes in the Documentation in consultation with Bank’s Advocates considering the changes in the Loan Policy. V. Monitoring, Review and Post Sanction Follow-up: 1. The branches are prime centers for monitoring, review and post sanction follow-up of all the loans. They will be guided and supported by respective zonal offices. 2. For CC accounts, the branches should obtain the Stock and Debtor statement on monthly basis and workout DP for all borrower accounts and allow withdrawal in the account within DP. 3. Where the client has been sanctioned sub limit against FDR within the overall cash credit limit then branch should add the sub limit against FDR to the DP to ascertain total DP available to the borrower. It may be noted that when the bank considers sub limit against FDR, the later becomes a Prime Security for Cash Credit. 4. While executing cheque discounting/ against clearing and allowing withdrawals in the account, the DP shall be observed by the branches so that the facilities does not go unsecured. 5. The branches should restrict cash transactions in the account as much as possible as per various guidelines issued in this regard. MMS-Finance studies & research Pillai’s Institute of Management 20
Industrial Finance In Abhyudaya Co-operative Bank
6. The branches should renew all the CC accounts atleast one month before expiry of limit. 7. Branches should visit all loans and CC accounts atleast once in a quarter and identify the problem areas if any and keep the record in the file/report to higher authorities. 8. If any of the account going bad is observed immediate steps should be taken in consultation with the zonal office to rectify the problems in time. 9. In case, stock/debtors statements are not submitted, the branches should visit to the borrower and get the stock/ book debt statements from the borrower prepared and work out DP accordingly. 10. The Branches will prepare NPA statements as required by the R.B.I. and advised by Legal and Recovery Department from time to time. 11. After disbursement of the Term Loan, the branches should visit and verify whether the machinery/equipment for which the loans are sanctioned are installed and as per the specification given by them within three months from the date of last disbursement and keep a certificate in the file. If there is discrepancy immediate corrective action should be taken. Such visit report should be available in each file duly signed by the person visited and the Incharge of the Loan Dept. alongwith Branch Manager. 12. The branches should also closely watch the gradation of standard accounts and movement of the accounts from one grade to another in the branch and try to have maximum higher-grade accounts. 13. The present system of review of borrower accounts above Rs. 5.00 lacs will continue to be done by Zonal Office atleast twice a year.
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Industrial Finance In Abhyudaya Co-operative Bank 14. The present system of review of borrower accounts above Rs. 100.00 lacs will continue to be done Head Office level by Industrial Finance Dept. on quarterly basis. 15. All the accounts outstanding above Rs. 10.00 Lacs at Recovery Dept. shall be reviewed atleast twice a year and a report should be placed before the Board. The Board shall constitute a “Loan Monitoring Committee” consisting of some members of Board and/or all Sr. Executives of the bank who should meet twice a month at the Head Office, preferably after 2.00 p.m. on alternate Saturdays at the Head Office and review all such problematic accounts both at recovery dept. and branches and initiate necessary corrective action. In addition to total review of each account, the committee would ensure regular submission of stock and book debt statement, drawings within DP limits, verification of securities by periodical inspection etc.
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Industrial Finance In Abhyudaya Co-operative Bank 3.4 Industrial Finance Department Scrutiny Note Industrial Finance Department at head office is taken care of by senior manager/ managers. Their duties in brief in respect of the report and monitoring of loans and advance are as under: A) Determination of working capital for SSI and other manufacturing units –new proposals with limits above Rs.25.00 lacs and renewal/enhancement above 50.00 lacs. B) For all Term Loans above Rs.10.00 lacs, projected cash flow statement should be obtained to ensure generation of adequate funds for repaying the loans and interest thereon. In case of new term loan in addition to existing term loans, average DSCR to be calculated to confirm satisfactory repayment as per schedule. C) For loans for purchase of machineries above Rs.15.00 lacs, Industrial Finance Department will verify the genuineness of quotation, competitive rates and available better alternate machineries at cheaper rate as well as better qualities. D) The eligibility Term Loan for the project/machineries etc. should be calculated as per the margins prescribed by the Bank and proper scrutiny by the Industrial Finance Department independently. E) Genuineness of supplies and reasonable rates quoted by them shall be certified by the Industrial Finance Department. Industrial Finance Department should also check infrastructure facilities like electricity, water etc. available with the factory, all government dues are paid or not etc. F) Industrial Finance Department shall always update themselves in respect of various types of supplies of machineries/equipments, pricelist through market contacts/internet.
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Industrial Finance In Abhyudaya Co-operative Bank G) Technical report by Rs.10.00 lacs. H) Industrial Finance Department should also give list of machinery observed during visit. If required, valuation report may be obtained from approval valuer. In case of new large proposal /existing large borrower, the valuer should accompany the zonal office DGM/ Industrial Finance manager during the visit. I) Industrial Finance Department should mention the current market position, competition to the borrower and his products. J) Industrial Finance Department should given recommendations based on eligibility, technical viability, security, project viability, etc. K) At the time of each disbursement of Term Loan/CC facility above 10.00 lacs, Industrial Finance Department has to visit site of the borrower for assessment of progress of work done along with photographs of the site and how much amount to be disbursed accordingly. L) In respect of determination of working capital, he will study the production process cycle of the industrial unit and decide working capital limit based on credit purchases, credit allowed on sales, minimum inventory levels, raw material, work in progress, finished goods, etc. M) Industrial Finance Manager should work out the working capital requirement based on the production/processing cycle of the SSI and manufacturing units enjoying/applying limit above Rs. 50 lacs. He should also arrange for photographs of the unit/machineries. N) Monitor loans and advances above Rs. 1.00 crore independently by visit on half yearly basis (twice in a year) and to submit detailed report. Industrial Finance Department is to be given before
branch/zonal offices recommendations in all term loan accounts with limit above
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Industrial Finance In Abhyudaya Co-operative Bank O) Analytical study of each sector of the industry in respect of the following: • • • Sanction of Industry-wise new loans and advances. Movement of NPAs and overdue in each industrial sector and the reasons for increasing NPAs/overdue in particular sector. Similarly, industry-wise reduction in NPAs and overdue report is prepared and if there is revival of any particular sector/industry, then it should be highlighted. General report highlighting revival/better prospects in some industrial sectors for the current year so that bank may take necessary steps for deployment of more funds in those sectors.
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Industrial Finance In Abhyudaya Co-operative Bank 3.5 Zonal Office report Zonal office should comment in respect of the following as per the guidelines given in Annexure-I 1. Capital Increase: over last year-whether plough back of profit? Addition by introduction of fresh capital by proprietor/ partner-CA’s certificate- Source of capital (additional). How they intend to increase it to certain level to make debt equity ratio favorable. Reduction: whether by main partner-reasons for withdrawal-discrete enquiry to be made. 2. Reserves Whether increased or decreased with details. 3. Unsecured Loans a) Long term loans by family members / relatives / directors and associates, undertaking from them not to withdraw these loans without written permission from the bank. These loans would be treated as Quasi Capital and excluded from current liabilities. b) Other short term unsecured loans- Repayable on demand to form current liabilities. 4. Other Liabilities Whether they include Government dues payable. 5. Fixed Assets Whether Fixed Asset are finance through working Capital (Diversion of Funds). 6. Current Asset Command on quality of assets- stock and book debts upto 90 days will only qualify for Drawing Power (DP). 7. Losses Reasons for Losses – whether chances of profit making –Is net worth affected. 8. Diversion of Funds Whether funds transferred to associate accounts for genuine business/ commercial purpose or utilization for business of associate Account. When these funds were bought back, If not, whether they would be bought beck or chances for the same are
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Industrial Finance In Abhyudaya Co-operative Bank remote due to siphoning off. CA’s Certificate of bringing funds back to business to be obtained.
9. Performance of the borrower/individual unit compared to past achievement and projected sales, Gross Profit, Net Profit, Profitability, etc. State about achievement of past year with previous year- performance till current year till review- whether they would be in a position to achieve projected sales, gross profit, net profit, etc.- new work orders, new products, increase in capacity of output/ product-new technology- cost reduction measure, government policies, import substitutes, of another unit, etc. • Sales and Purchase from the date of last balance sheet till last month. Certified by the borrower and also their Chartered Accountant. Whether current year sales indicate improvement in performance of the unit and tentative sales they would achieve by the current year-end. 10. Analysis of Balance sheet and Profit and Loss account and interpretation of ratios • Current Ratio Current Asset Current Ratio = Current Liabilities The ratio 2:1 shows excellent liqudity position. The ratio between 1:1 to 2:1 shows satisfactory liqudity position. The ratio less than 1:1 shows no liqudity at all. For Ssi units it should be atleast 1.33:1.
• Debt Equity Ratio All outside borrower funds MMS-Finance studies & research Pillai’s Institute of Management 27
Industrial Finance In Abhyudaya Co-operative Bank Debt equity Ratio = Net Worth – Intangible Assets The follwing benchmark denotes good solvency 2 : 1 ----> Manufacturing units. 3 : 1 ----> Trading units. 3 : 1 ----> SSI units. • Credit availed on Purchases or Creditors’ Ratio Creditors X 365 Creditors Ratio = Purchase • Credit allowed on sales or Debtors’ Ratio Debtors X 365 Debtors Ratio = Sales Sundry debtors beyond 90 days should not be reckoned for calculation of Drawing Power (DP). 11. Payment of Statutory Dues Whether audit report to Balance sheet and Profit and Loss account contains information about non-payment of dues like sales tax, Income Tax, Excise duty, electricity charges and other statutory dues etc. Branches should make reference to various authorities on quarterly basis in this matter and ascertain position by visits to take authorities. 12. Utilization of cash credit limits • DBD/SBD Limits No. of bills drawn- Amount during last 12 months. Whether bills are returned/ dishonored. If yes, give details-whether bills drawn on such partner are further discounted? Are payments of these bills received from drawee? • Utilization of BG Limit MMS-Finance studies & research Pillai’s Institute of Management 28
Industrial Finance In Abhyudaya Co-operative Bank No. of BGs issued- Amount of BGs. Details of invoked BGs- payment made by borrower and details of outstanding invoked BG. • Utilization of Letter of credit Limit (Import/Inland) No. of L/C developed (payment made by debiting to forced loan under L/C). Payment made by borrower-Details of outstanding forced loan under L/C. • Repayment of existing Term Loan
13. RBI Inspection report observation and compliance thereof (if applicable) • • • • Compliance of deficiencies by client Compliance of deficiencies by Branch/Zonal office. Reasons for non-compliance. Progress/latest position in compliance.
14. Internal and concurrent audit observation and compliance thereof (if applicable) • • • • Compliance of deficiencies by client Compliance of deficiencies by Branch/Zonal office. Reasons for non-compliance. Progress/latest position in compliance.
15. Non-compliance of sanction stipulations of board • • Reasons for non-compliance by client. Non-compliance by staff/official – reasons for deviations by staff/ officials and what action zonal office / Head office initiates in the matter. 16. Insurance of stock/machineries hypothecated etc. Whether adequate insurance is obtained? Whether place of storage of goods is the same incorporated in insurance policy. MMS-Finance studies & research Pillai’s Institute of Management 29
Industrial Finance In Abhyudaya Co-operative Bank
17. Credit Rating/Gradation On the basis of Audited Balance Sheet and Profit and Loss account as on ____ What are the reasons for upward/ downward gradation? What steps the borrower has promised to take to improve the gradation. 18. Reconstitution of partnership Whether there is a dispute among partners. Whether the remaining partners are all family members / close relatives- whether main partner has retired/ resigned – what would be impact on business- whether our finance is secured? What is change in capital- whether retiring partner is willing to stand as surety at least for 2/3 years? Whether he would continue his capital as unsecured loan on long-term basis? 19. Mortgage of Immovable properties Full details like flat/gala etc. No. in building/ society- area- market value – by (valuer) Branch In charge / by whom it is occupied- mortgaged on _______. Whether mortgage change is recorded with society builder- to affix/ paste mortgage poster- Present market value as per O.C. No. 66- The description and area should be based on title Deeds and it should be correctly reported in branch scrutiny note, Branch visit report and zonal office report. 20. Group Exposure 21. Special request of the borrower (if any) 22. Need of working capital Term Loan 23. DSC ratio (for Loans) Brief particulars of weak financial deviations/deficiencies/ irregularities in the proposal. 24. Zonal Office Recommendations with justification in details Justification of each funded and non-funded limits. MMS-Finance studies & research Pillai’s Institute of Management 30
Industrial Finance In Abhyudaya Co-operative Bank
25. In view of the above, we recommend following credit limits/ we do not recommend following credit limits. Amount Rs. 1. Cash Credit _______________ 2. DBD/ SBD _______________ 3. Bank Guarantee 4. Letter of credit 5. (Import/ Inland) 6. Term Loan _______________ 7. W.C.T.L. ___________________ _______________ ___________________ _______________ ___________________ _______________ ___________________ ___________________ Margin %
___________________
Note: - The DGM should not omit any one of the above 1 to 24 points. There must be specific comment saying that this point is not applicable to borrower or specific comment be given. Report of all zonal office should be identical and there should not be any change as far as the standard format of this report. The manner of reporting should be strictly in conformity with the guidelines given in annexure. Though observations will differ from case to case, the method of reporting has to be identical. Hence annexure should be strictly adhered to.
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Industrial Finance In Abhyudaya Co-operative Bank 3.7 Guidelines for Credit Rating The weight ages for different parameter are given as under S.No. 1 2 3 4 5 Financial Parameters Security Prime and Collateral Conduct of Account Management Business and Other Parameters Total Marks 36 15 28 10 11 100
A] Financial Parameters For the reference and Clarifications of financial ratios following clarifications are given Current Asset a) Current Ratio = Current Liabilities Current Asset - Stock b) Quick Ratio = Current Liabilities All outside borrower funds c) Debt equity Ratio = Net Worth – Intangible Assets d) Net Worth = Capital + Reserves + Accumulated profit – Revaluation Reserves. e) Capital = Fixed Capital + Current capital + Quasi capital f) Quasi Capital = that portion of long term loan taken from Directors/Partners and their not withdraw family members where undertaking is given that they will the same without the consent of the bank.
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Industrial Finance In Abhyudaya Co-operative Bank g) Diversion of funds = Loans and advances given to Directors, their family members, sister concerns and others for any purpose other than for business purpose out of Bank’s borrowers funds. h) Debt Services Coverage ratio (DSCR) Net profit + Depreciation + Payment towards interest (Including CC/TL/BD etc.) DSCR = Installments + Interest on the loan CC/TL/BD etc. in the year i) Retention of Profit = Net Profit after Tax – Drawings and dividends 1. For Companies: Retained Profit = NPAT – Drawings and Dividends 2. For proprietorship & Partnership Concerns: Retained Profit = Closing Capital – Opening Capital – I.T. of firms and partners 3. Retention of Profit ( %) Retained Profit Net PAT Debtors X 365 j) Debtors Ratio = Sales Creditors X 365 k) Creditors Ratio = Purchase X 100
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Industrial Finance In Abhyudaya Co-operative Bank
No. Ratio Standard Ratio Financial Parameters (maximum marks 40) 1 Current Ratio 1.33 or above 1.17-1.32 1.10-1.17 Less than 1.10 2 Debt Equity Ratio Less than 2.00 2.01-3.00 3.01-4.00 4.01-5.00 5.01 or above 3 Total Liabilities/ TNW Less than 3.00 3.01-4.00 4.01-5.00 5.01 or above 4 Sales achieved (compare Above 90% 80%-90% with targets accepted by 70% - 80% bank as per projections) Less than 70% OR (compared with increase over previous year if no projections given ) Above 25% Above 15% upto 25 % Above 5% to 15% Upto 5% Constant or Negative 5 Net Profit as % of sales Above 5% Above 3% to 5% (projected and actual) Above 2% to 3% Upto 2% Loss 6 Retention of profit (Avg. 2 70%-100% 40%- 69% years) 20%- 39% Less than 20% 7 a)DSCR(Every projected Greater than 2.00 1.50 to 1.99 year for project finance) 1.25 to 1.49 Less than 1.25 b) Diversion of funds (For No Diversion Minor Diversion working Capital facilities) Huge Diversion Note: If both are applicable, avg. Marks be given 8 Trend in sales Consistently increasing MMS-Finance studies & research Pillai’s Institute of Management
Marks 4 3 2 0 4 3 2 1 0 4 3 2 0 4 3 2 0 4 3 2 1 0 4 3 2 1 0 4 2 1 0 4 3 1 0 4 1 0 4 34
Industrial Finance In Abhyudaya Co-operative Bank More or less stable Decreasing 9 Trends in Profits (Amount) Increasing Profits Stable Profits Decreasing Losses Security Prime and Collateral (Maximum Marks-15) 1 Security Prime (in relation to More than D.P. Just adequate=D.P. DP) Upto 10% Below DP More than 10% Below DP 2 Collateral Cover (As per the 100% and above 50%- 99% present market value) 20% - 49% Less than 20% No Collateral Conduct of Account (Maximum Marks-28) 1 Submission of monthly Prompt/Regular Late but less than 1 month security statements (last12 Late but > 1 month to 3 months months) Late but > 3 months 2 2 0 4 3 1 0 8 6 4 0 7 5 3 1 0 4 3 1 0
Repayment of Installment Timely- on or before due date (15th of 4 and (CC/TL/WCTLetc.) Interest succeeding Month) Within 15 days from due date(Last 3 0 4 3 2 0
3
day of succeeding month) After last date of succeeding month Overall Operation of the Excellent Good A/c(like regular overdrawing Satisfactory against clearing, cheque Poor
4
returns, etc.) Sales and other business Sales greater than 90% 4 Sales 80%-89% 3 routed through us Sales 70% to 79 % 2 Sales routed below 70% 0 Note : If CD A/c with other Bank is permitted , the turnover with other banks to be clubbed with turnover in our Bank. Recoveries of bills No overdue 4 Overdue regularized within 10 days 3 purchased/LC Bills/ others/ from due date guarantees Invoked Overdue regularized within 1 month 2 from due date
5
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Industrial Finance In Abhyudaya Co-operative Bank Overdue regularized beyond 1 month 1 from due date Overdue not regularized Compliance of Audit and No compliance required Major Items Complied inspection Compilance Pending requirement/Statutory Auditors observations 7 Security Documentation Complete and in order 4 Documents incomplete due to valid 3 (Mortgage, Noting, Power of reason Attorney etc.) Incomplete or pending 0 0 4 2 0
6
Management (Maximum Marks-10) 1 Promoters Professionally/Technically
5
competent/experienced Professionally/Technically competent 3 persons employed Absence of 1
Professionally/Technically competent 2 Active Management persons Stable-no change in past 3 years 5 (except within family) Stable-but not more than one change 3 in last 3 years Frequent change in recent past Business and other parameters (Maximum Marks-11) 1 Business parameters Core/ Approved sectors Sensitive sectors 2 Satisfactory Account Above 5 Years 3 to 5 years relationship 1 to 3 years New or less than 1 year 3 Ind./business prospects Excellent Good Poor 4 Irregular Direct/ Indirect No Irregular Direct/ Indirect Liabilities Liabilities Irregular Indirect Liabilities Irregular Direct Liabilities 1 2 1 3 2 1 0 4 3 1 2 1 0
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Industrial Finance In Abhyudaya Co-operative Bank
Note: 1. The above grades are on liberal terms and will be improved upon in future. 2. If any of the item is not applicable, then mark NA and total marks should be calculated on proportionate basis i.e. actual marks given have to be divided by maximum total marks applicable multiplied by 100. The account shall be graded as under Grade AAA AA A BB B Secured loans/ cash credit facilities upto Rs. 10.00 lacs a. Priority Sector Advances b. Non-Priority Sector Advances 12.00 % p.a. 13.00 % p.a. Marks Above 90 81 – 90 71 – 80 61 – 70 Upto 60
Secured Loans/ Cash Credit facilities (above Rs. 10.00 lacs): The applicable interest rate will depend on the credit rating given to the borrower/ account as indicated in the table given below
Credit Rating Grade AAA AA A BB
Priority Sector & Other Manufacturing Units % P.a. PLR-0.50 EQUAL TO PLR PLR+ 0.50 PLR + 1.50 11.50 12.00 12.50 13.50
Non-Priority Sector (Excusing those Accounts which are not linked to credit rating) PLR + 0.50 PLR + 1.00 PLR + 1.50 PLR + 2.00 37 12.50 13.00 13.50 14.00
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Industrial Finance In Abhyudaya Co-operative Bank B PLR + 2.50 14.50 PLR + 3.00 15.00
Notes: a. The interest rate for CC and TL will be the same on the basis of gradation. b. The new clients will be charged interest at 12% p.a. for the first year for both cash credit and Loan Facilities. Normal gradation will be applicable for the account from the second year, based on final year balance sheet and profit and Loss Account, etc. c. In case of default, interest will be charged 14% p.a. till the default continues. d. For Defaulters in builders/developers/contractors category with “B” grade rating, the interest chargeable for the period of default will be 15% p.a. 3.8 Time Frame for disposal of loan proposal The prospective borrower approaching the branch should be advised in detail the procedural formalities required to be completed by him at the time of issuing the loan application itself. A list of documents required alongwith loan application form should be handover to him. Branch should accept all loan/cash credit application and issue receipt of acknowledgement immediately. Advise staff not to issue on-dated receipt. Further no loan file should be returned back to the applicant even though it is not complete in all respects. The Timeframe for disposal of proposals is as under: 1. After receipt of application, branch should write to the applicant about the requirements within 3 days of receipt of the application giving him a period of 10 days for completing the requirements. 2. In case of non-receipt of documents within 10 days from despatch of the first letter, a further period of 10 days be given to complete all the requirements. Thus, MMS-Finance studies & research Pillai’s Institute of Management 38
Industrial Finance In Abhyudaya Co-operative Bank a total period of 23 days will be available to the branch and the applicant. The last date for compliance by the applicant should be syated specifically in the letters to the applicant instead of mentioning only 10 days. 3. If the loan could not be sanctioned or rejected by the branch by 23rd day, file should be forwarded to the zonal office for further action on 24 th day.The zonal office will examine scrutiny notes etc. of the branch and ensure that only genuineand minimum requiremnts are raised. If found necessary the zonal office will advise the concerned branch to delete/waive some of the requirements, provided that in the latter’s view such deletion/waiver may not have material importance from the point of safety and security of the bank’s advance. 4. After verification of the loan proposal file in respect of the actions initiated by the branch and response of the applicant, zonal office will write to the borrower to comply with all the remaining requiremnts within period of 7 days. The zonal office will thereafter return the file back to the branch for further compliance within 10 days of receipt. 5. After receipt of the file from the zonal office, the in-charge of the branch will arrange for further follow-up with the applicantand ensure that all requirements as advisedby the zonal office are compiled with by the applicantat the earliest. He will thereafter recommend sanction or rejection of the proposal and send the loan proposal file to zonal office. Thus, loan proposal fallimg within the delegated powers of the branch-in-charge. I.e. upto Rs. 4.00 lacs as also upto Rs. 10.00 lacs and falling within the powers delegated to the zonal Dy. General Manager which have remained pending beyond the prescribed time limit of 23 days from the receipt of application and in respect of which the aforesaid procedure has been followed will be sanctioned/ rejected by the zonal Dy. General Manager. 6. A similar procedure as to the timeframe for disposal of loan application, will be followed by branches and the Loans and advances Dept. In respect of proposal for amount above Rs. 7.00 lacs and upto Rs. 10.00 lacs. 7. The applications/proposals for facilities of higher amounts will continue to be approved/ rejected at appropriate higher levels i.e. Addl. General Manager/ Managing Director as at present.
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Industrial Finance In Abhyudaya Co-operative Bank 8. Sanctioing of Loans and Advances proposals pending beyond 23 days at branch level will be viewed as violation of delegated authorities attracting disciplinary action against the in-charge of the branch. 9. If it is found by the zonal office that branches are not complying even with the relaxed time schedule as above and there is delay on the part of any branch, the DGM should write to concerned branch-in-charge and seek his explanation by issuing memo / showcause.
Benchmark parameter for the purpose of scrutiny/ recommendations and sanction of CC, TL etc. above Rs. 10.00 lacs. For Core and For sensitive Category For Builders and For Developers
General Sector
Civil
contractors,iron and steel traders etc.
Current Ratio Quick Ratio Debt Equity Ratio Total Liabilities/TNW Act.sales/ proj.sales DSCR Margin on prime security Total security Debtors ratio Creditors ratio Profit sale
1.00 2:1 3:1 Minimum 90% 1.5 or above but not less than 1.25 As given 50% 160% 300% Maximum 90 days Should be less than Debtors ratio > 10% > 10%
1.33 1.00 4:1 5:1
1.33 1.00 3:1 4:1 40% 200% > 5%
The existing margins as under should continue:I. Stock and Book Debts (Older than 3 months do not qualify for DP stock should be paid stocks.) MMS-Finance studies & research Pillai’s Institute of Management 40
Industrial Finance In Abhyudaya Co-operative Bank a. For Ssi and Manufacturing and other Priority Sector including retailers and commission Agents. b. For others II. a.New machineries and Imported Reconditioned TL) b.Secomd Hand Indian Machines/ Second hand imported machines used in India (Valuation Report by contract engineer is required giving present value) c. Big host moulds d.New Contract Equipments III. Gold/Jewellery ornaments IV. Purchase of real estate a. Shop/ Gala/ Commercial/ Factory b. Land and Building ( Construction) ( In case of manufacturing project only.) c. Renovation/ repairs of shop/ factory 25 40 25 25 25 25 50 Machineries not 40 25 25
used in India ( Import documents required for assessing the value for
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Industrial Finance In Abhyudaya Co-operative Bank
CHAPTER NO. 4 ANALYSIS AND REPRESENTATION OF DATA
PQR COMPANY LTD Cost of Project and Means of Finance
Cost of Project Land and building development Equipment and vehicles Furniture and Fitting Muncipal Taxes and deposit Rs. Lacs 600.00 252.50 45.20 18.00 915.70 Means of Finance Promoter's Contribution 25% Loan 75% 228.93 686.78 915.70
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Industrial Finance In Abhyudaya Co-operative Bank
Projected Profit & Loss For the year ended
Year 1 Pecent Capacity Utlilization Income Sales & Other Income Less:Expenses Material purchases Wages Factiry overheads Selling & Distribution Expenses Administration Expenses Profit Before Interest & Depriciation and Tax Less: Interest Depriciation Profit Before Tax Less: Tax Profit after Tax Balance Forward from last year Profit available for appropriation Appropriations Dividend Transfer to reseves Total Appropriations Balance carry forward 30 Year 2 60 Year 3 65 Rs. In lacs Year 4 Year 5 70 80
2750.00
5000.00 6000.00 6500.00
6800.00
1045.00 660.00 302.50 275.00 302.50
1900.00 2280.00 2470.00 1200.00 1440.00 1560.00 550.00 660.00 715.00 500.00 600.00 650.00 550.00 660.00 715.00
2584.00 1632.00 748.00 680.00 748.00
165.00 47.30 119.54 -1.84 0.00 -1.84 0.00 -1.84
300.00 47.30 101.63 151.07 45.32 105.75 -1.84 103.91
360.00 47.30 86.71 225.99 67.80 158.19 53.13 211.32
390.00 47.30 74.22 268.48 80.54 187.94 119.06 306.99
408.00 47.30 63.75 296.95 89.09 207.87 170.59 378.46
0.00 0.00 0.00 -1.84
20.78 30.00 50.78 53.13
42.26 50.00 92.26 119.06
61.40 75.00 136.40 170.59
113.54 75.00 188.54 189.92
s
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Industrial Finance In Abhyudaya Co-operative Bank Balance sheet as on Year 1 Sources of Funds Share capital Reserves Net Profit Secured Loans Total Application of funds Fixed Asset Less: Depriciation Net Fixed Asset Current Asset Sundry Debtors Stock Cash i> Less:Current Liabilities Sundry Creditors Bills payable Other Current Liabilities ii> Net Current Asset (b=i-ii) Total (a+b) 228.88 0.00 -1.84 686.78 913.82 Year 2 228.88 30.00 53.13 549.42 861.43 Year 3 228.88 80.00 119.06 412.07 840.00 Rs. In lacs Year 4 Year 5 228.88 155.00 170.59 274.71 829.19 228.88 230.00 189.92 137.36 786.16
a>
897.70 119.54 778.16
778.16 101.63 676.53
676.53 86.71 589.82
589.82 74.22 515.60
515.60 63.75 451.85
220.00 275.00 137.50 632.50 166.84 220.00 110.00 496.84 135.66 913.82
350.00 432.00 525.00 561.00 484.90 598.18 647.39 657.31 250.00 300.00 311.20 340.00 1084.90 1330.18 1483.59 1558.31 300.00 360.00 390.00 408.00 400.00 480.00 520.00 544.00 200.00 240.00 260.00 272.00 900.00 1080.00 1170.00 1224.00 184.90 861.43 250.18 840.00 313.59 829.19 334.31 786.16
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Industrial Finance In Abhyudaya Co-operative Bank
DSCR Calculation Year 1 Profit after tax (1) Depriciation (2) Interest on Term Loan (3) Cash Accruals (4) = (1+2+3) Term Loan Installment (5) Interest on Term Loan (6) Total Repayment (7)= (5+6) DSCR (4/7) Average DSCR N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. Year 2 105.75 101.63 47.30 254.68 137.36 47.30 184.66 1.38 Year 3 158.19 86.71 47.30 292.20 137.36 47.30 184.66 1.58 1.59 Year 4 187.94 74.22 47.30 309.46 137.36 47.30 184.66 1.68
Rs. In lacs Year 5 207.87 63.75 47.30 318.92 137.36 47.30 184.66 1.73
Remark: DSCR is above 1.5. It is acceptable.
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Industrial Finance In Abhyudaya Co-operative Bank
Ratio Calculation
Year 1 Net Profit Ratio= (PAT / sales)*100 Return on Capital Employed profit/ employed Return = Net capital on N.A. 0.34 0.37 0.34 0.32 More or less stable N.A. Year 2 2.11 Year 3 2.64 Year 4 2.89 Year 5 3.06 Remark Increasing
N.A.
0.12
0.19
0.23
0.26
Increasing
Proprietors' capital = Net profit/ (capital +Reserves) Total Liabilities/ Total Net Worth Debt Equity Ratio Debtors Ratio Creditors Ratio
5.21 3.02 29 24
4.65 1.76 26 23
3.49 0.96 26 23
2.61 0.50 29 23
2.10 0.21 30 23
Decreasing Decreasing Less than 90 days Less than DTR
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Industrial Finance In Abhyudaya Co-operative Bank
Working Capital Eligibility Year 1 a. Under Method I Current Asstes Less: Current Liabilities Net Current Asstes Less: 25% Net current assets Eligible MPBF Year 2 Year 3
Rs. In Lacs Year 4 Year 5
632.50 496.84 135.66 33.92 101.75
1084.90 1330.18 1483.59 1558.31 900.00 1080.00 1170.00 1224.00 184.90 250.18 313.59 334.31 46.23 62.55 78.40 83.58 138.68 187.64 235.19 250.73
b. Under Method II Current Asstes Less: Current Liabilities Net Current Asstes Less: 25% current assets Eligible MPBF
632.50 496.84 135.66 158.13 -22.47
1084.90 1330.18 1483.59 1558.31 900.00 1080.00 1170.00 1224.00 184.90 250.18 313.59 334.31 271.23 332.55 370.90 389.58 -86.32 -82.37 -57.31 -55.27
c. Under Method III Sales 20% of the realisic projeted sales turnover Remarks:
2750.00 550.00
5000.00 6000.00 6500.00 6800.00 1000.00 1200.00 1300.00 1360.00
Method II is can not applicable in above example. The selection of method is depending on the sector.For new entity above method is not applicable.
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Industrial Finance In Abhyudaya Co-operative Bank
CHAPTER NO. 5 FINDINGS AND SUGGESTIONS
5.1 Findings:
1. While applying for loan,it was found that the stetements provided by the customer was manipulated like they showed the growth sales without proper justification, which are unreliastic. 2. There is no uniformity in charging depreciation,and some cases it was tool use to show the better projected figures. 3. While selecting sales figure ,there is assumption of demand for their product in market as they have mentioned 4. As per bank policy there is conservative approach towards bigger project for granting loan 5. In the analysis of financial statement, it is found that the ratio “ Return on capital employed” is not included in the analysis. This ratio shows the overall profitability of the firm.
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Industrial Finance In Abhyudaya Co-operative Bank
5.2 Suggestions:
1. The bank should done gradation for new proposals also. If the financial statements are not available, the bank can give rating on the basis of other parameters like security prime and collateral, Management, business and other parameters etc. This rating may not be useful for fixation of rate of interest. But on the basis of this the bank can keep records of the party and can judge these parameters for the next gradation for any deviation. 2. As the party is consistently achieving highest grade, it reduces the risk of bankruptcy. This, in turn, reduces the bad debts of the bank. The bank should provide some concessions to the party apart from the lower rate of interest like some gift vouchers at the end of last installment, some concessions for next loan etc. This will help the bank to increase the value of the bank in the minds of cutomers. This may act as a marketing tool. 3. There should be strict control on the projected sales figures by considering the factors like future investment projected etc. 4. The depriciation is a non cash expense. Therefore, it may use to manipulate the projected figures. There should be some restrictions for selecting the method of depriciation as well as rate of depriciation. 5. The magin for CC,TL proposals is different for different proposals. There should be provided some reference for the margin to ensure that the particular margin is taken from policy no._______ under the clause no._______. This will help both i.e. top management to ensure that the paricular margin taken by the executive is correct and junior management who actully take from the correct source.
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BIBLIOGRAPHY
•
Financial Management Authors: - Prasanna Chandra
•
Credit Policy 2010-11 Abhyuday Co-op. Bank Ltd. (Scheduled Bank)
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Industrial Finance In Abhyudaya Co-operative Bank
ANNEXURES
I] Credit Rating:
S. Particulars No. Actual Marks H.O. Remarks by Zone
Financial Parameters (maximum marks 40) 1 Current Ratio 2 Quick Ratio 3 4 5 6 7 8 Debt Equity Ratio
Total TNW Liabilities/
Sales achieved (compare with targets accepted by bank as per projections)
Net Profit as % of sales (projected and actual)
Retention of profit (Avg. 2 years) a)DSCR(Every proj.
year for finance) project
b) Diversion of No Diversion funds (For Minor Diversion working Capital Huge Diversion facilities) Note: If both are applicable, avg. marks be given 9 Trend in sales Consistently increasing More or less stable Decreasing 10 Trends in Profits Increasing Profits (Amount) Stable Profits Decreasing Losses Security Prime and Collateral (Maximum Marks-15) 1 Security Prime in More than adequate relation to DP Just adequate Inadequate 2 Collateral Cover 100% and above (As per the present 50%- 99% market value) 20% - 49% Less than 20% No Collateral 3 Collateral Cover Cash Security/FD/Bonds/Insu policy Equitable Mortgage of Busi. Premise Type
Equitable Mortgage of Resi. Premise
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Second Charge on fixed mortgage of open land etc. No collaterals assets/
Note: In case of multiple sec., give proper weight age as per present M.V. Conduct of Account (Maximum Marks-27) 1 Sub. of monthly Prompt/Regular security Late but not less than 1 month statements (last12 Late but greater than 1 month months) 2 Repayment of Timely within 10 days from due date Installment Within 30 days from due date Interest Beyond 30 days from due date (CC/TL/WCTL etc.) Overall Operation Excellent 3 of the A/c(like Good regular overdrawing Satisfactory against clearing, Poor
cheque returns, etc.)
4 5
Sales and other business routed through us Recoveries of bills purchased/LC Bills/ others/ guarantees
Sales greater than 90% Sales 80%-89% Sales less than 80% No overdue
Overdue regularized within 10 days from due date Overdue regularized within 1 month from due date Overdue regularized beyond 1 month from due date
6
7
Overdue not regularized Compliance of No compliance required Audit and Prompt within 10 days inspection Within 1 month requirements After 1 month Not complied since initiated Security Complete and in order
Documentation (Mortgage, Noting, Power of Attorney etc.) Documents incomplete due to valid reason
Incomplete or pending
Management (Maximum Marks-8) Professionally/Technically 1 Promoters
Active Management
competent/experienced Professionally/Technically competent persons employed Absence of Professionally/Technically competent persons Stable-no change in past 3 years (except within family) Stable-but not more than one change in last 3 years
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Industrial Finance In Abhyudaya Co-operative Bank Frequent change in recent past Business and other parameters (Maximum Marks-10) 1 Business Core/ Approved sectors parameters Sensitive sectors 2 Satisfactory 10 years and above Account 6 to 10 years relationship 1 to 5 years New or less than 1 year Ind./business 3 Excellent prospects for and Good effect of expected Poor
Govt. changes policy in
4
Irregular Direct/ No Irregular Direct/ Indirect Indirect Liabilities Liabilities Irregular Direct/ Indirect Liabilities
Prepared By
Accountant/Asst. Accountant
Branch Manager
For Zonal office Use
Received on ________________ S.No. 1 2 3 4 5 Financial Parameters Security Prime and Collateral Conduct of Account Management Business and Other Parameters Total Marks 40 15 27 8 10 100 Dy. General Manager ________________zone Marks obtained Grade Rate of Interest
Accountant sent to Head Office on_____________________
For Head Office Use
Received on:_________________ Remarks :____________________ Rate of Interest fixed: __________ Reason for deviation if any:
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II] Zonal Report M/S Branch
Zonal Office report
1. Brief History of Proprietor / Partner / Director & Firms: _______________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________ 2. Details of Associate Accounts______ ______________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________ 3. Product Dealt/ Manufactured______ _______________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________ 4. Capital ______________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________ 5. Reserves ____________________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 6. Unsecured Loans ______________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 7. Other Liabilities ______________________________________________________ __________________________________________________________________ MMS-Finance studies & research Pillai’s Institute of Management 55
Industrial Finance In Abhyudaya Co-operative Bank __________________________________________________________________ ______ 8. Fixed Assets _________________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 9. Current Asset ________________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 10. Losses ______________________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 11. Diversion of Funds _____________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 12. Performance of the borrower _____________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 13. Analysis of Balance sheet and Profit and Loss account and interpretation of ratios • Current Ratio ___________________________________________________ __________________________________________________________________ ____________________________________________________________ • Debt Equity Ratio _______________________________________________ __________________________________________________________________ ____________________________________________________________ • Creditors’ Ratio _________________________________________________ __________________________________________________________________ ____________________________________________________________ • Debtors’ Ratio __________________________________________________ __________________________________________________________________ ____________________________________________________________ 14. Comment on report of Industrial Finance Department _________________________ __________________________________________________________________ __________________________________________________________________ ______ 15. Payment of Statutory Dues ______________________________________________ __________________________________________________________________ MMS-Finance studies & research Pillai’s Institute of Management 56
Industrial Finance In Abhyudaya Co-operative Bank __________________________________________________________________ ______ 16. Utilization of cash credit limits ___________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 17. RBI Inspection report observation and compliance thereof ____________________ __________________________________________________________________ __________________________________________________________________ ______ 18. Internal and concurrent audit observation & compliance thereof _________________ __________________________________________________________________ __________________________________________________________________ ______ 19. Non-compliance of sanction stipulations of board ____________________________ __________________________________________________________________ __________________________________________________________________ ______ 20. Insurance of stock/machineries hypothecated etc. _____________________________ __________________________________________________________________ __________________________________________________________________ ______ 21. Credit Rating _________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________ 22. Reconstitution of partnership _____________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 23. Mortgage of Immovable properties _______________________________________ __________________________________________________________________ __________________________________________________________________ ______ 24. Group Exposure ______________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ MMS-Finance studies & research Pillai’s Institute of Management 57
Industrial Finance In Abhyudaya Co-operative Bank 25. Special request of the borrower (if any) ____________________________________ __________________________________________________________________ __________________________________________________________________ ______ 26. Need for working capital Term Loan ______________________________________ __________________________________________________________________ __________________________________________________________________ ______ 27. DSC ratio ___________________________________________________________ __________________________________________________________________ __________________________________________________________________ ______ 28. Zonal Office Recommendations with justification in details ____________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _____________________________________________
Assistant Accountant/ Accountant Name Date
Dy.General Manager Name Date
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