Credit Appraisal for Project Loans

UNITED BANK OF INDIA

SIP Project Report Submitted in partial fulfillment of the requirements for the PGDM Programme

By Piyush Ranjan

2010148

Supervisors: 1. Mr. Mrityunjay Kumar

2. Dr. Veena Pailwar

Institute of Management Technology, Nagpur

2010-2012

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ACKNOWLEDGEMENT

Success is not destination, but a journey- goes a proverb. I realize it even better during my Company Project Study. I would not have completed this journey without the help, guidance and support of certain people who acted as guides, friends and torch bearer along the way.

I feel fortunate to be linked with United Bank of India, one of the top and oldest Public Sector banks in India. I deeply express my gratitude to United Bank of India for giving me an opportunity to work as a trainee at their Head office under Summer Internship Program. Past two months has been a great learning experience for me.

First and foremost I would like to convey my deepest and sincere thanks to Mr. Mrityunjay kumar ( Manager), Corporate Business Group, UBI, HO, Kolkata as my project Mentor.

I express my sincere thanks to all the staff members of UBI for their cooperation that has helped me a lot in completing this project.

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Table of Contents

Organisation of the Study

The project is divided into the following parts:

Chapter-I : Introduction

It begins with an introduction to the project report, stating the objective and research

methodology adopted. Limitations inherent in the project are also laid down.

Chapter-II : Bank/industry Profile

This chapter is devoted to getting to know United Bank of India. UBI is a public sector

bank. This chapter highlights the history of the bank, the Board of Directors, the awards

received by the bank. The key financials and the core vision of the bank has also been

included.

Chapter-III : Conceptual Study

This chapter gives an insight into credit appraisal in general. The five “Cs” of credit that

are character, capital, capacity, collateral and condition have been described which are

evaluated by the bank to determine the creditworthiness of the borrower.

Chapter-IV : Credit Facilities

The credit facilities provided by UBI have been included in this chapter. They include

working capital facilities, term loan facility and retail credit. The bank also provides the

non-fund facilities like Letter of Credit and Bank Guarantee which are defined in this

chapter.

Chapter-V : Appraisal for Term Loan and Working Capital Loan

The appraisal process for TLand WC loan is described here. The information sources,

the general guidelines for appraisal and the special guidelines for new, takeover and

existing business units is mention in this part of the project.

Chapter-VI : Various Components of Appraisal

The various elements or components which are considered by the bank in the credit

appraisal modus of UBI are elaborated in the chapter. These elements are very crucial in

judging the capacity and character of the borrower.

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Chapter-VII : Financial Parameters of Appraisal

This chapter is devoted to the various financial parameters which are examined to assess

the income flow and repayment capacity of the business. The financial parameters

include the analysis of the financial statement and ratio analysis which are discussed

here.

Chapter-VIII : Appraisal of Security

The evaluation of primary and secondary security is one of the most important

components of credit assessment. The marketability, stability of value, ascertainability

and transferability are the elements.

Chapter-IX : Assessment of Working Capital Requirement

The methods adopted by the bank for the assessment of the working capital requirement

are described in this chapter. These methods are used to determine the actual

requirement of credit to prevent excess or less credit being given to the business.

Chapter-X : Appraisal for Non-Fund Facilities

The appraisal of the non-fund facility like LC and BG is dealt in this chapter. The

assessment of the requirement of these facilities is also detailed.

Chapter-XI : Appraisal for Retail Credit

The assessment of the retail credit proposals is the content of this chapter. The elements

& documents for appraisal of Education and Home loan are described here.

Chapter-XII : Case Study

The case which was studied for the project has been detailed in this chapter. The

components of credit appraisal were evaluated in respect to this case.

Chapter-XIII : Findings and Suggestions

After studying the credit appraisal modus of UBI, the findings made in the project are

included in this chapter. Some suggestions have also been made which would be useful

to the bank in improving its appraisal process.

Chapter-XIV : Conclusion

The project has been concluded in this chapter and contains the working experience at

UBI.

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EXECUTIVE SUMMMARY

The main purpose of the project is to understand the whole concept of Project financing,

and its methods and needs of project financing in the form of different committee

recommendation and methods.

To know the needs and methods of project financing for term loan and working capital

loan in small- scale industry as well as large-scale industry and various guidelines issued

by the RBI for banking sector for Project finance.

The project has been divided into two parts. In initial chapters of the project was given

to general concept and fundamental principles for project financing, method of project

financing, requirement of project financing in various types of industries, the finance

requirement to the borrowers and the various approaches adopted by the borrowers for

selecting the mode of financing. The later chapter covers various methods of project

financing and its sub methods i.e. term loan and Working capital limit in project

financing. Funding the requirement of the term loan and working capital is by the

following procedures of Credit Monitoring Assessment (CMA), for funding of short-

term loan and long-term loan. And finally various committees’ recommendation and

current scenario of the MPBF were elaborated in detail.

And the project includes the case study on electronics industry for which the procedure

is actually applied to taro electronics Ltd. and the details of projection is highlighted.

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1.1 Introduction

The Banking sector is the lifeline of the economy and the major financial pillar in the

financial system. Banking system is the fuel injecting system which spurs economic

efficiency. Banks are the main intermediaries between the savers and borrowers. The

main function of the commercial Banks is the acceptance of deposits and the lending of

funds. They also play the inevitable role of credit creation in the economy. The Banking

system has adopted the Base Rate system from 1st July 2010 replacing the Benchmark

Prime Lending Rate (BPLR).

Deposits are the main source of funds for commercial Banks. The higher the amount of

deposits mobilized, the higher is the amount of funds lent.

Lending of the funds constitutes the main business of any Banking company. The major

portion of the Banks funds are employed by way of loans advances. A Bank’s income is

predominantly earned from interest and commission on various services. The Banks

mobilize savings from surplus-spending sector and lend them to the deficit-spending

sector. However lending does carry certain inherent risks. As a Banker has to lend the

funds raised by way of deposit from customers, he has to take calculated and assessed to

take risk in lending. While providing credit a Banker follows a very cautious policy and

conducts his business on basis of well known principles of credit appraisal in order to

minimize the risk.

Objective of the Study

The study was carried out with the following objectives to be accomplished:

To study the credit appraisal system of UBI.

To suggest and recommend ways that can improve the credit appraisal system.

To carry out a case study.

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CHAPTER-II

BANK/INDUSTRY PROFILE

2.1 Bank overview

United Bank of India (UBI) is one of India's major commercial Banks of India. It is a

Government of India undertaking with major presence in eastern India. UBI was the

result of the merger in 1950 of four Banks: 

Comilla Banking Corporation (founded by Narendra Chandra Datta in 1914)

Bengal Central Bank (founded by Sri J.C. Das in 1918)

Comilla Union Bank (founded by Sri L.B. Dutta in 1922)

Hooghly Bank (founded by Sri D.N. Mukherjeee 1932).

United Bank of India was constituted under the Banking Companies (Acquisition and

Transfer of Undertakings) Act, 1970 on July 19, 1969. The Head Office of the Bank

was set up at 4 Clive Ghat Street presently known as N. C. Dutta Sarani, Kolkata 700

001which was shifted to its present location at 11 Hemanta Basu Sarani, Kolkata –

700001 in 1972 for operational efficiency. Presently the Bank has a three-tier

organisational setup consisting of its Head office in Kolkata, 28 Regional offices and

1600 branches spread all over India

UBI played a significant role in the spread of Banking services in different parts of the

country, more particularly in Eastern and North-Eastern India. UBI has sponsored 4

Regional Rural Banks (RRB) one each in West Bengal, Assam, Manipur and Tripura.

These four RRBs together have over 1000 branches. United Bank of India has

contributed 35% of the share capital/ additional capital to all the four RRBs in four

different states. In its efforts to provide Banking services to the people living in the not

easily accessible areas of the Sunderbans in West Bengal, UBI had established two

floating mobile branches on motor launches which moved from island to island on

different days of the week. The floating mobile branches were discontinued with the

opening of full-fledged branches at the centres which were being served by the floating

mobile branches. UBI is also known as the 'Tea Bank' because of its age-old association

with the financing of tea gardens. It has been the largest lender to the tea industry. The

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Bank has three full fledged Overseas Branches one each at Kolkata, New Delhi and

Mumbai with fully equipped dealing room and SWIFT terminal . The operations of 500

branches have been computerised either fully or partially and Electronic Fund Transfer

System came to be implemented in the Bank's branches at Kolkata, Delhi, Mumbai and

Chennai. The Bank has ATMs all over the country and having Cash Tree arrangement

with 11 other Banks. United Bank of India has made place in customer’s life with its

quotes “Unique Banking Ideas” and “The Bank that begins with U”. The Base Rate of

UBI has been set at 8.25%

Table 2A

MILESTONES OF UBI

Year Details

1961 The Cuttack Bank Limited and The Tezpur Bank Limited merged with UBI

1964 Staff Training college at Kolkata (then Calcutta) was setup

1969 The Bank was nationalised by Government Of India

1970 Mobile branches were set up by the Bank

1973 Hindusthan Mercantile Bank Limited merged with the Bank

1976 Narang Bank of India Limited merged with the Bank

1980 Appointed as convenor of State Level Bankers’ Committee in West Bengal,

Tripura and Manipur

1993 First branch brought under total branch mechanism

1995 Crossed business level of Rs. 10,000 crore

2006 Crossed business level of Rs. 50,000 crore

2007 Rolled out first CBS branch

2007 Setup United Bank Socio – Economic Development Foundation Trust for

rendering assistance to the weaker and under priviledge sections of the

society.

2007 Setup the first Rural Development and Self Employment Training Institute

to provide residential training to small farmers and unemployed youth free

of cost.

2009 Achieved 100% CBS for all its branches

2009 Crossed business level of Rs. 100,000 crore

2010 Successfully completed the Initial Public Offering

2.3 United Vision

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To emerge as a dynamic, techno savvy, customer-centric, progressive and financially

sound premier Bank of the country with pan India presence, sharply focused on business

growth and profitability, with due emphasis on risk management in an environment of

professionalism, trust and transparency, observing highest standard of corporate

governance and corporate social responsibility, meeting the expectations of the

shareholder as well as the aspirants of the employees.

TABLE2B

BOARD OF DIRECTORS OF UBI

Name Designation

Shri. Bhasker Sen Chairman and Managing Director

Shri. S.L Bansal Executive Director

Shri. Sanjeev Jindal Government Nominee Director

Shri. Tulsidas Bandyopadhyay RBI Nominee Director

Dr. Naina Sharma Non-Official Director

Shri. Suprita Sarkar Officer’s Employees Director

Shri. Soumitra Talapatra Workmen Employee Director

TABLE 2C

AWARDS RECEIVED BY UBI

Year Details2006 National Award for the second best performance in financing small scale

units by Ministry of Small Scale Industries, Government of India

2007 Golden Jubilee Award for the best Bank in north east zone for excellence

in the field of khadi and village industries from the Ministry of MSME,

Government of India

2007-08 Best Bancassurance partner by Tata AIG

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2008 National Award for the best Bank for excellence in field of Khadi and

village industries for east and north east zones from the Ministry of

MSME, Government of India

2008-09 Pinnacle Partner of the year by Tata AIG

2008-09 Highest contibutor to lives insured by Tata AIG

2009 National Award under Prime Minister Employment Guarantee Programme

in north east zone from the Ministry of MSME, Government of India

Source: Website of UBI

2.6 Highlights for Financial Year ended March 31, 2010 (FY10)

Net Profit up by 74.5%. to Rs.322.36 cr (Rs 184.71cr in FY09)

Net Interest Income up by 19.8% to Rs1391.23 cr (Rs1161.51 cr in FY09)

Non Interest income up by 13.8% to Rs. 558.74 cr (Rs490.86Cr in FY09)

Operating Profit up by 29.3% to Rs875.85 cr (Rs 677.23 cr in FY09)

Advance up by 19.7 % to reach at Rs.42756 crore.

Deposit up by 25.0% to reach Rs.68180 crore.

The share of CASA stood at 38.2%

Capital Adequacy : 12.80%  ( 13.28% in FY09)

TIER I Capital Adequacy: 8.14 % (7.56 % in FY09)

Net Interest Margin at 2.24%   ( 2.15% in FY09)

Return on Average Assets (RoA) stood at  0.45% (0.34% in FY09)

Return on Equity-(RoE) stood at 12.26% (8.15% in FY09)

The Priority Sector Advances increased to Rs 14396 Crs as on March, 2010

registering a growth of 22.5% on yoy basis.

The Gross NPA ratio and the Net NPA ratio stood at 3.21% and 1.84 % respectively.

Book value per share is Rs.91.6.

CHAPTER-III

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CONCEPTUAL STUDY(CONCEPTS/MODELS USED)

Credit Appraisal in Banks

Credit Appraisal is the process by which a lender appraises the creditworthiness of the

prospective borrower. Credit appraisal process of a customer lies in assessing if that

customer is capable to repay the loan amount in the stipulated time, or not. Banks have

their own methodology to determine if a borrower is creditworthy or not. It is

determined in terms of the norms and standards set by the Banks. The bank has to make

proper enquiry not only into the borrower’s capacity to pay but also his willingness to

repay the amount. Being a very crucial step in the sanctioning of a loan, the borrower

needs to be very careful in planning his financing modes. The Banks need to be

cautious, lest they end up increasing their risk exposure. All Banks employ their own

unique objective, subjective, financial and non-financial techniques to evaluate the

creditworthiness of their customers. The "Five C's" are the basic components of credit

analysis which are as follows:

3.1 Character 

In assessing the creditworthiness of a person, first consideration is given to the

character of the person. It is the general impression that the borrower makes on the

prospective lender. The word character includes a number of personal characters

like honesty, integrity, regularity and promptness in repaying his dues, sense of

responsibility, reputation and goodwill he enjoys in the eyes of others. Banks will

form a subjective opinion as to whether or not you are sufficiently trustworthy to

repay the loan or generate a return on funds invested in your company. The lenders

check the willingness and intentions of the borrower to repay. The educational

background and experience and expertise to be considered. The quality of references

and the background and experience levels of the employees will also be reviewed in

case of business.

3.2 Capacity 

The ability to repay is the most critical of the five factors, it is the primary source of

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repayment that is cash. The prospective lenders will want to know exactly how the

customer intends to repay the loan. The lenders will consider the cash flow from the

business or the income of individuals, timing of the repayment, and the probability

of successful repayment of the loan. The success of an enterprise largely depends on

the ability, competence and experience of the entrepreneur. If the borrower

possesses these skills to run the business successfully, the bank considers it as a

deserving case for granting credit. Payment history on existing credit relationships-

personal or commercial is considered an indicator of future payment performance.

Potential lenders also will want to know about other possible sources of repayment.

3.3 Capital 

Here the Bank examines how well-capitalized the borrower’s company is. Amount

he has invested in the business is the money is an indication of how much the

borrower is at risk should the business fail. The bank does not lend to any

entrepreneur or individual who does not have adequate fund of his own. The

Interested lenders and investors will expect the borrower to have contributed from

his own sources and to have undertaken personal financial risk to establish the

business before asking them to commit any funding. In case of failure of the

business, the bank can realize his money if the borrower’s capital is sufficient. The

capital position of retail borrowers is analysed by his financial records.

3.4 Collateral 

Collateral are additional forms of security the borrower can provide the lender along

with the primary security. Giving a lender collateral means that the borrower pledges

an asset his own, such as house, to the lender with the agreement that it will be the

repayment source in case he can't repay the loan. The banks evaluate the

marketability, ascertainability, transferability and stability of value of the collateral.

The collateral should be easily converted into cash, the market value of the security

should not be highly fluctuating, the collateral should also be transferred easily into

the banks name and the value of the collateral should be easily determined.

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3.5 Condition 

It describes the intended purpose of the loan. Will the money be used for working

capital, additional equipment or inventory? The banks will also consider local

economic conditions and the overall climate, both within the industry and in other

industries that could affect the business of the borrower. The sensitivity of the

income stream of the business or individuals to adverse conditions is examines by

the banks. The condition will determine the repayment capacity of the borrower.

Thus, these 5 “Cs” of credit guide the banks in the credit appraisal strategy. They

provide the requisite framework within which the banks formulate their credit inspection

process. A successful appraisal system covers all the Cs and ascertains the risk

associated with a credit proposal and the eligibility of the loan applicant for the credit.

CHAPTER-IV

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CREDIT FACILTIES

The credit facilities advanced by UBI can be divided into the following:

4.1 Working Capital Credit

4.2 Term Loan

4.3 Retail Credit

The credit facility provided by the Bank can also be classified in to the following credit

facilities:

Fund based credit

This is a direct form of lending in which a loan with an actual cash outflow is given to

the borrower by the Bank. In most cases, such a loan is backed by primary and/or

collateral security. The loan can be to provide for financing capital goods and/or

working capital requirements.

Non-fund based credit

In this type of facility, the Bank makes no funds outlay. Facilities such as 'letters of

credit' and 'guarantees' fall under the category of non fund based credit. But in case of

default by the borrower to fulfill his commitment towards LC or BG, the non-fund

facility gets crystallised into fund based

4.1 Working capital credit

Working capital is the capital required by any business enterprise or unit to carry out its

day to day operations particularly towards completing a working cycle. It includes the

finance for purchase of raw material, wage payment, carriage inward and outward, etc.

The Bank provides WC finance to meet these requirements of the borrower in the form

both fund based and non-fund based facility for a period less than a year. However the

credit limit of the facilities gets renewed year after year. The amount approved by the

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Bank is called Maximum Permissible Bank Finance. It is the maximum amount that the

borrower can draw from the Banking system. WCC is provided in the following ways:

4.1.1 Cash Credit

This is the most popular method of WC finance and the most flexible arrangement from

the borrowers’ point of view. Under this facility, the debtor is allowed to withdraw funds

from the Bank up to the sanctioned credit limit. The credit limit gets renewed year after

year .He is not required to borrow the entire sanctioned credit once, rather he can draw

periodically to the extent of his requirements and repay by depositing surplus funds in

his CC account. Interest is payable on the amount actually utilized by the borrower.

Generally the Bank does not recall such advance until and unless the account becomes

NPA.

4.1.2 Overdraft

Under this facility, the borrow is allowed to withdraw funds in excess of his current

account balance up to a certain specified limit during a stipulated period against some

security. Though overdrawn amount is repayable on demand, they generally continue for

a long period by annual renewals of the limits. The borrower can withdraw and repay

funds whenever he desires within the overall stipulation. Interest is charged on the daily

balance subject to some minimum charges. The borrower operates the count through

cheques.

4.1.3 Purchasing or Discounting of bills

Under this facility the borrower can obtain credit from the Bank. The Bank purchases or

discounts the borrower’s bills. The amount provided under this facility is covered within the

limit of Bill purchased or Bill Discounting. In case of purchasing of bills the Bank becomes

the owner of the Bank but generally holds the bills as security for the credit. When the Bank

discounts the bills, the borrower is paid the discounted amount and the Bank collects the full

amount on maturity.

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4.2 Term Loan

Term loan is a credit facility payable within a stipulated period in installment(s) spread

over one year or more than a year. Repayment of term loan is made out of profit.

Duration of the term loan is not normally over 7 years except in case of

infrastructure and project finance where it may extend up to 15-20 years. Housing loans are

part of long-term loans and in some cases repayment period may extend up to 20 years

subject to fulfillment of other norms stipulated in lending policy UBI.

Term loans are taken by the borrowers for the following purposes:

Normal capital expenditure.

The acquisition of fixed assets like land, building, machinery, vehicles, etc

Modernization, renovation and expansion of existing units.

Implementation of Brownfield/Greenfield projects.

Non fund Credit

1. Letter of Credit

L/C is a commitment from a Bank guaranteeing that a buyer's payment to a seller will

be received on time and for the correct amount. The Bank opens the L/C in favour of

the customers to facilitate the purchase of goods. If the customer does not make the

payment to the supplier of goods, machinery or equipment within the credit period, the

Bank makes the payment under the LC arrangement. This passes the risk of the

suppliers to the Banker. In the event that the buyer is unable to make payment on the

purchase, the Bank will be required to cover the full or remaining amount of the

purchase .Bank extends LC facility to parties who are its regular customers. Further, it is

desirable that LC limit should be with a fund based limit.

LC is sanctioned for procurement of raw material, financing project

implementation/capital expenditures. Bank may also allow issuance of LC for

procurement/ purchase of Capital Goods within the TL sanctioned for such projects. The

amount of such LC should not exceed the cost of capital goods provided in the

Project/Capital Cost.

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2 .Bank guarantee

Bank Guarantee is an irrevocable commitment by a Bank to pay a specified sum of

money in the event that the party requesting the guarantee fails to perform the promise

or discharge the liability to a third person in case of the requestors default. This facility

is provided for shorter period of less than 3 years however for projects guarantee for 10 -

15 years is also provided by UBI with permission from the Regional Manager

Financial guarantee

The Bank guarantees the customer’s financial worth, creditworthiness and capacity to

take up financial risk to the extent of amount mentioned in the guarantee. Financial

purposes are mainly for security deposit, mobilization advance, bid bond/earnest money.

Guarantee for the purpose of mobilizing advance money from the buyer is considered as part of

working capital finance

Performance guarantee

In this case the Bank guarantee relate to the technical, managerial, administrative

experience and capacity of the customer to perform the specified contract

The liabilities in both cases are reduced to monetary terms.

4.3 Retail Credit

Retail lending will continue to be a thrust area for the Bank with special focus on its various

retail credit products. The most important and popular retail credit facilities of UBI are the

housing loan and education loan facility provided under the following schemes:

4.3.1 The United Education loan

This scheme aims at providing financial support from the Bank to deserving/meritorious

students for pursuing higher education in India and abroad. Educational loans are

granted to individuals up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies

abroad. The loan amount also includes the hostel fees, examination fees, travel expenses,

purchase of books etc.

The Bank has launched United Excel Education Loan Scheme for the students of IIT,

IIM and other premier Institutions for pursuing Management, Medical and Technology

courses.The loan is to be repaid in 5 to 7 years after commencement of repayment. The

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repayment will commence after a moratorium/ repayment holiday which is Course

period plus 2 years or 6 months after getting job whichever is earlier.

4.3.2 United Housing Loan Scheme

UBI through its united housing provides its customers to fulfill their dream of owing a house/

flat of their own choice at attractive terms. UBI provides the loan for the following purposes.

1. Purchase of ready built house/flat or house/flat under construction

2. Purchase of old house/flat not old over 35 years.

3. Construction of House on own land.

4. Renovation/extension/repair/ furnishing of owner-occupied or tenant-occupied house

or flat.

5. Purchase of land for construction of house within 2 yrs

6. Purchase/ take-on of long-term lease (min. 10 yrs) of house/flat from Govt.

Bodies/PSUs (unexpired lease period should exceed atleast years than repayment

period of loan)

UBI provides a basket of credit facilities for facilitating the needs of the business

activities and the retail borrowers. Each facility enables the borrowers to accomplish

their objective at the same time they bring some risk for the bank. So this gives rise to

the inherent necessity of inspection of the creditworthiness of the prospective borrowers

before extending credit to them.

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CHAPTER-V

APPRAISAL FOR WORKING CAPITAL and TERM LOAN

The appraisal of working capital and term loan credit in UBI is done through a

processing format prescribed by the Head Office. There are three types of processing

formats for credit below 25lakhs, 25 lakhs to 1 crore , 1 crore and above.The processing

format has a detailed note of the appraisal parameters considered by the Bank for

processing the credit proposal. The detailed note is divided into various annexure. The

Retail Banking Department has its own processing format for the appraisal of credit

proposals.

The bank also determines the actual amount of the fund or non-fund facility required by

the bank.

Incase of WC credit the WCR is determined by various method like the turnover

method, 1st and 2nd method of lending and the cash budget method.

The limit of the Term Loan is determined by the evaluation of the Project report

submitted by the applicant of the loan

Research Methodology

The projects includes the data which were collected by both primary and secondary

sources

Primary Data

Primary data was collected from the officers of the Bank.

Secondary Data

Valuable information was collected from secondary sources like the varied lending

proposals of the 1Bank, UBI Lending Policy Report, business magazines, business

newspapers, internet sites and journals of UBI.

5.1 Information source for credit appraisal

The credit evaluation process begins with the collection of information from the various

sources about the borrower and his business unit to judge or assess the 5 Cs of credit in

respect to the borrower. The Bank accumulates the data from the following sources:

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Interview with the management and employees of the Company.

Credit Information Bureau of India Ltd (CIBIL)

Memorandum of Association (MOA) of the Company

Articles of Association (AOA) of the Company

Auditor’s Report.

Reserve Bank of India (RBI)

Export Credit Guarantee Corporation (ECGC)

Credit Rating Agencies

Association of Traders/Chambers

Securities and Exchange Board of India (SEBI)

Company Law Tribunal (CLT)

Project Information Memorandum

Various Tax Authorities like Income Tax, Sale Tax,etc

Other Banks/ Banking circle

Inspection of the business unit

Buyers, suppliers to the business unit

Media sources including internet

5.2 General guidelines for credit appraisal

The borrower should have a credit risk rating of at leastUBICR-3 both for working

capital and term loans.

Under Basel II norms all corporate exposures exceeding Rs.10 crores should be rated

by RBI accredited Credit Rating Agencies, viz. CARE, CRISIL, ICRA, FITCH and

SMERA (for SME), etc. The rating done by external agency should be at least of

Investment Grade that is BBB for long term loans and Working Capital Credit

Proposals should be processed using limit-wise formats prescribed by HO from time to

time conforming to the norms applicable as per lending policy and extant guidelines of the

Bank.

The business activity of the borrower should be in consonance with the lending policy of

the Bank

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The proposals should conform to the norms regarding financial parameters. .

In the case of small borrowers, the Bank ensures that the individual resides/

undertakes activity within the command area of the branch so that it becomes easy for

the Bank to make physical examination of the unit cost effectively. Further discreet

enquiries are made with nearby residents/business

establishments/employer/colleagues on the standing/credit-worthiness of the

borrower.

The Bank can take the help of professional agencies for the above due diligence

process.

5.3 Special guidelines for credit appraisal

The Bank has some typical guidelines for the appraisal of takeover, new and existing

units. The special rules for the acceptance or rejection of the credit proposal are as

follows:

5.3.Take over proposal

The proposal should confirm with the general guidelines of credit appraisal.

In general Bank does not take any fresh exposure in account which has been

classified as NPA with other Banks but the Bank takes over the Standard Assets.

While taking over any credit exposure from other Bank, the borrower’s purpose of

shifting from the previous is thoroughly examined.

Existing units of at least 3 years old with net profit (as per audited Balance Sheet for

eligible cases) in the immediate preceding 3 years are only eligible for taking over.

The Bank examines the account statements of the borrower from the existing

Banker(s) to confirm satisfactory past dealings and operations of the borrower with

the previous Bank.

Take over in project implementation stage is generally avoided. Takeover proposals

for infrastructure / construction / commercial real estate loans are considered at Head

Office level due to the risks associated with such projects.

The proposal should also confirm to the financial parameters used in the appraisal

process.

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5.3.2 New proposal

The appraisal of new exposures to the Bank is carefully done.

In case of new projects / business, additional care should be taken as the historical data are

not available.

In the appraisal of such proposals special importance is given to the appraisal of

promoter’s business acumen, his business contacts and experience to ensure that the

business will be feasible and will be able to pay back its debtors.

The risk rating exercise of the new proposal is made on the parent company already

in existence as the historical financial data are available.

The Bank does not take up new proposals where one time settlement/ compromise

has been already done for the entity resulting in sacrifice by the Bank.

In case of such proposals if the name of the Director/ promoter/entrepreneur appears

in the RBI defaulters list, such proposals are not entertained by the Bank.

New exposure under the CDR mechanism may be taken up by the Bank after through

appraisal of the strength and track record of the promoters, performance of the company,

default in servicing of interest and repayment of installment to the existing lenders, Asset

classification with all existing lenders remain as Standard, credit rating and full security of

tangibles.

5.3.3 Existing proposal (Renewal/Enhancement/Reduction)

The WC limit (fund and non-fund based) are generally sanctioned for a period of 12

months only with provision for renewal on annual basis. As such regular WC facility

(fund and non-fund based) needs to be reviewed and renewed not later than three (3)

months from the due date.

In case of TL, review of status containing conduct, compliance of sanctioned terms,

performance vis-a-vis projection, progress of project implementation etc. on annual

basis (from the date of first disbursement) is completed within 6 months

The review, enhancement or reduction of the credit facilities is done by the Bank after

an in- depth examination of the past and current performance of the business. Due

importance is given to the performance measurement against the projections provided

by the company.

At the time of review / renewal of borrower’s account where rating has slipped to

UBICR4 or less,it is examined whether the slippage in rating is due to occurrence of

22

certain internal and / or external factors which the borrower’s unit may overcome

within a short period of time

In cases under BIFR packages / CDR mechanism or restructuring / additional

exposure may be considered by the Bank in deserving cases provided that provision

for enhancement is as per approved package or the company is satisfactorily performing as per

approved package and additional requirement has been arisen out of normal/enhanced business

activities.

CHAPTER-VI

COMPONENTS OF CREDIT APPRAISAL

In the credit appraisal process the Bank takes into account various non-financial data for

deciding over the capacity, condition and creditworthiness of the company or business

unit. These parameters are as follows:

6.1 Industry scenario

While appraising a working capital/term loan proposal for commercial/industrial

ventures, the situation of the respective industry is kept in view. The Bank subscribes to

CRISIL and CMIE for getting updates on performance and outlooks of different

industries. The Bank takes the help of such information as well as other market/industry

sources. It is done to judge the competence / performance of the borrower amongst its

peer group. The factors like growth of the industry over the years and the prospects of

growth in future, demand driver, the number of competitors, contribution of the

industry to economic development, domestic and foreign investment in the industry,

export opportunities, price dominance, entry-exit barriers are examined.

6.2 Company profile and history

The study of these factors is very essential to see the profitability and repayment trend in

the past. It helps the Bank to judge the future income generation prospects of the

business. The establishment details of the company, line of activity, presence of the

23

company in various sectors, the promoters of the company, presence of the company or

the group across the globe, employment generated by the company, growth in market

capitalisation , net assets and net worth are the parameters which are considered.

6.3. Ownership of the company

This covers the legal structure of company, i.e. is it public / private / listed. If listed then

broker reports can be an additional source of information besides share price. Sole

proprietorships / partnerships tend to be higher risk. Potential support can be provided

by sister concerns, multinationals etc. While this can be a support it can also work as a

disadvantage with possible diversion of funds to sister concerns which is addressed.

When dealing with individual Group companies the overall review of the Group

exposure to ensure that the Group Risk is adequately analyzed and monitored, and

Group limits also set.

6.4. Brief particulars of the Promoters and Chief Executives

In the process of credit appraisal the Bank also seeks the particulars of the Promoters

and the key management personnel of the company like their name, age, designation in

the company’s management, their educational qualification, experience and areas of

expertise. This information helps the Bank to judge the managerial competence of these

persons in successfully running the business. The Bank gets the assurance that the

promoters are capable of implementing and managing the project and earning profit for

the business to service their debt.

6.5. Details of the group companies

The appraisal of a credit proposal is not limited to the particular company. The Bank

also appraises its group companies. The information regarding the group companies like

their name, line of activity, no of years in that industry, brief financials like net worth,

income, profit are obtained by the Bank to examine the viability and feasibility of the

group companies. This provides assurance to the Bank regarding the of the borrower

company. This kind of appraisal is important in case of new proposals. The financials of

the group companies are examined in detail in case of the appraisal of the loan proposal

of a completely new business unit of that group as the financial of the units are

unavailable.

24

6.6. Background of the project/business activity

Project feasibility report showing the project configuration and likely capital expenditure

this is done by the company through reputed and experienced consulting firms. The

supply of power, raw material, utilities, infrastructure, manpower etc are examined by

the Bank in order to ensure that the business runs smoothly and gets regular cash

inflows. In case of projects the techno-economic feasibility study is made by the Bank.

This report is done by specialized agencies and submitted to the Bank

6.7. Observations by various authorities

The Bank enquires if the name of the Company or any of its Directors appears in any of

the default lists. The lists include RBI Defaulters List, RBI Willful Defaulters List,

CIBIL List for suit filed A/Cs of Rs 1.00 crores and above, CIBIL List for suit filed

A/Cs of Rs 0.25 crores and above, ECGC SAL List, NPA list of Bank.

A scrutiny is made of any adverse orders/observations regarding the company, issued by

Company Law Board and/or Securities and Exchange Board of India.

The Bank also evaluates if there is any proceeding pending against the borrower

for violation of statutory regulation relating to FEMA / Customs / Excise / Income

Tax / Sales Tax etc.

6.8. Assumptions of the proposal

The assumptions regarding capacity utilization, costs, output, depreciation etc

underlying the projections of the proposal are appraised by the Bank. The reliability and

correctness of the assumptions is checked. If these are not proper than the projections

regarding income or revenue made on the basis of the assumptions might not be

realized. Ultimately the repayment capacity of the business will be adversely affected.

6.9. Clearances and approvals

The Bank in the process of credit appraisal examines whether the business unit has

obtained the required clearances and approvals like land clearance, pollution clearance,

environment clearance etc from the requisite authorities for carrying out the business

activity or project. If the company does not comply with these requirements the Bank

25

may be at risk due to the interruption or closing down of the business/ project resulting

in non repayment of dues to the Bank.

6.10. Marketing and selling arrangements

The Bank examines the availability of marketing arrangement made by the business

concern for the selling of its products to the buyers. The bank evaluates the company’s

provision of advertising campaigns for the sale of its products or the company’s

appropriate arrangements for ensuring the disposal of the products produced. Or the

business will not earn revenue and default in paying back the credit availed from the

Bank.

6.11. Capital market particulars

The capital markets particulars of the company are also by the Bank. The data examined

are whether the company is listed in any stock exchange, the current market price of the

share, 52 weeks high and low price of the share. If the company is listed in any stock

exchange then the share price movements (high and low) in the last three years are

studied. This gives the Bank an idea of the public reputation of the company by the

share price movement. This also helps the Bank in the appraisal process to judge the

earning capacity, dividend payment trend, affect of economic events on the share price

of the company.

6.12. SWOT analysis

The Bank does the SWOT analysis of the business unit or project to examine the

strengths, weaknesses, opportunities and threats. This provides the Bank with valuable

information regarding the present and future prospects of the business. It helps in

examining whether the business is matching the resources with the opportunities while

operating in a competitive environment.

6.13. Auditor’s details and their report

Quality of auditors is ascertained to judge reliability of figures, and check if the accounts

are qualified. The Bank depends on the information provided by the business for credit

appraisal, so the Bank ensures that the data are thoroughly checked by reliable auditors.

The auditors report is evaluated by the Bank to check the presence of any adverse

comment regarding financials of the company.

26

6.14. Credit exposure of the company

Bank experience to date with borrower and use of facility are reviewed. Limits with

other Banks should also be provided, besides ability to obtain additional debt i.e. Bank

should avoid being in a situation of lender of last resort. Sole Banking relationships are

undesirable as it shows too much reliance on one source. Proposed Limit will give the

overall exposure to the company, which should be reviewed to see if it is warranted, in

relation to facility purpose, size of sales, capital etc., besides the usual credit criteria

6.15. Risk Analysis and Mitigation

In this part of credit appraisal the Bank analyses the risk associated with the working of

the business unit and the required steps taken by the company to mitigate those risk so

that they don not obstruct the working of the concern or the completion of the project.

There are many other risks associated with the financing of business units which are

specific to the particular type of project. So the common risks which are analyzed by the

Banker are as follows:

TABLE 6A

RISK ANALYSIS ANDMITIGATION

Risk type Analysis and mitigation

Promoter/Sponsor

risk

The experience and qualification of the promoters.

The capacity and track record of the promoter companies.

The market reputation of the promoters.

Promoter’s

withdrawal risk

The chances of change in the debtor’s management and control

due to reduction in promoters’ contribution.

Clearance/

approval risk

The company has obtained clearance and approvals from various

authorities for the project like environment clearance,

commencement of business certificate, incorporation certificate

etc

Financial risk-

Equity

The adequacy of resources of the promoters to fund the necessary

promoter’s contribution.

The sources of equity requirement of the proposal.

Financial risk- The risk of raising funds through various sources of debt.

27

debt

The acceptance of the loan proposal of the company by the Bank

based on its satisfactory credit track record and strong financial

position.

Technology risk The technology used by the company in the project.

The use of proven and timely tested technology.

Cost risk The risk of cost overrun

Insurance cover of the project

Time risk The risk of time overrun

Proper monitoring of the project

Performance

shortfall risk

Shortfall in performance parameters like power generation rate,

The presence of qualified and experienced persons to execute the

project.

Performance shortfall leads to reduction in cash accruals

Off take risk The analysis of the demand –supply scenario

The price for the supply of products by the company.

Demand risk Market growth enhancing demand for the concern’s products

Sales opportunity for the business concern

Foreign exchange

risk

Fluctuation of Indian rupee against foreign currency

Payment by the company towards imported components

Hedging facility taken by the borrower

Interest rate risk The interest rates are in line with current market scenario or not

The sensitivity for increase in interest rate and the ability of the

company to service its debts

Force Majeure

risk

Unexpected risk of flood , earthquake etc

Insurance cover obtained by the firm

Risk of change in

law

Modification, repeal or enactment of any laws

Change in any consents, approval or license

Change in interpretation or application of Indian Law

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CHAPTER-VI

FINANCIAL PARAMETERS OF CREDIT APPRAISAL

The appraisal of the financial parameters for advancing credit is the most important step

in the appraisal process. The Bank analyses the financial of the projected data and the

past data if available. While analysing the financial parameters of past financial years

due weight is given on last audited financials. However, when major part of a financial

year has been passed or during the interim period between close of a financial year and

completion of audit, the performance during current/just concluded year should also be

considered along with the financial parameters for taking credit decision.

The basic financial parameters, which form the foundation of the Bank’s credit

appraisal, are as follows;

7.1 Financial statement analysis

The main purpose of studying the financial statement is to ascertain the financial health

of the company and to appraise whether the unit is healthy enough to repay the

borrowing from the Bank. The Banks obtain the audited financial statements for at least

past three years of the business. While analysing the audited financials, Auditors’

Report and Notes on Accounts should be carefully examination. Beside last audited

financials and current performances, all credit decisions are also based on future

estimate/projections. Such estimates/projections based on assumptions are critically

examined and only realistic ones are accepted for taking credit decisions.

The main source of repayment is profit. Thus the lender, the Bank has to necessarily

ascertain the profit earning capacity of the unit. Where due to reasons beyond the control

of the unit, there is a fall in profit or there is a negative profit, the Bank can get its debt

paid by the sale of the assets of the company. Profitability and solvency indicates the

inherent strength of the concern in repaying the debt but actual payment of the debt can

be made only if the concern has enough cash or liquid assets. Thus study of liquidity is

also equally important the Bank. Besides this the overall financial health of a unit

depends on efficiency of operation or activity and structure of different sources of

capital/fund marshaled by the unit.

Thus the study of financial statement involves the study of the Solvency, Liquidity,

Profitability, Leverage, Activity of the concern.

29

While examining audited financials of corporate entities the auditor’s notes to the

account should be studied for the accounting policies and practices followed by the

business entity, details of contingent liabilities including guarantee obligation, claims

relating to income tax/sales tax/excise duty/custom duty pending in the courts/tribunals.

The information gathered as above shall enable the Bank to get an idea on the business

ethics adopted by the constituent.

7.1.1Analysis of Balance sheet

The classification of the Balance sheet items should be done by the company strictly as

per the RBI guidelines. The liabilities are classified into three groups namely Net worth,

Term liabilities and Current Liabilities on the basis of the time of payment. Items in net

worth are the permanent source of and need not be paid back. Term liability items are

payable after one year while Current liability items are payable in short term that is

within a year.

The assets are also grouped according to their nature namely fixed, current, contingent

and other noncurrent assets. Fixed assets are those acquired for long term purpose.

Intangible assets are which are not available for payment of debt as long as the business

runs. Current assets are those which take part in the operating cycle of the business.

Other non current assets are slow moving assets not acquired for normal business

purpose.

7.1.2Analysis of profit and loss account

Bank requires the operating statement to be prepared in the specified format of RBI for

examination of the performance of the concern during a period. This format shows the

Gross Profit, Operating Profit, Profit before tax and Profit after tax which helps the Bank

to point out the efficiency/inefficiency in the business operations.

7.1.3Analysis of cash flow statement

The cash flow statement of the business needs to be prepared in the prescribed format

specified by RBI. Cash plays essential part in the running of the business for making

payments to suppliers, salaries, wages and mainly the interest to the Bank. The business

may run profitably but there may not be adequate cash. The inflow and outflow of cash

is analysed to see the firms’ ability to coordinate its financial operations properly. The

30

increase / decrease in CA and CL, increase/decrease of term loans, increase in equity etc

change the cash generated from the business.

7.1.4Analysis of funds flow statement

A funds flow statement helps to find out the diversion of funds if any. It is prepared on

the basis of long term sources and uses of funds.

Diversion means use of short term source of funds for long term purpose. Short term

source of funds liabilities are payable on demand or on short notice. In case such funds

are deployed for long term use like purchase of fixed assets or intangible assets or inter

corporate investments the units is almost likely to face liquidity crunch and cannot meet

its current liabilities in time. It changes the self-liquidating nature of WC advances,

weakens the liquidity and financial It the funds flow statement also reveals the purpose

for which the profit during the year is utilized as it affects the internal strength of the

company in difficult situation. The Bank is also carefully examines the diversion of the

funds of the borrower for external uses like donations, share market investment etc.

diversion changes the self liquidating nature of WC advances, weakens liquidity and the

financial stability of the unit. There is shortage of WC, underutilization of capacity

thereby reducing profitability. It is a risky situation for the Bank.

7.1.5Breakeven analysis

The financial viability of the business or project can be studied by the breakeven

analysis

A term loan should be serviced out of profit. If the unit functions at a level of sale at

which there is no profit, it is natural that it cannot repay the term loan installments. This

is why the Bank calculating the break even point. Once the BEP is calculated the sale

projection made in the profitability statement is compared with BEP sale. In case the

difference between the BEP and projected sales is very low, the Bank finds it risky to

finance a minor deviation in some elements of the projected cost may result in a loss and

nonpayment of the term loan. On the other hand where the projected sale is appreciably

higher than the break even point, the probability of earning some profit is there even if

there are some deviations in projections. The Bank prefers a unit with comparatively low

BEP. The Bank also examines the Margin of Safety of the unit and prefers to finance

units with higher margin.

31

7.1.6 Cost of project and means of finance

The cost of the project includes all the expenditure required to bring the project into the

stage of commercial production and consists of the major components like Land and Site

Development, Building , Plant and Machinery, cost of technology, Preliminary

expenses, margin on WC, provisions for contingencies.

The means of financing can be Capital, surplus, quasi equity, term credit, WC credit.

The importance of examining the cost and means of finance by the Bank is to know

Whether the means of finance is sufficient as compared to the cost

Whether the Debt Equity ratio satisfactory as per the Bank’s benchmark requirement.

Whether the promoter’s contribution is as per the Bank’s requirement

The average cost of finance and how it compares to the return from the project.

7.1.7 Sensitivity analysis

Sensitivity analysis is a form of quantitative research. It is done in case of term loans

proposals for Rs.10 crore and above to examine the effects of different adverse

scenarios on loan servicing capacity, which is a tool to judge the strength of the

proposal. The lender becomes aware of the difficulties that the uncertainties can cause.

This analysis identifies how much decrease in inflow or increase in outflow can be

tolerated by the project due to changes in the most crirical factors affecting the cash

flow. These critical factors may vary from project to project depending upon the nature

of the industry, the gestation period, regulatory controls etc. The effect on the IRR,

NPV, DSCR, BEP etc. due to changes in the most critical (sensitive) parameters is

studied .The analysis suffers from the drawback that one factor is taken at a time, which

may not be the case in actual scenario. The parameters are as follows:

Increase/Decrease in Selling Price.

Increase /Decrease in Debt.

Increase/Decrease in Capacity Utilisation.

Increase/Decrease in Working Capital.

32

7.2 Ratio Analysis

Ratios are important indicators of the financial capacity of an organization to meet its

commitments. Ratio analysis is a quantitative technique in financial management. This

is a technique for assessing the financial health of a unit from the accounting data. This

is a tool for credit/ project appraisal for Bankers and financial institutions. This measures

the past performance of an organization and helps projecting the future trends. A ratio

by itself has very little meaning unless it is compared with some appropriate standard.

So the Bank has determined standard for comparison of the most important ratios

7.2.1 Capital Gearing Ratios

The capital gearing is seen to assess the owner’s financial strength or commitment. For

ascertaining this there are two major ratios which are:

1.TOL/TNW Ratio

= Total outside liability

Tangible Net Worth

This is the ratio of the total outside liability to the tangible net worth. It is used by the

Bank to determine the ability of the Bank to service all its obligations out of the net

worth. The unit is said to be solvent if its tangible assets are more than its outside

liabilities. Lower the ratio better for the Bank as better is the creditworthiness of the

business concern. If the unit depends more on the outside borrowings like BB and other

debt, then there are greater chances of default and the negative covenants also put

restrictions on the business’s working. It is ascertained in case of all type of credit

proposals.

Tangible assets = (Share capital +Share application money+ Reserves and Surplus)-

(Intangible assets like goodwill, patents etc. )

Total outside liabilities = Current Liabilities + Term Liabilities.

2. D/E Ratio

= Long term debt

Owner’s fund

33

Debt equity Ratio is one of the most important indicators for assessing the risk in term

lending. This ratio measures the proportion of debt capital to owned fund. There should

be a proper mix of borrowed fund and owned fund in a business. Higher degree of

borrowed funds will result in a position where the owners lack sufficient stake in the

business and no Bank relishes such position.

The ratios of the last audited financial year if available or the estimated year is

compared with the Bank’s benchmark.

These ratios are to be analyzed and variations in them are critically examined to be

reflected in the appraisal note.

TOL/TNW or TOL / NOF and Debt/Equity ratios for various kinds of exposures should

not exceed the following values:

TABLE 7.2A

BENCHMARK TOL/TNW AND D/E RATIO FOR TAKEOVER PROPOSALS

Nature of Exposure TOL / TNW D/E Ratio

Industrial Unit including manufacturing unit under MSME 4:1 3:1

Infrastructure/ Construction / Real Estate 6:1 4:1

Service (including Service unit under MSME) 4:1 3:1

Trading Units 3:1 2.5:1

NBFC(TOL/NOF) 6:1 -

Source: Lending Policy of UBI

TABLE 7.2B

BENCHMARK TOL/TNW AND D/E RATIO FOR NEW PROPOSALS

Nature of Exposure TOL/ TNW D /E Ratio

Industrial Unit including manufacturing unit under MSME 4:1 3:1

Infrastructure / Construction / Real Estate Companies 6:1 4:1

Service (including Service unit under MSME) 6:1 4:1

Trading Units 3:1 2.5:1

NBFC(TOL/NOF) 10:1 -

Source: Lending Policy of UBI

34

TABLE7.2C

BENCHMARK TOL/TNW AND D/E RATIOS FOR EXIXTING PROPOSALS

Nature of exposure TOL/TNW D/E

Industrial Unit including manufacturing unit under MSME 5:1 4:1

Infrastructure / Construction / Real Estate Companies 7:1 5:1

Service (including Service unit under MSME) 7:1 5:1

Trading Units 3.5:1 3:1

Source: Lending Policy of UBI

6.2.2 Liquidity

Liquidity is reflection of the borrowers’ strength or ability to meet the current

commitments .To ascertain this, following ratios/parameters which are calculated in

appraisal of WCC

1. Current Ratio

The current ratio can be found out with and without TL/Debenture/Bond/preference

share repayment redemption installment

= Current Assets

Current liabilities

This ratio measures the short-term solvency of the company. It shows the liquidity

position of the enterprise or its ability to meet current obligations. Higher ratio may be

good from the point of view of creditors. In the long run very high current ratio may

affect profitability.

This ratio does not show the quality of assets therefore the composition of various types

of Current Assets has, therefore, to be seen while interpreting the ratio. The current ratio

of the last audited balance sheet of the company is taken for the purpose of equating

with the standard ratio.

CR (without taking in to account repayment of term loan falling due within next 12

months as Current Liabilities) for various loan proposals are fixed in the bank’s lending

polic

35

TABLE 7.2D

BENCHMARK CR FOR DIFFERENT LOAN PROPOSALS

Nature of credit proposal Minimum ratio

All Proposals 1.33:1

MSME 1.25:1

Export Credit 1.18:1

The CR of the last audited financial year if available or the projected year is compared

with the Bank’s benchmark parameter.

2. Inventory Turnover Ratio

= Cost of goods sold/ Sales

Average inventory

This ratio measures the velocity of conversion of stock into sales. A high ratio indicates

efficient management of inventory, the more frequently the stocks are sold, the lesser the

money required to finance them. However a low ratio shows dull business, poor quality

goods etc. The Bank also carefully investigates very high or very low ratio.

3. Debtor Turnover Ratio

= Net annual credit sales

Average trade debtors

This ratio indicates the velocity of debt collection of the firm. It shows the number of

times the debtors turn in a year. Higher the value, more efficient is the management of

debtors. A very high ratio can also be due to lack of resources to sell on credit thereby

losing the sales and profit. There is no benchmark for this ratio prescribed by the Bank.

7.2.3 Profitability ratios

Beside Profit before and after tax (PBT and PAT), Profit before depreciation, interest,

tax and amortization (PBDITA) is also to be examined. PBDITA indicates the

borrowers’ capability to earn from its operations. Any variations in these parameters

are examined with the help of the following ratios;

36

1. Net Profit Ratio

= Net profit after tax/PAT x 100

Sales

This ratio is the reflection of the efficiency of the management in manufacturing, selling,

administrative and other activities of the firm. It also indicates the firm’s capacity to face

adverse economic conditions such as low demand, price competition etc. Higher the

ratio better it is as the Bank is assured of the sufficiency of profit in the business.

2. PBDIT/ Sales Ratio

= Profit before depreciation, interest and tax x 100

Sales

It indicates the operational efficiency of the business. Higher the ratio better for the

business and the Bank. Higher ratio indicates that the firm will be able to service the

interest charges comfortably.

7.2.4 Cash Accrual

Elimination of non-cash income/expenditures from the net profit element and helps to

understand the Borrowers’ capability to meet obligations from its operation. However,

as the priority obligations like repayment/redemption/lease rentals are to be met from

cash only, this ability can be better understood by Priority Obligation Ratio. It is

desirable that all appraisals for working capital/term loan of Rs.5 crores and above

should contain this ratio for the immediate preceding financial year to understand the

Borrowers’ capability to meet priority obligations from operations

1. Priority Obligation Ratio

(Operating Cash Inflow –Operating cash outflow) = Priority outflow

Operating Cash inflow = Net sales + Other operating income

Add/(less): Decrease/(Increase) in Sundry debtors/receivables

Operating Cash Outflow= Consumption of raw materials, stores, spares and

consumables + Power and Fuel + Direct wages + Other manufacturing costs (excluding

depreciation) + selling and marketing expenses + General administrative (excluding

non-operating and non-cash expenses)

37

Add/(less): Increase/(decrease) in closing stock of raw materials, stores, spares and

consumables

Add/(less): Decrease/(Increase) in sundry creditors

Add/(less): Increase/(decrease) in loans and advances (excluding advance to capital

goods and other non-operating advances)

Add: Payment/deemed payment of Taxes

Less: Opening Cash and Bank balance

Priority Outflow = Repayment of Term Loan + Redemption of Bond/Debenture/Deposit/

Preference Share + Interest

7.2.5 Other Ratios

1. Debt Service Coverage Ratio (DSCR)

DSCR is the most important ratio to be examined in case of TL proposals. Running an

enterprise with financial support from Banks/financial institutions requires their loans to

be repaid with interest. Therefore, an entrepreneur must generate surplus, adequate to

meet repayment obligations. Computation of DSCR is based on gross cash generation.

However, DSCR computation shall not be applicable in case of repayment of short term

loan and loans where repayment obligation is not met out of the profit of the borrowing

companies. The minimum and the average DRCR of the projected years is compared

with the benchmark as per the Bank’s lending policy

= Net profit after tax+ Interest (on long term loans) + Depreciation+ preliminary exp.

Interest on TL+ Installment on TL

The DSCR of all the projected years in which the business will repay the TL are

calculated and the min. and avg. DSCR are compared with the benchmark.

Average DSCR during the repayment period should be at least 1.5:1, for infrastructure at

least 1.33:1

Minimum Debt Service Coverage Ratio in any year should not be less than 1.20:1

2. Promoter’s contribution

This is analysed by the Bank in order to ensure promoter’s control over management of

any business activity, the Bank ensures that the promoter’s contribution should not be

less than 20% of the total equity in the business unit or for a particular project. This

parameter is mainly in case of term loan proposals.

38

3. Loan to value Ratio

= Short term Bank borrowing

Working Capital Gap

This ratio indicates the portion of the WCG which is financed out of the Bank

borrowings. The rest amount is financed out of the NWC. The lower the ratio, the better

for the Bank as it reduces the danger of repayment default for the Bank.

4. Internal Rate of Return (IRR)

IRR of a project is that discount rate which makes its NPV equal to zero .It is the

discount rate that equates the present value of future cash flows with the initial outlay. In

the NPV calculation we assume that the interest rate is known and determine the NPV.

In the IRR calculation, we set the NPV equal to zero and determine the discount rate that

satisfies this condition. The decision rule for IRR is “Accept project if the IRR is greater

than the interest rate and reject if IRR is less than the interest rate of Bank finance to the

project”

5. Asset coverage ratio (ARC)

In case of proposals where both WCC and TL are given ARC is calculated. It shows the

number of times the value of the security is of the loan amount. It denotes how safe the

Bank in providing credit against the security to the business. Higher the ratio better for

the Bank as in case of default the Bank can recover the amount out of the security

The ACR of the projected year is considered for comparison with the benchmark of the

Bank

TABLE 7.2E

COMPUTATION OF ARC

Details Proposed value

A) Value of Primary Security B) Value of Additional Security

C) Value of Total Security (A+ B)

D) Term Loan Outstanding /limit

E) Outstanding balance in WC / WC limit

F) Non-fund based limit

G) Total Exposure (including fund and non fund) (D+E+F)

H) Asset Coverage Ratio (C / G)

39

6. Fixed asset coverage ratio

This ratio indicates the number of times the fixed security covers the credit amount. This

ratio is calculated in case of term loans. The minimum FACR after the construction

period is taken for equating with the standard one. This ratio serves the same purpose as

that of ACR

TABLE7.2F

COMPUTATION OF FACR

Details Proposed value

A) Net Fixed Assets as primary security

B) Value of additional security in the form of Fixed assetsC) Total Value of fixed assets (A+ B)D) Term Loan outstanding/limit E) FACR (C / D)

For WC Loans the ARC should preferably be 1.33 or more but should not be less than

1.20

For proposals involving both WC and TL, ARC should preferably be1.50 or more, but

should not be less than 1.20

For TL, FACR should preferably be 1.50 or more, but should not be less than 1.20.

.

Trend analysis

Study of one years’ financial statement in isolation hardly solves any purpose for the

Bank. The Bank generally examines 3 years financial statements and compares the

trends of the major financial parameters like sales, cost of production and different ratios

etc during these years. The trend will reveal whether the unit is prospering or

deteriorating year after year.

Inter firm comparison

While appraising working capital/term loan proposals of Rs.10 crore and above, inter-

firm comparison, wherever possible, should be done to judge the competence /

performance of the borrower amongst its peer.

40

CHAPTER-VIII

APPRAISAL OF SECURITY

The Bank asks for security from the borrower before the sanction of credit. The security

acts as a cushion for the Bank in case the borrower defaults in making the repayment.

There are two type of securities which are as follows:

8.1 Primary Security

It is the security against which Bank finance is made or the security (asset) which is

created out of the Bank finance.

8.2 Collateral Security

It is the security which is obtained in addition to primary security. It is also called short

collateral.

Pre-sanction inspection of place of activities or office of the enterprise or business unit is

done to ascertain the existence of the unit as well as the assets offered as

prime/collateral security and their acceptability

The appraisal of the primary and collateral security involves the examination of the

following attributes of the security by the Bank:

Marketability- the ease with which the security is converted into cash.

Ascertainability - the ease with which the value of the security is determined.

Stability of value- the fluctuation in the market value of the security.

Transferability- the ease with which it is transferred to the Bank’s name.

Full details are provided by the borrower to the Bank, besides description of security as

the alternative loan repayment source and its realizable value, where possible. It should

be properly insured by a Bank approved Insurance Company and covered against

various risks. Frequent independent verification of the security is done by the Bank to

check the attributes of the security.

41

If the security taken is not saleable, then this should be recognized and the risk

addressed e.g. if there is only a sole seller of the product, then there will be no other

buyer for his assets, in event of a forced sale. The Bank will thus be left with an

unrealizable asset. Where receivables are taken as security, then quality / should be

reviewed, which would enable the Bank to assess the reliability of this asset as a loan

repayment source. Banks should not lend in an inferior position; all charges on security

should be First Registered and pari-passu with other lenders, to ensure the Banks

interests are properly covered. If the Directors' guarantees are taken then separate

individual Net worth statements or tax returns should be provided to support these

guarantees and judge their capacity to repay guaranteed amounts.

In respect to the appraisal of the securities the Asset coverage ratio and the Fixed Asset

coverage ratios are calculated and compared with the benchmark parameters. The

company has to get all its securities duly insured and keep the insurance policy in force

till the currency of the credit facility of the bank. The copies of the insurance policy

should be furnished to the bank.

42

CHAPTER-IX

ASSESSMENT OF WORKING CAPITAL REQUIREMENT

In respect of borrowers having aggregate fund-based WC limit up to Rs.5.00 crore

(except Information Technology and Software Industry where the ceiling is Rs.2.00

crore) from the Banking system, the Turnover method is followed for sanction of

loans .This margin translates to a current ratio of 1.25:1. The assessment of such credit

requirement can also be done by the 1st Method of Lending as per Tandon Committee

recommendations. The WCR which ever is lower in between both the methods is

accepted.

For all other borrowers (except seasonal industries) having fund based WC limit over

Rs.5.00 crore, the Bank follows the 2nd Method of Lending which translates to the

desirable level of current ratio of 1.33:1.

In case of certain seasonal industries like tea, sugar mills, cold storage, brick fields,

etc, and certain specified sectors like advances to borrowers engaged in construction

business and information technology and software sector the Bank follows cash

budget system.

9.1 Assessment of Maximum Permissible Bank Finance (MPBF)

The assessment of MPBF will be possible if the following terms are known:

TABLE9A

DEFINITION OF TERMS FOR MPBF

Terms Definition

MPBF It is the maximum amount of need based finance required

by a unit.

Total Current Assets

(TCA)

This includes all the assets of the business unit divided

into inventory, receivables and other current assets which

are cash, investment.

Other Current Liabilities

(OCL)

These are the current liabilities other than Bank

borrowing and include sundry creditors, bills payable,

advances from customers, provision for tax etc.

43

Bank Borrowing (BB) Incase OCL and NWC are not sufficient to meet the

finance needs of current assets then the unit borrows

from Bank short term finance.

Net Working Capital

(NWC)

This is the surplus of long term sources of funds over

long term uses. It is the contribution from long term

sources used for financing total current Assets or WC.

Working Capital Gap

(WCG)

It is the extent of WC which cannot be financed out of

the other current liabilities.

The steps involved in the calculation of MPBF are as follows:

9.1.1Estimation of the projected level of operations

The business makes the projection of the sales for the future period, the Banker

ascertains if the figures and the assumptions they are based on are realistic. The net

sales are compared with the past figures to examine if they are in line with the past

trend. In case of new units the reasonableness is checked using the data of the similar

units, capacity utilization and demand scenario.

8.1.2Estimation of the projected level of TCA

The TCA is the current asset required for sustaining one WC cycle. The length of the

WC cycle is determined by the holding period of raw material, WIP, finished goods and

receivables.

Holding period: the number of month of raw material, WIP, finished goods and

receivables a unit kept in stock is called the holding period.

Holding period of raw material= Average stock of RM

RM consumption per month

Similarly the holding period of finished goods, WIP and receivables are found out

The Bank checks the projections by comparing with the past figures or with similar

units in case of new business to ensure that the borrower does not project higher level

of raw material, WIP and finished goods. Besides this the projection of other current

assets like cash, Bank balance, are also examined.

44

TCA Requirement= projected RM Consumption+ projected cost of production+

projected cost of sales + projected sales

9.1.3Estimation of the projected level of other current liabilities:

Sundry creditors and other current liabilities are a source of financing the NWC. The

number of days of credit enjoyed by the unit can de calculated by the following

formula:

= (Sundry creditors + Bills payable) outstanding

Purchase per month

The borrower may project a low level of sundry creditors to claim more Bank finance.

So the Banker should not allow very low level of projection unless convincing reasons

are submitted.

Other items in the other current liabilities are also projected at reasonable level

depending on the past trend.

WCG= TCA- OCL

9.1.4Determination of NWC

The Bank does not finance the entire WCG. Some portion of the NWC is brought by

the unit. As per the Tandon Committee Recommendation, the borrower should bring

25% of the WCG (1st method of lending) or 25% of the TCA (2nd method).

MPBF =WCG-NWC as per Tandon Committee

WCG-NWC available in the business

MPBF whichever is lower is accepted to prevent the dependence of the business on

Bank finance.

TABLE 9B

ASSESMENT OF WORKING CAPITAL LIMIT (1ST and 2ND METHOD

Particulars Amount

(A)Break up of Current Assets1.Raw materials2.Work in progress3.Finished goods4.Receivables5.Other current assetsTOTAL(A)

45

B. Current Liabilities(excluding short term Bank borrowings)1.Sundry creditors2.Other current liabilitiesTOTAL(B)(C) Working Capital Gap(A-B)(D) Projected NWC

1ST METHOD(E) 25% of WCG(F)WCG – E(G)WCG –D(H) MPBF (item F or G, whichever is less)

2ND METHOD(E) 2 (E) 25% of TCA(F) (F) WCG – E(G) (G) WCG – D(H) (H) MPBF (item F or G, whichever is less)

9.2 Turnover method

This method was also resulted from the Tandon Committee. It is simple to understand

and calculate. The minimum permissible Bank finance is 20% of sales turnover and the

borrower brings rest as margin money.

TABLE 8CASSESSMENT OF WORKING CAPITAL LIMIT (TURNOVER METHOD)

Particulars Amount

(A) Projected sales for the year

(B) Working Capital Requirement (25% of Projected Sales)

(C) Of which Minimum Permissible Bank Finance ( 20% of A)

(D) Working Capital Margin to be provided by the Borrower ( 5% of A)

46

9.3 Cash Budget Method

The WCR according to the cash budget method is done in the following manner:

The borrower submits the cash budget (cash inflow including margin and outflow) to

the Bank. The actual and the projected financial statements are also provided to the

Bank.

The budget is prepared for one year and divided into forecasts for smaller periods

like month or quarter.

The peak level of Bank finance required during the course of the year corresponding

to peak deficit in cash flow.

The interim level of Bank finance required as forecasted by the split budget

The maximum limit is fixed on the basis of peak requirement while interim limits

will be fixed as per interim levels indicated in divided period budget.

The desirable margin on annual basis will be as per benchmark current ratio, during

split period the margin may fall below desirable level. The minimum current ratio

during peak deficit must not be below 1:1.

Drawing in the account will be regulated by the split period cash budget compared to

the actual cash flow along with stock and receivable statements.

In the case of extending WCC, the bank’s appraisal process includes the determination

of the MPBF, which is the maximum amount that the bank advances to the borrower

47

CHAPTER X

APPRAISAL FOR NON-FUND CREDIT FACILITIES

The appraisal for the grant of Non fund facilities like Bank guarantee and Letter of

credit follows the same procedure as in the case of Fund based facilities. The various

components mentioned in the previous chapters are evaluated to determine the

creditworthiness of the borrower for availing these facilities.

10.1 Parameters for Non-fund facilities

UBI provides Non-fund facilities in the form of Letter of Credit and Bank guarantee.

When an application for the issue of BG or LC is received by the Bank, it thoroughly

evaluated as in case of TL and WCC, along with this the Banks follows a 10 point

format for appraisal which is as follows:

TABLE 10A

PARAMETERS FOR BG and LC

Parameters Bank guarantee/Letter of credit

1.Purpose Examination of the purpose for which the BG or LC will be used.

2. Beneficiary Examines the persons who shall be benefited by the facility.

3. Value Shows the amount of the LC or BG facility.

4. Margin Shows the margin against which the facility is provided.

5. Usance The time period of the use of the facility.

6. Security The security against which LC or BG is granted.

7. Retirement Shows the repayment period of the amount.

8. Past experience Examines the past experience of the Bank with the borrower.

9. Commission The commission to be paid as per the Banks guidelines.

10. Overall/TNW Examines if the debtors will be able to repay the whole borrowed

amount.

10.2Assessment of BG and LC limit

48

10.2.1 Assessment of Bank guarantee requirement

At the time of issuing financial guarantees, Bank satisfies that the

customer would be in a position to reimburse the Bank in case the Bank is

required to make the payment under the guarantee. In case of performance guarantee Bank

exercises due caution and

sees that it has sufficient experience with the customer to satisfy themselves that the

customer has the necessary experience, capacity and means to perform the

obligations under the contract and is not likely to commit any default.

The assessment of the BG limit is made by the Bank keeping in mind the following points:

Outstanding BG amount.

Amount of BG expiring during the assessment period.

The number of orders under execution and the number to be procured.

Amount of bids required to be procured for the planned order.

Advances available for such orders

10 2 2Assessment of Letter of Credit requirement

While providing LC facility the Bank estimates the total LC requirement of the

borrower. The Bank does this to prevent the borrower from getting extra credit or

suffering due to lack of the adequate amount

TABLE 10B

ASSESMENT OF LC REQUIREMENT

Particulars Inland (I)(A)

Foreign (F)(B)

A) Total material to be purchased during the year

Nature of LC Sight Usance Sight Usance

B) Out of which material to be purchased under LC

C) Lead time (in days)

D) Usance period of LC (days)

E) Total period ( C + D)

F) Number of order to be placed per year (365 /E)

G) LC requirement (B / F)

H) Proposed LC limit (I and F) ( A + B )

49

CHAPTER –XI

APPRAISAL OF RETAIL CREDIT

The appraisal process of the retail credit proposal begins with an interview with the

prospective borrower by the Banks loan officers. The interview is made in a

comfortable and friendly manner.

The loan officer tries to get true information on the eligibility, security, repayment

capacity, source of income, financial Position, marital status, dependents , no. of

earning members in family, social status, repayment Record of previous loans,

Banking and savings habits ,honesty and integrity, ability to pay, life style,

qualification, work experience, assets and liabilities, life insurance of the loan

applicant

The extraction of true information from the applicant depends on the interview

pattern, style, ability and experience of the credit officer of the Bank. If it is found

that applicant’s answers are not consistent and genuine cross verification is done and

if not satisfied, the Bank does not proceed further.

11.1 Appraisal of Education Loan

11.1.1. Eligibility of the borrower

1. The student should be an Indian National.

2. The student should have Secured admission to professional/technical course in India

or Abroad through Entrance Test/Merit based Selection process.

11.1.2. Eligible courses for availing education loan

These courses mentioned below are selected by the bank for the grant of loan as these

courses can ensure the employment of the student pursuing them. The employment of

the student guarantees the bank the repayment of the education loan availed by the

student.

(A)For Study in India:

50

Graduation Courses : B.A., B.Com, B.Sc., etc.

Post Graduation Courses : Masters and Ph.D.

Professional Courses : Engineering, Medical, Agriculture, Veterinary, Law, Dental,

Management, Computer, etc.

Computer Certificate Courses of reputed Institutes accredited to Dept. of Electronics

or Institutes affiliated to University.

Courses like ICWA, CA, CFA, etc.

Courses conducted by IIM, IIT, IISC, XLRI, NIFT, etc.

Courses offered in India by reputed foreign Universities.

Evening Courses of approved Institutes.

Other Courses leading to Diploma/ Degree, etc. conducted by Colleges/ Universities

approves by UGC/ Govt./ AICTE/ AIBMS/ ICMS, etc.

(B) For Study Abroad

Graduation: For job- oriented professional/technical courses offered by reputed

Universities.

Post Graduation: MCA, MBA, MS, etc.

Courses conducted by CIMA- London, CPA in USA etc

11.1.3 Documents to be submitted by the student/ guardian

Permission of the University/College accepting the student for enrollment, the letter

of admission if received is to be submitted

Declaration/ affidavit confirming that no loan has been availed from other bank; the

parents/guardians are not defaulting with any bank.

Details of the Brochure of the course and Institution along with the mention of the

course fee and other costs

Proof of scholarship offered to the student.

PAN of the student/guardian, Voter ID (if available), age proof of the student,

Existing Bank A/C along with residential proof

Proof of Passport for study abroad

Proof of passage money required (cost of travel expenses)

Proof of margin money requirement available with the parents/guardians

11.1.4. The appraisal process

51

Disbursement of Educational Loan is effected at the bank branch where the student

has permanent residence (command area - 10 kms radius of the Branch)

The career of the student is analysed to see that the student is meritorious and has

surety of being employed after the course.

The proper enquiry of the course and the institution is done by the information

furnished by the student and the internet.

The bank checks if the course is creditworthy to get suitable employment for the

students. On the basis of this the above mentioned courses have been made eligible

by the bank for granting credit.

Arrangement is be made with the institution to furnish the name of the recruiting

authority at the time of campus recruitment compulsorily to assess the surety of the

recruitment of the student.

Assessment of future income of the students for repayment of loan installments is

ensured in all cases.

Parents/guardians are made co- obligator.

The security can be in the form of land / building / Govt. securities /Public sector

Bonds/units of UTI ,NSC ,KVP,LIC policy gold, shares/debentures, bank deposit in

the name of student / parent/guardian or any other third party with suitable margin.

Wherever the land/building is already mortgaged, the unencumbered portion can be

taken as security on II charge basis provided it covers the required loan amount.

The student should strive to secure suitable employment after the Course is completed.

As soon as he secures employment, he should furnish the Bank with full particulars of

such employment including income there from. The parent/guardian must give an

undertaking that he/she/they will inform the Bank about such employment within 15

days of getting job.

11.2. Appraisal of Home loan

11.2.1 Verification of Documents / Information submitted by Applicant

The appraisal of the home loan proposals are done separately for the salaried class and

the professional and self-employed borrower as the income stream is different in both

the cases which affect the repayment capacity of the borrower. While the salaried class

52

has a steady and assured flow of income, the professionals and self-employed do not

have a continuous flow of income, it may be high at sometime and low at the other.

For Salaried Class

Verification of employment of the borrower.

Verification in respect to employer, employee, designation, department and salary

deductions.

Copy of Employer Identity Card / Employer certificate ,copy of appointment letter /

increment letter / promotion letter

Copy of photo Identity Card / Voter ID Card / Ration Card / Passport / Driving

License / Photo Credit Card/ Pan card

Verification of operating Bank statement, Unusual transactions, cheque ,

returns ,max. and min balance, cheque return charges

Verification of Bank statement from existing Banker. The existing loan account if any

is also examined.

Salary details is verified from employer

Components like bonus, overtime perquisites, Medical aids, included in salary bill to

be excluded for computation of loan eligibility are verified

Statutory deductions like Income tax, Prof. Tax, PF and existing loan installment to

be included in deductions are also examined

Verification of Residence, employment and property

Electricity Bill / Telephone bill Mobile Bill of residence

Customer Information Report from CIBIL and PAN from NSDL site if available

For Professional and Self-Employed

Verification of continuous profit for last 3 years from 3 years audited balance sheet

and profit and loss account.

Registration Certificate of Professional Tax, Service Tax, VAT

Copy of photo Identity Card / Voter ID Card / Ration Card / Passport / Driving

License / PAN Card/Credit Card bills

Membership Certificate , Membership ID Card in respect of professionals and

Registration Certificate under Shop Restrictive Act

Verification of Nature of business and no. of yrs in current business

Business Stability and no. of employees

53

Office premises (rented/ owned/ shared/ etc),accessibility to business premises,

external and internal condition of premises

Level of activity and no. of clients visit per day.

Creditors / debtors reference wherever possible.

Any unusual variation in income and expense should be clarified. In the Balance

Sheet, the closing balance of previous yearend opening balance of current year must

tally.

Verification ITR from Income Tax Department (by branch official or outside agency)

Checking whether, the profit /income has been unduly escalated in order to avail

higher amount of loan by comparing with previous year. The Bank seeks clarification.

If not satisfied, then an average for the last three years is taken

Electricity Bill / Telephone bill of business of establishment or residence

Customer Information Report from CIBIL and PAN from NSDL site if available.

The bank thoroughly examines the above mentioned documents submitted by the

applicant to ascertain his capability to repay the loan.

security

The property financed by the Bank is taken as the security by the Bank by way of

mortgage .In case such security is not feasible then Bank’s own Term Deposit, LIP,

NSC, KVP, Relief Bonds etc. or any other security acceptable to Bank or by mortgage

of any other house property of adequate value can be used as security.

Additional security is not required in case of salaried class if employer ensures

disbursement of salary through salary payment a/c with the Bank or remittance of EMI

deducted from the salary and attachment of terminal benefits or ensures disbursement of

terminal benefit through the financing branch. however for the other class of borrowers

10% to 20% of the loan amount by way of Bank’s own Term Deposit, LIP, NSC, KVP,

Relief Bonds etc. or any other security acceptable to Bank, or Personal Guarantee of one

or two persons (acceptable to the Bank) having Net Worth at least 125% of the loan

amount.

The Bank has made it mandatory for the borrower to obtain insurance of the house

property.

54

CHAPTER- XII

CASE STUDY

A/c: Taro Electronics Limited

Proposal for the review of the account with enhancement of the overall limit from Rs.

38.15 crore to Rs. 39.34 crore, under the following sub limits:

Nature Existing Proposed Rate of interest/commissionTerm Loan 31.15 24.34 BPLR-75bps,presently, 11.25% p.aCash Credit 5.00 11.00 BPLR-50bps,presently, 11.50% p.aLC (I and F ) 2.00 4.00 50% of bank’s normal rateTotal 38.15 39.34

1. Company Profile:

Name of the Company: Taro Electronics Limited

Address:

Regd./ Corporate office: Aurangabad, Maharastra

Factory / plant: Kashipur, Uttarakhand

Constitution: Public Limited Company (Unlisted)

Year of incorporation: 27.05.2007

Line of activity: Manufacture of Colour TV set, Refrigerator,

Washing Machines and Air Conditioners

Name of Directors:

Sh. Anirudha V. Dhoot DirectorSh. Pradipkumar N. Dhoot DirectorSh. Suresh M. Hegde DirectorSh. Atul Galande DirectorSh. S. Lakshminarayan Director

Sector: Electrical and Electronics Equipments

55

2. Whether the name of the company or any of its Directors appears in the

following default list

RBI defaulters list as on 30.09.2009 NoRBI Willful defaulters list ( non suit ) NoCIBIL List (suit filed {willful defaulters}-Rs. 25 lacs and above) as on 31.03.2009

No

CIBIL List (suit filed-Rs. \100.00 lacs and above) as on 09.05.2010 NoECGC Specific Approval List NoRBI Caution List as on 02.06.2010 NoBanks’ NPA List as on 2.06.2010 No

3. Shareholding pattern (as on 31.07.2009):

Names of Share holder Rs/crores % HoldingKAIL Ltd 27.53 25.97Varu Industries Ltd. 6.35 5.99Vidacon Industries Ltd. 20.12 18.98Tus Overseas Inc. 52.00 49.06Total 106.00 100.00

Share market particulars: Not Listed

SEBI observation if any: Nil

Company law board observation if any: Nil

4. Credit relation since: 29.10.2007

Date of last review: 27.03.2009

5. Health of the A/C:

Asset classification: Standard

IMACs Rating: UBICR3 (audited financials 2008-09)

Rating by outside agency: “A minus” awarded by FITCH India Ltd on 15th

September 2009.

6. Group:

Name: Vidacon Group

Group Companies: Vidacon Industries, KAIL Ltd, Trad Electronics

Ltd., Mil Appliances Ltd., Applim (India) Ltd

56

Group Exposure :

Name of the companies Limit Rs. Crs Asset Classification

Date of last sanction/review

VTL 400.00 Yet to be disbursed 23.12.2009VIL 200.00 Standard 17.05.2010TEL 38.15 Standard 27.03.2009Total 638.15

6. Key financial parameters:

Particulars 31.07.2008 31.07.2009 31.07.2010 31.07.2011Audited Audited Estimated Projected

Tangible Net Worth 158.13 186.28 228.68 278.42Term Liability 198.69 244.79 226.21 200.16Net block 299.42 302.90 305.58 307.25Current Assets 212.161 370.43 570.23 656.99Current Liabilities 155.21 242.26 420.92 485.66Net working capital 57.40 128.17 149.31 171.33Operating income 111.70 972.50 1310.54 1515.29Profit before tax 0.66 29.10 45.99 54.37Profit after tax 0.24 26.80 42.08 49.75TOL/TNW Ratio 2.24 2.61 2.83 2.46Current Ratio (excld. TL installment)

1.66 1.84 1.50 1.48

DSCR 1.015 1.225 1.33

D/E Ratio 1.26 1.31 0.99 0.72

7. Benchmark parameters as per Banks Lending Policy vis-à-vis present proposal

Parameters As per lending policy Present Proposal as on 31.07.2009

Status of compliance

1. credit risk rating Min. UBICR3 UBICR3 Complied2. current ratio Min.1.33 1.84 Complied3. TOL/TNW Max. 5:1 2.61 Complied4.Asset coverage ratio Preferably 1.50 or more

but not less than 1.202.01 Complied

5. DSCR Max.1.33Min. 1.20

1.015 Not complied

6. D/E Max. 3:1 1.31 Complied

7.Promoters contribution

Normally should be 20% of total equity

100% Complied

57

All the parameters are within the banks benchmark limit except DSCR. The DSCR

stands at 1.015 much below the bank’s benchmark of 1.20. The company could not

generate enough profit after tax due to the global financial crisis as a result of which the

DSCR was so low.

8. Industry Scenario:

India has an increasingly affluent middle class population that, on the back of rapid

economic growth, has made the country’s consumer electronics industry highly

dynamic. The industry has been witnessing significant growth in recent years due to

several factors, such as retail boom, growing disposable income and availability of easy

finance schemes. But still, the consumer electronics goods, like refrigerators, televisions

and air conditioners, have low penetration in the country, leaving vast room for future

growth.

The Indian consumer electronics market stood at an estimated US$ 5 Billion as of the

end of 2009, and is further projected to grow at a CAGR of around 15% during the

forecast period (2010-2013) attracting foreign companies.

9. Company Profile and history:

Taro Electronics Ltd., is a new company belonging to Vidacon group, formed to look

after the new project of VIL .,at Kashipur. VIL, felt that this large project should have its

own identity and have decided to form this new company by the name TEL, and has

transferred all the assets so far created in Phase I of the project at Kashipur to the new

company.

TEL incorporated on 29th May 2007 is promoted by Tus, KAIL, VIL and VAL,

companies belonging to Vidacon Group having combined net worth of Rs.8888 crs with

presence in Electronics, Home Appliances Business in India and abroad.

10. Business Details:

TEL has set up State of the art technology for manufacturing and assembling of 15 lacs

nos. of Colour TVs (CRTs), LCDs, 6 lacs nos. refrigerators, 3 lacs nos. of washing

machine and 3 lacs nos. of Air Conditioners. The plant has integrated with common

facilities for plastic molding shop, press shop, paint shop and thermocole shop. The

plant layout and its mechanism facilitate effective material handling at optimum cost.

The products are marketed through VIL. TEL.has entered into 100% Buy Back

58

agreement with VIL to market and sell its product in the open market. The company is

also supplying its products to its competitors for full utilization.

11. Auditors’ Report

The auditing of the company has been carried out bay Kadam and Co., a reputed and

experienced auditing firm of Ahmednagar .As per the Auditors’ Report for the year

2008-09, the Company has not defaulted in the repayment of dues to banks and financial

institutions. The Company has been regular in depositing undisputed statutory dues.

11. SWOT analysis

Strengths

The promoters have reasonable experience in the line of activity, as they are one of

the leading brands in the consumer electronics sector.

The company has entered into a long term buy back arrangement with VIL, so that

the company does not need to make extra efforts to sell the products.

The plant is set up in Uttarakhand which offers many tax incentives for being an

industrially backward area.

The company uses the state of art technology which offers it competitive advantage.

Weaknesses

The consumer electronics segment is highly competitive and consumers are extremely

price sensitive.

This sector requires constant technology innovations so the company has to make

constant investment to remain up to date.

Opportunities

Growing market owing to rising per capita income.

High growth potential in North Indian market.

Treats

Strong competition from multinational companies.

Competitors have high investment in RandD so they can frequently introduce

innovations.

59

12. Assumptions

The company has made assumptions regarding the capacity utilization in the different

years. The capacity utilization in the year 2010, 2011 and 2012 will be 80%, 85% and

90% respectively. The company has achieved the utilization of 70% capacity in 2009

which it had projected. The company takes the services of SIJCON Consultants Pvt. Ltd

for consultancy in architectural and civil engineering works. SIJCON is a leading

consultant with 46 years of experience.

13. Marketing and selling arrangements

The company has a buy back arrangement with VIL. It sells 85% of its products to its

group companies and rest to other buyers. So the company is assured of the disposal of

its products. The group has launched an aggressive advertising campaign which is quite

successful.

14. Risk analysis and Mitigation

Risk type Analysis and mitigation

Promoter/Sponsor

risk

The sponsor has sufficient experience in the sector.

The market reputation is very good.

Promoter’s

withdrawal risk

The promoter has set up the company with a backward

integration to its line of activity.

Financial risk-

Equity

The promoter has infused equity up front

The promoter has capacity to infuse further equity

Financial risk-

debt

The credit to the company has been granted on consortium basis

No default has been made till date so it will have no problem in

getting further loan from the consortium members.

Technology risk The company uses state of art technology

It has technical arrangements with Techneglan Inc and Samsung.

Performance

shortfall risk

The company has qualified engineers trained in the plants of

Toshiba, Kenwood, etc.

The company has set up two 1MW power plants for critical

operations even in power failure.

Environment risk The company does not generate major hazardous effluents.

The solid waste in the form of scraps are sold off

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Liquid effluents are handled in an effluent treatment plant and are

then used for gardening.

Demand risk The company sells 85% of its output to a group company.

High demand in Northern India.

Foreign exchange

risk

Fluctuation of Indian rupee against foreign currency,

The company borrows 10-15% of raw materials from foreign

suppliers.

Hedging facility like forward has been taken by the company

15. Security for the credit facilities:

Term Loan:

Pari- pasu first charge on all immovable and movable fixed asstes of the company

Second charge on current assets

Working Capital:

Pari-pasu first charge on entire receivables and inventories of the business activity

Second charge on fixed assets

Corporate guarantee: VIL

Personal guarantee: Mr. Venu Gopal Dhoot, Mr. Pradip Kumar Dhoot and Shri Raj

Kumar Dhoot.

The company has obtained insurance of all the assets charged as security with the bank

for the tenure of the credit facility. The insurance documents have been submitted with

the bank

16. Financial Statement Analysis

Particulars 31.07.08 31.07.09 31.07.10 31.07.11

Audited Audited Estimated Projection

Ordinary Share Capital 106.00 106.00 106.00 106.00

Reserves 52.25 79.05 121.14 170.88

Deferred Tax Liability 0.25 1.54 1.54 1.54

Intangible Assets 0.37 0.31 0.00 0.00

Tangible Net Worth 158.13 186.28 228.68 278.42

Term Liability 198.69 244.79 226.21 200.16

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Net Block incl. CWIP 299.42 302.90 305.58 307.25

Non Current Assets 0.00 0.00 0.00 0.00

Current Assets 212.61 370.43 570.23 656.99

Current Liability 155.21 242.26 420.92 485.66

Net Working Capital 57.40 128.17 149.31 171.33

Operating Income 111.70 972.50 1310.54 1515.29

Other Income 1.17 0.32 1.50 1.50

PBDIT 7.66 79.28 105.94 115.19

Depreciation and Amortization 3.58 14.18 17.78 18.33

PBIT 4.08 65.10 88.16 96.86

Interest 3.41 36.00 42.17 42.49

PBT 0.67 29.10 45.99 54.37

Prov. for Current Tax 0.18 1.02 3.91 4.62

Prov. for Deferred Tax 0.25 1.28 0.00 0.00

PAT 0.24 26.80 42.08 49.75

Depreciation and Amortization 3.58 14.18 17.78 18.33

Deferred Tax 0.25 1.28 0.00 0.00

Cash Generation 4.07 42.26 59.86 68.08

Sales:

2008-09 was the first full year of Company’s operation, wherein the company

achieved Net Sales of Rs. 972.50 crores. The Company’s projected sales for the year

2009-10 is Rs. 1310.54 crores, around 35% higher than the previous years’ actual

sales.

Profitability:

PBDIT to Sales ratio for the year 2008-09 was to 8.15% which is higher than last

year’s ratio of 6.86%, but lower than the estimated 9.62% for the year. This was due

to the forex losses that the company suffered during the global crisis. The Company

has achieved PAT of Rs. 26.80 crores for the year 2009, it expects improvement in

margins and has estimated PAT at Rs. 42.08 crores for 2009-10.

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Current Ratio:

The current ratio for 2008-09 is 1.53 and that projected for 2009-10 is 1.35, which is

within the benchmark limit of the bank. There is a fall in the CR due to increase in the

short term interest on account of enhanced WC limit.

TOL / TNW ratio:

The TOL / TNW ratio for 2008-09 is 2.61 and that projected for 2009-10 is 2.83,

which is within the acceptable level.

Calculation of ACR: Rs. in crs

Particulars 31.07.2009 31.07.2010Audited Estimated

Net block 302.90 305.58Receivables 162.28 251.34Inventory 197.55 290.33Total 662.73 847.25TL 210.85 169.77WC loan 118.04 275.00Total 328.89 444.77ACR 2.01 1.90

17. Assessment of Working Capital Requirement

Holding period justification

Particulars 31.07.2009 31.07.2010

Actual Projected

Raw Material Month Consumption 2.09 2.13

Work in Progress Month Cost of Production 0.23 0.33

Finished Goods Month Cost of Sales 0.38 0.51

Receivables Month Sales 2.00 2.30

Advance to supplier of RM Month Purchase 0.04 0.07

Sundry Creditors Month Purchase 0.86 0.94

Raw Material:

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The Company is required to keep stock of RM (picture tubes, motors, compressors, ac

coil, paint, etc.) of different size/ quality/ quantity as per order under execution. In line

with the tradition, this year also, the VIL is launching a series of new models in LCD

TVs, CRT TVs, washing machines, air conditioners and refrigerators. Almost all the

new products will be produced by TEL. Therefore, the holding level of raw materials

from 2.09 to 2.13 may be accepted.

Work in Progress:

Work in Progress for 2009-10 is taken at 0.33 months against 0.23 months in the

previous year, which may be accepted as the company produces products of different

varieties.

Finished Goods:

The production of the company is done based on the orders .The company follows the

Just In Time method for inventory management. However the products are economical

to transport in bulk, due to which the Company has to hold the finished goods.

The demand for the company’s products is increasing due to the recovery of the

economy from the global crisis, the prices of LCDs are falling and the group has

launched an aggressive marketing campaign. Also steps have already been taken to

further penetrate the so far untapped market. Dealer network at the group level is being

further widened. In view of the above the level of inventory for 2009-10 is estimated at

0.51 months, which may be accepted.

Receivables:Vidacon and its group companies are the major customer of the Company. The actual

holding level for 2008-09 is 2.00 months and is estimated for 2009-10 is 2.30 months

receivable, which is in line with the market average of 2 – 3 months. The Debtors

Turnover ratio of Videocon Industries Limited has also increased to 2.18 in the year

2008-09 (PY 1.86), which in turn has resulted in higher Debtors Turnover ratio for TEL.

Sundry Creditors

The RM is procured from outside India as well as from domestic market. However, only

around 2% of the required RM is imported remaining is purchased from domestic

market. Around 50% of imported and 75% of domestic RM is purchased by the

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company without LC for which the Company has to make payment within 15 days.The

remaining procurement of raw material is required to be made under LC. Company

procures domestic purchase under LC with 2 – 3 months usance.. The Company imports

raw material under maximum 180 days Usance. The transit time from the port of

shipment to Indian Port and to factory is usually 5 months and is considered reasonable.

In view of the above, the holding period of creditors is taken at 0.94 which may be

accepted

Determination of MPBF

(Amount in Rs. Crores)

Particulars31.07.2009 31.03.2010

Audited Estimated

Sales 972.50 1310.54

Raw Material Consumption 874.42 1167.38

Cost of Production 901.43 1199.89

Cost of Sales 875.67 1178.01

Raw Material Purchased 920.51 1222.17

Current Assets

Cash and Bank Balance 0.58 1.56

Fixed Deposits with Banks 5.03 12.00

Receivables 162.28 251.34

Raw Material 152.46 207.25

Work in Progress 17.12 33.23

Finished Goods 27.97 49.85

Advance to supplied of Raw Material 3.28 7.50

Advance Payment of Tax 0.00 1.50

Other Current Assets 1.71 6.00

TCA 370.43 570.23

Current Liability (Other than ST/WC Borrowings)

Sundry Creditors 66.03 95.95

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Prov. For Taxation 1.02 3.91

Other Current Assets 16.11 5.00

Installment of TL due within 1 year 41.06 41.06

TCL 124.22 145.92

Computation of MPBF

WCG 424.31

25% of TCA 142.56

Projected NWC 149.31

A) WCG- 25% OF TCA 278.75

B) WCG- Projected NWC 275.00

MPBF (lower of A and B) 275.00

The MPBF of the company for the year 2009-10 has been estimated at Rs.275.00 crores

based on the estimated sales of RS.1310.00 crores. The company has already achieved

sales of Rs.635.75 crores in the first half year and is confident of achieving the projected

amount by the end of the year.

Appraisal for LC facility:

The raw materials required by the Company are sourced from outside India as well as

from domestic market. Around 50% of imported and 25% of domestic RM is procured

by the use of LC. The LC requirement of the company has been determined as under:

Assessment of LC requirement

ParticularsTotal material to be purchased during the year Rs.1222.17Nature of LC Inland ForeignOut of which material to be purchased under LC Rs.51.63crs Rs.249.17crs

Lead time 45 days 15 daysUsance period 180 days 90 daysTotal period of LC 225 days 105 daysTotal LC cycle in year 1.6 3.43LC requirement 32.27crs 72.64crs

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The total LC limit works out to around Rs. 105 crores for 2009-10. The present LC limit

sanctioned by the consortium is Rs. 85 crores. The enhanced LC limit as assessed by the

Company has already been accepted by IDBI Bank, the consortium leader and they have

increased their sanction limit from Rs. 45 crores to Rs. 55 crores and other members of

the consortium are also processing for enhancement of the sanction limit. As per the

allocation made by IDBI Bank, the Company has requested our bank for enhancement of

the cash credit limit from Rs. 2.00 crores to Rs. 4.00 crores. \

Parameters of LC:

Letter of credit

1.Purpose Raw material/ stores/ spares/ consumables2.Beneficiary Raw material suppliers in India and abroad3. Value Rs. 4.00 crs4. Margin 10% cash margin5. Usance Inland- upto max. 90 days

Foreign- upto max. 180 days6. Security Same as WCC7. Retirement From the own source of the company8. Past experience Yet to be availed9. Commission 50% of bank’s normal rate

Rationale for Recommendation:

The Company is promoted by Viacon Group, which has sufficient past experience in

the line of activity of Consumer Electronics and Durables.

The project is essentially a backward integration of the business activity of the Group

and is expected to provide operational synergies.

The Company is enjoying exemption of excise duty for first 10 years, income tax for

first 5 years and concessional Central Sales Tax @ 1% for first 5 year, for being

situated in Uttarakhand, which makes its product cost competitive.

The case study provided a deep insight into the credit appraisal procedure followed at

UBI. This case was a combination of enhancement of WCC and LC limit along with the

renewal of the TL limit, so the typical parameters of examination specific to each type of

credit facility could be studied. The financial analysis also revealed the adverse effect of

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financial downturn and the revival of the company. This case facilitated the practical

inspection of the various aspects of appraisal.

CHAPTER-XIII

FINDINGS AND SUGGESSTIONS

From the study carried out on the credit assessment procedure of UBI some very

important observations were made. In the project some recommendations corresponding

to the defects noticed in the credit appraisal system have been made. These suggestions

can help the bank in improving the assessment strategy and cover the inefficiencies.

12.1. Findings

The judging of the character of the borrower is the most difficult task in the appraisal

process.

The bank emphasizes on the minimum credit rating of UBICR 3 of each prospective

borrower.

The bank takes extra care in the assessment of the credit to new unit or projects.

The projections for future made by the borrower cannot be completely relied upon as

the future is extremely uncertain.

Many important financial ratios like the Priority Obligation Ratio, Interest coverage

ratio, etc do not have any benchmark parameter or standard to compare with as in

case of ratios like ACR, TOL/TNW, FACR etc.

In the appraisal of the financial parameters equal importance if laid on both the

projected and historical data.

It was found that most of the credit proposals do not obtain rating from external

agencies which is a mandatory parameter for appraisal.

The appraisal system of UBI is not very stringent; a number of deviations are there in

the sanction of loans by the next higher authority.

The capital market conditions of any listed company are not given due importance in

the appraisal process. The reasons for the adverse movement in the share prices are

not properly analysed and not mentioned in the processing format.

The evaluation of the reliability of the assumptions relating to the projected data is the

most critical step in the inspection process.

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The appraisal process of home loan is divided into salaried class and for professional/

self employed on the basis of difference in regularity of income stream.

12.2. Suggestions

The deviations in the sanctioning of the loan proposals should be removed. This may

result in the borrower’s account ending up as NPA.

Standards for comparison should be set for many other important ratios in the credit

appraisal process like debtors turnover ratio, priority obligation ratio etc.

The Bank should make it mandatory for the business units to obtain credit rating from

outside agencies. The Bank can have agreements with these agencies which can

undertake the rating of the borrowers of the Bank.

The processing format of the Bank for credit appraisal can be made more organized.

Related parameters should be clubbed together so that the analysis becomes easier.

The assumptions given by the borrower regarding the projections made should be

more thoroughly examined.

The prospective borrower especially the business units should have proper mitigation

for all types of risk else it is the bank who will suffer the default.

There can be expansion of the courses eligible for availing education loan for

studying abroad.

In case of ratios like TOL/TNW and D/E ratio only the upper limit if fixed in the

Banks benchmarks. There should also be a lower limit for the ratios. It is not feasible

if the ratios become too less.

The cash budget method of assessment of WCR can be usually followed by the Bank

as it provides the details of the monthly capital requirement of the unit and fixation of

credit limit.

The bank should emphasize more on inter firm anlysis as it gives a clear picture of the

present and future condition of the business.

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CHAPTER-XIV

CONCLUSION

The project carried out on the credit appraisal system of UBI was a successful one. This

project gave me ample opportunity to have exposure in the field of finance in a reputed

organisation. In the 2 months term of the project, the various types of loan proposals

were examined by me. The research helped me understand the vivid aspects of appraisal

which are analysed by the bank.

Credit appraisal is a very crucial step in Bank’s lending process to assess the ability and

the willingness to repay the loan by the borrower. It determines the creditworthiness of

the loan applicant. The bank intends to minimize its risk in the lending of loans due to

which the bank lays emphasis on proper credit evaluation. The character of the credit

applicant is the most difficult “C” to evaluate which depends on the experience and

skills of the credit officers to examine this “C”. The bank carefully evaluates the various

components like income stream of the borrower, industry analysis, risk mitigation

system, financial statements etc to judge the repayment capacity of the borrower. The

bank’s Lending Policy prescribes specific format for the evaluation of the financial

statement and benchmark ration for ratio analysis. The appraisal of retail credit

proposals is relatively easier than the working capital and term loan proposals. However

credit appraisal does not make the bank completely risk free as nothing is certain in the

world. The case which was analysed in the project gave me more insight into the modus

operandi of appraisal strategy of the bank.

In the course of the project some things in the appraisal system dissatisfied me. These

defects can render the credit inspection procedure ineffective, so in order to overcome

them a few recommendations have been made .I hope these suggestions would be

helpful for UBI. As a whole the experience of working in the credit operations

department of UBI was a very enriching one.

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Limitations of Study

In the course of the project study on credit appraisal the following problems were faced:

The time allotted for the project was limited to study the appraisal of diverse loan

proposals

Primary data collection was difficult due to the busy schedule of the Bank officials.

Scope for future improvements:

Better availability of primary data can further improve the findings of the study.

BIBLIOGRAPHY

Books and Journals

1. Dash, S. K., (2009), Tit Bits of General Banking. Bank House, Bhubaneswar.

2. Varsaney, P. N., (2004), Banking Law and Practice. Sultan Chand and Sons New

delhi, Pg 4.18-4.40.

3. Pandey, I. M., (2008), Financial Management. Vikash Publication House Pvt Ltd,

New Delhi, Pg 658-665.

4. Lending Policy of United Bank of India, CPPMI Department.

5. UBI STC Bulletin.

Websites

www.google.com

www.yahoo.com

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www.unitedbankofindia.com

www.economictimes/indiatimes.com

Appendices

A/C Account

ACR Asset Coverage Ratio

BB Bank Borrowing

BEP Break Even Point

BG Bank Guarantee

BIFR Board of Industrial & Financial Reconstruction

CA Current Assets

CAGR Compounded Annual Growth Rate

CARE Credit Analysis & Research Ltd.

CASA Current Account Savings Account

CDR Corporate Debt Restructuring

CL Current Liabilities

CMIE Centre for Monitoring India Economy

CR Current Ratio

CRISIL Credit Rating Information Services of India Ltd.

CWIP Capital Work In Progress

DSCR Debt Service Coverage Ratio

ECGC Export Credit Guarantee Corporation

FACR Fixed Asset Coverage Ratio

FCL Foreign Currency Loan

FEMA Foreign Exchange Management Act

H.O Head Office

ICRA Investment Information & Credit Rating Agency of India Ltd.

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IRR Internal Rate of Return

ITR Income Tax Return

KVP Kisan Vikas Patra

LC Letter of Credit

LCD Liquid Crystal Display

LIP Life Insurance Policy

MPBF Maximum Permissible Bank Finance

MSME Micro Small and Medium Enterprise

NOF Net Owned Fund

NPA Non Performing Assets

NPV Net Present Value

NSC National Savings Certificate

NSDL National Securities Depository Ltd.

NWC Net Working Capital

PAN Permanent Account Number

PAT Profit After Tax

PBT Profit Before Tax

RBI Reserve Bank of India

RM Raw Material

RTL Rupee Term Loan

SEBI Securities & Exchange Board of India

TCA Total Current Assets

UBI United Bank of India

UBICR United Bank of India Credit Rating

UTI Unit Trust of India

VAT Value Added Tax

WC Working Capital

WCC Working Capital Credit

WCG Working Capital Gap

WIP Work in Progress

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74