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PROJECT REPORT

ON
RETAIL BANKING
AND
SMEs LENDING AT ING VYSYA BANK

A Project report submitted to


Jagan Institute of Management Studies Rohini, Delhi
in fulfillment of the summer internship

Guided by

Submitted by

Dr. Navneet Joshi

Nipun Kesari

JAGAN INSTITUTE OF MANAGEMENT STUDIES


INDUSTRIAL AREA SEC-5 ROHINI, DELHI - 85

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CERTIFICATE

This is to certify that the project work done on RETAIL BANKING AND SMEs LENDING
AT ING VYSYA BANK is an original work carried out by Mr. NIPUN KESARI under my
supervision and guidance. The project report is submitted towards the partial fulfillment of two
year, full time post graduate diploma in management.

This work has not been submitted anywhere else for any other degree/diploma. The work was
carried out from 02-05-2011 to 30-06-2011 in ING VYASA BANK.

Dr. Navneet Joshi


(Faculty Guide)

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Nipun Kesari
Roll no.-FC10149

ACKNOWLEDGEMENT
At the outset, I wish to express my sincere thanks to almighty for showering his blessing on
me to develop this project.

I express my sincere thanks to MR. ASEEM ANAND, BRANCH HEAD for giving
permission to carry out this study in his esteemed organization.

I would take this opportunity to express my sincere-most gratitude to Mr. Sumit Khari,
Area Head- Business Banking, New Delhi for giving me this opportunity to complete my
internship in his esteemed organization and his kind support. I also thank him for his help and
valuable guidance and supervision

I am extremely thankful to MR DEEPAK GUPTA, RM, Punjabi Bagh Branch, New Delhi
for his expert guidance, cooperation and help. With great sense of gratitude, I also thank him for
his constant encouragement without which it would not have been possible for me to accomplish
the project successfully.

I am deeply indebted to the Dr. J K Goyal, Director and Dr. Madan Mohan, Dean,
JAGAN INSTITUTE OF MANAGEMENT STUDIES for enabling me to do this project.

I express my gratitude towards my college mentors Dr. Navneet Joshi and Mr. Arnab
Ghosh for their help and guidance in making my report.

Nipun Kesari
FC10149

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DECLARATION
I hereby declare that this project report titled
RETAIL BANKING AND SME LENDING AT ING VYSYA BANK
submitted by me to Jagan Institute is a bonafide work undertaken by me and it is
not submitted to any other University or Institute for the award of any Degree /
Diploma / Certificate or published any time before.
.

NIPUN KESARI
(FC10149)

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CONTENT
S.No.

Content

Page Number

1.

CERTIFICATE

2.

ACKNOWLEDGEMENT

3.

DECLARATION

4.

ABOUT ING VYSYA BANK

7-11

5.

OBJECTIVE OF THE STUDY

12

6.

RESEARCH METHODOLOGY

13

7.

RETAIL BANKING

14-23

8.

BACKGROUND

24

MICRO, SMALL AND MEDIUM ENTERPRISES

25-30

CODE OF BANKS COMMITMENT TO MICRO,

30

SMALL AND MEDIUM ENTERPRISES


C
9.
A
B

BUSINESS LOAN

31-37

SME LENDING AT ING VYSYA BANK

38

CREDIT APPRAISAL PROCESS

39-57

CASE DETAILS

II RECOMMENDATION
C
10.

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58-69
69

RESULT AND DISCUSSION

70

BIBLIOGRAPHY

71

INTRODUCTION

Contents:
1. Introduction
2. Objective
3. Research Methodology
Research Design
Nature of Data
Methods Data Collection
Research Tools

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INTRODUCTION
ABOUT ING VYSYA BANK
ING Vysya Bank Ltd., is an entity formed with the coming together of erstwhile, Vysya Bank
Ltd, a premier bank in the Indian Private Sector and a global financial powerhouse, ING of
Dutch origin, during Oct 2002. The origin of the erstwhile Vysya Bank was pretty humble. It
was in the year 1930 that a team of visionaries came together to form a bank that would extend a
helping hand to those who weren't privileged enough to enjoy banking services. It's been a long
journey since then and the Bank has grown in size and stature to encompass every area of
present-day banking activity and has carved a distinct identity of being India's Premier Private
Sector Bank.
In 1980, the Bank completed fifty years of service to the nation and post 1985, the Bank made
rapid strides to reach the coveted position of being the number one private sector bank. In 1990,
the bank completed its Diamond Jubilee year. At the Diamond Jubilee Celebrations, the then
Finance Minister Prof. Madhu Dandavate, had termed the performance of the bank Stupendous.
The 75th anniversary, the Platinum Jubilee of the bank was celebrated during 2005.

The long journey of seventy-five years has had several milestones


1930

Set up in Bangalore

1948

Scheduled Bank

1985

Largest Private Sector Bank

1987

The Vysya Bank Leasing Ltd. Commenced

1988

Pioneered the concept of Co branding of Credit Cards

1990

Promoted Vysya Bank Housing Finance Ltd.

1992

Deposits cross Rs.1000 crores

1993

Number of Branches crossed 300

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Signs Strategic Alliance with BBL., Belgium. Two National Awards by


1996

Gem & Jewellery Export Promotion Council for excellent performance in


Export Promotion
Cash Management Services, & commissioning of VSAT. Golden Peacock

1998

Award - for the best HR Practices by Institute of Directors. Rated as Best


Domestic Bank in India by Global Finance (International Financial Journal June 1998)

2000
2001

State

-of

the

-art

Date

Centre

at

ITPL,

Bangalore.

RBI clears setting up of ING Vysya Life Insurance Company


ING-Vysya commenced life insurance business.
The Bank launched a range of products & services like the Vys Vyapar Plus,
the range of loan schemes for traders, ATM services, Smartserv, personal

2002

assistant service, Save & Secure, an account that provides accident


hospitalization and insurance cover, Sambandh, the International Debit Card
and the mi-b@nk net banking service.

2002
2002

2003
2004
2005

2006

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ING takes over the Management of the Bank from October 7th , 2002
RBI clears the new name of the Bank as ING Vysya Bank Ltd, vide their
letter of 17.12.02
Introduced customer friendly products like Orange Savings, Orange Current
and Protected Home Loans
Introduced Protected Home Loans - a housing loan product
Introduced Solo - My Own Account for youth and Customer Service Line
Phone Banking Service
Bank has networked all the branches to facilitate AAA transactions i.e.
Anywhere, Anytime & Anyhow Banking

In terms of pure numbers, the performance over the decades can better be appreciated
from the following table:
Rs. in millions
Year

Networth

Deposits

Advances

Profits

Outlets

1940

0.001

0.400

0.400

0.001

1950

1.40

5.30

3.80

0.09

16

1960

1.60

20.10

13.50

0.13

19

1970

3.00

91.50

62.80

0.74

39

1980

11.50

1414.30

813.70

1.13

228

1990

162.10

8509.40

4584.80

50.35

319

2000

5900.00

74240.00

39380.00

443.10

481

2001

6527.00

81411.10

43163.10

371.90

484

2002

6863.24

80680.00

44180.00

687.50

483

2003

7067.90

91870.00

56120.00

863.50

456

2004

7473.20

104780.00 69367.30

590.01

523

2005

7094.00

125693.10 90805.90

(381.80) 536

2006

10196.70

133352.50 102315.20

90.6

562

2007

11101.90

154185.70 119761.70

889.0

626

2008

14260.00

204980.00 146500.00

1569.00 677

2009

15940.00

248900.00 167510.00

1888.00 857

2010

2223.00

258650.00 185070.00

2422.00 866*

*Outlets comprises of 468 branches, 13 ECs, 28 Satellite Offices and 357 ATMs as of
March 31st 2010. Additionally the bank also has Internet Banking, Mobile Banking
and Customer Service Line for Phone Banking Service.

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The origin of ING Group


On the other hand, ING group originated in 1990 from the merger between Nationale
Nederlanden NV the largest Dutch Insurance Company and NMB Post Bank Groep
NV. Combining roots and ambitions, the newly formed company called
Internationale Nederlanden Group. Market circles soon abbreviated the name to I-NG. The company followed suit by changing the statutory name to ING Group N.V.

Profile
ING has gained recognition for its integrated approach of banking, insurance and asset
management. Furthermore, the company differentiates itself from other financial
service providers by successfully establishing life insurance companies in countries
with emerging economies, such as Korea, Taiwan, Hungary, Poland, Mexico and
Chile. Another specialisation is ING Direct, an Internet and direct marketing concept
with which ING is rapidly winning retail market share in mature markets. Finally, ING
distinguishes itself internationally as a provider of employee benefits, i.e.
arrangements of nonwage benefits, such as pension plans for companies and their
employees.

Mission
ING`s mission is to be a leading, global, client-focused, innovative and low-cost
provider of financial services through the distribution channels of the clients
preference

in

markets

where

ING

can

create

value.

The new identity


The immediate benefit to the bank, ING Vysya Bank, has been the pride of having
become a Member of the global financial giant ING. As at the end of the year
December 2010, ING's total assets exceeded Rs. 87290 billion, with an underlying net
profit of Rs. 272510 million, employed around 105000 people, serves over 85 million
customers, across 40 countries. This global identity coupled with the backup of a
financial power house and the status of being the first Indian International Bank,
would also help to enhance productivity, profitability, to result in improved
performance of the bank, for the benefit of all the stake holders.
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OBJECTIVES OF THE STUDY


To know about the procedure to apply for loan
Conditions on which bank finance the different projects of SMEs
1. Studying the ratios of the company to know the financial position of the company.
2. To know the borrowings of the company as well as the liquidity position of the
company.
3. To study the current assets and current liabilities so as to know the position of firm.
Different types of conditions to approve the loan.
To know how SMEs disburse their loan amount.

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RESEARCH METHODOLOGY:

Research design:
The descriptive form of research method is adopted for study.
The major purpose of descriptive research is description of state of affairs of the institution as it
exists at present. The nature and characteristics of the Advances and Loans have been described
in this study.

Nature of data
The data required for the study has been collected from secondary source .The relevant
information were taken from annual reports, journals and internet.

Methods of data collection:


This study is based on the SME financing and Loan appraisal. Hence the information related to,
profitability of firm ,financial data of firm and turnover were very much required for attaining
the objectives of the present study.

Tools applied:
To have a meaningful analysis and interpretation of various data collected, the following tools
were made for this study.
Annual report of the applicant
Financial Statements Analysis

Credit Rating Technique (Credit Rating and Information Services of India Ltd. (CRISIL)
Interest Rate Calculation

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RETAIL BANKING

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RETAIL BANKING
Retail banking refers to banking in which banking institutions execute transactions directly with
consumers, rather than corporations or other banks. Services offered include: savings and
transactional accounts, mortgages, personal loans, debit cards, credit cards, and so forth.
The Retail Banking environment today is changing fast. The changing customer demographics
demands to create a differentiated application based on scalable technology, improved service
and banking convenience. Higher penetration of technology and increase in global literacy levels
has set up the expectations of the customer higher than never before. Increasing use of modern
technology has further enhanced reach and accessibility.

SCOPE FOR RETAIL BANKING IN INDIA


All round increase in economic activity.
Increase in the purchasing power. The rural areas have the large purchase power at their
disposal and this is an opportunity to market retail banking.
India has 200 million households and 400 million middleclass population more than 90%
of the savings come from the house hold sector. Falling to interest rates have resulted in a
shift.
Tax benefits are available for example in case of housing loans the borrower can avail tax
benefits for the loan repayment and the interest charged for the loan.

ADVANTAGES AND DISADVANTAGES OF RETAIL BANKING


ADVANTAGES

Retail deposits are stable and constitute core deposits.


They are interest insensitive and less bargaining for additional interest.
They constitute low cost funds for the banks.
Effective customer relationship management with the retail customers built a strong customer
base.

Retail banking increases the subsidiary business of the banks.


Retail banking results in better yield and improved bottom line for a bank.
Retail segment is a good avenue for funds deployment.
Helps economic revival of the nation through increased production activity.
Improves lifestyle and fulfils aspirations of the people through affordable credit.
Retail banking involves minimum marketing efforts in a demand-driven economy.

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DISADVANTAGES
Designing own and new financial products is very costly and time consuming for the
bank.
Customers now-a-days prefer net banking to branch banking. The banks that are slow in
introducing technology-based products, are finding it difficult to retain the customers
who wish to opt for net banking.
.Customers are attracted towards other financial products like mutual funds etc.
Though banks are investing heavily in technology, they are not able to exploit the same
to the full extent.
A major disadvantage is monitoring and follow up of huge volume of loan accounts
inducing banks to spend heavily in human resource department.
Long term loans like housing loan due to its long repayment term in the absence of
proper follow-up, can become NPAs.
The volume of amount borrowed by a single customer is very low as compared to
wholesale banking. This does not allow banks to to exploit the advantage of earning huge
profits from single customer as in case of wholesale banking.

RETAIL BANKING AT ING VYSYA BANK


ING Vysya life insurance
The company offers entire range of life insurance plans to meet all the financial needs of an
individual- protection, saving and investment. ING with ICICI LOMBARD understand the
needs of an individual provide ALL SAFE INSURANCE to relieve people of the insecurities
that their personal loan responsibility is causing them.

ING Vysya Mutual Fund


It aims to provide practical and secure investment opportunity to retail investors.
Operating in 15 cities.
And Rs.2800 crores plus fund house.

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BUSINESS ACTIVITIES CARRIED OUT BY ING VYSYA


The various products offered by ING Vysya bank are
1)
2)
3)
4)

ACCOUNTS AND DEPOSITS


Current accounts
Saving accounts
Term Deposit

CURRENT ACCOUNT
The various sub-products in current account which ING Vysya gives are
ORANGE CURRENT ACCOUNT: In today's fast-paced world, your business regularly
requires you to receive and send funds to various cities in the country. ING Orange Current
Account gives you the power of inter-city banking with a single account and access to more than
200 cities.
All you need is to maintain an average balance of Rs. 1,00,000/- per quarter. When the QAB is
less than 1 lakh there is a service charge of Rs. 4000/- per quarter. Besides, free facilities
become chargeable as per schedule of service charges. Charges indicated exclude applicable
Service Tax

ADVANTAGE CURRENT ACCOUNT: In today's fast-paced world, your business regularly


requires you to receive and send funds to various cities in the country. ING Advantage Current
Account gives you the power of inter-city banking with a single account and access to more than
300 cities.
All you need is to maintain an average balance of Rs. 50,000/-per quarter. When the
QAB is less than 50,000 there is a service charge of Rs. 1500 per quarter. Besides, free
facilities become chargeable as per schedule of service charges. Charges indicated
exclude applicable Service Tax.

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GENERAL CURRENT ACCOUNTS: With ING Vysya general current account you can
access your account anytime, anywhere. Withdraw and deposit cash, issue and encash cheques,
make balance enquires and ask for mini statements anytime, anywhere.
All you need is to maintain an average balance of Rs. 10000/- per quarter. (Non-maintenance of
this balance entails a nominal charge of Rs. 750/- per quarter).
Charges indicated exclude applicable service tax.

COMFORT CURRENT ACCOUNT: ING's Comfort Current Account lets you save as much
as Rs. 60,000 p.a. for remittance up to Rs. 25 lakhs
All you need is to maintain an average balance of Rs. 25,000/-per quarter. (Nonmaintenance of which entails a charge as per the following)
When the QAB is less than 25,000 there is a service charge of Rs. 1000 plus applicable
service taxes, per quarter. Besides, free facilities become chargeable as per schedule of
service charges. Charges indicated exclude applicable Service Tax.

SAVING ACCOUNTS
The Savings accounts are primarily meant to inculcate a sense of saving for the future and take
care of individuals day to day banking requirements. These accounts are meant to help individual
customers protect their money. The Savings Accounts also help individuals to handle their
financial transactions through a systematic banking channel. This increases the safety as
customers need not carry physical cash with them. The various products in saving accounts are

ORANGE SAVING ACCOUNT


ADVANTAGE SALARY ACCOUNT
ZING ACCOUNT
ZWIPE ACCOUNT
GENERAL SAVING ACCOUNT
SARAL ACCOUNT

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1) TERM DEPOSITS
The various term deposits are
FIXED DEPOSITS: If you believe in the long term investments and wish to earn long term
interest on your deposits, then invest in ING fixed deposits. With ING your money will not only
be secured but will earn a good interest.
CUMULATIVE DEPOSITS: With ING cumulative deposits you can invest small amounts of
money that ends up large saving on maturity.
TAX ADVANTAGE DEPOSITS: TAD is eligible for tax exemption under section 80C of the
income tax act 1981. The deposit is in the form of fixed deposit or reinvestment form of 5 year
duration. The rate of interest will be according to the 5 year interest rate which will be declared
by RBI from time to time.
AKSHAYA DEPOSITS: your deposit with interest will be reinvested every quarter to earn a
higher yield.

2) LOANS

HOME LOAN
HOME EQUITY LOAN
NRI LOAN

3) NRI SERVICES

RUPEE SAVING ACCOUNT


RUPEE CURRENT ACCOUNT
RUPEE FIXED DEPOSITS
ACCOUNTS FOR RETURNING INDIANS
FOREIGN CURRENCY DEPOSITS
MI REMIT

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4) CARDS

DEBIT CARDS
CREDIT CARDS
REMMITANCE CARD

OPERATIONS
1) RTGS REAL TIME GROSS SETTLEMENT
RTGS can be defined as the continuous (real-time) settlement of funds transfers
individually on an order by order basis. 'Real Time' means the processing of
instructions at the time they are received rather than at some later time. 'Gross
Settlement' means the settlement of funds transfer instructions occurs individually (on
an instruction by instruction basis). Considering that the funds settlement takes place
in the books of the Reserve Bank of India, the payments are final and irrevocable.
The RTGS system is primarily meant for large value transactions. The minimum
amount to be remitted through RTGS is 2 lakhs. There is no upper ceiling for RTGS
transactions.
Under normal circumstances the beneficiary branches are expected to receive the
funds in real time as soon as funds are transferred by the remitting bank. The
beneficiary bank has to credit the beneficiary's account within two hours of receiving
the funds transfer message.
The remitting bank receives a message from the Reserve Bank that money has been
credited to the receiving bank. Based on this the remitting bank can advise the
remitting customer that money has been delivered to the receiving bank.
If the money cannot be credited for any reason, the receiving bank would have to
return the money to the remitting bank within 2 hours. Once the money is received
back by the remitting bank, the original debit entry in the customer's account is
reversed.
With a view to rationalize the service charges levied by banks for offering various
electronic products, a broad framework has been mandated as under:
a) Inward transactions Free, no charge to be levied
b) Outward transactions
2 lakh to 5 lakh - not exceeding Rs. 25 per transaction.
Above 5 lakh not exceeding Rs. 50 per transaction.

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2) NEFT NATIONAL ELECTRONIC FUNDS TRANSFER


NEFT is a nation-wide system that facilitates individuals, firms and corporates to
electronically transfer funds from any bank branch to any individual, firm or
corporate having an account with any other bank branch in the country.
Individuals, firms or corporates maintaining accounts with a bank branch can transfer
funds using NEFT. Even such individuals, firms or corporates who do not have a
bank account (walk-in customers) can also deposit cash at the NEFT-enabled branch
with instructions to transfer funds using NEFT.
There is no limit either minimum or maximum on the amount of funds that could
be transferred using NEFT.
Reserve Bank of India has waived the processing or service charges for member
banks till March 31, 2011. Accordingly, member banks participating in NEFT need
not pay any processing or service charges to Reserve Bank of India. Further,
processing or service charges to be levied by the member banks from their customers
have also been rationalised by Reserve Bank of India as under :
a) Inward transactions at destination bank branches (for credit to beneficiary
accounts)
Free, no charges to be levied from beneficiaries
b) Outward transactions at originating bank branches (charges for the remitter)
For transactions up to Rs 1 lakh not exceeding Rs 5 (+ Service Tax)
For transactions above Rs 1 lakh and up to Rs 2 lakhs not exceeding Rs 15 (+
Service Tax)
For transactions above Rs 2 lakhs not exceeding Rs 25 (+ Service Tax)
NEFT can be used to transfer funds from or to NRE and NRO accounts in the
country. This, however, is subject to the adherence of the provisions of the Foreign
Exchange Management Act, 2000 (FEMA).
The remitter can track the NEFT transaction through the originating bank branch. It is
possible for the originating bank branch to keep track and be aware of the status of
the NEFT transaction at all times.

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CHEQUE CLEARING
Clearing is a process by which banks exchange instruments. Funds are transferred from the
drawer of the cheque to the payee. At ING, it is done thrice everyday at 10:00 AM, 12:00 PM
and 4:00 PM.
Maximum duration for local cheques 3 days
Maximum duration for outstation cheques 4 days

CLEARING PROCESS
Things to do at the desk
Accept

PO slips with all details filled

Cheque

Ensure

All details are filled up properly in the slip

The amount on the cheque includes the charges

Cheque is signed by customer

Process

Receive the pay in slip.


Check all the entries.
Mark stamp on the receipt portion of the slip.
Give the receipt to the customer.
Pass the entry in the system.
Check if the cheques are local or outstation.
Local NCR Region or Cheques on which payable at par is written on the
cheque even if the region is outside the NCR Region.

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Outstation Outside NCR Region and payable at par is not written on the
cheque.

Mark stamp on every cheque.


Count the total number of cheques.
Make separate envelopes for local and outstation cheques.
Write To RCC and number of cheques on the envelopes.
Get the envelopes signed by the officer in the bank.
Handover the envelopes to the delivery person who collects the cheques from various
branches of ING and deliver them to RCC.

RCC RCC is the place in Karol Bagh, New Delhi where all cheques from all the branches of
ING VYSYA BANK are receieved and further distributed according to the addresses on the
respective cheques.

Return/Bouncing of cheques where Instant Credit was given and cheques sent for
local/outstation clearing :
If a cheque sent for collection for which immediate credit was provided by the Bank is returned
unpaid, the value of the cheque will be immediately debited to the account where the credit was
given. The customers will also be advised immediately about the bouncing of cheques.

On receipt of information about the return / non-payment of cheques sent for collection, the
customers will be immediately notified about the same and the appropriate charges as per the
schedule of charges, as applicable, will be recovered from the customers account, under advice
to the customers.

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BACKGROUND

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Micro, Small and Medium Enterprises


Micro, small and medium enterprises (MSME) sector has been recognised as an engine of growth
all over the world. The sector is characterised by low investment requirement, operational
flexibility, location wise mobility, and import substitution. In India, the Micro, Small and
Medium Enterprises Development (MSMED) Act, 2006 is the first single comprehensive
legislation covering all the three segments. In accordance with the Act, these enterprises are
classified in two:- (i) manufacturing enterprises engaged in the manufacture or production of
goods pertaining to any industry specified in the first schedule to the Industries (Development
and regulation) Act, 1951. These are defined in terms of investment in plant and machinery; (ii)
service enterprises engaged in providing or rendering of services and are defined in terms of
investment in equipment.
Both categories of enterprises have been further classified into micro, small, medium and large
enterprises based on their investment in plant and machinery (for manufacturing enterprises) or
on equipments (in case of enterprises providing or rendering services). The present ceiling on
investment to be classified as micro, small or medium enterprises is as under:
Manufacturing Sector
Enterprises

Investment in plant & machinery

Micro

Does not exceed twenty five lakh rupees

Enterprises

Small
Enterprises

Medium
Enterprises

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More than twenty five lakh rupees but does not exceed five
crore rupees

More than five crore rupees but does not exceed ten crore
rupees

Service Sector

Enterprises

Investment in equipments

Micro

Does not exceed ten lakh rupees

Enterprises

Small
Enterprises

Medium
Enterprises

More than ten lakh rupees but does not exceed two crore
rupees

More than two crore rupees but does not exceed five core
rupees

Profile of Indian MSME Sector

S.No.

Particular

Value

Number of micro and small enterprises

140 Lakhs

Employment

600 Lakhs

Share in GDP

8-9%

Share in manufacturing output

45%

Share in exports

40%

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Small and Medium Enterprises (SMEs) sector in India is definitely growing at an exceptional
rate. Still, there are some important things that need to be focused upon so that best out of these
enterprises can be obtained. Here is a brief analysis of the Indian SME sector.

Some Figures of Interest

The Indian SME market is worth $5 billion.

There are around 14 million SME units in India that produce more than 8,000 products.

Nearly 90 percent of the Indian industrial units belong to the sector of small and medium
enterprises.

The SMEs contribute 40 percent to the overall industrial output of the country.

The sector accounts for about 39% of the manufacturing output and around 40% of the
total export of the country. The major advantage of the sector is its employment potential
at low capital cost.

As per available statistics, this sector employs an estimated 60 million persons and the
labour intensity in the MSE sector is estimated to be almost 4 times higher than the large
enterprises.

It is source of innovative products.

This sector creates 1.3 million jobs per annum.

Finally, these enterprises are estimated to grow at the rate of 20 percent per year for
upcoming years. In recent years the MSE sector has consistently registered higher
growth rate compared to the overall industrial sector.

Main Reasons for SME Growth

Foreign and local fund providers are taking huge interest in the small and medium
enterprises of India.

Banking sector has also shown a keen interest in lending credit to these enterprises.

Many recent mergers have taken place in the sector.

The sector has significantly contributed towards the domestic production as well as the
export earnings.

Low investment is required to start and maintain these enterprises.

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The sector has contributed impressively towards job creation and increase in individual
incomes.

Technological growth is also a factor for growth of SME's in India as there are several
trade portals and business directories available online with huge database of buyers,
sellers, manufacturers who are basically back bone of SME's.

The SMEs are dominant players in some of Indias major export sectors namely Textiles
and Garments, Leather products, Sports goods, Gems and jewellery, Handicrafts among
others. They also contribute substantially in industrial goods segments in sectors such as
electrical, engineering, rubber and plastics.

Opportunities for SMEs in INDIA


With their inherent strength and resilience SMEs can weather adverse situations like global
financial crisis and economic slowdown, as they are not dependent on public money. Many
overseas companies are approaching Indian SME to out source their manufacturing activities. In
service sector too, many are setting up BPO and KPO in India, which are a real boon for the
Indian SME sector. Unless and until the SMEs equip themselves with the latest technologies,
processes and machinery, they will not be in a position to meet the stringent quality standards set
out by the buyers. Even if they are exploring new markets, the products and services have to be
suitably modified to meet the market requirements with innovative designs and features. It is an
excellent opportunity for the Indian SMEs to convert the present global melt down condition to
their advantage by catering to the needs of the markets, which are already reeling under the
recession.

Challenges Ahead
Even after recording an impressive growth in the recent years, the small and medium enterprises
of India face many challenges:

Infrastructure needs to be developed for setting up the SMEs in the rural sector of the
country. Transportation, electricity and communication are the main parts of the
infrastructure required.

Technology need to be evolved so that quality products are manufactured by the sector.

28 | P a g e

Lack of information about the inputs, including raw material, machinery and skills, is one
critical challenge in front of the owners of these enterprises.

High level of research and development is required.

Administrative framework for MSMEs


The Government has been encouraging and supporting the SME sector through policies for
infrastructural support, technology up gradation, preferential access to credit, reservation of
products for exclusive manufacture in the sector, preferential purchase policy, etc. It has been
offering packages of schemes and incentives through its specialized institutions in the form of
assistance in obtaining finance; help in marketing; technical guidance; training and technology
up gradation, etc.
Government of India has set up a new governing body for promotion and development of Micro,
Medium and Small Scale Enterprises via MSME Development Act, which came into force
from 2nd October 2006. The President under Notification dated 9th May 2007 amended the
Government of India (Allocation of Business) Rules, 1961 by which, Ministry of Agro and Rural
Industries (Krishi Evam Gramin Udyog Mantralaya) and Ministry of Small Scale Industries
(Laghu Udyog Mantralaya) have been merged into a single Ministry, namely, Ministry of
Micro,

Small

and

Medium

Enterprises.

The Ministry of Micro, Small and Medium Enterprises (MSME) is the administrative Ministry
in the Government of India for all matters relating to Micro, Small and Medium Enterprises. It
designs and implements policies and programmes through its field organizations and attached
offices for promotion and growth of MSME sector. The Office of the Development
Commissioner (MSME) is an attached office of the Ministry of MSME, and is the apex body to
advise, coordinate and formulate policies and programmes for the development and promotion of
the MSME Sector. The office also maintains liaison with Central Ministries and other
Central/State Government agencies/organizations financial institutions.
In view of the Government of Indias ambitious target of average GDP growth rate of 9% during
the 11th Five Year Plan, SMEs are playing a vital role in achieving this target. It is imperative
for the government to address the major issues plaguing the sector and take further inclusive
growth oriented policy initiatives to boost the sector. This includes measures addressing

29 | P a g e

concerns of credit, fiscal support, cluster-based development, infrastructure, technology, and


marketing among others. As mentioned earlier, SMEs constitute 40% of Indias merchandise
exports and in order to increase Indias export share to the global trade, SMEs are expected to
enlarge their scope manifold.

Code of Bank's Commitment to Micro and Small Enterprises


This is a voluntary Code, which sets minimum standards of banking practices for banks to follow
when they are dealing with Micro and Small Enterprises (MSEs ) as defined in the Micro Small
and Medium Enterprises Development (MSMED) Act, 2006. It provides protection to MSEs and
explains how banks are expected to deal with them for their day to -day operations and in times
of financial difficulty. The Code does not replace or supersede regulatory or supervisory
instructions issued by the Reserve Bank of India (RBI) and we will comply with such
instructions /directions issued by the RBI from time to time. The provisions of the Code may set
higher standards than what is indicated in the regulatory or supervisory instructions and such
higher standards will prevail, as the Code represents best practices agreed by IVBL as their
commitment to MSMEs.
Objectives of the Code
The Code has been developed to
a. Give a positive thrust to the MSE sector by providing easy access to efficient banking services.
b. Promote good and fair banking practices by setting minimum standards in dealing with MSEs.
c. Increase transparency so that they can have a better understanding of what they can reasonably
expect of the services.
d. Improve IVBL understanding of MSEs business through effective communication.
e. Encourage market forces, through competition, to achieve higher operating standards.
f. Promote a fair and cordial relationship between MSEs and IVBL and also ensure timely and
quick response to MSEs banking needs.
g. Foster confidence in the banking system.

30 | P a g e

BUSINESS LOAN
Assets of banks consist mainly of loans to businesses and consumers and their liabilities
comprise of various forms of deposits from consumers. Their main source of income is from
what is called as the interest rate spread, which is the difference between the lending rate (rate at
which banks earn) and the deposit rate (rate at which banks pay). Banks generally do not lend
100% of their deposits. They are statutorily required to maintain a certain portion of the deposits
as cash and another portion in the form of liquid and safe assets (generally Government
securities), which yield a lower rate of return. These requirements, known as the Cash Reserve
Ratio (CRR ratio) and Statutory Liquidity Ratio (SLR ratio) in India, are stipulated by the
Reserve Bank of India and banks need to adhere to them.

Bank gives loan to companies to meet their working capital requirement or as guarantee.
Working Capital refers to that part of the firms capital, which is required for financing short
term or current assets such as cash marketable securities, debtors and inventories. Funds thus,
invested in current assets keep revolving fast and are constantly converted into cash and this cash
flow out again in exchange for other current assets. Working Capital is also known as revolving
or circulating capital or short-term capital.

FACTORS DETERMINING WORKING CAPITAL

_ Nature of the Industry

_ Demand of Industry

_ Cash requirements

_ Nature of the Business

_ Production Cycle

_ Credit control

_ Inflation or Price level changes

_ Profit planning and control

_ Manufacturing time

_ Volume of Sales

_ Attitude towards Risk

_Firms finance and dividend policy

_ Terms of Purchase and Sales

_ Inventory Turnover

_ Business Turnover

_ Business Cycle

_ Current Assets requirements

_ Repayment ability

_ Cash reserves

_ Operation efficiency

_ Change in Technology
31 | P a g e

SOURCES OF WORKING CAPITAL


Sources of working capital are:
_ Owned fund (Equity, Reserves, etc.)
_ Bank borrowings(Cash Credit, Packing Credit, B/D, L/C)
Sources of additional working capital include the following:
_ Existing cash reserves
_ Profits
_ Payables (credit from suppliers)
_ New equity or loans from shareholders
_ Bank overdrafts or lines of credit Long-term loans
To help companies in meeting their requirements, banks provide fund based and non fund based
loans to the companies depending upon the requirement.
Fund Based
Fund based facilities are such facilities extended by banks which involve outgo of funds from the
bank when the customer avails the facilities.

Cash credit/Overdraft facility


Cash credit/overdraft is a form of credit facility in which a borrower is sanctioned a pre arranged limit with the freedom to borrow as much money as he requires. In case of flow
of credit to the account, he can withdraw afresh subject to the limit sanctioned. As such,
the limit works
as a revolving line of credit. Bank charges interest on the outstanding balances.

An overdraft allows the individual to continue withdrawing money even if the account
has no funds in it. Basically the bank allows people to borrow a set amount of money. As
security is always taken from the client against overdraft limit, it is a secured limit and
thus it is also called Secured Overdraft facility (SOD).
Cash Credit (CC) is same as Overdraft facility, Only difference between cash credit and
over draft is that in cash credit both stock and debt are considered while in overdraft
facility only debt is considered. Thus, client has to send monthly stock statements and list
of debtors to the bank from with monthly drawing power is calculated.

32 | P a g e

Bill Discounting
Bill discounting is a major activity with some of the smaller Banks. In case of
discounting of a bill, a bank buys the bill (i.e. Bill of Exchange or Promissory Note)
before it is due and credits the value of the bill after discount charges to the customers
account. The transaction is practically an advance against the security of the bill and the
discount represents the interest on the advance from the date of purchase of the bill until
it is due for payment. Only usance bills are discounted.

Under this particular type of lending, Bank takes the bill drawn by borrower on
his(borrower's) customer and pay him or her immediately deducting some amount as
discount/commission. The Bank then presents the Bill to the borrower's customer on the
due date of the Bill and collects the total amount. If the bill is delayed, the borrower or his
customer pays the Bank a pre-determined interest depending upon the terms of
transaction.

Term Loan

Term Loan are the counter parts of Fixed Deposits in the Bank. Banks lend money in this mode
when the repayment is sought to be made in fixed, pre-determined installments. This type of loan
is normally given to the borrowers for acquiring long term assets i.e. assets which will benefit the
borrower over a long period (exceeding at least one year). Purchases of plant and machinery,
constructing building for factory, setting up new projects fall in this category. Financing for
purchase of automobiles, consumer durables, real estate and creation of infra structure also falls
in this category.

33 | P a g e

Pre shipment Credit


Pre-shipment Credit is offered to an exporter by way of packing credit to enable him to
finance purchase/import of raw materials, processing and packing of the goods meant for
exports. Import can be on DA (Payment against acceptance) or DP (payment against
receipt of document) basis.
DP means documents against payment (a sight payment) . In this case the documents are
sent to the buyers bank who holds the documents until payment is receieved by that
bank. Once payment is received, the bank releases the documents to the buyer.
DA means documents against acceptance. This is NOT a banker's acceptance and it is
NOT a deferred payment undertaking by the bank. In this case, the documents are sent to
the buyers bank who releases only the draft to be accepted by the buyer. Once the draft is
accepted with a stated maturity date and returned to the buyers bank, the bank will release
the documents to the buyer. The buyer has the obligation to make payment at maturity,
but if they do not pay, the bank will NOT make payment to the seller.

Post shipment Credit


Post-shipment Credit is offered to an exporter to finance export sales receivables after the
date of shipment of goods till the date of realisation of export proceeds. Like pre
shipment, payment for post shipment can also be on DA or DP basis.

Non-Fund based
Non-fund based facilities are such facilities extended by banks which do not involve outgo of
funds from the bank when the customer avails the facilities but may at a later date crystallise into
financial liability if the customer fails to honour the commitment made by availing these
facilities.

34 | P a g e

Letter of credit
A Letter of Credit (LC) is a letter from a bank guaranteeing that a buyer's payment to a
seller will be received on time and for the correct amount. In the event that the buyer is
unable to make payment on the purchase, the bank will be required to cover the full or
remaining amount of the purchase.

LC are of two types- usance and sight. The main difference between the two is that in
Sight LC where the purchaser is not provided any credit period while in Usance LC
credit period is provided by the seller to make payment for the goods. Thus in Sight LC
the bank send the LC first and then the goods arrive whose papers remain with the bank
till the time the buyer make payment to the bank and signs these papers. On the sellers
side, the LC will be payable only once the goods are under the possession of bank and on
buyers side goods can be received only after the payment is done to the bank. In case of
Usance LC, goods are first dispatched and then the client is given a credit period in which
he has to make the payment to the seller. If the client does not make payment in the given
credit period, bank send the LC to the seller.

LC can be used for buying material from its own country or from foreign country. If the
goods are bought from its own country, in our case from India, it is called Inland Letter
of Credit (ILC). If the goods are bought from a foreign country i.e. imported, it is called
Foreign Letter of Credit (FLC).

Bank Guarantee
Bank Guarantee (BG) is a guarantee from a lending institution ensuring that the liabilities
of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will
cover it.

A bank guarantee and a letter of credit are similar in many ways but they're two different
things. Letters of credit ensure that a transaction proceeds as planned, while bank
guarantees reduce the loss if the transaction doesn't go as planned. A letter of credit is an
obligation taken on by a bank to make a payment once certain criteria are met. Once
35 | P a g e

these terms are completed and confirmed, the bank will transfer the funds. This ensures
the payment will be made as long as the services are performed. A bank guarantee, like a
line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the
sum is only paid if the opposing party does not fulfil the stipulated obligations under the
contract. This can be used to essentially insure a buyer or seller from loss or damage due
to non performance by the other party in a contract.

LEF (Loan Equivalent Factor)


For commercial loans, when granting a revolving line of credit, a bank usually provides a
credit limit. A borrower obtains an immediate loan amount and the future availability of
the total loan amount. Accordingly, the corresponding exposure for the bank has two
parts: the outstanding balance (NB) and the current commitment (NE). The outstanding
balance refers to the amount drawn by the obligor, while the current commitment
includes drawn and undrawn portions that the bank has promised to lend to the borrower
at his or her request. The probability of drawing the undrawn portion in the next 12
months is defined as the loan equivalency factor (LEF) off balance sheet. Since a
probability always has values from 0 to 1, LEF is constrained into a range of 0 to 1.

Buyers Credit Raw Material


A Raw Material Guarantee (an import credit guarantee) may be issued as security for a
loan granted to a foreign borrower in connection with a long-term contract with an Indian
buyer concerning import of raw materials (for example, concentrates for the basic metals
industry).

While giving loans bank does the analysis of various parameters to check the risk associated with
the repayment of loan. One of the major parameter is financial analysis where key ratios are
analysed. In general the levels and risk associated with these key ratios are:

36 | P a g e

Particulars

Current Ratio

Formula

Current Assets

Low

Medium

High

Risk

Risk

Risk

>1.40

1.20-1.40

<1.20

<2.00

2.00-3.50

<3.50

>3.50

2.00-3.50

<2.00

Current Liability

TOL/TNW

Total Outstanding
Liabilities
Total Net Worth

Interest Coverage

EBITDA
Interest & other
finance charge

PAT/Sales %

(PAT/Sales)*100

>10.00

4.00-10.00

<4.00

Inventory (N o.

Ending Inventory

<60

60-90

>90

<45

45-90

>90

<1.25

1.25-1.75

>1.75

>2.00

1.25-2.00

<1.25

Of days)

Cost of Goods Sold /


365

Debtors (No. of
days)

Average Gross
Receivables
Annual Net Sales /
365

Debt-Equity Ratio

Total Debt
Total Equity

DSCR ( For TL)

EBITDA
Interest+Current
maturities in long term
debt

37 | P a g e

SME LENDING
AT
ING VYSYA BANK

38 | P a g e

CREDIT APPRAISAL PROCESS AT ING VYSYA BANK


1)

Login of the credit file.

2)

To watch out that weather the case is doable or not.

3)

Preparation of the note.

4)

Appraisal by the risk department.

5)

Sanction letter.

STEP FIRST: LOGIN OF THE CREDIT FILE


In this very first step, the marketing team of the bank gets the cases on the basis of
their references and the data in their hand . After that the marketing team will hand over the
case to the credit department along with the necessary documents for further process of
the case.
Following is the list of necessary documents required to log in a case.
1. Duly filled application form.
2. Audited financials of last three years.
3. Provisional financials of last year (if audited is not available)
4. Bank statement of last six months( through which bank A/c the firm does the
maximum banking)
5. ITR (Income Tax Return) of Promoter/ Property owner.
6. Vintage proof.
7. Sanction letter of prevailing limit (if any).
8. CIBIL FORM
Once all the documents are completed for log in .The case is shown in MIS as a log in by
credit department.

STEP TWO: DECISION OF GO-NO-GO CRITERIA BY THE CREDIT DEPARTMENT


Once all the login documents are completed the process of checking of do ability
(GO/NO GO) is done.
In this very step the dedupe checkup is to be done. In this dedupe checkup we do a check
out whether there is any overdue or default on the borrower side or not.
Once the dedupe checkup is clear the credit team prepare the finspred (software for analyzing the
financials) for the case with the help of the audited financials .And also check out the track
39 | P a g e

record in the bank statement of client .We can check the track record with the help of the
following things.
1.
2.
3.
4.
5.
6.
7.

Counts of credit transactions


Total amount of credit transactions (%of the ratio to turnover)
Counts of debit transactions
Total amount of debit transactions (%to the ratio of expenditure)
Number of INWARD cheque returns
Number of OUTWARD cheque returns
Timely payment of EMIs and Interest.

After preparing the finspread on the basis of certain ratios and track record of bank statement the
credit team decides that the case is doable or not.
Following are the some of the main parts or ratios on which the bank gives more emphases while
to judge that the case is doable or not.
1. LEVERAGE of the company must have the leverage of 6 according to the bank norms
(i.e. TOL/TNW total outstanding liability, tangible net worth)
2. CURRENT RATIO of the company
3. MPBF (Maximum Permissible Bank Finance)
4. DSCR (debt security coverage ratio) in case of term loan
5. Profitability ratio (like gross profit margin, EBIDTA rate, PAT margin)
6.
THIRD STEP: NOTE PREPARATION
Once the case is to be approved as doable a set query is send to the marketing team for further
movement of case or we can say for the preparation of note
In the note the credit team summarizes up all the details of the borrower.
NOTE WRITING INCLUDES THE FOLLOWING
1. Business background
2. Process of business.
3. Comment on financial statement of the company
4. Future plan of the company and comments on the projection.
5. Bank statement analysis
6. Promoters background
7. Market reference of the client
8. Industry scenario
9. Detailed terms & condition of the sanction including:
10. Type of limit to be sanctioned (fund based CC / OD/ TL/ PC/ WCDL etc & non fund
based - LC/BG/For ex limit etc.)
11. Amount of Limit to be sanctions

40 | P a g e

12. Rate of interest (for fund based facility) and rate of commission (for non fund based
facility) and processing fee
13. Detail of security (primary and collateral)
14. Detail of Personal guarantee.
15. Other terms & conditions as required.
16. And other information specific to case to case.
Once the note is prepared the case is sent to the centralized risk management department
(CRMD).the risk department is totally independent from credit department the credit department
sent the prepared note to risk department to examine the proposal.

STEP FOUR: APPRAISAL BY THE RISK DEPARTMENT


In this step the risk department scrutinizes the whole proposal and they bring out the
observations, and send a list of query to the credit department.
As and when credit department will get a list of query raised by the risk department they replies
on the same with help of the marketing department start working on them to solve out the quires
along with the help of marketing department.
After solving all the observation the case s uploaded for sanction to the appropriate authority as
per the delegation of power by the bank.

STEP FIVE: SANCTION


After the uploading of the case, the case is presenting by the credit department along with
marking department to the appropriate author for the sanction of the case. During the
presentation of the case various observation are raised by the appropriate sanction author and on
the basic of discussion, the authority decide to approve / reject or withdrawn for modification.
If case is withdrawn for modification for the adding of some information or document. The credit
department along with mark modifies the proposal as required by authority and again uploads the
same and discuss with the authority to get it approved or rejected.
Once the case got sanctioned minutes are generated. On the basis of minutes the CAL (Credit
Agreement Letter) are prepared and issued to customer.

41 | P a g e

CREDIT APPRAISAL PROCESS AT ING VYSYA BANK


The credit appraisal process at ING Vysya bank is considered very thorough and conservative
the bank undertakes the above steps to complete the credit appraisal process.

1. Meet the client: The bank has appointed various Relationship managers( RM) and
executives who find the clients with credit requirements for their business, if the RM are
satisfied with the client and its expectation with the bank the case goes to the regional
office for a complete check and evaluation.
2. Take KYC Documents& Application form: The RM after the first course of interaction
with the client asks for the various document required to appraise the project. KYC
documents as mentioned in the policy guidelines are Know your customer (KYC) the
customer can be best known with his financials and other vintage proofs mentioned in the
requirement list.
3. Initial Dedupe Check: This is better known as initial de-duplication checks in this the
bank checks the credit reporting of the client whether he holds any over-dues etc. The
bank also checks the client in RBI defaulter list.
4. Check the Banking: The first thing the bank checks is the banking of the existing limit
account if any, the bank tries to check the existing performance of client with the other
banks, and in case more number of inward returns due to in-sufficiency of funds. Then
this is also a deviation and if there is over utilization of the limit on all the days then this
calls for accountability by the client.
5. Audited financial test: The bank under takes a complete check of financials as mentioned
in the requirements, these audited financials are put in finspread software of the bank and
then projections are made on the basis of financials and then various profitability ratios
are analyzed and the financial soundness of the company is analyzed. The financial
viability of the company is checked on various parameters as mentioned.
6. Deviation check: The bank after checking the financial soundness of the company goes
for the verification of the deviation check of policy compliance, if any in case of major
deviations the case is presented in front of the zonal credit committee, their decision
stands the final verdict on the approval f the case.
7. Internal Verification: The bank through its various sources makes a complete thorough
investigation of the handling of business of the clients, this enables the bank to make sure
that the client is not forging with the financials of the company.
8. Approval by ZCC: If the credit limit is below Rs5oo lakhs then the approval is sought
by Zonal head of the business banking and if the amount exceeds the above stated

42 | P a g e

amount then the case is first discussed by ZCC and is then presented on ECC(electronic
credit committee) depending upon the policy compliance failed by the client.
9. Decision on disbursal of loan: When the case is presented to risk department it analyses
the variety of risk involved in the sanctioning of loan if it crosses the parameters then the
possibility of disbursal of loan declines then the ZCC makes its final approval on the
limits required by the client and the limit deserved by the client, the bank makes it final
way to the approval of the loans.
10. Discussion between client &Bank on approval: The banks proposes its terms and
conditions to the client and the amount of loan that is approved to the client at what rate
of interest and what proportion of collateral is kept by the bank, when the client agrees on
all these terms then only the case reaches the sanctioning stage.

43 | P a g e

Whole of my internship can be divided into three stages. At stage one I worked on drawing
power. This helped me to understand the significance of drawing power and method of its
calculation. At stage two I did OPERATIONS. This stage is a very important part of banking as
through this track banks real customer orientation is seen by doing fast and accurate work. Stage
three of my internship is credit appraisal. All these stages are described below in detail:

Drawing Power
Drawing Power tells us the monthly requirement of client having Cash Credit facility. For this
stock statements are analyzed and checked to see whether the given creditors and debtors are in
accordance with the details given by clients to the bank. The method used to calculate DP is:
1. We take monthly information of stock, Creditors and debtors from the client

2. We find the eligible debtors from the information given. This is found by calculating the
number of debtors less than certain days, specified by the bank during approval of loan.

3. Then we find the DP on Debt by the formula: eligible Debt x (1- margin on debt)
4. Similarly we find value of paid stock by subtracting creditors from total stock.
Once paid stock is found, we find DP on stock by the formula: Paid stock x (1-margin on stock)

5. Then we find total DP required by adding DP on stock and DP on Debt.

6. Then we subtract this total DP by the outstanding facility enjoyed by the client from other bank. This
gives us net DP
If the net DP is less than the limit given by us then the Available DP is equal to net DP, otherwise
Available DP is equal to the credit limit given by IVBL.

44 | P a g e

45 | P a g e
300

500

300

75

200

60

400

1200

200

2.

3.

4.

5.

6.

7.

8.

9.

lakhs)

(in

Limit

1.

Case

174.1

5926.5

557.01

153.68

259.85

1052.7

2258

424.91

154.08

Stock

46.36

2303.67

787.12

253.506

33.71

1071.48

2714

241.19

0.00

127.74

3622.9

-230.11

-99.826

226.14

-18.74

-456

183.72

154.08

Stock

Creditor Paid

25%

25%

25%

25%

25%

25%

25%

25%

25%

249.48

257.8

1382.8

3249

462.12

518.21

504.00

2717.1

1612

3234.5

-172.58 222.19

-74.87

169.61

-14.06

-342

137.79

115.56

Days

90

Days

90

Days

90

Days

90

Days

90

Days

90

Days

90

Days

180

Days

90

upto

Dedt

n%
Stock

Valid

Margi DP on Total

1612

2699.8

22.19

249.48

190.51

1155.5

2617

461.78

468.37

Debt

Valid

35%

25%

40%

25%

35%

35%

25%

25%

35%

n%

Margi

1047.8

2024.9

13.31

187.11

123.83

751.12

1962.7

346.34

304.44

Debt
0.00

O/s

al

00

80

1551. 400

09

80

1151.

09

7
2242.

7
4742. 250

159.2

0.00

112.2

293.4

387.0

720.7

484.1

420

159.2

112.2 0.00

293.4 0

737.0 350.

75

1620. 900

484.1 0.00

420

DP

600.00

1200.0

0.00

60.00

200.00

75.00

300.00

484.13

300.00

Availabl

DP on Total Tot Net DP DP

Credit Appraisal

What is the difference between fresh sanction and enhanced limits. For this we first make CAM,
Credit Appraisal Memo. The purpose of this memo can be:

1. Fresh Proposal The proposal of the company which has approached the bank for the first time, i.e.
which does not have any previous relationship with the bank.

2. Enhancement When a company is already enjoying one or more of the FB or NFB facilities from the
bank and wants to increase the limit for the same then enhancement proposal is made.

3. Adhov Sometimes for a certain period the given limit is not sufficient for the company to meet its
requirements. In such case Adhov limit, over and above the average sanction limit, is provided to the
client. Adhov is provided for maximum 90 days.

4. Review If the client is new or the performance of the company as per projected is doubtful then a mid
review date is decided while approving fresh/enhancement proposal. Is such case mostly the client asks
for more limit as predicted by bank to fullfill its requirement. So post sanction conditions are put to the
proposal, for example company has to maintain a turnover of 12 million and its TOL/TNW should not be
more than 6. To monitor whether these conditions are meet review proposals are made before the end
mid review month. The facility limit will remain same after sanction of review proposal only if all the
condition are fulfilled.

5. Renewal If the client wants to keep the facility limit same as existing limit, renewal proposal is made
before the end of existing facility.

46 | P a g e

CAM include following informations:

I. Borrowers Background
This include details about line of activity and end product of client, business process of the factory,
promoters background, information about promoters share in the company and their experience,
infrastructure details of the company i.e. name and address of factories/offices/godowns of the clients
and information about the FB and NFB loan facilities enjoyed by the client from different banks.

II. Credit Base


It includes future expansion plans of the firm, in case there is any major change in business process.
Details regarding major customers and suppliers of the company, their contribution percentage, their
contact person with contact number. Details about contact person of suppliers and customers are
required to cross check the details about the company and their business.

III. Relationship/Business Rationale This includes details about relationship experience if the client is
already having relationship with the bank. Business rationale include the estimates of the earning
that the bank will get after the proposal is passed in the form of processing fee and gross interest.

IV. Financial Analysis of Client This includes the financial summary of the client for current year, audited
details of previous year and projections for next year. In this financial summary some ratios are also
included, they are TOL/TNW, inventory turnover, debtors turnover, creditors turnover and NP
margin. This financial summary is used to analyse various parameters about the company and
reason behind any major change in the company. The parameters that are analysed are turnover,
profitability, leverage and liquidity of the company.

V. Risk Appraisal - Once the proposal comes we analyse the profile of the company to calculate the risk
involved in giving the asked facility to it. The risk appraisal is done based on following risks:

47 | P a g e

1. Business Risk and outlook - It covers Market Dynamics, Competitive Positioning, Supply Chain
Management, Technological Development/ Obsolescence Risks, Dependence on Single Supplier,
Dependence on single Buyer and Products are dependent on a Single industry.
2. Management Risk - It covers Management capabilities, Dependence on few individuals, Presence of
professionals and succession plan.
3. Performance Risk - It covers Technical know-how, Raw material souring/availability, Product delivery
capabilities and Competition comparatives - cost, product features.
4. Structure Risk - It covers Product Structure, Document structure and Process Structure.
5. Industry Sector Concentration - It concentrates over exposure to a Particular industry by the Bank.
6. Country Risk - It covers convertibility, bans/sanctions on the country, Currency Risk.
7. Environment Risk - It covers the risks arising out of dealing with hazardous materials, disposal of
waste/effluent, Activities/Location dealing with social/environment issues.
8. Regulatory Risk - It covers compliance with statutory/Regulatory requirements, legal requirement and
lending regulations.
9. ING Vysya Banks Reputation Risk - It covers Moral and Ethical issues and Social/Governance Issues.
10. Specific Purpose of Asset Collateral - It cover the risks arising out of assets put to specific usage and
tailor made assets and the problems in disposal in case of need.
11. Financial Risks - It covers Operating Efficiency, Financial Stability and Cash Flows.
12. Transaction Risk - It covers Documentation Risk, Covers/Collateral Valuation Risk and Interest Rate Risk.
13. Any other Risk

VI. Take Out It covers both primary and secondary takeouts. It is the hypothecation and collateral
securities kept by the company with the bank which can be taken by the bank in case of default.

VII. SWOT It includes the strength, weakness, opportunities and threat of the company.

VIII. Policy Deviation Deviation from credit policy is also checked for the clients. There are three parameters
across which deviation is analysed and observed. They are deviation in credit policy financial
parameters, deviation in policy other parameters and verification of defaulter list.
(a) Deviation in Credit Policy Financial Parameters: The limits for the financial parameters

are decided by IVBL, across which deviation is to be calculated. Under this explanation /

48 | P a g e

justification for considering the request despite deviation has to be mentioned along with the
time frame within which the deviation has to be corrected and brought within the threshold level
has to be mentioned. The parameters and its limits are:

Parameter

Median

Threshold

Actual as of last audited Remarks*


B/s dated 31-03-XX

0.03

Minimum EBITDA/Net Sales


Minimum

Interest

(EBITDA/Interest

Coverage
&

Ratio 1.75

other

0.02

1.50

finance

charges)
Minimum

Current

Ratio

(Current 1.15

1.00

Assets/Current Liabilities)
Maximum Debt Equity (Total interest 2.00

3.00

bearing Debt/TNW)
3.50

4.50

Minimum DSCR (EBITDA/interest plus 1.40

1.25

Maximum TOL/TNW

current maturities in long term Debt)


*Here justification for considering with deviation is given. If the minimum value is above median then it is
accepted, if its between median and threshold then also the deviation is considered but if the minimum value is less
than threshold then the parameter fails.

(b) Deviation in Other Credit Policy Parameters: It includes exposure norms in unit and
industry/sector, tenor norms for exposure & rating, regulatory restrictions, takeover norms,
FEMA/FERA requirements and Sec 19(2) of Firm act. All these are supposed to be compiled
with the proposal and if not compiled then time lines has to mentioned within which compliance
will be done. This is important as it states various norms to be followed by the firm across which
deviations are checked to insure that in future company would not be facing any legal issues
related to these norms. This information also helps to understand the firm better and thus if any
change occurs in future the bank would be in a better position to examine the risk associated with
it and problems that bank could face in future.

49 | P a g e

(c) Verification of Defaulters List: We also check for the promoters in the default lists and take
out their cibil to check the credibility of the promoters. These defaulter lists are RBI Defaulters
list, Wilful defaulters list, RBI Caution list, ECGC and Special Approval list. CIBIL Database is
also checked.

IX. Highlights of credit investigation done It contains the summary of credit investigation report. CIR
includes:
- Observations made on statement of account of the client
- Personal enquiries made with banks/financial institutions
- Market opinion with customer of the client, creditors of the clients and independent sources.
- Details about visit to factory/office
- Information through any other source
- Conclusion to credit investigation.

X. Compliance with statutory requirements

It includes confirmation that all IT/ST/ PF/ESI payments

have been made and there are no overdue and that all statutory approvals have been taken for
conducting the business/ manufacturing activity

XI. Summary of conduct of the account It is done in case enhancement/review/renewal. It includes very
short summary of Account performance and covered in detail in Account relationship and
monitoring sheet. Summary of account performance include earning of bank from this relationship
and detail about utilization of working capital limit. Utilization of working capital is found from MIS
system of IVBL.

XII. Cover/Collaterals and covenants It includes details about primary cover, collaterals and net worth of
the guarantees. This is done to insure that in case of default in repayment of facility, cover and
collaterals provided by the firm to the bank are sufficient to overcome losses.

XIII. Risk rating/Risk-reward/Profitability Bank earns profit from the facilities given in the form of the
gross interest and income through commission.

50 | P a g e

Clients Growth

51 | P a g e
and

growing fast, i.e. >10% annually

growing

modest,

i.e.

>5%

fluctuations are frequent

change/

price

Industry in long term decline/

Borrower is a start up venture

Excellent

Strong

Good

Satisfactory

Adequate

Marginal

Vulnerable

Parameter

(1)
(2)
(3)
(4)
(5)
(6)
(7)

Unfavourable

swings/ Hazardous

viability not yet proven/ stablished

Established for more than 3 years, Industry subject to wide cyclical

3 years

Acceptable track record for more than Regulatory

growth

annually
Good track record or more than 5 years Mature industry but with modest

years

Good track record for more than 10 Industry well established and

years

annually
Good track record for more than 15 Industry well eastablished and

growing very fast, i.e. >20%

stablished

Status

25 years

well

Industry/Business

Successful track record for more than Industry

Business Risk
Interest rate is decided at the time of approval of facilities. This interest rate varies from client

to client depending on their credit rating and previous relationship with bank. Base Rate of the

bank, IVBR ( ING Vysya Base Rate), is the minimum interest rate that can be enjoyed by the

customer.

Liquidity

52 | P a g e
with
established suppliers.

well Long term relationship with well Monopoly in Local Market

place.

in place.

comprtition

customers.

unimportant

to

<0.75

Current Ratio Customer relationship is unstable.

<1.0

is

relationship is unimportant.

Current Ratio Borrower

> 1.0

one/

business.

on

large

with

Supplier relationship is unstable.

market

share

or

>10%

player
compared to competition

Insignificant

facing cut throat competition

the Borrower is unimportant to the Losing


suppliers.

player

large Client is one of the seeral

share (>20% market share)

market share
Supplier- Less than 5% market share

two

Buyer relationship is unimportant.

Current Ratio Commodity business. Seller-Customer Commodity

suppliers.

> 1.20

suppliers.
Dependant

customers.

Current Ratio Dependant on one/ two large customers.

> 1.33

Current Ratio Borrower is very important to the Borrower is very important to the Client has significant market

> 1.5

Current Ratio Long term contract with customers is in Long term contract with suppliers is Local market leader. Weak

established Customers.

relationship

Customers

> 2.0

term

Suppliers

Current Ratio Long

Risk

Financial
Competitive Position

Family

History

53 | P a g e
Standing/

Members

established

family.

member

of DSCR

2.0

for DSCR

No No adverse reports.

1.25

DSCR

reports available.

1.0

with potential connections.

or evidence available

1.0

Known familt fueds. New rich Integrity suspect but no proof DSCR

generation. No adverse reports.

Family history is short. First Not well known in market. No DSCR

adverse reports.

Well

respected

2.5

community. No adverse report. 1.5

family. Prominent

3.0
integrant. DSCR

operate integrity but, not yet tested

Generally favourable reports.

independentaly.
established
Well

history.

regarded
Well
inters. family with a long Generally
cultural

family with varied business and Highly respectable.

Highly respected closely knit Unquestionable

Highly respectable.

DSCR
growth > 5%

< 1.5

fluctuating

Negative

< PBDIT

5%

< 2.5

No sales history

> 4.0

TOL/TNW

> 2.5

show TOL/TNW
declining trend

> PBDIT < Sales

5%

< 2.0
widely TOL/TNW

very stable sales


> PBDIT > Sales

10%

> PBDIT > No growth but TOL/TNW

15%

< 1.0
average TOL/TNW

growth > 10%


> PBDIT > Annual

20%

average TOL/TNW

< 0.5

average TOL/TNW
growth > 20%

> PBDIT > Annual

25%

> PBDIT > Annual

PBDIT/Sales

family with long history.

Integrity
integrity. DSCR

Sales Growth

Most prominent and respected Unquestionable

Management Risk
Leverage

is

the

only

Management

Commitment

54 | P a g e
in finance/ administration.

Fair liquidity.

need.

Free assets negligible. Still has some

this business.

activity. Average competence level.

Poor fund raising capacity in case of

minority

Management lacks commitment to Unproven competence.

susceptible.

capacity to borrow clean.

is

thinking.

Commitment is unclear.

This

year to year.

Level of commitment changing from Average competence. Lacks strategic Free assets available but liquidity is

Commitment is adequate.

This is one of the several activities. Good business sense, but perhaps weak Free assets > 50% gross Liabilities.

Satisfactory liquidity.

the few main businesses.

Good liquidity.

and Free assets > 200% gross liabilities.

Free assets > 100% liabilities.

enterprising

Strong liquidity.

Good commitment. This is one of Above Average competence.

knowledgeable.

competent,

Highly enlightened.

Strong commitment. This business is Highly

the main contributor.

Competence

business. Most competent in business community. Enormous wealth. Insignificant debt.

Management

Unwavering commitment.

This

Financial Standing

internal

Internal Controls

55 | P a g e
issue.

management.

Succession

no

employees at all level.

step-in.

controls

exist

questionable loyalty.

employees,

lacks motivation.

takeover.

but One man show. His legal heir may be able to

experienced.

the lack of internal controls.

have

will ensure continuity.


little Succession may pose a problem if owner dies.
competence and/or authority.

Minor lapses noticed due to Employees

Owners supervision average.

Not formal internal controls. Employees are new and/or not One man show. But professional managers

Owners supervison strong.

succession plan.

but Loyal and honest employees but No difficulty anticipant in succession.

with sound knowledge.

Not formal internal controls. Motivated

largely untested.

Internal

No major lapses so far.

Good internal control systems. Motivated and loyal employees Owner/s have well defined and practical

stood the test of time.

Good internal controls. Have Highly qualified and motivated Successor is already identified and ready to

qualified member of family.

control All key position held by well Professional

Employee Quality

system with frequent testing.

Excellent

Succession

more than 30 days.

Most payments are delayed for


Chronic defaulter in compliance.

Frequent overdue but settled.


Unsatisfactory compliance records.

Mostly settled within 30 days.

30 days or new relationships.


relationship.

extensions sought.
Attitude to compliance is lax or New A few payments delayed upto

or
few days
conditions can not be complied with. delayed for a

occasionally
are
when Payments
approval
prior
Seeks

complied with.

All major/ critical conditions are All payments are made on time.

covenants.

Occasionally prepays.

record.
record of payment.
repayment
Complies with all conditions and Good

prepays

amount due. Excellent track


letter and spirit.

Compliance Record

Strong commitment to compliance in Borrower

always

Repayment Record

The Commission earned by the bank depends on the type of proposal/facility. IVBL charges 0.5%
on the renewal of the existing limit. While if it is a case of enhancement of limit or fresh
proposal, 1% is charged on the limit provided.

Credit Risk Rating is an important part of Credit Appraisal as it determines the risk associated
with the bank and thus profitability of the bank. To do credit risk rating we first calculate the
credit risk which is further divided into three heads Business Risk, Financial Risk and
Management Risk.

While calculating cumulative risk of the firm, we give marks to the firm on the basis of various
parameters under each head and find risk in respective head. Once individual risks are found, we

56 | P a g e

do weighted summation to find the overall score of the firm based on which Credit Risk Rating
is given to the firm.

Credit Risk rating varies from CRR1 to CRR7. The parameters are rated based on following
condition:

After giving score to each parameter, risk rating is calculated for business risk, Financial risk and
management risk. It is a average of all sub parameter under a particular group.
The final score of the firm is the cumulative summation of all twenty parameters. On the basis of
this cumulative score overall Credit Risk Rating of the firm is done as follows:

Total Score

Credit Risk Rating

Remark

20 to 29

Excellent

30 to 49

Strong

50 to 69

Good

70 to 89

Satisfactory

90 to 109

Adequate

110 to 129

Marginal

130 to 140

Vulnerable

Credit Risk Rating of a firm is always done based on the details of latest available audited Balance Sheet
and Profit & Loss statements.

XIV. Conclusion/Recommendation On the basis of analysis of above discussed parameters, it is


decided by the author of the report whether it is beneficial for the bank to sanctioned the
concerned facility limit to the client.

57 | P a g e

CASE DETAILS
ABC INDIA PVT. LTD
Application No.
Borrower Name
Banking arrangement
Line of activity
Constitution
Sub-section for PSA
Type of Exposure
Approval Authority
Limits valid till
No of Policy deviations

Control Information
10/06/10
Application date
ABC India Pvt. Ltd.
Sole
Standard
Asset Classification
Manufacturing of
No
Priority Sector
Auto Dies
Private Limited
New customer
Banking with IVBL
company
since
Manufacturing
Service Enterprise
Micro
Small
Renewal
Review
Enhancement
Fresh Ad hoc
Others
ZCC
NA
Last approval on
30.06.11
Mid review date (if any) None
1
NA
Grmeoup N

Credit Risk Rating

Particulars

Remark
(Financial Information per last audited
accounts as on 31-Mar-10)

Industry well established

Industry/Business Status
Clients

History-Growth

in

more than 10 years

Turnover & Profitability


Competitive Position

One of the several large players

Suppliers

Depend on 2-3 large

Customers

Borrower is very important to its


clients suppliers

Liquidity

0.74

Leverage [TOL/TNW]

2.04

58 | P a g e

Sales Growth

Sales widely fluctuating

PBDIT/Sales

>5%

DSCR

Integrity

Generally respected for integrity but


not yet tested

Family Standing/History

Well established family

Financial Standing

Good Liquidity

Management Competence

Very competent

Management Commitment

Strong commitment.

Succession

owner have well established


succession plan

Employee Quality

Motivated employees

Internal Controls

good internal controls, no lapse so


far

Repayment Record

New Relationship

Compliance Record

New Relationship

Business Risk Score

4.0

Financial Risk Score

4.6

Management Risk Score

3.2

Total

75

CRR

EXPOSURE TO BORROWER AND CRR

Exposure to Borrower/ Group and CRR


Existing

Proposed

Borrower

Group

Borrower

Group

Exposure

Nil

Nil

900.0

900.0

CRR

59 | P a g e

PURPOSE OF APPLICATION:
i. Credit facilities recommended

Nature of
facility1

1.

TERM LOAN

2.

CC

200.0

200.0

3.

Bank
Guarantee

200.0

200.0

Total

900.0

900.0

60 | P a g e

Existi
ng
Limit

O/S as O/D Proposed limit3


2 if
on
any
By Br/ By
RM
RO
500.0
500.0

Sl No

TermsRoI,
margin,
tenor, usance period,
commission details, etc)
Existing Proposed
4.25 % below
IVRR
i.e.11.50%p.a.
(Currently IVRR
is at 15.75%)
Margin: 25%
Repayable in 60
monthly
installments of
Rs. 8.33lacs
along with
interest, starting
from Jan 2011
onwards
4.25 % below
IVRR
i.e.11.50%p.a.
(Currently IVRR
is at 15.75%)
Margin: 25%
0N STOCK
AND BOOK
DEBTS
Commission: 1.2%p.a., Cash
Margin: 20%,
Tenor max 36
Months

FINANCIAL ANALYSIS OF CLIENT


Particulars

1) Sales
2) PBDIT
3) Interest
4) Depreciation
5) Taxes
6) PAT
7) Capital
8) Unsecured Loans
9) Loans from Other/Our Banks

Previous Year Previous


Actual (2007)
Year
Actual
(2008)
1,994.45
913.85
166.39
225.93
78.68
76.99
117.64
136.43
6.64
3.98
-36.58
8.53
873.45
881.98
0.00
0.00

last year Provisional Projected


audited
(2010)
(2011)
(2009)
1,664.89
279.09
90.90
147.86
4.93
35.41
923.57
0.00

1,530.98
349.88
65.65
153.67
0.00
130.56
1,087.96
0.00

2,194.00
592.00
95.00
250.00
74.10
172.90
1,260.86
0.00

495.24

1,026.85

1,487.76

a) Term Loans
558.46

b) OD/CC
10) Current Lia.
11) Non Current Liabilities
12) Fixed Assets
13) Current Assets
a) Stocks
b) Debtors
c) Cash & Bank Bal. In current a/cs

453.75

653.43

650.00

650.00

450.00

600.00

1,465.11
557.78
1,667.78
1,102.61
524.95
497.93
51.56

1,804.32
451.76
1,630.68
1,446.62
873.76
410.95
51.97

1,387.34
493.25
1,595.96
1,043.20
441.90
327.05
133.16

1,262.16
1,012.76
2,084.03
1,203.33
896.74
99.08
139.73

1,481.00
1,387.76
2,508.83
1,549.84
974.00
225.00
110.00

125.96
0.75
2.32

60.77
0.80
2.56

165.78
0.75
2.04

74.94
0.95
2.09

70.46
1.05
2.28

(With USL)

2.32

2.56

2.04

2.09

2.28

18) Inventory Turnover

130

1163

167

432

305

19) Debtors Turnover

91

164

72

24

37

20) Creditors Turnover

34

120

171

194

110

21) NP margin
22) EBIDTA Margin

-1.8

0.9

2.13

8.53

7.88

9.1%

24.7%

16.8%

23.1%

27.0%

14) Non CA
15) Current Ratio
17) TOL/TNW (without USL)

61 | P a g e

23) Gross Profit


24) Debt Equity
25) DSCR

26%
1.39
2.32

70%
1.25
2.91

42%
1.24
3.00

50%
1.36
5.23

Turnover:
The Turnover of the company has shown fluctuating trend in past few years. It was at Rs.
1994.45 lacs in FY07, which decreased by 54% to Rs. 913.85 lacs in FY08. Then in FY09 the
turnover has increased by 82% to Rs. 1664.90 lacs. The increase in turnover of the company is
increased due to complete makeover of the work culture at the shop floor by adopting top to
bottom and bottom to top managerial systems.
The company has worked on 209 small and big dies /fixtures/DBO tools as compared to 191
small and big dies /fixtures/DBO tools during last year.
The reason for decline in sales during 2007-08 was mainly due to increase in inventory as at
March 31, 2008 as compared to inventory as at March 31, 2007 which could not be billed even
though the Dies were ready. The delay in billing is sometimes due to request received from the
customer also, if there is delay in launch of new model or new variant of the vehicle at their end.
The major jump in turnover during 2006-07 was due to complete outsourcing of dies from
Thailand and Pune for some orders received from customers, however, due to quality problems
in those outsourced dies, this practice was totally discontinued in subsequent years. The
additional work required to be done in house on those outsourced dies caused the loss incurred
during 2006-07.
Similarly, the decline in sales during 2009-10 was also due to increase in inventory as at March
31, 2010 as compared to inventory as at March 31, 2009 which could not be billed even though
the Dies were ready.
In provisional year 2010 the same has been decreased marginally by 8% to Rs. 1530.98 lacs due
to the tough economic condition
Further the same has been projected at Rs. 2194.0 lacs for FY11 and at Rs. 3500.0 lacs for FY12.
As stated above, the company is into manufacturing of sheet metal dies, from 2012 onwards the
company will be producing proto dies, welding jigs, stamping compone NTS.

62 | P a g e

47%
1.66
5.43

Sales bifurcation for sales of dies and sales of proto, jigs and welding fixtures:
Particular
2011
Sales of Dies
2194.0
Sales of proto, jigs and welding fixtures
Total
2194.0

2012
2300.0
1200.0

2013
2415.0
1500.0

2014
2550.0
1875.0

2015
2800.0
2062.50

3500.0

3915.0

4425.0

4862.50

Last 12 Months quarterly sales for FY10 is as follows: Month


Ist quarter
nd

2 quarter
3rd quarter
4th quarter
Total

Sales in Rs Lacs
445.0
550.0
310.0
226.0
1531.0

Profitability:

EBIDTA margins of the company also following the fluctuating trend. It was at 25% in FY08,
which decreased to 17% in FY09 due to fluctuation in COGS and sales and admin expense. In
provisional year 2010 EBIDTA margins increased to 23% due to decrease in COGS from 57% to
49%. In order to reduce cost of productions the company has obtained 700 KVA electricity
connections from Dakshin Haryana Bijli Vitran Nigam Ltd. The company has been able to save
rupees 10.54 lacs during first four month of current year. Further the same has been projected at
26% for FY11 and at 23% for FY12.

Net profit is increasing year on year, it was at 0.9% in FY08, which increased to 2.15 in FY09
Variation in Profit after tax from year to year is due to varied mark ups given by the different
customers on the orders received. The dies manufactured for different customers are also
different from each other as the complexity of each die varies. Further till 2008-09 any change in
price of diesel had affected the profitability as the plant was being run on self generated power
through generators. Moreover, the varied percentage in annual salary review also causes
variation in Profit. It is submitted that during 2009-10, the profitability has increased mainly due
63 | P a g e

to two reasons. Firstly, the company got an electricity connection of 700 KVA from Haryana
Government because of which the electricity and fuel cost has gone down from Rs. 80.21 lacs to
Rs. 48.20 lacs as appearing in schedule of Manufacturing Expenses. Secondly, during 2009-10,
Rs. 200 lacs out of total credit facilities from Mizuho Corporate Bank were converted from
Working Capital Demand Loan to Cash Credit. This has enabled the company to save interest, as
during major part of the year, the cash credit facility was not fully utilized. The finance cost had
gone down from Rs. 90.90 lacs to Rs. 65.65 lacs during 2009-10.
Further interest cost is projected at Rs. 95.0 lacs for FY11 as almost 3 months gone in this
financial years and the disbursement will also take another 1-2 months and will be in phases,
hence we took the interest at Rs. 95.0 lacs in FY11 and further proposed at Rs. 130.0 lacs for
FY12.

Further the same has been projected at 7.3% for FY11 and further on projected around 7.5%.

Leverage:
TNW of the company comprises of share capital, reserve and surplus.
TOL of the company comprises of sundry creditors, working capital bank finance and short-term
loan from banks and financial institutions.
The TOL/TNW of the company is at comfortable level in all the years. It was at

2.04 for FY09

and at 2.09 for FY10. Further the same has been projected at same levels for next years.

Liquidity:
Current assets of the company comprises of inventory, debtors and cash & bank balance. Current
liabilities of the company comprises of sundry creditors and working capital bank finance and
other term liabilities.

The current ratio of the company is on lower side. It was at 0.58 in FY09 and at 0.98 in FY10
and the same has been projected at 1.05 for FY11.

As explained earlier that the reason of carrying high value of inventory is some times due to
delay in accepting the dies by customers, which are ready for billing. Further, when the company
64 | P a g e

is executing orders worth about Rs. 20-25 lacs, then inventory of semi finished dies at different
stages of completion is bound to add to high value of inventory. None of the inventory is waste
inventory.
Stock Debtor creditor position of last 3 months is as follows
MONTH
Jan 2010
Feb 2010

2.

Debtors

Stock
632.53
768.96

431.95
353.52

Creditors
656.92
773.55

RISK APPRAISAL

i.

Business Risk and Future Outlook


The business risk is mainly from competitors there are lots 7-8 players in the
segment. But the advantage the Nagata has is that Group has a vast experience in the
field of almost three decade and has the technical competency and good relationship
with its customers. Further it enjoys a good reputation in market with proven track of
providing desired quality and quantity.
ii.

Management Risk
Both Japanese and Indian directors have good competence and required know
how to manage the company.
iii.

Performance Risk
The company has requisite technical knowhow acquired over a period of time
and has the required knowledge required to manufacture the dies
one of the key success ingredient in the industry.

iv.

Structure Risk
The customer shall be mainly offered with cash credit, term Loan, Bank
Guarantee, It does not entail any structural risk

v. Industry Sector Concentration


There is no major exposure on the same sector in North India.

vi. Country Risk


The company is dealing with customers in local market and as such doesnt entail any
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country risk. Parent company is in Japan, which is a very stable country


vii. Environmental Risk
The company is into manufacturing of sheet metal dies and as such doesnt entail any
environmental risk.
viii. Regulatory Risk
The company complies with all significant statutory and regulatory requirements and
no risk is associated with the same.
ix. ING Vysya Banks Reputation Risk
There are no risks associated with the moral or ethical issues. No risk is envisaged with
the lending.
x. Specific Purpose of Asset Collateral
We are taking Prime Industrial property in Manesar used for manufacturing purpose
thus no risk is associated with the same.
xi. Financial Risk
The customer has been into the same business for 10 years and has developed his
clientele over years and has been getting repeated orders from the same customers.
Further, the business has been increasing year on year and now the company has built a
reputation amongst its customers.
xii. Transaction Risk
Documentation risk: All documentation as advised shall be carried on and no
documentation risk is envisaged.
Covers/Collateral valuation Risk: empanelled valuer shall value The collateral and thus
no risk is envisaged with regard to the same.
Interest Rate Risk: The rate of interest is a floating rate linked with IVRR and thus shall
be taken care of.
xiii.

3.

Any Other Risk


The business does not entail any other risks.

TAKE OUT
Primary: - Companies all past and future current assets.
Secondary: - Industrial property in Manesar

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4.

SWOT

Strength:
The strength of company is Good knowledge and experience in the field. Established
existing loyal customer base developed with relationship of several decades.
Strong backing of parent company in Japan.
Presently all car manufacturers are frequently launching new models or are modifying the
existing ones, therefore, the requirement of new dies is increasing.
Weakness: Dependency on auto industry.
Opportunity: Auto industry has shown good growth in India. Further the prototype designing is also
picking up.
Threat: Major threat in the segment is competition as there are many players in the segment and
the retention of customer is a tough ask. But keeping in mind the experience of the
company and relationship it has with customer it has been able to retain its share and
grow steadily.

5.

POLICY DEVIATION:

There is only 1 policy deviation in the proposal:


Current Ratio: It was at 0.75 in FY09, which improved to 0.95 in FY10 and further projected at
1.02 for FY11.
6.

HIGHLIGHTS OF CREDIT INVESTIGATION CONDUCTED:

The market references of the company are good.


7.

COMPLIANCE WITH STATUTORY REQUIREMENTS

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As per the last audited financial statements, all IT/ST/ PF/ESI payments have been made and
there are no overdue and that all statutory approvals have been taken for conducting the business/
manufacturing activity.
8. SUMMARY OF THE CONDUCT OF ACCOUNT
We have verified the bank statements of the company for last 6 months and have found the
conduct of the account to be good.

9.

COVER / COLLATERALS AND COVENANTS

i. Primary
Pari passu charge on the entire current assets of the company.
First charge on fixed assets created by the proposed term loan

ii. Collaterals
Land
Present
Proposed

Nil

Building Machinery
Nil

Others

Nil

Nil

Total
Nil

Rs.1300.0lakhs

Cover
%
Nil
144%

iii. NW of Guarantors - Personal / Corporate guarantees:

Present

Promoters

Other persons

Corporate / Group
concerns

Nil

Nil

Nil

Proposed

Total
Nil

iv. Specific covenants if any:


Equitable mortgage on the property shall be created prior to disbursement. However, the
valuation and title search shall be done prior to disbursement.
Permission to maintain one current account with any other banker for payment of taxes, statutory
dues and petty cash expenses to be granted.
Pari passu letters is to exchange with existing bankers within 30 days of disbursement
Comfort letter for limits being extended to be obtained from parent company
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10. RISK RATING/RISK-REWARD/PROFITABILITY

a. Risk Rating
Risk rating

As of 31.03.09
CRR4

Previous rating
NA

b. Rewards / Profitability
Gross
Interest
Revenue projected last year
Actual last year
Revenue projected current 9000000
year
Actual Current year YTD
Other benefits including FTP from
deposits

Commission

Other
charges

Total

200000

500000

9700000

11. SUMMARY OF ASSESSMENT:


The company is having good goodwill in market and in customers as well as the company has
shown good performance Inspite of turbulent market. The promoter Directors of the company
has the ability to manage the business and same has been depicted by the growth of the business,
thus with the increase in the business, its working capital requirements is also increasing. Further
with the growing market and order position the expansion is also justified.

12. CONCLUSION/RECOMMENDATION
In view of the submissions above, the proposed limits are recommended.

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RESULT & DISCUSSION

This project helped me to understand credit management. My mentors provided me enough


opportunities to get real time experiences of different stages of credit management. I worked in
detail on monitoring and credit appraisal. I also learn what is drawing power, its significance and
how to decide the drawing power of the clients.
I worked extensively on Credit Appraisal. Through credit appraisal I learned the procedure to
make credit appraisal memo and details about the documents required to do the same. This gave
me the opportunity to know the guidelines set up by ING Vysya for making CAM. I got to know
the verification methods for cross checking information that is given by the client.
Through Financial Analysis under CAM, I have done the practical implementation of the
financial knowledge given to me at my college, JIMS.
I also got the opportunity to do a unit visit with Mr. SUMIT KHARI and ASEEM ANAND to
visit the factory of new client. This visit was made before preparing credit appraisal memo for
the client. This visit helped me to understand the importance of unit visits, what all things has to
enquired to check the authenticity of the information given by client and what all documents are
required for credit appraisal.

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BIBLIOGRAPHY

Books :

R.P. Rustagi, Financial Management

I M Pandey, Financial Management

Journals : Annual Reports of ABC INDIA PRIVATE LIMITED.


ING circulars.

WEBSITES: http://www.wikipedia.com
http://www.investorwords.com
http://www.ing.in
http://www.economictimes.indiatimes.com
http://www.investopedia.com

Newspapers : The Economic Times


Mint

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