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Chapter-1 Corporate- Finance

Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize corporate value while managing the firm's financial risks. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance arc applicable to the financial problems of all kinds of firms.

The discipline can be divided into long-term and short-term decisions and techniques. Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. On the other hand, the short term decisions can be grouped under the heading "Working capital management". This subject deals with the short-term balance of current assets and current liabilities; the focus here is on managing cash, inventories, and short-term borrowing and lending (such as the terms on credit extended to customers).

The terms Corporate finance and Corporate financier are also associated with investment banking. The typical role of an investment banker is to evaluate company's financial needs and raise the appropriate type of capital that best fits those & needs.

Credit Management
Credit Management is one of the- most critical areas of functioning of the bank. Bunks display a major portion of their funds by way of loans and advances. Lending business provide a major part of the total income of the banks. Given these and the fact that the hulk of the funds lent belong to the depositors, it is necessary that the funds are deployed on a sound and realizable basis and they earn optimum returns. While lending, bank's also take into account the wider national objectives it economics and social developments.

While lending conies the risk, credit risk is most simply defined as the potential that bank borrower (or) counterparty will fail to meet its obligations in accordance with agreed terms. The size of the credit is the amount that could be lost if the risk were to be realized, non -payment by the customer. A bad debt on a bank loan would create a toss of the unpaid debt, principle, plus any overdue, unpaid interest. The goal of the credit risk management is to maximize bank's risk adjusted rate of the return by maintaining the credit risk exposure within acceptable parameters. Credit policy and credit planning which takes into account all these factors form the foundations for a sound management.

Systems are established to identify unacceptable risk before credit is given, so that the request given for the credit can refused. Once the credit has been granted. the customers positions are identified.

Banks are business institutions with the undoubted objectives of earning profit. Banks are in the business of managing risk and the budget risk they face in lending to the customers.

Corporate financing depends upon bank's ability in generating any type of volume and mix of loans, which depends on two factors.

1. The bank strengths and credit requirements in the operational areas. 2. Presently due to competition, meeting the demanding standards of customers and stepping up of income has made lending a tough job for the bankers.

To start with, the banker will have to access the prospectus of the industry, after assessing whether the right industry is chosen, the operational efficiency of the particular unit for winch loan is financed has to he assessed which acts as a good indicator of the financial analysis as well.

The assessment helps to determine:


The ability to pay, willingness to pay and securities for lending amount. For this macro aspect management evolution is done. The variables such as, capital structure. Assets and Stabilities position, Asset quality. Profitability and Sensitivity to interest rate structures and Tax policies etc are to be analyzed. On the basis of the above analysis credit risk rating of the company is done which helps to finalize the lending amount, rate of interest over that amount and repayment programme.

The next task is to put in place efficient administration. A system that provides clarity with regards to powers to the sanctioning authorities and the quantum of lending amount that can be sanctioned has to be set up. This system takes care of the postdisbursement scenario as well.

This project will also consist of research on new analytical model that will be added with the current evolution process to help the banks to analyze the company with greater accuracy.

Lending is and will continue to be the most important functions of Commercial Banking. A substantial portion of the resources of the bank is lent out & since such resource belongs to public, it is necessary that funds arc judiciously deployed, to serve the public interest. A large part of the income is derived by the way of interest on loans. Ai the same time, if a loan becomes doubtful of recovery, the entire amount of loan may have to be written off, out of the profit of the bank.

Lending is based mainly on the principle of safety, liquidity & profitability. Unwise and unsound lending practices can place the bank in a difficult situation. It is therefore necessary that the bank's lending activities should be handled with utmost prudence. The conventional guiding principle of sound lending should include: As far as possible, advances should he self liquidating in nature.

The bank should be convinced that the money lent is not likely to be lost.

It is always advisable to have a well spread-out portfolio to a large number of borrowers rather than concentration of credit among a few large borrower accounts.

Advances should not be granted for purpose of hoarding, over trading & profiteering or for speculative purpose.

Mere availability of deposit support should not qualify for consideration, unless it has sufficient merits otherwise.

Concentration of advances to a particular trade, industry, location and section of a community should be avoided and the guidelines contained in the bank's lending policy document and the directives as laid down by the RBI from time to time are to be duly followed

Loans for non-productive purposes should not be entertained.

The inherent risks in a proposal are to be properly evaluated.

Indusind Bank Bank Credit Facilities for Industrial units


The credit facilities sanctioned by Indusind Bank to industrial units can be broadly categorized under the following two head: 1. Fund Based 2. Non Fund Based

Types of Facilities 1. Fund Based Cash credit/ overdraft

Term loan/ demand Bills purchased/discounted.

2. Non -Fund Baaed Letter of credit Bank Guarantee.

1.

Fund Based

Fund based limits are generally granted by way of overdraft, cash credits, demand loans/bills purchased/discount. Usually the security offered, the size of advance, repayment terms and requirements of a customer decide the type of facility to be granted.

Cash Credits and Overdrafts: In over draft or cash credit the borrower is allowed to carry out debt and credit transactions up to a limit. The facility is ordinarily allowed against a pledge / hypothecation of goods, stock depending on case lo basis. The interest, unless otherwise stipulated is charged on the daily debit balance in the account. The term "overdraft" is generally used for continuing security of term deposits and other financial securities.

On the other hand "cash credit" is generally used for continuing limits granted for working capital requirements of commercial establishments. It may however be noted that beyond a particular amount (Rs. 10 crore at present) the working capital limits are required to he split into cash credit and loan component.

Demand Loan: Demand loan, as the name suggest are repayable on demand. They are also at tunes referred to as loans. Though technically repayable on demand, a repayment of the loan in installments spread over a period of up to 3year or generally stipulated. These limits are allowed to draw in full initially and no operations in the account are permitted expected by way of repayment of loan installments and debits by the way of forecast, insurance premium and other charges.

Term loans: Term loan are sanctioned for acquiring block of assets like building, plant and machinery and oilier equipments for setting up new industrial units/expansion of existing one. These loans arc also given for renovation. modernization, to improve the quality or productivity of the unit. Term loans are granted for periods varying from 3 to 7 years, depending on the profit generation capacity of the unit.

Bills Purchased/ Bill discounted: Bills purchased/bills discounted facilities are normally meant for financing Working Capital requirements in the post-sale part of the operating cycle of a unit. Under this facility, bankers purchase/discounts the bills and credit the amount in the customer's (seller of the goods) account after deducting discount.

2. Non fund based It does not involve extending any funds or money to the borrower/customer. These services are offered against some fee.

Bank Guarantee: it involves a commitment by the bank on behalf of the customer to pay to the third party in the event of default by the customer.

Letters Of Credit: A non fund based facility giving an undertaking to the supplier of the goods on behalf of the customer to accept his bills up to the amount stated in the letter of credit provided these are in the conformity stipulated therein.

Assessment of Limits of LC: The period of operating cycle of an LC is assessed taking into consideration the usance period and lead-time. The letter of credit requirement would be the period (in months) multiplied by monthly purchases.

Letter of credits are akin to bank guarantees. But normally Bank guarantees are issued on behalf of the bank's customer to cover situations of their non- performance.

General approach in lending: While switching over from formula based credit assessment to assessments based on various parameters of a business industry, production, and sales, profit etc credit decisions should emanate more from good commonsense, judgment and scrupulous prudence At the same time, in order to determine the size of each credit a sound analysis becomes necessary Credit analysis is the means by which the quantitative information to arrive ultimately at quantitative judgment.

Credit Functions should include: 1. Evaluation of character and management ability of the borrower 2. Review of historical cash flow and financial policies of the borrower. 3. Analysis of the balance sheet and 4. Estimation of the asset mix and leverage.

Lending policy followed by Indus Ind Bank Background The financial sector scenario, which was once governed by stringent and sacrosanct norms, is now distinct by relaxations & liberalizations; as permitted by the regulator. A lot of changes have taken in the recent past. "Interplay of these factors has given rise to certain new dimensions in present day banking. Today, there is a growing emphasis not only on customer relationship, but also on customer retention, to ultimately ensure customer delight, instead of mere customer satisfaction

The rapidly changing economic scenario, the ever increasing needs of the customer, competition posed by foreign banks, new generation private banks, financial institutions as well as peer bankers have not only compelled the to move out from the branch /office, to market & sell the traditional service and the new product more effectively, but also to invent, innovate and redesign the products at market driven price, with an assent on customization.

The primary objectives of lending policy are as under: To enlarge client base of corporate and non-corporate segments through aggressive credit market. To achieve unity of direction in accomplishment of corporate goals in the area of preservation through constant follow up to arrest loan delinquency. To meet multi-channel needs of customer through product development and innovation. To ensure balanced development of credit to various sectors & geographical regions. To improve fee-based income. To ensure end use of funds lent by the bank.

Policy on corporate loans The ongoing trend in performance of various sectors of the economy in the Current scenario has provided the bank an opportunity to redefined its role in financing

different sectors & expand its non-food credit base. Good corporate borrowers are interested in borrowing only on soft terms with minimum hassles & formalities. Certain other borrowers who have directed short-term funds for long term uses are rectifying the imbalance through short-term borrowings to augment net working capital. Such lending technology is called Corporate Loans.

Our banks has been extending short term loan on clean basis to Public Sector undertaking for period ranging from 90 days to 180 days to deploy our borrowed low cost funds. This shall continue depending on short term surplus, cost of funds etc. however, when almost all banks are extending corporate loans, we shall also exploit this lending opportunity.

Eligibility: All corporate applicants with past track record of profit-making for last 3 years consecutively and rated 'AA' by the rating company above based on the latest AFS as per banks internal risk assessment an all private sector units with satisfactory past record and risk rated A and above as per risk rating of the bank arc eligible.

Purpose: 1. Improvement in Net Working Capital of the company. 2. Financing for VRS funds. 3. To establish Marketing offices. Research & Development centers. 4. Swapping high-cost debts, etc or any other purpose found acceptable to the bank/sanctioning authority.

Nature of Facilities:

Short term secured loan repayable within a maximum period of 3 years in EMI/EQI etc as assessed and justified through cash flows.

Loan Amount: Maximum Rs. 50 crores. however the overall exposure of the bank under corporate loans shall be restricted to 5 % of the gross advances of the bank.

Acceptable Security: Exclusive / first Pari - Passu charge on unencumbered block / fixed asset (with 25% -30% component in factory Land & Building) of the borrower company with an asset coverage ratio of 150% o( loan amount. Personal guarantee of the promoter director/s also to be obtained.

Sanctioning Authorities: Regional heads and above as per regulated power chart for sanction of secured advances. However, cumulative records of all sanctions made should be kept by the credit department Head Office for control purpose & for review on a yearly basis by the Managing Director. The component authority to permit any deviations is the C and MD.

Pricing: As per risk rating only the component authority GM / ED / CMD can approve concessional rates.

Maturity Norms: With a view to avoiding asset-liability mismatches, as regards sanction of them loans, the directors issued in this regard by the asset-liability management committee (ALCO) shall be adhered to. In general the following maturity norms with preference to quicker recycling shall be followed

Short Term Finance Inland and export bill Discounted Demand loans Medium term loans Medium term Loans Long term Loans Long Term Loans Up to 3 Years Up to 180 Days Up to 12 Months

Period

Up to 10 Years/ 15 Years (Subject to ALCO clearance)

The review as at --------------------------- has reveal that the aggregate term loans of maturity outstanding of 3 years & above have been only 17 % with this background, it shall also be ensured that the aggregate loan term loans portfolio of the bank does not exceed 30 % of the gross credit of the bank.

Credit Monitoring Arrangements: The earlier system of reporting to RBI of the sanction of working Capital and Term loans of 10 Crores & above (within 15 days from the date of sanction) from the banking system for its post sanction scrutiny has been dispensed with and in its place a quarterly reporting system has been introduced.

Policy on Screening of Proposal Branch Credit Committee (BCC) Indus Ind Bank has already implemented 'Committee Approach" for credit sanction in accordance with risk management guidelines of the RBI. Branches which are headed by executives i.e.. Chief Manager & above are required to put up the proposals before sanction of advances. Regional Credit Committee (RCC ) As per the risk management guidelines issued by the RBI, Regional Credit Committee are mandatory at the field level just tike central credit committee at Head. Office for preapproval screening and recommending proposal.

Preparation of Proposal

A. STEP ONE: The first step in Credit Appraisal is Preparation of Proposal a proposal in appropriate format is prepared for considering the request for fresh advance/ review of existing advance/ facility. Proper preparation of proposal with the complete information relevant to the facility enables the sanctioning authority to lake appropriate and prompt decision.

It is necessary- that he person preparing the proposal should be thoroughly acquainted with the principles of lending and the up to date guidelines, systems and procedures of the bank and the guidelines / directives of RBI and other regulatory authorities on the subject. Indus Ind Bank has specified proposal formats for different types of clients.

PREPARATION OF PROPOSAL

Sources of credit

External

Trade References

Bankers References

Internal

Credit Rating

Published Information

Existing Customers

Analysis of Company

The following are the different areas of information that are required to be assessed while drafting a proposal. The major goal of providing such information is to assess the quantum of the associated with the policy.

1. Nature of Business: The extensions of credit to business is an investment sin that company / organization, extending credit, banks run their business through the business of other, so it is necessary for a banker to understand the business of the party to whom we are financing. That is because to assess the quantum of risk associated with the business.

2. Status and Market report of the borrower: Status and Market Report of the party will help to establish the credibility of the client in terms of his character, capacity and. capital. It includes comments on credit worthiness of the- borrower, conduct of the business and dealings with other banks.

3. Management Profile: The purpose is to identify the persons who are running the organization, their qualification in running such business. Qualified personnel indicate the professional conduct of the business activities for the realization of the business goals.

4. Banking relationship: The details of the accounts maintained by the borrower with the other banks and the credit limits enjoyed by them with other banks and financial institutions is furnished to ensure the extent of exposure they have in the market and the conduct of the accounts with their existing bankers and also to assess how prompt they were in the past in repaying their financial obligations.

5. Details of proposed credit facilities:

Nature and type of facilities need to be mentioned separately for fund based limits and non-fund based limits. The fund-based limits would be overdraft cash loans etc. The non fund based limits could be Guarantees, Letter of Credits, and Acceptance etc. For Example. a. Pledge of Raw materials, furnished goods b. Pledge of shares, tern deposit receipts

c. Equitable/legal mortgage of land and buildings, machinery.

6. Security: Primary Security: Working capital limits are mostly sanctioned to finance current assets and in such cases the entire current assets are to be charges as prime security. In case of term loans the assets purchased out of the loan such as land, machinery etc. forms the prime security for such facility.

Collateral Security: Collateral security is insisted on depending upon the risk defied in individual credit proposals. Collateral is in the form of immovable property, moveable assets like plant and machinery, vehicles etc. or cash collateral such as deposits or normally accepted.

7. Margin Banks give any demand loan or cash credit facility against some security like hypothecation of raw materials or finished goods. Margins are stipulated as they provide cushion against fall in prices or obsolescence of shortage etc. also they ensure that the borrower have stake in the business/unit and puts forward his best efforts to achieve profit from the business Margins are generally stated as a percentage of value of goods cost or market value whichever is lower.

The percentage of margins requires to be maintained for various types securities are advised periodically by the central administrative office. Margins on certain essential commodities are at stipulated by the RBI.

Rate of interest/pricing is essentially a function of risk, tenor and market forces. AS FAR AS Fund-based exposure is concerned it has two components, viz. benchmark and spread. The benchmark and appeared are a function of cost and funds, reserve requirements, overheads and credit losses. Besides these factors market forces are the other important factor, which determines the rate of interest to he charges. The decision of the interest rate being either fixed or floating will be dependent on the nature of the

product being offered, market conditions, cost and source funds interest rates and the loans and advances are determined by the bank, generally linked to the banks Prime Lending Rate (PLR). The PLR determined by interest rate risk (depends on macro economic factors), market risk and minimum return required on capital. There may be separate PLR for different facilities and tenors. The bank constantly' monitors and if required, reset the Partaking into account the various factors mentioned above.

8. Repayment IT is normally expected that an advance given to the borrower be repaid through the surplus generated from the business/activity. Repayment schedule of the advances is therefore based on the nature and purpose for which facilities are extended.

Facilities granted by the way of overdraft and cash credits are received annually unless a shorter reviews period is stipulated the borrower's requirements are assessed afresh al the time of these reviews.

For demand loans and term loans, factors like income generated from the business, commercial life of fixed assets financed etc forms the basis for determining the number and the amount of repayment installments. The frequency of installments, generally monthly, quarterly or half yearly depends on the type of business financed.

B. STEP TWO: Financial steps in Credit Appraisal

1. Financial Statement Analysis: The main objectives is to determine the solvency, liquidity, profitability, trend of the business efficiency of the enterprise.

Study of balance sheet and P&L account helps us to find: a. Total liability in excess of total asset b. Shortage of liquid surplus to meet its current obligation c. Excessive inventories

d. Active net worth e. Average cost efficiency, average revenue.

2.

Ratio Analysis: The main objective is lo determine the relationship between the two pieces of financial data to each other and then to get a quick and reliable insight into health and performance of the company. It may be broadly grouped in to the following category: Liquidity. Profitability, Coverage and Turnover.

3. Fund Flow Statement: The main objective is to determine the repayment capacity under term loan. Statement are used both as a means of analysis what has happened in the past and as a means of planning for the future. Basically it tracks down the movement of the entire assets of the company

4. Cash Flow Statement: The main objective is to determine she peak borrowing of the company. In situation where sufficient information is not available to prepare fund flow statement and also where liabilities mature in a short period of 12 months, cash budget be prepared so that source as repayment and timing can be anticipated.

5. Current Ratio: Current Ratio is an important tool to determine the liquidity. Current Ratio of 1.33:1 will be considered as the benchmark level of liquidity and not as the mandatory minimum requirement for bank finance. For the purpose of accepting current ratio of any particular borrower among other things, the following aspects of the business shall be examined to see whether current ratio is acceptable or not; a. The size of operations, the nature of working capital cycle and the overall financial position of the borrower. b. Export turnover of the borrower and where exports are predominantly against letter of credit.

c. Past performance of the borrower, market conditions, proven capacity of the party to perform as per budget and market its product.

6. For assessing the ability to make interest payments on time: a. The operating profit (before deducting depreciation) as a percentage of sales. b. Fixed charge cover/ Debit service coverage ratio.

7. For assessing the ability to repay debt principal on time : Cash flow is regarded as a better measure of companys ability to repay its debts on time than its balance sheet structure. a. Cash Flow to debt ratio b. Cash flow interest cover.

Policy on Exposure Norms

Prudential exposure norms: Exposure shall include credit exposure and investment exposure us well as certain types of investments exposures as well as certain types of investments to the company The sanctioned limits or outstanding, whichever is higher, shall be reckoned tor arriving at exposure limits. Derivative products such as forward rate agreements, currency swaps, options etc. at their replacement cost value shall also be included in determining individual / group borrower exposure, using current exposure method. However, in exceptional circumstances as given below, the prudential exposure limit shall be 20% and 45%. of the capital funds respectively. a. Profit-making Public Sector undertaking or b. If the loan is backed by State Government guarantee or c. In respect of Public Limited Company of AAA rating (the highest rating of any accredited agency).

Substantial Exposure Limits: The following levels of exposures of Indus Ind shall be treated as substantial exposures: Individual Borrowers - in excess of 10% of bank's capital funds. Group Borrowers - In excess of 20 % of bank's capital funds. A review of the position as at ------------------------- has revealed that: a. The aggregate of substantial exposure to individuals and group borrowers as at ------------------------- is Rs. 2007.83 Corers against the capital as per Indus Ind bank lending policy guidelines of 1159.54 crore and that it is only 14.22 % of the capital funds as against the ceiling of 60 %

Internal Exposure: While the prudential Exposure ceiling shall be treated as the outer most limit, to

undertake exposures( Credit, Investment, underwriting etc put together) on behalf of the banks clients, for all practical purpose internal ceiling level as given below: (Rupees in Crores) Risk rating of the borrower Ceiling as a % to CF of the bank Individual ceiling in monetary terms (Rounded) Minimal (with AA+ rating) Low (with AA rating) Moderate (with A rating) Average (with B rating) Caution (with C rating) Away (with D rating) As per note below As per note Below 300.00(67) 8 154.00 2000.00(635) 500.00 (61) 10 193.00 5000.00(2488) 13 250.00 5000.00 (3355) 15 288.00 2000.00(1771) Quantitative ceiling on aggregate exposure

In respect of borrowers securing caution (with C ranking) and away (with D ranking) the bank endeavor normally shall be to contain further exposure and usually banks avoid to lend loans to these companies.

---------------------------------------------------As per of credit risk management, Indus Ind exposure to individual borrowers and group borrowers should not exceed the indicated.

With effect from April 2000, the exposure ceiling of individual and group borrowers is kept at 20 % and 50 % respectively of banks capital funds.

However w.e.f 1.4.2002 the ceiling level standard is reduced by 5 % for individual borrowing concerns and by 10 % for group of borrowers.

A. Capital Tier 1: (-) intangible assets Free Reserves: 1. Statutory reserve 2. P & L Account, balance surplus B. Capital tier : 2 C. Capital Funds (1+2) Exposure ceiling limits as per the extent

333.52 1.68 331.84

77.56 126.79

Prudential norms of the RBI w.e.f. 1.04.2002 Individual - 15 % of C Group - 40 % of C

737.97 110.69 295.18 368.98

Infrastructure - 50 % of C

Consortium Advances With the large number of industrial units coming up, their full requirement tor working funds as well as term loans are difficult be met by one bank, on account of prudential exposure and internal exposure in such cases industries go in for what is

called Consortium financing, which is otherwise known as participation advance or joint finance by more than one bank to the same party against a common security.

Ceiling on Exposure A bank's exposure to u single borrower or to a group of borrowers shall not exceed the Prudential Exposure Limits. a. Prudential Exposure Limits: The exposure ceiling is fixed in relation to the bank's capital funds and shall not exceed 20% of the capital funds in case of individual borrower and 50 % in case of Group borrowers in case of

Infrastructure projects (i.e Power, Telecommunication, Roads and Ports etc.) the prudential exposure can go up to 60 % for the group. b. Exposure shall include fund-based & non-fund based credit limits & underwriting and similar other commitments. Banks should treat borrowers having multi-division/ multi-product companies as one single unit, unless there is more than one published Balance Sheet division/ product wise. Similarly in case of merged, the merged company .should be treated us a single unit In case of split, the separated units may he treated as separate borrower accounts, provided there are more than one published Balance Sheet unit-wise. In case of borrower's credit limit exceeding me the prudential Exposure, the concerned single bank and or the leader of the existing Consortium will be free to organize "SINDICATION" of credit limits.

Credit Appraisal Standards The locus being of expansion of quality credit in line with the corporate goal, with due emphasis on maximization of return. Simultaneously ensuring preservation of assets quality. It is essential to follow a proper code of practice in selecting the borrowers, evaluating the bank ability of the proposal and assessing need based requirements. followed by meticulous as well as continuous monitoring and follow up.

Market Enquires: In order to ensure that the borrower entity. its Directors / Partners and the guarantor have a satisfactory track record, discrete market enquiries about them shall be made through independent sources apart from those clients where lending under consortium /multiple banking arrangement is proposed, necessary report shall be obtained from existing Lenders / Banks / Financial Institutions.

Credit Information: There should be exchange of information among the lenders at regular intervals. The details of enquiries made, gist of discussions held with the other lenders as with the borrowers /guarantors from rime to time shall be July recorded and held in the borrowers file. Similarly, status/ credit reports obtained from other banks/ financial institution along with latest financial debt. A certificate as to compliance with statutory obligations etc. shall also be obtained and held on records.

Financial Strength: At the entry level, it is necessary to ensure that the financial of the applicant are sound, the performance indicators it re progressive and it is a profit making entity with good track record. Where ever deviation are observed for reasons und through justifications to be recorded in the appraisal or process note.

Benchmark Ratios: For working capital limits; where the methods of assessment employed in other than project turnover method, the benchmark level for current ratio is normally assumed to be ideal at 1:33:1 and debt equity ratio (TOL to TNW) at 3:1. except in case of NBFCs Housing Finance Companies, where it is permissible up to 10:1. Similarly in respect of term loans. Debt service coverage ratio (average) usually found comfortable is 1.5:1.

The benchmarks below are only indicative ratios: a. Current ratio 1.25:1 b. Promoters' contribution for all term loans or project finance 25%.

c. Debt equity ratio (term loans or project finance) 2:1 d. DSCR(average ) 1:5:l e. Total outside liability (TOL) TNW (WORKING CAPITAL FINANCE) =3:1.

In case of sales or Gross receipts or revenue and grass net profit are increasing during the last 2 years including the current year, deviation made with regard to these benchmark ratios is permissible under these policy guidelines provide there is no past reports of defaults in meeting commitments. NCW or current ratio is increasing year after. Absence of returned or overdue bills. Only occasional need based temporary excess or overdraft. Promote servicing of interest or installments Absence of non business related diversion of funds More than 25 % of the exposure covered by liquid collaterals. Collateral of land and building properties of valuve at least 50 % of loan the amount.

Benchmark ratios are not applicable for banks schematic lending and retail lending scheme.

Chapter -2 RESEARCH DESIGN


Banks and financial institution plays important role in development of the country. They provide not only financial assistance but also assist project identification, selection, appraisal and implementation and follow up All the phases are interrelated and experienced gained during appraisal project and supervision helps the financial institutions and banks to guide the entrepreneurs in identifications and selection of new projects.

In the process of lending funds to business organization by banks appraise. A project implies determination of net worth of project as investment proposition, selection of the protect is of great strategic importance. Bad decisions once made are not only difficult to retrieve but also severally handling oilier economic development efforts because of leakage effects The problem becomes all the more accurate when there are several competing project each giving a rate of return higher than the minimum cut rate. The technique of the project a appraisal considerably facilitates the selection most desirable projects.

STATEMENT OF THE PROBLEM The banker have to privilege of expecting or rejecting request for sanction of the loan for entrepreneurs earlier times the banker use to discretionary power which is useful for helping the borrowers. This resulted in the banks accumulating use of amount of NPAs The growing NPs made the RBI and the government to make the system of sanctioning loan more specific.

The result is introduction marks or score sheet for assessing feasibility of the project on the loans of his involved in the venture. The risk was classified on weight for assigned so that more risk instrument is avoided. The question is the risk assessment/ assessment of viability of the product assessed in fixing interest rate as well as sanctioning the total loan amount and number of installments payable by the borrowers.

This system is really followed by the bankers Him they fix interest rate? and how they decide loan funds repayment period. There is some of the question considered in the study to know there importance and use.

OBJECTIVE OF THE STUDY The Main objectives of the study are as follows: 1. To study Corporate Financing System at Indus Ind Bank 2. To understand the viability followed m the bank 3. To assess various parameters while taking the loan application 4. To analyze the various risks are assigned by the bank to providing the loan for entrepreneurs 5. To study of credit operations of Indusind Bank

SCOPE OF THE STUDY This study mainly covers operational jurisdiction of corporate financing at Indus Ind Bank.

OPERATIONAL DEFINITION OF THE CONCEPTS Corporate Loan : Corporate loans are granted tor short period of time ranging from 1 year to ten years, depending upon the repayment capacity indicated by the estimated cash flow.

Risk: The risk covers Industry risk. Business risk. management risk and Financial Risk

TOOLS AND TECHNIQUES OF DATA COLLECTION

PRIMARY DATA Primary data was collected during the course of discussions with the concerned officers at Indus Ind Bank and through interview schedule.

SECONDARY DATA

Secondary data was collected from various sources of published information like Bank's Credit Risk Assessment Manual. Policy Document. Annual Reports. Internet etc.

LIMITATIONS OF THE STUDY This study is limited to the extent of information. materials provided by Indus Ind Bank. In depth analysis and interpretation could not be done due to time constraints

AN OVERVIEW OF CHAPTER SCHEME

Chapter I: Introduction It deals with the introduction to Credit Management, Credit facilities. Lending policy. Preparation of Loan proposal. Credit Appraisal Standards of Indus Ind

Chapter 2 : Design of the Study This chapter gives an insight into the brief introduction about Statement. Objectives. Scope, Operational definition, Tools. Limitations of the Study and an overview of the Chapter Scheme.

Chapter 3 : Bank Profile This chapter includes profile. Origin. History. Achievements. Organization structure, Capital Structure and all other related aspects of Indusind Bank Bank

Chapter 4: Credit Risk Management It gives insight into sign of Distorted Credit Culture. Credit Risk Management Policy. Policy to Limit or Reduce the Credit Risk. Asset Classification and Rules

Chapter 5: Analysis and Interpretation Analysis of the Corporate Financing at Indusind Bank Bank with the help of Credit rate score sheet of assuming companies provided by the Indusind Bank Bank.

Chapter 6: Summary and Findings, Suggestion and Conclusion This chapter provides a summary of the findings with the help of analysis and interpretation and .suitable suggestions on the basis of the. findings with conclusion.

CHAPTER -4 CREDIT RISK MANAGEMENT Signs Of Distorted Credit Culture It is commercial bank examination manual, the U S. federal Reserve system cities the following problems as signs of a distorted credit culture.

Self- dealing. An over extension of credit to directors and large shareholders, of to their interests, while compromising sound credit principle under pressure from related parties. Self-dealing has been the key issue in a significant number of problem banks. Compromise of Credit principles. Arises when loans that have undue risk of are extended tinder unsatisfactory terms are granted with full knowledge of the violation of sound credit principles. The reasons for the compromise typically includes self-dealing, anxiety over income, competitive pressures in the bank's key markets, or personal conflicts of interest. Anxiety over income. A situation in which concern over earnings outweigh the soundness of lending decisions underscored by the hope that risk will not materialize of lead to loans with unsatisfactory repayment terms. These is a relatively frequent problem since a loan portfolio is usually a bank's day revenueproducing asset. Incomplete credit information, This indicates that loans have been ecdtended without proper appraisal of borrower creditworthiness, Complacency. This frequent cause of bad loan decision., Complacency is typically manifested in a lack of adequate, supervision of old, familiar borrower, dependence on oral information rather then reliable and complete financial data,

and an optimistic interpretation of known credit weaknesses because of survival in depressed situations in the past, hi addition, banks may ignore warning signs regarding the borrower, economy, region, industry, of other relevant factors of fail to enforce repayment agreements, including a lack of prompt legal action. Lack of supervision. Ineffective e supervision invariably results in a lack of knowledge about the borrower's affairs over the lifetime of the loan. Consequently, initially sound loans may develop problems and losses because of a lakck of effective supervision. Technical Incompetence. This includes a lack of technical ability among credit officers to analyze financial statements and abstain and evaluate pertinent credit information.

Credit Risk Management Policies Credit risk is the most common cause of ban failures, causing virtually all regulatory environment to prescribe minimum standards tor credit risk management. The basis of sound credit risk management is the identification of the existing and potential risks inherent in lending activities. Measures to counteract these risk normally compromise clearly defined policies that express the banks credit risk management philosophy and the parameters with which credit risk is to be controlled.

Specific credit risk management measures typically include three kinds of policies. One set of policies includes those aimed to limit of reduce credit risk, such as policies on concentration and large exposures, adequate diversification lending to connected parties, or over-exposures, adequate diversification lending to connected parties, or overexposures. The second set includes policies of asset classification. These mandate periodic evaluation of the collectibles of the portfolio of loans and other credit instruments, including any accrued and unpaid interest, which expose an bank to credit risk. The third set includes policies of loss provisioning of the making of allowances at a

level adequate to absorb anticipated loss = not only on the loan portfolio, but on all other assets that are subject to losses.

The assessment of a credit risk management function should consider loans and all other extensions of credit to ensure that the following factors are considered: The level, distribution and severity of classified assets; The level and causation of no accruing, nonperforming renegotiated, rolled-over and reduced-rate assets; The adequacy of valuation reserves; Management's ability to administer and collect problem assets; Undue concentration of credit The adequacy and effectiveness of, and adherence to, lending policies and credit administration procedures; The adequacy and effectiveness of a bank's process for identifying and monitoring initial and changing levels of risk, of risk associated with approved credit exposure.

Clearly defined levels of authority for credit approval help to ensure that decisions are prudent and are made within defined parameters. Institutions should have procedures in place to govern the collection of principal, interest and other charges in accordance with established terms of repayment.

Some kind of mechanism to address the issue of nonperforming loans should also exist, as well as mechanisms for enforcing a creditor's rights in the case of loss loans. A bank reporting system should generate accurate and timely reports on is credit exposure, while I he maintenance of detailed, up-to-date information on borrowers is a prerequisite for ingoing risk assessment.

Work Procedures Workout procedures are an important aspect or credit risk management. It timely action is not taken to address problem loans, opportunities to strengthen of collect on

these poor-quality assets may he missed and losses may accumulate to a point where they threaten and bank's solvency. An assessment of work-out procedures should consider the organization of this function, including departments and responsible staff, and assess what the performance of the work-out units has been by reviewing attempted and successful recoveries and the average time for recovery. The work-out methods utilized and the involvement of senior management should also be evaluated.

Table 1 showing loans granted by Indusind Bank during last 5 years for export trade

(Amt. in crs) Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Loans Granted 5497 6183 7136 7896 9162

Graph 1 showing loans granted by Indusind Bank during last 5 years for export trade

LOANS GRANTED TO EXPORT


10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 9162 6183 7136 7896

5497

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

Table 2 Showing loans granted by Indusind Bank during last 5 years for education (Amt. in crs) YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 LOANS GRANTED 1758 2043 2332 3674 4352

Chart 2 Showing loans granted by Indusind Bank during last 5 years for education

LOANS GRANTED TO EDUCATION


5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 1758 2332 2043 3674 4352

Table 3 Showing loans granted by Indusind Bank during last 5 years to SMEs

(Amt. in crs) YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 LOANS GRANTED 7786 9876 11879 15234 17683

Chart 3 Showing loans granted by Indusind Bank during last 5 years to SMEs

LOANS GRANTED TO SME's


20000 15000 10000 5000 0 2007-2008 2008-2009 2009-2010 7786 9876 11879 17683 15234

2010-2011

2011-2012

Table 4 Showing loans granted by Indusind Bank during last 5 years to Corporates

(Amt. in crs) YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 LOANS GRANTED 14593 16782 19234 22782 25349

Chart 4 Showing loans granted by Indusind Bank Corporates

during last

5 years to

LOANS GRANTED TO CORPORATES


30000 25000 22782 20000 14593 15000 10000 5000 0 2007-2008 2008-2009 2009-2010 16782 19234 25349

2010-2011

2011-2012

Table 5 Showing loans granted by Indusind Bank during last 5 years to Retail

(Amt. in crs) YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 LOANS GRANTED 8041 11277 14552 17485 19675

Chart 5 Showing loans granted by Indusind Bank during last 5 years to Retail

LOANS GRANTED TO RETAIL


20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2007-2008 1127 8041 14552 17485 19675

2008-2009

2009-2010

2010-2011

2011-2012

Table 6 Showing Summary loans granted by Indusind Bank during last 5 years SMEs 7786 9876 11879 15234 17683

Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Exports 5497 6183 7136 7896 9162

Education 1758 2043 2332 3674 4352

Retail 8041 11277 14552 17485 19675

Corporates 14593 16782 19234 22782 25349

Chart 6 Showing Summary loans granted by Indusind Bank during last 5 years

30000 25349 22782 20000 16782 15000 14593 11277 9876 8041 7786 5000 5497 1758 0 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 6183 2043 14552 11879 7136 2332 7896 3674 9162 4352 19234 17485 15234 19675 17683 Exports Education Retail SME's Series 3

25000

10000

Chart 7 showing loans granted by indusind bank during last 5 years for education

LENDING PATTERN DURING 2011-12


9162 25349

4352 Exports Education Retail 19675 SME's Corporate

17683

INTERPRETATION

A careful examination of the lending pattern of Indusind bank reveals that the lending has been classified into six main categories. And in all the segments the amount being lent has increased every year, it also reveals that the coroporate Finance has continued to be the main area of concentration for the bank and the money lent for this sector has seen a substantial increase in comparison with the others.

Though the corporate sector is the main source of revenue for the bank, it cannot blindly provide finance to its applicant. It has to make sure the projects for which it is lending is viable in all respects and bank is sure as to the safety of money being lent. For this purpose the banks follow a very stringent credit assessment procedure to eliminate the chances of risky lending which has been dealt in detail in the coming pages.

Credit Sanctioning- Risk Rating Score

The commercial banks receive deposits from general public and lend the same to the borrowers comprising both business and non-business entities. They play this activities that is lending of funds from the deposit of public of the borrowers fail to pay loan with interest. The banks cannot continue to function with this defect. It may lend lo ultimately liquidation of a company itself.

In order lo avoid this type of situation to ensure that the deposit funds are not lost. The bankers take utmost care in lending. This is done by scientifically assessing the capacity and willing of the borrowers for not only annuity inefficient cash flow but also efficient management of the same. In the process of watching the borrowers, the banks follow a detailed study of all related environmental factors. The factors studied companies.

1. Industrial Risk: It includes competition, industry outlook, regulatory risk, and contemporary issues like to WTO, etc. 2. Business risk: It covers technology, capacity utilization versus BEP, Compliance of environmental regulation and user profile. Consistency in quality, distribution network, Consistency of cash flow. 3. Financial Risk: Under this various financial ratios such as debt equity rations, debt service coverage ratios, return on capital employed, ratio of term liability lo TNW, current ratio. TOL/TNW. PAT/Net Sales, PBDIT/INNT. Future prospects. Turn over of assets. Collateral security and trends in performance are studied 4. Management Risk: Under this head the brink collects information about integrity, track records, managerial competence, expertise, structure and systems, experience in the industry, credibility - ability to meet sales projection, payment report, strategic initiative and length of relationship with the bank. Integrity. Corporate Governance. Track Records and Managerial competence Lire crucial management risk factors carrying maximum 3 marks each. In case a company

scores zero in any of three parameters, there is no need for further assessment of risk and the proposal would be declined.

The risk rate secure also includes negative marks are given for erosion in security value, delay in meeting financial obligation, declining in profits, claims against disputed tax liabilities/excise duties, corporate guarantees given without bonks permission.

The assessment of credibility of the borrower, the amount of the funds, which could be lend, the rate of interest, the repayment period, the collateral security required etc. are the details based on total score expressions in terms of marks for each of the risks.

BEST LTD

This company approached bank for loan of Rs 80 Lakhs for expanding its manufacturing activities. At present this company is supplying leather goods for final consumers. The banker after collecting all details about micro and macro economic parameters assign to the following as under.

Business Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 11.24 & Below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

25.00 RISK CATEGORY 20.00 RISK SYMBOL

Industry Risk Reference Chart MARKS 9.00-10.00 7.50-8.90 6.50-7.40 5.00-6.40 4.50-4.90 4.49 & Below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY MODERATE A

10.00 RISK CATEGORY 6.50 RISK SYMBOL

Financial Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 8.75 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY MINIMAL AA+

25.00 RISK CATEGORY 23.00 RISK SYMBOL

Management Risk Reference Chart MARKS 36.00-40.00 30.00-35.99 26.00-29.00 20.00-25.99 18.00-19.99 17.99 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY AVERAGE B

40.00 RISK CATEGORY 24.80 RISK SYMBOL

MARKS SECURED NEGATIVE MARKS EFFECTIVE MARKS SECURED

7.93 1.50 74.43

RISK RATING SUMMARY CHART


Parameters (I) Business Risk 1. Technology 2. Capacity Utilization Vs BEP 3. Compliance of Environment Regulation 4. User/Product Profile 5. Consistency in Quality 6. Distribution Network 7. Consistency Of Cash Flow TOTAL RATIONALISED TOTAL (20*1.25) (II) INDUSTRY RISK 1. Competition 2. Industry Outlook 3. Regulatory Risk 4. Contemporary Issues like WTO Etc.. Total RATIONALISED TOTAL (8*1.25) MANAGEMENT RISK 1. A. Integrity: Sole Proprietary Firm/ Partnership Firm /Pvt. Ltd Companies b. Integrity (For Corporate): Corporate Government 2. Track Record 3. Managerial Competence/ Commitment 4. Expertise 5. Structure System 6. Experience in the Industry 7. Credibility :Ability to Meet Sales Projection 8. Credibility: Ability To Meet Profit Projection 9. Payment record 10. Strategic initiatives 11. Length of relationship with the Bank TOTAL RATIONALISED TOTAL (1to IV) Assignable Marks 4.00 2.00 2.00 2.00 4.00 2.00 4.00 20.00 25.00 Marks Awarded 2.00 2.00 2.00 2.00 2.00 2.00 4.00 16.00 20.00

2.00 2.00 2.00 2.00 8.00 10.00

1.50 2.00 1.50 1.50 8.13 8.13

(III)

3.00 2.00 2.00 2.00 1.00 1.00 2.00 1.00 1.00 1.00 1.00 1.50 25.00 40.00 15.50 24.80

3.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00

(IV)

FINANCIAL RISK- TERM LOAN A. RATIOS: 1. Debt Equity Ratio 2. Debt service coverage ratio 3. Return on Capital employed 4. Ratio of liability to TNW 5. Repayment period Total Grand Total (1 to IV) NEGATIVE MARKS 1. Erosion in Security value 2. Delay in meeting financial obligation 3. Decline in Profits 4. Claims against disputed tax liability / excise duties 5. Coroporate guarantees given with out banks permission/approval TOTAL

5.00 5.00 5.00 5.00 5.00 25.00 100.00 2.00 2.00 2.00 2.00 2.00 10.00

5.00 5.00 5.00 5.00 3.00 23.00 75.93 1.00 0.50 NIL NIL NIL 1.50

TOTAL MARKS SCORED Total Marks Assigned

74.43 100.00

Chart 8 and 8.1 showing score matrix of Indusind bank for term Loans and marks scored BEST LTD.

SCORE MATRIX- TERM LOANS

25

25 Business Risk Industrial Risk Financial Risk Management Risk 10 25

SCORE MATRIX- BEST LTD

15.5

16 Business Risk Industrial Risk Financial Risk 6.5 Management Risk

23

INTERPRETATION & CONCLUSION The risk assessment table indicates that the company comes under AA, for which the interest rate applicable is PLR+2 % if the PLR Rate is 12 % then the interest charged will be 14 % p.a. the amount of fund to be lent when proportionately reworked comes to 70 % of loan sought, i.e Rs. 56 Lakhs. The bank will be lending at 14 % P.a. the repayment period has been worked out in consultation with the cash flow statement given by the company.

RISK MANAGEMENT TABLE AND PRICING INTEREST RATE STRUCTURE

RISK RATING AA+

TISK CATEGORY MINIMAL

SYMBOL

MARKS (100)

SUGGESTED INTEREST

Indusind 1

85-100

90.01-100.00 85.01-90.00

PLR PLR+1 PLR + 1 PLR+2 PLR+2 PLR +3 PLR+4 PLR+4

AA

LOW

Indusind2

71-84

80.01- 85.00 70.01-80.00

A B C D

MODERATE AVERAGE CAUTION AWAY

Indusind3 Indusind 4 Indusind 5 Indusind 6

61-70 46-60 36-45 Below 36

60.01- 70.00 45.01-60.00

Risk Rating as per Risk Assessment Table Risk Linked Pricing

AA-LOW PLR+2= 14% P.A

U-TECH LTD

The company has sought a loan of 50 lakhs for expending its existing facilities. The bankers administration a score sheet indirectly to evaluate the credibility, feasibility & viability of the project under four heads of risk and the marks secured are given in the risk rating score & the marks secured are given in the risk rating score and the same was been considered as under :-

Business Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 11.24 & Below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

25.00 RISK CATEGORY 20.00 RISK SYMBOL

Industry Risk Reference Chart MARKS 9.00-10.00 7.50-8.90 6.50-7.40 5.00-6.40 4.50-4.90 4.49 & Below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY MODERATE A

10.00 RISK CATEGORY 6.25 RISK SYMBOL

Financial Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 8.75 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

25.00 RISK CATEGORY 22.00 RISK SYMBOL

Management Risk Reference Chart MARKS 36.00-40.00 30.00-35.99 26.00-29.00 20.00-25.99 18.00-19.99 17.99 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

40.00 RISK CATEGORY 34.40 RISK SYMBOL

MARKS SECURED NEGATIVE MARKS EFFECTIVE MARKS SECURED

85.15 2.00 83.15

RISK RATING SUMMARY CHART


Parameters (I) 1. 2. 3. 4. 5. 6. 7. Business Risk Technology Capacity Utilization Vs BEP Compliance of Environment Regulation User/Product Profile Consistency in Quality Distribution Network Consistency Of Cash Flow TOTAL RATIONALISED TOTAL (20*1.25) (II) INDUSTRY RISK 1. Competition 2. Industry Outlook 3. Regulatory Risk 4. Contemporary Issues like WTO Etc.. Total RATIONALISED TOTAL (8*1.25) Assignable Marks 4.00 2.00 2.00 2.00 4.00 2.00 4.00 20.00 25.00 Marks Awarded 4.00 2.00 4.00 0.00 4.00 2.00 4.00 18.00 22.50

2.00 2.00 2.00 2.00 8.00 10.00

1.50 1.00 1.00 1.50 5.00 6.25

(III) MANAGEMENT RISK 1. A. Integrity: Sole Proprietary Firm/ Partnership Firm /Pvt. Ltd Companies b. Integrity (For Corporate): Corporate Government 2. Track Record 3. Managerial Competence/ Commitment 4. Expertise 5. Structure System 6. Experience in the Industry 7. Credibility :Ability to Meet Sales Projection 8. Credibility: Ability To Meet Profit Projection 9. Payment record 10. Strategic initiatives 11. Length of relationship with the Bank TOTAL RATIONALISED TOTAL (1to IV)

3.00 3.00 3.00 3.00 2.00 2.00 1.00 1.00 2.00 1.00 2.00 1.50 25.00 40.00 21.50 34.40

3.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00

FINANCIAL RISK- TERM LOAN 8. RATIOS: 1. Debt Equity Ratio 2. Debt service coverage ratio 3. Return on Capital employed 4. Ratio of liability to TNW 5. Repayment period Total Grand Total (1 to IV) NEGATIVE MARKS 1. Erosion in Security value 2. Delay in meeting financial obligation 3. Decline in Profits 4. Claims against disputed tax liability / excise duties 5. Coroporate guarantees given with out banks permission/approval TOTAL

(IV)

5.00 5.00 5.00 5.00 5.00 25.00 100.00 2.00 2.00 2.00 2.00 2.00 10.00

5.00 5.00 5.00 3.00 4.00 22.00 85.15 0.50 1.00 NIL 0.50 NIL 2.00

TOTAL MARKS SCORED Total Marks Assigned

83.15 100.00

Chart 9and 9.1 showing score matrix of Indusind bank for term Loans and marks scored U TECH LTD.

SCORE MATRIX- TERM LOANS


25 40 10 Business Risk Industrial Risk Financial Risk Management Risk

100

SCORE MATRIX- U TECH LTD

22.5 34.4 Business Risk Industrial Risk Financial Risk 6.25 Management Risk

22

INTERPRETATION & CONCLUSION The company secured 85.15 marks and after deducting the negative mark of 2.00, the net score is 83.15 Marks for 100.00. the risk assessment table indicates that the company rating as AA (LOW risk category ). The interest chargeable on this rating isPLR+1%, that is 12+1+13 %, the bankers will normally accept to lend a loan of 75 % of the total loan sought that is Rs. 50 Lakhs *75 % is Rs 38 Lakhs and at 13 5 interest P.A. the period of loan is decided by the bank after consulting the borrowers. In this case it was 5 years which account for 60 EMI. Or 15 Quarterly installments.

RISK ASSESSMENT TABLE AND PRICING INTEREST RATE STRUCTURE

RISK RATING AA+

TISK CATEGORY MINIMAL

SYMBOL

MARKS (100)

SUGGESTED INTEREST

Indusind 1

85-100

90.01-100.00 85.01-90.00

PLR PLR+1 PLR + 1 PLR+2 PLR+2 PLR +3 PLR+4 PLR+4

AA

LOW

Indusind2

71-84

80.01- 85.00 70.01-80.00

A B C D

MODERATE AVERAGE CAUTION AWAY

Indusind3 Indusind 4 Indusind 5 Indusind 6

61-70 46-60 36-45 Below 36

60.01- 70.00 45.01-60.00

Risk Rating as per Risk Assessment Table Risk Linked Pricing

AA-LOW PLR+1= 13% P.A

GDJ LTD The company is in the manufacture of consumer goods which are fast moving in the market. It sought a financial assistance of Rs. 75 Lakhs and presented a technical viability and economic feasibility report to the bank. The bank on its own assessed the credibility, feasibility & the marks secured by the company were as under :

Business Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 11.24 & Below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

25.00 RISK CATEGORY 18.75 RISK SYMBOL

Industry Risk Reference Chart MARKS 9.00-10.00 7.50-8.90 6.50-7.40 5.00-6.40 4.50-4.90 4.49 & Below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

10.00 RISK CATEGORY 8.25 RISK SYMBOL

Financial Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 8.75 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY MINIMAL AA+

25.00 RISK CATEGORY 25.00 RISK SYMBOL

Management Risk Reference Chart MARKS 36.00-40.00 30.00-35.99 26.00-29.00 20.00-25.99 18.00-19.99 17.99 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

40.00 RISK CATEGORY 34.40 RISK SYMBOL

MARKS SECURED NEGATIVE MARKS EFFECTIVE MARKS SECURED

86.90 Nil 86.90

RISK RATING SUMMARY CHART


Parameters (I) 1. 2. 3. 4. 5. 6. 7. Business Risk Technology Capacity Utilization Vs BEP Compliance of Environment Regulation User/Product Profile Consistency in Quality Distribution Network Consistency Of Cash Flow TOTAL RATIONALISED TOTAL (20*1.25) (II) 1. 2. 3. 4. INDUSTRY RISK Competition Industry Outlook Regulatory Risk Contemporary Issues like WTO Etc.. Total RATIONALISED TOTAL (8*1.25) Assignable Marks 4.00 2.00 2.00 2.00 4.00 2.00 4.00 20.00 25.00 Marks Awarded 4.00 2.00 2.00 0.00 4.00 1.00 2.00 15.00 18.75

2.00 2.00 2.00 2.00 8.00 10.00

1.50 2.00 1.50 2.00 7.00 8.75

(III) MANAGEMENT RISK 1. A. Integrity: Sole Proprietary Firm/ Partnership Firm /Pvt. Ltd Companies b. Integrity (For Corporate): Corporate Government 2. Track Record 3. Managerial Competence/ Commitment 4. Expertise 5. Structure System 6. Experience in the Industry 7. Credibility :Ability to Meet Sales Projection 8. Credibility: Ability To Meet Profit Projection 9. Payment record 10. Strategic initiatives 11. Length of relationship with the Bank TOTAL RATIONALISED TOTAL (1to IV)

3.00 2.00 3.00 3.00 2.00 1.00 2.00 2.00 2.00 2.00 1.00 1.50 25.00 40.00 21.50 34.40

3.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00

(IV) FINANCIAL RISK- TERM LOAN A. RATIOS: 1. Debt Equity Ratio 2. Debt service coverage ratio 3. Return on Capital employed 4. Ratio of liability to TNW 5. Repayment period Total Grand Total (1 to IV) NEGATIVE MARKS 1. Erosion in Security value 2. Delay in meeting financial obligation 3. Decline in Profits 4. Claims against disputed tax liability / excise duties 5. Coroporate guarantees given with out banks permission/approval TOTAL

5.00 5.00 5.00 5.00 5.00 25.00 100.00 2.00 2.00 2.00 2.00 2.00 10.00

5.00 5.00 5.00 5.00 5.00 25.00 86.90 NIL NIL NIL NIL NIL Nil

TOTAL MARKS SCORED Total Marks Assigned

86.90 100.00

Chart 10 and 10.1 showing score matrix of Indusind bank for term Loans and marks scored GDJ LTD.

SCORE MATRIX- TERM LOANS


25 40 10 Business Risk Industrial Risk Financial Risk Management Risk

100

SCORE MATRIX- GDJ LTD


18.75 34.4 8.75 Business Risk Industrial Risk Financial Risk Management Risk

86.9

INTERPRETATION & CONCLUSION The company scored 86.90 out of 100 marks as such it was categorized under risk rating category AA+, which is considered as minimal. The interest chargeable for this category of risk is PLR +1 % that is 12+1 =13 % PA. the loan amounted sanctioned by the bank was 60 lakhs for the period of 5 years in consultation with the borrower and also considering the cash flow details given by the company.

RISK ASSESSMENT TABLE AND PRICING INTEREST RATE STRUCTURE

RISK RATING AA+

TISK CATEGORY MINIMAL

SYMBOL

MARKS (100)

SUGGESTED INTEREST

Indusind 1

85-100

90.01-100.00 85.01-90.00

PLR PLR+1 PLR + 1 PLR+2 PLR+2 PLR +3 PLR+4 PLR+4

AA

LOW

Indusind2

71-84

80.01- 85.00 70.01-80.00

A B C D

MODERATE AVERAGE CAUTION AWAY

Indusind3 Indusind 4 Indusind 5 Indusind 6

61-70 46-60 36-45 Below 36

60.01- 70.00 45.01-60.00

Risk Rating as per Risk Assessment Table Risk Linked Pricing

AA+- MINIMAL PLR+1= 13% P.A

GD EXPORTS The company is in to manufacture and export of textile goods like shirtings, suiting, Jeans & other readymade garments. The company applied for a financial assistance of Rs. 60 Lakhs & presented its technical viability & economic feasibility report to the bank. The bank on its own credibility, feasibility & the marks secured by the company were as under :-

Business Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 11.24 & Below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

25.00 RISK CATEGORY 21.25 RISK SYMBOL

Industry Risk Reference Chart MARKS 9.00-10.00 7.50-8.90 6.50-7.40 5.00-6.40 4.50-4.90 4.49 & Below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

10.00 RISK CATEGORY 8.13 RISK SYMBOL

Financial Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 8.75 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

25.00 RISK CATEGORY 20.00 RISK SYMBOL

Management Risk Reference Chart MARKS 36.00-40.00 30.00-35.99 26.00-29.00 20.00-25.99 18.00-19.99 17.99 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY MODERATE A

40.00 RISK CATEGORY 28.80 RISK SYMBOL

MARKS SECURED NEGATIVE MARKS EFFECTIVE MARKS SECURED

78.43 1.00 77.43

RISK RATING SUMMARY CHART


Parameters (I) 1. 2. 3. 4. 5. 6. 7. Business Risk Technology Capacity Utilization Vs BEP Compliance of Environment Regulation User/Product Profile Consistency in Quality Distribution Network Consistency Of Cash Flow TOTAL RATIONALISED TOTAL (20*1.25) (II) 1. 2. 3. 4. INDUSTRY RISK Competition Industry Outlook Regulatory Risk Contemporary Issues like WTO Etc.. Assignable Marks 4.00 2.00 2.00 2.00 4.00 2.00 4.00 20.00 25.00 Marks Awarded 4.00 2.00 2.00 0.00 4.00 1.00 4.00 17.00 21.25

2.00 2.00 2.00 2.00 8.00 10.00

2.00 1.50 1.50 1.50 6.50 8.13

Total RATIONALISED TOTAL (8*1.25) (III) MANAGEMENT RISK 1. A. Integrity: Sole Proprietary Firm/ Partnership Firm /Pvt. Ltd Companies b. Integrity (For Corporate): Corporate Government 2. Track Record 3. Managerial Competence/ Commitment 4. Expertise 5. Structure System 6. Experience in the Industry 7. Credibility :Ability to Meet Sales Projection 8. Credibility: Ability To Meet Profit Projection 9. Payment record 10. Strategic initiatives 11. Length of relationship with the Bank TOTAL RATIONALISED TOTAL (1to IV)

3.00 2.00 2.00 2.00 2.00 2.00 2.00 1.00 1.00 1.00 1.00 2.00 25.00 40.00 18.00 28.80

3.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00

(IV) FINANCIAL RISK- TERM LOAN A. RATIOS: 1. Debt Equity Ratio 2. Debt service coverage ratio 3. Return on Capital employed 4. Ratio of liability to TNW 5. Repayment period Total Grand Total (1 to IV) NEGATIVE MARKS 1. Erosion in Security value 2. Delay in meeting financial obligation 3. Decline in Profits 4. Claims against disputed tax liability / excise duties 5. Coroporate guarantees given with out banks permission/approval TOTAL

5.00 5.00 5.00 5.00 5.00 25.00 100.00 2.00 2.00 2.00 2.00 2.00 10.00

5.00 5.00 1.00 5.00 4.00 20.00 78.43 0.50 NIl NIL 0.50 NIL 1.00

TOTAL MARKS SCORED Total Marks Assigned

77.43 100.00

Chart 11 and 11.1 showing score matrix of Indusind bank for term Loans and marks scored GD EXPORTS

SCORE MATRIX- TERM LOANS


25 40 10 Business Risk Industrial Risk Financial Risk Management Risk

100

SCORE MATRIX- GD EXPORTS

28.8

21.25 Business Risk Industrial Risk Financial Risk Management Risk

8.13

78.43

INTERPRETATION & CONCLUSION The company scored 77.12 out of 100 marks as such it was categorized under risk rating category AA, which is considered as low, the interest chargable for the category of risk PLR+2 %, that is 12+2=14 % p.a. the loan amount sanctioned by the bank was 45 Lakhs. The company was asked to mobilize 15 lakhs on its own and then 45 lakhs loan from bank

RISK MANAGEMENT TABLE AND PRICING INTEREST RATE STRUCTURE

RISK RATING AA+

TISK CATEGORY MINIMAL

SYMBOL

MARKS (100)

SUGGESTED INTEREST

Indusind 1

85-100

90.01-100.00 85.01-90.00

PLR PLR+1 PLR + 1 PLR+2 PLR+2 PLR +3 PLR+4 PLR+4

AA

LOW

Indusind2

71-84

80.01- 85.00 70.01-80.00

A B C D

MODERATE AVERAGE CAUTION AWAY

Indusind3 Indusind 4 Indusind 5 Indusind 6

61-70 46-60 36-45 Below 36

60.01- 70.00 45.01-60.00

Risk Rating as per Risk Assessment Table Risk Linked Pricing

AA-LOW PLR+2= 14% P.A

HN STEEL LTD This company approached bank for a loan of rs. 40 lakhs. The company is a leading manufacturer and supplier of steel for engineering industry in Bangalore. The banker after collecting all details about micro and macro economic parameters assign to the following as under :-

Business Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 11.24 & Below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY AVERAGE B

25.00 RISK CATEGORY 13.75 RISK SYMBOL

Industry Risk Reference Chart MARKS 9.00-10.00 7.50-8.90 6.50-7.40 5.00-6.40 4.50-4.90 4.49 & Below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY AVERAGE B

10.00 RISK CATEGORY 5.00 RISK SYMBOL

Financial Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 8.75 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY AVERAGE B

25.00 RISK CATEGORY 16.00 RISK SYMBOL

Management Risk Reference Chart MARKS 36.00-40.00 30.00-35.99 26.00-29.00 20.00-25.99 18.00-19.99 17.99 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY AVERAGE B

40.00 RISK CATEGORY 21.60 RISK SYMBOL

MARKS SECURED NEGATIVE MARKS EFFECTIVE MARKS SECURED

56.35 4.50 51.85

RISK RATING SUMMARY CHART


Parameters (I) Business Risk 1. Technology 2. Capacity Utilization Vs BEP 3. Compliance of Environment Regulation 4. User/Product Profile 5. Consistency in Quality 6. Distribution Network 7. Consistency Of Cash Flow TOTAL RATIONALISED TOTAL (20*1.25) (II) INDUSTRY RISK 1. Competition 2. Industry Outlook 3. Regulatory Risk 4. Contemporary Issues like WTO Etc.. Total RATIONALISED TOTAL (8*1.25) Assignable Marks 4.00 2.00 2.00 2.00 4.00 2.00 4.00 20.00 25.00 Marks Awarded 2.00 2.00 2.00 0.00 2.00 1.00 2.00 11.00 13.75

2.00 2.00 2.00 2.00 8.00 10.00

1.00 1.50 1.00 0.50 4.00 5.00

(III) MANAGEMENT RISK 1. A. Integrity: Sole Proprietary Firm/ Partnership Firm /Pvt. Ltd Companies b. Integrity (For Corporate): Corporate Government 2. Track Record 3. Managerial Competence/ Commitment 4. Expertise 5. Structure System 6. Experience in the Industry 7. Credibility :Ability to Meet Sales Projection 8. Credibility: Ability To Meet Profit Projection 9. Payment record 10. Strategic initiatives 11. Length of relationship with the Bank TOTAL RATIONALISED TOTAL (1to IV)

3.00 2.00 2.00 2.00 1.00 1.00 1.00 1.00 1.00 1.00 0.00 1.50 25.00 40.00 13.50 34.40

3.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00

FINANCIAL RISK- TERM LOAN A. RATIOS: 1. Debt Equity Ratio 2. Debt service coverage ratio 3. Return on Capital employed 4. Ratio of liability to TNW 5. Repayment period Total Grand Total (1 to IV) NEGATIVE MARKS 1. Erosion in Security value 2. Delay in meeting financial obligation 3. Decline in Profits 4. Claims against disputed tax liability / excise duties 5. Coroporate guarantees given with out banks permission/approval TOTAL

(IV)

5.00 5.00 5.00 5.00 5.00 25.00 100.00 2.00 2.00 2.00 2.00 2.00 10.00

5.00 5.00 1.00 3.00 2.00 16.00 56.35 1.00 1.50 1.00 1.00 NIL 4.50

TOTAL MARKS SCORED Total Marks Assigned

51.85 100.00

Chart 12 and 12.1 showing score matrix of Indusind bank for term Loans and marks scored GD EXPORTS

SCORE MATRIX- TERM LOANS


25 40 10 Business Risk Industrial Risk Financial Risk Management Risk

100

SCORE MATRIX- HN STEELS

13.75 21.6 Business Risk Industrial Risk 5 Financial Risk Management Risk

16

INTERPRETATION & CONCLUSION The company secured 56.35 marks and after deducting a negative marks of 4.5 and the net score 51.85. the risk assessment table indicates the company rating to B average risk category. The interest chargeable in this rating is PLR +2 that is 14 %, the bankers will normally accept to lend a loan of 60 % of the total loan sort that is Rs 40 lakhs * 60 % =24 Lakhs at 14 % interest P.A. The period of loan decided by the bank is consultation with borrower. In this case it was 7 years which accounts for 84 WMIs or 21 Quarterly Installments.

RISK MANAGEMENT TABLE AND PRICING INTEREST RATE STRUCTURE

RISK RATING AA+

TISK CATEGORY MINIMAL

SYMBOL

MARKS (100)

SUGGESTED INTEREST

Indusind 1

85-100

90.01-100.00 85.01-90.00

PLR PLR+1 PLR + 1 PLR+2 PLR+2 PLR +3 PLR+4 PLR+4

AA

LOW

Indusind2

71-84

80.01- 85.00 70.01-80.00

A B C D

MODERATE AVERAGE CAUTION AWAY

Indusind3 Indusind 4 Indusind 5 Indusind 6

61-70 46-60 36-45 Below 36

60.01- 70.00 45.01-60.00

Risk Rating as per Risk Assessment Table Risk Linked Pricing

B Average PLR+3= 15% P.A

MB PVT LTD The company is a manufacture of rubber products like rubber brushes, rubber bolt and nuts. The company has sought a loan of Rs 30 Lakhs for its expension and

modernization programmes and presented its technical viability and economic feasibility report to the bank for evaluation. RISK RATING SCORE SHEET MANAGEMENT RISK ASSIGNABLE MARKS
1. A INTEGRITY : sole proprietary firm/Partnership firm /Pvt Ltd Companies Beyond reproach Enjoys good reputation in the market Reports go against the integrity of the company /the company is defaulter under RBIs willful defaulters list

MARKS AWARDED

3.00 2.00 0.00 3.00 2.00

1.

B. INTEGRITY: (for Corporate) : Corporate Governance Corporate governance (CG) systems are in place and are adhered to fully - CG system are not fully functional/operational - Implementation of CG systems are officer/Planned TRACK RECORD Maintains absolute finance all disciple Accounts are satisfactory but lacks professional approach Accounts are frequently irregular & ignores financial discipline

3.00 2.00 0.00

3.00

2. -

3.00 2.00 0.00 3.00 0.00

3.

Managerial Competence / Commitment An exceptionally high level of competence commitment Although managerial competence/ commitment exists, but lack proper planning / stategy, execution of projects - Market reports suggest lack of managerial competence/Commitment EXPERTISE Eminently qualified professional are working as a cohesive team - Co has few professional but run by non professional owners - Professional Expertise lacking -

3.00 2.00 0.00 3.00 0.00

4.

2.00 1.00 0.00

2.00

NA

5.

STRUCTURE SYSTEM Excellent budgeting, costing MIS system are Although budgeting, costing, MIS are in place, proper implementation efforts are lacking - Systems not in place 6. EXPERIENCE IN THE INDUSTRY - The management has a long experience in the industry {>=10yrs} - The management has a moderate experience in the line {>=5yrs} - The management has got relatively less experience in the {>=5yrs} -

2.00 1.00 0.00 2.00 1.00 0.00 2.00 NA

2.00

NA

7. -

CREDIBLITY: ABILITY TO MEET SALES PROJECTIONS Management is highly capable. There is a negative variance of less than 10% in actual Vs projected sales during past 3 years There is a negative variance of 10% and above but less than 20% in the actual Vs projected sales as is evidenced by their record of past 3 years. The record of the management in achieving sales projections in the past 3 years is poor {actual sales is less than 80% of projections} CREDIBLITY: ABILITY TO MEET PROFIT [PAT] PROJECTIONS - The managements ability in meeting profit projections is excellent or has shown a negative Variance of less than 10%. - The management is good but actual have shown a negative variance of either 10%o or more but less than 20% - The managements ability in meeting profit projections is poor. Actual profits has always been less than 80% of projections in last 3 years PAYMENT RECORD The record of meeting commitments to lenders and creditors is excellent. - The record of meeting commitments to lenders is creditors is good but have defaulted only once (twice) - The record of meeting commitments to lenders and a creditor is poor. -

2.00 1.00

0.00

2.00

NA

8.

2.00 1.00 0.00 2.00 NA

9.

2.00 1.00 0.00 2.00 NA

10. STRATEGIC INITIATIVES - The management is proactive in taking well thought out initiatives. - The management is capable of taking initiatives but lacks necessary trust. - Both the will and capacity to take only strategic initiative are non-existent. 11. LENGTH OF RELATIONSHIP WITH THE BANK - Dealing for more than 10 years and their conduct is fully satisfactory. - Dealing for more than 5 years and their conduct is fully satisfactory. - Dealing for more than 5/10 years is their conduct is by is large satisfactory. - Dealing for more than 5/10 years or less than 5/10years is their conduct is not satisfactory.

2.00 1.00 0.00 2.00 NA

2.00 1.5 1.00 0.00 2.00 NA

TOTAL RATIONALIZED TOTAL

25.00 40.00

NA NA

RISK RATING SUMMARY CHART

Parameters (I) Business Risk 1. Technology 2. Capacity Utilization Vs BEP 3. Compliance of Environment Regulation 4. User/Product Profile 5. Consistency in Quality 6. Distribution Network 7. Consistency Of Cash Flow TOTAL RATIONALISED TOTAL (20*1.25) (II) INDUSTRY RISK 1. Competition 2. Industry Outlook 3. Regulatory Risk 4. Contemporary Issues like WTO Etc.. Total RATIONALISED TOTAL (8*1.25)

Assignable Marks 4.00 2.00 2.00 2.00 4.00 2.00 4.00 20.00 25.00

Marks Awarded

NA

2.00 2.00 2.00 2.00 8.00 10.00 NA 6.25

(III) MANAGEMENT RISK 1. A. Integrity: Sole Proprietary Firm/ Partnership Firm /Pvt. Ltd Companies b. Integrity (For Corporate): Corporate Government 2. Track Record 3. Managerial Competence/ Commitment 4. Expertise 5. Structure System 6. Experience in the Industry 7. Credibility :Ability to Meet Sales Projection 8. Credibility: Ability To Meet Profit Projection 9. Payment record 10. Strategic initiatives 11. Length of relationship with the Bank TOTAL RATIONALISED TOTAL (25* 1.6)

3.00

2.00

3.00 3.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 25.00 40.00

0.00 NA

NA 34.40

FINANCIAL RISK- TERM LOAN B. RATIOS: 1. Debt Equity Ratio 2. Debt service coverage ratio 3. Return on Capital employed 4. Ratio of liability to TNW 5. Repayment period Total Grand Total (1 to IV) NEGATIVE MARKS 1. Erosion in Security value 2. Delay in meeting financial obligation 3. Decline in Profits 4 Claims against disputed tax liability / excise duties 5 Coroporate guarantees given with out banks permission/approval TOTAL

(IV)

5.00 5.00 5.00 5.00 5.00 25.00 100.00 2.00 2.00 2.00 2.00 2.00 10.00 NA NA

TOTAL MARKS SCORED Total Marks Assigned

NA 100.00

Chart 13 showing marks scored by MB Ltd

SCORE MATRIX MB LTD


000

Business Risk Industry Risk Financial Risk Management Risk

INTERPRETATION & CONCLUSION The lending policy of indusind bank says that if an applicant fails to score a minimum or 2 in the first three parameters under management risk or scores zero in any one of them the further assessment will be abounded and no loan will be provided to him or her. And in this case the applicant company as scored zeros twice in first three parameters of management risk so further assessment was given up and was denied the loan.

Table 14 showing risk rating summary of companies assessed for term loan SL. NO. 01 02. 03. 04. 05. 06. Best Ltd U Tech Ltd GDj Ltd GD Exports HN Steels MB LTDS COMPANY BUSINESS INDUSTRY FINANCIAL MANAGEMENT RISK 20 22.5 18.75 21.25 13.75 0 RISK 6.5 6.25 8.75 8.13 5 0 RISK 23 22 25 20 16 0 RISK 24.8 34.4 34.4 28.8 21.6 2

Chart 14 showing business risk scoring of company assessed Term Loan

Business risk rating chart


25 22.5 20 15 10 5 0 Best Ltd U Tech Ltd GDJ Ltd GD Export HN Steel 0 MB Ltd 20 18.75 13.75 21.25

Chart 14.1 showing Industry risk scoring of company assessed Term Loan

Industry risk rating chart


10 9 8 7 6 5 4 3 2 1 0 Best Ltd U Tech Ltd GDJ Ltd GD Export HN Steel 0 MB Ltd 6.5 6.25 5 8.75 8.13

Chart 14.2 showing Financial risk scoring of company assessed Term Loan

Financial risk rating chart


10 9 8 7 6 5 4 3 2 1 0 Best Ltd U Tech Ltd GDJ Ltd GD Export HN Steel 0 MB Ltd 6.5 6.25 5 8.75 8.13

Chart 14.3 showing Management risk scoring of company assessed Term Loan

Management risk rating chart


40 35 30 25 20 15 10 5 0 Best Ltd U Tech Ltd GDJ Ltd GD Export HN Steel 2 MB Ltd 24.8 21.6 34.4 34.4 28.8

CP PHARMA LTD The company is manufacturing drugs and chemicals for medical purposes. It sought a financial assistance of Rs. 85 Lakhs for its working capital requirements and presented a technical viability and economic feasibility report to the bank. The bank on its own assessed credibility , feasibility & the marks secured by the companywere.

Business Risk Reference Chart MARKS 18.00-20.00 15.00-17.99 13.00 14.99 10.99-12.99 9.00-9.99 7.00 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY MINIMAL AA+

20.00 RISK CATEGORY 20.00 RISK SYMBOL

Industry Risk Reference Chart MARKS 7.20-8.00 6.00-7.19 5.20-5.99 4.00-4.19 3.60-3.99 2.00 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

8.00 RISK CATEGORY 6.50 RISK SYMBOL

Management Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 8.75 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY MINIMAL AA+

25.00 RISK CATEGORY 22.50 RISK SYMBOL

Financial Risk Reference Chart MARKS 42.36-47.00 32.25-42.29 30.55- 35.24 23.50-30.54 21.15- 23.49 16.45 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY LOW AA

47.00 RISK CATEGORY 39.00 RISK SYMBOL

MARKS SECURED NEGATIVE MARKS EFFECTIVE MARKS SECURED

87.00 03.00 84.00

RISK RATING SUMMARY CHART


Parameters (I) 1. 2. 3. 4. 5. 6. 7. Business Risk Technology Capacity Utilization Vs BEP Compliance of Environment Regulation User/Product Profile Consistency in Quality Distribution Network Consistency Of Cash Flow TOTAL (II) INDUSTRY RISK 1. Competition 2. Industry Outlook 3. Regulatory Risk 4. Contemporary Issues like WTO Etc.. Total Assignable Marks 4.00 2.00 2.00 2.00 4.00 2.00 4.00 20.00 Marks Awarded 4.00 2.00 2.00 2.00 4.00 2.00 4.00 20.00

2.00 2.00 2.00 2.00 8.00

2.00 1.50 1.00 2.00 6.50

(III) MANAGEMENT RISK 1. A. Integrity: Sole Proprietary Firm/ Partnership Firm /Pvt. Ltd Companies b. Integrity (For Corporate): Corporate Government 2. Track Record 3. Managerial Competence/ Commitment 4. Expertise 5. Structure System 6. Experience in the Industry 7. Credibility :Ability to Meet Sales Projection 8. Credibility: Ability To Meet Profit Projection 9. Payment record 10. Strategic initiatives 11. Length of relationship with the Bank TOTAL

3.00 3.00 3.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 25.00 3.00 3.00 2.00 2.00 1.00 2.00 1.00 2.00 2.00 1.50 22.50

(IV) FINANCIAL RISK- TERM LOAN A. RATIOS: 1. Current Ratio (CA/CL) 2. TOL /TNW 3. PAT/Net Sales 4. PBIT/ INNT 5. Return on Capital Employed 6. Turn over of current assets 7. Trends in Performance B. Future Prospects 1. Projected Profitability 2. Non Achievement of Profitability Total Grand Total (1 to IV) NEGATIVE MARKS 1. Erosion in Security value 2. Delay in meeting financial obligation 3. Decline in Profits 4. Claims against disputed tax liability / excise duties 5. Coroporate guarantees given with out banks permission/approval TOTAL

5.00 5.00 10.00 5.00 5.00 5.00 3.0 3.00 -3.00 47.00 100.00 2.00 2.00 2.00 2.00 2.00 10.00

5.00 5.00 10.00 4.00 5.00 5.00 2.00

3.00 39.00 87.00 0.50 NIL NIL 0.50 2.00 3.00

TOTAL MARKS SCORED Total Marks Assigned

84.00 100.00

CHART 15 and 15.1 showing score matrix of Indusind bank for working capital loan and marks scored by CP Pharma Ltd

Score Matrix Working Capital Loan

25

20 Business Risk Industry Risk 8 Financial Risk Masnagement Riskl

42

Score Matrix CP PHARMA

22.5

20 Business Risk Industry Risk 6.5 Financial Risk Masnagement Riskl

39

INTERPRETATION & CONCLUSION The company has secured 82 out of 100 Marks, as such it is categorized under risk rating category AA, which is considered as Low. The interest chargeable for this category of risk is PLR +1 %, that is 12+1 = 13% P.A the loan amounted sanctioned by the bank was 64 Lakhs for a period of 5 years in consultation with the borrower and also by

considering the cash flow details given by the company

RISK ASSESSMENT TABLE AND PRICING INTEREST RATE STRUCTURE

RISK RATING AA+

TISK CATEGORY MINIMAL

SYMBOL

MARKS (100)

SUGGESTED INTEREST

Indusind 1

85-100

90.01-100.00 85.01-90.00

PLR PLR+1 PLR + 1 PLR+2 PLR+2 PLR +3 PLR+4 PLR+4

AA

LOW

Indusind2

71-84

80.01- 85.00 70.01-80.00

A B C D

MODERATE AVERAGE CAUTION AWAY

Indusind3 Indusind 4 Indusind 5 Indusind 6

61-70 46-60 36-45 Below 36

60.01- 70.00 45.01-60.00

Risk Rating as per Risk Assessment Table Risk Linked Pricing

AA-LOW PLR+2= 13% P.A

IM TECH LTD The company is a manufacturer of components required for various categories of automobiles. The company has sought a loan of Rs. 40 lakhs for its working capital requirements and presented its technical viability and economic feasibility report to the bank for evaluation. The bank on its own assessed credibility, feasibility and the marks secured by the company were as under

Business Risk Reference Chart MARKS 18.00-20.00 15.00-17.99 13.00 14.99 10.99-12.99 9.00-9.99 7.00 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY AWAY D

20.00 RISK CATEGORY 6.00 RISK SYMBOL

Industry Risk Reference Chart MARKS 7.20-8.00 6.00-7.19 5.20-5.99 4.00-4.19 3.60-3.99 3.59 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY AWAY D

8.00 RISK CATEGORY 2.50 RISK SYMBOL

Management Risk Reference Chart MARKS 22.50- 25.00 18.75-22.49 16.25 18.74 12.29- 16.24 11.25-12.24 8.75 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY AWAY D

25.00 RISK CATEGORY 8.00 RISK SYMBOL

Financial Risk Reference Chart MARKS 42.36-47.00 32.25-42.29 30.55- 35.24 23.50-30.54 21.15- 23.49 16.45 & below TOTAL MARKS MARKS SCORED SCALE Indusind Bank 1 Indusind Bank2 Indusind Bank 3 Indusind Bank 4 Indusind Bank 5 Indusind Bank 6 RISK SYMBOL AA+ AA A B C D RISK CATEGORY MINIMAL LOW MODERATE AVERAGE CAUTION AWAY AWAY D

47.00 RISK CATEGORY 11.00 RISK SYMBOL

MARKS SECURED NEGATIVE MARKS EFFECTIVE MARKS SECURED

27.50 4.00 22.50

CHART 16 and 16.1 showing score matrix of Indusind bank for Term loan and marks scored by IM TECH Ltd

Score Matrix Working Capital Loan

25

20 Business Risk Industry Risk 8 Financial Risk Masnagement Riskl

42

Score Matrix IM TECh Ltd

6 8 Business Risk Industry Risk 2.5 Financial Risk Masnagement Riskl

11

INTERPRETATION & CONCLUSION The company was able to score 22.50 only was rated D, which comes under the risk category of AWAY. The interest chargeable is PLR+4% that is 12+4= 16 % P.A the company was denied the loan as it failed to score the minimum prescribed hurdle rate of Indusind 4.

RISK ASSESSMENT TABLE AND PRICING INTEREST RATE STRUCTURE

RISK RATING AA+

TISK CATEGORY MINIMAL

SYMBOL

MARKS (100)

SUGGESTED INTEREST

Indusind 1

85-100

90.01-100.00 85.01-90.00

PLR PLR+1 PLR + 1 PLR+2 PLR+2 PLR +3

AA

LOW

Indusind2

71-84

80.01- 85.00 70.01-80.00

A B C D

MODERATE AVERAGE CAUTION AWAY

Indusind3 Indusind 4 Indusind 5 Indusind 6

61-70 46-60 36-45 Below 36

60.01- 70.00 45.01-60.00 PLR+4 PLR+4

Risk Rating as per Risk Assessment Table Risk Linked Pricing

AA-LOW PLR+2= 16% P.A

Table 15 showing risk rating summary of companies assessed for working capital.

SL. NO. 01 02.

COMPANY

BUSINESS INDUSTRY FINANCIAL MANAGEMENT RISK RISK 6.5 2.50 RISK 39 11 RISK 22.5 8

CP Pharma Ltd IM Tech Ltd

20 6.00

Chart 17 showing business risk rating of companies assessed for working capital

Business Risk Rating Chart


25 20 15 10 5 0 CP Pharma Ltd Im Tech Ltd 6 20

Chart 18 showing Industry risk rating of companies assessed for working capital

Industry Risk Rating Chart


7 6 5 4 3 2 1 0 CP Pharma Ltd Im Tech Ltd 2.5 6.5

Chart 19 showing Financial risk rating of companies assessed for working capital

Financial Risk Rating Chart


45 40 35 30 25 20 15 10 5 0 CP Pharma Ltd Im Tech Ltd 11 39

Chart 19 showing Management risk rating of companies assessed for working capital

Management Risk Rating Chart


25 22.5 20 15 10 8 5 0 CP Pharma Ltd Im Tech Ltd

CHAPTER 6 SUMMARY OF THE FINDINGS The Findings, suggestions and conclusion of the study conducted have been presented in this chapter. Conclusions are drawn based on the study. Suggestion have been drawn based on the conclusion. The Indusind Bank is financing Heterogonous units with heterogeneous, type of products. After the study its known that Indusind Bank follows all standards, norms while annotating feasibility of the study Indusind Bank examines the viability of each project before its provide financial assistance Indusind Bank examines various aspects which are looked in are technical, commercial, financial, economical and management appraisals Time taken for functioning of the amount by the . Indusind Bank varies between 1 to 2.5 months with different units being sanctioned at different Lin its being sanctioned at different time intervals. Out of total 8 companies assessed, 2 companies were for Working Capital finance and remaining 6 were for Term Loan. Out of 2 companies assessed for working capital one company was rated as "AA" (Low Risk Category) and the other scored "D" (Risk Category Away), and was denied the loan. Similarly six companies evaluated for Term loan, three were rated as "AA" and of the remaining one was rated "AA+". other "'B"' and last one was denied loan in order to protect the bank's interest considering the crucial management factors mentioned above. Industry reference chart: Under this category three companies were able to score "AA". next two companies scored "A", and of the remainder one company was rated B, the other "D" and the last one was abandoned due poor scoring in managerial rating. Business Risk reference Chart: Under this section four companies were able to score "AA". one company scored "AA+". and of the remainder one company was rated "B", the other "D" and the last one was abandoned due poor scoring in managerial rating.

Management Risk Reference Chart: Under this evaluation three companies secured the rating of "A A", one company scored "AA+", and of the remainder two companies were retted B. the other "D" and the last one was abandoned due poor scoring in managerial rating Financial Risk Reference Chart: Under this category two companies we scored "AA+". three companies scored "AA". and of the remainder one company was rated LB". the other "D"" and [he last one was abandoned due poor scoring in managerial rating.

Conclusion The Project is done by the financial institution to satisfy itself regarding the following. After the study it's now that Indusind Bank follows all standards and norms which undertake feasibility study. The financial feasibility study Indusind Bank following parameters DSCR should be 1.75 and above, financial rate on return should be at least 5% more than cost of capital. In the study of risk bank has analyzed and assessed all type of risks before sanctioning of the loan to the borrowers. In these days corporate financing gets more importance because of the competition an business opportunities increasing between the competitors.

SUGGESTIONS: To reduce the time taken to scrutinize the documents. Documents furnished by the customer so that the corporate loans are sanctioned and there by causing no delay in project implementation. Rate of interest should be competitive as per the market trend to encourage more customers to avoid more corporate financing benefits and thereby bring about entrepreneurial development. There should be an incentive for prompt re-payment entrepreneur Managerial competence is very subjective in nature Hence same kind of advice should be evolved to rate the competence of the management based on certain scales.