Processing a Loan Proposal at Sme Loan Factory_ayandas

BANK OF BARODA

[2010]

PROCESSING A LOAN PROPOSAL IN SME LOAN

FACTORY

[ ]

SUBMITTED BY

FORE SCHOOL OF MANAGEMENTNEW DELHI

PGDM 2009-2011

CONTENTSCONTENTS....................................................................................................................................1ACKNOWLEDGEMENT...............................................................................................................3EXECUTIVE SUMMARY.............................................................................................................4CHAPTER 1: INTRODUCTION....................................................................................................5

1.1 Project Description............................................................................................................51.2 Relevance of the Project........................................................................................................61.3 Objectives of the Study..........................................................................................................61.4 Limitations of the Study........................................................................................................6

CHAPTER 2 : ABOUT BANK.......................................................................................................72.1 Bank’s Mission Statement.....................................................................................................72.2 Brief History..........................................................................................................................72.3 Products And Services...........................................................................................................72.4 Bank’s Logo...........................................................................................................................82.5 Business & Financial Performance........................................................................................8

CHAPTER 3 : LITERATURE / CONCEPTUAL SUPPORT........................................................93.1 Banking Sector[3]....................................................................................................................93.2 Indian Banking Industry[4]......................................................................................................93.4 Small And Medium Enterprises (SMEs) In India................................................................113.5 Role of Small and Medium Enterprises (SMEs).................................................................123.6 Financing the SMEs.............................................................................................................133.7 Book of Instructions – (Bank of Baroda)............................................................................143.8 Domestic Loan Policy – (Bank of Baroda)..........................................................................143.9 Important Concepts..............................................................................................................15

CHAPTER 4 : PROCESS / METHODOLOGY...........................................................................174.1 Project Methodology...........................................................................................................174.2 Locale of the Project............................................................................................................174.3 Sample Size.........................................................................................................................174.4 Source of Data.....................................................................................................................18

CHAPTER 5 : SME POLICY.......................................................................................................195.1 Objectives............................................................................................................................195.2 Scope of Policy....................................................................................................................195.3 Small & Medium Enterprises Sector...................................................................................195.4 Bank’s Approach To SME Sector.......................................................................................205.5 Establishment Of SME Loan Factories...............................................................................215.6 Targets For Priority Sector / SME Sector Lending.............................................................225.7 Guidelines for Takeover of Advance Accounts:.................................................................225.8 SME Products......................................................................................................................25

CHAPTER 6 : CREDIT APPRAISAL..........................................................................................266.1 Pre-Sanction Appraisal........................................................................................................266.2 Assessment of Working Capital Limits...............................................................................306.3 Margin..................................................................................................................................326.4 Rate of interest.....................................................................................................................326.5 Financial Ratios for Credit Appraisal..................................................................................33

Processing a Loan Proposal at SME Loan factory, Bank Of Baroda 2

6.6 Credit rating.........................................................................................................................346.6.1 Internal Credit Rating System :....................................................................................346.6.2 External Credit Rating System.....................................................................................38

6.7 Techno-economic viability study........................................................................................386.8 Review after Sanction..........................................................................................................38

CHAPTER 7- LOAN PROCESSING PROCEDURE AT BANK OF BARODA........................407.1 SME MODEL......................................................................................................................40

7.1.1 Relationship Managers/Branches’ Work......................................................................417.1.2 Credit Officer’s Work...................................................................................................42

7.2 Procedure of Processing......................................................................................................437.2.1 Preparation of Appraisal Note......................................................................................44

CHAPTER 8 : ANALYSIS OF SME PROPOSALS....................................................................518.1 Case I- GREENFIELD PROPOSAL...................................................................................518.2 CASE – II- TAKEOVER PROPOSAL...............................................................................72

CHAPTER 9: CONCLUSION......................................................................................................879.1 Conclusion...........................................................................................................................879.2 Findings &Recommendations.............................................................................................87

REFERENCES..............................................................................................................................89ANNEXTURES.............................................................................................................................90


ACKNOWLEDGEMENT

Behind every endeavor lays the efforts of many individuals who lend their incredible services

and support in order to achieve its success. I sincerely feel the credit of the project work goes to

all those concerned with it and it would have been difficult without their direct & indirect co-

operation. I wish to express my appreciation and gratitude to all the concerned people.

First and the foremost a deep sense of gratitude is owed to Mr. Victor Vincent (General

Manager, HRD) for providing me the opportunity to work with BANK OF BARODA for the

summer training project.

My humble and heartiest thanks to my company mentor- Mr. M.A.Peters (Chief Manager,

SME Loan Factory) whose guidance and encouragement was of immense help throughout my

project.

I want to express my sincere thanks to Mr. R.Kujur (Senior Manager), Mr. S.Sanyal

(Manager,Credit), Mr. A.K.Khandelwal (Manager, Credit) and all the other employees of

SME Loan Factory for giving their precious time and providing me the requisite data without

which this project would not have completed.

I would also like to thank my project guide, Dr. Himanshu Joshi whose guidance and support in

terms of key inputs formed the basis of the work undertaken.


EXECUTIVE SUMMARY

Bank extends Loan facilities by way of fund-based facilities and non-fund based facilities. The

fund-based facilities are usually allowed by way of term loans, cash credit, bills

discounted/purchased, demand loans, overdrafts, etc. Further, the bank also provides non fund-

based facilities by way of issuance of inland and foreign letters of credit, issuance of guarantees,

deferred payment guarantees, bills acceptance facility etc.

Efficient management of Loans and Advances portfolio has assumed greater significance as it is

the largest asset of the Bank having direct impact on its profitability. In the wake of the

continued tightening of norms of income recognition, asset classification and provisioning,

increased competition and emergence of new types of risks in the financial sector, it has become

imperative that the credit functions are strengthened. RBI has also been emphasizing banks to

evolve suitable guidelines for effective management and control of credit risks.

Credit appraisal is an important function of the bank. It is the process of appraising the credit

worthiness of a loan applicant. Every bank or lending institution has its own panel of officials for

this purpose.

I have undertaken a study at Bank of Baroda which is an international bank with its global

presence in twenty five countries. The study is on ‘Processing a loan proposal at SME loan

factory’. The process of appraisal & disbursement of loans has been explained in detail in the

project. The main focus of my project was on Appraisal and disbursement of loans by following

the bank’s rules & regulations.

The project report is categorized into nine chapters. Chapter one deals with the introduction

which talks of project description, the relevance of the project and the objectives of the study.

Chapter 2 deals about the details of the bank. Chapter three deals with the overview of the

banking industry, SME sector, some important banking concepts. Chapter four consists of the

methodology adopted in making of the project, locale of the project, sample size and source of

the data. Chapter five explains the SME Policy of the bank. The whole credit appraisal process

explaining the various steps taken by bank in evaluating a borrower are discussed in chapter six.

The loan procedure at Bank of Baroda from sanction to disbursement is dealt in chapter seven.

Chapter eight explains the making of loan proposals with the help of two live cases from SME

sector. Chapter nine finally deals with conclusion and important findings and recommendations

of the project report.


CHAPTER 1: INTRODUCTION

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial

assets over time, between the lender and the borrower. The borrower initially receives an amount

of money from the lender, which they are obligated to pay back, but not always in regular

installments, to the lender. The loan is generally provided at a cost, referred to as interest on the

debt. A borrower may be subject to certain restrictions known as loan covenants under the terms

of the loan.

Acting as a provider of loans is one of the principal tasks for financial institutions. Bank loans

and credit are one way to increase the money supply.

Now a days loans are easily available and the rate of interests at which they are available are

very reasonable. Government too is encouraging people to take loans for certain purposes. For

example, government is encouraging people to take housing loans by giving tax concessions.

Running a business is never an easy task. One is bound to face financial hiccups during the

process. Whether someone is a new generation entrepreneur venturing into a new business or an

established businessman planning for a business expansion, whether its money required for an

immediate official expansion or it could be the time of recession , when payments don't come on

time but the expenditures can't wait, the business loans ease our way through a scary road of

financial crisis and open the world of new business heights for you. Financial institutions like

banks offer the business loan to bail us out.

I have undertaken a study at SME Loan Factory, Bank of Baroda which deals with preparation

of loan proposals.

1.1Project Description

The title of the project is “Processing a loan proposal at SME loan Factory”. This project

deals with reviewing the credit worthiness of the borrower before sanctioning of a loan. It deals

with analysis of the data provided by the company and following all the formalities as under the

norms of the bank and finally making a loan appraisal.


1.2 Relevance of the Project

The project deals with first getting the loan proposals from the clients and making the appraisal

note. It gives a practical insight of the procedures followed by the bank in ascertaining the credit

worthiness of the borrower. All the various parameters such as financial, management and

industrial are studied. The borrowers are granted fund based (working capital) and non-fund

based ((Bank guarantee and letter of credit) facilities. The project requires restructuring of

Balance sheet and Profit and Loss Account into the CMA format provided by the Bank. Then

filling the CRISIL input sheet for doing the Credit Rating for internal purposes basically for

rating and ascertaining the interest rate for the fund based and non-fund based limits..

1.3 Objectives of the Study

The objectives of my study are as follows:

To study the current market scenario/trends in the SME sector.

To learn the importance and details of financing the SME sector.

To study the chain of events of processing a loan proposal– from receiving the

application from the borrower, doing credit rating of the borrower and the company,

analyzing the financial statements, sanctioning to disbursement and the post sanction

reviews.

Preparation of Credit Monitoring Arrangement (CMA) data and checking fund flow and

for calculation of ratios.

To learn the procedure of doing the rating and framing the rating reports using various

CRISIL models

1.4 Limitations of the Study

Study is limited to only the SME sectors

Due to time limitations a detail analysis could not be done.


CHAPTER 2 : ABOUT BANK

Bank of Baroda (BoB) is the 3rd largest bank in India, after State Bank of India and Punjab

National Bank and ahead of ICICI Bank. BoB has total assets in excess of Rs. 2.27 lakh crores,

or Rs. 2,274 billion, a network of over 3000 branches and offices, and about 1100+ ATMs. It

offers a wide range of banking products and financial services to corporate and retail customers

through a variety of delivery channels and through its specialised subsidiaries and affiliates in the

areas of investment banking, credit cards and asset management. [1]

2.1 Bank’s Mission Statement

2.2 Brief History

Bank of Baroda was incorporated in 1908 by Maharaj Sayajirao Gaekwad III. It launched its first

branch in 1910 in Ahmedabad. In 1953, its first branches in Kampala and Mombasa became

operational. Its overseas branch in Nairobi was opened in 1954.

2.3 Products And Services

Bank of Baroda provides it banking products and services in several categories like personal,

international, business, treasury, corporate and rural. In personal banking section Bank of Baroda

offers products like deposits, debit cards, Gen-Next, personal banking services, loans, lockers

and credit cards.

In business banking sector, Bank of Baroda offers products and services such as deposits,

business banking services, loans and advances and lockers. In corporate banking section, Bank of

Baroda offers products and services like wholesale banking, loans and advances, deposits and

corporate banking services.


2.4 Bank’s Logo

Bank’s new logo is a unique representation of a universal symbol. It comprises dual ‘B’

letterforms that hold the rays of the rising sun. They call this the Baroda Sun.

The sun is an excellent representation of what our bank stands for. It is the single most powerful

source of light and energy – its far reaching rays dispel darkness to illuminate everything they

touch. At Bank of Baroda, it seek to be the source that will help all our stakeholders realise their

goals. To our customers, we seek to be a one-stop, reliable partner who will help them address

different financial needs. To our employees, we offer rewarding careers and to our investors and

business partners, maximum return on their investment.

2.5 Business & Financial Performance

The Bank has reported a healthy growth in its business and profits with improvement in all key

parameters during FY10. [2]

As stated earlier, its Global Business touched a new milestone of Rs 4,16,080 crore in

FY10 reflecting a growth of 24.0% (y-o-y).

Both its domestic deposits and advances increased at the above-industry pace of 22.4%

and 21.3%, respectively.

The Bank recorded a growth of 44.0% in SME credit, 27.0% in farm credit and 24.0% in

retail credit reflecting a well-diversified growth achievement.

Total assets of the Bank’s overseas operations increased from Rs 51,165 crore to Rs

68,375 crore registering a growth of 33.6% during the year under review.

The Bank’s Net Profit at Rs 3,058.33 crore for FY10 reflected a robust year-on-year

growth of 37.3%.

As the Bank’s primary objective has been to grow with quality, the Bank focused on

containing the impaired assets to the minimum possible level. While the Gross NPA in

domestic operations stood at 1.64% at end-March 2010, the same for Overseas


Operations was at 0.47%. In spite of growing slippages for Indian banking industry

during FY10, our Bank succeeded in restricting its global Gross NPA level to 1.36% and

Net NPA level to 0.34% by end-March, FY10.

CHAPTER 3 : LITERATURE / CONCEPTUAL SUPPORT

The purpose of the literature review is to review what has previously been done on the subject

and analyze it in the present context so that an effective understanding can be established.

3.1 Banking Sector[3]

The Banking Industry was once a simple and reliable business that took deposits from investors

at a lower interest rate and loaned it out to borrowers at a higher rate. However deregulation and

technology led to a revolution in the Banking Industry that saw it transformed. Banks have

become global industrial powerhouses that have created ever more complex products that

A Banking sector performs three essential functions in an economy: the operation of the payment

system, the mobilization of savings and the allocation of savings to the investment projects. By

allocating capital to the highest value use while limiting the risks and the costs involved the

banking sector can exert a positive influence on the overall economy and thus is of broad

macroeconomic consequence (Roland, 2006; Jaffe and Levonian, 2001, Rajan and Zingales,

1998).

The Banking Industry at its core provides access to credit. In the lenders case, this includes

access to their own savings and investments, and interest payments on those amounts. In the case

of borrowers, it includes access to loans for the creditworthy, at a competitive interest rate.

Banking services include transactional services, such as verification of account details, account

balance details and the transfer of funds, as well as advisory services, that help individuals and

institutions to properly plan and manage their finances. Online banking channels have become

key in the last 10 years.

The collapse of the Banking Industry in the Financial Crisis, however, means that some of the

more extreme risk-taking and complex securitisation activities that banks increasingly engaged


in since 2000 will be limited and carefully watched, to ensure that there is not another banking

system meltdown in the future.

3.2 Indian Banking Industry[4]

The growth in the Indian Banking Industry has been more qualitative than quantitative and it is

expected to remain the same in the coming years. Based on the projections made in the "India

Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts

that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets

of all scheduled commercial banks by end-March 2010 is estimated at Rs 40,90,000 crores. That

will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in

2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during

the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95

and 2002-03. It is expected that there will be large additions to the capital base and reserves on

the liability side.

The Indian Banking Industry can be categorized into non-scheduled banks and scheduled banks.

Scheduled banks constitute of commercial banks and co-operative banks. There are about 67,000

branches of Scheduled banks spread across India. As far as the present scenario is concerned the

Banking Industry in India is going through a transitional phase.

The Public Sector Banks(PSBs), which are the base of the Banking sector in India account for

more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with

excessive Non Performing assets (NPAs), massive manpower and lack of modern technology.

On the other hand the Private Sector Banks are making tremendous progress. They are leaders in

Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned

they are likely to succeed in the Indian Banking Industry.

In the Indian Banking Industry some of the Private Sector Banks operating are IDBI Bank, ING

Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of Rajasthan Ltd. and banks

from the Public Sector include Punjab National bank, Vijaya Bank, UCO Bank, Oriental Bank,


Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO Bank, American Express

Bank Ltd, Citibank are some of the foreign banks operating in the Indian Banking Industry.

3.4 Small And Medium Enterprises (SMEs) In India

The small and medium enterprises segment has been a topic of intense deliberation among

banks, financial institutions, industry and academicians. In India, ‘small and medium enterprises’

(SME) is a generic term used to describe small scale industrial (SSI) units and medium-scale

industrial units. As per the Micro, Small and Medium Enterprises Development Act of 2006, any

industrial unit with a total investment in its fixed assets or leased assets or hire-purchase asset

upto Rs10 million is considered as a SSI unit and investment up to Rs. 100 million is considered

as a medium unit. In addition, an SSI unit should neither be a subsidiary of any other industrial

unit nor can it be owned or controlled by any other industrial unit.

The SME sector produces a wide range of industrial products such as food products, beverage,

tobacco and tobacco products, cotton textiles, wool, silk, synthetic products, jute, hemp & jute

products, wood & wood products, furniture and fixtures, paper & paper products, printing

publishing and allied industries, machinery, machines, apparatus, appliances and electrical

machinery. SME sector also has a large number of service industries.

In India, SME is the biggest provider of employment next only to Agriculture. The SMEs

constitute 95% of total industrial units and constitute 40% of total industrial output.

Formerly, both Government and RBI credit policy placed emphasis on manufacturing

units from the Small Scale Sector. However, in order to make the size of the unit and the

technology employed by firms to be globally competitive, the definition of “Small Scale

Sector” was revisited. Keeping in view the same and the global practices, it was decided

to broaden the concept of SSI Sector by inclusion of services within its ambit as also

including the “Medium Enterprises” in a composite sector of “Small & Medium

Enterprises”.


Subsequently, MSMED Act was operationalized with effect from 2nd October 2006,

which defines an “enterprise” instead of an “industry” to give recognition to service

sector and also defines a “medium enterprise” to facilitate technology upgradation and

graduation.

Banks were interalia advised to formulate comprehensive and more liberal policies than

the existing policies in respect of loans to SME Sector.

3.5 Role of Small and Medium Enterprises (SMEs)

SMEs have been playing a pivotal role in country’s overall economic growth, and have achieved

steady progress over the last couple of years. From the perspective of industrial development in

India, and hence the growth of the overall economy, SMEs have to play a prominent role, given

that their labour intensiveness generates employment. The SME segment also plays a major role

in developing countries such as India in an effort to alleviate poverty and propel sustainable

growth. They also lead to an equitable distribution of income due to the nature of business.

Moreover, SMEs in countries such as India help in efficient allocation of resources by

implementing labour intensive production processes, given the abundant supply of labour in

these countries, wherein capital is scarce.

The enactment of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006

was a landmark initiative taken by the Government of India to enable the SMEs’ competitive

strength, address the issues and challenges and reap the benefits of the global market. SME

policy initiatives at the national and state level are aimed at strengthening the role of SMEs at the

base as well as at the higher level.

With globalisation, all forms of production of goods and services are getting increasingly

fragmented across countries and enterprises. With large players adopting different models of

business that include involvement of the traditional partners, suppliers or distributors at a

different level, SMEs now are experiencing a new model of functioning in the value chain. The

past few years has seen the role of the SME segment evolve from a traditional manufacturer in


the domestic market to that of an international partner. The restructuring of production at the

international level through increased outsourcing is having significant effects on small and

medium entrepreneurs in a positive as well as negative manner. Demand in terms of new niche

products and services are providing more opportunities for SMEs that are in a better position to

take advantage of their flexible nature of operations. However, at the same time they have

realized their drawback in terms of inadequate availability of managerial and financial resources,

lack of working capital, personnel training and inability to innovate on a faster pace.

The combined effect of market liberalisation and deregulation has forced the SME segment to

change their business strategies for survival and growth. Some of the changes that SMEs are

focusing on include acquiring quality certifications, increasing use of ICT, creating e-business

models and diversification to meet the increasing competition. Globalisation, economic

liberalisation and the WTO regime would undoubtedly open up a unique opportunity for the

largest business community, i.e. SMEs through effective involvement in international trade by

streamlining certain factors, such as, access to markets, access to technology, access to skills,

finance, development of necessary infrastructure, SME-tax friendly environment, exchanges of

best practices to name a few.

The SME sector has also registered a consistently higher growth rate than the overall

manufacturing sector. In fact, it plays a dual role since the output produced by SMEs is not only

about final consumption but also a source of capital goods in the form of inputs to heavy

industries.

3.6 Financing the SMEs

In Feb 2008, the Ministry of Micro, Small and Medium Enterprises (MSME), continued with its

dereservation policy by removing 79 items from the list of 114 items reserved specifically for

SSI (small scale industries) manufacturing. Only 35 items remain in the reserved category from

the total 836 selected in 1994 denoting the declining monopoly of the SSI segment on the

reserved products. However, the government has set up various schemes in place such as the

Credit Linked Capital Subsidy Scheme, MSME Cluster Development Scheme and ISO 9000

Reimbursement Scheme to help SMEs for procuring timely funds. Also the government has put


in place the Credit Guarantee Scheme to encourage banks to lend up to Rs 0.50 million without

collateral. There has also been a recent budget announcement of setting up of a Risk Capital

Fund.

Though SMEs are being touted as the priority sector within the economy, they continue to face

problems pertaining to finance. When it comes to banks, they have a very traditional way of

lending to this segment against collateral and SMEs end up being under financed. Evidently, the

biggest challenge before the SMEs today is to have access to non debt based and non-traditional

financial products such as external commercial borrowings, private equity, factoring etc.

Lately this segment has been witnessing winds of change in the new sources of capital- in the

form of private equity (PE) and foreign direct investments (FDI). In Jan 2008, The Soros

Economic Development Fund (SEDF), Omidyar Network and Google.org announced a Small to

Medium Enterprise Investment Company with an initial corpus of $17 million for providing

capital to SMEs in underserved markets. Mauritius-based Frontline Strategy launched a $200

million India Industrial Growth Fund (IIGF) for investment in SMEs targeting companies,

primarily in the industrial space with revenues between Rs 200 – 1,000 million. In 2007,

Mauritius-based Horizon advisors launched Ambit Pragma Fund I, an India dedicated PE fund,

with a corpus of $100 million for providing equity capital and professional management advice

to SMEs.

Investments in the SME sector are not only by PE funds but this sector is also attracting FDI. In

this respect the government has removed the 24 per cent cap on FDI in the SME sector. Foreign

entities are also keen on promoting trade and cooperation between SMEs of different countries.

Genesis Initiative, an UK-based organization consisting of entrepreneurs, policy makers and

SMEs, is trying to forge mutual cooperation between SMEs in India and UK for in terms of JVs

and partnerships in sectors such as textiles, IT, infrastructure etc.

3.7 Book of Instructions – (Bank of Baroda)

Volume 5 was studied as they provide the various policies of the banks that are practiced. It

talks of the appraisal process adopted by the Bank. It also provides clear guidelines on the

documentation procedure carried out by the bank.


3.8 Domestic Loan Policy – (Bank of Baroda)

This document provides information on the policies and procedures that are followed at Bank of

Baroda

3.9 Important Concepts

BANK GUARANTEES: Banks come across a 'Guarantee' in two capacities. One as a

beneficiary when somebody guarantees the payment of debt of bank's borrower in case of

default. The other as a guarantor, when the bank itself promises to pay the dues or

discharge the liabilities of its customers in favour of a third party. While in the former

case, the Bank is the creditor, in the latter case, Bank's liability is co-extensive with that

of the debtor.

LETTERS OF CREDIT: Services of third party as an intermediary is usually a bank

who issues a letter of assurance to a seller at the request of a buyer for payment of cost of

goods/ services sold on certain terms and conditions. Such an assurance letter is named as

a "Letter of Credit".

QUASI CAPITAL: Quasi capital will include (i) amount of Central/State subsidy(ii)

Long term unsecured interest free loans from government or government agencies such

as sales tax loan etc. (iii) long term unsecured interest free loans from promoters provided

such loans are subordinated to the loans from banks/financial institutions (iv) Non-

refundable deposits. (v) Risk capital assistance provided by Risk Capital & Technology

Finance Corporation Ltd.

MAXIMUM PERMISSIBLE BANK FINANCE: MPBF is calculated when the

borrower wants loan for working capital requirement. The maximum permissible bank

finance will, therefore, be working capital gap less the amount to be so contributed by the

borrower.


ESCROW ACCOUNT: In case of syndication/consortium baking an account is

maintained with only one bank which provides the maximum amount of funds, that

monitors all the activities of the company. This account which shows all the credit and

debit transactions is known as the Escrow Account.

FIXED ASSET COVERAGE RATIO: This ratio shows the number of times the value

of fixed assets (after providing depreciation) covers term liabilities. Fixed Assets

Coverage Ratio of more than 1 is considered reasonable.


CHAPTER 4 : PROCESS / METHODOLOGY

Now after going through the conceptual support required for understanding the project, a

methodology has to be prepared for how to complete the project successfully.

4.1 Project Methodology

The methodology that was followed in completion of the project successfully was as follows:

a. The borrower submits the project report and all the relevant documents to the bank.

b. The project report was given to me for an in depth analysis.

c. A pre-sanction appraisal and evaluation was then carried out by studying the company’s

financial statement.

d. Restructuring of the company’s Balance Sheet and Profit and Loss Account in to the

Credit Monitoring Arrangement (CMA) format.

e. The borrower company was rated using the CRISIL Credit Rating Model.

f. On being assured of the credit worthiness of the borrower, the loan is disbursed.

The whole process of credit appraisal is explained in detail in Chapter 4.

4.2 Locale of the Project

Bank of Baroda is an international bank with its global presence across 25 countries. The bank

has its head office in Savanji Ganj, Baroda. It has its corporate office in Bandra (East), Mumbai.

It has a wide network with 10 Zonal Offices and 43 Regional Offices.

The project is conducted in the Bank of Baroda, SME Loan Factory 4, Brabourne Road, Kolkata.


4.3 Sample Size

The sample chosen for appraisal was two, consisting of proposals of SME accounts, being

Greenfield, and takeover accounts where the name of the account has not been disclosed.

4.4 Source of Data

The project is made through secondary data. This data has been provided by the borrower

company. Secondary data in terms of Financial Statements i.e. Balance Sheet, Profit and loss and

Cash Flow Statement were studied. The data is then formatted as per the CMA requirement of

the bank. The given data was studied and the relevant ratios were computed to ascertain the

credit worthiness of the borrower. The various parameters such as financial and industry were

studied and hence a loan appraisal was created.


CHAPTER 5 : SME POLICY

5.1 Objectives

The SME Loan Policy is framed with the following objectives:

To improve flow of credit to SME Sector.

To formulate norms of lending to SME sector, to ensure availability of adequate and

timely credit to the sector.

To provide guidelines to the branches to dispense credit to SME Sector.

To devise an organizational structure at all levels for handling SME credit portfolio in a

more focused manner.

To comply with terms of Policy package announced by Hon’ble Union Finance Minister

on 10.08.2005 and further guidelines received from Reserve Bank of India from time to

time for improving flow of credit to SME Sector.

5.2 Scope of Policy

This Policy will form a part of Bank’s Domestic Loan Policy and will cover

following:

Composition of SME Sector

Broad guidelines on lending to SME Sector

SME Loan Factory Model

Credit Rating and Pricing Policy

Identifying Thrust Industries

Discretionary lending powers


Training needs

Reporting and Monitoring System

5.3 Small & Medium Enterprises Sector

The SME segment is broadly classified as under in MSMED ACT, 2006 :

Particulars Investment in Plant &Machineries in case ofManufacturingEnterprises *

Investment in Equipmentin case of Service SectorEnterprises *

Micro Enterprises Upto Rs. 25/- lacs Upto Rs.10/- lacs

Small Enterprises Above Rs. 25/- lacs andupto Rs.500/- lacs

Above Rs.10/- lacs andupto Rs.200/- lacs

MediumEnterprises

Above Rs.500/- lacs andupto Rs.1000/- lacs

Above Rs.200/- lacs and upto Rs.500/- lacs

* original cost excluding land and building and the items specified by the Ministry of Small

Scale Industries

** original cost excluding land & Building and Furniture, Fittings and other items not directly

related to the service rendered or as may be notified under MSMED Act, 2006

5.4 Bank’s Approach To SME Sector

SMEs are growth engines for development of Economy. Bank has therefore for internal purposes

given focused attention to finance all Commercial enterprises i.e. enterprises which may be

outside the purview of regulatory definition of SME but having turnover upto Rs 150.00 crores

and new infrastructure and real estate projects where the project cost is upto Rs. 50/- crores by

treating them as part of SME segment. SME Banking business will thus include the following

across the bank:

Micro, Small and Medium Enterprises – as per regulatory definition irrespective

geographical location, i.e. rural, semiurban, urban, metro areas.

All other entities with their annual sales turnover of Rs. 1/- crore to Rs. 150/- crores and

new infrastructure and real estate projects, where the project cost is upto Rs. 50/- crores.


SMEs which are Associate/sister concerns of Wholesale Banking customers.

Clubs, Trusts, etc.

Financing under various Government schemes launched for MSME Sector.

However, such units, which are outside the purview of regulatory definition will not form part of

Priority Sector lending.

5.5 Establishment Of SME Loan Factories

Business Model which operates on assembly line principle is adopted by the bank for hassle free

and faster dispensing of credit to SME segment. This model titled SME Loan factory has

separate Hub for Centralized Processing of SME proposals.

SME LOAN FACTORY :

To grab vast business opportunities available and with an aim to extend focused attention to

Industries & Service Sector, Bank of Baroda has come out with an unique model in the form of

SME LOAN FACTORY exclusively for SMEs.

It is a revolutionary step taken by Bank of Baroda amongst the Nationalised Banks. It

envisages setting up of Centralized Processing Hub to ensure speedy appraisal and

sanctioning of proposal of SME Sector within a time bound schedule.

The model works on assembly line principles with simplified processes using latest

technology and in-house skilled men power to deliver focused services to SME

customers.

A team of Relationship Officers/Relationship Managers have been stationed at different

key places spread over the micro segment of the city who will reach out to SME

customers.

As of March, 2009, 34 SME Loan Factories have been operationalized across the

country.

Attractive features of the model are as under :


Team of officers having expertises in the area of credit with positive approach is selected.

Instead of appointing DSAs(Direct Selling Agents), bank has appointed officers from

existing dedicated team only.

The hub’s main role is ensuring speedy appraisal & sanctioning of proposals pertaining to

SME sector in a time bound program.

The team members reach out to different market segments.

Its important feature is working of the Sme Loan Factory on assembly line principles

with simplified processes.

We have two nodes to take care of the marketing /sales(SALES HUB) and credit

processing sanction(CREDIT HUB), under a single umbrella of the SME Loan Factory.

5.6 Targets For Priority Sector / SME Sector Lending

As regards lending to SME Sector, Banks are advised to fix their own target in order to achieve a

minimum 20% YOY growth in credit to SME as per statutory guidelines so as to double flow of

credit to SME sector by the year 2009-10. There is no sub-target fixed for lending to small

enterprises sector. However in order to ensure that credit is available to all segments of the Small

Enterprises sector, banks are advised to ensure that 60% of the total advances to small enterprises

sector should go to Micro Enterprises as under:

40% to Micro (manufacturing) enterprises with investment in plant and machinery upto

Rs.5 lacs and Micro(service) enterprises having investment in equipment upto Rs.2 lacs

20% to Micro (manufacturing) enterprises with investment in plant and machinery above

Rs.5 lacs and upto Rs.25 lacs and Micro(service) enterprises having investment in

equipment above Rs.2 lacs and upto Rs.10 lacs.

5.7 Guidelines for Takeover of Advance Accounts:

There are two types of compliances:

Non-Financial norms to be complied in case of takeover of SME accounts as per regulatory

guidelines or SME as per expanded coverage:

Sr.No.

Norms Deviation allowed


a.Profit-making (i.e. net profit before tax) concerns only as per last audited Balance Sheet.

Zonal Head can permit deviations in respect of accounts with exposure upto Rs 3.00 crores in aggregate.

GM (SME & WM) for the proposals falling upto the powers of DGM (other than Zonal Heads).

ED for proposals falling up to GM powers (Zonal Head or Corporate GM)

CMD in all other cases.

b.Accounts be rated as per the new credit rating model (BOBRAM) subject to ‘minimum’ BOB 6.Accounts, which are not covered under BOBRAM Credit Rating System, may be considered underpermitted deviation as per extant guidelines issued from time to time.

c. There should not have been any reschedulement /restructuring in the account during last two years.

d. Satisfactory report from the existing bank/FI and/or satisfactory conduct of account as per latest statement of accounts.

Deviation can beallowed by the ED /CMD in respect of d, e or f.

e. Accounts with existing lenders should be under the category of “Standard Assets”.

f. All other existing norms, guidelines as applicable to borrowal accounts are to be scrupulously followed.

Financial norms in case of takeover of SME accounts as per regulatory guidelines or SME accounts as per expanded coverage:

Ratio Norms Authority who can allowdeviation

1 2 3 ProposedMicro & SmallIndustriesundermanufactu-ring sectorand serviceSector as per regulatoryguidelines

MediumEnterprises undermanufact-uring sectorand serviceSectot as per regulatoryguidelines

Unitsoutside thepurview ofregulatorydefinitionbut coveredunder SMESector asPer expandeddefinition.

CurrentRatio

Minimum1.17 &above

Minimum1.20 &above

Minimum1.33 &above

Deviations as under can beallowed by Zonal Head provided exposure does not exceed Rs.3/- crores in aggregate and by


Corporate General Manager if the exposure does not exceedRs.5/- crore in aggregate.

(A) up to 1.15 in case of SME accounts as per regulatory definition &(B) Up to 1.25 in case of SME accounts falling outside the purview of regulatory guidelinesprovided exposure does notexceed Rs. 3.00 crores inaggregate

In all other cases, ED / CMD can permit deviation.

DebtEquityRatio(TTL /TNW)

Maximum4:1

Maximum3:1

Maximum3:1

Deviations as under can be allowed by Zonal Head provided exposure does not exceed Rs.3/- crores in aggregate and by Corporate General Manager if the exposure does not exceedRs.5/- crore in aggregate.

(A) up to 4.5:1 in case ofaccounts of Micro & SmallEnterprises as per regulatorydefinition &(B)Up to 3.5:1 in case of accounts of MediumEnterprises as per regulatorydefinition and SME accountsfalling outside the purview ofregulatory definition.

In all other cases, ED / CMDcan permit deviation.

Totaloutsideliability/TNW

Maximum4.5:1

Maximum4.5:1

Maximum4.5:1

Zonal Head can permit deviation upto 5:1 in all casesi.e. Micro, Small & MediumEnterprises as per regulatorydefinition and SME accountsfalling outside the purview ofregulatory definition.

In all other cases, ED / CMD


can permit deviation.AverageDSCRforTermLoan

Minimum1.75 with aconditionthat in anyone year itshould notbe below1.25

Minimum1.75 withaconditionthat inany oneyear itshouldnot bebelow1.25

Minimum1.75 with aconditionthat in anyone year itshould notbe below1.25

Deviations can be allowedby Zonal Head providedexposure does not exceedRs.3/- crores in aggregateand by Corporate GeneralManager if the exposure does not exceed Rs.5/- crore in aggregate.

In all other cases ED / CMD is authorized to allowdeviation.

5.8 SME Products

The following products are launched for SME sector across the country:

Baroda SME Gold Card providing additional 10% facility over the assessed MPBF for

meeting emergent business requirements.

Baroda SME Loan Pack providing single line of credit for meeting SME borrowers’

working capital as well as long term requirements within the overall limit approved by

the bank as per the eligibility, i.e. 4 times of borrower’s tangible net worth as per last

audited Balance Sheet, or Rs. 2/- crores, whichever is lower.

Baroda Overdraft against Land & Building is a unique product for financing

working capital requirements, long term margin requirements of SME borrowers against

the security of unencumbered land and building belonging to the unit, or, promoters of

the unit, upto a maximum limit of Rs. 2/- crores depending on the location, viz. rural and

semi-urban, urban and metro.

Baroda Vidyasthali Loan providing finance to Educational Institutional upto a limit of

Rs. 5/- crores on liberalized terms. This scheme is implemented at select branches of the

Bank depending on the business potential.

Baroda Arogyadham Loan for providing finance for setting up new Nursing Homes,

Hospitals including Pathological Laboratories, renovation of existing Nursing

Homes/Hospitals, purchase of medical diagnostic equipments as also office equipments

etc. and to meet working capital requirement upto a maximum limit of Rs.5/- crores,

depending on the location, on liberalized terms. This scheme is also implemented at

select branches of the bank.


Scheme for financing existing SME customers/Current Account holders for

purchase of new vehicles upto a limit of Rs. 50/- lacs with 10% margin.

CHAPTER 6 : CREDIT APPRAISAL

Credit Appraisal is a process to ascertain the risks associated with the extension of the credit

facility. It is generally carried by the financial institutions which are involved in providing

financial funding to its customers. Credit risk is a risk related to non repayment of the credit

obtained by the customer of a bank. Thus it is necessary to appraise the credibility of the

customer in order to mitigate the credit risk. Proper evaluation of the customer is performed,

which measures the financial condition and the ability of the customer to repay back the loan in

future. Generally the credit facilities are extended against the security know as collateral. But

even though the loans are backed by the collateral, banks are normally interested in the actual

loan amount to be repaid along with the interest. Thus, the customer's cash flows are ascertained

to ensure the timely payment of the principal and the interest.

6.1 Pre-Sanction Appraisal

(i) When a credit proposal is presented to a branch by a prospective borrower for sanction by

an appropriate authority, the appropriate authority may either sanction or reject the

proposal. The decision to sanction or reject the proposal has to be based on a careful

analysis of various facts

(ii) and data presented by the borrower concerning him and the proposal. Such an objective

and in-depth study of the information and data should convince the sanctioning authority

that the money lent to the borrower for the desired purpose will be safe and it will be

repaid with interest over the desired period ,if the assumptions and terms and conditions

on which it is sanctioned, are


(iii) fulfilled.

(iv)Such an in-depth study is called the pre-sanction credit appraisal. It provides the

sanctioning authority with the reasons and justifications for either sanctioning or rejecting

a credit proposal. It, thus, helps in the decision making process of the sanctioning

authority.

(v) The entire gamut of credit appraisal can be segregated into 7 sections is under:

a. Borrower Appraisal.

b. Technical Appraisal.

c. Management Appraisal.

d. Financial Appraisal.

e. Economic Appraisal.

f. Market Appraisal.

g. Environmental Appraisal.

1. BORROWER APPRAISAL / KNOW YOUR CUSTOMER (KYC) NORMS:

The borrower is appraised on the following parameters also known as the 3 ‘C’s

of the borrower i.e. character, capacity and capital.

(1) Character:

Character is the greatest and the most important asset, which any individual can have. Even if a

borrower has the capacity and capital to repay a loan, it is the character of the borrower which

indicates his intention to repay. If the character or integrity of a borrower is known to be

questionable, every banker would avoid him even if backed by sufficient collaterals.

(2) Capacity:

It deals with the ability of the borrower to manage an enterprise or venture successfully with the

resources available to him. His educational, technical and professional qualifications, his

antecedents, present activity, experience in the line of business, experiences of the family,

special skill or knowledge possessed by him, his past record etc. would give a hindsight into his

capacity to manage the show successfully and repay the loan.

(3) Capital:


It is his ability to meet the loss, if any, sustained in the business or venture from his own

investment or capital without shifting it to his creditor or banker. Unless a borrower has some

Stake in the business, he may not take much interest in its success.

KNOW YOUR CUSTOMER (KYC) GUIDELINES

The guidelines relating to Know Your Customer (KYC) principle are applicable to all borrower

customers including Foreign Currency borrower customers / transactions. Guidelines are issued

under Section 35(A) of the Banking Regulation Act 1949 and any contravention of the same

attracts penalties under the relevant provisions of the Act. “Know Your Customer” (KYC)

procedures should be the key principle for identification of an individual / corporate while

opening an account. The customer identification / verification should be through an introductory

reference from an existing account holder / a person known to the bank or on the basis of

documents provided by the customer. The guidelines of KYC are not only for establishing the

identity of the person but also satisfying about his credentials by obtaining an introductory

reference from a known person. The due diligence expected under KYC procedures involves

going into details. It is not a responsibility, which ends with opening of the accounts and

monitoring of transactions in the initial few months of opening of the account, but monitoring

should be an on-going process.

Key Elements of the KYC Policy:

a) Customer Acceptance Policy

b) Customer Identification Procedures

c) Monitoring of Transactions and

d) Risk Management..

2. TECHNICAL APPRAISAL:

The technical appraisal of a credit proposal involves a detailed study of the following aspects:

(1) Availability of basic infrastructure.

(2) Licensing/registration requirements.

(3) Selection of technology.

(4) Availability of suitable technical process, raw material skilled labor etc.


3. MANAGEMENT APPRAISAL:

In case of projects, units or enterprises run by individuals as sole proprietors or partnership firms,

it is usually one or two persons who manage the entire project, unit or the enterprise whether it

be of manufacturing or trading.

However, in case of corporate borrowers and also in case of large borrowal accounts, it is

usually a set of professionals who manage the entity each specialized in a specific area of

management i.e. production, finance, marketing, personnel etc.

Unless there is a complete integration of all these functions within an organization, it cannot

function effectively.

4. FINANCIAL APPRAISAL:

The term financial appraisal refers to the study of the following aspects of the project/unit:

(i) Determination of the cost of the project.

(ii) Assessment of the source of funds/means of financing the project.

(iii) Profitability estimates.

(iv) Break even analysis.

(v) Cash flow projections.

(vi) Projected balance-sheet.

5. ECONOMIC APPRAISAL:

The performance of a project is influenced by a variety of other economic, social and cultural

factors. Even if a project is technically feasible and financially viable, it may not satisfy the

economic needs viz. employment potential, development of industrially backward areas,

environmental pollution etc.

Further as capital is a scarce resource, it is necessary that it must be allocated in such a way that

it yields best possible return to the society in general and the investor in particular. As such a

detailed appraisal of the project in terms of the return it generates to the investor and the lending

institutions is necessary before a decision is taken to commit resources.

One of the most important methods of appraising this is the computation of the Internal Rate of

Return of the project.


Internal Rate of Return (IRR):

IRR is defined as the discount rate at which the present values of all investments made in a

project are equal to the present value of all future returns from the project over the assumed life

period of the project. Thus (IRR) is an indicator of the earning capacity of the project. A higher

IRR indicates a better prospect for the unit. The investment is treated as cash out flow and the

return on the same is treated as cash inflow. The discounted values of the cash inflows and cash

outflows shall be zero at a particular rate of discount. The task is to work out this rate which is

called the Internal Rate of Return. Normally IRR is compared with the cost of capital and if IRR

exceeds the cost of capital, the project is termed viable.

IRR is worked out on a trial and error basis and interpolated to obtain the required rate.

Sensitivity Analysis:

The normal financial appraisal of a project is based on certain assumed values for certain critical

variables/parameters viz. sales realization, unit value of product sold, cost of raw material,

capacity utilization etc. However, any variation in the assumed values of these parameters may

result in a more favorable or unfavorable IRR. The process of computing the IRR and the

repaying capacity of the borrower for different values of each of these parameters is called the

sensitivity analysis.

6. MARKET APPRAISAL:

While appraising a proposal it is not only necessary to find out whether it is technically feasible

and financially viable, but also important to ascertain the marketability of the product

manufactured/sold. If goods produced cannot be sold there would be no point in producing them.

Hence the marketability or salability of goods is of great importance.

Existence of a market for the product provides the rationale for its production. If the product

sought to be manufactured is the only one of its kind for which there are no substitutes, the

marketing of the same may not be a problem excepting when it can be freely imported and that

too at a lesser cost. However, if there are many competitors, the entrepreneur may find the going

tough. However a combination of the factors like man behind the show, the quality of the

product and the strategy for its sale will result in its successful marketing.


6.2 Assessment of Working Capital Limits

Presently, the following guidelines are in place for financing Working capital facilities of SME

units:

Limits upto Rs. 5.00 crores:

The credit requirements of village industries, Micro Enterprises, Small Enterprises and Medium

Enterprises having aggregate fund based working capital limits upto Rs.5.00 crores from the

banking system, will be computed on the basis of a minimum of 20 % of their acceptable

projected annual turnover for new as well as existing units.

Method of assessment:

The assessment of working capital credit limits should be done based on acceptable projected

turnover basis and also as per the first method of lending. If credit requirement based on first

method of lending is higher than the one assessed on accepted projected turnover basis, the same

may be sanctioned as the guidelines stipulate that the working capital finance should be 20% of

the projected accepted turnover or computed on the basis of first method of lending whichever is

higher.

If the assessed credit requirement is lower than the one assessed on projected turnover

basis, the credit limit can be sanctioned at 20% of the acceptable projected turnover.

.

Limits above Rs. 5.00 crores:

For assessment of Working Capital requirements beyond Rs.5.00 crores, the extant guidelines

will be followed.

1st and 2nd METHOD OF LENDING

Method of Lending 1st Method 2nd Method1. Total Current Assets 1 12. Less: Current liabilities (Other

than Bank Borrowings)2 2

3. Working Capital Gap 1-2=3 1-2=34. Total Current Liablities 4 45. Actual Net Working Capital 1-4 1-4


6. Minimum stipulated Net working Capital i.e 25% of CA

25% of 3 25% of 1

7. WC Gap – Minimum NWC 3-6 3-68. WC Gap- Actual/Projected

NWC3-5 3-5

9. MPBF Lower of 7 or 8 Lower of 7 or 8

TURNOVER METHOD

Particulars1. Turnover Achieved/Projected 12. Gross Working Capital

requirement25% of 1

3. Minimum stipulated Net working Capital

5% of 1

4. Actual Margin CA-CL5. Gross Working Capital

Requirement-Minimum Margin2-3

6. Gross Working Capital Requirement-Actuals Margin

2-4

7. MPBF Lower of 5 or 68. % of turnover 7 as % of 1

6.3 Margin(a) For Term Loan

In case of factory land & building, overall margin of 30%

In case of Plant & Machineries and Equipment margin is proposed at 25%

In exceptional cases, finance may be made available against second hand machinery, with

a minimum margin of 40% at the discretion of sanctioning authority, keeping in view the

extant guidelines for financing against second hand machinery.

(b) For Working Capital

25% uniform margin is proposed on stocks and receivables. For export credit margin may

be stipulated @ 10 %.


The next higher authority is authorized to reduce margin maximum by 5% in serving

cases in respect of Land & Building & Plant & Machineries & Equipments/Current

Assets.

If deviation is proposed beyond 5 %, Executive Director / Chairman & Managing

Director is authorized for the same.

6.4 Rate of interest

If accounts are falling under SME category as per, regulatory definition, rates as applicable to

Micro, Small & Medium Enterprises to be applied. However, if accounts are falling under SME

category based on expanded coverage i.e. they are outside the purview of regulatory definition,

interest to be applied as per separate guidelines being issued from time to time.

The interest rate circular is added in the anexture.

6.5 Financial Ratios for Credit Appraisal

(Not applicable in case of takeover of accounts)

Following ratios can be accepted for granting credit facilities to SME units falling as per

regulatory guidelines or SMEs as per expanded coverage

Sr.

No

Ratio Norms

Micro & Small

Enterprises under

manufacturing

sector and Service

Sector

falling under

regulatory

guidelines

Medium

Enterprises under

manufacturing

sector and Service

Sector

falling under

regulatory

guidelines

Units covered

under SME

Sector as per

expanded

definition and

outside the

purview of

regulatory

definition

1 Current Ratio 1.17& above 1.20 & above 1.33 & above.

2 Debt Equity Ratio 3:1 3:1 3:1


(Total Term

Liability

/Tangible Net

Worth)

3 FACR (Net

FA/Term

Debts)

Not below 1.25 Not below 1.25 Not below

1.25

4 Average DSCR for

Term Loan

1.75 with a

condition that in

any one year it

should not be

below 1.00 instead

of 1.25 as per

extant guidelines.

1.75 with a

condition that in

any one year it

should not be

below 1.25

1.75 with a

condition that

in any one

year it should

not be below

1.25

The above ratios are indicative and deviations can be considered by the sanctioning authority /

competent authority on case-to-case basis, depending on industry specific problems of unit, etc.

incorporating justification for the same in

the sanction note.

6.6 Credit rating

6.6.1 Internal Credit Rating System :

The internal comprehensive credit rating system under BOBRAM (CRISIL) Model has been

approved by the bank and is already in place as advised to all branches. The BOBRAM model is

applicable to MSME accounts having exposure of above Rs. 2 Crores. New Scoring Card type of

Model for rating the MSME accounts with exposure of Rs. 25 Lac to Rs. 2 Crore.

As per extant guidelines, periodicity of credit rating in respect of borrowal accounts enjoying

credit facilities (Fund Based and Non Fund Based) of Rs.5 crores and above is half yearly and in

other accounts on annual basis. Pricing of loan to be decided based on the guidelines issued from

time to time.


The New (CRISIL) models and their applicability details are as under

Sr.

No.

Model Applicable for Rating of

1 Large Corporate 1. Manufacturing units with Annual Net Sales of over Rs. 100

Crore and Investments in Plant & Machinery of Rs.10 Crore

& above and for infrastructure projects which have started

cash generations from the project operations with part / full

implementation.

2. Service sector units with net annual sales over Rs. 100

Crore and / or investment in equipments of over Rs.5 Crore.

2 SME

(Manufacturing

Sector) incl.

Commercial

Enterprises

Manufacturing units with Annual Net Sales of Rs. 100 Crore

& below and / or Investments in Plant & Machinery less than

Rs.10 Crore.

3 SME (Services) Service Sector units with Annual Net Sales of Rs. 100 Crore

& below and / or Investment in Equipment of Rs 5 Crore &

below.

4 Traders Units engaged in trading activities irrespective of sales

turnover.

CREDIT RATING METHODOLOGY

The New CRISIL Rating Models for Commercial Advances are based on two dimensional rating

methodology specified under Basel -II Accord requirements. The credit risk rating process as per

New CRISIL Rating Models involves three types of ratings for each credit facility viz.

a. Obligor ( Borrower) Rating - for credit worthiness indicating the Probability of

Default (PD)

b. Facility Rating - representing the Loss Given Default (LGD) and

c. Composite Rating - which is indicative of the Expected Loss (EL).

The risk rating flow chart under CRISIL NEW rating models is as under:


OBLIGOR (BORROWER) RATING

The obligor (Borrower) rating is indicative of creditworthiness of an obligor or the Probability of

Default (PD) and it is based on the assessment of past and projected cash flows of the company.

Obligor Rating Grades range from BOB-1 to BOB-10.

However depending upon the model used, the rating grades ranging from BOB-1 to BOB- 10 or

BOB-3 to BOB-10 or BOB-6 to BOB -10 are generated as follows:

Sr.No Model Obligor (Borrower)Rating Grades

1 a) For Borrowers under Large Corporate (Mfg /Services), Banks, NBFCs and Broker categories.

b) For Borrowers under Infrastructure project

BOB-1 to BOB-10


Composite Rating(Indicator of Expected Loss i.e. EL)

Obligor (Borrower) Rating(indicator of Probability of Default i.e.

PD)Evaluation of Creditworthiness of a

Obligor (Borrower).

Facility Risk Rating (indicator of Loss Given Default i.e. LGD)

Evaluation of Riskiness of a Facility

Obligor (Borrower) Rating1. Industry Risk2. Business Risk3. Financial Risk

4. Management Risk

Project Risk Rating1. Project Implementation

2. Post Implementation

Project Implementation Risk1.Construction Risk

2. Funding Risk

Post Project Implementation1. Industry Risk2. Business Risk3. Financial Risk

4. Management Risk

havingoperations phase or expansion / diversification projectscategories.

2 a) For Borrowers under SME (Manufacturing) and SME(Services) categories.b) For Existing and New Borrowers under TraderCategory

BOB-3 to BOB-10

3 Green Field Project Borrowers under Large Corporate(Mfg / services) -with project,SME (Mfg./ Services)- with project andInfrastructure (Power/ Port/ Road/ Telecom)-BuildPhase categories.

BOB-6 to BOB-10

FACILITY RATING

Facility Rating involves assessment of the security coverage for a given facility and indicates the

Loss Given Default (LGD) for a particular facility. Facilities proposed/ sanctioned to a company

are assessed separately under this dimension of rating. Facility Rating grades range from FR-1 to

FR-8.

COMPOSITE RATING

The Composite Rating (CR) – which is the matrix or the combination of PD and LGD; indicates

the Expected Loss in case the facility is defaulted. The Composite Rating is worked out

automatically by the software based on the matrix of Obligor (Borrower) Grade (BOB Rating)

and Facility Rating Grade (FR). Composite rating grade ranges from CR-1 to CR-10

CUT- OFF GRADE FOR ACCEPTANCE

Bank has accepted BOB-6 as the cut-off point for the acceptance of an obligor (borrower) based

on Obligor (Borrower) rating carried out as per the applicable model.


6.6.2 External Credit Rating System External Credit Rating should be carried out in all SME loan accounts with credit limits of above

Rs 5 crores by any one of the RBI approved external credit rating agencies. Presently ICRA,

CARE, CRISIL and FITCH are the only Reserve Bank of India approved external credit rating

agencies in India

6.7 Techno-economic viability study

It is done to ensure that the project is technically and economically viable.

Amount Conducted ByBelow 5 crores TEV study not needed5-10 crores Empanelled consultant of

bankAbove 10 crores Official of Project Finance

Dept from Mumbai

6.8 Review after SanctionCredit facilities sanctioned to borrowers are subjected to annual review as per the prevailing

guidelines.

Branches have been authorized to review advance accounts of borrowers in trading activities,

Micro & Small Enterprises, borrowers in rural area, borrowers having only term loan accounts,

financed under government sponsored programme, borrowers enjoying only guarantee facility,

etc, with limits upto Rs. 20/- lacs pending receipt of

audited financial statements provided the conduct of the account is satisfactory in terms of

various parameters stated below:

a. Satisfactory conduct and turnover in the account

b. Fulfilment of repayment obligations (Interest/ Instalments)

c. Adequacy of securities, drawing power, insurance coverage etc.

d. Rectification of inspection irregularities (other than non submission of financial

statements)

e. Compliance of all terms and conditions of previous sanction.

f. Satisfactory trend in production and /or Sales as per projections.

g. Documentations and mortgages in the account being complete, valid and enforceable


h. Prompt payment of bills under L/cs, realization of BP/BDs, Guarantee Commission etc.

i. Submission of Income Tax / Sales Tax returns filed with statutory Authority as per time

schedule prescribed, wherever applicable (which will also indicate about the sales and

profitability of the operations).

The financial statements should, however, be obtained within 9 months from the close of

the financial year and is satisfied upon by the sanctioning authority on financial

parameters emerging out of the Balance Sheet/ Profit and Loss Account submitted by the

borrowers at a later date. If the financial parameters emerging from the submitted Balance

Sheet are not found satisfactory, appropriate actions, as may be warranted, should be

initiated. The account should not be reviewed without financial statements for two

consecutive years.

The above procedure has been adopted to ensure timely review of small sized advance accounts

and to reduce the number of unreviewed accounts.

Short Review/Status Note:

The bank has also the practice of Short Review/Status Note, which is done when it is not

possible to carry out a comprehensive Regular Review of the account within the

stipulated period pending receipt of certain particulars/information or where the account is

placed under special monitoring, etc.


CHAPTER 7- LOAN PROCESSING PROCEDURE AT BANK OF BARODA

7.1 SME MODEL

Normally SME loan factory has the above model but in Kolkata, the sales Hub was not

separately present. Only the credit officers are present, they are also doing the work of sales Hub

for some proposal whereas in other cases the sales Hub are the various branches and they send

the lead to the SME loan factory.


SALES HUBHEAD_ SH

CREDIT HUBHEAD- CH

SME LOAN FACTORYHEAD – SME LF

RELATIONSHIP MANAGERS/ BRANCHES

CREDIT OFFICERS

7.1.1 Relationship Managers/Branches’ Work

Lead generation : It’s when the loan proposal first comes to the bank. When the client shows

interst in taking loans and gives the relevant papers.

Proposal Generation : From the lead the proposal is made ready for sending to the credit hub

for processing

The sales hub demands all the additional information from the client on behalf of the credit hub

and periodically contact the borrower.


7.1.2 Credit Officer’s Work


7.2 Procedure of Processing


PRE-SANCTION APPRAISAL & EVALUATION

CREDIT RATING

SANCTION OF LOAN

DOCUMENTATION (including T & C)

VERIFICATION OF DOCUMENTS

INSPECTION OF SECURITIES & FIELD VISITS

POST-SANCTION MONITORING

REPAYMENT OF INTEREST AND INSTALLMENTS

PRE SANCTION INSPECTION OF SECURITIES & FIELD VISITS

BORROWER/ CLIENT

PROJECT REPORT & ALL DOCUMENTS &

SUBMISSION OF APPLICATION

BANK

DISBURSEMENT OF TERM LOAN/ CC FACILITY

GENERATION OF LOAN ACCOUNT

7.2.1 Preparation of Appraisal Note


7.2.1.1 APPLICATIONS FOR LOANS AND THEIR PROCESSING

Standard schedule of fee / charges relating to the loan application depending on

the segment to which the accounts belong, will be made available to all the

prospective borrowers in a transparent manner, along with the loan application,

irrespective of the loan amount. Likewise, amount of fee refundable in the event

of non-acceptance of the application, prepayment options and any other matter

which affects the interest of the borrower will also be made known to the

borrower at the time of application.

Receipt of completed application forms will be duly acknowledged.

The acknowledgement would also include the approximate date by which the

applicant should call on the Bank for preliminary discussions, if deemed

necessary.

All loan applications will be disposed of within a period of 4 weeks from the date

of receipt of duly completed loan applications i.e. with all the requisite

information/papers.

In case of rejection of loan application, irrespective of category of loans or

threshold limits, the same would be conveyed in writing along with the main

reason(s), which led to rejection of the loan application

7.2.1.2 CHECKLIST OF DOCUMENTS

There are separate checklist for separate type of accounts

Checklist for Fresh proposal

Checklist for Review cum enhancement

The checklist is added in the annexture.

7.2.1.3 ROC SEARCH REPORT

It is done for limited company to see whether they are registered or not. It cannot be done for

proprietorship/partnership firms. It is to ensure whether there is charge against the

Director/company, whether the balance sheet submitted to bank is the same submitted to the

registrar. The search report is done by Chartered Accountant.


7.2.1.4 LEGAL SEARCH REPORT

It is done by empanelled advocate of the bank. It is to ensure that the land is mortgagable or not,

to ensure that there is no legal restrictions on the land(land being agricultural).

7.2.1.5 VALUATION REPORT

It is done by the empanelled valuer of the bank. He does the valuation of the land to ensure

whether the land is worth the value which the borrower is showing.

7.2.1.6 CIBIL REPORT

It is done to ensure the whether the credit worthiness of the borrower, to ensure there are no filed

cases against him. Moreover it can also disclose where has the borrower applied other than our

bank for the loan.

7.2.1.7 RBI WILLFUL DEFAULTER’S LIST

It is to ensure the borrower name is not there. The list is updated by all banks into RBI’s database

of the defaulters and the information can be checked there.

7.2.1.8 ICAI

There banks check the whether the Chartered Accountant of the company is genuience CA or

not.

7.2.1.9 RESTRUCTURING OF BALANCE SHEET AS PER CMA REQUIREMENT

a. The balance sheet of a corporate entity as per Companies Act needs to be restructured by

the Bank before a meaningful analysis can be made.

b. The balance sheet prepared as per the Companies Act lists the assets and liabilities in the

descending order of "Security". However, as per the CMA format the assets and liabilities

are listed out in the descending order of "Liquidity".

c. The CMA format has also incorporated certain changes in respect of classification of

preference share capital, fixed assets, current assets, etc.


7.2.1.10 ANALYZING & BENCHMARKING WITH RATIOS

As mentioned earlier the benchmark required , all the ratios are checked and analysed.

Assesing Working Capital Limits

It is done by the two methods mentioned earlier. It is done only for CC facility.

7.2.1.11 PRE-SANCTION INSPECTION

It is done by the bank officials. They visit the site and do the inspection of securities. Also they

look at the present status of the project in case of TL facility.

7.2.1.12 TEV REPORT

It is done to ensure whether the fresh proposal is techno-economically viable or not. Other details

have been mentioned earlier.

7.2.1.13 CREDIT RATING

Bank has taken the Crisil Model for rating. Crisil Input sheet is first filled according to the model

and then rating is done

7.2.1.14 INTEREST RATE DETERMINED

After the credit rating accordingly interest rate is determined. Interst Rate Structure is attached in

the annexture.

Finally the APPRAISAL NOTE is made according to Bank’s format along with Terms and

conditions.

7.2.1.15 LOAN APPRAISAL AND TERMS / CONDITIONS

In accordance with Bank’s prescribed risk based assessment procedures, each loan

application will be assessed and suitable margin/securities will be stipulated based on

such risk assessment and Bank’s extant guidelines, however without compromising on

due diligence.

The sanction of credit limit along with the terms and conditions thereof is to be conveyed

to the loan applicant in writing and applicant’s acceptance of such terms and conditions


will be obtained in writing. Such terms and conditions as have been mutually agreed

upon between the bank and borrower prior to the sanction will only be stipulated.

Copy of loan documents, along with a copy each of all relevant enclosures quoted in the

loan agreement should be furnished to all the borrowers at the time of sanction /

disbursement of loans. Standard sanction letter would include instances of approval,

disallowance, etc.

The bank is under no legal obligation to consider increase/additional limits/facilities

without proper review/assessment.

In case of lending under consortium arrangement, the participating bank would decide the

timeframe to complete appraisal of the proposal and communication of the decision. The

Bank will abide by the decision of the consortium.

7.2.1.16 SANCTION OF LOAN

Sanctioning is done by higher authorities in MUMBAI.

If any advance sanctioned is not availed within four months (six months in case of priority sector

advance) from the date of sanction, the facility should not be allowed without referring the

matter to the sanctioning authority.

7.2.1.15 DOCUMENTATION

Documentation forms an important part of lending which establishes the following:-

Legally enforceable contractual relationship between the Bank and the constituent such

as Lender/Borrower.

The nature and description of the security, if any, offered for the advance, and the terms

and conditions of sanctioning the advance.

Bank’s unfettered rights for crystallization of securities when necessary .When an

unlikely event of default happens, as a last resort, documents obtained by the Bank form

the basis upon which the Bank may file a suit, as and when found necessary, in a

competent Court of Law against the defaulting borrower/guarantor.

Creation of Security is also an important aspect involving creation of mortgage,

assignment etc. Such charges are also to be registered with competent authorities in case

of certain type of organization say with Registrar of Companies in case the borrower is a

Limited Company.


7.2.18 VERIFICATION OF DOCUMENTS

Advances accounts with aggregate limit of above Rs. 1 crore (Funded plus Non-Funded) would

be verified by the Bank’s Law officer posted in their respective Zone / Region and the

documents relating to Advance Accounts with aggregate of Rs. 10 lacs and above but up to and

inclusive of Rs. 1 crore shall be verified by the Bank’s identified Advocate / Lawyer other than

the one who has given the Title Opinion / Non-Encumbrance Certificate (NEC) /Report in

respect of mortgage(s) in the account.

7.2.19 REQUIREMENTS BEFORE DISBURSEMENTS

In case of advances accounts falling within the discretionary Lending Powers of the Branch

Manager: The Branch Manager has to make necessary arrangements to ensure compliance of the

following aspects before making any disbursement under fresh / increase credit facilities and the

proper record in this respect has to be kept by the Branches for perusal of higher authorities /

inspecting officers /auditors:

a. Full compliance of the stipulated terms and conditions (unless specifically exempted by

the competent authority)

b. Getting the documents duly vetted (wherever required) as per Bank’s extant guidelines.

c. Ascertaining that the Borrower has obtained necessary license, permission, clearance

required for running the business.

d. Pre-disbursement inspection / site visits.

Insurance

All assets (stocks / fixed assets) charged to the Bank as security for advances are to be

comprehensively insured against the risk of theft / burglary, fire &Strikes, Riots, Malicious

Damages (SRMD), with an insurance company, in the name of borrower / guarantor, with Bank

Clause, at the borrower's expenses, unless insurance is specifically waived or not required to be

taken as per provisions relevant to the lending scheme.


7.2.1.20 DISBURSEMENT OF LOANS INCLUDING CHANGES IN TERMS AND

CONDITIONS

Disbursement of loans sanctioned is to be made immediately on total compliance of

terms and conditions including execution of loan documents governing such sanction.

Any change in terms and conditions, including interest rate and service charges, will be

informed individually to the borrowers.

Changes in interest rates and service charges will be effected prospectively.

Consequent upon such changes any supplemental deeds, documents or writings are

required to be executed, the same shall also be advised. Further, availability of facility

will be subject to execution of such deeds, documents or writings.

7.2.1.21 POST DISBURSEMENT SUPERVISION

Before taking a decision to recall/accelerate payment or performance under the

agreement or seeking additional securities the Bank would give reasonable notice to the

borrower.

All securities pertaining to the loan would be released on receipt of full and final payment

of the loans subject to any legitimate right or lien and set off for any other claim that the

Bank may have against the borrowers.


CHAPTER 8 : ANALYSIS OF SME PROPOSALS

This chapter deals with the analysis of the SME proposals.

The analysis is carried out on three cases, each case consist of three sections, namely:

(i) Details of the proposal

(ii) Financial parameters and assessment

(iii) Industry perception

8.1 Case I- GREENFIELD PROPOSAL

Name of the Account : XYZ Private Ltd.Branch : BEHALA BRANCH, KOLKATARegion : KOLKATA METRO REGIONZone : EASTERN ZONE

SECTION I: DETAILS OF THE PROPOSAL

Gist of the Proposal 1.1) a) Fresh Proposal for Term Loan for 81 months (72+9 months moratorium) for setting up a multi specialty hospital at-ABC, Kolkata in the name of XYZ Private Ltd.

1.2) Fresh sanction of Fund Based Limits. ( Rs. in lacs) Existing Proposed IncreaseFund Based Limits Nil 635 + 635.00Non Fund Based Limits Nil Nil NilTotal Exposure Nil 635.00 +635.00

Sanction / Ratification

Modifications in Terms & Condition: waiver of the personal guarantee of Dr. SP, Professional director. CRISIL RAMSECURITY COVER SCORE Facility Net Security

Value% Effective LGD Score

Facility Rating

Borrower Rating Combined Rating

Term Loan

1188.51 48.48 FR4Adequate Safety

BOB6Investment grade – moderate safety

CR6Moderate Expected Loss

N.B. Project is being considered as a Greenfield project. Project rating under CRISIL RAM based on the future projections from 2010-11 onwards, has been carried out by us. Validation/Finalization of rating to be done by competent authority before sanction of the facility.

2.0 Basic Data: Asset Classification NA, New ProposalBank’s Credit Rating As per table given above.


External Credit Rating Will be carried out after commissioning of Hospital. Constitution Private Limited CompanyCIN NO. *****Date of Establishment 28/08/2009 Location: - Registered Office

ABC

Hospital ABC, kolkata

Group NA Industry and Nature of Activity Healthcare, 82 bed Multi Speciality Hospital

To be classified as medium enterprise under MSME (services) as per circular No.BCC: BR: 101/191 dtd. 08.07.09.

Registration under MSMED Act Enterpreneur Memorandum Number : 1) ******, issued by DIC, Kolkata, on 29.10.09, to set up the pathological and diagnostic clinic at ABC, Kolkata-34

2) *****, issued by DIC, South 24 PGN, on 09.03.2010, to set up Hospital at ABC which is valid for 2 years.

Dealing with the Bank since Fresh proposalMPBF Nil.Our Bank’s Share 100% in case of the proposed Term Loan Rate of Interest Term Loan 1.75 % over BPLR [email protected] %p.a. With monthly rests..

As per BCC: BR: 102/352 dtd. 26.11.2009 on ROI for SME Sector.

Security Available As per Annexure – D of the proposal enclosed

Yield in the account Not applicable. Fresh Proposal.

PAN NO. ******, issued by ITO WD52(3)

Trade license ******** issued by KMC, for the year 2009-10.

Permission to establish Nursing Home NOC issued by CMO of Health, South 24 PGN, on 08.03.2010

Fire safety Clearance Memo No: ******* dtd. 09.11.09, issued by DG, WB Fire Emergency Services.

Insurance Prof. Indemnity Medical establishment Policy No. ******** dtd. 22.02.2010, obtained from United India Co. Insurance Ltd. To cover the casualty during treatment due to unavoidable circumstances.

Other Registration Registered with United medical practitioners and Establishment Pvt. Ltd.

Major inspection irregularities Not applicableInternal Audit Not Applicable

Concurrent Audit Nil

RBI Inspection N.A.Statutory Audit Nil


Auditors of the company. LMN

Pollution Clearance The company has applied for Consent to establish, the health care unit vide letter dtd. 04.11.09.The consent to operate will be obtained after construction of hospital.

Certificate of Enlistment Issued by Maheshtala Municipality on 12.11.09, to establish the Hospital, vide license No. ****, valid upto 30.06.2010.

Municipal license (Enlistment certificate No. ***** dtd. 12.11.09) issued by Maheshtala municipality for the use of premises for Non-residential purpose.

NOC on Public Health WB municipal act 1993

NOC issued by Maheshtala municipality to carry out the business, valid till 30.06.2010

License from food deptt. Issued by Health officer Maheshtala Municipality for storing of Medicine materials.

Clearance from Electric deptt for electric supply

At present the electric connection has been taken in the name of Mr. SK, consumer number *****, to carry out the construction work at the site. However, the company has deposited Rs. 4.88 lacs on 26.05.10 towards installing the dedicated, underground powers lines with appropriate load.

Whether statutory dues have been paid Yes

Whether the names of the Company / Associates or Directors appear in RBI defaulters’ list and / or caution list

No

Whether the Company / firm / promoters and their Associates are on ECGC caution list. / Special Approvals List.

No

Compliance of earlier sanctioned Terms N.A. Presently no borrowing from BOB.

2.01) Banking arrangement: Sole Banking Arrangement (Rs in lacs)Name of Bank

Fund BasedNon-fund Based

% Share Amount % Share AmountExisting Propose

dExisting Proposed Existin

gProposed

Existing Proposed

Bank Of Baroda 100% 100% Nil 635.00 Nil Nil Nil NilTotal 100% 100% Nil 635.00 Nil Nil Nil Nil

Proposed Term Loan from Bank of Baroda, Behala Branch is related to finance for the project of XYZ Hospital at ABC, kolkata against the primary security of 1 st charge of all the moveable and immoveable assets of the Hospital and collateral security in the form of EM of Hospital land and Building.

2.07) Names of Guarantors: (Rs in lacs)


Sl. No Name of the Guarantors Net worth as on 31/03/2009

1 SK 67.782 RK 65.773 GK 23.73

Total 157.28

2.08) Business experience of Directors:

SK, M.D.

He is an educationist and a reputed entrepreneur in ABC, South Kolkata. He is in the business for the last 40 years and has vast knowledge and experience in various areas of business. At present Mr. P is associated with many institutions where either he is founder of the institution or owning himself.

2.09) Share Holding Pattern of the Society as on 31/03/2009:

Particulars No of Share Amount (Rs) % Of Shareholding

A Promoters’ Holding1. a. Indian Promoters 10000 100000.00 100% B. Foreign Promoters2. Personal acting in concertSub-Total 10000 100000.00 100%

B Financial Institution / Bank / Mutual FundsC PublicD Bodies CorporateE Others (General Fund of Society)

Sub-Total

Grand Total 10000 100000.00 100 %

2.10) List of Major Shareholders:

Name and Address No. of Shares HeldSK 5000RK 3000GK 2000

3.0. ISSUE FOR CONSIDERATION:

4.0) BACKGROUND OF THE COMPANY:

In India the Health Care industry has been identified as one of the potential sector for investment in the present day scenario. Till date, approximately 12% of the scope offered by the Health Care sector in India has been tapped. Health Care industry in India is worth $17 billion and is anticipated to grow by 13% every year. This sector encompasses hospitals enrolled to the hospital networks, health care instruments, health care in the retail market. This prevailing scenario has attracted the promoters to set up a modern health care centre at ABC, West Bengal.

They have incorporated a company on 28.08.2009 in the name of “XYZ Pvt. Ltd.”.


The unit has requested the Bank of Baroda for sanctioning Term Loan of Rs.635.00 lacs towards the cost of medical equipment, medical furniture & accessories, electric installation, computer & electronic systems etc.

Details of the entire projects is given below:

Line of Activity : Multi Speciality HospitalCapacity ( Installed ) : 82 Beds (Including ICCU, HDU & NICU)

5.00 RANGE OF SERVICES PROPOSED TO BE CATERED AND FACILITIES PROPOSED TO BE

AVAILABLE AT THE HOSPITAL

6.00 MEDICAL EXPERTS INTERESTED TO RENDER THEIR SERVICES AND THEIR

PROFESSIONAL COMPETENCE

7.00 TECHNICAL APPRAISAL

7.02 Servicing ProcessAfter registration of the names of patients, doctors of different discipline will take care for treatment of the patients.

7.03 Infrastructural facilitiesa) Site

The unit is situated at ABC. The resident of this area are lower middle class group. Nearest hospital are BS Hospital & BB Hospital at a distance of 12 Km from the site.

b) LandThe area of land on which Ground plus four storeyed building has been constructed for hospital purpose is 12 cottahs. Under three deeds this land has been purchased by Sri SK, who is Managing Director of the project.

c) BuildingThis is a R.C.C. column load bearing Ground plus four storeyed building having ACC roof which has been constructed in R.C.C. column and R.C.C. beams. Lay out plan attached.

Floor to floor layoutd) Power

The power load will be 125 KVA. A distribution transformer is to be installed by CESC Ltd. & the company has paid Rs.4,87,769 therefor.

e) WaterWater will be available from deep tube well. Main water sources is Corporation water supply. Overhead & underground water reservoir of sufficient capacity have been planned to be constructed.

f) PollutionThe company has applied for NOC before the West Bengal Pollution Control Board.

g) Fire LicenseFire safety recommendation for existing construction of G + 4 storeyed building under group institutional building has been made by the office of the Director General W.B. Fire &


Emergency services. The company has made arrangement for Fire and Hydrant systems(with sprinklers and Detectors). The installation work is already started.

h) NOC from Chief Medical Officers of Health, 24 - ParganasThe above has been received under cover of letter dated 08.03.2010. (Photocopy attached)

7.04 Management & ManpowerA. Management :Managing Body||

Policy Decision Day to Day Administrationand Implementation

Directors C.E.O. & Executive Director Medical Director Department Managers C.E.O. Clinical Department in charges

(Doctors)

B. Manpower :The proposed manpower has been estimated on the basis of hospital activities.The category-wise break up as is follows:

Sl. No. Category Nos.A. Administrative & Specialists 18B. Staff Personnel 138C. Maintenance Assistance 54

Total : 210

In addition to above, there will be visiting consultants:With the help of the above manpower and the services available from Doctors in panel, it is expected that the unit will run without any problem.

7.05 Medical EquipmentUse-wise details of medical equipment are as under :A. Out patient Department Equipment

i. Dental Equipment - Rs. 2, 82,697/-ii. Eye Equipment - Rs.55, 98,754/-iii. ENT Equipment - Rs. 6, 93,306/-

---------------------Rs. 65,74,757/-

B. Eye & ENT & Minor Operation Theatre - Rs. 37,89,980/-C. ICCU & HDU Furniture & Equipment - Rs. 45,25,794/-D. Nursery – NICU Furniture & Equipment - Rs. 17,70,246/-E. Ward Furniture & Equipment - Rs. 5,58,176/-F. Pathology, Microbiology & Serology - Rs. 31,43,046/-G. Central sterile supply dept. (CSSD) - Rs. 16,52,352/-H. Gyne & Operation Theatre - Rs. 12,84,864/-I. Orthopedic cum general operation theatre - Rs. 35,26,216/-J. Labour operation theatre & Furniture Rs. 6,13,328/-K. Diagnostic Equipment - Rs.2, 01,41,680/-L. Centralised medical oxygen, nitrous oxide & Vaccum services - Rs. 21,86,000/-


-----------------------Total : - Rs.4, 97,66,439/-

Sources of supply of these medical equipments have been found out and quotations have been received. For some equipment orders have been placed.

7.06 Medical Furniture & AccessoriesDepartment-wise medical furniture & accessories are as under :

A. Out patient Department furniturei. Dental Furniture - Rs. 1, 99,108/-ii. Eye Furniture - Rs. 1, 97,600/-iii. ENT Furniture - Rs. 2, 13,200/-

---------------------Rs. 6,09,908/-

B. Eye & ENT & Minor Operation Theatre Rs. 8,88,488/-C. ICCU & HDU Furniture Rs. 6,58,174/-D. Nursery – NICU Furniture Rs. 54,902/-E. Ward Furniture Rs. 29,13,622/-F. Central sterile supply dept. (CSSD) Rs. 4,83,807/-G. Gyne & Operation Theatre Rs. 7,91,018/-H. Orthopedic cum general operation theatre - Rs. 8,34,715/-I. Labour operation theatre & Furniture - Rs. 5,28,992/-

-----------------------Total : - Rs. 77,63,625/-

Sources of supply of the same have been found out and quotations have been received.

MARKET PROSPECTAt present there are more than 10 lacs people in and around the location of the hospital. Majority of population belong to Lower to Lower middle class category. Quite a few industries located close by namely – Garden Reach Ship Builders, Budge Budge Bharat Petroleum Oil Terminus, Bata Nagar, Kolkata Port Trust along with few thousands SMB industrial units. New housing complexes (Greenfield city, Eden city, Purti Abasan, Hiland Riverside etc.) coming up in near vicinity will introduce High and Middle class population to this hospital. But with the development of new high rise and housing complexes mentioned herein the medical facilities for high and middle class population will need to be catered. People here generally do not get the facility of public medical care as the public hospitals are not equipped with the facilities of all sorts of modern treatment. Moreover the treatments are delayed at those hospitals. People from this locality therefore do not like to go to the public hospitals, rather, they prefer to go to private hospitals where they know that proper care & treatment would be available. Major Private hospitals are located at far from the area.

CompetitorThere is no major competition in the area within 10 KM. Most of the hospitals are in South or Central Kolkata. Few medium size hospitals & nursing homes i.e. G located at Kasba. CMRI at Ekbalpur, AMRI at Dhakuria, R G Hospital are situated in the prime location, but away from the locus of this Hospital.

SECURITY COVERAGE: The company is offering following securities to secure the exposure:

Particulars (Rs. in Lacs)

Proposed Exposure: Term Loan 635.00

Primary Security for the proposed Term Loan Hypothecation of moveable Fixed Assets as per the Project Report 898.71Total Primary security 898.71


Primary security Coverage 141.53%

Collateral SecurityEquitable mortgage of Hospital Land(12.14 cottahs) and proposed G+4 storied building thereon at ABC belonging to Mr. Sudip Kumar Khanna, vide sale deed No. **** dtd. 10.01.2008. Valuation of the property is proposed to be Rs. 289.80 after completion, as per report submitted by M/s R.M.Engineers, bank’s approved valuer, dtd. 07.05.2010.

289.80

Total Collateral security 289.80Collateral coverage 45.64%

Total Security 1188.51Total security coverage (%) 187.17

FACR 1.87

Comments on Security Coverage & Scope for additional collateral security– Collateral Security Coverage Percentage is 45.64% Total Security Coverage Percentage is 187.17% Project FACR is 1.41 times

The security coverage from the assets created out of bank’s loan is 141.53%, which ensures the sufficient security of our funds.

However, We had the discussions with the promoters for additional collaterals. They agreed to it and informed that:

The proposed collateral coverage for the exposure is 45.64%, which further ensure the security of our exposure.

Besides the above detailed security the proposed exposure to the company is to be further secured by the personal guarantee of the promoter directors and their son, having joint worth at Rs. 157.28 lacs as on 31.03.2009.The Total security coverage and total FACR is 187.17 %, which is quite satisfactory and acceptable.we propose for acceptance of the proposed security coverage.

6.0 OTHER INFORMATION:

Documentation – To be executed at branch after sanction and before disbursement .

Whether proposed limits are within Bank’s prudential Single Borrower/ Group exposure norms: Yes

Pro-rata non-fund based business: Presently it does not need any non-fund based facilities.

Inspection of the office & Project site:

Pre sanction unit inspection was carried out on 01.06.2010 by Mr. A.K.Khandelwal, Sr Manager (SME), Kolkata at ABC and office of the company at B.

The company has already started the construction of the building. The progress of the project is satisfactory. No adverse feature has been observed (Copy of the unit inspection report enclosed)However the branch is advised to carry out the Pre/Post disbursement inspection as per extent guidelines of the

bank and ensure progress as reported, though periodic inspections and keep a copy of the inspection report on the record.

Comments regarding credit rating – New Account. Project under Implementation.


As per our Domestic loan policy guideline’2009, the cut off point for acceptance of new borrower is Obliger rating of BOB6 and above, under CRISIL BOBRAM. The obliger rating is BOB6 in the present project. Hence the proposed borrower is acceptable to us.

Justification for the proposed rate of interest: ROI is based on the ‘Combined Rating’ of the CRISIL RAM based on which is CR6 and the unit has been classified as medium industry. In this case the ROI would be 1.75 % over BPLR [email protected] %p.a. With monthly rests.

(As per BCC: BR: 102/352 dtd. 26.11.2009 on ROI for SME Sector.)

Facilities enjoyed by Associate/ Sister Concerns - Asset Classification / Credit Rating / Reference of last sanction. Associate/ Sister concerns:

Name Bank/Branch Facility Asset Classification

Remarks

SE FOUNDATION: N higher secondary school

PQR Bank, Behela branch

Current Account NA This is the flagship institution of the group

TConstruction PQR Bank, India Exchange

Cash CreditLimit: 1.04 crores

Standard Engaged in promoting business.

R.K. Associates ST Bank Car Loan: 2.24 lacs Standard Garment manufacturing

Performance of the Group concerns During last FY2008-09: Rs in Lacs Name of the Company N School Tconstruction R.K.AssociatesIncome/Sales 564.46 7.30* 24.54Surplus/profits. 196.00 4.75 1.32TNW 158.51 29.96 1.67Secured Loans NIL 130.41 2.21

*During last FY, the company has not sold the flats, since the projects at various locations were not ready for handover. Other wise the performance of the various units under the same group is satisfactory.

KYC norms is carried out as under –

The name, address and Membership Nos. of the Chartered Accounts Firm and its Proprietor as mentioned in the copy of the Audited Balance Sheets has been verified from the Website of the Institute of Chartered Accountants of India – http://icai.org

The name of the company and its directors is not appearing in the RBI Defaulters List or the Willful Defaulter List.

We have also carried out the CIBIL search for all the directors/guarantors. As per report generated from CIBIL website, they are not the defaulter of any bank/FIs.

Our officers have inspected the site and the opinion of inspecting officer is satisfactory. Details of PAN of the Proprietor / Guarantor has been verified from the website of the Income Tax

Department – http://incometaxindiaefiling.gov.in and is found to be correct (Copies of the printouts is enclosed).

7.0 JUSTIFICATIONS for Fresh Term Loan.

1. Average DSCR for the project on Standalone basis is 2.05 against the benchmark level of 1.75 as per our Domestic Loan Policy Guidelines, 2009.

2. Project Specific FACR is 1.41 times against the acceptable level of 1.25.


http://incometaxindiaefiling.gov.in/

mailto:[email protected]%20%25p.a

3. Collateral Security Coverage Percentage is 45.64 and the total Security Coverage Percentage is 181.17 %.

4. Project DE ratio is 2.30.

5. Project is being considered as a Greenfield, and the Borrowers Rating is BOB6, The borrower is acceptable as per our Domestic Loan Policy Guidelines, 2009

6. TEV Study for the Project has been carried out by M/s Effective consultants, Bank’s empanelled Consultant and the project has been certified to be techno-economically viable.

7. Although the proposed hospital will be a new entrant, however, Mr.SK is a experienced and successful businessman in the locality.

8. The proposed new project is to be situated at ABC. There is no major competition in the area within 10 KM.

9. The unit falls under the Service Sector and is classified as a Small Enterprise as per MSMED Act 2006, which is a priority sector.

Important points to be noted at Branch level

Unquote

1. Branch to cross sell Bank’s products viz. Bancassurance, Baroda Health Insurance scheme, India First Life Insurance, Birla Sun Life Insurance, UTI Mutual fund, gold coin, retail loan products to friends, relatives and staff of Mr. SK

2. Branch to mobilize CASA deposits through opening of CA/SB accounts of friends and relatives of Mr. SKQuote

3 Branch should follow/observe KYC norms and verify the documents with originals.

4 Inspection of the site to be done. Branch to ensure the progress made by the trust regarding set up of the project.

5 Branch to carry out Pre/post disbursement inspection and keep copy of inspection report on record.

6 Branch to seek prior disbursement authority.

7 Credit Rating to be carried out from time to time as per Bank’s extant Guidelines.

8 Branch to send the Monthly monitoring report on monthly basis to RO (KMR).

9 Branch to obtain the copy of approved plan of the property, duly sanctioned by appropriate authorities.

Submitted for Consideration

(M. A. PETERS)


Chief ManagerSMELF, KMRDate: 04.06.2010Ref: BOB/SME/KOL/09-10/10.0) Movement Chart:

a. Application received at branch in 11 th Mar’10.b. Received at SME loan factory on 26.03.2010c. Query letter given to party on 30.03.2010.d. Project details received on 23.04.2010e. Inspection by CM, SME & AGM, KMR done on 30.04.2010f. Inspection by SME officials done on 01.06.2010g. Papers given to TEV, legal opinion, valuation etc on 03.05.2010h. Various reports/TEV received on 31.05.2010i. Additional details received on various dates, from 25.05.2010 to 03.06.2010.

If any inordinate delay, reasons may be indicated

9.0 Comments of Sanctioning Authority

(C. S. Ahlawat)

Assistant General Manager (KMR)

Place: Kolkata.Date:

BANK OF BARODA

Kolkata Metro Region“BARODA TOWER”

Kolkata-700091

Name of the Account M/s GEMS CARE & CURE HEALTH CENTRE PRIVATE LIMITED

Branch Behala Branch, KolkataRegion Kolkata Metro RegionZone Eastern Zone

LEGAL COMPLIANCE CERTIFICATE

CERTIFIED THAT while considering sanction of the fresh credit facility / limit we have taken into consideration and complied all the relevant guidelines, regulations, rules and laws as applicable and required to be kept in view with and all due diligence.

(C. S. Ahlawat)


Assistant General Manager (KMR)

Place: KolkataDate:

SECTION II- FINANCIAL PARAMETERS AND ASSESSMENT

1.0 FINANCIAL PERFORMANCE : a) Snap Short of Balance Sheet : Projections for the next –7 yearsb) Operational Data. (Rs in lacs)

31.03.1131-03-12

31-03-13

31-03-14 31-03-15 31-03-16 31-03-17

a) Balance Sheet Data / Capital Structure Paid up Capital Equity Share Capital including premium

276.00 276.00 276.00276.00 276.00 276.00 276.00

Reserves & Surplus (Excl. Revaluation reserves and net of intangible assets)*

22.09 137.91 330.62 536.59 743.35 954.83 1175.35

Tangible Net worth 298.09 413.91 606.62 812.59 1019.35 1230.83 1451.35Term Liabilities 575.00 455.00 335.00 215.00 95.00Capital Employed 873.09 868.91 941.62 1027.59 1114.35 1230.83 1451.35Net Block 863.98 794.53 725.08 655.63 586.18 516.73 447.28Funds Invested outside Business/non-current assets Current Assets 69.11 194.38 336.54 491.96 648.17 809.10 1004.07Less: Current Liabilities 60.00 120.00 120.00 120.00 120.00 95.00Net Current Assets 9.11 74.38 216.54 371.96 528.17 714.10 1004.07Capital Deployed 873.09 868.91 941.62 1027.59 1114.35 1230.83 1451.35

b) Operational Data 13.31Sales 336.29 786.11 898.40 954.54 954.54 954.54 954.54Net other income -0.18 -0.18 -0.18 -0.18 -0.18 -0.18 -0.15Medicines and equipments 29.85 69.65 79.60 84.57 84.57 84.57 84.58Other spares 7.20 16.80 19.20 20.40 20.40 20.40 20.40Power & Fuel 13.50 31.50 36.00 38.25 38.25 38.25 38.25Salaries & wages 128.66 257.33 257.33 257.32 257.33 257.32 257.33Rep & maintainance 12.00 28.00 32.00 34.00 34.00 34.00 34.00Other misc exp. 20.66 45.22 49.10 51.05 51.05 51.05 51.05Adm. & Selling Expenses 17.08 39.86 45.55 48.40 48.40 48.40 48.40Depreciation 34.73 69.45 69.45 69.45 69.45 69.45 69.45Interest 42.87 83.70 69.53 53.33 37.13 20.93 1.66Net Profit before Tax 29.56 144.42 240.46 297.59 313.78 329.99 349.27Net Profit After Tax 23.67 115.64 192.54 205.80 206.57 211.30 220.36Dividend - - - - - - -c) Profitability Ratio (NP/Sales) % 7.04 14.71 21.43 21.56 21.64 22.14 23.09Net Profit / Capital Employed 2.71 13.31 20.46 20.03 18.54 17.17 15.18PAT / TNW 7.94 27.94 31.74 25.33 20.26 17.17 15.18Operating Profit Margin 21.54 29.02 34.50 36.76 36.76 36.76 36.76Return on Capital Employed(ROCE) 8.30 26.25 32.92 34.15 31.49 28.51 24.18


Current Ratio 1.15 1.62 2.80 4.10 5.40 8.52 #DIV/0!Debt Equity Ratio (TOL/TNW) 2.13 1.39 0.75 0.41 0.21 0.08 0.00Debt Equity Ratio (TTL/TNW) 1.93 1.10 0.55 0.26 0.09 0.00 0.00Debtors Collection(days) 0 0 0 0 0 0 0Inventory Holding Period(days) 129 55 48 45 45 45 45Creditors Payment Period in days 0 0 0 0 0 0 0 Cash Flow Interest Coverage 3.52 3.93 4.77 6.16 8.44 13.23 118.45DSCR 3.52 2.29 1.75 1.90 1.99 1.96 2.03

c) Whether Fund Flow Statement Submitted: Yes. (Rs in lacs)

SUMMARY: 31/03/11 31/03/12 31/03/13 31/03/14 31/03/15 31/03/16 31/03/17Long Term Sources (A+B+F, if F is positive) 909.58 185.27 262.17 275.43 276.20 280.93 289.96Less: Long Term Uses (D+G) 900.47 120.00 120.00 120.00 120.00 95.00 0.00Surplus (+) / Shortfall (-) 9.11 65.27 142.17 155.43 156.20 185.93 289.96Short Term Sources (C) 60.00 60.00 0.00 0.00 0.00 0.00 0.00Less: Short Term Uses (E) 69.11 125.27 142.16 155.42 156.21 185.93 289.97Surplus (+) / Shortfall (-) -9.11 -65.27 -142.16 -155.42 -156.21 -185.93 -289.97

From the above fund flow statement summary, it is observed that there is no diversion of funds from short-term sources to long-term. The company is generating the surplus long term funds to be utilized for short term purpose (Repayment of term loan.)

2.0 COMMENTS ON PERFORMANCE :

Sales : (Rs in lacs)Particulars 2010-11* 2011-12 2012-13 2013 -14 2014-15 2015-16 2016-17

Capacity utilisation (%) 60 70 80 85 85 85 85

Income from Medical Services

336.29 786.09 898.39 954.54 954.54 954.54 954.54

The projected sales / income of the society on stand alone basis is as under:

The income generation is to commence from October’2010. The first year income has been estimated at Rs.336.29 lacs in 2010-11(For 6 months at 60% Capacity utilization), which increased to Rs.786.09 lacs in 2011-12 (70% Capacity utilization). The income further increasing to Rs. 898.39 lacs( with 70% Capacity utilization). The income is likely to be stabilize at 85% capacity utilization with Rs. 954.54 lacs, from 2013-14 onwards.

Net Profit: The Net Profit of the company and various profitability ratios of the company are as under: : (Rs. lacs)

Particulars 2010-11* 2011-12 2012-13 2013 -14 2014-15 2015-16 2016-17Net Profit before Tax 29.56 144.42 240.46 297.59 313.78 329.99 349.27Net Profit After Tax 23.67 115.64 192.54 205.80 206.57 211.30 220.36(NP/Sales) % 7.04 14.71 21.43 21.56 21.64 22.14 23.09Net Profit / Capital Employed 2.71 13.31 20.46 20.03 18.54 17.17 15.18PAT / TNW 7.94 27.94 31.74 25.33 20.26 17.17 15.18Operating Profit Margin 21.54 29.02 34.50 36.76 36.76 36.76 36.76Return on Capital Employed(ROCE) 8.30 26.25 32.92 34.15 31.49 28.51 24.18


The Net profit is quite sufficient to pay the installment of the proposed loan to be granted to the company.

The profitability ratios are also very favorable and reflecting the increasing trend Y-on-Y. (Rs in lacs)Income / Expenditure 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17Profit after Tax 23.67 115.64 192.54 205.80 206.57 211.30 220.36Cash Profit 58.57 185.26 262.16 275.43 276.20 280.93 289.81Repayment - 60.00 120.00 120.00 120.00 120.00 95.00

It is observed that the profit from Hospital itself can generate sufficient fund from 2010-11 and can repay the loan as mentioned above out of cash profit.

Tangible Net Worth:

Movement of TNW of the Society is as per table given below - (Rs. lacs)

31.03.11 31/03/12 31/3/13 31/3/14 31/3/15 31/3/16 31/3/17Opening TNW NIL 299.67 415.31 607.84 813.64 1,020.22 1,231.52 Add: Profit after tax 23.67 115.64 192.54 205.80 206.57 211.30 220.36Add: Increase in Equity/Share Premium

276.00 - - - - - -

Closing TNW 299.67 415.31 607.84 813.64 1,020.22 1,231.52 1,451.88

It is observed that the Net worth is increasing steadily over the years due to retention of profit after tax.

RatiosCurrent Ratio:

31.03.11 31/03/12 31/3/13 31/3/14 31/3/15 31/3/16 31/3/17

Current Ratio 1.15 1.62 2.80 4.10 5.40 8.52 -

Current Ratio is above the benchmark level of 1.20 as per domestic loan policy guidelines’09, from 2011-12 onwards, which is favourable to bank. In 2010-11, the current ratio is bit low, since it is the 1st year of the operations. The current ratio is improving Y-on-Y, which is good sign.

The Term Liability /TNW of the company is quite satisfactory and below 3.5: 1.00. The ratio is very low and decreasing during the span of years from 31/03/2011 to 31/03/2017

The Total Outside Liabilities / TNW is also very low, within the benchmark level of 4.5:1.00.

The Debt equity ratio on both the count appears to be quite satisfactory.

All other ratios are at reasonable level

3.0 ASSESSMENT OF WORKING CAPITAL: Not applicable

Comments on inventory holding / creditors / debtors’ level / reasons for accepting large variance in inventory / creditors / debtors level

Particulars 31.03.11 31.03.12 31.03.13 31.03.14 31.03.15 31.03.16 31.03.17Inventory (days) 129 55 48 45 45 45 45Receivables (days) 0 0 0 0 0 0 0Creditors 0 0 0 0 0 0 0


Comments:

INVENTORY:The inventory holding is related to medicines / chemicals for use in the hospitals. The inventory holding level is 129 days as on 31/03/2011, because it is the initial year of project and figures for 6 months have been considered for estimation but thereafter the inventory holding level is decreasing and stabilises at 45 days.

SUNDRY DEBTORS:There is no sundry debtors, as the claims/ demand / bill are proposed to be paid immediately and hence no sundry debtors projected.

SUNDRY CREDITORS:There is no creditor of the company as every payment is made on demand. No creditor projected.

3.1 REQUIREMENT OF OTHER FACILITIES: Terms Loan requirement: The company has requested for Term Loan of Rs.635 lacs (as per project report) for setting up Multi speciality Hospital at ABC

The TEV Study on XYZ Private Limited has been vetted by Effective Consultants, Bank’s approved consultant for TEV Study, who has justified the cost of project and requirement of Term Loan of Rs. 635 lacs.

The cost of project vis-à-vis means of finance is as under:Statement showing proposed means of financing

Sl. Means of Finance Amount

A. Promotors Contribution 276.00

B. Term Loan from Bank of Baroda 635.00

Total: 911.00

Sources of Fund : (Rs.in lacs)

A. Amount invested till 31.05.2010 :

SK, M.D. 85.00

Unsecured loan from relatives & friends (interest free) 54.90

139.90

B. Balance amount to be brought in :

Mrs. RK, Director (from sale of Real-estate property)

100.00

SK, M.D. 25.00

GK, Share holder 11.10

136.10

Total Promoter’s Fund required(A + B): 276.00

PRESENT STATUS OF THE PROJECT : The RCC structure of the building has already been constructed upto G+4 alongwith the boundary wall. As

discussed with the representative of the society, the civil work will include Building (Rs.447.72 lacs), Ancillary work (Rs.27.25 lacs). These expenses has to be borne by the promoters from their own sources,


since this land belongs to Mr. SK(Director), in his personal capacity and this cost has not been included in cost of the project.

The company has already extended the advance payments for supply of various equipments/furnitures/electrification work/computers etc. which may be treated as promoters contribution(margin) required for the projects.

Details of promoters contribution and employment funds as on 31.05.10 (Rs in lacs)Particulars COST Promoter’s

contributionrequired

Funds already brought in

Bank Finance

1 Land & Building (including cost of Land Development)

Nil NIL NIL NIL

2 Electrical Installations including DG Set, Transformer etc.

51.42 12.42 8.65 39.00

3 Fire fighting, Safety & Water Supply 48.06 12.06 21.50 36.00

4 Air Conditioning System 26.08 6.08 10.00 20.005 Elevators 18.73 4.73 3.00 14.006 Medical Equipment 497.66 124.16 50.00 373.507 Medical Furniture & Accessories 77.64 19.64 6.00 58.008 Furniture & Fixture 48.83 12.83 8.00 36.009 Vehicles 10.11 2.61 7.5010 Computer & Electronic System 68.52 17.52 8.00 51.0011 Deposits (Electricity, Telephone and

Sundires)10.54 10.54 5.61 -

12 Preliminary expenses 1.75 1.75 1.75 -13 Pre-operative expenses 51.66 51.66 17.39 -

TOTAL 911.00 276.00 139.90* 635.00

NOTE: The Company has submitted the vourchers/reciepts of the payments made as mentioned above.

DSCR CalculationStatement showing Debt Servicing Coverage Ratio (DSCR) analysis

(Rs. in Lacs)

Sl. No.

Particulars 2010-11*

2011-12

2012-13

2013 -14

2014-15

2015-16

2016-17

Total

A. Availability of funds

I. Profit after Tax (PAT) 23.67 115.64 192.54 205.80 206.57 211.30 220.36 1175.88

Add, Depreciation 34.73 69.45 69.45 69.45 69.45 69.45 69.45 451.43

Add, Preliminary Expenses written Off

0.18 0.18 0.18 0.18 0.18 0.18 0.18 1.23

Cash Surplus 58.57 185.26 262.16 275.43 276.20 280.93 289.98 1628.53

II. Interest on Term Loan 42.86 83.70 69.53 53.33 37.13 20.93 1.66 309.12

Total (A): 101.44 268.96 331.69 328.75 313.32 301.85 291.64 1937.66


B. Servicing of Debts

I. Repayment of Term Loan 0.00 60.00 120.00 120.00 120.00 120.00 95.00 635.00

II. Interest on Term Loan 42.86 83.70 69.53 53.33 37.13 20.93 1.66 309.12

Total (B) : 42.86 143.70 189.53 173.33 157.13 140.93 96.66 944.12

C. Debt Service Coverage Ratio

2.37 1.87 1.75 1.90 1.99 2.14 3.02 2.05

Note - In 2010 - 11, only 6 months' operations have been considered

Note: From the above DSCR calculation it is observed that the proposed hospital can generate adequate fund to repay the term Loan. The average DSCR arrives at 2.05 against the acceptable level of 1.75 as per our Domestic Loan Policy Guidelines, 2009.

Sensitivity Analysis

Summary of the Sensitive analysis as per the Project Report is as per the table shown below:

SCENARIOS Scenario 1 Reduction in Revenue by 10% Scenario 2 Increase in Operating Expenses by 10%(Except staff salaries

Scenario 3when RM, Power & Fuel and Direct Labour increase by 10% when selling & general expenses increase by 10%

No. Case Adjusted Average DSCR1 Base Case 2.052 Scenario 1 1.633 Scenario 2 1.924 Scenario 3 1.77

Statement showing Sensitivity Analysis (Rs.in lacs)Particulars Years under projection 2010-11* 2011-

122012-13

2013 -14

2014-15

2015-16

2016-17

Normal projectionIncome from Medical Services 336.29 786.09 898.39 954.54 954.54 954.54 954.54PAT 23.67 115.64 192.54 205.80 206.57 211.30 220.36Cash Profit 58.57 185.26 262.16 275.43 276.20 280.93 289.98DSCR (times) : 2.37 1.87 1.75 1.90 1.99 2.14 3.02Avg.- 2.05Scenario - I(Income goes down by 10%)Income from Medical Services 302.66 707.48 808.55 859.09 859.09 859.09 859.09PAT -4.06 52.69 120.60 161.85 142.83 147.56 156.61Cash Profit 30.84 122.32 190.23 231.48 212.45 217.18 226.24DSCR (times) : 1.72 1.43 1.37 1.64 1.59 1.69 2.36


Avg.- 1.63Scenario - II(Expenditure other than salary goes up by 10%)Income from Medical Services 336.29 786.09 898.39 954.54 954.54 954.54 954.54PAT 15.64 97.14 171.60 187.32 188.10 192.83 201.88Cash Profit 50.54 166.76 241.23 256.95 257.72 262.45 271.51DSCR (times) : 2.18 1.74 1.64 1.79 1.88 2.01 2.83Avg.-1.92 Note: In 2010-11, only 6 months' operations have been considered

Scenario – III DSCR: when RM, Power & Fuel and Direct Labour increase by 10% when selling & general expenses increase by 10%PAT 4.42 63.40 125.09 161.97 172.71 183.46 196.25Depreciation 34.73 69.45 69.45 69.45 69.45 69.45 69.45Preliminary Expenses W/O 0.18 0.18 0.18 0.18 0.18 0.18 0.15Interest on Term Loan 42.87 83.70 69.53 53.33 37.13 20.93 1.66Total Fund Generated 82.20 216.73 264.25 284.93 279.47 274.02 267.51Interest on Term Loan 42.87 83.70 69.53 53.33 37.13 20.93 1.66Installment of Term Loan 0.00 60.00 120.00 120.00 120.00 120.00 95.00Total repayment obligation 42.87 143.70 189.53 173.33 157.13 140.93 96.66DSCR 1.92 1.51 1.39 1.64 1.78 1.94 2.77Average DSCR 1.77

7.08 Schedule of Implementationa) Term Loan sanction & disbursement : End of June, 2010b) Term Loan disbursement : 1st week of July, 2010c) Completion of outstanding civil work : By end of August, 2010d) Receiving of electric connection : By middle of July, 2010e) Placement of order for medical equipment

& utility items which are not yet done : By July, 2010f) Receiving of medical equipment, utility

items, installation & testing : By September, 2010g) Commencement of services : October, 2010

Statement showing Break-Even-Point analysis(Considering projected performance of 2012-13)

(Rs. in Lacs)Sl. No. Particulars Amount AmountI. Income from Services 898.39

Sub-total (I): 898.39II. Expenditure 463.63III. Contribution 434.76IV. Fixed Cost

a. Fixed Expenses 55.15b. Interest 69.53c. Depreciation 69.45 194.13

V. Preliminary expenses written Off 0.18VI. Profit before Tax (PBT) 240.46VII. Provision for Tax 47.92


VIII. Profit after Tax (PAT) 192.54IX. Break Even analysis

Gross Break Even Sales (Value )= Fixed cost/Contribution X Income

401.15

(%) 45%

The company is expected to achieve the breakeven at 45% level, which is satisfactory. The breakeven level upto 70% is considered ideal in this type of activity.

Repayment Schedule: Year Amount Due Receipt Repayment Balance

2010-11Q1 0.00 0.00 0.00 0.00 Q2 0.00 635.00 0.00 635.00 Commencement of operationQ3 635.00 0.00 0.00 635.00 Q4 635.00 0.00 0.00 635.00 635.00 0.00 2011-12Q1 635.00 0.00 0.00 635.00 Q2 635.00 0.00 0.00 635.00 Q3 635.00 0.00 30.00 605.00 Q4 605.00 0.00 30.00 575.00 Total : 60.00 2012-13Q1 575.00 0.00 30.00 545.00 Q2 545.00 0.00 30.00 515.00 Q3 515.00 0.00 30.00 485.00 Q4 485.00 0.00 30.00 455.00 Total : 120.00 2013-14Q1 455.00 0.00 30.00 425.00 Q2 425.00 0.00 30.00 395.00 Q3 395.00 0.00 30.00 365.00 Q4 365.00 0.00 30.00 335.00 Total : 120.00 2014-15Q1 335.00 0.00 30.00 305.00 Q2 305.00 0.00 30.00 275.00 Q3 275.00 0.00 30.00 245.00 Q4 245.00 0.00 30.00 215.00 Total : 120.00 2015-16Q1 215.00 0.00 30.00 185.00 Q2 185.00 0.00 30.00 155.00 Q3 155.00 0.00 30.00 125.00 Q4 125.00 0.00 30.00 95.00


Total : 120.00 2016-17Q1 95.00 0.00 30.00 65.00 Q2 65.00 0.00 30.00 35.00 Q3 35.00 0.00 35.00 0.00 Q4 0.00 0.00 0.00 0.00 Total : 95.00 Note - In 2010-11, 6 months' operations have been considered

The Statement suggests the repayment of Term Loan commencing from 2011-12 to 2016-17. Total repayment in 24 quarterly instalments of Rs. 30.00 lacs after 9 months moratorium, i.e. from 1 st quarter of the FY 2011-12 and onwards. The last instalment will for Rs. 35.00 lacs.

Interest to be repaid as and when debited to the account.

Based on the above facts and figures, the term loan requirement of Rs. 635.00 lacs for the set up of the Hospital is justified and recommended for sanction.

SECTION III- INDUSTRY PERCEPTION

1.0. INDUSTRIAL BUSINESS SCENARIO PERCEPTION:

Education and Health Care are 2 such areas, which is needed by every citizen in a state. Mr. Khanna and his associates are engaged in Health care and education industry, which is considered as the most viable business at present and in coming 10 years.

HEALTH CARE SCENARIO IN INDIA/WEST BENGAL

India with 112+ cr. population with steady rate of increase in population truly requires enormous healthcare facilities, where Govt. and state Hospital, Clinical centers are neither adequate nor fully equipped to cater to it. Out of the projected $14 Billion expenditure in Healthcare in India in 2013, approx. 50% will happen in six states including west Bengal. In West Bengal, the Hospitals are becoming worst due to negligence of the administration & fund crisis. The patients, having a little resource, prefer private Nursing Homes / Diagnostic Centers than to Hospitals. The state needs more & more Hospitals in organized manner to take care of the patients to the international standard not only in Kolkata but also in greater Kolkata.

As such the future of these two sectors is very bright.

10.00 SWOT ANALYSIS

Helpful Harmful

Strengths:

Multi-specialty under one roof

Necessary infrastructure has been made at right spot by the company to attract customers

Location in densely populated area.

Weakness:

Difficult to target lower class population

Referral of critical patients to other high degree sophisticated hospitals

Commercial approach of physicians to patients leading to bad names.


Nearest Private Hospital about 10 Km away.

Modern and Advanced equipments, both indigenous and imported.

Association of Good doctors

Tie-ups with Corporate and Insurance companies

Competitive and Affordable price points of Services

Management capable of running multi- specialty Hospital

Being in the Health care industry, the demand for the services rendered by the society will go on increasing.

Mitigation: The good quality service with low /affordable cost will certainly attract the customers from far areas.

The hospital is located near the crowded area of local bazar(Hat). The approach road of proposed project is quite narrow. Which may hinder the movement of ambulance/hospital emergency vehicle during emergency.

The car parking space is inadequate. At present the hospital can accommodate at best 15 cars, which will be occupied by doctors, leaving no space for patient’s vehicles.

Mitigation: The company has informed that they have acquired adjacent landed property to convert into car parking space They are further negotiating for buying the land at the

back side of the hospital for parking purpose.

Opportunities:

Huge demand for Private hospitals

Providing ambulance to rural and lower class populated areas, more market can be captured

Doctors practicing nearby will refer patients

Absence of many competitors in that locality.

Favourabvle Government policy giving thurst on education / health care

Threats:

Changes in Government policies on Private Hospitals

Increase in competition by development of new hospital nearby in future

Mitigation: Good and low cost service will attract patient for the hospital inspite of availability of hospitals.

Aggrieved patients may, alleging wrong treatment, may cause damage to hospital propertyMitigation: Adequate insurance to be taken

ANNEXURE- D

TERMS AND CONDITIONS

Nature of Facility : Term Loan (Fresh)Limit : Rs.635.00 lacs Purpose : Purchase of medical equipments and miscellaneous fixed assets to set up the

82 bed multi specialty hospital. Security : 1. D.P. Note

2. Letter of Installment with acceleration clause.3. Hypothecation of machineries and other fixed assets. 4. Certified copy of resolution of company authorizing borrowing,

execution of document and operation in the account.5. Stamped Declaration cum Undertaking cum Authority.

Margin : Rs. 276.00 lacs (30.30% on Project cost of Rs.911.00 lacs)Rate of Interest : 1.75% over BPLR [email protected]%p.a. With monthly rests .


mailto:[email protected]%25p.a

Period : 81 months (including 09 months moratorium)Repayment 24 quarterly instalments of Rs. 30.00 lacs after 9 months moratorium, i.e.

from 1st quarter of the FY 2011-12 and onwards. The last instalment will for Rs. 35.00 lacs.

Collateral Securities: 1. Equitable mortgage of Land(12.14 cottahs) and proposed G+4 storied building thereon at ABC belonging to

Mr SK(On which the proposed hospital is being established), vide sale deed No. 00256, 00258 & 00260 dtd. 10.01.2008. Valuation of the property is proposed to be Rs. 289.80 after completion, as per report submitted by M/s R.M.Engineers, bank’s approved valuer, dtd. 07.05.2010.

Other specific conditions and Pre- Disbursement requirements1. As far as possible Term Loan is to be disbursed directly to the suppliers / dealers of the proposed Hospital

project. 2. Wherever advance payment to suppliers or contractors has already been already made, the company should

submit relative bill / invoices to the bank for obtention of latter’s specific authority and reimbursement. Photocopies of all such bills along with C/A certificate certifying that cost has been incurred by the Company to be submitted to the Bank for record.

3. Promoter’s contribution is to be brought in upfront for which documentary evidence is to be submitted to the bank before disbursement of the limit.

4. Satisfactory credit Report of various loan accounts of associate concerns and Closure certificate of the Loan Accounts of M/s Trinyani construction with SBI & BOM to be obtained before disbursement.

5. Branch to obtain the copy of Long term lease deed(At lease for 7 years) to be executed by Mr. SK (Director of the company and owner of the property on which the proposed hospital is going to be established), in favour of M/S XYZ PRIVATE LIMITED to let out the building on monthly rental basis.

8.2 CASE – II- TAKEOVER PROPOSAL

Name of the Account : XYZ Branch : Surya Sen Street Region : Kolkata Metro RegionZone : Eastern Zone Kolkata

SECTION I: DETAILS OF THE PROPOSAL 1.0. Gist of the Proposal a) Fresh Sanction / Review with enhancement / Short Review / Decrease for 12 months. The proposal envisages for Takeover the borrower’s Account from ABC Bank.

i) Increase / Decrease / Fresh sanction in Fund Based and Non Fund based Limits. (Rs. in lacs)

Existing Proposed IncreaseFund Based limits Nil 32.50 +32.50Non-Fund Based Limits Nil Nil NilTOTAL EXPOSURE Nil 32.50 +32.50

Existing Cash credit limit of Rs.6.70 lacs with ABC Bank. The proposal envisages Take-over of the Borrower’s Account on Sanction of increased limit from Bank of Baroda

Sanction / Ratification


Deviation: To consider creation of the under mentioned charges after initial disbursement for takeover of the existing outstanding balance of the working capital facility with ABC Bank, A.P.C. Road Branch, Kolkata –

Pledge of KVP No – ******** – for Rs.0.50 lacs (Face value) along with interest accrued thereon in name of the Firm / Proprietor / Guarantor maturing on 19.06.2013.

Pledge of NSC Nos – ********* – for Rs.0.50 lac each i.e. total Rs.1.00 lacs along with interest accrued thereon in the name of the Firm / Proprietor / Guarantor maturing on 19.11.2010.

Lien on FDRs amounting to Rs.335706/- (Face value at ABC Bank) along interest with interest accrued thereon in the name of the Firm / Proprietor / Guarantor (Prematurely to be closed & proceeds to be remitted to us for FDR

Assignment of 2 LIPs – Policy Nos *** and **** – in the name of the proprietor Mr. AB with Surrender value of Rs.128975/- having Sum Assured of Rs.3.50 lacs (Rs.2.00 lacs + Rs.1.50 Lacs)

FDRs created and kept under lien out of the Money Back amounts received from the LIPs assigned in favour of the Bank, if any

2.0 Basic Data:

Asset Classification N.A. Fresh ProposalBank’s Credit Rating CR3 / MSMEBOB 3

(Based on Balance Sheet dated as on 31.03.2009)External Credit Rating Not ApplicableConstitution ProprietorshipDate of Establishment 2007 Location: Registered Office 81/1B, RD, KOLKATA-69 Work Site As provided by the companyIndustry and Nature of Activity Engineering Services – Erection, Installation &

Commissioning of Mobile Tower installed under BTS technology

Micro Enterprise as redefined as per Circular No BCC: BR: 99/145 dated 04.05.2007.

Dealing with the Bank since New ConnectionMPBF Rs.32.50 lacs during 2009-10 & 2010-11Our Bank’s Share 100%Rate of InterestWorking Capital LimitsTerm Loan

1.25% below BPLR [email protected]%p.a. N.A. (BPLR at present is 12.00%)

ROI is as per circular No. BCC:BR;101;352 dated 26.11.09

Security Available As per Annexure- D of the appraisalAverage Drawings during the YearTerm Loan Working Capital

Existing ProposedN.A. N.A.N.A. Rs.32.50

Yield in the account N.A. New ProposalAuditors of the company. M/s ALi & Associates;

(Registration No *****)Proprietor: AK Kundu



Qualification remarks of the auditors

(Membership No *****)

NilPollution Clearance N.A.Whether statutory dues have been paid Yes

Whether the names of the Company / Associates or Directors appear in RBI defaulters’ list and / or caution list

No

Whether the Company / firm / promoters and their Associates are on ECGC caution list / Special Approvals List.

No

Compliance of Earlier terms and conditions including creation of charge.

N.A. Fresh proposal

Name of Proprietor Mr AB-Rs.16.39 lacs as on 31.03.09

Name of Guarantor Mrs JB (wife)- Rs. 5.86 lacs as on 31.03.09

Compliance status of norms for take over of Borrowal Accounts from Other Bank as laid down in the Domestic Loan Policy Guidelines, 2009 is as below:

Sr. Non –Financials Norms Compliance StatusA Accounts of Profit making (i.e. Net profit

before Tax) concern only as per last Audited Balance Sheet.

Profit Before Tax as per Audited Balance Sheet as at 31.03.2009 is Rs.6.28 Lacs

B Accounts be rated as per the new credit rating model (BOBRAM) subject to ‘minimum’ BOB6. Accounts, which are not covered under BOBRAM Credit Rating System, may be considered under permitted deviation as per extant guidelines issued from time to time.

Borrowers rating as per Scoring Card based on ABS as on 31.03.2009 is CR3/MSMEBOB3

C There should not have been any reschedulement / restructuring in the account during last 2 years.

No

D Satisfactory report from the existing bank / FI and / or satisfactory conduct of account as per latest statement of accounts.

Conduct of the account is satisfactory as per Bank statement. Credit Report from the existing Banker i.e. ABC Bank is to be sought for during the ‘Pre-disbursement stage’ for which necessary stipulations have been incorporated in Annexure – D of the proposal.

E Accounts with existing lender should be under the category of “Standard Assets”.

Conduct of the account is satisfactory as per Bank statement. Credit Report from the existing Banker i.e. ABC Bank is to be sought for during the ‘Pre-disbursement stage’ for which necessary stipulations have been incorporated in Annexure – D of the proposal.

F All other existing norms, guidelines as applicable to borrowal Applicable accounts are to be scrupulously followed.

Noted.

Sr. Financials Norms Compliance StatusA Current Ratio: Min. 1.17 (For Small

Enterprise)Current Ratio as on 31.03.2009 is 1.36

B Debt Equity Ratio (TTL/TNW): Max 4:1 (For Small Enterprise)

Debt Equity Ratio as on 31.03.2009 is 0.14:1

C TOL / Equity: Max 4.5:1 (For Small Enterprise)

TOL/Equity as on 31.03.2009 is 1.35:1


D Average DSCR for Term Loan: Min 1.75 with a condition that in any one year it should not be below 1.25

N.A.

Securities offered with ABC Bank, APC Road Branch(As per copy of Bank’s sanction advise dated 04.03.09)

Facility Security Nature of SecuritiesCash Credit Primary Hypothecation of Stocks & Book-debts

Collateral Securities

Pledge of NSC for Rs.1.00 lacs and KVP of Rs.0.50 lacs totalling of Rs.1.50 lacs. Assignment of 2 LIC policies having surrender value of Rs.128975/- as on 08.02.2007.Pledge of FD of Rs.335706/- (face value)Personal Guarantee of Mrs JB

Securities now offered to us

Facility Security Nature of SecuritiesCash Credit Primary Hypothecation of Stocks & Book-debts

Collateral Securities

Pledge of KVP No – ******** – for Rs.0.50 lacs (Face value) along with interest accrued thereon in name of the Firm / Proprietor / Guarantor maturing on 19.06.2013.




FDRs created and kept under lien out of the Money Back amounts received from the LIPs assigned in favour of the Bank, if any Additional: Extension of equitable mortgage of flat at - Flat No. L, 8th Floor, Block-B, SK, Kolkata – 67 including one garage space in the same premises; standing in the name of Sri ABvalued at Rs.39.87 lacs primarily securing the housing loan facility of Rs.17.50 lacs at Bank of Baroda, Surya Sen Street Branch. (The value has been ascertained as per value determined by Registration Authority as per registration WB Form No *** dated 17.02.2010) Personal Guarantee of Mrs JB-wife of Mr AB

Banking arrangement: Sole Banking Arrangement (Rs. in lacs)


Name of Bank Fund Based Non-fund Based% Share Amount % Share AmountExisting Propose

dExisting

Proposed

Existing

Proposed

Existing Proposed

Bank of Baroda, Surya Sen Street Branch

Nil 100% Nil 30.00 N.A. N.A. Nil Nil

ABC Bank, A.P.C. Road Branch

100% Nil 6.70 Nil N.A. N.A. Nil Nil

LOANS FROM FINANCIAL INSTITUTIONS: (Rs. in lacs)

Name of the Institution Limit OutstandingAs on 31/03/09

Excess / Overdue*

Security

PQR Bank 2.96 Hypn of Vehicle

*Comments, if any – The proprietor was enjoying car loan with ICICI Bank as per Audited Balance Sheet as on 31.03.09 which has been closed on February’10 as informed. Therefore the firm is having no other loan at this moment. Branch to ensure that they keep the Loan account closed in our record.

2.05) Name of the Proprietor: Mr. AB 2.06) Key person: Mr. AB Names of Guarantors: (Rs in lacs)

Sl. No Name of the Guarantors Net worth as on 31/03/091. Mrs. JB 5.80

Business experience of Proprietor: This is a proprietorship firm and owned by Sri AB. He has started his career as media partners of various big houses as the name of the firm carries that value. He is in this line of business since 1998. In fact in his early days he was involved in lying of underground cable line on behalf of Reliance and BSNL. Afterwards he has diverted his business and switched into manufacturing and installation of mobile tower. He has in this nature of business since 2005. He is well experienced in this nature of business and having good network with various big mobile manufacturing companies.

3.0. ISSUE FOR CONSIDERATION:

Fresh (Takeover) / Review with increase / decrease:

To consider fresh sanction of Cash Credit facility Rs.32.50 lacs (on taking over of the proposal from ABC Bank, A.P.C. Road Branch, Kolkata limit of Rs.6.70 lacs with increase) as per the Terms & Conditions mentioned in Annexure - D of the proposal

(Rs.in lacs)


Nature of facilities Existing Limit(With ABC Bank)

Proposed Limit(With BOB)

Present Outstanding

Excess/ Overdue,If any

Term Finance: F.B - - - -Working Capital:Cash Credit/Overdraft (Hypothecation Stock / Book Debt)

6.70 32.50 NA Nil

TOTAL FUND BASED 6.70 32.50 N.A. NilLetter of Credit Inland/ Foreign Nil Nil N.A. N.A.Inland / Foreign Guarantees (Performance/ Financial)

Nil Nil N.A. N.A.

TOTAL NON FUND BASED Nil Nil N.A. N.A.TOTAL EXPOSURE 6.70 32.50 N.A. Nil

NOTE

Break –up of Overdues is as under :- No Overdue (Rs. in lacs)

Particulars Date AmountInterest on credit facilities (WC/ TL) NilDevolvement of Bills under Letter of Credits NilPacking Credit overdues NilBill Purchased / Foreign Bill Purchase not realised NilAdhoc Limit not adjusted NilTotal Nil

4.0) BACKGROUND OF THE COMPANY:

This is a Proprietorship concern, which is operating its business since 2005 in this line under the proprietorship of Mr AB. The firm needs to buy cement, bricks etc materials to perform the civil jobs. They need to buy electrical materials like cable, switchgear etc. The materials are readily available in the market. They are buying civil materials from the site area where the firm is working and buy electrical parts from various dealers located in central Kolkata like Chandni. P D (distributor of modular switch of L&T), HE (distributor of Anchor).

The firm is presently having CC facility with ABC bank, APC road branch. Initially the proprietor has taken a housing loan from our Surya Sen Street branch which has been sanctioned by RLF;Kolkata and afterwards approached our branch for a CC facility after taking over the existing limit maintained with ABC bank.

5.0) SECURITY COVERAGE: (Rs. In lacs)

Details of Banks Exposure AmountCash Credit Rs 32.50 LacsTotal Bank Exposure Rs 32.50 Lacs

Details of Collateral SecuritiesPledge of KVP No – ******** – for Rs.0.50 lacs (Face value) along with interest accrued thereon in name of the Firm / Proprietor / Guarantor maturing on 19.06.2013.

Rs 0.50 Lacs



Rs 1.00 Lacs


Rs 3.35 Lacs


Rs 1.28 Lacs

Additional: Extension of equitable mortgage of flat at - Flat No. L, 8th Floor, Block-B, SK, Kolkata – 67 including one garage space in the same premises; standing in the name of Sri ABvalued at Rs.39.87 lacs primarily securing the housing loan facility of Rs.17.50 lacs at Bank of Baroda, Surya Sen Street Branch. (The value has been ascertained as per value determined by Registration Authority as per registration WB Form No *** dated 17.02.2010)

Rs 22.37 Lacs

Total Rs 28.50 LacsCollateral Security Coverage Percentage 87.69%

Scope on security coverage:Scope for further collateral securities was explored and the company has offered collateral i.e. extension of flat residual value of which is Rs.22.37 lacs.

Further stocks/book debts will be available as primary security and monitoring control will be better, as monthly stocks/book debts statements to be submitted by the company.

6.0) TERM AND CONDITIONS: Facility wise details viz Margin, ROI, securities and all other terms and conditions of the sanction (AS PER ANNEXURE”D” ENCLOSED)

7.0) OTHER INFORMATION:

Whether proposed limits are within Bank’s prudential Single Borrower/ Group exposure norms: Yes

Pro-rata non-fund based business: N.A. Sole Banking arrangement with no non fund based business

Pre-sanction inspection has been carried out by SME officials on 24.02.2010 and there is no adverse observation (Copy of Report enclosed)

KYC norms is carried out as under –The name, address and Membership Nos of the Chartered Accounts Firm and its Proprietor as mentioned in the copy of the Audited Balance Sheets has been verified from the Website of the Institute of Chartered Accountants of India – http://icai.orgThe name of the company or the proprietor is not appearing in the RBI Defaulters List or the Wilful Defaulter List.However, KYC norms is a continuous process and the same is to be verified / carried out by the Branch before/ after disbursement of the facilities.Comments regarding credit rating - when last done: CR3/ MSMEBOB3 based on ABS’09


Justification for the proposed rate of interest: The rate of interest is proposed for C/C account - at 1.25 % below BPLR i.e.10.25% is as per CRISIL Rating based on ABS as on 31.03.2009 and guidelines as per Circular No BCC:BR;101;352 dated 26.11.09

Whether listed company - present market quotation - 52 weeks high / low: N.A. Proprietorship Firm

Our Bank’s investment in the company: Nil

Reasons for change over banks- We are informed by the firm that they wish to shift from ABC Bank to BOB Bank, due to better interest rate. They also expect better service & credit facilities. Also they have availed Housing Loan facility recently from BOB, which they are offering as extension. So they have decided to shift to our bank.

Our exposure to the captioned company: (Rs. in Lacs)

C&I Advance Priority Sector International Div. Investments TOTAL- Existing – Nil

Proposed – 32.50- - Existing – Nil

Proposed –32.50

Contingent liabilities: Details: Outstanding BG : NIL Outstanding import LC: NILComments on the possibilities of Crystallisation: NA.

8.0 JUSTIFICATIONS for Fresh increase / decrease / modifications and concessions.

Take over norms as per Domestic Loan Policy Guidelines, 2009 have been complied with except obtention of Satisfactory Credit report from the existing Banker, which is to be obtained in the Post sanction – Pre disbursement stage.

Permission for takeover of the account has been obtained from the Chief Manager, SMELF Kolkata

The unit was originally established in the year 2007 as a proprietorship firm. Security coverage percentage is 87.69%.

Credit rating of the account is CR3/MSMEBOB3 and Bank has accepted BOB6 as the cut-off point for the acceptance of an obligor.

Details of assessment of working capital limits is as per Section – II of the Appraisal

Justification: We recommend considering creation of charges of the above mentioned securities after disbursement of the facilities as it is a take over proposal and the above-mentioned security is at present mortgaged with ABC Bank, APC Road Branch, Kolkata

Important points to be noted at Branch Level

Unquote:Branch to cross sale the various our Bank’s products viz Bancassurance, Baroda Health Insurance scheme, India First insurance Company Ltd, Birla Sun life insurance, UTI Mutual fund etc.

Quote:The branch to carry out post disbursement unit inspection and to keep copy of the inspection report on the record.

Branch to follow/observe KYC norms and verify the documents with originals.


Branch to send monitoring report on monthly basis to RO (KMR) as per extant guidelines of the Bank.

Branch to disburse the amount of DUES with ABC Bank, APC Road Branch; against Letter of Comfort from the ABC Bank, APC Road Branch; against payment of outstanding dues

9.0 RECOMMENDATIONS:In view of what has been stated in the Note, we recommend sanction of proposed facility as detailed in the ‘Issue for Consideration’ as per the Terms and Conditions mentioned in Annexure - D of the proposal and approval of the following issue:

To consider creation of the various charges on the securities presently charged with ABC Bank as detailed in the Note after initial disbursement for takeover of the proposed facilities

Submitted for consideration

(S Sanyal)Senior Manager (Credit)

Place: KolkataDate: 01.03.2010

10.0) Comments of the Sanctioning Authority:

(R. Kujur)Senior Manager (Credit)

Place: SME Loan Factory, KolkataDate: 04.03.2010

11.0) Movement Chart:Proposal received at SMELF on 29.12.09. Query raised & final reply on 22.02.10. Inspection done on 24.02.10

SECTION II- FINANCIAL PARAMETERS AND ASSESSMENT

1.0 FINANCIAL PERFORMANCE: The actual for last –3- years and estimates / Projections for next –2- yearsa) Snap Short of Balance Sheet for b) Operational Data. (Rs in lacs) AUDITED AUDITED AUDITED ESTIMATED PROJECTED 31.03.07 31.03.08 31.03.09 31.03.10 31.03.11a) Balance Sheet Data / Capital Structure Paid up Capital a) Share Capital 8.87 10.94 13.04 16.39 21.39b) Preference Share Capital - - - - -Reserves & Surplus (Excl. Revaluation reserves and net of intangible assets)

2.07 2.10 3.35 6.00 8.00


Tangible Net worth 10.94 13.04 16.39 22.39 29.39Term Liabilities - 2.96 2.31 2.00 -Capital Employed 10.94 16.00 18.70 24.39 29.39Net Block 0.89 6.06 5.75 4.95 4.25Funds Invested outside Business 8.86 9.33 5.91 8.50 9.10Current Assets 17.15 19.14 26.85 46.79 52.44Less: Current Liabilities 15.96 18.53 19.81 35.85 36.40Net Current Assets 1.19 0.61 7.04 10.94 16.04Capital Deployed 10.94 16.00 18.70 24.39 29.39b) Operational Data Gross Sales 52.91 70.49 88.90 100.00 155.00Less: Excise / Sales Tax - - - - -Net Sales 52.91 70.49 88.90 100.00 155.00Of which exports - - - - -Other Income - - - - -Manufacturing expenses 45.58 58.85 73.79 83.00 129.60Adm. & Selling Expenses 3.27 4.96 6.62 7.70 11.20Depreciation & Preliminary expenses 0.22 1.06 0.95 0.80 0.70Interest 0.56 0.64 1.26 1.50 3.50Net Profit before Tax 3.28 4.98 6.28 7.00 10.00Net Profit After Tax 3.28 4.98 6.28 7.00 10.00Drawings 1.21 2.88 2.93 1.00 3.00

c) Profitability RatioNet Profit / Sales (%) 6.20% 7.06% 7.06% 7.00% 6.45%Net Profit / Capital Employed (%) 29.98% 31.13% 33.58% 28.70% 34.03%Inventory Turnover Ratio (D) 10 64 0 58 49Debtor Turnover Ratio (D) 99 67 85 128 94Creditors Turnover Ratio (D) 306 314 260 41 37PAT / TNW (%) 29.98% 38.19% 38.32% 31.26% 34.03%Current Ratio 1.07 1.03 1.36 1.31 1.44TTL / TNW 0.00 0.23 0.14 0.09 -TOL / TNW 1.46 1.65 1.35 1.69 1.24

Details of Funds Invested Outside business / Loans and advances / inter corporate deposits (valuation of investments): Nil

Performance of subsidiaries / Group Company if investment is more than 10% of Net worth: N.A.

Whether Fund Flow Statement Submitted: Yes

Summary of Fund Flow 2008 2009 2010 2011Long Term Sources 6.12 7.72 6.80 7.70Less: Long Term Uses 6.70 1.29 2.90 2.60Surplus (+) Shortfall (-) (-0.58) 6.43 3.90 5.10Short Term Sources 3.87 3.44 25.75 0.80Less: Short Term Uses 3.29 9.87 29.65 5.90Surplus (+) Shortfall (-) 0.58 (-6.43) (-3.90) (-5.10)

From the above Fund Flow summary it is observed that during the year 2007-08 short-term funds amounting to Rs.0.58 lacs has been utilised for long term purpose, which is due to increase in fixed assets. However, the same has been rectified in the year 2008-09 which is to be maintained in the future estimations / projections.

2.0 COMMENTS ON PERFORMANCE:


Sales / Receipts:The firm is engaged in manufacturing mobile tower base and installation / erection of mobile tower. The firm is working on behalf of various mobile manufacturing companies like Reliance, BSNL, Vodafone, Airtel etc on turnkey basis. The firm achieved sales turnover of Rs.52.91 lacs in 2006-07, which increased to Rs.70.49 lacs during 2007-08 and Rs.88.90 lacs in 2008-09 thereby registering sales growth of 33.23% and 26.12% during the FY 2007-08 and 2008-09 over the previous year respectively. Net Profit:Net profit of the firm is increasing over the years i.e. it increased from Rs.3.28 lacs during 2006-07 with Net profit margin of 6.20% to Rs.4.98 lacs and Rs.6.28 lacs during 2007-08 and 2008-09 with Net Profit Margins of 7.06% and 7.06% respectively. The firm has now estimated Net Profit of Rs.7.00 lacs with Net Profit margin of 7.00% during 2009-10 and Net Profit of Rs.10.00 lacs with Net Profit Margin of 6.45% during 2010-11 which is reasonable considering the past performance and the projected level of business volume and is accepted.

Net Worth: TNW of the firm is satisfactory and is increasing due to continuous plough back of profits due to which the various ratios are at the acceptable level and reflect a healthy image of the firm.

Movement of Tangible Net Worth is as per the table given below:(Rs. in lacs)

Particulars 31.03.08 31.03.09 31.03.10 31.03.11Opening TN 10.94 13.04 16.39 22.39Add: Profit after tax / loss 4.98 6.28 7.00 10.00Add: Increase in equity / share premium - - - -Add: Change in intangible Assets - - - -Adjust previous year expenses - - - -Increase / Decrease in General Reserve - - - -Less Deferred Provision for Taxation - - - -Less Dividends including tax 2.88 2.93 1.00 3.00Closing TNW 13.04 16.39 22.39 29.39

Ratios:

Current Ratio:

Mar’07 Mar’08 Mar’09 Mar’10 Mar’11Current Ratio 1.07 1.03 1.36 1.31 1.44

Current ratio of the firm was below the benchmark level at 1.07 and 1.03 as on 31.03.2007 and 31.03.2008 respectively which improved to 1.36 as on 31.03.2009 and is above the benchmark level. The low level of current ratio during the earlier period is due to the firm being a proprietorship firm, various personal investment of the proprietor like FDs with Bank, NSC & KVP have been considered as a part of non current assets. The firm has now estimated / projected Current ratio at 1.31 & 1.44 as on Mar’10 & Mar’11 which is above the benchmark level and is acceptable. As per our Domestic Loan Policy Guidelines, 2009 Current ratio of 1.17 and above is acceptable in case of Micro and Small Enterprise Units.

Debt-Equity Ratio:

Mar’07 Mar’08 Mar’09 Mar’10 Mar’11TOL / TNW 1.46 1.65 1.35 1.69 1.24TTL / TNW - 0.23 0.14 0.09 -


TOL/TNW of the firm is always within the benchmark level. The ratio was 1.46 as on 31.03.07, 1.65 as on 31.03.08 and 1.35 as on 31.03.09. The proprietor of the firm has always ploughed back a substantial amount of profit into the business; consequently TNW position of the firm has improved over the period. The proprietor has increased the business of the firm steadily in a phased manner and the asset level is increasing, hence the liabilities have not increased in a disproportionate manner. Estimated TOL/TNW ratio is also within the benchmark level. TTL/TNW has remained at a very comfortable level throughout.

Other ratios’ are at acceptable level.

3.0 ASSESSMENT OF WORKING CAPITAL: Last assessment on what sales and for which year proposed: N.A. New Connection.

Whether company has achieved last accepted sales, if not, reasons: N.A. New connection

Net Sales / Export achieved upto the date of assessment / Half Yearly / Quarterly Sales: During the current FY 2009-10 the firm has already achieved sales of Rs.55/- lacs upto December 2009. Further, work orders / jobs presently at various stages of execution amounting to Rs.46/- lacs is to be completed in the month of February 2010.

Method of lending: 1st Method of Lending.

Working Capital term loan (if any): Nil

Justification for Working Capital: As per guidelines WC limit has been worked out on the basis of 1st Method of Lending as well as Turnover Method as per table given here under:(Rs in Lacs)

Assessment under the 1st Method of LendingParticulars 31.03.09 31.03.10 31.03.11Total Current Assets 26.85 46.79 52.44Less: Current liabilities (Other than Bank Borrowings)

13.06 3.35 3.90

Working Capital Gap 13.79 43.44 48.54Total Current Liabilities 19.81 35.85 36.40Actual Net Working Capital 7.04 10.94 16.04Minimum stipulated Net working Capital i.e. 25% of WCG

3.45 10.86 12.14

WC Gap – Minimum NWC 10.34 32.58 36.40WC Gap- Actual/Projected NWC 6.75 32.50 32.50MPBF 6.75 32.50 32.50Excess Borrowing, if any Nil Nil Nil

(Rs in Lacs)Assessment under Turnover Method Particulars 31.03.09 31.03.10 31.03.11Turnover Achieved / Projected 88.90 100.00 155.00Gross Working Capital requirement - 25% of Turnover

22.23 25.00 38.75

Minimum stipulated Net working Capital i.e. 5% of Turnover

4.45 5.00 7.75

Actual Margin 7.04 10.94 16.04Gross Working Capital Requirement-Minimum Margin

17.78 20.00 31.00

Gross Working Capital Requirement-Actual Margin 15.19 14.06 22.71PBF 15.19 14.06 22.71


The company has requested for sanction of fresh Cash Credit facility for Rs.32.50 lacs, which is justified above under the 1st Method Lending and is proposed for sanction.

Comments on inventory holding / creditors / debtors level / reasons for accepting large variance in inventory / creditors / debtors level

Holding Period in Days 31.03.07 31.03.08 31.03.09 31.03.10 31.03.11 Inventory/Net sales (days) 10 64 - 58 49Receivables/Net sales (days) 99 67 85 128 94Payables/Purchase (days) 306 314 260 41 37

Inventory Holding Level: Inventory holding level of the firm increased from 10 days as on 31.03.2007 to 64 days as on 31.03.2008 due to higher inventory holding as the inventory procured on credit in order to execute the work order was not completed, and hence sales was not registered as on 31.03.2008 which can be readily verified from the debtors and creditors holding level as on 31.03.2008.The inventory level was NIL as on 31.03.2009

Debtors Holding Level: During the FY 2007-08 and 2008-09 the debtors holding level of the firm was 67 days 85 days respectively against 99 days as on 31.03.2007. Holding level increased during 2008-09 against the earlier year as a major works was completed by the firm at an interior location, bill against which remained outstanding as payment is normally done only after verification etc of the bills before clearance. Due to this there is delay in clearing the bills, and most of the jobs are completed at the end of financial year. The estimated and projected level of debtors holding period of the firm has been projected to increase to 128 days in 2009-10.

Creditors Holding Level: Due to paucity of the working capital fund, the firm mainly depended on the sundry creditors for procurement of raw materials against the massive orders received in the past. It is further observed that the firm received the orders during the 2nd half of any financial year. Sundry creditor level was 314 days during 2007-08, which reduced to 260 days in 2008-09. The reason for the high creditors level is due to procurement of materials in credit during the last quarter of the FY which can be readily cross verified from the inventory and debtors holding level. The firm has now estimated / projected t reduce the creditors level at 41 days and 37 days during 2009-10 and 2010-11 respectively on availment of the proposed working capital bank finance which will increase the profitability of the firm and is acceptable.

SECTION III- INDUSTRY PERCEPTION

1.0. INDUSTRIAL BUSINESS SCENARIO PERCEPTION:

The Indian telecommunications industry is one of the fastest growing in the world and India is projected to become the second largest telecom market globally. According to the Telecom Regulatory Authority of India (TRAI), the number of telecom subscribers in the country increased to 562.21 million in December 2009, an increase of 3.5 per cent from 543.20 million in November 2009. With this the overall tele-density (telephones per 100 people) has touched 47.89. The telecom industry notched up US$ 8.56 billion in revenues during the quarter ended December 31, 2009 helped by a recovery in earnings from both mobile and landline services. According to Business Monitor International, India is currently adding 8-10 million mobile subscribers every month. It is estimated that by mid 2012, around half the country's population will own a mobile phone. This would translate into 612 million mobile subscribers, accounting for a tele-density of around 51 per cent by 2012. Moreover, according to a study conducted by Nokia, the communications sector is expected to emerge as the single largest component of the country's GDP with 15.4 per cent by 2014.

2.0. STRENGTH, WEAKNESS, OPPORTUNITY & THREATS:

STRENGTH:


The proprietor of the firm is well experienced in the line of activity & having versatile knowledge of the market.Nature of industry is in such a business where sustainable growth always will be there.

WEAKNESS: The business is entirely focused on the proprietor Mr. Amit Bose. The market is dominated by few big players, and if any relationship strain does occur with any big industrial house, it may affect the entire business of the firm.Mitigation - Sri Bose is quite young and in the business for quite a long time. In this line the promoters are well experienced in activity to withstand any adverse situation.

OPPORTUNITY:The demand of the product is very ethnic and related to day-to-day life habits. Therefore a continuous demand will stimulate the expansion to remote / interior areas.The market is still expanding and substantial scope exists for enhancement of the overall market.

THREAT:The organised firms are coming into the market and gradually market share of small firms may decrease.

Mitigation - The firm has created a good reputation in the market. Also adherence to timely delivery and dealing in the product will make the firm prevail in the competition

ANNEXURE- DTERMS AND CONDITIONS

Nature of Facility : Cash Credit Limit : Rs.32.50 lacs (Fresh)Purpose : Domestic Working Capital requirements for Engineering Services – Erection,

Installation & Commissioning of Mobile Tower installed under BTS technology Security : D.P. Note

Hypothecation of Stock Hypothecation of Book Debts.Letter of Continuing SecurityDeclaration cum Undertaking cum Authority.Notarised power of attorney in favour of Bank.

Margin : 25% of Stock and Book DebtsRate of Interest : 1.25% below BPLR [email protected]%p.a. With monthly rests. Period : 12 months

Collateral SecurityPledge of KVP No – **** – for Rs.0.50 lacs (Face value) along with interest accrued thereon in name of the Firm / Proprietor / Guarantor maturing on 19.06.2013Pledge of NSC Nos – ******* – for Rs.0.50 lac each i.e. total Rs.1.00 lacs along with interest accrued thereon in the name of the Firm / Proprietor / Guarantor maturing on 19.11.2010Lien on FDRs amounting to Rs.335706/- (Face value at ABC Bank) along interest with interest accrued thereon in the name of the Firm / Proprietor / Guarantor ((Prematurely to be closed & proceeds to be remitted to us for FDR Assignment of 2 LIPs – Policy Nos ***** – in the name of the proprietor Mr. AB with Surrender value of Rs.128975/- having Sum Assured of Rs.3.50 lacs (Rs.2.00 lacs + Rs.1.50 Lacs)FDRs created and kept under lien out of the Money Back amounts received from the LIPs assigned in favour of the Bank, if any.Additional: Extension of equitable mortgage of flat at - Flat No. L, 8th Floor, Block-B, SK, Kolkata – 67 including one garage space in the same premises; standing in the name of Sri AB valued at Rs.39.87 lacs primarily securing the housing loan facility of Rs.17.50 lacs at Bank of Baroda, Surya Sen Street Branch. (The value has been ascertained as per value determined by Registration Authority as per registration WB Form No 1504 dated 17.02.2010)



The above facility is further secured by the personal guarantee of Mrs JB worth Rs.5.50 lacs as on 31.03.2009

Specific conditions and Pre-disbursement requirementsFacility is to be disbursed after obtaining the Satisfactory Credit Report of the firm from their present Banker, i.e. ABC Bank APC Road Branch.Branch to disburse the amount of DUES with ABC Bank, A.P.C. Road Branch, Kolkata, against Letter of Consent from them, for handing over various securities as mentioned above against payment of the outstanding dues. Thereafter, after creation of extension of Equitable Mortgage and other charges for securities presently charged with ABC Bank, the remaining limit is to be releasedInitially, only to release necessary amount to settle the dues of ABC Bank, A P C Road Branch, Kolkata (Maximum amount Rs.6.70 lacs) and after creation of necessary charges further disbursement to be allowed. Subsequently all accounts with ABC Bank is to be closed for which necessary documentary evidence is to be submitted to the bank.No repayment of other banks / financial institution dues other than what the company has submitted to us is permitted


CHAPTER 9: CONCLUSION

9.1 Conclusion

Credit Appraisal is a process of appraising the credit worthiness of loan applicants. The

funds of depositor’s i.e. general public are mobilized by means of such advance /

investment. Thus it extremely important for the lender bank to assess the risk associated with

credit; thereby ensure the security for the funds deposited by the depositors. In BOB the credit

appraisal is done by thorough study of the project..

In SME LOAN FACTORY the proposal is received through branch or directly from the party.

From branch the review-cum enhancement proposal of existing and fresh proposal is received

from the party directly. Fresh proposal is of two types’ takeover account and completely new

proposal. Completely new proposal is of two types-a) Brown field and b) Green field proposal.

When proposal is received than according to checklist for different types of account a check has

to be done whether all the required documents has been submitted by the party. According to

application form, audited balance sheet and CMA data decision is taken.

9.2 Findings &Recommendations

My summer internship program at Bank of Baroda was very fruitful .It was a value addition as I

got a practical insight to the theoretical concepts learnt in class. However time was one of the

major limitations. Following are the findings and suggestions that I would propose in order to

improve the appraisal system:

The procedure starting from getting loan application to disbursement of loan takes around

two- three months and by the time disbursement is made, the market scenario changes. The

process of loan sanctioning should be more speedy.

Whenever a loan amount exceeding 12.5 crores is appraised, the process is routed

through a long channel. The proposal is first sent to the Zonal Office then to the Regional Office

and then to the Corporate Office, making the whole process time consuming.


The bank is witnessing an increasing number of intermediaries in the form of Consultants

between the client and the bank. It results in further delay and communication gap between the

borrower and the bank. Everytime the bank needs some information, it approaches the

Consultant Company, and the Company in turn asks the borrower about it and then passes the

information to the bank. The bank is unable to communicate directly with the promoter/owner of

the company.

The clients should be made more aware of the formats and procedures followed by the

bank, such as the Credit Monitoring Arrangement (CMA) format so that the loan process

becomes brisk and prompt for both the borrower as well as the bank.

It is observed that the information and the documents submitted by the borrower’s

Chartered Accountant are not concrete.


REFERENCES

1. http://www.livemint.com/2009/04/30100439/Result-Review-Bank-of-Baroda.html

2. BOB ANNUAL REPORT

3. http://www.economywatch.com/banking/

4. http://business.mapsofindia.com/india-industry/banking.html

5. www.indianexpress.com

6. www.dnb.co.in/SMEs/foreword.asp

7. http://www.pakistaneconomist.com/issue2001/issue46/f&m4.htm

8. www. rbi.org

9. www.bankofbaroda.com

10. http://business.mapsofindia.com/india-industry/banking.html

11. http://www.ibef.org/industry/Banking.aspx

12. http://www.investorwords.com/6477/default_rate.html


ANNEXTURES


Documents

Processing a Loan Proposal at Sme Loan Factory_ayandas