Sunita-Credot

8/8/2019 Sunita-Credot

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PRESENTATION ON CORPORATEFINANCE

By : Sunita Sasankan


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Introduction to Bank Credit

Why Bank Credit?

The Financing needs of the Businessmen were met

by traditional financiers during the olden days.Today the magnitude of both the demand and supply

have grown enormously which need a very large

financial backing, which can not be met bytraditional financiers. The importance of modern

commercial banks as credit providers to the

economy begins at this point.


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Sectors which Require Finance

Before nationalization of the commercial banks

banks were owned/controlled by the large industrial

houses. This resulted in a large amount of bank

credit flowing to a few industries/activities.

Post nationalization commercial banks are given

target to provide minimum level of credit to sectorslike agricultural, SMEs, Small Business &

Transport operators, food, housing, software etc.


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Loan Policy and Exposure Norms

RBI has prescribed the ceiling levels for providing

credit to specific borrower groups by commercial

banks. Banks may lend up to a maximum level of 15% and

40% of their capital funds to a single borrower and

group respectively. An additional 10% exposure is allowed on account

of infrastructure financing.


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The security aspect of lending

Credit provided by Banks create assets.

Such assets are called primary assets or securities

Any additional security provided to the lending

banker is known as collateral

However in the context of credit provided globally

by Banks, Security in any form is known as

collateral.


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Decision Making in Credit

May be done in subjective or objective manner.

Subjective decision making is generally

impressionistic in nature.

An objective decision making process makes an

attempt to quantify the various aspects of risk

contained in the credit proposal.


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Credit Appraisal

Assessment of credit requirements of an enterprise is

done on the basis of analysis of the financial

statements.

Major problem faced by credit analysts is that the

financial statements are prepared more for tax

management and less on the principles of prudentialfinancial management


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Understanding Financial Statements

Financial Statements contain relevant financial

information of a business enterprise for a period,

which is presented in a structured manner.

Financial statement includes Profit and Loss

Account, Balance Sheet, Cash Flow Statements,

EPS Statement etc.

contd....


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Contd.

Financial Statements are prepared in terms of theprovisions of various statues in force such as The

Companies Act, SEBI Guidelines etc., besides

provisions of various accounting standard issued byICAI are also required to be followed in course of

compilation


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Who Uses these Financial Statements?

Various interested groups make use of these

Financial Statements.

Investors Employees

Customers

Government & Allied agencies

Lenders


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Underlying assumptions and basic

accounting Concepts

Money measurement concept

The Entity concept

Dual Aspect Concept

Going Concern Concept

The A r al on e t


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Contd..

8. Profit before Tax(loss)

9. Provision for Taxes

10.Net profit / (loss)

11. Equity dividend paid

12. Retained profit


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Understanding Balance Sheet Items

Schedule VI of the Companies Act prescribes two

format for preparation of Balance sheet:-

1. Vertical 2. Horizontal

Central Government may allow companies to

deviate

Some companies engaged in specific activities like

banking, insurance and electricity generation etc,are

not required to present their balance sheet as per the

format


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Liabilities Assets

Share Capital Fixed Assets

Reserves & Surplus Investments

Secured Loans Current Assets, Loans &Advances

Unsecured Loans Misc..Expenditure

Current Liabilities &Provisions (to the extent not writtenoff or adjusted)

Total Liabilities Total Assets

Format of Horizontal Balance sheet as per Companies Act


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Important General Instructions for

preparation of Balance Sheet When there are numerous items which cannot be

conveniently included in the Balance Sheet itself

shall be furnished in separate schedule

Naye paise can also be given in addition to Rupees

Short term loan will include those, which are due for

not more than one year


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Funds Flow Analysis

A Funds Flow Statement is a statement of sources and uses

of funds for a given period. It is also know as Statement of

changes in Financial Position or Statement of Sources and

Application of Funds or where got where gone statement. It helps to monitor

1. Diversion of Funds

2. Withdrawal/External diversion of Funds 3. Withdrawal of profit

4. Monitoring


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Analysis of Financial Statements

It is an important exercise for the purpose for

studying the trends and bahaviour of different

financial parameters If required the financial statement are restructured

by classifying the various items as current, non

current and fixed assets or liabilities Ratio analysis is most power full tools for analyzing

the balance sheet


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Ratio Analysis

Financial Ratio may broadly be categorized into:-

Solvency Ratios Liquidity Ratios

Leverage Ratios

Profitability Ratios Activity Ratios


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Various Methods of Assessment of

Working Capital 1. First method ofLending

2. Second Method ofLending

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