CREDIT APPRAISAL and NPA MANAGEMENT

CREDIT APPRAISAL AND

NPA MANAGEMENT

Submitted by

Arkadip Gupta

(PGDMB14-101)

In partial fulfillment for the award of the degree of

POST GRADUATE DIPLOMA IN MANAGEMENT

INSTITUTE FOR FINANCIAL MANAGEMENT AND RESEARCH

24, Kothari Road, Nungambakkam, Chennai - 600 034

(2013-15)

CREDIT APPRAISAL AND NPA MANAGEMENT

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ACKNOWLEDGEMENT

I would like to thank Indian Overseas bank for giving me this opportunity to intern in

GeorgeTown Branch of Indian Overseas Bank. I would like to thank Mr. K K DurgaPrasad Rao,

Chief Manager, for his guidance and support throughout my stint. Mr. Purushottam, Senior

Employee (Advances) for his guidance and motivation right from Day one. I would like to

sincerely thank Mr. Sunil Sharma, Assistant Manager for providing me valuable insight in the

general banking functions throughout my internship period and patiently clarifying all my

queries. I would like to thank Prof. C V Krishnan, President IFMR for mentoring me throughout

my stint at IFMR since the first day. I would like to thank Prof. Ramesh Subramanian, faculty

IFMR for his guidance during my internship days.

Last but not the least, my words of gratitude remains incomplete unless I thank my

parents, who have stood by me and have given me the gift of life and learning.

Signature

__________________________

Date:__________________ Name of the student

____________________________


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TABLE OF CONTENTS

Chapter No Title Page

Number

Executive Summary

1 Introduction to Indian Overseas Bank

I. IOB growth in multiple chronological periods

II. Recent Achievements by IOB

III. SWOT analysis of IOB

IV. Current Scenario and Structure of Banking Sector

V. Objective of Study

VI. Purpose of Study

1-7

2 Credit Appraisal – Methodology

I. Introduction

II. Defining Credit Appraisal

III. Basic Types of Credit

IV. Conducting feasibility study

V. Brief Overview of Loans( both Fund and non-fund

based)

VI. Credit Appraisal process flowchart and workflow

VII. Some special features and loans restructuring

8-27

3 NPA Evaluation – Methodology

I. Introduction

II. Defining NPA

III. NPA categorization and provisioning

IV. RBI guidelines for Asset Classification

V. New norms to modify the NPA pact

VI. Trend Analysis of NPAs of the SCBs

VII. Impact of NPA on banking performances

VIII. Measures for NPA management

IX. SARFAESI Act

X. NPA issues and resolution by IOB

XI. Payment terms and their timeframe

XII. Accounting policy

28-54

4 Conclusion

I. Recommendations


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55-57

5 Appendix- Work Diary :

1. WC loan extension of ABC Papers

2. WC loan extension and recovery of ABC Graphics

3. Sources of tables and References

4. IOB Financial Statements and NPA volumes

58-81

82-97

98-98

99-101


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EXECUTIVE SUMMARY

This project deals with defining the credit appraisal and the process involved in the appraisal of

Working capital loans and Term Loans and also the process of recovering the loans in case the

account degrades to a substandard or doubtful category.

Credit Appraisal is the process by which the financing authority approves the loan requirement of

an organization (or an individual) by assessing his credit, capital, collateral, capacity and condition

either approves or rejects the loan. So for assessing one’s requirement the institution has to follow

a systematic procedure comprising of a series of steps. Often these loans are given either based out

of funds or they may be non-fund based. For a long term loan often the economic, financial,

technical as well as management viabilities are well defined and the borrower should invest in a

viable project. Often loans lend out on exorbitant projections get reduced to NPA. When the loan

gets degraded to a non-performing one; it acts as a double edged sword on the bank itself. While

the bank will not earn any interest, at the same time they have to make provisions for those

accounts. Provisioning eats out from the profit and for recovering those, bank have to hire DRA

agents and often the banks end up getting less as they settle for OTS. With the country recovering

from economic recession, the banks are particularly very careful with the loan sanctions and the

PSB already weighed down with huge volumes of NPA, are maneuvering new strategies to

increase their profits.

Credit Appraisal process measures both a company's efficiency and its short-term financial health.

These funds are used for day to day operations of the company. The bank is giving working capital

loans in the form of cash credit, miscellaneous cash credit, packing credit, Easy Trade Finance.

Term loans are a loan from a bank for a specific amount that has a specified repayment schedule

and a floating interest rate. Term loans almost always mature between one and 10 years. Many

banks specialize in financial guarantees and similar products that are used by exporters as a way

of attracting importer. The guarantee provides importers with an additional level of comfort that

the money will be repaid in the event that the exporters would not be able to fulfill the contractual

obligation to make timely shipments of goods. Often due to unforeseen circumstances, the parties


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start defaulting and then the bank has to follow certain norms while recovering the loans. Despite

of the loans being backed against collaterals, the banks prefer repayment of the loans with incurred

interest. In case a account degrades to NPA, then high value of provisioning eats into the profit

and even now the SCBs are weighed down by a huge percentage of NPAs. The Benchmark amount

discounted to Present Value is the least amount a bank settles upon either by one- time settlement

or by annual installments. Often for high value corporate loans, following economic crunches ,

CDR or flexi payments are done to reduce the NPA volume.

During my tenure at IOB, GeorgeTown I discussed the technical feasibility, financial

feasibility, industrial feasibility and managerial competency of companies before giving the loan.

Despite of following the norms while sanctioning the loans, there was one instance of a current

account which turned to NPA. The recovery procedure was elucidated to me and the analysis of

the case has been incorporated in my report. The other case was of the WC capital extension of a

current account. Other than these two case study analysis, I was informed about the normal banking

activities like CTS lodging and returns, funds transfer. Lastly I was also walked through the

banking IT system which was an in-house development based on C++.


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INDIAN OVERSEAS BANK:

Introduction:

Indian Overseas Bank (IOB) was founded in February 10th of the year 1937 by

Shri.M.Ct.M.Chidambaram Chettyar, a pioneer in many fields Banking, Insurance and Industry

with the twin objectives of specializing in foreign exchange business and overseas banking. IOB

had the unique distinction of commencing business in 10th February 1937 (on the inaugural day

itself) in three branches simultaneously - at Karaikudi and Chennai in India and Rangoon in Burma

(presently Myanmar) followed by a branch in Penang. Indian Overseas Bank has an ISO certified

in-house Information Technology department, which has developed the software that 900 branches

use to provide online banking to customers. At the dawn of Independence, IOB had 38 branches

in India and 7 branches abroad. The Products & Services of the bank includes NRI Services,

Personal Banking, Forex Services, Agri-Business Consultancy, Credit Cards, Any Branch Banking

and ATM Banking.

Saga of the IOB is covered into four categories, such as Pre-nationalization era (1947- 69),

at the time of Nationalization (1969), Post - nationalization era (1969-1992) and Post-Reform

Period - Unprecedented developments (1992 & after).

In Pre-nationalization era (1947- 69), IOB expanded its domestic activities and enlarged

its international banking operations. As early as in 1957, the Bank established a training center,

which has now grown into a Staff College at Chennai with 9 training centers all over the country.

IOB was the first Bank to venture into consumer credit. It introduced the popular Personal Loan

scheme during this period. In 1964, the Bank made a beginning in computerization in the areas of

inter-branch reconciliation and provident fund accounts. In 1968, IOB established a full-fledged

department to cater exclusively to the needs of the Agriculture sector. At the time of

Nationalization (1969), IOB was one of the 14 major banks that was nationalized in 1969. On the

eve of Nationalization in 1969, IOB had 195 branches in India with aggregate deposits of Rs. 67.70

Crs. and Advances of Rs. 44.90 Crs.

In Post - nationalization era (1969-1992), during the year 1973, IOB had to wind up its

five Malaysian branches as the Banking law in Malaysia prohibited operation of foreign

Government owned banks. This led to creation of United Asian Bank Berhad in which IOB had

16.67% of the paid up capital. In the same year Bharat Overseas Bank Ltd was created in India


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with 30% equity participation from IOB to take over IOB's branch at Bangkok in Thailand. In

1977, IOB opened its branch in Seoul and the Bank opened a Foreign Currency Banking Unit in

the free trade zone in Colombo in 1979. The Bank sponsored 3 Regional Rural Banks viz. Puri

Gramya Bank, Pandyan Grama Bank and Dhenkanal Gramya Bank. The Bank had setup a separate

Computer Policy and Planning Department (CPPD) to implement the programme of

computerization, to develop software packages on its own and to impart training to staff members

in this field. In the year 1988, IOB acquired Bank of Tamil Nadu in a rescue.

In Post-Reform Period - Unprecedented developments (1992 & after), IOB formulated

its Web site during the month of February in 1997. The Bank got autonomous status during the

year 1997-98. IOB had the distinction of being the first Bank in Banking Industry to obtain ISO

9001 Certification for its Computer Policy and Planning Department from Det Norske Veritas

(DNV), Netherlands in September 1999. IOB started its STAR services in December of the year

1999 for speedy realization of outstation cheques. Now the Bank has 14 STARS centres and one

Controlling Centre for providing this service and in the same year started tapping the potential of

Internet by enabling ABB cardholders in Delhi to pay their telephone bills by just logging on to

MTNL web site and by authorizing the Bank to debit towards the telephone bills. The Bank made

a successful debut in raising capital from the public during the financial year 2000-01, despite a

subdued capital market. IOB bagged the NABARD's award for credit linking the highest number

of Self Help Groups for 2000-2001 among the Banks in Tamil Nadu.

Mobile banking under SMS technology was implemented in Ahmedabad and Baroda. Pilot run of

Phase I of the Internet Banking commenced covering 34 branches in 5 Metropolitan centers. IOB

was one among the first to join Reserve Bank of India's negotiated dealing system for security

dialing online. The Bank has finalized an e-commerce strategy and has developed the necessary

Internet banking modules in-house. For the first time a Total Branch Automation package

developed in-house has been customized in one of the Overseas Branches of the Bank. Most

software developed in-house.

During May of the year 2007, Indian rating agency ICRA assigned an 'A1+' rating to the

proposed 20 bln rupee certificates of deposit programme of Indian Overseas Bank, citing the

bank's consistent and measured growth, the improvement in its asset quality through effective

monitoring and collection systems, and improving core profitability. During June of the year

2008, IOB launched two new products namely IOB Gold' and IOB Silver' in savings account and


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IOB Classic' and IOB Super' under current account. IOB have a network of more than one

thousand eight hundred branches all over India located in various metropolitan cities, urban,

suburban and rural areas. IOB plans to set up banking operations in Malaysia in a joint venture

with two other India-based banks Bank of Baroda and Andhra Bank with a minimum capital

investment of RM320 million (US$100 million).

RECENT ACHIEVEMENTS (includes only the fiscal period 2013-

14):

3000th Branch Vaniangudi opened on 17.8.2013 by Hon. Finance Minister.

No. of Branches as on 31.3.2014 -3272

IOB adjudged Best Public Sector Bank in Priority Sector Lending by Dun & Bradstreet.

IOB's Official Facebook, launched by CMD M Narendra

The New Indian Express and Sunday Standard's Best Bankers' Award presented to IOB

Agriculture Leadership Award 2013 conferred to IOB

Award for "BEST RSETI IN THE COUNTRY received by RSETI Thanjavur

IBA Technology Award 2012-2013 for Best use of Business Intelligence awarded to IOB

IOB has bagged Best bank Award from Govt of Tamil Nadu for its support to Self Help Group (SHGs) in

the State.

IOB bagged the National Award for Effective Implementation of PMEGP 2012 -13 (South Zone)

IOB awarded Customer Focus Award for constantly delivering industry leading service standards.

IOB received “Banking Excellence Award “ from Finance Ministry,GOI

IT ACHIEVEMENTS OF IOB:

I. Core banking solutions

II. Internet banking

III. Mobile bank

IV. Payment Gateway

V. Alternate banking solutions

VI. CTS implementation

Table1. Achievements of IOB in 2013-14

Table2. Developments in the IT infrastructure


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SWOT ANALYSIS OF THE BANK:

Fig1. SWOT analysis of IOB


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CURRENT SCENARIO AND STRUCTURE OF BANKING

SECTOR:

Banking is the heart of India's financial services sector. Presently, the overall banking in India is

considered as fairly mature in terms of supply, product range and reach - even though reach in rural India

still remains a challenge for the private sector and foreign banks. Even in terms of quality of assets and

Capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets - as

compared to other banks in comparable economies in its region. The Reserve Bank of India is an

autonomous body, with minimal pressure from the Government.

The banking industry has undergone numerous changes over the past few years to be at par with

international banking norms and standards. While the banks' motive has shifted from social banking to

profit banking, dependence on ledgers, documents, cheques and slips has been replaced by electronic

initiatives or cashless banking. Earlier customers used to approach banks to avail their services, but now

banks approach them to market their offerings. With increasing competition and better quality of services,

customized service solutions seem to be the future of banking.

Mr Fred Hochberg, the US Exim Bank Chief, feels strong about India's long-term growth prospects. Exim

Bank's exposure to India is US$ 8.5 billion of its total portfolio of US$ 108 billion and the concentration in

India is expected to get bigger in 2013-14.

With the growth in the Indian economy expected to be strong for quite some time especially in its services

sector, the demand for banking services especially retail banking, mortgages and investment services are

expected to be strong. Mergers & Acquisitions., takeovers, are much more in action in India.

Fig 2: The commercial Banking Structure in India


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One of the classical economic functions of the banking industry that has remained virtually unchanged over

the centuries is lending. On the one hand, competition has had considerable adverse impact on the margins,

which lenders have enjoyed, but on the other hand technology has to some extent reduced the cost of

delivery of various products and services.

Bank is a financial institution that borrows money from the public and lends money to the public for

productive purposes. The Indian Banking Regulation Act of 1949 defines the term Banking Company as

"Any company which transacts banking business in India" and the term banking as "Accepting for the

purpose of lending all investment of deposits, of money from the public, repayable on demand or otherwise

and withdrawal by cheque, draft or otherwise".

Banks play important role in economic development of a country, like:

Banks mobilize the small savings of the people and make them available for productive purposes.

Promotes the habit of savings among the people thereby offering attractive rates of interests on

their deposits.

Provides safety and security to the surplus money of the depositors and as well provides a

convenient and economical method of payment.

Banks provide convenient means of transfer of fund from one place to another.

Helps the movement of capital from regions where it is not very useful to regions where it can be

more useful.

Banks advances exposure in trade and commerce, industry and agriculture by knowing their

financial requirements and prospects.

Bank acts as an intermediary between the depositors and the investors. Bank also acts as mediator

between exporter and importer who does foreign trades.

Thus Indian banking has come from a long way from being a sleepy business institution to a highly pro-

active and dynamic entity. This transformation has been largely brought about by the large dose of

liberalization and economic reforms that allowed banks to explore new business opportunities rather than

generating revenues from conventional streams (i.e. borrowing and lending). The banking in India is highly

fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances.

OBJECTIVE OF STUDY:

The objective of the given project is to understand the entire process involved in successful lending

by the bank beginning from the financial analysis of lending, identification of reliable potential customer,

legal sanction to monitoring of those accounts and final recovery procedure through scheduled EMI

structure. This aims at analyzing the ways in which the bank manages its NPA. It includes identification of

problems associated with pre and post advances and simultaneously finding out viable solutions and

alternatives to address those issues.

The project is likely to help organization understand the various issues related to the advances, giving it

certain solutions to reduce the losses due to non-recovery of loans and maintain a healthy trend line of

decreasing net NPA there by helping it to maintain a balance between its deposits and advances and an

increase in its percentage yield.


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PURPOSE OF STUDY:

The purpose of preparation of this report is to focus on the lending function of banks with specific reference

to Indian Overseas Bank. The report states the following points.

I. The study gives an insight into the procedure followed by the Bank as per the norms of the Reserve

Bank of India and the authority that governs the functioning of Indian Overseas Bank. It also

explains certain technologies commonly used in banking industry.

II. The report states the different types of advances that are financed by the bank and their

classification as fund and non-fund based advances.

III. Further the documentation of proposed advances and their final sanction forms another major area

that is taken into consideration.

IV. Credit monitoring, identification of Non-Performing Assets (NPA) and legal procedure adopted by

the bank in recovery of those advances forms the most significant part of the study. The same is

exhibited in various case studies that are included in the project to give a better view, comprising

of an integral part of the report.

V. The last topic discussed as per the schedule of the project involves an in depth study of the problems

related to pre and post sanction of advances and their possible solutions. Certain conclusions and

recommendations are made as per the analysis of the cases.


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CREDIT APPRAISAL

INTRODUCTION:

Credit Appraisal is a process to estimate and evaluate 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. The risk involved here is the 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 credit evaluation of the

customer has to be performed; this 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 principal and the interest.

So while appraising the credit worthiness of a loan applicant a multitude of factors like age,

income, number of dependents, nature of employment, continuity of employment, repayment

capacity, previous loans, credit cards, etc. come into play. Every bank or lending institution has

its own panel of officials for this purpose.

However the 6 ‘C’ of credit are crucial & relevant to all borrowers/ lending which is

relevant for all the borrowers. They are namely:

I. Character

II. Capacity

III. Collateral

IV. Capital

V. Cash flow

VI. Condition

In case any of the above mentioned factor is missing, then the bankers face a serious problem.

The serious doubt which looms in their mind is about the viability of the loan being repaid in the

correct scheduled time. Following a proper and transparent credit monitoring policy the credit


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defaulting could be minimized. So, a credit is a legal contract where one party receives resource

or wealth from another party and promises to repay him on a future date along with interest. In

simple terms, a credit is an agreement of postponed payments of goods bought or loan. With the

issuance of a credit, a debt is formed. Credit is provisioning of resources (such as granting a

loan) by one party to another party where that second party does not reimburse the first party

immediately, thereby generating a debt, and instead arranges either to repay or return those

resources (or material(s) of equal value) at a later date. Credit allows the borrower to buy goods

or commodities now, and pay for them later. Credit can be used to buy things with an agreement

to repay the loans over a period of time. The most common way to avail credit is by the use of

credit cards. Other credit plans include personal loans, home loans, vehicle loans, student loans,

small business loans, trade.

So there are two parties in a credit transaction -- the first party is called a creditor, also

known as a lender, while the second party is called a debtor, also known as a borrower.

CHARACTER

CAPACITY

COLLATERAL

CONDITIONS

CASH FLOW

CAPITAL

FLOWCHART

6 C’s OF CREDIT

Fig3. 6C’s of credit


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DEFINING CREDIT APPRAISAL:

The assessment of the various risks that can impact on the repayment of loan is credit appraisal.

Depending on the purpose of loan and the quantum, the appraisal process may be simple or

elaborate. For small personal loans, credit scoring based on income, life style and existing

liabilities may suffice. But for project financing, the process comprises technical, commercial,

marketing, financial, managerial appraisals as also implementation schedule and ability.

So credit appraisal can be defined as “a means of an investigation/assessment done by the

bank prior before providing any loans & advances/project finance & also checks the commercial,

financial & technical viability of the project proposed its funding pattern & further checks the

primary & collateral security cover available for recovery of such funds.”

BASIC TYPES OF CREDIT:

There are four basic types of credit. By understanding how each works, you will be able to get

the most for your money and avoid paying unnecessary charges.

Service credit is monthly payments for utilities such as telephone, gas, electricity, and water.

You often have to pay a deposit, and you may pay a late charge if your payment is not on time.

Loans let you borrow cash. Loans can be for small or large amounts and for a few days or

several years. Money can be repaid in one lump sum or in several regular payments until the

amount you borrowed and the finance charges are paid in full. Loans can be secured or

unsecured.

Installment credit may be described as buying on time, financing through the store or the easy

payment plan. The borrower takes the goods home in exchange for a promise to pay later. Cars,

major appliances, and furniture are often purchased this way. You usually sign a contract, make a

down payment, and agree to pay the balance with a specified number of equal payments called

installments. The finance charges are included in the payments. The item you purchase may be

used as security for the loan.

Credit cards are issued by individual retail stores, banks, or businesses. Using a credit card can

be the equivalent of an interest-free loan--if you pay for the use of it in full at the end of each

month.


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CONDUCTING FEASIBILITY STUDY:

The success of a feasibility study is based on the careful identification and assessment of all of

the important issues for business success. A detailed Project Report is submitted by an

entrepreneur, prepared by a approved agency or a consultancy organization. Such report provides

indepth details of the project requesting finance. It includes the Technical aspects, Managerial

Aspect, the Economic Condition and Projected Financial performance of the company. It is

necessary for the appraising officer to cross check the information provided in the report for

determining the worthiness of the project. They are

I. Financial feasibility

II. Technical feasibility

III. Economic feasibility

IV. Management feasibility

BRIEF OVERVIEW OF LOANS:

Credit can be of two types fund base & non-fund base:

FUND BASED includes:

I. Working Capital

II. Term Loan

NON-FUND BASED includes:

I. Letter of Credit

II. Bank Guarantee

III. Bill Discounting

FUND BASED FUNDING:

A. WORKING CAPITAL:

The objective of running any industry is earning profits. An industry will require funds to

acquire “Fixed assets” like land, building, plant, machinery, equipment, vehicles, tools etc., &

also to run the business i.e. its day to day operations.


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Funds required for day to-day working will be to finance production & sales. For

production, funds are needed for purchase of raw materials/ stores/ fuel, for employment of

labour, for power charges etc., for storing finishing goods till they are sold out & for financing

the sales by way of sundry debtors/ receivables.

Capital or funds required for an industry can therefore be bifurcated as fixed capital &

working capital. Working capital in this context is the excess of current assets over current

liabilities. The excess of current assets over current liabilities is treated as net working capital or

liquid surplus & represents that portion of the working capital which has been provided from the

long term source.

So working capital can be defined as:

“the funds required to carry the required levels of current assets to enable the unit to carry

on its operations at the expected levels uninterruptedly.”

Thus Working Capital Required is dependent on

(a) The volume of activity (viz. level of operations i.e. Production & sales)

(b) The activity carried on viz. manufacturing process, product, production programme, the

materials & marketing mix.

Different Methodologies for calculating Working Capital:

I. MPBF Method (Maximum permissible bank finance) as per Tandon Committee is

used for limits between ₹ 2-10Cr. (₹ 7.5-10Cr for SMEs)

II. Turnover Method as per Nayak Committee. It is used for approving advances upto

2Cr. (₹ 7.5 Cr in case of SMEs)

III. Cash Budget Method. It is used for limits above 10 Cr and for seasonal industries

like tea,sugar,etc.

OPERATING CYCLE:

Any manufacturing activity is characterized by a cycle of operations consisting of purchase

of purchase of raw materials for cash, converting these into finished goods & realizing cash by

sale of these finished goods.


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The time that lapses between cash outlay & cash realization by sale of finished goods and

realization of sundry debtors is known as the length of the operating cycle.

That is, the operating cycle consists of:

I. Time taken to acquire raw materials & average period for which they are in store.

II. Conversion process time

III. Average period for which finished goods are in store and

IV. Average collection period of receivables (Sundry Debtors)

Operating cycle is also called the cash-to-cash cycle & indicates how cash is converted into

raw material, stocks in process, finished goods, bills (receivables) & finally back to cash.

Working capital is the total cash that is circulating in this cycle. Therefore, working capital can

be turned over or redeployed after completing the cycle.

So, the length of the operating cycle = (I+II+III+IV)

TANDON COMMITTEE:

A committee headed by Sh. P.L.Tandon suggested three methods of lending in August 1974.

1st method of Lending

Banks can work out the working capital gap (total current assets less current liabilities other

than bank borrowings) and finance a maximum of 75 per cent of the gap; the balance to come out

Fig4. Diagrammatic representation of

Operating Cycle


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of long-term funds, i.e., owned funds and term borrowings. This approach was considered suitable

only for very small borrowers i.e. where the requirements of credit were less than ₹.10 Crs.

2nd method of lending

Under this method, the borrower should provide for a minimum of 25% of total current

assets out of long-term funds i.e., owned funds plus term borrowings. A certain level of credit for

purchases and other current liabilities will be available to fund the build up of current assets and

the bank will provide the balance. Consequently, total current liabilities inclusive of bank

borrowings could not exceed 75% of current assets.

3rd method of lending

Under this method, the borrower's contribution from long term funds will be to the extent

of the entire CORE CURRENT ASSETS (representing the absolute minimum level of raw

materials, process stock, finished goods and stores which are in the pipeline to ensure continuity

of production) and a minimum of 25% of the balance current assets should be financed out of the

long term funds plus term borrowings. This method was never used by RBI since its inception.

Fig5. Tandon Committee method of calculation


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METHOD 1 METHOD 2 METHOD 3

0.75 *( CA – CL ) 0.75*CA –CL 0.75*(CA-CCA)-CL

0.75*18,26,924 – 5,58,461

=13,70,193

0.75*17,89,039 -5,58,461

=12,30,578

0.75*17,89,039 – 5,58,461 &

==7,83,318

& It has been assumed that CCA constitutes 25% of the Current Assets.

NAYAK COMMITTEE:

The Committee headed by Sh.P.R.Nayak was appointed by RBI in 1991; they examined

the adequacy of institutional credit to SME sector and recommended that for aggregate fund based

working capital limits up to ₹. 200 Lakhs will be computed on the basis of minimum of 20% of

Table3. Tandon Committee method of calculation


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the projected annual turnover for new as well as existing units. These SSI units would be required

to bring 5% of their turnover as the margin money.

CASH BUDGET METHOD:

Particulars ESTIMATED PROJECTED

31.03.11 31.03.12

AS PER NAYAK COMMITTEE

A Net Sales 44.88 51.09

B Accepted Sales 44.88 51.09

C 25% on accepted sales 11.22 12.77

D 5% margin 2.244 2.55

E Actual margin available 3.15 2.80

F C-D 8.796 10.22

G C-E 8.07 9.97

H Bank Finance Sought 36.81 41.12

Fig6. Flowchart of Nayak Committee

Table4. Calculation as per Nayak Committe


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Cash budget containing cash receipts and cash payments for a particular period is obtained from

the borrower. The difference of cash receipt and payments for individual month represents surplus/

deficit. The opening cash surplus/deficit and the surplus /deficit for individual months are carried

forward from month to month, with cumulative effect. The limit is fixed based on the peak

cumulative deficit and drawings for individual months are allowed within the deficit for the

respective month. However this procedure is yet to be made a part of the banking system.

B. TERM LOAN:

A term loan is granted for a fixed term of not less than 3 years intended normally for

financing fixed assets acquired with a repayment schedule normally not exceeding 8 years. A

term loan is a loan granted for the purpose of capital assets, such as purchase of land,

construction of, buildings, purchase of machinery, modernization, renovation or rationalization

of plant, & repayable from out of the future earning of the enterprise, in installments, as per a

prearranged schedule. From the above definition, the following differences between a term loan

& the working capital credit afforded by the Bank are apparent:

I. The purpose of the term loan is for acquisition of capital assets.

II. The term loan is an advance not repayable on demand but only in installments ranging over

a period of years.

III. The repayment of term loan is not out of sale proceeds of the goods & commodities per se,

whether given as security or not. The repayment should come out of the future cash accruals

from the activity of the unit.

IV. The security is not the readily saleable goods & commodities but the fixed assets of the

units.

It may thus be observed that the scope & operation of the term loans are entirely different from

those of the conventional working capital advances. The Bank’s commitment is for a long period

& the risk involved is greater. An element of risk is inherent in any type of loan because of the

uncertainty of the repayment. Longer the duration of the credit, greater is the attendant uncertainty

of repayment & consequently the risk involved also becomes greater. However, it may be observed

that term loans are not so lacking in liquidity as they appear to be.


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These loans are subject to a definite repayment program unlike short term loans for working

capital (especially the cash credits) which are being renewed year after year. Term loans would be

repaid in a regular way from the anticipated income of the industry/ trade. These distinctive

characteristics of term loans distinguish them from the short term credit granted by the banks & it

becomes necessary therefore, to adopt a different approach in examining the applications of

borrowers for such credit & for appraising such proposals.

The repayment of a term loan depends on the future income of the borrowing unit. Hence, the

primary task of the bank before granting term loans is to assure itself that the anticipated income

from the unit would provide the necessary amount for the repayment of the loan. This will involve

a detailed scrutiny of the scheme, its financial aspects, economic aspects, technical aspects, a

projection of future trends of outputs & sales & estimates of cost, returns, flow of funds & profits.

NON-FUND BASED FUNDING:

A. LETTER OF CREDIT:

A Letter of Credit (LC) is an arrangement whereby a bank (the issuing bank) acting at the

request & on the instructions of the customer (the applicant) or on its own behalf,

I. is to make a payment to or to the order of a third party (the beneficiary), or is to

accept & pay bills of exchange (drafts drawn by the beneficiary); or

II. authorize another bank to effect such payment, or to accept & pay such bills of

exchanges (drafts); or

III. authorize another bank to negotiate against stipulated document(s), provided that the

terms & conditions of the credit are complied with.

Basic Principle:

The basic principle behind an LC is to facilitate orderly movement of trade; it is therefore necessary

that the evidence of movement of goods is present. Hence documentary LCs is those which contain

documents of title to goods as part of the LC documents. Clean bills which do not have document

of title to goods are not normally established by banks. Bankers and all concerned deal only in


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documents & not in goods. If documents are in order issuing bank will pay irrespective of whether

the goods are of expected quality or not. Banks are also not responsible for the genuineness of the

documents & quantity/quality of goods. If importer is your borrower, the bank has to advise him

to convert all his requirements in the form of documents to ensure quantity & quality of goods.

Parties to the LC

1) Applicant – The buyer who applies for opening LC

2) Beneficiary – The seller who supplies goods

3) Issuing Bank – The Bank which opens the LC

4) Advising Bank – The Bank which advises the LC after confirming authenticity

5) Negotiating Bank – The Bank which negotiates the documents

6) Confirming Bank – The Bank which adds its confirmation to the LC

7) Reimbursing Bank – The Bank which reimburses the LC amount to negotiating bank

8) Second beneficiary – The additional beneficiary in case of transferable LCs

Confirming bank may not be there in a transaction unless the beneficiary demand

confirmation by own bankers & such a request is made part of LC terms. A bank will confirm an

LC for his beneficiary if opening bank requests this as part of LC terms. Reimbursing bank is

used in an LC transaction by an opening bank when the bank does not have a direct

correspondent/branch through whom the negotiating bank can be reimbursed. Here, the opening

bank will direct the reimbursing bank to reimburse the negotiating bank with the payment made

to the beneficiary. In the case of transferable LC, the LC may be transferred to the second

beneficiary & if provided in the LC it can be transferred even more than once.


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B. BANK GUARANTEE:

A contract of guarantee is defined as ‘a contract to perform the promise or discharge the

liability of the third person in case of the default’. The parties to the contract of guarantees are:

a) Applicant: The principal debtor – person at whose request the guarantee is executed

b) Beneficiary: Person to whom the guarantee is given & who can enforce it in case of default.

c) Guarantee: The person who undertakes to discharge the obligations of the applicant in case

of his default.

Thus, guarantee is a collateral contract, consequential to a main contract between the applicant

& the beneficiary.

Purpose of Bank Guarantees

Fig7. Letter of credit schematic diagram


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Bank Guarantees are used to for both preventive & remedial purposes. The guarantees executed

by banks comprise both performance guarantees & financial guarantees. The guarantees are

structured according to the terms of agreement, viz., security, maturity & purpose.

Branches may issue guarantees generally for the following purposes:

I. In lieu of security deposit/earnest money deposit for participating in tenders;

II. Mobilization advance or advance money before commencement of the project by the

contractor & for money to be received in various stages like plant layout,

design/drawings in project finance;

III. In respect of raw materials supplies or for advances by the buyers;

IV. In respect of due performance of specific contracts by the borrowers & for obtaining

full payment of the bills;

V. Performance guarantee for warranty period on completion of contract which would

enable the suppliers to realize the proceeds without waiting for warranty period to be

over;

VI. To allow units to draw funds from time to time from the concerned indenters against

part execution of contracts, etc.

VII. Bid bonds on behalf of exporters

VIII. Export performance guarantees on behalf of exporters favoring the Customs

Department under EPCG scheme.

Guidelines on conduct of Bank Guarantee business:

Branches, as a general rule, should limit themselves to the provision of financial guarantees

& exercise due caution with regards to performance guarantee business. The subtle difference

between the two types of guarantees is that under a financial guarantee, a bank guarantee’s a

customer financial worth, creditworthiness & his capacity to take up financial risks. In a


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performance guarantee, the bank’s guarantee obligations relate to the performance related

obligations of the applicant (customer).

While issuing financial guarantees, it should be ensured that customers should be in a position to

reimbursethe Bank in case the Bank is required to make the payment under the guarantee. In case

of performance guarantee, branches should exercise due caution & have sufficient experience with

the customer to satisfy themselves that the customer has the necessary experience, capacity,

expertise, & means to perform the obligations under the contract & any default is not likely to

occur.

Branches should not issue guarantees for a period more than 18 months without prior reference to

the controlling authority. Extant instructions stipulate an Administrative Clearance for issue of

BGs for a period in excess of 18 months. However, in cases where requests are received for

extension of the period of BGs as long as the fresh period of extension is within 18 months. No

bank guarantee should normally have a maturity of more than 10 years. Bank guarantee beyond

maturity of 10 years may be considered against 100% cash margin with prior approval of the

controlling authority. More than ordinary care is required to be executed while issuing guarantees

on behalf of customers who enjoy credit facilities with other banks. Unsecured guarantees, where

furnished by exception, should be for a short period & for relatively small amounts. All deferred

payment guarantee should ordinarily be secured.

Fig8. Schematic diagram of Bank Guarantee


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C. BILL DISCOUNTING:

Business activities across borders are done through letter of credit. Letter of credit is an

instrument issued in the favor of the seller by the buyer bank assuring that payment will be made

after certain timer frame depending upon the terms and conditions agreed, it could be either sight,

30 days from the Bill of Lading or 120 days from the date of bill of lading. Now when the seller

receives the letter of credit through bank, seller prepares the documents and presents the same to

the bank. The most important element in the same is the bill of exchange which is used to negotiate

a letter of credit. Seller discounts that bill of exchange with the bank and gets money. Discounting

bill terminology is used for this purpose. Now it is seller's bank responsibility to send documents

and bill of exchange to buyer's bank for onward forwarding to the buyer for the acceptance and

the buyer finally, accepts bill of exchange drawn by the seller on buyer's bank because he has

opened that LC. Buyers bank than get that signed bill of exchange from the buyer as guarantee and

release payment to the sellers bank and waits for the time span.

STEP 1 APPRAISAL

I. Preliminary Appraisal

II. Detailed Appraisal

III. Present relationship with the bank

IV. Credit Risk Rating

V. Opinion reports

VI. Existing charges on the assets of the unit

VII. Structure of facilities and terms of Sanction

VIII. Review of the proposal

IX. Proposal for sanction

X. Assistance to assessment

STEP 2 ASSESSMENTS

I. Review the draft

II. Interact with borrower

III. Carry out pre-sanction visit to the borrower’s company


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IV. Examine criticality of the project

V. Recommend / modify/ add further inputs into the proposal

VI. Final drafting of the proposal with the appraiser

VII. Recommendation for sanction

STEP 3 SANCTIONS

I. Peruse the proposal

II. Examine the proposed exposure in accordance with the banking guidelines,

norms, etc

III. Accord sanction/ defer the decision/ reject the application

STEP 4 POST SANCTION PROCESS

The post-sanction credit process can be broadly classified into three stages viz., follow-

up, supervision and monitoring, which together facilitate efficient and effective credit

management and maintaining high level of standard assets. The objectives of the three stages of

post sanction process are detailed below.

CREDIT APPRAISAL PROCESS FLOWCHART:

Fig9. Post Sanction processes


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Time frame for loan disbursal:

NATURE OF CREDIT

PROPOSALS

REVISED MAXIMUM TIME FRAME FOR

DISPOSAL OF LOAN APPLICATION

Credit Limit : Above 2 lacs

Sanction of Fresh/Renewal /Enhanced

Credit Limit. (Incuding Export Credit)

30 Days

Sanction of Ad-hoc Credit Limits 15 Days (15 Days)

Credit Limit: Upto Rs. 2.00 Lac – All

Types

15 Days

Proposal falling under Zonal Head 15 Days with in the max. period of 30 Days

Reasons for rejections for loan up to Rs.

2 Lacs

Convey in writing the main reason

• Receipt of application from applicant

1

• Receipt of documents (Balance sheet, KYC papers, Different govt. registration no., MOA, AOA, and Properties documents)

2

• Pre-sanction visit by bank officers

3

• Check for RBI defaulters list, willful defaulters list, CIBIL data, ECGC caution list, etc.

4

• Title clearance reports of the properties to be obtained from empanelled advocates

5

• Valuation reports of the properties to be obtained from empanelled engineers

6

• Preparation of financial data

7

• Proposal preparation

8

• Assessment of proposal

9

• Sanction/approval of proposal by appropriate sanctioning authority

10

• Documentations, agreements, mortgages

11

• Disbursement of loan

12

• Post sanction activities such as receiving stock statements, review of accounts, renew of accounts, etc (On regular basis)

13

Fig10. Workflow of credit appraisal


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I. Review of all borrowable account will be completed on yearly basis

II. Where complete review is not possible, the review may be undertaken based on last

available data, conduct of account.

III. Operational review can be done maximum two times.

IV. Audited Balance sheet must be insisted in all borrowal accounts having limits of Rs.10

Lakhs & above

V. Limits to be utilized within 6 months of sanction, availing beyond 6 months have to be

authorized by the sanctioning authority.

VI. In case of PSU pending CAG audit report operational review may be done subject to

satisfactory conduct & good track record.

SOME SPECIAL FEATURES AND LOANS RESTRUCTURING :

A. Ad-hoc facility

Adhoc facility can be permitted for 90-days. Adhoc Limit + existing Limit should not exceed

respective delegated authority. In case of excess drawing allowed that should be advised to

sanctioning authority on the same day with proper reference.

B. Maturity norms

For Asset-Liability Management, the classification of loan assets (based on the remaining

maturity) will be as under:

Short Term Loan: All loans below 3 years.

Medium Term Loan: Maturity range form 3 years to below 5 years.

Long Term Loans: Term loans in the maturity range of 5 years and above.

C. Standard for new proposal

Table5. Tabular representation of loan disbursal


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In case the borrower is defaulter of any bank including us or the account is classified NPA,

the prior permission from H.O. is required. However in case of existing account, we will continue

to finance / enhance the facility after giving justification.

D. Documentation Standards

The debt taken by the borrower is clearly established by the documents. The charge created

on the assets (security) against the debt is maintained and enforceable. The bank’s right to enforce

the recovery is exercised before the account becomes time barred as per limitation act.The account

having funded & non-funded facility more than Rs.10.0 lacs and above Legal Audit should be

done within 30-days from the first disbursement of loan.

To examine the compliance with extant sanction & post sanction processes / procedures laid down

from time to time.

E. Loan Audit

Loan audit is done for the limit to Rs.5.0 crores and above.

F. CDR

CDR is applicable for limits of Rs10 Cr and above.


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NPA MANAGEMENT

INTRODUCTION:

The Indian banking system has undergone significant transformation following financial

sector reforms as laid out by Shri M.Narasimham Committee in 1991. It is adopting international

best practices with a vision to strengthen the banking sector and its operations in the economy.

Several prudential and provisioning norms have been introduced, and these are expecting the

banks to usher overall efficiency, bring down Non Performing Assets (NPA), to improve the

profitability and overall financial health in the banks, in general. In the background of these

developments, this research paper attempts to analyze the managing of the NPA of Indian

OverseasBank (George Town Branch) in recent times. This paper assumes significance with the

recent proposal by RBI to introduce Basel III norms in the banking sector from January 2013.

Basel III framework of guidelines formulated by Bank for International Settlements (BIS) in

consultation with central bank expecting that both the public and private banks abide by the

norms to follow a stricter adherence to the principles thus resulting in healthy financial and

operational management policies. A stricter banking system has been ushered in, gradually

through a phased manner, prudential norms for income recognition, asset classification and

provisioning for the advances portfolio of the banks so as to move towards greater consistency

and transparency in the published accounts. RBI has been adopting international best practices

with a vision to strengthen the banking sector and its operations in the economy. Several

prudential and provisioning norms have been introduced, and these are expecting the banks to

usher overall efficiency, bring down Non Performing Assets (NPA), to improve the profitability

and overall financial health in the banks, in general.

The Basel III capital regulation has been implemented in India from April 1, 2013 in

phases and will be fully implemented as on March 31, 2018. These norms lay more focus and

importance on quality, consistency and transparency of the capital base. The Reserve Bank has

estimated the additional capital requirements of domestic banks for full Basel III implementation

till March 2018. These estimates are based on two broad assumptions:

(i) increase in the risk weighted assets of 20 per cent per annum;

(ii) internal accrual of the order of 1 per cent of risk weighted assets.


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The estimates suggest that public sector banks will require an additional capital to the

tune of 4.15 trillion, of which equity capital will be of the order of 1.4 - 1.5 trillion, while non-

equity capital will be of the order of 2.65 - 2.75 trillion. Being the majority stakeholder,

Government has been infusing capital in these banks. During the last five years, the Government

has infused 477 billion in the public sector banks. The Government will infuse `140 billion in the

public sector banks during 2013-14. The present level of government share-holding in these

banks ranges from 55 per cent to 82 per cent. Thus, there is sufficient headroom available to the

Government for dilution of its stake in a number of public sector banks. Following the financial

turmoil post 2008 and GDP coming down to single digit figures, the NPA value swelled. The

major factors which contributed to the deterioration of the asset quality were mainly the domestic

economic slowdown, the contribution of other factors like delays in obtaining statutory and other

approvals as well as lax credit appraisal / monitoring by banks was also significant. Further,

credit concentration in certain sectors and higher leverage among corporates also increased stress

on asset quality. In recent years there has also been a sharp increase in the amount of debt

restructured under the corporate debt restructuring mechanism. This has implications for the

banks’ already stressed asset quality in the period ahead.

DEFINING NPA:

The RBI defines the NPA as “A ‘non-performing asset’ (NPA) was defined as a credit

facility in respect of which the interest and/ or installment of principal has remained ‘past

due’ for a specified period of time. An amount due under any credit facility is treated as "past

due" when it has not been paid within 30 days from the due date. Due to the improvements in the

payment and settlement systems, recovery climate, up-gradation of technology in the banking

system, etc., it was decided to dispense with ‘past due’ concept, with effect from March 31,

2001. Further, all the commercial banks are subject to regulatory and supervisory frame work by

RBI in accordance with switch over to Risk Based Supervision (RBS) in 2003-04 which has

concurrently ushered in CAMELS(Capital adequacy, Asset quality, Management, Earnings,

Liquidity, Systems and Controls ) approach and Basel II norms. In accordance with asset

classification norms brought in with effect from March 31, 2004, a non-performing asset (NPA)

shell be a loan or an advance Accordingly, as from that date, a Non-performing Asset (NPA)

shall be an advance where:


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i. interest and/or installment of principal remain overdue for a period of more than 90 days

in respect of a Term Loan,

ii. the account remains ‘out of order’ for a period of more than 90 days, in respect of an

Overdraft/Cash Credit (OD/CC),

iii. the bill remains overdue for a period of more than 90 days in the case of bills purchased

and discounted,

iv. interest and/or installment of principal remains overdue for two harvest seasons but for

a period not exceeding two half years in the case of an advance granted for agricultural

purposes,

v. any amount to be received remains overdue for a period of more than 90 days in respect

of other accounts.

NPA CLASSIFICATION, ASSET CATEGORIZATION AND

THEIR PROVISIONING:

Gross NPA:

Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI

guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks.

It consists of all the nonstandard assets like as sub-standard, doubtful, and loss assets. It can be

calculated with the help of following ratio:

Gross NPAs Ratio = Gross NPAs / Gross Advances

Net NPA:

Net NPAs are those type of NPAs in which the bank has deducted the provision

regarding NPAs. Net NPA shows the actual burden of banks. Since in India, bank balance sheets

contain a huge amount of NPAs and the process of recovery and write off of loans is very time

consuming, the provisions the banks have to make against the NPAs according to the central

bank guidelines, are quite significant. That is why the difference between gross and net NPA is

quite high. It can be calculated by following:

Net NPAs = Gross NPAs – Provisions / Gross Advances – Provisions

Standard Assets:


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Standard assets are the ones in which the bank is receiving interest as well as the

principal amount of the loan regularly from the customer. Here it is also very important that in

this case the arrears of interest and the principal amount of loan do not exceed 90 days at the end

of financial year. If asset fails to be in category of standard asset that is amount due more than 90

days then it is NPA and NPAs are further need to classify in sub categories.

Sub Standard Assets:

With effect from 31 March 2005, a substandard asset would be one, which has remained

NPA for a period less than or equal to 12 month. The following features are exhibited by

substandard assets: the current net worth of the borrowers / guarantor or the current market value

of the security charged is not enough to ensure recovery of the dues to the banks in full; and the

asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and are

characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are

not corrected.

Doubtful Assets:

A loan classified as doubtful has all the weaknesses inherent in assets that were classified

as sub-standard, with the added characteristic that the weaknesses make collection or liquidation

in full, on the basis of currently known facts, conditions and values– highly questionable and

improbable. With effect from March 31, 2005, an asset would be classified as doubtful if it

remained in the sub-standard category for 12 months.

Loss Assets:

A loss asset is one which considered uncollectible and of such little value that its

continuance as a bankable asset is not warranted- although there may be some salvage or

recovery value. Also, these assets would have been identified as” loss assets “by the bank or

internal or external auditors or the RBI inspection but the amount would not have been written-

off wholly.

Provisioning Norms of Standard Assets:

From the year ending 31.03.2000, the banks should make a general provision of a

minimum of 0.40 percent on standard assets on global loan portfolio basis. The provisions on

standard assets should not be reckoned for arriving at net NPAs. The provisions towards

Standard Assets need not be netted from gross advances but shown separately as 'Contingent


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Provisions against Standard Assets' under 'Other Liabilities and Provisions - Others' in Schedule

5 of the balance sheet.

Provisioning Norms of Sub Standard Assets:

A general provision of 10 percent on total outstanding should be made without making

any allowance for DICGC/ECGC guarantee cover and securities available.

Provisioning Norms for Loss Assets:

The entire asset should be written off. If the assets are permitted to remain in the books

for any reason, 100 percent of the outstanding should be provided for.

Floating provisions

Some of the banks make a 'floating provision' over and above the specific provisions

made in respect of accounts identified as NPAs. The floating provisions, wherever available,

could be set-off against provisions required to be made as per above stated provisioning

guidelines. Considering that higher loan loss provisioning adds to the overall financial strength

of the banks and the stability of the financial sector, banks are urged to voluntarily set apart

provisions much above the minimum prudential levels as a desirable practice.

Fig11. Asset Provisioning for different categories of asset


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GUIDELINES FOR CLASSIFICATION OF ASSETS:

RBI recommends appropriate internal systems to eliminate the tendency to delay or

postpone the identification of NPAs, especially in respect of high value accounts. The banks may

fix a minimum cut off point to decide what would constitute a high value account depending

upon their respective business levels. The cut-off point should be valid for the entire accounting

year. Responsibility and validation levels for ensuring proper asset classification may be fixed by

the banks.

Accounts with temporary deficiencies:

The classification of an asset as NPA should be based on the record of recovery. Bank

should not classify an advance account as NPA merely due to the existence of some deficiencies

which are temporary in nature such as non-availability of adequate drawing power based on the

latest available stock statement, balance outstanding exceeding the limit temporarily, non-

submission of stock statements and non-renewal of the limits on the due date, etc.

Accounts regularized near about the balance sheet date:

The asset classification of borrowed accounts where a solitary or a few credits are

recorded before the balance sheet date should be handled with care and without scope for

subjectivity. Where the account indicates inherent weakness on the basis of the data available,

the account should be deemed as a NPA. In other genuine cases, the banks must furnish

satisfactory evidence to the Statutory Auditors/Inspecting Officers about the manner of

regularisation of the account to eliminate doubts on their performing status.

Asset Classification to be borrower-wise and not facility-wise:

It is difficult to envisage a situation when only one facility to a borrower becomes a

problem credit and not others. Therefore, all the facilities granted by a bank to a borrower will

have to be treated as NPA and not the particular facility or part thereof which has become

irregular.

If the debits arising out of devolvement of letters of credit or invoked guarantees are parked in a

separate account, the balance outstanding in that account also should be treated as a part of the


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borrower’s principal operating account for the purpose of application of prudential norms on

income recognition, asset classification and provisioning.

Advances under consortium arrangements:

Asset classification of accounts under consortium should be based on the record of

recovery of the individual member banks and other aspects having a bearing on the

recoverability of the advances. Where the remittances by the borrower under consortium lending

arrangements are pooled with one bank and/or where the bank receiving remittances is not

parting with the share of other member banks, the account will be treated as not serviced in the

books of the other member banks and therefore, be treated as NPA. The banks participating in

the consortium should therefore, arrange to get their share of recovery transferred from the lead

bank or get an express consent from the lead bank for the transfer of their share of recovery, to

ensure proper asset classification in their respective books.

Accounts where there is erosion in the value of security:

A NPA need not go through the various stages of classification in cases of serious credit

impairment and such assets should be straightaway classified as doubtful or loss asset as

appropriate. Erosion in the value of security can be reckoned as significant when the realizable

value of the security is less than 50 per cent of the value assessed by the bank or accepted by RBI

at the time of last inspection, as the case may be. Such NPAs may be straightaway classified

under doubtful category and provisioning should be made as applicable to doubtful assets.

If the realizable value of the security, as assessed by the bank approved valuers / RBI is less than

10 per cent of the outstanding in the borrowal accounts, the existence of security should be

ignored and the asset should be straightaway classified as loss asset. It may be either written off

or fully provided for by the bank.

Advances to PACS/FSS ceded to Commercial Banks:

In respect of agricultural advances as well as advances for other purposes granted by

banks to ceded PACS/ FSS under the on-lending system, only that particular credit facility

granted to PACS/ FSS which is in default for a period of two harvest seasons (not exceeding two

half years)/two quarters, as the case may be, after it has become due will be classified as NPA

and not all the credit facilities sanctioned to a PACS/ FSS. The other direct loans & advances, if

any, granted by the bank to the member borrower of a PACS/ FSS outside the on-lending


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arrangement will become NPA even if one of the credit facilities granted to the same borrower

becomes NPA.

Advances against Term Deposits, NSC’s, KVP/IVP, etc:

Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and life

policies need not be treated as NPAs. Advances against gold ornaments, government securities

and all other securities are not covered by this exemption.

Loans with moratorium for payment of interest:

In the case of bank finance given for industrial projects or for agricultural plantations etc.

where moratorium is available for payment of interest, payment of interest becomes 'due' only

after the moratorium or gestation period is over. Therefore, such amounts of interest do not

become overdue and hence NPA, with reference to the date of debit of interest. They become

overdue after due date for payment of interest, if uncollected.

In the case of housing loan or similar advances granted to staff members where interest is

payable after recovery of principal, interest need not be considered as overdue from the

firstquarter onwards.

Such loans/advances should be classified as NPA only when there is a default in repayment of

installment of principal or payment of interest the respective due dates.

Agricultural advances:

In respect of advances granted for agricultural purpose where interest and/or installment

of principal remains unpaid after it has become past due for two harvest seasons but for a period

not exceeding two half years, such an advance should be treated as NPA. The above norms

should be made applicable only in respect of short term agricultural loans for production and

marketing of seasonal agricultural crops such as paddy, wheat, oilseeds, sugarcane etc. In respect

of other activities like horticulture, floriculture or allied activities such as animal husbandry,

poultry farming etc., assessment of NPA would be done as in the case of other advances.

Where natural calamities impair the repaying capacity of agricultural borrowers, banks

may decide on their own as a relief measure / conversion of the short-term production loan into a

term loan or re-schedulement of the repayment period; and the sanctioning of fresh short-term

loan, subject to various guidelines contained in RBI circulars

The asset classification of these loans would thereafter be governed by the revised terms &

conditions and would be treated as NPA if interest and/or installment of principal remains


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unpaid, after it has become past due, for two harvest seasons but for a period not exceeding two

half years.

Government guaranteed advances:

The credit facilities backed by guarantee of the Central Government though overdue may

be treated as NPA only when the Government repudiates its guarantee when invoked. This

exemption from classification of Government guaranteed advances as NPA is not for the purpose

of recognition of income. With effect from 1st April 2000, advances sanctioned against State

Government guarantees should be classified as NPA in the normal course, if the guarantee is

invoked and remains in default for more than two quarters. With effect from March 31, 2001 the

period of default is revised as more than 180 days.

Restructuring/ Rescheduling of Loans:

A standard asset where the terms of the loan agreement regarding interest and principal

have been renegotiated or rescheduled after commencement of production should be classified as

sub-standard and should remain in such category for at least one year of satisfactory performance

under the renegotiated or rescheduled terms. In the case of sub-standard and doubtful assets also,

rescheduling does not entitle a bank to upgrade the quality of advance automatically unless there

is satisfactory performance under the rescheduled / renegotiated terms. Following representations

from banks that the foregoing stipulations deter the banks from restructuring of standard and sub-

standard loan assets even though the modification of terms might not jeopardize the assurance

of repayment of dues from the borrower, the norms relating to restructuring of standard and sub-

standard assets were reviewed in March 2001. In the context of restructuring of the accounts, the

following stages at which the restructuring / rescheduling / renegotiation of the terms of loan

agreement could take place, can be identified:

a. before commencement of commercial production;

b. after commencement of commercial production but before the asset has been classified

as sub-standard,

c. after commencement of commercial production and after the asset has been classified as

sub-standard.

Availability of security/ net worth of borrower/guarantor:


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The availability of security or net worth of borrower/ guarantor should not be taken into

account for the purpose of treating an advance as NPA or otherwise, as income recognition is

based out on record of recovery.

Take-out Finance:

Takeout finance is the product emerging in the context of the funding of long-term

infrastructure projects. Under this arrangement, the institution/the bank financing infrastructure

projects will have an arrangement with any financial institution for transferring to the latter the

outstanding in respect of such financing in their books on a pre-determined basis. In view of the

time-lag involved in taking-over, the possibility of a default in the meantime cannot be ruled out.

The norms of asset classification will have to be followed by the concerned bank/financial

institution in whose books the account stands as balance sheet item as on the relevant date. If the

lending institution observes that the asset has turned NPA on the basis of the record of recovery,

it should be classified accordingly. The lending institution should not recognise income on

accrual basis and account for the same only when it is paid by the borrower/ taking over

institution (if the arrangement so provides). The lending institution should also make provisions

against any asset turning into NPA pending its takeover by taking over institution. As and when

the asset is taken over by the taking over institution, the corresponding provisions could be

reversed. However, the taking over institution, on taking over such assets, should make

provisions treating the account as NPA from the actual date of it becoming NPA even though the

account was not in its books as on that date.

Post-shipment Supplier's Credit:

In respect of post-shipment credit extended by the banks covering export of goods to

countries for which the ECGC’s cover is available, EXIM Bank has introduced a guarantee cum-

refinance programme whereby, in the event of default, EXIM Bank will pay the guaranteed

amount to the bank within a period of 30 days from the day the bank invokes the guarantee after

the exporter has filed claim with ECGC. Accordingly, to the extent payment has been received

from the EXIM Bank, the advance may not be treated as a nonperforming asset for asset

classification and provisioning purposes.

Export Project Finance:


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In respect of export project finance, there could be instances where the actual importer

has paid the dues to the bank abroad but the bank in turn is unable to remit the amount due to

political developments such as war, strife, UN embargo, etc.

In such cases, where the lending bank is able to establish through documentary evidence that the

importer has cleared the dues in full by depositing the amount in the bank abroad before it turned

into NPA in the books of the bank, but the importer's country is not allowing the funds to be

remitted due to political or other reasons, the asset classification may be made after a period of

one year from the date the amount was deposited by the importer in the bank abroad.

NEW NORMS TO MODIFY THE NPA ACT:

The Reserve Bank of India has offered some leeway to banks for early detection and

resolution of bad loans. Under the new regime kicking off from April 1, lenders can finance 50

per cent of the outstanding loan value, RBI said in Framework for Revitalizing. Distressed

Assets in the Economy, released on Thursday. Earlier, RBI had proposed to allow takeover of

existing loans by new financiers at 60 per cent or more of the loan value. The central bank also

diluted rules for accelerated provisioning it had proposed for non-performing accounts. Now

lenders will make 25 per cent provision for unsecured loans that remain unpaid for six months.

Initially, RBI had proposed 30 per cent provisions. Plus, for loans that have remained unpaid for

two years, banks have to set aside 40 per cent, instead of 50 per cent. The new framework calls

for early formation of a lenders' committee with the timeline to agree to a plan for resolution. It

also offers incentives for lenders to agree collectively and quickly to a restructuring plan. It will

give better regulatory treatment of stressed assets if a resolution plan is underway. However, it

will attract accelerated provisioning if no agreement can be reached. Seeking improvements in

the current debt restructuring process, the framework allows independent evaluation of large

value restructuring. This is for purpose of framing viable plans and a fair sharing of losses

(and future possible upsides) between promoters and creditors. It also mooted steps to enable

better functioning of asset reconstruction companies. This is apart from encouraging sector-

specific companies and private equity firms to play active role in stressed assets market. It has

offered liberal regulatory treatment provided for asset sales. Lenders can spread loss on sale over

two years, provided the loss is fully disclosed. Leveraged buyouts will be allowed for


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specialized entities for acquisition of 'stressed companies'.

RBI predicts that there will be a net rise in the total worth of NPA will rise to 4.26% in

September, 2014 from 4.2% in the last year which corresponds to about ₹ 0.62 trillion in one

year.

Key features of the pact:

I. Early formation of Joint Lender's Forum for action plan

II. Carrot for lenders to agree collectively and quickly to a plan

III. Penalty of higher provisioning for delayed actions

IV. Independent evaluation for large recast deals

V. Take-out and refinancing will not be treated as restructuring

VI. Losses from selling of NPAs can be spread over two years

VII. Buying and selling of NPAs between asset recast firms

TREND ANALYSIS OF THE NPAs OF THE SCBs:

Now coming back to India, there was a significant decline in the non-performing assets

(NPAs) of SCBs from 2000-01, despite adoption of 90 day delinquency norm from March 31,

2004. The gross NPAs of SCBs declined from 4.9 per cent of total assets in 2000-01 to 3.3 per

cent in 2003-04. The corresponding decline in net NPAs was from 2.72 per cent to 1.2 per cent.

Both gross NPAs and net NPAs declined in absolute terms also. While the gross NPAs declined

from ₹.68,717 crores in 2002-03 to ₹. 64,785 crore in 2003-04, net NPAs declined from ₹.

32,632 crores to ₹. 24,396 crores in the same period. The gross NPAs of SCBs declined by

₹.7,309 crores during 2005-06 over and above the decline of ₹.6, 561 crores in the previous

year. Increased recovery of NPAs, decline in fresh slippages and a sharp increase in gross loans

and advances by SCBs led to a sharp decline in the ratio of gross NPAs to gross advances to 3.3

per cent at end-March 2006 from 5.2 per cent at end-March 2005. Likewise, net NPAs as

percentage of net advances declined to 1.2 per cent from 2.0 per cent at end-March 2005 and

gross NPAs to total assets 1.83 percent at end-March 2006 from 2.52 at end-March 2005. The


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setting up of the Asset Reconstruction Corporation of India (ARCIL) has provided a major boost

to banks‘efforts to recover their NPAs. Indian banks recovered a higher amount of NPAs during

2007-08 than that during the previous year. Though the total amount recovered and written-off at

₹.28, 283 crores in 2007-08 was higher than ₹.26, 243 crores in the previous year, it was lower

than fresh addition of NPAs (₹.34, 420 crores) during the year. As a result, the gross NPAs of

SCBs increased by ₹.6, 136 crores in 2007-08. The hardening of interest rates might have made

the repayment of loans difficult for some borrowers, resulting in some increase in NPAs in this

sector. Notwithstanding increase in gross NPAs of the banking sector, The gross NPAs as a

percent of total assets per cent is declined to 1.3 during the year 2006-07 and net NPAs to total

assets percent is also declined to 0.57. In the year 2008-09 provisioning made was higher than

write-back of excess provisioning, net NPAs increased during the year due to increase in gross

NPAs, the gross NPAs to gross advances ratio for SCBs is 2.25 per cent and the gross NPAs to

total assets, net NPAs to total assets per cent is 1.3 & 0.6. The SRFAESI Act has, thus, been the

most important means of recovery of NPAs. However, there has been a steady fall in the amount

of NPAs recovered under SRFAESI Act as per cent of the total amount of NPAs involved under

this channel in recent years, a trend which could also be seen between 2008-09 and 2009-10.

During the crisis year 2008-09, the gross NPA ratio remained unchanged for Indian banks.

However, during 2009-10, the gross NPA ratio showed an increase to 2.39 per cent. After netting

out provisions, there was a rise in the net NPA ratio of SCBs from 1.05 per cent at end-March

2009 to 1.12 per cent at end-March 2010. The growth in NPAs of Indian banks has largely

followed a lagged cyclical pattern with regard to credit growth, the pro-cyclical behaviour of the

banking system, wherein asset quality can get compromised during periods of high credit growth

and this can result in the creation of NPAs for banks in the later years. At end- June 2010, there

were 13 registered Securitization Companies /reconstruction companies in India. Of the total

amount of assets securitized by these companies at end-June 2010, the largest amount was

subscribed to by banks. The net NPAs to net advances ratio of each of the public sector banks at

end-March 2009 was less than 2 per cent. This suggests overall improvement in the financial

wealth of Indian banks in recent years.

That shocking figure of ₹ 2.06 trillion, is the gross non-performing assets (advances gone

bad) of Indian banks. By the end of June 2013, 3.85 per cent of the banks’ advances to the

industry were non-performing assets (NPAs). Warming sounded when State Bank of India, the


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largest bank in India, declared that its NPAs had crossed the 5 per cent mark. Given the size of

SBI, that is a huge figure. Some other banks have performed worse in terms of percentages,

though given their smaller size, the absolute number is lower. So despite of being a part of

EMDE, India’s ₹ 80 trillion banking industry is under severe stress and analysts warn that banks

will be able to recover only half their NPAs due to the current economic depression.

However, the silver lining is profits in most banks are rising and retail segment NPAs are coming

down.

Bank Group FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12

Gross NPAs to Gross

Advances (%)

Scheduled Commercial

Banks2.30 2.30 2.40 2.50 3.10

Public Sector Banks 2.20 2.00 2.20 2.40 3.30

Old Private Sector Banks 2.30 2.40 2.30 1.90 1.80

New Private Sector

Banks2.20 3.10 2.90 2.70 2.20

Foreign Banks 1.80 4.00 4.30 2.50 2.60

Net NPAs to Net

Advances (%)

Scheduled Commercial

Banks1.00 1.10 1.10 1.10 1.40

Public Sector Banks 1.00 0.90 1.09 1.20 1.70

Old Private Sector Banks 0.70 0.90 0.80 0.50 0.60

New Private Sector Banks 1.20 1.40 1.00 0.60 0.50

Foreign Banks 0.80 1.80 1.90 0.60 0.60

Table6. NPA to Advances in Scheduled Commercial Banks


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Two banks whose gross NPA as a percentage of their gross advances places them among the

worst performers are the State Bank of Mysore (5.61%) and UCO Bank (5.58%). But since the

absolute figure is on the lower side, they do not figure in the list. PNB the 2nd largest commercial

bank had a stunning NPA of ₹ 99.88B in June, 2012. The majority of their NPA was owing to

the unsecured loans issued out to gem and jewellery sector. For IOB the outcome is on the

pessimistic side. The gross NPA of the Chennai-based bank stood at ₹ 7,431.69 crore (₹ 74.31

billion), compared to ₹ 4,409.70 crore (₹ 44.09 billion) for the same quarter last year. The gross

NPA is 4.45 per cent of advances. The massive rise in NPA saw its net profit drop by 46 per cent

to ₹ 125.8 crore (₹ 1.25 billion) compared to ₹ 233.4 crore (₹ 2.33 billion) in the same quarter

last fiscal. IOB’s total income nevertheless did rise to ₹ 6,187.02 crore (₹ 61.87 billion) from ₹

5,402.85 crore (₹ 54.02 billion) in June 2012.

IMPACT OF NPA ON BANKING PERFORMANCE:

The problem of NPAs in the Indian banking system is one of the foremost and the most

formidable problems that had impact the entire banking system. Higher NPA ratio trembles the

confidence of investors, depositors, lenders etc. It also causes poor recycling of funds, which in

turn will have deleterious effect on the deployment of credit. The non-recovery of loans effects

not only further availability of credit but also financial soundness of the banks.

Profitability: NPAs put detrimental impact on the profitability as banks stop to earn income on

one hand and attract higher provisioning compared to standard assets on the other hand. On an

average, banks are providing around 25% to 30% additional provision on incremental NPAs

which has direct bearing on the profitability of the banks.

Asset (Credit) contraction: The increased NPAs put pressure on recycling of funds and reduces

the ability of banks for lending more and thus results in lesser interest income. It contracts the

money stock which may lead to economic slowdown.


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Liability Management: In the light of high NPAs, Banks tend to lower the interest rates on

deposits on one hand and likely to levy higher interest rates on advances to sustain NIM. This

may become hurdle in smooth financial intermediation process and hampers banks’ business as

well as economic growth.

Capital Adequacy: As per Basel norms, banks are required to maintain adequate capital on risk-

weighted assets on an ongoing basis. Every increase in NPA level adds to risk weighted assets

which warrant the banks to shore up their capital base further. Capital has a price tag ranging

from 12% to 18% since it is a scarce resource.

Shareholders’ confidence: Normally, shareholders are interested to enhance value of their

investments through higher dividends and market capitalization which is possible only when the

bank posts significant profits through improved business. The increased NPA level is likely to

have adverse impact on the bank business as well as profitability thereby the shareholders do not

receive a market return on their capital and sometimes it may erode their value of investments.

As per extant guidelines, banks whose Net NPA level is 5% & above are required to take prior

permission from RBI to declare dividend and also stipulate cap on dividend payout.

Public confidence: Credibility of banking system is also affected greatly due to higher level

NPAs because it shakes the confidence of general public in the soundness of the banking system.

The increased NPAs may pose liquidity issues which is likely to lead run on bank by depositors.

Thus, the increased incidence of NPAs not only affects the performance of the banks but also

affect the economy as a whole.

In a nutshell, the high incidence of NPA has cascading impact on all important financial ratios of

the banks viz., Net Interest Margin, Return on Assets, Profitability, Dividend Payout, Provision

coverage ratio, Credit contraction etc., which may likely to erode the value of all stakeholders

including Shareholders, Depositors, Borrowers, Employees and public at large.

MEASURES FOR NPA MANAGEMENT:


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NPA management is a matter of concern for the entire banking system. Before preparing

an action plan for the NPA management, one has to see the background of NPA and reasons for

its origin. There are certain factors, which are beyond the control of the borrowers as well as

banks. But, constant and effective monitoring and control will definitely minimize this problem.

Few measures for reduction of NPA can be as follows.

Preventive Measures:

Preventive measures are aimed at preventing the 'Standard assets' from turning into a

'Sub-standard asset'. This objective is achieved by robust appraisal system while sanctioning

loans & advances and proper follow up. These include mainly:

I. Extending need based finance.

II. Proper selection of the borrower and financing only in viable schemes.

III. Following up with the borrowers about the irregularities in audit and inspection

immediately and arranging for their rectification.

IV. Periodic visit to the borrower's business unit for the verification of stocks and Plant

& machinery, Proper scrutiny of the quarterly financial statements and projections

received from the borrower.

V. Renewing and reviewing the credit facilities at least once a year alongwith

conducting fresh appraisal and assessment of the productivity, profitability and

financial strength of the unit.

Corrective Measures:

These are aimed at reducing and minimizing the outstanding of the NPA. These mainly

include various recovery or write-off measures as follows:

I. Recovery of dues by regular follow- ups with the borrowers or guarantors.

II. If the unit is financial viable and its management is capable enough to turn around

the unit by additional assistance, the bank should grant a financial package, subject

to the borrower agreeing to certain terms and condition involving some additional

securities charged by the bank and adhering to a strict control by the bank. If the


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unit turns around, the irregularities in the account gets adjusted due to improved

cash flow/profits and the account becomes performing.

III. Legal enforcement of the securities charged to the bank, sale or auction them and

appropriating the sale proceeds towards the dues.

IV. Compromise with the borrower by reducing some portion of interest or principal

due if a borrower is ready/promises to pay the agreed sum under one time

settlement. The balance amount is written off against the provisions made.

V. Write off loss assets

SARFAESI ACT:

Sections 7 (1) & (2) of the SARFAESI Act provide for issue of Security Receipts after

acquisition of any financial asset under sub-section (1) of section 5 to qualified institutional

buyers (QIBs) and raising of funds from the qualified institutional buyers by formulating

schemes for acquiring financial assets. The scheme for the purpose of offering Security Receipts

under sub-section (1) or raising funds under sub-section (2) of Section 7 of the SARFAESI Act

may be in the nature of a trust to be managed by the Securitization Company or Reconstruction

Company (SC/RC):

(i) The trusts shall issue Security Receipts only to QIBs; and hold and administer the financial

assets for the benefit of the QIBs;

(ii) The trusteeship of such trusts shall vest with the SC/RC;

(iii) A SC or RC proposing to issue SRS, shall, prior to such an issue, formulate a policy, duly

approved by the Board of Directors, providing for issue of Security Receipts under each scheme

formulated by the trust ;

(iv) The policy referred to in sub-paragraph (iii) above shall provide that the Security Receipts

issued would be transferable /assignable only in favour of other QIBs. (QIBs is defined under

Section 2(1)(u) of the SARFAESI Act).

Objective of the Guidelines

The objective of these guidelines is to enable Securitization Company/Reconstruction


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Company (SC/RC) registered with the Reserve Bank under the Securitization and Reconstruction

of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to declare

NAV of the Security Receipts (SRS) so that the Qualified Institutional Buyers (QIBs) can value

their investment in SRS issued by the SC/RC in accordance with applicable guidelines. For the

purpose of arriving at NAV, the SRS should be rated as rating is an important objective tool.

Rating / Grading by Credit Rating Agencies

Rating should be obtained from SEBI registered Rating Agencies to begin with. The

SC/RC should supply the necessary information to rating agencies. Commonality and conflict of

interest if any, between the SC/RC and Rating Agency should be disclosed.

(a) The rating/ grading should be based on `recovery risk’ as against `default’ which is the basis

for rating assignments in normal assets, i.e. how much more can be recovered instead of timely

payment. Rating should reflect present value of the anticipated recoverability of future cash

flows.

(b) The ratings will be assigned on a new, specifically developed rating scale called “Recovery

Rating (RR) scale”. Each rating category in the recovery scale will have an associate range of

recovery, expressed in percentage terms, which can be used for arriving at NAV of SRS.

Symbols should be assigned by rating agencies to the associated range of recovery, which would

inter-se not deviate by a specified percentage points, say (+/ -) 10%. The rating would be

indicative.

(c) The Recovery Rating should be assessed after factoring in any other relevant obligation and

not on the original debt obligation.

(d) The other key factors that should be factored in while assigning Recovery Rating are extent

of debt acquired, composition of lenders, collaterals available, security and seniority of debt,

individual lender vis-à-vis institutional lender, estimated cash flows, uncertainty in realising

expected cash flows in initial period, management, business risk, financial risk, etc.

(e) The Recovery Rating should reflect changes like change in resolution strategy of the SC/RC

that take place from time to time.

(f) The Recovery Rating will factor in likely cash flows from the underlying impaired assets till

the maturity of the SRS.


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(g) The Recovery Rating should comprise of rating of not only the SRS of the scheme as a whole

but wherever feasible a desegregation of each component in the scheme, which means the

underlying assets of each entity in the scheme forming the basket should also be rated.

(h) The Rating agency should disclose the rationale for rating on request.

Methodology for valuation of SRS for declaration of NAV

Each rating category in the recovery scale will have an associate range of recovery,

expressed in percentage terms, which can be used for computing NAV of SRS. The NAV should

be restricted within the recovery range associated with the rating assigned to the SRS. The

SC/RC based on its recovery experience should choose a particular percentage within the

recovery range indicated by the Rating Agency. The Recovery Rating percentage so picked by

the SC/RC multiplied by the face value of the SR will give the NAV. The SC/RC should provide

the rationale for selection of the particular percentage of Recovery Rating. For example, if range

is between 81% - 90%, SC/RC may pick up 87% based on its judgement. The face value of say ₹

10 multiplied by the recovery percentage i.e. 87% would give the NAV as ₹ 8.70.

Frequency of rating

The initial rating/grading would be assigned within one year from acquisition of assets by SC/RC

or finalization of resolution strategy, whichever is earlier. Thereafter, rating/grading shall be

reviewed at half-yearly intervals, i.e. as on June 30 and December 31 every year. However, the

review would be on a continuous basis so that any further deterioration in the value of SRS is

declared immediately for the information of the investors and necessary adjustment in their

valuation of the same. The SC/RC should declare NAV within two months from the date of half-

yearly review i.e. by August 31 and February 28 respectively.

Disclosure to investors:

Disclosure to investors of the quality of assets underlying the SRS as per disclosure

norms prescribed by the Bank under “The Securitization Companies and Reconstruction

Companies (Reserve Bank) Guidelines and Directions, 2003” is a must. Further, investors can

request for information at any point of time from the SC/RC and obtain the same.


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Amendment to SARFAESI Act, 2013 :

The Amendment Act (except Section 8 and Section 15 (b)) was brought into force with

effect from January 15, 2013. The Act amends the Securitization and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Recovery of

Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI Act). The definition of

“bank” both in the SARFAESI Act and in the RDDBFI Act is amended to include ‘multi state

co-operative bank’ so that the provisions of said Acts apply to multistate co-operative banks and

the measures for recovery through the Debt Recovery Tribunals (DRTs) would now be available

to them. Securitization and reconstruction companies can now convert any part of the debt into

equity/shares of a borrower company. Secured creditors can acquire the immovable property in

full or partial satisfaction of their claim against the defaulting borrower, in times when no buyer

for the amount of reserve price is available.

NPA ISSUES AND RESOLUTION BY IOB:

Indian OverseasBank has reported a 35 per cent drop in net profit at ₹75 crore for the

quarter ended December 31, 2013, against ₹116 crore posted for the comparable previous year

quarter. Poor credit appraising and monitoring attributed the fall in net profit to higher

provisioning towards bad debts and restructured accounts. IOB suffered a slippage of ₹1,615

crore during the quarter. the bank provided ₹690 crore for bad debts this quarter against ₹486

crore in the previous quarter, and hence the coverage ratio was close to 57 per cent.

Total income went up by 6 per cent to ₹6,190 crore (₹ 5,846 crore). “The year so far has

been very challenging. The bank’s net interest margin went down to 2.26 per cent for the period,

from 2.39 per cent in the previous year period. Gross non-performing assets rose to ₹9,168 crore

(5.27 per cent) during the quarter from ₹6,515 crore (4.13 per cent) last year. Net NPAs

increased to ₹5,481 crore (3.24 per cent) for the quarter under consideration from ₹3,595 crore


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(2.33 per cent). IOB’s gross NPA rose to 4.02 per cent by the end of March 2013 from 2.74 per

cent in FY12. Net NPA increased to 2.50 per cent from 1.35 per cent reported a year ago.

From debt-ridden Kingfisher Airlines account, the bank had retrieved around ₹ 11 crore

from this loan account from a total exposure of ₹ 143 crore. On low-cost deposit base, the bank

would try to ramp up its CASA base in the current fiscal. The bank’s low—cost deposit base, or

CASA, stood at 26.51 per cent by the end of March 2013. In FY14, the bank expected an

expansion of 15-18 per cent in advances though this will depend on the overall interest rate

environment.

SETTLEMENT FORMULA AND CALCULATION OF SACRIFICE:

The authority for approval of compromise settlement proposals (OTS/OCS) shall be determined

based on the “SACRIFICE” involved in the proposal. SACRIFICE under OTS/OCS is always

the difference between NOTIONAL DUES and OTS/OCS OFFER. Notional Dues (minus)

OTS/OCS Offer = SACRIFICE.

(Sacrifice is the basis for deciding the sanctioning authority)

1. NOTIONAL DUES CALCULATION :

a) Outstanding as on the date upto which interest was last debited

Date of interest last debited/Date of NPA

whichever is earlier

ADD:

b) Simple interest to be added from the date of interest last

debited or date of NPA whichever is earlier till date of sub-

mission of compromise Proposal at the Bank’s base rate

prevailing on the date of submitting the proposal / contract rate /

decreed rate of interest which ever is less.

c) Debits such as Bills returned unpaid, DPGs invocation of

Guarantees or any other business debits made after the date

mentioned in col.(a) above

d) Interest on the (c ) above at the rate mentioned in col.(b)

e) Other Expenses viz. ECGC/DICGC premium, Godown rent,


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Insurance premium paid, charges paid to Security agencies/

Personnel etc., subsequent to the date of NPA.

f) Legal and Other Expenses incurred subsequent to date

mentioned in col. (a) above

SUBTOTAL: A

LESS:

a) Recoveries made after the date mentioned in col. (a) and

Countervailing Interest :

Date Amount CV Interest Total

X

b) CV Interest on ECGC / CGTMSE claim received amount.

CV Interest Y

Sub Total Z=X+Y

NOTIONAL AMOUNT DUE FROM THE PARTY (A - Z )

BENCH MARK AMOUNT:

For Secured Advances: In all cases where the advance is secured by tangible assets, the

minimum acceptable amount should be arrived by using Net Present Value Method which will

be the Minimum Acceptable Amount. The present value of the recovery made today should be

greater than the present value (discounted value) of the recovery that may be made at a later date.

To arrive at the future recoverable value, the value of the securities (Fair Market Value, FMV)

and other enforceable assets (net of expenses) should be taken into account along with the

approximate time for realizing those securities.

For Unsecured Advances: Though the endeavor shall be to recover the book outstanding as on

the date of proposal to avoid write off, decision may be taken on the basis of the tangible net

worth of the borrower / guarantor. Under unavoidable circumstances write off may be permitted

after recording proper justification for the same. Unsecured loans include credit card dues. For

credit card settlements, the follow up is ensured by the crdit card division by OTS.

Table7 Calculation of Notional Dues


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NET PRESENT VALUE MEANS – THE PRESENT VALUE OF THE PRESENT

MONEY compared to the PRESENT VALUE (Discounted Value) OF FUTURE MONEY.

The formulae used for discounting is FV/ (1+r/100)^n.

So, the NPV = [1* P/(1+r/100)^n]. This is the minimum acceptable amount. So any amount less

than this will not be an acceptable amount. While calculating the NPV of the security the

following points should be taken into consideration:

I. The realizable value of security should be taken at Fair Market value net of

expenses.

II. The time taken for realization of securities should generally be arrived not

exceeding the time limit given below and NPV shall be decided on case to case basis.

Nature of the security Ascertained value of the security

Hypothecated Stocks Should be considered after discounting 50% of the value ascertained.

Machinery Value as per Approved Engineer’s report of not more than 1 year old

Book Debts Should be considered after discounting 60% of the Value of the Book

debts of not older than 6 months.

Plants, Machinery, Lands It should be evaluated separately in the OTC/OTS proposal

PAYMENT TERMS AND TIME FRAME:

Upfront payment:

The borrower has to make an upfront payment of atleast 10% of the offer under “No Lien”

account when the proposal is submitted. However, if the intention to make payment immediately

on sanction is justified, the upfront payment need not be insisted upon to consider the proposal.

Similarly if the OTS/OCS is to be paid only by sale of securities charged to the Bank, the upfront

payment need not be insisted upon.

Table8. Ascertaining values of various types of security


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Time limit for payment of OTS/OCS:

The sanctioned OTS/OCS should be recovered, normally, within 3 months from the date of

conveying the sanction without charging interest. However, if the payment is to be made in

installments and has to extend beyond 3 months, 25% of the OTS/OCS sanctioned amount is to

be paid within 3 months of conveying the sanction and the balance 75% may be paid in monthly

/ quarterly installments not exceeding further 9 months together with interest at the prevailing

Bank’s base rate on simple basis for the period beyond 3 months of conveying sanction.

Source of Funds:

Sanctioning authority should satisfy themselves as to the source of payment of the OTS/OCS, if

sanctioned. The sources from where the borrower / guarantor intend to raise funds must be

obtained from the borrower and in case of settlement in installments, the funds available from the

source to meet the installment amount should be verified and recorded. In-case of proceeds by

way of disposal of assets are not sufficient to meet the OTS/OCS amount, proper installments

should be fixed depending upon other available sources

ACCOUNTING POLICY FOLLOWED WHILE ACCOUNTS

WRITE-OFF:

The appropriation of recovery should be done as per the Significant accounting policies

of our Bank:

I. In the case of recovery in the Non-Suit filed accounts the recovery should firstbe

appropriated towards interest and the balance left, if any, will be credited to the

book Outstanding.

II. In the case of recovery through compromise settlement recovery should firstbe

appropriated to Book outstanding and after adjusting the Balance only, will be

taken to income.


59 | P a g e

III. In the case of suit filed accounts, recovery under both normal and compromise

settlement recovery should firstbe appropriated towards Book outstanding and

after adjusting the Balance only, will be taken to income.

IV. In the event of accounts involving write off after full recovery of OTS/OCS amount,

any recovery of delayed period interest should be adjusted towards Book

outstanding only and the balance alone should be claimed for write off from

Accounts dept.

V. Recovery from Written Off Accounts (written off at branch level) should be credited

to P&L code no: 8805 “Recovery from written-off loans.

Continuation of NPA accounts where the chances of Recovery is bleak either bylegal

process / persuation may only affect the performance results of the Bank. Further the cost and

valuable manpower in maintaining these accounts can be better utilized for the improvement of

the Bank. Hence after exhausting all avenues of recovery, Bank may consider writing off such

accounts after proper sanction from the appropriate authorities. The write off exercise shall be

used only as a last resort.

CONCLUSION:

On the basis of the foregoing discussion, certain broad observations, issues and

perspectives on the performance of banking sector and financial stability of the economy on the

eve of the introduction of Basel III norms by RBI to the banks would be appropriate. The study

at Indian Overseas Bank gave a vast learning experience and has helped me to enhance

knowledge. During the study I learnt how the theoretical financial analysis aspects are used in

practice during the working capital finance assessment. I have realized during my project that a


60 | P a g e

credit analyst must own multi-disciplinary talents like financial, technical as well as legal know-

how. To ensure asset quality, proper risk assessment right at the beginning, is extremely

important. Thus we can say that Internal RAM rating and External credit rating is an essential

ingredient of the Credit Appraisal exercise.

As observed from the above analysis, the level of NPAs is high with all banks currently

and the banks would be expected to bring down their NPA. IOB is already pioneering in this.

This can be achieved by good credit appraisal procedures, effective internal control systems

along with their efforts to improve asset quality in their balance sheets. However, maintaining

profitability is a challenge to commercial banks especially in a highly competitive era and

opening up of banking business to NBFC and foreign banks in general. This assumes

significance in a period of rising interest rates and operating costs of borrowers in general. Banks

would make efforts to mobilize funds in order to comply with provisioning norms and capital

adequacy requirements while meeting Basel III standards which will be brought in by RBI

shortly. However, the Capital requirements would be large considering the varied structure of

banks and financial institutions operating in the economy and their NPA levels. The capital

market environment currently prevailing in the economy would pose problems for the capital

mobilization by the banks.

Asset quality of banks is one of the most important indicators of their financial health.

Banks should, therefore put in place a robust MIS mechanism for early detection of signs of

distress at individual account level as well as at segment level (asset class, industry, geographic,

size, etc.). Such early warning signals should be used for putting in place an effective preventive

asset quality management framework, including a transparent restructuring mechanism for viable

accounts under distress within the prevailing regulatory framework, for preserving the economic

value of those entities in all segments.

The banks' IT and MIS system should be robust and able to generate reliable and quality

information with regard to their asset quality for effective decision making. There should be no

inconsistencies between information furnished under regulatory / statutory reporting and the

banks' own MIS reporting. Banks should also have system generated segment wise information

on non-performing assets and restructured assets which may include data on the opening


61 | P a g e

balances, additions, reductions (upgradations, actual recoveries, write-offs etc.), closing

balances, provisions held, technical write-offs, etc.

RECOMMENDATIONS

I. There are only 6 models for Internal RAM rating. But in SMEs itself have too many

sectors i.e., power sector, automobile sector, aviation sector, rubber and plastic industry,

etc. So, the sector wise model will hold good for better credit appraisal and it will leads to

the reduction of NPA.

II. The bank should ask for auditors attested book debt statements and stock statements.

III. The unit visit can be outsourced so that, the bank can concentrates fully to Core business

activities.

IV. The risk weight is assigned 100% to most of the customers. Due to that, no interest

concession is sought to all customers. But there may be some highly rated borrowers in

that risk weight. This may lead that good customer to approach for other banks for

Takeover due to high interest rate. In order to avoid that, the bank can give options to

customers to review the bank assigned risk weight decision, if the customer is confident

that he is a highly rated borrower and willing to spend money to do External credit rating.

V. For educations loans, the bank can do para banking and it can insure all the Educational

loans - life insurance against the borrower. The yearly premium is collected from the

borrower.

VI. In order to mitigate the default risk of the borrower, IOB can make use of Credit default

Swap (CDS) which will guarantees repayment of money to the bank in case the corporate

borrower defaults. To achieve that, the banks need to create awareness about credit

default swaps to the corporate customers. Either bank or borrower can make use of CDS

and the risk is transferred to the third party. In this way the bank can lend at lower

interest rate and also to sectors which are not performing well. This can reduce their

future NPA’s.

VII. Before lending to the borrower, the banks need to analyze the present economic

conditions and performance of the sector in the current situation and also, see the

company’s performance in present situation in addition to the internal RAM rating. It will

help in the more accurate results during the appraisal.


62 | P a g e

VIII. While checking the turnover/ net revenue, it should be greater than or equal to the 5 times

of the bank provided Working Capital.

IX. The bank should check all the credit transactions into the CC account are coming from

operations. If some transactions are not from operations, the bank needs to ask the

detailed report of the other income.

X. If the maximum utilization is not up to the drawing power for the whole year, the bank

needs to ask for reasons for underutilization. If the underutilization is due to temporary

reasons, then the bank should maintain the DP. If not, it should reduce their limit to 10%

above maximum utilization and use that excess funds in another efficient projects.

XI. Funding Urban Agriculture

XII. In CRAR, the bank should come forward to go for external rating for its customers. So

that the risk weight is less for the customer, then the bank can finance more loans. If the

customer is having high risk weight, don’t finance that borrower.

XIII. Financing the E-commerce business and it will improve the CSR of the bank.

In retrospect, the Indian Overseas Banks has overall demonstrated a trend of continued

good performance and profitability despite rising interest rates, increase in operating costs and

the spillover effects of recent global financial crisis .This is reflected in higher credit growth

deposit record, better return on assets, and return on equities. (ROE) The capital position

improved significantly as the banks were able to mobilize substantial funds.


63 | P a g e

Proposal received by Branch on 29.08.2013

Proposal received by Regional office on

Proposal received by Central office on

Further particulars received on 29.08.2013

Indian Overseas Bank

Regional Office, Chennai -I

Memorandum to Management Committee of Board

(For Sanction/Renewal/Confirmation/Information)

Through Approval grid

(Board Note from Page No. 1 to )

Dept: Advances Date: 29.08.2013

1. Branch: GeorgeTown (2053) Region: Chennai – I

2. Account: M/s ABC TRADERS

PAN No. : XYZ12345HI Group: NA

3.1.Activity: Forward and Clearing Agents Industrial classification: Trader (Logistics)

3.2. Sector Agri/OPS/SME/Large Industries/Trade/Real Estate/NBFC/Others

4.0 Purpose of Note:

4.1.Renewal of Cash Credit Limit of Rs. 200.00 Lacs at existing level

(Rs. In Lakhs)

Nature of

limit/facility

Purpose Existing

Limits

Revised

Limits

(+)/

(-)

Margin Interest %

Applicable

rate

Interest %

proposed

Cash Credit Working

Capital

200.00 200,00 0.00 25%

(on

Receivab

les up to

than 90

days old)

Base Rate +

4.50% p.a.

(Presently

14.75% p.a.)

Base Rate

+ 4.50%

p.a.

(Presently

14.75%

p.a.)

Total: 200.00 200.00 0.00

4.2. Sanction for renewal of the working capital limit

4.3. Confirmation for: NA

4.4. Information for: NA

5.1 Repayment terms: Cash Credit is payable on demand/ Renewable every year.

CMD

ED


64 | P a g e

5.2 Value of Security

(Rs. in lakhs):

Prime: Book Debts

Rs. 288.07 Lakhs as per Book

Debt Statement dated 31.07.2013

FSV: Rs. 200.00 Lacs

(Property 1- Rs. 126.00 Lacs

Property 2- Rs. 74.00 Lacs)

5.3 Guarantors and their net worth: (Rs. In lakhs)

Name Age Address Worth As on

Mr. Sharai

PAN No. YXZ12345HI

72 Yrs

Sterling Avenue, Chennai

600034.

48.18 19.02.2013

Mr. Mohammed

PAN No. XZY12345HI

37 Years Do 85.58 19.02.2013

Mrs. H.Kamran

PAN No. ZXY12345HI

62 Years

Do 79.25 19.02.2013

Mr. C.Subra

PAN No. ZYX12345HI

61 Years

DOB:17.10.5

1

Shenoy Nagar, Chennai 14.22 25.02.2013

Corporate Guarantee, if any (with TNW): Nil

Details of any change in guarantors such as waiver sought/additional Guarantors offered, etc. and their

worth: No

5.4. Reasons for reference to AGM (Sanctioning authority): (Rs. in lakhs)

Nature of Limits

Discretionary Powers Proposed limits

Above Upto

Secured + Unsecured limits per borrower 0.00 550.00 200.00

Unsecured limits per borrower 0.00 275.00 0.00

Total limits for Group 0.00 1100.00 N.A.

Limits falls under AGM powers. Other requests fall under: Not Applicable

5.5. Status of NBG/Grid approval: Not Applicable for Renewal of limits at existing level only

NBG/GRID Date cleared Amount cleared Interest rate approved

6. Date of establishment 05.01.1979

7. Banking with us since 1980

8.1. Names of

Directors@/Partners

Designation

Age Worth (Rs. in lakhs)

Amount As on

Experience (in brief)


65 | P a g e

Mr. Sharai

PAN No. YXZ12345HI

Partner 72 48.18 19.02.2013 More than 30 years in the

line of business.

Mr. Mohammed

PAN No. XZY12345HI


line of business.

Mrs. H.Kamran

PAN No. ZXY12345HI


line of business.

Mr. C.Subra

PAN No. ZYX12345HI


line of business.

Please indicate the names of all directors where applicable.

Latest net worth of all the directors should be furnished irrespective of furnishing of personal guarantee.

The net worth should also include the investment of the directors in the company.

8.2.Among the above who are the key promoters/persons and their background:

Mr. Sharai & Mr. Mohammed are actively participating in the day to day affairs of the firm.

8.3. Whether the company/directors/

guarantors/ associates are in RBI defaulters /caution

list as on …………

Whether in ECGC specific approval list.

If any of the directors/promoters is in the willful

defaulters' list with RBI/ECGC, the reasons for

considering the proposal.

Reported Nil

8.4. Whether above directors /their relatives are

directors of our Bank/other Banks including

directors of Scheduled Co-operative Banks,

directors of subsidiaries/Trustees of Mutual

Funds/Venture Capital Funds. Whether any of the

directors/partners/proprietor is an NRI and any of

them is related to directors /senior officers of our

Bank/other Banks.

Not Applicable

8.5. Share holding pattern: % of shares held by

promoters/group/associates/FIs/public etc.

Not Applicable only a partnership firm


66 | P a g e

8.6. Background of Company

M/s ABC Traders is a Partnership Concern acting as Forward and Clearing Agent on behalf of its

Importer clients. The firm has been engaged in this line of Business for more than 30 years and shares

long standing association with us dating as far back as 1980. Their business requires them to make

advance payments to customs department for freight, demurrage and other charges on behalf of their

clients and delivery of the imported goods at their clients’ doorstep for which they have tie ups with

various transporters. As the firm has to make large scale advance payments to the customs, they are

availing working capital in form of Cash Credit limit to the tune of Rs. 200.00 Lakhs from us. Mr. Sharai

and Mr. Mohd are at the helm of the affairs and are the active partners in the day to day working of the

firm. The firm enjoys good reputation in the market and has a set group of traditional clients like M/s A

Paper Processing Industry, M/s B General Pvt. Ltd., M/s C Steels Pvt. Ltd. etc..

Sales

8.7. Value of the customer (details of average balances maintained in account, deposit connections,

whether fixed deposits are held at card rates or at special rates, income generated through forex

transaction, para banking business routed by company/associates/family & friends).

The borrower is the long-standing of the bank and the partners are maintaining the personal account with

us.

9.1. Financing Arrangement Sole Banking with IOB

9.2. Leader in case of consortium Not Applicable

9.3. Date of Last sanction/renewal and

Sanctioning Authority

30.01.2012 under branch discretion

30.01.2013 (Short Renewal for 6 Months as

reported by Branch)

10. Exposure to subject Company from all Banks/FIs: (Rs. in lakhs)

Name of

the Bank

Consortiu

m

/Multiple

Existing Proposed

Term loan Working

capital

Non Fund

based

Term loan Working

capital

Non Fund

based

Amt. %* Amt. % Amt. % Amt. %* Amt. %* Amt. %*

IOB 0.00 0 200.00 100 0.00 0 0.00 0 200.00 100 0.00 0

Total

Amt

WC+NFB:Rs.200.00 WC+NFB:Rs.200.00


67 | P a g e

% of share in case of consortium and reasons for increase/decrease in our share:

Not Applicable

10.1. Borrowing powers of the company: Not applicable as only partnership firm

11. Exposure to Group sanctioned by our bank: Not Applicable

Name of the Company

Existing Proposed (Rs. In lakhs)

Term

loan

Working

capital

Non Fund

based

Term

loan

Working

capital

Non fund

based

No Specified Group

Total amount to Group: TL+WC+NFB: TL+WC+NFB:

12. Whether single/group borrower

exposure within prudential norms (whether

exposure norms as per RBI/Government

Policy and as per Bank’s own Loan Policy)

If such exposure is not within prudential

norms, justification for considering the

proposal

Yes the limits proposed is within prudential norms, no

deviation is observed.

13. Compliance with industry exposure

norms. (Whether exposure norms as per

RBI/Government policy or as per Loan

Policy).

Bank’s norms Position as on 31.03.2013

% Rs. in crs. % Rs. in crs.

-- -- 0.33 726

Not Applicable for trading concern

14.1. Asset Classification/Income

recognition:

Standard and Performing

14.2. RAM Rating

Explanation for the rating assigned

Risk parameter Existing

Interim/ Final

Revised

Interim/Fina

l

Industry

Business

Financial

Management

Overall Rating

TR3

TR4

TR6

TR3

TR4

The rating is yet to be done on the basis of audited

balance sheet of 2012. TR 4 is mapped with IOB 6.


68 | P a g e

14.3. External Rating (where applicable)

Name of the Rating agency

Rating assigned with Date

Investment/ non-investment grade

N.A. as exposure is less than 500.00 Lakhs

15.1. Risk Weight assigned 75%

15.2 Minimum Capital Requirement (at

12%)

Rs.18.00 Lakhs

15.3. If concession in pricing, by whom

authorised and from when, with

justification in brief.

Applicable

interest rate

Existing interest

rate

Proposed

interest rate

Base Rate +

4.50% p.a.

(Presently

14.75% p.a.)

Base Rate +

4.50% p.a.

(Presently

15.25% p.a.)

Base Rate +

4.50% p.a.

(Presently

14.75% p.a.)

No Interest concession is sought

16. Loan policy guidelines relating to

Margin, Security, and key financial ratios

like DER, DSCR etc.

Any deviation from the stated policies

/guidelines and justification for the same in

brief. If so, who has the authority to deviate

the norms?

Complied With

17. In case of project loans, furnish – Cost

of project & Sources of finance –the

agency who has conducted techno

economic viability study.

N.A.

Only Working Capital Exposure

18.1. BRIEF FINANCIAL INDICATORS OF SUBJECT COMPANY: (Rs. in

lakhs)

Year ending 2011 2012 2013 2014 2015

Audit status Audited Audited Audited Estimated Projected

Receipts 1463.87 1612.73

Payments 1368.53 1509.02

Net Receipts 95.35 103.71

Operating profit 5.64 9.25

Net Profit After Tax 6.29 (-33.01)


69 | P a g e

Cash Generation 12.21 -27.99

Net working capital 21.57 (-24.16)

Current ratio 1.08 0.89

TNW 56.49 6.19

TOL / TNW 4.75 36.77

Term Liability/ TNW 0.00 0.00

Gross Fixed assets/

Term loans

N.A. N.A.

* Estimated figures given for the last year at the time of last sanction/review should be indicated in

brackets against actual figures.

** Adjusted TNW after excluding investments in-group concerns in excess of 10% of TNW.

18.2. ABRIDGED FINANCIAL POSITION (Rs. in lakhs)

Year ending 2011 2012 2013 2014 2015


LIABILITIES

- Capital and Reserves 56.49 6.19

- Long Term Liabilities 0.00 0.00

- Current Liabilities 268.32 227.61

- TOTAL LIABILITIES 324.81 233.80

ASSETS

- Fixed Assets 34.91 30.35

- Non-Current Assets 0.00 0.00

- Current Assets 289.90 203.45

- Intangible Assets 0.00 0.00

- TOTAL ASSETS 324.81 233.80


70 | P a g e

18.3. Comments on financials/performance of the company:

Sales:

The sales/ net receipts of the firm are fluctuating over the years. The sales/ net receipts of the firm was increasing

over the years till 2012, however the sales has declined by 27.7% from Rs.1612.73 Lakhs to Rs.1165.88 Lakhs

during the last FY 2011-12.

But the net sales are following the increasing trend over the years. It increased from Rs.95.35 Lakhs in FY

11 to Rs.105.04 Lakhs and Rs.127.57 in the FY 12 and FY 13. It is the 33.79% increase in the net sales in the

last 2 years.

Profits:

The firm is a profit making concern and is continuously making profit from last three financial years. The

net profit and operating profit of the company is in increasing trend over the FY 11 to FY 14 due to the increase

in the net sales of the company.

The net profit margin of the company is also increased from 6.5% in the FY 11 to 17.33% in the FY 13.

TNW:

The Tangible Net Worth plummets from Rs.56.49 Lakhs in the FY 11 to Rs.6.19 Lakhs in the FY 12. Then it is

estimated as increasing suddenly to Rs.98.16 Lakhs in FY 13 and it is again projected as increasing to Rs.122.49

Lakhs in FY 14. The bank asked reasons for this sudden fall/ rise of the Net Worth.

TOL/TNW:

The total Outside liability / tangible net worth (TOL/TNW) ratio is fluctuating over the years. The ratio

was at 4.57:1 in FY 11, which is not in the acceptable level. It increased in FY 12 to 36.77:1, which is also not in

the acceptable level. It is mainly due to withdrawal of Equity capital by shareholders. It is not a good sign. But

again, the company estimated the (TOL/TNW) ratio for the FY 13 as 2.44:1, which is a steep decrease in the ratio

from 36.77:1 in the FY 12. It is stated that this decrease in the ratio is mainly due to the infusing of Equity capital

into the Company.

CR/NWC:

The current ratio of the firm is below desired level of 1.33:1. Even for the projections of current ratio is estimated

at 1.30:1 in FY 13 which is slightly below the desirable level. But the projection of current ratio is estimated at

1.39:1 in FY 14, which is in desirable level.

It is observed from the balance sheet analysis that the firm is not having any long term commitments/ liability

and the entire outside liability comprises of short term / current liabilities. It is also observed that the short term

liabilities remains at more or less at the same level while the reason for increase in this ratio is on account of

decrease in the net worth over the years by erosion / drawing of capital by the partners.


71 | P a g e

As the current ratio of the firm is below benchmark level, we have proposed a condition last year that

the firm need to bring additional funds either in form of partners’ capital infusion or unsecured loans

amounting to Rs.38.74 Lakhs [25% of the total projected current assets as on 31.03.2013 (Rs.84.62

Lakhs)- Projected Net Working Capital available in the system (Rs.45.88 lakhs) by the end of 31.03.2013

in a phased manner so as to achieve the desired ratio to 1.33:1. Based on our branch concern, they infused

money in the FY 13 and FY14. We asked the details for that cash flow.

19. BRIEF FINANCIAL INDICATORS OF GROUP COMPANIES, IF ANY: Not applicable

(For each company in a group, please give separately along with gist of Credit Report on each of

the Associates & IARC Status). (Rs. in lakhs)

Name of group Co.

Year ending/

Audit status

Net Sales

Not Applicable

Net Profit After Tax

Cash Generation

Net working capital

Current ratio

TNW

TOL / TNW

Term Liability/ TNW

20. CONDUCT OF THE ACCOUNT:

20.1 Latest outstanding in account (FB & NFB facilities provided by our bank)

Position as on 30.05.2013 (Rs. in Lakhs)

Nature of

facility

Original Limit DP Outstanding Irregularity *

/since when

Cash Credit 200.00 0.00 206.92 AAAA

Repayment terms:

*Details of Irregularities with reasons:


72 | P a g e

20.2 Details provided for full financial year from 01.04.2011 to 31.03.2013 (Rs

in lakhs)

Nature of

Facility

Limit Max.

O/s

Min.

O/s

Turn over Average

Utilization

Income

Earned

Int. serviced

Upto

Cash Credit 200.00 -

204.7

8

-

106.0

1

1661.17 -181.49 26.92 March 2012

Cash Credit 200.00 -

225.9

5

-

177.8

8

1388.86 -205.74 30.78 March 2013

20.3 Comments on average utilization and

extent of utilization of various limits

The average Utilisation is close to maximum

20.4 Comments on share of business routed

(Turnover vs Sales)

Entire turnover is routed through the account

20.5 Income generated from a/c:

Comments on whether income earned is

commensurate with utilization of limits.

Income anticipated by the bank in future.

Interest earned Fee based income Rs. in crs.

2010-11 : Rs.20.67 Lakhs

2011-12 : Rs.26.92 Lakhs

2012-13 : Rs.30.78 Lakhs

The income earned is commensurate with the

limits sanctioned.

Approximately Rs. Lakhs during the next financial

year as be existing interest proposed.

20.6 Comments on frequency of

adhoc/excess granted, period allowed, status

of regularization, and confirmation obtained.

Repayment of interest commitments

Promptness in retirement of bills.

Adverse features, if any (% of bills returned,

LG invoked, LC devolved etc.,)

Excess is granted on few occasions well-adjusted

within stipulated time.

Prompt

Not Applicable

Not Applicable


73 | P a g e

21.1. a Date of registration of charge

b. Date of joint documentation

(for Consortium advances)

c. Whether Debit Confirmation of

Balances have been obtained from

the borrower for the last 3 years on

half-yearly basis.

d. Whether guarantors(s) has/ have

signed the debit confirmation of

balances.

Not Applicable

Not Applicable

Yes

Yes

21.2. Details of Searches made in ROC (for

companies) with details of date of search,

whether our charges are reflected in the

search report, whether annually obtained etc.

Not Applicable only partnership firm.

21.3. Compliance of sanction terms with

deviations and status thereof

All the terms and conditions of the last sanction

dt.28.05.2012 is complied with.

21.4. Vetting of documents – date and

adverse findings, if any.

As the limits were enhanced in parts the

documents are yet to be vetted, we have stipulated

a condition for the same.

21.5. Unit visit by branch - date when last

conducted, comments on adequacy of stocks

to cover DP and adverse findings, if any.

Unit was visited on 28.01.2012 by Miss Sara –

Manager, QWE Branch and Mr. Rupesh Manager,

ASD Branch. The limits against book debts.

Collateral Securities were also visited on the same

date: There is no adverse findings.

22. Status on rectification of irregularities pointed out by CO Inspectors/RBI /Concurrent

Auditors/Statutory Auditors/LFAR/Stock Audit/ Loan Review Mechanism

List of Irregularities not rectified Observations / Remarks

1. Quarterly certificate from the

chartered account for book debts not

held.

2. Fresh valuation of immovable

property to be obtained.

1. Since obtained

2. Since obtained

23. Security Coverage: (Rs. in lakhs)

23.1. Prime Securities for credit facilities provided to our bank.


74 | P a g e

Nature of facility Limit Nature of Security Date & Name of

approved valuer

Value

Cash Credit 200.00 Book debts Estimated Balance

sheet of 2013

Rs.295.12 Lakhs

23.2. Collateral Security details (if more details, it may be given as Annexure) (Rs. in lakhs)

Nature of

Security

Market value Forced sale

value

proposed

Valuation Other details/

% of Security

cover Existing Proposed* Date & name of

Approved valuer

Equitable

Mortgage

followed by

registered

memorandum of

residential flat

No. 6, First

floor,

Harrington

Apartment Door

No. 98,

Harrington

Road, Chetpet,

Chennai –

600031,

Standing in the

name of Mr.

Sharia

140.00

(fair

market

value)

145.00

(open

market

value)

126.00 Vide Valuation report

No. 124/F-

12/10/L/SU

Dt.18.12.2010 by Dr.

R.Nate & Associates.

100% (200.00

lakhs CC

facility /

Rs.200.00

Lakhs. FSV of

two

properties).


75 | P a g e

Equitable

Mortgage

followed by

registered

memorandum of

residential

flatTeynampet,

Chennai -

600018 standing

in the name of

Mr.C. Subra

82.00

(fair

market

value)

86.00

(open

market

value)

74.00 Vide Valuation report

No. 124/F-

12/10/L/SU

Dt.18.12.2010 by Dr.

R.Nate & Associates.

*In the proposed value column – value of additional security offered, nil value towards withdrawal

of any security already offered, reduced value towards written down value of plant & machinery,

increased value towards revaluation of assets etc. may be given.

In the case of Consortium/Multiple Banking arrangements, where securities are shared, total value

of securities for consortium and value of securities as our share should be indicated.

Comments on shortfall in security backing.

23.3 Fixed asset coverage ratio for term loan exposure (should be arrived

based on forced sale value, in case of Land & Buildings and Book value or

Market value whichever is less in case of Plant & machinery)

Not applicable

24. Details of Assessment of Working Capital, Term loan, Non fund based limits containing

workings/calculations of Maximum Permissible Bank Finance, DSCR calculations for the Term

Loans, Sources of repayment of the loans released, status of approvals in the case of project loans,

utilisation of the amount sanctioned is given below/as per Annexure.

25.RISK ANALYSIS: -

Critical Risk factors Mitigation

Changes in foreign trade policy and by

fluctuation in the value of key currencies will

affect the export, import trade business of

clearing agents.

In the scenario of depreciation of rupees is

favorable to the exporter and most of the

importers are going for forward contracts to

hedge their exports

Competition Risk The competition is present in every industry and

the firm is no exception to it. However given the

vast experience and stability of the firm it is

expected to withheld the competition


76 | P a g e

Transportation Risk The firm itself is not having any distribution

network and is entirely dependent upon the

private players for carrying /delivering of cargos,

however the firm has long standing relationship

with the transport operation and there is no

known incidents of failure of delivery.

26. SWOT analysis:

Strengths

1. Rich experience of more than three decades in the same business.

2. Efficient management and effective supervision over the operations.

3. As they act as important link between traders and the government the demand for their service is

perennial.

Weakness

1. Foreign trade of the company may fluctuate due to various reasons and the business of the service

provider will be hampered.

2. As all the merchants in the business invests heavily initially and then recover from their clients the

chances for bad debt exists.

Opportunities

1. Due to ever increasing international business between all the countries the demand for the service

merchants are excellent.

2. Due to their long experience and reputation of the subject firms the services of their firm are more

in demand.

Threats

1. Heavy competition cuts the prospects of the business.

2. Economic factors such as recession will have told upon the profit the firm.


77 | P a g e

27. GIST OF RECOMMENDATIONS:

1. The firm is one of the oldest constituents of the branch.

2. The limit is well covered by the value of prime as well as collateral security.

3. The past track record and conduct of the account is satisfactory.

4. The cash credit account is actively operated and the branch earns interest income and other fee

based income from the same.

In view of the above we recommend as follows

28. Limits Proposed: Rs. in lakhs

Nature of facility Amount Margin Rate of interest Prime Security

Cash Credit against

hypothecation of book debt

up to 90 days.

200.00 25%

Base Rate + 4.50%

p.a. (Presently

14.75% p.a.)

Hypothecation of

entire receivable of

the firm

Repayment terms: Cash Credit is repayable on demand.

29. Terms and conditions of Sanction:

1. Monthly book debts statement to be submitted every month before 10th day of the

succeeding month and the drawing power will be arrived at on the basis subject to margin.

2. The book debts statement is to be certified by the statuary auditor of the firm once in quarter

(March, September and December).

3. The insurance is inadequate, firm to submit the revised insurance policy on the collateral

securities duly endorsed in our favor for the enhanced amount.

4. The Building collateral was last valued in 2010. It should be revalued for every 3 years.

So, the collateral is to be revalued before the next renewal.

5. Firm to provide satisfactory clarification of the following:

The Tangible Net Worth plummets from Rs.56.49 Lakhs in the FY 11 to Rs.6.19

Lakhs in the FY 12. Then it is estimated as increasing suddenly to Rs.98.16 Lakhs

in FY 13 and it is again projected as increasing to Rs.122.49 Lakhs in FY 14. The

bank asked reasons for this sudden fall/ rise of the Net Worth.


78 | P a g e

6. Prior approval from the bank is necessary before effecting any change in the constitution

of the firm.

7. The documents of the firm to be vetted by our panel advocate and satisfactory copy of the

report to be kept with the documents.

8. The firm to submit the chain of partnership deeds from the time of inception till date.

9. The firm to submit audited financials as on 31st March every year at the earliest.

10. Applicable processing charges to be paid.

11. The firm has to submit the renewal proposal at least one month before the expiring of limits

12. The firm should exclusively deal with us and all operation related transactions should be

routed through the account maintained with our branch.

13. The excess amount drawn by the subjects over the drawing power will attract 2% additional

interest amount over and above the regular interest.

14. The unit is subjected to periodic inspection and any expenses towards he same to be borne

by the firm

(Other information on the borrowal account and CMA data is given in Annexure)

ASSIST. MANAGER – Financial Analyst CHIEF MANAGER

ASSISTANT GENERAL MANAGER

Annexure

OTHER INFORMATION ON THE BORROWAL UNIT:

1. Name of the Company M/s ABC Traders

2.Constitution-if partnership whether registered Partnership – Registered

3. Location – Registered Office

(With full address)

Rajaji Salai, Chennai- 600001.

-- Corporate Office: Rajaji Salai, Chennai- 600001.

-- Factory: Not Applicable

4. Whether located in backward area Not Applicable

5. Whether the factory /business premises is Owned

or leased. If leased whether the Lease Agreement is

in force and valid till.

Owned Property

6. Collaboration /Joint Venture if any Not Applicable

7. Installed/licensed/utilised capacity Not Applicable

8. Performance of Subsidiaries/ Group Companies

if investment is more than 10% of Net Worth.

(Insert Table and give salient financial parameters)

Not Applicable


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9.1 Whether shares are listed and if so in which of

the Stock Exchanges

Not Applicable

9.2 What is the market price of the share and

whether it is traded actively? (Please indicate price

and volume movement of shares traded with 12

month highs & lows)

Not Applicable

10. Segment of account under Basel II Regulatory Retail Portfolio (RRP)

11.1 Details of Associates:

Name Activity Limits (Rs in Crore) Bankers IRAC

TL WC NFB

No associates hence not applicable

11.2 Conduct/Credit report of Associates Not Applicable

11.3 Whether any of the Associate company is in

Sick/Suit Filed category if so, give details.

Not Applicable

12.1 Present outstandings in credit facilities provided by FIs/all Banks (including our Bank)

to the Company: Position as on 30.05.2013 (Rs. In Lakhs)

Name of

Bank/Inst.

Term loan

Working capital NFB

Limit DP O/s Limit DP O/s Limit O/s

IOB George

Town Branch

0.00 0.00 0.00 200.00 0.00 206.93 0.00 0.00

Details of Irregularities with reasons (since when): No Irregularities

12.2 Present outstanding in credit facilities provided by our Bank, to the Group:

Position as on........... (Rs. In Lakhs)

Name of Co. Limit DP Outstanding

Irregularity*

TL WC NFB TL/W

C

TL WC NFB TL WC NFB

Not Applicable

* Details of Irregularities with reasons (since when): Not Applicable


80 | P a g e

13.0 Reschedulement / Restructuring of a/c:

Any reschedulement of term loan agreed?

Date of previous restructuring if any:

Not Applicable

13 .1 FOR PROJECTS UNDER IMPLEMENTATION

Likely date of financial closure for new projects (date of

execution of documents either by consortium or as sole

bank) as estimated.

Not Applicable

13.2. Deemed date of completion of the project as decided

by the independent group that has been taken on record

Not Applicable

13.3. Date of commencement of commercial production as

originally given at the time of financial closure.

Not Applicable

13.4 Any delay envisaged in commencement of production Not Applicable

13.5 Revised date of commercial production & whether it is

beyond 6 months from the date originally envisaged (or

beyond 1 year for infrastructure projects).

Not Applicable

13.6. Details of original and revised project estimates, if

any.

Not Applicable

13.7. Compliance of RBI guidelines on restructuring. Not Applicable

14. Insurance (Rs. in lakhs)

Prime Securities Value of the

Securities

Insured value Valid upto

Stocks

Plant and Machinery

Others (Specify)

Collateral Securities

Building 74.00 33.00 18.11.2015

Machinery 126.00 65.00 18.11.2015

Others (specify)

Comments on adequacy of Insurance:

The insurance is inadequate, firm to submit the revised insurance policy duly endorsed in our

favour for the enhanced amount.

15.1.Whether Stock Statement and Book Debts

Statement (if applicable) is submitted promptly and up

to date

Yes

15.2.Whether CSS (if applicable) is submitted

periodically and up to date

Yes

15.3. Whether the unit is prompt in the submission of

QIS- III?

Not Applicable and since discontinued


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15.4. Stock/Book Debts as per last Stock Statement dated: 30.04.2013

Details Rs. in Lakhs Details Rs.in Lakhs

Value of Stock Value of Book Debts (Age of

Book Debts as per sanction terms

120 days

295.12

Less: Sundry Creditors 0.00

Less: A & E 0.00

Net Value of stock 0.00

Less Margin 0.00 Less Margin 73.78

Drawing Power 0.00 Drawing Power 221.34

16. OTHER INFORMATION:

16.1. Whether the unit is a sick unit Not Applicable

16.2.Whether the unit is under nursing (if so, brief

particulars of nursing programme may be given)

Not Applicable

16.3.Whether the credit facilities were last sanctioned

/renewed based on provisional financial statements? If

so, whether provisional figures have been compared

with audited financial statements received

subsequently? If so please discuss about the variance

in essential financial parameters if any, in detail.

There is no big deviation between the

Estimated and Audited.

17. CERTAIN PARTICULARS ABOUT THE BORROWER UNIT:

17.1.Method of Lending for Working Capital Limits

(Nayak committee/MPBF I/II method/Cash Budget)

MPBF II Method

17.2.Whether the company is Export oriented; If so

export turn over for the last three years

Not Applicable

17.3.Availability of refinance Not Applicable

17.4.Whether product is under Selective Credit

Control of RBI

Not Applicable

17.5. Pollution Control Clearance, if any required. Not Applicable

17.6. Payment of statutory dues pending:

(PF, ESI, Wages, Sales Tax, Income Tax, Excise Duty

etc pending);if pending, reasons

Not Applicable

17.7. Impact due to WTO/ Government policies like

import liberalization/ reduction of subsidy

Not Applicable

17.8 Whether declaration from

borrower/directors/partners in pending court

cases/disputes are obtained as per RBI circular No.

DBOD. BC.DL.104/20.16.002/99-2000 dated

23.10.99.

Not Applicable


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18. Industry level general performance: As below

Definition:

“Clearing and forwarding agent” means any person, who is engaged in providing any service,

either directly or indirectly, concerned with the clearing and forwarding operations in any manner

to any other person and includes a consignment agent.

Their main job is doing the documentation work with the procedural approach to the concerned

for any import or export. It depends upon the influence & experiences things will be get done with

their own service charges.

A clearing and forwarding agent normally undertakes the following activities:

a) Receiving the goods from the factories or premises of the principal or his agents;

b) Warehousing these goods;

c) Receiving dispatch orders from the principal;

d) Arranging dispatch of goods as per the directions of the principal by engaging transport on

their own or through the authorized transporters of the principal;

e) Maintaining records of the receipt and dispatch of goods and the stock available at the

warehouse.

The role of clearing and forwarding agents are as follows:

1) It is to provide exporter to ensure smooth and timely shipment of goods

2) Selection of mode and route of transport of goods

3) It is guide to exporters the availability of alternative mode of transport and guide

exporter in decision making about the final choice of transport to achieve the optimal

cost in transport.

Logistics industry in India is an industry that has not achieved its much deserved attention or

recognition. It is an area that is ripe with potential and yet the resources are far from complete

utilizations. There is however a huge demand for logistic services in India especially with the

growth of the Indian economy along with the influx of the new companies in sectors that was

otherwise unknown. Estimated at a value of $14 billion US dollars this industry is slated for

another 9% to 10% growth in the years to come.

Purpose of Logistics Industry:


83 | P a g e

The purpose of logistics industry is to enable an effective transportation or timely movement of

goods from one place to another. This could be for the purpose of industrial transportation or even

private purposes.

Different mode of Logistics Industry in India:

There are three mediums of the logistics services in India. These can be categorised in the

following way:

Air freight – this is a modern and the safest mode to ensure a fast delivery of goods. A

chosen one by many because of the swiftness of the system there are many companies that

are now even providing superfast deliveries by airways even on the same day.

Land transport – this is a means of logistics support that has withstood the test of time

through the extensive network of roads in India. It has been the popularly used method and

used especially in the shipments of the heavy articles like machinery and vehicles. This is

also a chosen method in case of household packers and movers.

Railways – this is also an age-old method of shipments and transport. Though the most

used in case of domestic services this is very effective in the availability of cost effective

logistics support in India.

Waterways – an essential part of the industry this is also one of the oldest methods.

Shipments and transportation of goods is done on an international basis through this way.

It is apt in case of shipments of oil, highly sensitive or volatile articles like uranium.

The Logistics Industry

Globally, the logistics industry is valued at US $ 3.5 trillion.

The U.S., which contributes to over 25% of the global industry value, spends close to 9% of its

GDP on logistics services.

The Indian logistics industry is presently estimated at US$ 90 billion. (CII)

The industry has generated employment for 45 million people in the country in comparison with

the IT and ITeS Sector which employs approximately 8% over the next three to five years. (CII)

Third party logistics (3PL) solutions, is slated to grow at a compound annual growth rate (CAGR)

of over 16% from 2007-10. Consequently, 3PL service providers are expected to corner an

increased share of the Indian Logistics Pie, from 6% in FY06 to 13% in FY11, at the CAGR of

25% (CII).

The primary growth drivers of the industry are as under:


84 | P a g e

Investments in the infrastructure sector amounting to US 4 350 billion:

Increased efficiency and productivity of the transport system would result in lower transit times.

Streamlining of the indirect tax structure:

The introduction of Value Added Tax (VAT) and the proposed introduction of a singular Goods

and Service tax (GST) are expected to significantly reduce the number of warehouses

manufacturers are required to maintain in different states, thereby resulting in a substantial increase

in demand for integrated logistics solutions.

Robust trade growth

Strong economic growth and liberalisation have led to considerable increase in domestics and

international trade volumes over the past five years. Consequently, the requirement for

transportation, handling and warehousing is growing at a robust pace and is driving the demand

for integrated logistics solutions.

Globalization of manufacturing systems

Globalisation of manufacturing systems coupled with advancements in technology are

increasingly compelling companies across verticals to concentrate on their core competencies and

avail the cost saving potential of outsourcing. This is expected to contribute to an increase in the

needs for integrated logistics solutions, which is the niche of every third party logistics service

(“3PL Service”) provider.

The industry has been valued at US $ 125 Billion in 2010 (CII).

A snapshot of the FDI regulations governing the industry is as under:

i. 100% FDI under t automatic route is permitted for all logistics services except services

mentioned in points ii and iii below.

ii. FDI up to 100% subject to FIPB approval is permitted for courier services.

iii. FDI up to 49% under the automatic route is permitted for air transport services, including

air cargo services. It is pertinent to mention in this context, that Press Note 1(2007) that is

expected to be imminently notified by the DIPP proposes to increase the limit of FDI on

air cargo services in 74%.


85 | P a g e

The Indian Transportation Environment with a gross domestic product (GDP) of over US $ 475

billion, the Indian industry spends 14 percent of its GDP on logistics. The Indian logistics

environment comprises road transport companies, railways, air freight companies, inter-modal

transport providers, ports and shipping companies, as well as 3PL companies. Their performance

is critically dependent on the state of infrastructure – roads, railways, ports and airports.

Outsourcing, third party logistics services (3PL) and contract logistics generally means the same

thing. It involves the use of external companies to perform logistics functions, which have

traditionally been performed within the organisation. The functions performed by the third party

logistics service providers can encompass the entire logistics process or select activities within that

process. A key rationale for outsourcing of logistics functions is the intensified globalisation of

business. During the last two decades, globalisation has emerged as a major fore of shaping

business strategies, leading firms to develop products designed for a global market and to source

components globally. This has led to more complex supply chains requiring larger involvement of

managers in logistics functions. Lack of specific knowledge of customs, tax regulations, and

infrastructure of destination countries has forced firms to acquire expertise of third party logistics

providers. As a result firms are concentrating their energies on core activities and leaving the rest

to specialist firms. An equally important development that is impacting the logistics industry is the

increased emphasis on supply chain management is the source of advantage. In the last two

decades, the quest for time based competencies led to initially to a rapid adoption of new

manufacturing methods like just-in-time, flexible manufacturing systems, computer aided

manufacturing and so on by organisations. These methods have brought about significant

improvements in the supply chain performance through their focus on compressed manufacturing

lead times and improved quality. However, further enhancements I supply chain performance will

necessitate speeding the flow of information on orders to upstream supply chain partners, and

expediting logistics activities like storage and delivery materials or products through the entire

supply chain. A recent research carried out on the supply chain management practices in India

highlights that the opening of Indian economy and globalization of businesses has been a key

factor for the Indian economy to align supply chain strategy with business strategy, streamline

processes for supply chain integration and form partnerships for minimizing inventories. Indian

organisations are increasingly deploying the supply chain strategies for logistics improvements –

to increase the sales revenue, enhance profits, reduce order to delivery cycle time and minimize

inventories. Logistics is therefore emerging as a key frontier of the competition in the future. Good

logistics performance requires a trade-off between the need to reduce overall supply chain

inventory and lead times, while simultaneously capturing economics of scale and improving

customer service for enhanced business performance. Versatility of third party logistics service

provides enables them to maintain this trade-off by turning fixed costs into variable costs for

companies using their services. The use of third party logistics service providers has gained

prominence in this context.


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B. BOARD NOTE OF ABC GRAPHICS:

ANNEXURE I

Proposal received by Branch on 23.09.2013

Proposal received by Regional office on

Proposal received by Central office on

Further particulars received on 16.11.2013


Regional Office, Chennai -I

Memorandum to Management Committee of Board

(For Sanction/Renewal/Confirmation/Information)

Through Approval grid

(Board Note from Page No. 1 to )

Dept: Advances Date: 29.03.2013

1. Branch: George Town (2053) Region: Chennai

2. Account: M/s ABC GRAPHICS

PAN No. : XYZ12345HI Group: NA

3.1.Activity: Dealer in Art Paper & Boards Industrial classification: Trader (Logistics)

3.2. Sector Trade

4.0 Purpose of Note:

4.1. Sanction of following Renewal of limits. (Rs. In lakhs)

Nature of

limit/facility

Purpose Existing

Limits

Revised

Limits

(+)/

(-)

Margi

n

Interest %

Applicable

rate

Interest %

proposed

Cash Credit

(Against

Hypothecation of

paid stocks upto

90 days)

Working

Capital

6.80 7.00 0.20 50% Base Rate +

2.75% p.a.

13%

NFB: LC/LG

LG(F) – Letter of

Comport against

Buyer’s Credit for

import of

specialized papers

90 to 180 days DA

terms

Total: 6.80 7.00 0.20

CMD

ED


87 | P a g e

4.2. Sanction for renewal of existing limits (modification in sanction terms/release of

security/guarantee, concessions in margin, interest etc).

4.3. Confirmation for:

4.4. Information for:

5.1 Repayment terms: Cash Credit

5.2 Value of Security (Rs. in lakhs): Prime: Hypothecation of

stocks

Collateral: 12.00

5.3 Guarantors and their net worth: (Rs. In lakhs)

Name Age Address Worth As on

Mr. P. Thiago

PAN No. YXZ12345HI

36 Kodambakkam,Chennai-

600024.

20.36 31.03.2010

Mrs. T. Devi

PAN No. XZY12345HI

31 w/o Mr. Thiago.

-do-

12.00 31.03.2010

Corporate Guarantee, if any (with TNW): Nil

Details of any change in guarantors such as waiver sought/additional Guarantors offered, etc. and their

worth: No

5.4. Reasons for reference to MCB/CMD/ED… (Sanctioning authority): (Rs. in crores)

Nature of Limits

Discretionary Powers Proposed limits

Above Upto

Secured + Unsecured limits per borrower 0.00 0.00 7.00

Unsecured limits per borrower

Total limits for Group 0.00 0.00

Limits fall under ___ powers. Other requests fall under: Nil

5.5. Status of NBG/Grid approval: Not Applicable

NBG/GRID Date cleared Amount cleared Interest rate approved

6. Date of establishment 30.04.2010

7. Banking with us since 2010

8.1. Names of

Directors@/Partners

Designation

Age Worth (Rs. in lakhs)

Amount As on

Experience (in brief)

Mr. P. Thiago

PAN No. YXZ12345HI

Director 36 20.36 31.03.2010 Asst manager at ING

Vysya.

No relevant experience

Mrs. T. Devi

PAN No. XZY12345HI

Proprietor

(Director)

31 12.00 31.03.2010 House wife

@Please indicate the names of all directors where applicable.

Latest net worth of all the directors should be furnished irrespective of furnishing of personal

guarantee.

The net worth should also include the investment of the directors in the company.


88 | P a g e

8.2.Among the above who are the key promoters/persons and their background:

Mr P. Thiago – MD of Tulip Group. He was ex-president of a federation related to Paper Industry

during 2001-02. His family business of paper industries is more than 60 years.

Mrs T. Devi – Chairman of Tulip Group. He has also high experience in Paper and printing Industry.

He was also chairman of another printing company before.

8.3. Whether the company/directors/

Guarantors / associates are in RBI defaulters

/caution list as on …………

Whether in ECGC specific approval list.

If any of the directors/promoters is in the willful

defaulters' list with RBI/ECGC, the reasons for

considering the proposal.

Nil

NA

Nil

8.4. Whether above directors /their relatives are

directors of our Bank/other Banks including

directors of Scheduled Co-operative Banks,

directors of subsidiaries/Trustees of Mutual

Funds/Venture Capital Funds. Whether any of the

directors/partners/proprietor is an NRI and any of

them is related to directors /senior officers of our

Bank/other Banks.

Nil

8.5. Share holding pattern: % of shares held by

promoters/group/associates/FIs/public etc.

Proprietorship

8.6. Background of Company

M/s ABC Graphics, is the proprietory concern Mrs T. Devi is the proprietrix dealing with the software

programming Desk Top publishing centre at the above address. The company’s nature of work

includes designing of banners, invitations, bill books, letter-pads, logo formatting, badge and other

related works. There customers are

1. media journalist welfare associations

2. political magazines

3. welfare magazines

At present she is having five computers for business purposes.

Detailed Background of the company is attached with the application.

The CIBIL report is not obtained and brief of the same is as below:

1. P. Thiago: No CIBIL file is generated.

2. T. Devi: No CIBIL file is generated.


89 | P a g e

8.7. Value of the customer (details of average balances maintained in account, deposit connections,

whether fixed deposits are held at card rates or at special rates, income generated through forex

transaction, para banking business routed by company/associates/family & friends).

o/s as on 28.03.2012 Rs 613796.50

Submission of stock statements irregular. Interest servicing not prompt

Operation of Account with our bank not satisfactory.

9.1. Financing Arrangement Sole Banking with IOB (100%)

9.2. Leader in case of consortium NA

9.3. Date of Last sanction/renewal and

Sanctioning Authority

10. Exposure to subject Company from all Banks/FIs: (Rs. in lakhs)

Name of

the Bank

Consortiu

m

/Multiple

Existing Proposed

Term loan Working

capital

Non Fund

based

Term loan Working

capital

Non Fund

based

Amt. %* Amt. % Amt. % Amt. %* Amt. %* Amt. %*

IOB 0.00 0 6.80 100 0.00 100 0.00 0 7.00 100 1.00 0

Total

Amt

WC+NFB:6.80 WC+NFB: 7.00

% of share in case of consortium and reasons for increase/decrease in our share:

Not Applicable

10.1. Borrowing powers of the company: Within the bank norms

11. Exposure to Group sanctioned by our bank: Nil

Name of the Company

Existing Proposed (Rs. In lakhs)

Term

loan

Working

capital

Non Fund

based

Term

loan

Working

capital

Non fund

based

Total amount to Group: TL+WC+NFB: TL+WC+NFB:


90 | P a g e

12. Whether single/group borrower

exposure within prudential norms (whether

exposure norms as per RBI/Government

Policy and as per Bank’s own Loan Policy)

If such exposure is not within prudential

norms, justification for considering the

proposal

Borrower exposure as per Bank’s own lending policy

13. Compliance with industry exposure

norms. (Whether exposure norms as per

RBI/Government policy or as per Loan

Policy).

Bank’s norms Position as on

% Rs. in crs. % Rs. in crs.

Not Applicable for trading concern

14.1. Asset Classification/Income

recognition:

Standard and Performing

14.2. RAM Rating

Explanation for the rating assigned

Risk parameter Existing

Interim/ Final

Revised

Interim/Fina

l

Industry

Business

Financial

Management

Overall Rating

14.3. External Rating (where applicable)

Name of the Rating agency

Rating assigned with Date

Investment/ non-investment grade

Not Applicable

15.1. Risk Weight assigned

15.2 Minimum Capital Requirement (at

9%)

15.3. If concession in pricing, by whom

authorised and from when, with

justification in brief.

Applicable

interest rate

Existing interest

rate

Proposed

interest rate

13% 13% 13%

BPLR – 2%

16. Loan policy guidelines relating to

Margin, Security, and key financial ratios

like DER, DSCR etc.

Any deviation from the stated policies

/guidelines and justification for the same in

brief. If so, who has the authority to deviate

the norms?

Enclosed

No deviation


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17. In case of project loans, furnish – Cost

of project & Sources of finance –the

agency who has conducted techno

economic viability study.

NA

18.1. BRIEF FINANCIAL INDICATORS OF SUBJECT COMPANY: (Rs. in lakhs)

Year ending 2011 2012 2013 2014 2015


Receipts 30.14 23.53

Payments 26.80 20.87

Net Receipts 25.70 103.71

Operating profit 4.44 22.11

Net Profit After Tax 2.07 -2.72

Cash Generation 2.71 -1.86

Net working capital 7.98 3.36

Current ratio 2.15 1.42

TNW 11.64 7.26

TOL / TNW 7.07 8.09

Term Liability/ TNW

Gross Fixed assets/

Term loans

NA N.A.

* Estimated figures given for the last year at the time of last sanction/review should be

indicated in brackets against actual figures.

** Adjusted TNW after excluding investments in-group concerns in excess of 10% of TNW.

18.2. ABRIDGED FINANCIAL POSITION (Rs. in lakhs)

Year ending 31.03.2011 31.03.2012 31.03.2012

Audit status Audited Audited Estimate

LIABILITIES - Capital and Reserves 11.77 5.26 12.96

- Borrowings 6.14 5.29 5.40

- Current Liabilities 0.8 2.63 1.06

- TOTAL LIABILITIES 18.71 15.35 21.59

ASSETS - Fixed Assets 3.66 3.90 4.40

- Non-Current Assets NIL NIL NIL

- Current Assets 14.92 11.28 16.98

- Intangible Assets 0.13 0.17 0.21

- TOTAL ASSETS 18.71 15.35 21.59

18.3. Comments on financials/performance of the company:


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Sales:

Income from job work(service) is increased year by year.

Profits: Increasing trend

TNW: A steady growth of TNW since 2010-11.

TOL/TNW: The ratio stood at 0.59 as on 31.03.2011 and 0.53 on projection for 31.03.2012 and within the

stipulated limits.

CR/NWC:

The current ratio is not the acceptable level. Though the company is highly leveraged, also there

hasn’t been proper utilization of the borrowing, with improper execution plans.

Branch observation:

Sales turn-over is not commensurate the projected figure. Husband of the proprietrix Mr. P Thiago

who was looking after the day to day operation and marketing met with an accident and lost his limbs.

The operation was severely affected. As a result the financials of the company grossly

underperformed.

19. BRIEF FINANCIAL INDICATORS OF GROUP COMPANIES, IF ANY: Not applicable

(For each company in a group, please give separately along with gist of Credit Report on each of

the Associates & IARC Status). (Rs.in crores)

Name of group Co. ABC

Graphics

Year ending/

Audit status

31.03.2011

Audited

Net Sales 30.14

Net Profit After Tax 4.44

Cash Generation 2.71

Net working capital 7.98

Current ratio 2.15

TNW

Adjusted TNW 11.64

TOL / TNW

Adjusted TOL/TNW 0.59

Term Liability/ TNW

20. CONDUCT OF THE ACCOUNT:

20.1 Latest outstanding in account (FB & NFB facilities provided by our bank)

Position as on 30.05.2013 (Rs. in lakhs)

Nature of

facility

Original Limit DP Outstanding Irregularity *

/since when

Cash Credit 7.00 7.00 613796.50 NIL


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Letter of Credit 0.00 0.00 NIL NIL

31.03.2011 28.03.2012

Limit 7.00 7.00

Dr. Summation 12.76 0.90

Cr. Summation 5.72 1.80

Excess allowed 30.11.2010 03.06.2011

Cheque returns No No

Submission of stock

statements

Regular Irregular

Documents Enforceable Enforceable

Servicing of Interest Prompt Served

Interest earned 0.68 0.84

Repayment terms:

Details of irregularities with reasons:

INSPECTION COMMENTS: NIL

PA 36/36A IS NOT HELD ON RECORDS Since held

No Lien letter is not made available Advised the borrower to submit the same

20.2 Details provided for full financial year from 01.04.2012 to 31.03.2013 (Rs

in lakhs)

Nature

of

Facility

Limit Max.

O/s

Min. O/s Turn over Average

Utilization

Income

Earned

Int. serviced

Upto

Cash

Credit

7.00 6.14 0.50 0.78 irregular

20.3 Comments on average utilization and

extent of utilization of various limits

The account initially was well operated. But in

2011-12 the account slipped to substandard

20.4 Comments on share of business routed

(Turnover vs Sales)

Very high projected turnover not met since starting

20.5 Income generated from a/c:

Interest earned Rs. in lakhs

Income Generated (Period: 2012-13)

Interest:

0.78 lakhs


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Comments on whether income earned is

commensurate with utilization of limits.

Income anticipated by the bank in future.

YES

Anticipated Income: Interest: Rs 1 lakhs

Income: Rs 4 to 6 lakhs

20.6 Comments on frequency of

adhoc/excess granted, period allowed, status

of regularization, and confirmation obtained.

Repayment of interest commitments

Promptness in retirement of bills.

Adverse features, if any (% of bills returned,

LG invoked, LC devolved etc.,)

No

Irregular

NA – no export involved

NIL

21.1. a Date of registration of charge

b. Date of joint documentation

(for Consortium advances)

c. Whether Debit Confirmation of

Balances have been obtained from

the borrower for the last 3 years on

half-yearly basis.

d. Whether guarantors(s) has/ have

signed the debit confirmation of

balances.

27.04.2010

NA

Yes

No

21.2. Details of Searches made in ROC (for

companies) with details of date of search,

whether our charges are reflected in the

search report, whether annually obtained

etc.

Search Report carried on 26.09.2013

Charges Reflected:

1. Charge created for Bharat Overseas Bank (IOB )

for Rs 7.00 lakhs on 26.09.2013

21.3. Compliance of sanction terms with

deviations and status thereof


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21.4. Vetting of documents – date and

adverse findings, if any.

21.5. Unit visit by branch - date when last

conducted, comments on adequacy of

stocks to cover DP and adverse findings, if

any.

Property inspected by undersigned CM as on

27.04.2010

22. Status on rectification of irregularities pointed out by CO Inspectors/RBI /Concurrent

Auditors/Statutory Auditors/LFAR/Stock Audit/ Loan Review Mechanism

List of Irregularities not rectified Observations / Remarks

23. Security Coverage: (Rs. in lakhs)

23.1. Prime Securities for credit facilities provided to our bank.

Nature of facility Limit Nature of Security Date & Name of

approved valuer

Value

Cash Credit 7.00 Stock & Collateral Sr. Manager on

23.04.2010

12.00

LC NA

23.2. Collateral Security details (if more details, it may be given as Annexure) (Rs. in crores)

Nature of Security Market value Forced

sale value

proposed

Valuation Other details/

% of Security

cover Existing Proposed

*

Date & name of

Approved valuer

Property comprising of

land & building in

Ambattur taluk covering

an area of 430.56 sq Ft

12.00 11.75 8.00 Vide Valuation

report No. 124/F-

12/10/L/SU

Dt.18.12.2010 by

Dr. R.Nate &

Associates.

100% covered

*In the proposed value column – value of additional security offered, nil value towards withdrawal

of any security already offered, reduced value towards written down value of plant & machinery,

increased value towards revaluation of assets etc. may be given.

In the case of Consortium/Multiple Banking arrangements, where securities are shared, total value

of securities for consortium and value of securities as our share should be indicated.

Comments on shortfall in security backing.

23.3 Fixed asset coverage ratio for term loan exposure (should be arrived

based on forced sale value, in case of Land & Buildings and Book value or

Market value whichever is less in case of Plant & machinery)

Not applicable


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24. Details of Assessment of Working Capital, Term loan, Non fund based limits containing

workings/calculations of Maximum Permissible Bank Finance, DSCR calculations for the Term

Loans, Sources of repayment of the loans released, status of approvals in the case of project loans,

utilization of the amount sanctioned is given below/as per Annexure.

25.RISK ANALYSIS: -

Critical Risk factors Mitigation

Changes in foreign trade policy and by

fluctuation in the value of key currencies will

affect the export, import trade business of

clearing agents.

In the scenario of rising costs and increasing values

of the software patents, and stiff competition the

company needs more exposure and efficient

production and marketing strategies.

Competition Risk The competition is present in every industry and

the firm is no exception to it. However they lack

the expertise to survive in this highly competitive

industry.

Transportation Risk The spouse of the owner was only responsible for

marketing, sales and distribution. There was no

other alternative proposition.

26. SWOT analysis:

Strengths

1. It’s a small venture with very low levels of investment and high return.

2. The demand of bill boards, cards, magazine covers remain constant across the various fluctuations.

Weakness

1. Lack of experience of the proprietrix in the field of business.

2. It’s a proprietary business, so the liability on the two owners was very high.

3. The husband of the owner was solely responsible for marketing and distribution.

Opportunities

1. The demand for the products always has an increasing trend.

Threats

1. Heavy competition cuts the prospects of the business.

2. Unforeseen events can hinder developments to business.

3. Rising cost of raw materials and product licenses.


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27. GIST OF RECOMMENDATIONS:

1. The sales turnover has not met the projected income as shown.

2. The propritrix’ exposure to the graphic industry is not much old.

3. The spouse of the propritrix is solely responsible for marketing and distribution of the

company.

In view of the above we recommend as follows

28. Limits Proposed: Rs. in lakhs

Nature of facility Existing Recommen

ded Margin Rate of interest Prime Security

Cash Credit against

hypothecation of paid stocks

up to 90 days.

7.00

7.00 25% on

income

Concession of

1.50% below BPLR

Hypothecation of

stocks

and collateral

** Being a small services concern, the eligible working capital finance is arrived based on Vas

Committee recommendations.

Out of MPBF of Rs 7.15 lakhs, we may consider a limit of Rs 7.00 lakhs as requested by the

concern.

Repayment terms: NA

29. Terms and conditions of Sanction:

CERTIFICATE (applicable for use at Central Office only)

It is certified that all the relevant facts for descision making have been brought out from the

appraisal memorandum of the RO.

SENIOR MANAGER CHIEF MANAGER

DEPUTY GENERAL MANAGER GENERAL MANAGER

(for RO/CO use as the case may be)

(Other information on the borrowal account and CMA data is given in Annexure)

Disposal by ED (Not applicable for notes to MCB)


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ANNEXURE II

OTHER INFORMATION ON THE BORROWAL UNIT:

1. Name of the Company M/s ABC Graphics

2.Constitution-if partnership whether registered Proprietorship

3. Location – Registered Office

(With full address)

Kodambakkam, Chennai-6000024

-- Corporate Office: Kodambakkam, Chennai-6000024

-- Factory: Not Applicable

4. Whether located in backward area No

5. Whether the factory /business premises is Owned

or leased. If leased whether the Lease Agreement is

in force and valid till.

6. Collaboration /Joint Venture if any NIL

7. Installed/licensed/utilised capacity Not Applicable- Trading unit

8. Performance of Subsidiaries/ Group Companies

if investment is more than 10% of Net Worth.

(Insert Table and give salient financial parameters)

Not Applicable

9.1 Whether shares are listed and if so in which of

the Stock Exchanges

Not Applicable

9.2 What is the market price of the share and

whether it is traded actively? (Please indicate price

and volume movement of shares traded with 12

month highs & lows)

Not Applicable

10. Segment of account under Basel II

11.1 Details of Associates:

Name Activity Limits (Rs in Crore) Bankers IRAC

TL WC NFB

NA - - -

11.2 Conduct/Credit report of Associates

11.3 Whether any of the Associate company is in

Sick/Suit Filed category if so, give details.

Not Applicable

12.1 Present outstandings in credit facilities provided by FIs/all Banks (including our Bank)

to the Company: Position as on 30.05.2013 (Rs. In Lakhs)

Name of

Bank/Inst.

Term loan

Working capital NFB

Limit DP O/s Limit DP O/s Limit O/s

IOB (GT

Branch)

0.00 0.00 0.00 7.00 7.00 6.13 0.00 0.00


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Details of Irregularities with reasons (since when):

1. Submission of stock statements

2. Servicing of interests

12.2 Present outstanding in credit facilities provided by our Bank, to the Group:

Position as on........... (Rs. In Lakhs)

Name of Co. Limit DP Outstanding

Irregularity*

TL WC NFB TL/WC TL WC NFB TL WC NFB

ABC

graphics -

205302XXX

7.00 7.00 6.13

* Details of Irregularities with reasons (since when):

Not Applicable

13.0 Reschedulement / Restructuring of a/c:

Any reschedulement of term loan agreed?

Date of previous restructuring if any:

YES

13 .1 FOR PROJECTS UNDER IMPLEMENTATION

Likely date of financial closure for new projects (date of

execution of documents either by consortium or as sole

bank) as estimated.

Not Applicable

13.2. Deemed date of completion of the project as decided

by the independent group that has been taken on record

Not Applicable

13.3. Date of commencement of commercial production as

originally given at the time of financial closure.

Not Applicable

13.4 Any delay envisaged in commencement of production Not Applicable

13.5 Revised date of commercial production & whether it is

beyond 6 months from the date originally envisaged (or

beyond 1 year for infrastructure projects).

Not Applicable

13.6. Details of original and revised project estimates, if

any.

Not Applicable

13.7. Compliance of RBI guidelines on restructuring. Not Applicable

14. Insurance (Rs. in lakhs)

Prime Securities Value of the

Securities

Insured value Valid upto

Stocks

Plant and Machinery

Others (Specify)

Collateral Securities

Building 12.00 12.00 20.09.2015

Machinery


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Others (specify)

Comments on adequacy of Insurance:

Its adequate.

15.1.Whether Stock Statement and Book Debts

Statement (if applicable) is submitted promptly and up

to date

No. Irregular submission of stock

statements.

15.2.Whether CSS (if applicable) is submitted

periodically and up to date

NA

15.3. Whether the unit is prompt in the submission of

QIS- III?

Not Applicable

15.4. Stock/Book Debts as per last Stock Statement dated: 03.09.2013

Details Rs. in lakhs Details Rs.in Lakhs

Value of Stock 2.5 Value of Book Debts (Age of

Book Debts as per sanction terms

90 days

1.13

Less: Sundry Creditors (0.15)

Less: A & E

Net Value of stock 2.65

Less Margin Less Margin 0.45

Drawing Power Drawing Power 0.68

16. OTHER INFORMATION:

16.1. Whether the unit is a sick unit NIL

16.2.Whether the unit is under nursing (if so, brief

particulars of nursing programme may be given)

NIL

16.3.Whether the credit facilities were last sanctioned

/renewed based on provisional financial statements? If

so, whether provisional figures have been compared

with audited financial statements received

subsequently? If so please discuss about the variance

in essential financial parameters if any, in detail.

YES. No major Variances were

observed

17. CERTAIN PARTICULARS ABOUT THE BORROWER UNIT:

17.1.Method of Lending for Working Capital Limits

(Nayak committee/MPBF I/II method/Cash Budget)

Vaz Committee

17.2.Whether the company is Export oriented; If so

export turn over for the last three years

No

17.3.Availability of refinance No

17.4.Whether product is under Selective Credit

Control of RBI

No

17.5. Pollution Control Clearance, if any required. Not Applicable

17.6. Payment of statutory dues pending:

(PF, ESI, Wages, Sales Tax, Income Tax, Excise Duty

etc pending);if pending, reasons

PF – Paid upto Aug,2013

Sale Tax – Paid upto Aug,2013

Income Tax – Paid Upto Mar,2013


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17.7. Impact due to WTO/ Government policies like

import liberalization/ reduction of subsidy

Not Applicable

17.8 Whether declaration from

borrower/directors/partners in pending court

cases/disputes are obtained as per RBI circular No.

DBOD. BC.DL.104/20.16.002/99-2000 dated

23.10.99.

18. Industry level general performance:


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SOURCES and EXPLANATION OF TABLS AND FIGURES:

A. TABLES:

Srl No Page

Table1 5 Achievements of IOB in 2013-14

Table2 5 Developments in IT infrastructure

Table3 15 Calculation of MPBF using the 3 methods of Tandon committee. Example taken from Google.

Table4 16 Calculation of MPBF using Nayak committee. Data is obtained from A/c of the bank

Table5 26 Tabular representation of the loan disbursal period in IOB

Table6 42 NPA to advances ratio in SCBs trend analysis

Table7 51 Calculation of Notional dues. Source IOB documents

Table8 52 Ascertaining values of different types of security

B. FIGURES:

Srl No Page Interpretation

Fig1. 4 The analysis of IOB’s performance on the basis of the SWOT framework.

Fig2. 5 The commercial banking structure in India

Fig3. 9 The 6C’s of Credit appraisal. The following factors should be fairly evaluated before proceeding on with the credit

Fig4. 13 Schematic view of the operating cycle.

Fig5. 14 Tandon committee method of calculation

Fig6. 16 Flowchart of Nayak committee

Fig7. 20 Schematic diagram for Letter of Credit. Image taken from Google.

Fig8. 22 Schematic diagram for Bank Guarantee. Image taken from Google.

Fig9. 24 Post sanctions process. Image taken from RBI website

Fig10. 25 Detailed workflow of the credit appraisal process

Fig11. 33 Asset provision for different categories of Asset. Image taken from Google.

C. REFERENCES:

1. RBI websites http://www.rbi.org.in/scripts/ for relevant documents, regulation and norms

2. Google www.google.com for images , data

3. Primary source of Table and pictures are from IOB website and intranet

3. Money Control , The Hindustan Times, the Business Today

http://www.rbi.org.in/scripts/

http://www.google.com/


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FINANCIAL PERFORMANCES, NPA MANAGEMENT AND

A. BALANCE SHEET

Standalone Balance Sheet ------------------- in Rs. Cr. -------------------

Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths

924.10 797.00 618.75 544.80 544.80

924.10 797.00 618.75 544.80 544.80

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

12,533.26 9,989.40 7,546.19 5,804.18 5,396.59

0.00 1,141.26 1,159.99 1,175.60 1,209.57

13,457.36 11,927.66 9,324.93 7,524.58 7,150.96

202,135.35 178,434.18 145,228.75 110,794.71 100,115.89

23,322.86 23,613.85 19,355.40 8,982.20 6,548.28

225,458.21 202,048.03 164,584.15 119,776.91 106,664.17

5,740.46 5,672.50 4,875.19 3,794.90 7,258.26

244,656.03 219,648.19 178,784.27 131,096.39 121,073.39

Mar '13 Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

9,837.82 10,198.91 10,010.89 7,666.45 5,940.44

5,420.59 6,062.19 2,007.76 2,158.19 4,981.46

160,364.12 140,724.44 111,832.98 79,003.93 74,885.27

61,417.35 55,565.88 48,610.45 37,650.56 31,215.44

1,847.04 2,699.76 2,535.57 2,460.53 2,352.74

0.00 970.66 859.36 768.63 655.95

1,847.04 1,729.10 1,676.21 1,691.90 1,696.79

0.00 14.95 4.90 7.67 13.07

5,769.11 5,352.70 4,641.08 2,917.70 2,340.93

244,656.03 219,648.17 178,784.27 131,096.40 121,073.40

31,428.09 42,601.94 33,490.63 31,288.74 31,016.27

0.00 24,927.12 15,838.45 11,252.80 10,839.82

145.63 135.34 131.96 116.54 109.06

Mar '13

12 mths

Capital and Liabilities:


Total Share Capital

Equity Share Capital

Share Application Money

Preference Share Capital

Reserves

Revaluation Reserves

Net Worth

Deposits

Borrowings

Total Debt

Other Liabilities & Provisions

Total Liabilities

Assets

Cash & Balances with RBI

Balance with Banks, Money at Call

Advances

Investments

Gross Block

Contingent Liabilities

Bills for collection

Book Value (Rs)

Accumulated Depreciation

Net Block

Capital Work In Progress

Other Assets

Total Assets


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B. PNL ACCOUNT:


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Standalone Profit & Loss account ------------------- in Rs. Cr. -------------------

Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths

20,676.72 17,897.08 12,101.47 10,245.77 9,641.40

1,972.91 1,716.02 1,278.02 1,196.59 1,713.07

22,649.63 19,613.10 13,379.49 11,442.36 11,354.47

15,424.78 12,880.91 7,893.44 7,077.91 6,771.81

2,248.35 2,082.98 1,741.14 1,734.75 1,271.84

0.00 2,031.78 1,473.33 1,320.98 737.99

126.59 111.06 105.00 111.76 100.94

4,282.68 1,456.25 1,094.04 490.00 1,146.10

0.00 0.00 0.00 0.00 0.00

3,407.84 4,633.23 3,606.12 3,385.96 2,307.20

3,249.78 1,048.84 807.39 271.53 949.67

22,082.40 18,562.98 12,306.95 10,735.40 10,028.68

Mar '13 Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

567.23 1,050.13 1,072.54 706.96 1,325.79

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

567.23 1,050.13 1,072.54 706.96 1,325.79

0.00 0.00 0.00 0.00 0.00

214.80 416.83 359.56 223.09 286.82

0.00 0.00 0.00 0.00 0.00

6.14 13.18 17.33 12.98 24.34

20.00 45.00 50.00 35.00 45.00

145.63 135.34 131.96 116.54 109.06

352.43 586.00 324.98 356.29 1,029.30

0.00 47.30 388.00 127.58 9.67

214.80 416.83 359.56 223.09 286.82

0.00 0.00 0.00 0.00 0.00

567.23 1,050.13 1,072.54 706.96 1,325.79

Mar '13

12 mths

Income


Interest Earned

Other Income

Total Income

Expenditure

Interest expended

Employee Cost

Selling and Admin Expenses

Depreciation

Miscellaneous Expenses

Preoperative Exp Capitalised

Operating Expenses

Provisions & Contingencies

Total Expenses

Net Profit for the Year

Extraordionary Items

Profit brought forward

Total

Preference Dividend

Equity Dividend

Corporate Dividend Tax

Per share data (annualised)

Earning Per Share (Rs)

Equity Dividend (%)

Balance c/f to Balance Sheet

Total

Book Value (Rs)

Appropriations

Transfer to Statutory Reserves

Transfer to Other Reserves

Proposed Dividend/Transfer to Govt


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C. NPA ACCOUNTS SECTORWISE AND CATEGORY WISE:


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CREDIT APPRAISAL and NPA MANAGEMENT

Documents

Transcript of CREDIT APPRAISAL and NPA MANAGEMENT