8/12/2019 Dena Draft Report
1/24
DENA BANK
The objective of this project is to study the working of DENA BANK for
prov iding l o a n s & a d v a n c e s , c r e d i t t r a n s a c t i o n a n d c r e d i t a p p r a i s a l t
o S m a l l a n d M e d i u m Enterprises. SME sector is critical to Indias economy
and potentially a key d river of growth, job creation, innovation and economicprosperity.After undert ak ing in the depth of theoret ica l study such as type of
advances, SME policy of DENA BANK, credit rating, CMA, Working Capital and
various financialunder SMEs, It was found that the several industries are growing under
banking financeand SMEs is a one of thefast growing Industries from all the sectors.As per
the 3
rd
census report, total output of the registered units in the year 2001-02
wases t imated to be Rs . 70 ,861 .73 crores . The SSI secto r employed
2, 49 ,3 2, 76 3 p e rs on s during that period.Thus SME plays a very significant role in
the socio-economic development of the country.The project was an attempt to
understand and perform the work in credit transactionand credit appraisal proposal which Ihave included is just an example of it.I ha v e wo rk ed on ma n y suc h pr op os al s ,
whic h ar e be yond t he s cope of t his pro jec t. Hence the whole experience of
working in such a renowned public sector unit was very good & made me learn a lot
out of it.
ACKNOWLEDGEMENT
The project Title Credit appraisal under SME segment in Dena Bank has
beenconducted by me during 15
th
June 2011 to 30
th
July 2011 at Dena Bank, Regional Office,Delhi. I have completed this project, based on the
primary and secondary research under the guidance of my bank guide Mr. J.D. Sinha, Sr.
Manager (SME).He h as hel ped me to lea rn abou t t he pro ces s o f gi vin g lo ans
& advances to SME sector by giving me a valuable insight into the role played by Banks
in SME sector. Myincre ased spec trum of knowledge in this field i s the resul t of
their constant supervisionand direction that have helped me to absorb relevant and highquality information.Last but not the least, I feel indebted to all those persons and
organizations who havehelped me directly or indirectly in the successful completion of this
study.
DECLARATION
I hereby declare that the p ro ject repor t en t i t led
Credit Appraisal Under SMEsS e g m e n t a t D e n a B a n k s
s u b m i t t e d f o r t h e D e g r e e O f M a s t e r O f B u s i n e s s Administration,is the record of authentic work carried by me during the period from15.06.2011 to
8/12/2019 Dena Draft Report
2/24
30.07.2011 and the project report has not formed the basis for the award of an y degree ,
diploma, associate ship, f ellowship or s imilar other titles. It has not been submitted
to any other university or institution for the award of any degree or diploma
Table of Contents
Chapter No.Page No.
1. Company Profile
2.1 Overview of Dena Bank
2.2 Milestones
2.3 Vision and Mission Statement
2.4 Growth & Development of the Organization
2.5 Area of operation-Regional Office
2.6 Workflow model of R.O.
2 . R e s e a r c h M e t h o d o l o g y
2.1 Introduction Of Research
2.2 Statement of the research problem2.3Object ive of the research s tudy
2.4 Research Design & Methodology
2.5 Rationale for the study
2 . 6 L i m i t a t i o n o f t h e s t u d y
3.Introduct ion & Emergence of SMEs 4.
Theoretical Analysis
5.Data Process ing & Analys is
6. Case Study
7. Findings and Recommendations
8. Conclusions
9. Bibliography
Chapter-1Company Profile-
DENA BANK
1 . 1 O v e r v i e w o f D e n a B a n k
Dena Bank is one of the earliest nationalized banks in India. Since its inception,the bank has become a renowned name in the f ield of banking and financial
solutions. It istrusted all over the country by thousands of consumers. By being a
customer of DenaBank, one can easily enjoy financial stability and also get good
returns on the servicesand the financial solutions.Dena Bank was founded on 26th May,
1938 by the family of Devkaran Nanjee under the name Devkaran Nanjee Banking Company
Ltd
.It became a Public Ltd. Company inDecember 1939 and later the name was changed to Dena
Bank Ltd.In July 1969 Dena Bank Ltd. along with 13 other major banks was nationalized and
isnow a Public Sector Bank constituted under the Banking Companie s
(Acquisition &Transfer of Undertakings) Act, 1970. Under the provisions of theBanking Regulations
8/12/2019 Dena Draft Report
3/24
Act 1949, in addition to the business of banking, the Bank can undertake other
business as specified in Section 6 of the Banking Regulations Act, 1949.
Competitors:Top three competitors of Dena Bank.
Bank of Baroda
Bank of India
ICICI Bank Limited
Dena Bank has been the first Bank to introduce:
Minor Savings Scheme.
Credit card in rural India known as "DENA KRISHI SAKH PATRA" (DKSP).
Drive-in ATM counter of Juhu, Mumbai.
Smart card at selected branches in Mumbai.
Customer rating system for rating the Bank Services
1 . 2 M I L E S T O N E S
One among six Public Sector Banks selected by the World Bank for sanctioning
aloan of Rs.72.3 crores for augmentation of Tier-II Capital under Financial
Sector Developmental project in the year 1995.
One among the few Banks to receive the World Bank loan fo r
t ec hno logi cal u p gradation and training.
launched a Bond Issue of Rs.92.13 crores in November 1996.
Maiden Public Issue of Rs.180 Crores in November 1996.
Introduced Tele banking facility of selected metropolitan centers.
Dena Bank has been the first bank to introduce-
o
Minor Savings Scheme.
o
C r e d i t c a r d i n r u r a l I n d i a k n o w n a s " D E N A K R I S H I S A K H P A T R A
" (DKSP).
o
Drive-in ATM counters of Juhu, Mumbai.
oSmart card at selected branches in Mumbai.
8/12/2019 Dena Draft Report
4/24
o
Customer rating system for rating the Bank Services
.
1 . 3 V I S I O N & M I S S I O N
Mission and Vision Statement of Dena Bank
Mission Statement-
DENA BANK will provide its
Customers
-
premier financial services of great value,
Staff-
pos i t ive work env i ronment and oppor tun i ty fo r g rowth and ach ievement ,Shareholders
- superior financial returns,
Community
- economic growth.
Vision Statement-
DENA BANK will emerge as the
most preferred Bank of customer choicein its areaof operations, by its
reputation and performance.
Logo
The logo o f
Dena Bankrepresents
Lakshmi,the Goddess of wealth, according toHindu mythology. It was the des ire of the
founding fathers of the Bank that the Bank should be a symbol of prosperity for all itsclients, and the logo represents this promise.
The contemporary
'D'in the logo ref lec ts the
dynamism,
dedication
and the
drive
8/12/2019 Dena Draft Report
5/24
towards customer satisfaction.
1.4Growth and Deve lopment of the Organizat ion To evolve and position the bank as a world class, progressive, cost-effective
andcustomer friendly institution providing comprehensive financial and related se
rvices:integrating frontiers of technology and serving various segment of society especially
theweaker section of the society: committed to exce llence in serving the publicand alsoexcelling in the corporate values. Corporate excellence emanate from
good
corporateg o v e r n a n c e e x e r c i s e d b y a d o p t i n g s t a n d a r d o f t r a n s p a
r e n c y , a c c o u n t a b i l i t y , professionalism, social responsiveness, and ethical
business practices with this in view,the has been making ef fo r t s for adop t ing the
bes t pract ices . The bank commitment towards corporate governance is to
bestow grea ter transparency and openness in themanagement and to ensure best
perfo rmance by staf f at all the level s to maximize theopera tional eff ic iency.
Adopting the corporate governance as a work ethos, the bank iscommitted to
enhancing the stakeholders value.
1.8 WORKFLOW MODEL
Here is the workflow model of Dena Banks regional office-
Chapter-2ResearchMethodology
2 . 1 I N T R O D U C T I O
N
RESEARCH-Research
is the search for and retrieval of existing, discovery or creation of newinformation or
knowledge for a specific purpose.
METHODOLOGY-Methodologymean s b od y o f meth o d u sed in a p a r t i cu la r ac t ivi ty . T o p ro ceed w i t h
s t u d y i n t h e r i g h t d i r e c t i o n , i t i s e s s e n t i a l t o s e l e c t a n
a p p r o p r i a t e m e t h o d . S e l e c t i on o f m e t ho d i s a g ai n a v e r y c a u t i o us
w o r k a n d h a s t o b e d o n e w i t h p r o p e r u n de rs ta nd in g.
RESEARCH METHODOLOGY-Research methodology is a way to sys temat ica l l y so lve the research
p roblem. It ma y be unders tood as a s c i ence o f s tud y how resea rch i s done
scien t i f ica l l y . In i t ,var ious s teps are s tud ied that are used fo r s t udy ing
the research p rob lem along wi th the log ic beh ind them.Researc h
meth od o lo g y, th e re fo re h as man y d imen s io ns . I t h as a w id er sco pe .T h e
p u r p o s e o f t h e m e t h o d o l o g y s e c t i o n i s t o d e s c r i b e t h e
r e s e a r c h p r o c e d u r e s . T h er e f or e r e s e a r c h m e t ho d o lo g y n o t o n l y
i n c l u d e s t h e r e s e a r c h m e t h o d s b u t a l s o c o n s i d e r s t h e l o g i c b e h i n d
t h e m e t h o d s i n t h e c o n t e x t o f r e s e a r c h s t u d y . I t h e l p s i n e xpl ai ni ng
why a par t icu lar method or techn ique i s being used and why no t o thers
8/12/2019 Dena Draft Report
6/24
, so the research resu l t s are capab le o f bei ng evaluated h imsel f o r by
o thers .
2.2STATEMENT OF THE RESEARCH PROBLEM
The factors beyond Credit Appraisal in financial Institute have widely investigated at
theaggregate level and at the Government level. The main reason is Credit appraisal
under SMEs is new fieldof research.Due to the limitations of knowledge about problems and
challenges faced by the CreditAppraisal SMEs and the factors responsible for their sickness are summarized as
under:
Increased competition from cheap imports
Infrastructural constraints/bottlenecks
Delayed realization of receivables
Delayed/inadequate credit
High cost of funds
Insistence on collateral/margin
Complication and cumbersome procedures of banks
Limited financial resources
Non availability of adequatepromoters contribution / equity
Obsolete technology. Low R & D and technology up gradation effort
Inadequate managerial competence
Lack of marketing skills / Poor marketing
Inadequacy of inputs and skills
Government policies
Financial problems
Low quality image (Low ability perceived)
Difficulty in dealing with Govt. buying systemThe choice of this subject was based on many reasons;
there has not been much researchabout credit appraisal under SMEs and also, itis a highly actual
subject availability of dataand also personal interest that influenced our choice of topic.
2 . 3 O B J E C T I V E O F T H E R E S E A R C H S T U D Y
8/12/2019 Dena Draft Report
7/24
T h e o b j e c t i v e o f t h i s p r o j e c t r e p o r t i s t o s t u d y t h e w o r k i n g
o f D E N A B A N K
f o r p r o v i d i n g l o a n s a n d a d v a n c e s t o S m a l l a n d M e d i u m E n t e
r p r i s e s . S M E s e c t o r i s c r i t i c a l t o I n d i a s e c o n o m y a n d
p o t e n t i a l l y a k e y d r i v e r o f g r o w t h , j o b c r e a t i o n , i n n o v a t i o n a n d
e c o n o m i c p r o s p e r i t y . S M E s c o n t r i b u t e a b o u t 4 0 % o f I n d i a sv a l u e a d d i t i o n m a n u f a c t u r i n g , a l m o s t 5 0 % o f I n d i a s t o t a l e x p o r t s
a n d 4 5 % o f
I nd us t r i a l u n i t s . T h e y p r o d u c e d i f f e r e n t p r o d u c t s , r a n g i n g f r o
m s i m p l e i t e m s t o h i g h -
t e c h p r o d u c t s u s i n g s o p h i s t i c a t e d s t a t e - o f - a r t -
t e c h n o l o g y f o r b o t h d o m e s t i c a n d i n t e r na t io n a lm ar k e t .
SCOPE OF THE STUDY
Get an insight of the banking industry.
Understand the interface of the banks with their clients, customer service expenses in banks.
Using the theoretical knowledge in application and understandingthing practically.
Serve the organization.
2.5 Research Design and MethodologyResearch Design
Research des ign i s a concep tual s t ructu re wi th in which resear ch i s conducted the blueprint for the collection and measurement and analysis of data .Research
design can be categorized as exploratory and conclusive design. Exploratory seeks
to discover new relationships while conclusive research is design to take decisions.In
exp lora to ry the main a im is to come to hypothes is . I t means ten ta t ive
an s we rs to questions that serve as guide for most research projects. This type of
research defineshypotheses which are then tested by conclusive research .Conclusive
research design can be of two types viz. the case method and the statistical method.In my
case I have opted for conclusive research design by opting case study method.
In my case I have opted for conclusive research design by opting case studymethod.
This research contains secondary data. A little bit primary source of datacollection is also
used to get an insight of case study.
All analysis and conclusion is derived on the basis of the case study data.
To select this case study random sample technique is used.
Sampling technique:
8/12/2019 Dena Draft Report
8/24
As it is a conclusive research , therefore this research contains secondary data. A little bit
p rimar y source o f data co l lec t ion i s a ls o used to get an ins igh t o f case
s tud y. Al l analysis and conclusion is derived on the basis of the case study data. To select
this casestudy random sample technique is used.
Data collection method:
As far as the study is concerned, sound information base is needed in order to classifythe problem quickly .Basically data i s collected from two sources viz . primary
source andsecondary source.
Sources of data:Primary dataI t consis ts o f o r ig inal in format ion co l lec ted fo r speci f ic purpose .Data i s
collectedthrough a direct source like survey to obtain the first hand information. Others
resourcesare written below:
Discussion with my project guide
Discussion with other members of the credit department.
Secondary data:I t consis ts o f in format ion that a l r eady ex is ts somewhere and has been
col l ec ted fo r specific purpose in the study. The secondary data for this study is collected
from varioussources like
Websites
Books
Newspaper
Financial magazine(weekly , business world, etc)The reasons for using these sources for collecting
data are:
It provides more reliable results.
It is easier to tabulate and interpret data gathered in this way.
2 . 6 R A T I O N A L E F O R T H E S T U D YOffering credit is an operation fraught with risk. Before offering credit to an organization,its
financial health must be analyzed. Credit should be disbursed only after
ascertainingsatisfactory financial performance. Based on the financial health
of an organizat ion, banks assi gn cr edit rat in gs. The se c redit rat in gs ar e
used to f ix the i nt e res t ra t e and quantum of installment.This study aims to analyze
the credit health of organizations that approach Dena Bank for foreign exchange credit
faci lit ies. After analyzing credi t health, the credi t rating is determined. On the basis
of credit rating, the interest rate guidelines circular is consultedto fix a price for the credit
facilities i.e. determine the interest rate.
8/12/2019 Dena Draft Report
9/24
2.7
LIMITATION OF THE STUDYLimitations of this Study are as follows:-
Time:The short time duration of one & half months is very inadequate.
Vast topic:The subject credit appraisal under SME is too vast to study.
Data gathering:Gathering of data relating to various products of Dena bank was a little difficult task.
Scrutinizing of information:
Data mining was a time consuming task. Useful information had to be extractedaf ter careful scrutinizing from the large data gathered.
T h e i n v e s t m e n t l i m i t o f R s . 1 c r o r e f o r c l a s s i f i c a t i o n a s S S I h a s
b e e n e n h a n c e d
t o R s . 5 c r o r e i n r e s p e c t o f c e r t a i n s p e c i f i e d i t e m s u n d e r
h o s i e r y , h a n d t o o l s , d r u g s pharmaceu t i ca ls and s t a t ionary i t ems
and spor ts goods by the Government o f Ind ia .
YEAR 2006T h e G o v e r n m e n t o f I n d i a h a s e n a c t e d t h e M i c r o , S m a l l a n d
M e d i u m E n t e r p r i s e s D e v e l o p m e n t ( M S M E D ) A c t , 2 0 0 6 o n J u n e
1 6 , 2 0 0 6 w h i c h w a s n o t i f i e d o n O c t o b e r 2 , 2 0 0 6 . C o n s i s t e n t w i t h
t h e n o t i f i c a t i o n o f t h e M i c r o , S m a l l a n d M e d i u m
E n t e r p r i s e s D e v e l o p m e n t ( M S M E D ) A c t 2 0 0 6 , t h e d e f i n i t i
o n o f m i c r o , s m a l l a n d m e d i u m e n t e r p r i s e s e n g a g e d i n m a n
u f a c t u r i n g o r p r o d u c t i o n a n d p r o v i d i n g o r r e n d e r i n g o f s erv ic
es has been modif ied .
3 . 3 M S M E D
Introduction:MICRO:-Micro (manufacturing) EnterprisesEnterprises engaged in the manufacturing/production or preservation of goods and
whoseinvestment in plant and machinery (original cost excluding land and building and such
itemsas in 1.1.1
) does not exceed Rs. 25 lakh, irrespective of the location of the unit.
Micro (service) EnterprisesEnterprises engaged in the providing/rendering of services and whose investment
inequipment (original cost excluding land and building and furniture, fitting and such itemsasin 1.1.2)
8/12/2019 Dena Draft Report
10/24
does not exceed Rs. 10 lakh.SMALL:-Small (manufacturing) Enterprises:Enterprises engaged in the manufacture/production or preservation of goods &
whoseinvestment in plant and machinery (original cost excluding land and
bu ild ing & the it emsspecified by the Ministry of Small Scale Industries vide its
notification No.S.O.1722 (E)Dated October 5, 2006 as furnished in Annexure I)
does not exceed Rs. 5 crores.
Small (service) EnterprisesEnterprises engaged in the providing/rendering of se rvices and whose investment
inequ ipment (o r ig inal cos t exclud ing land and bu i ld ing & furn i tu re ,
fi tt in gs an d ot he r not directly related to the service rendered or as may be under
the micro, Small and MediumEnterprises development, (MSMED), Act 2006)
does not exceed Rs. 2 crore.MEDIUM:-Medium (manufacturing) EnterprisesEnterprises engaged in the manufacture/production or preservation of goods
and whoseinvestment in plant and machinery (original cost excluding land and
bu ild ing and the it emsspecifi ed by the Mini st ry of Smal l Indust rie s vide it s
notification No.S.O. 1722(E) datedOctober 5, 2006) is
more than Rs. 5 crorebut
does not exceed Rs. 10 crore.Medium (service) EnterprisesEnterprises engaged in the providing/rendering of services and whose investment
inequipment (original cost excluding land and building and furniture, fittings as such items
asin 1.1.2) is
more than Rs. 2 crorebut
does not exceed Rs. 5 crore.Banks lending to medium enterprises will not be included for the purpose
of reckoningunder priority sector.
T
INY
U
NIT
WOULD
BE
M
ICRO
E
NTERPRISES
.SSI
WOULD
BE
S
MALL
E
8/12/2019 Dena Draft Report
11/24
NTERPRISES
.
3.4 NEW NOMENCLATURE & CLASSIFICATION OF MSMED
SMEs have been established in almost all-major sectorsin the Indian industry
such as:1 . A g r i c u l t u r e i n p u t s 2 . Ch e m ic a l & Ph a rm a c e ut i c a l s3 . E le c t r i c a l ,
E l e c t r o n i c s 4 . B i o -
e n g i n e e r i n g 5 . E n g i n e e r i n g 6 . F o o d P r o c e s s i n g 7 . E l e c t r o -
m e di c al eq u i p me n t8 . T e x t i l e s a n d Ga r me n t s 9 . S p o r t s
g o o d s 10.Plastics products11.Me at P rod uct s12.Computer software13.Leather
and Leather goods etc.As a result of globalization and liberalization, coupled with WTO
regime, IndianSMEs have been passing through a transitional period. Those SMEs who have
international business outlook, competitive spirit, strong technological base, and willingnessto restructurethemselves they withstand the present challenges and comes out with
shining colures byadding up to contribution to the Indian economy
SWOT
6 . 0 T E R M L O A N S : Tern loans are sanct ioned fo r acqu is i t ion o f f ixed asse t s l ike land ,
bui ld in g, p l ant &machinery, office equipments, furniture & fixture, etc for purchase of
transport vehicles, for purchase of agriculture equipments, machinery & other movable
assets like tractors, pumpssets, cattle, etc.The term loan would be a loan, which is not a
demand loan and is repayab le in terms i.e .installments irrespective of period or the
security cover.Term loans are normally granted for the period varying from 3 to 7 years and
in exceptionalcases beyond 7 yrs.7.0
CASH CREDIT ADVANCES:Cash cred i t account i s a d r awing account agains t cred i t g ran ted by the
Bank and i sopera ted in exact ly the same way as a curren t a ccount on
which an overdraf t hasbeensanc t ioned . The var ious t ypes o f s ecur i t i es agains t which CC i s a l lo
wed are p ledge,hypothecat ion o f goods o r p roduce, p ledge o f documents
of title to goods, mortgage of immovable property, book debts, trust securities, etc.In
CC accounts borrower is allowed to draw on account within the prescribed limit, and
whenrequired.8.0
LETTER OF CREDIT:Letter of credit (LC) is issued by the bank at the request of its customer in favor of third party
informing him that the bank undertakes to accept the bills drawn on its customers up tothe
amount stated in the LC subject to fulfillment of the conditions stipulated therein.
8/12/2019 Dena Draft Report
12/24
T h e r e f o r e , w h e n b a n k i s s u e s L C , i t a s s u m e s r e s p o n s i b i l i t y t o pa y
i t s b e n e f i c i a r y o n production of bills drawn in accordance with the terms and
conditions of the LC.Whenever the bills drawn under LC are not paid by the party from its
own resources or out of available DP in the CC account on its due date, the LC is said to have
devolved.9 . 0 G U A R A N T E E : I ssu ing o f guaran tees on the behal f o f the i r cus tomers to th i rd par t i es i s
one o f
theserv ices rendered by commercia l banks . Such guaran tees are co n t rac ts
to per fo rm the promise or discharge the liability of the constituent on whose behalf they
are given, in case of his defau lt or f ailure to perform the contracts undertaken by
him. The party in whose favor the g uar ant ee is giv en is cal led the
ben ef i c i ar y, whereas the i ssuin g bank i s ca l led the guarantor and the third
party on whose behalf of guarantee is given is ca lled the pr incipaldebtor. Every
guarantee must specify the amount and period of the liability to be undertaken by the bank.
1 0 . 0 D E M A N D L O A N : A Demand loan account is an advance for a fixed amount and no debits to the
accounts aremade subsequent to initial advance except for interest, insurance premium and
other sundrycharges.Demand loan would be loan, which is repayable on demand in one shot
i.e. bullet repayment. Normal l y, demand loans a re a l lowed agains t the Banks
own deposits, govt. securities,approved shares or debentures of companies,
life insurance policies, pledge of gold/silver ornaments, and mortgage
of immovable property. A separate account for each demand loanshould be kept in
the appropriate demand loan ledger.
4 . 6 C R E D I T R A T I N G S C H E M E A credit rating scheme has been introduced to encourage the SSI units to get their
creditrating done by the reputed credit rating agencies, with a view to facilitate credit flow to
themand enhancing the comfort-l evel of l ending banks. The scheme, being
implemented by the NSIC, envisages that 75 percent of the cost of the credit
rating exercise , with a maximumlimit of Rs.40,000 per SSI unit, would be
reimbursed to the SSI units availing of thi s one-time facility. Six credit rating agencies
namely, CRISIL, ICRA, Dun and Bradstreet, Onicra,Care and Fitch, which have agreed to
credit, rate SSI units through NSIC.
4.7CIBIL (CREDIT INFORMATION BUREAU (I ) LTD) In terms of RBI guidelines, all banks have been advised to submit credit informationin
respect of their borrowings accounts to cibil, to create a database to be used by the
member banks fo r ex traction of credi t informat ion reports (CIRS) on prospective
of submission of credit inform ation to C IBIL, R BI had advis ed ban ks th at
t i l l suc h t ime the app ro pr ia te legislation is passed by the Govt, consents of borrowers
are to be obtained.
4 . 8 C R E D I T M O N I T O R I N G A R R A NG E M E N T ( C M A )
8/12/2019 Dena Draft Report
13/24
Effective from October 10,1988, RBI replaced the CAS by new scheme known
asCredit Monitoring Arrangement (CMA).Under the scheme RBI would carry post
sanction scrutiny o f p roposals relating to sanction of term loans as well as
working capital limits beyond stipulated level.When CMA was introduced banks were
required to report to RBI for post sanction scrutinyall sanctions of working capital
limi ts Beyond Rs. 5 crores and term loan exceeding RS. 2crores from the bankingsystem.Since Decem ber1992, the s t ipul ated level for pos t
sanct ion scru t iny by RBI fo r work ing cap i ta l fac i l i t ies ( fund based) has
been ra is ed to Rs .10 c ro res an d above. An y sanct ion of term cred it inc luding
deferred payment guarantees in which the share of the banking system is Rs. 5 crores
is required to be reported
Chapter-5DataProcessing&
AnalysisRATIO ANALYSISThe performance of a unit is judged in the following parameters:-
a ) G r o w t h i n s a l e s b) Ma rg in o f pr o f i t c)Uti li zation (i .e. turnover) of
assetsd)Financial strength/healthe) R e tu r n o n i n v es t m e n t Financial ratios in respect of these parameters should be calculated and used as a measure
of evaluation of performance. However, ratio by themselves cannot be good or bad but must
be judged against ratio of previous years or against those of similar units in the same industry
or of an entire industry. Reasons for an upward or downward trend in ratios have
to be foundand the ratios interpreted accordingly.
1 . G r o w t h i n S a l e s :
Growth in sales is an important indicator of progress of a unit. The growth may
be ei ther interms of value or in terms of number of unit sold. Thus , although the
figures may show an increase in sales, the increase may be due to an increase in the price
per unit.The ratio for evaluating growth in sales isPercentage increase = (Current years sales-
previous years sales) *100Previous years salesThis ratios can be calculated in terms of
amount or in terms of number of unit sold.
2 . M a r g i n o f p r o f i t : Every concern would like to make a profit. However, t he margin of profit and the
quantumhave to be compared over the years. There are four ratios through which this can be
done.
a ) G r o s s m a r g i n r a t i o = G r o s s P r o f i t
* 1 0 0 Net Sales
b ) O p e r a t i n g p r o f i t m a r g i n r a t i o = O p e r a t i n g p r
o f i t * 1 0 0 Net Sales
c ) P B I T r a t i o = P r o f i t b e f o r e i n t e r e s t &
t a x * 1 0 0 Net Sales
8/12/2019 Dena Draft Report
14/24
d ) N e t p r o f i t m a r g i n r a t i o = N e t
p r o f i t * 1 0 0 Net Sales. The higher the ratio, the higher is the
operating efficiency of the unit.
3. Utilization of Assets:The efficiency of a concern is judged from the extent to which it utilizes its assets. If
assetsare not fully utilized, it would mean that the money invested in these assets is lying idle
andthis is a cost to the firm. The assets could be land and building, plant and machinery
or inventory or debtors; each of these should be utilized in such a way that they contribute
themaximum towards the profits of the firm. For a manufacturing concern, the use of assets
isfor achieving sales and hence ratios based on sales and assets are used to
evaluate performance. The following ratios are useful:-
a) Total assets turnover ratio =Gross Sales Excise dutyTotal Tangible Assets
b ) C u r r e n t a s s e t s t u r n o v e r = G r o s s S a l e s E x c i s e d u t y Current Assets
c) Fixed assets turnover ratio =Gross Sales Excise dutyFixed Assets.
Normally, a higher ratio means better utilization of assets. However, too high a
ratio(especially Current Assets Turnover ratio) could mean inadequate investment for that
levelsof activity-in other words, over trading.
Another set of ratio is the number of monthsratios. There are:-
a) Number of months of raw material = Raw material stock Monthly consumption of raw
material
(where monthly consumption = annual consumption12
b) Number of months finished goods =Stock of semi-f in ished goodsMonthly cost of
production
c) Number of months finished goods =Stock of finished goods Monthly cost of sales
d) Number of months debtors = Debtors Monthly gross sales(i.e. period of creditallowed by the concern)Or Turnover of receivables. The higher the number of months ratio,
the greater is the investment needed for a given level of production and sales. Usually, lower
ratios indicate better utilization of current assets.
4. Financial Strength:There are two aspects of financial strength-liquidity and solvency.Liquidity is the ability of
the firm to pay off current liabilities (normally) by the conversionof assets into cast through
sales.
Current Ratio
= Current AssetsCurrent Liabilities
8/12/2019 Dena Draft Report
15/24
According to the guidelines given to DENA BANK the ideal l evel is at 1.33:1
however theacceptable level is at 1.17:1.Liquidity can also be measured through,
Net Working Capital= Current assetsCurrent liabilities
The higher these ratios, the higher the liquidity.Solvency is the ability of the firm to repay all its borrowings (i.e. current) as
well as te rmliabilities. This question will of course arise only when the firm will be
liquidated and all itsassets disposed off. The solvency is therefore measured thus:
Quick Ratio
= total tangible assets total outside liabilities. Where,
Tangible assets = total assets intangible assets (like goodwill, patents,
preliminary andformation expenses etc.)
Outside Liabilities = all liabilities except owners capital, reserves and
surplus/deficit in Profit and Loss account.
Solvency (which also means tangible assets minus total tangible net worth) can also be
determined by the formula, total tangible assets total outside liabilities.
The higher the proportion of tangible assets to outside liabilities, the better is the solvency.
There are
two other measures of solvency, both based on debt/equity ratios. They are:a . O u t s i d e l i a b i l i t i e s
Tangible net worth
b . T e r m l i a b i l i t i e s
Tangible net worth
The second measure is used by term lending institutions. The lower these ratios are, the better
is the financial strength of the concern.In or de r to ju d ge wh et h er th e bo r ro we r
wi ll ab le to pa y l oa n in st al lm en ts an d in te re st periodically, the Debt Service
Coverage (D.S.C.) ratio is used. It is calculated thus:
D.S.C. Ratio= Net profit (after tax) and interest on long term debts & depreciation
Installment of long term debt & deferred payments & interestIt is also important for the
lender bank to assess the firms debt paying capacity over a period.Such capaci ty is
derived by calculating ratio like
Debt Service Coverage RatioMinimum acceptable level is 1.50.
DebtEquity Ratio
= It is afinancial ratio indicating the relative proportion of equity anddebt used to finance acompany's assets. This ratio is also known as Risk, Gearing or Leverage. A high debt equity
http://en.wikipedia.org/wiki/Financial_ratiohttp://en.wikipedia.org/wiki/Financial_ratiohttp://en.wikipedia.org/wiki/Financial_ratiohttp://en.wikipedia.org/wiki/Shareholders'_equityhttp://en.wikipedia.org/wiki/Shareholders'_equityhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Shareholders'_equityhttp://en.wikipedia.org/wiki/Shareholders'_equityhttp://en.wikipedia.org/wiki/Financial_ratiohttp://en.wikipedia.org/wiki/Financial_ratio8/12/2019 Dena Draft Report
16/24
ratio is not preferable by an investor as the company alreadyhas acquired high amount of
funds from market thereby reducing the investor share over the securities available,
increasing the risk
Interest coverage ratio:-Interest Coverage Ratio is an indicator as to the number of times the profit covers
theinterest liability of the company. This is a risk parameter and an indicator to
the extent to which the interest liability will be serviced on the time. Interest for this purpose
would meangross interest payable by the borrower and profit would mean the gross profit
before interest.
Interest Coverage Ratio= Net profit + depreciation + interest
Gross interest payable
The more the number of times of coverage of interest the better it would be for thefinancialstrength of the company. Interest coverage should be minimum of 2.25 times.
5. Return On Investment:Return on any amount invested in a business have to be taken into account whenwe talk of
profitability. The following are the ratios:
a) Return on total assets = Profit before interest & tax * 100
Total tangible assets
b)Return on net wo r th = Net P rof i t * 100
Tangible net worth
Chapter-6Case Study
After printscreens
Total Debt Equity Ratio (TDER):T h e T D E R o f t h e C o m p a n y s t o o d
a t 2 . 1 7 a s o f 3 1 . 0 3 . 0 9 , w h i c h i s u n d e r t h e n o r m s considering Banks
desirable/benchmark TDER of 4:1 (in case of SSI units). The estimatedand projected TDER
for the financial year 2009-10 and 2010-11 is found to be 3.03 and 2.40which is again
under the banks desirable/benchmark. The same indicates satisfactory long term
solvency of the Borrower.
Current Ratio :
8/12/2019 Dena Draft Report
17/24
8/12/2019 Dena Draft Report
18/24
The Firm projects Export sales of Rs. 360.00 Lacs for the year 2009-10 & Rs.
381.50 Lacsfor the FY 2010-
11. The Firm has already achieved sales of Rs. 184.01 lacs till 30-11-
09h a v i n g a c h i e v e m e n t i n d e x 7 6 . 6 7 % & h a v e c o n f i r m e d o r d e r s f o r
R s . 8 5 . 8 7 l a c s a s o n 10.01.2010 to be shipped out by end of January, L/C of
which already been received. Wehave further been informed that they are in finalstages of negotiation for further orders
of a p p r o x . R s . 5 0 . 0 0 l a c s . T h u s t h e F i r m i s o p t i m i s t i c t o w a r d s a c h
iev ing the es t imatedTurnover .
PrintScreen 20, 21
D . C O M M E N T S O N A S S E S S M E N T O F W O R K I N G C A P I
T A L W I T H JUSTIFICATION:
The working capital cycle stood at 1.19 months during FY 2008-09 comprisinginventoryholdin g of 0 .83 mo nths a nd rec eivab les a t 0 .36 months s a l es .
The borrower has nowestimated working capital cycle of 2.83 months during
FY 2009-10, comprising inventoryholding of 2.18 months and receivables at 0.65
months.
Nature of business of the borrower is seasonal considering the fact that most of the
garmentexports to UK and US for Spring-Summer Season takes place during the
period between November to March.
Receivables :In Balance Sheet Analysis, receivables have been taken as Rs 8.72 lacs as Rs 102.85 lacs
outo f t h e m h a v e b e e n e x c l u d e d s i n c e t h e s e b i l l s h a v e b e e n n e g o t i a t
e d u n d e r F L C a n d accordingly FLC outstanding is also excluded from Bank
Borrowings. The Firm exports onL/C-90 days DA/DP basis.Receivables have been estimated
at 0.65 months (Rs 18.00 lacs) and projected at 0.69 months(Rs 20.00 lacs), as Rs 50.00 lacs
have been excluded from Bank Borrowings towards export bills negotiated under FL/C. The
estimated and projected holding of receivables is consideredneed based and reasonable to
achieve the estimated/projected sales turnover.
Sundry Creditors:
The creditors for goods during FY 2008-09 stood at 1.43 monthspurchases (Rs 17.89lacs)which is estimated at 0.56 months (Rs 9.00 lacs) during FY 2009 -10. The
main reason for low creditors level during FY 2009-10 is as under : The Fi rm has
represen ted that they had received cer t a in goods dur ing the las t week
of March09 for their suppliers , which were under checking as on the Audited
date (31.03.09)and hence remained unpaid as on that date . The same was paid
during 1
st
week of April outof available PCH limit. The creditors level is projected at 0.67 months (Rs
8.50 lacs) duringFY 2010-11, which is almost in line with the creditors holding level during
FY 2009-10. Inview of the above, the estimated and projected creditors holding
period is cons idered need based and reasonable.
8/12/2019 Dena Draft Report
19/24
Based on the accepted level of holding and receivables, the working capital limit
works outto Rs 70.00 lacs under Modified MPBF Method during FY 2009-10 and FY 2010-
11. However, the Drawing Power, as of 31.03.10, based on the accepted holding levels as
above,works out as under:
Printscreen 22
The D.P. works out to Rs 62.00 lacs during FY 2009-10 and Rs 65.00 lacs during FY 2010-
11. Since only around tow and half months is left before the end of the current financial
year,the limits , based on the accepted projections of FY 2010 -11 works out to Rs
65.00 lacs.Accordingly and in line with the Branch recommendation,
we recommend for enhancementin working capital limits by way of PCH-cum-FBP limit
from Rs 55.00 lacs to Rs 65.00 lacs.However, the operative limit would be capped at Rs.62.00 lacs during FY 2009-10. The fulllimits i.e. upto Rs. 65.00 lacs may be released only
during FY 2010-11, subject to availabilityof D.P.
Renewal of Negotiation of Bills under L/C Limit:The borrower is presently enjoying Bills Negotiation (under L/C) limit of Rs
50.00 lacs ,outside the overall MPBF, which it has requested for continuation. The borrower
utilizes PClimits basically for stocking purpose, which is evident from the month -
wise position of stocks is as under
Printscreen 23
In view of the above, the borrower is unable to utilize the FBP limit. The borrower
requiresseparate Bills Negoti ation Limit for negotiation of the Bills under L/C,
which is outs ideoverall MPBF.The overall record has been satisfactory and no bills have
been returned unpaid. Accordingly,Branch has recommended for renewal of the Bi ll s
Negotiat ion under L/C limit of Rs 50 .00lacs and we endorse the Branch
recommendation.
17. ASSESSMENT OF TERM LOAN/ DEFERRED PAYMENT GUARANTEE:N.A.
18. ASSESSMENT OF NON-FUND BASED LIMITS
Printscreen 24, 25, 26, 27, 28
20. COMPLIANCE OF RBI / BANK LOAN POLICY GUIDELINES :The Proposal is as per RBI/ Banks Loan Policy Guidelines.
21. MODIFICATION IN EXISTING TERMS OF SANCTION IF ANY:N.A.
22.VIEWS/RECOMMENDATIONS OF THE CREDIT COMMITTEE:
8/12/2019 Dena Draft Report
20/24
In terms of HO circular No.DCC/GM-Cr/CAD/1249/08 dated 02.06.08, a meeting
of theCredit Committee was held on 07.01.10 at Regional Office, New Delhi.The
Committee cleared the proposal and suggested as under :
i.
As per the estimates in CMA data submitted by the Borrower the D.P. stood at thelevel of
Rs. 62.10 lacs during FY2009-10 and Rs.64.30 thereafter. Accordinglytheoperative limit can be capped at Rs. 62.00 lacs during FY 2009-10. The full
limitsi.e. upto Rs. 65.00 lacs may be released during FY 2010-11 subject to the availabilityof
the Drawing Power.
ii.
I t i s a lso being observed that a t the t ime of las t sanct ion / renewal
Ca pi ta l wa sestimated at the level of Rs. 22.50 lacs for FY 2008-09, whereas as
per the Audi ted B/S of 31.03.2009 Capital stood at the level of Rs. 19.17 lacs.Therefore
i t i s be ing s t ipu la ted that the F i rm has
to in t rod u ce f resh Capi t a l o r Unsecured Loan of Rs. 3.00 lacs before release of the
enhanced limits.
2 3 . D I S C R E T I O N A R Y P O W E R F O R S A N C T I O N A N D F O R A P P R
O V A L O F DEVIATION, IF ANY:The credit proposal falls within the overall discretionary powers of Asst. Gen.
Manager- NDR.
24. RECOMMENDATION:
It is an Export Credit Account falling under SME sector.
Though the Firm was established in April 2008, however the Proprietor, Sh.
MohitGupta i s as socia ted wi th the Bank s ince 1999 by v i r tue o f being a
Pa rt ne r in M/ s x yz Apparels Inc.
Overal l conduct o f the a /c i s Sat i s fac to ry , as repor ted by the
Br an ch . On e Ti me Additional FBNLC limit of Rs. 100.00 lacs sanctioned by
DGM, NDR on 02.02.2009 and liquidated on time.
The family members of the Proprietor are maintaining substantial deposit in the Branch.(O/s
as on Nov. 2009 Current A/c 0.50 lacs, Saving A/c 1.50 lacs, Term Deposits 20.00 lacs).
Though the borrower has no t o f fered any f resh co l la tera l , however , ex ten
si on of Equitable Mortgage over the existing property would result in the
coverage of 527.99%,which is satisfactory.
Overal l f inancia l ind icato rs o f the borrower are sa t i s fac to ry as per Bank
s Policy Norms.
Branch has recommended the proposal, as requested by the borrower.
In view of the foregoing and based on Branch recommendation, we recommendfollowingsubject to the terms and conditions enclosed as per Annexure IIRelease of the
8/12/2019 Dena Draft Report
21/24
limits would be as under
:i . T h e o p e r a t i v e l i m i t c a n b e c a p p e d a t R s . 6 2 . 0 0 l a c s d
u r i n g F Y 2 0 0 9 - 1 0 . T h e f u l l l i m i t s i.e. upto Rs. 65.00 lacs may be
released during FY 2010 -11 subject to the availability of theDrawing
Power.i i . I t i s a l s o b e i n g o b s e r v e d t h a t a t
t h e t i m e o f l a s t s a n c t i o n / r e n e w a l C a p i t a l w a s e s t i m a t e d a t thelevel of Rs. 22.50 lacs for FY 2008-09, whereas as per the Audited B/S of 31.03.2009
Capitalstood at the level of Rs. 19.17 lacs. Therefore it is being stipulated that the Firm has to
introducefresh Capital or Unsecured Loan of Rs. 3.00 lacs before release of the enhanced
limits
Printscreen Application 1-10
Capital/ Net Worth as per CMA projections.25. The documents to be vetted by Advocate on
Banks Panel (at the borrowers cost)to ensure that the documents are as per terms ofsanction, val id and enforceable . Acopy of the Vetting Certificate should be kept on
Branch record.26. As per HO circular No.346/42/99 dated 22.11.1999 the following clause
should beincorporated in the sanction let ter addressed to the borrower: In case
you commitdefault in repayment of the CC/Loan/Overdraft facilities/additional
interest or anyother dues that may aris e out of t he lo an am ount
/financial assistance, the bank reserves the right to disclose or publish the
names of the directors of the company asdefaulters, in such a manner and through such
media as the Bank/RBI in their absolutediscretion may think
fit.27 . As per HO ci rcu l ar No .346 /42 /99 dated 22 .11 .1999 , 54 /1 /2004 d t .
22 /5 /2004 ,consen t le t ter to be ob ta ined f rom the borrower fo r d isc los ing
or pub l ish ing thei r names in theevent of bor rower becom ing de fault ers . The s aid cl ause should beincorpora
ted as last clause of the respective document: I/We hereby agree as pre-condition of
the loan/advance( fund based and non -fund based ) given to me/us by the Bank that in
case I/We commit default in the repaymentof loan/advance or in the repayment of interest
thereon or any of the agreed installmentof the loan on due dates the Bank and/or RBI will
have an unqualified right to
discloseo r p u b l i s h m y / o u r n a m e o r t h e n a m e o f t h e c o m p a n
y / f i r m / u n i t a n d i t s directors/partners/proprietor as defaulter in such manner and
through such media as thebank or RBI in their absolute discretion may think fit.28.
Declaration about no pending court cases (as per H.O. circular no. 351/02/2003) to be
obtained and kept on Branch records.29. An undertaking to be obtained from the borrower,that the Directors/Guarantors arenot, in any way, connected with any senior official (Scale-IV
and above) of the Bank.
30. Commitment Charges:The u t i l iza t ion o f l imi t shou ld be made wi th in 3 to 6months o f date o f
communi cat i on of sa nction t o the pa rty for w orking c apita l . I f average
utilization is less than 75% in case of working capital facilities, commitmentcharges will be
levied @ 0.50% p.a. at quarterly rests on the sanctioned amount.31. Further an
undertaking is to be obtained from the borrower tha t it will not effectany change
in neither management nor declare/pay dividend nor encumber any of the
8/12/2019 Dena Draft Report
22/24
securities charged to the Bank, without the express consent of the
Bank.3 2 . B r a n c h t o s u b m i t c e r t i f i c a t e o f c o m p l i a n c e o f t e r m s a n d c
o n d i t i o n s , a s p e r prescribed format, to Regional
Office.33. Gene ral Undert aking as pe r H.O. Circ ular No. 54/ 1/2004 dated
22.05.04 to besubmitted by the borrower.34. Branch Official should visit the site/propertyoffered as collateral and cross-check its Valuation/Title/Marketability etc. through
discrete / market enquiries and ensurethat the valuation done by the valuer is
jus ti fied . Signifi cant divergence observed, if an y, vi s--vis Reports submitted by
Banks Approved Valuer and Panel Advocate should be immediately brought to the
notice of the sanctioning
authority.35. All lega l expens es/ot her expens es incl uding incid ental char ge
s to be in cu rr ed during the course of operation in the account and for completion
of documenta tionformalities will be borne by the borrower 36. Declarat ion to the effect
that no court cases are pending agains t the company, it sdirectors and the group
concerns (as per H.O. circular no. 351/02/2003) to be obtainedand kept on Branch record.37.
Compliance of terms and conditions should be sent to RO in terms of H.O.circular no.253/41/2002 dated 30.11.2002.38. The borrower to furnish an undertaking that,
where it transpires that the borrower has given a false declaration, the Bank shall forthwith
recall the loan.39. The Company to submit full detail s of all the it ems of Sta tutory
Dues along wi thCA Certificate of latest date and Branch to ensure that there are no
over dues.40. Consent clause to be submitted by the borrower & guarantor
permi tting the Bank for submission of credit information to Credit Information Bureau
(India) Ltd.41. The Branch to ensure that all the suggestions as suggested by the advocate in
NonEncumbrance Report / Legal Search Report ought to be complied before
disbursement.The Branch Head should personally ensure that if the proposed mortgagor
acquired thetitle from Government then Non Encumbrance Report / Legal Search Report
should beat least 30 years and if the proposed mortgagor acquired the tit l e from
sources other than the Government then Non Encumbrance Report / Legal Search Report
should be
The sa id p roper ty i s a lso mor tgaged to t he Bank fo r Mortgage Loan of
Rs . 10 .8 5 La cs sanctioned to Sh.. Mahesh C. Gupta, Smt. Shashi Khandelwal,
Sh. Vikas Gupta, Sh. MohitGupta O/S as on 10.01.2010 being Rs. 7.95 Lacs and
Machinery Term Loan sanctioned toM/s xyz Apparels Inc-O/S as on
10 .01 .2010 being Rs . 5 .89 Lacs . The conduct o f theaforesaid accounts
are sa t i s fac to r y as repor ted by the Branch and bo th the accounts
areclassified as Standard
Printscreen application 11-18
8/12/2019 Dena Draft Report
23/24
Chapter-7FindingsAfter undertaking the in depth theoretical study such as types of advances, SME policy
of DENA BANK, credit rating, CMA, working capital and various financial under SMEs, it
wasfound that the several Industries a re growing through credit/advances grantedby banks andSMEs is a one of the fast growing Industries within all the sectors.In India, the
Micro and Small Enterprises (MSEs) sector plays a pivotal role in the overallindustrial
economy of the country. It is estimated that in terms of value, the sector accountsfo r about
for 39% of the manufacturing output and around 33% of the total export of
thecountry. Further, in recent years the MSE sector has consistently registered
higher growthrate compar ed to the overa l l indus tr i al sec tor . T he majo r
advan tages o f the secto r i s i t s
employment potential at low capital cost. As per available statistics, this sector employs
anestimated 31 million persons spread over 12.8 million enterprises and the labour intensityinthe MSE sector is estimated to be almost 4 times higher than the large enterprises.As per
the 3
rd
census report, total output of the registered units in the year 2001-02
wasestimated to be Rs. 70,861.73 crores. The SSI sector employed 2,49,32,763
persons during that pe r iod . There were 50606 ex por t ing uni t s account ing
for ex po rt s to th e tu ne of Rs .14,199.56 crores.Th us SM E
p la ys a ver y s igni f i can t ro le in th e socio -
eco nomi c dev elop men t of the country.
Chapter- 8Conclusion
The project entitled CREDIT APPRAISAL UNDER SME gives the detailed knowledgeof thewhole process of loans and advances which DENA BANK performs. Starting from theloan
application from the borrower and compilation of confidential reports on him and
theguarantor, the process continues till the disbursement of loan and after it the close
monitoringtill the adjustment of Banks loan.The project was an attempt to understand and
perform the work in credit transaction andcredit appraisal proposal which I have included is
just an example of it.
I have worked on many such p roposals , which are beyond the scope o f
th is pr oj ec t. Hence the whole experience of working in such renowned public
sector uni t was very goodand made me a learn a lot out of it.Chapter-9Bibliography
Magazines1 . B u s i n e s s w e e k 2 . F r o n t l i n e 3 . B u s i n e s s W o r l d
News Papers
1.Business standard
2.Financial Express
3.Economics Times
8/12/2019 Dena Draft Report
24/24
Top Related