PREFACE

MBA is a stepping stone to management career in order to develop a Healthy management and administration skill among potential Manager. It is said that field research is better than class room Training. To achieve partial and concrete results it is necessary that Theoretical knowledge must be supplemented with practical environment. This research project is a part of the business administration course Being taken up at niversal !roup of Institutions under "unjab Technical niversity and I got the chance to complete my summer project with #ammu $ %ashmir Bank &td. Branch office kulgam.

A PROJECT REPORT ON
E-BANKING AT J&K BANK, ZONAL OFFICE (KULGAM) Submitted to the Department of Business Administration.

UNIVERSAL GROUP OF INS I U ION LALRU !"AND"IGAR"

Submitted By:
TA I! NAZI! !AT E! MBA "#d SEM
IN $A!TIAL FULFILMENT FO! T E A%A!& OF T E &EG!EE OF MASTE! OF BUSINESS A&MINIST!ATION ("!& SEMISTE!) SUBMITTED TO HOD (MBA Dept.) Dr. SHEWETA SHARMA SUBMITTED BY MBA STUDENT TAHIR NAZIR

CE!TIFICATE
T' ()'m it m*y +',+e#, This is to certify th t !OS AN ALI MI! st!"e#t of MBA $*#t "#d h s s!ccessf!$$y co%p$ete" & 'ee( s!%%er tr i#i#) i# the A"* #ces + Asset ,$ ##i#) Dep rt%e#t (A+A,)- J&K B*,Z',*. '//i+e Sri# ) r. The topic ssi)#e" to the st!"e#t ' s. /Fi,*,+i,0 '/ M1S 23Z The 'or( is 0ei#) s!0%itte" to the Dep rt%e#t of B!si#ess St!"ies- UNI4E!SAL G!OU$ OF INSTITUTION for the ' r" of "e)ree. The st!"e#t h s s!0%itte" the pro1ect i# ti%e.

S!per*isor

ACKNO%LE&GEMENT
2irst of $$ I %!st th #( A$%i)hty 3o" 'ho is 0ehi#" %y e*ery s!ccess i# $ife #" 'itho!t his 0$essi#)s this pro1ect 'o!$" #ot h *e 0ee# co%p$ete". I p ssio# te$y )i*e %y si#cere th #(s to the or) #i4 tio# of 5 + 6 B #( for pro*i"i#) %e this )r tef!$ opport!#ity for "oi#) this pro1ect. I 'o!$" $i(e to e7press %y profo!#" )r tit!"e to 5O5& MBA &e6*#tme,t &#5M#7

7(et* 7)*#m* #" co#cer#e" )!i"es #" professors. Who pro*i"e" %e 'ith their * $! 0$e s!))estio#s #" )!i" #ce i# co%p$eti#) %y pro1ect 'or(. I 'o!$" $i(e to e7press %y profo!#" )r tit!"e to %y s!per*isor M#5M')d5 y'u7u/ #*t)e# for their precio!s ssist #ce- )!i" #ce- !#tiri#) "*ice #" e#co!r )e%e#t. I si#cere$y th #( $$ the %e%0ers of the A"* #ces "ep rt%e#t for their )e#ero!s he$p i# %y pro1ect. I % $so th #(f!$ to $$ st ff %e%0ers for % (i#) %e fee$ p rt of the or) #i4 tio# #" % "e %e to 'or( 'ith $$ %y si#cerity #" pote#ti $. I % )r tef!$ #" )r tifie" to the respecte" Dep rt%e#t of B!si#ess A"%i#istr tio#UNI4E!SAL G!OU$ OF INSTITUTION for )roo%i#) %e i#to tr!e $i#e of 'or(.

Before co#c$!"i#) i "o!0t if I co!$" h *e co%p$ete" this pro1ect 'or(- 0!t 'ith the )r ce of 3o"

INTE!NS I$ $!OG!AMME
The s!%%er tr i#i#) is p rt of the % #" tory co!rse co%p$etio# re8!ire" for the % sters pro)r %%e i# MBA t the Dep rt%e#t of B!si#ess St!"ies-of the co$$e)e. St!"e#ts re re8!ire" to !#"ert (e s!%%er tr i#i#) of 9:& 'ee(s i# #y co%p #y fter the 8,d 7em. This pro*i"es st!"e#ts 'ith the opport!#ities to pp$y fi# #ci $ co#cepts #" tech#i8!es- 'hich they $e r# i# the c$ ssroo% #" the ;#" ye r 0eco%es %ore )o $ orie#te" #" %e #i#)f!$. As p rt of the i#ter#ship pro)r %%e I h *e h " the opport!#ity #" p$e s!re to i#ter# t J&K BANK Z',*. '//i+e- M A Ro "- Sri# ) r #" st!"y the $i*e pro1ect ppr is $ of M1S 23Z .td5

E2ECUTI4E SUMMA!3
5

The eco#o%ic "e*e$op%e#t of #y co!#try "epe#"s o# the e7te#t to 'hich its fi# #ci $ syste% efficie#t$y #" effecti*e$y %o0i$i4es #" $$oc tes reso!rces. There re #!%0er of B #(s #" 2i# #ci $ I#stit!tio#s th t perfor% this f!#ctio#. 2i# #ci $ i#stit!tio#s pro*i"e %e"i!%: #" $o#):ter% fi# #ci $ ssist #ce #" ct s c t $ytic )e#ts i# pro%oti#) 0 $ #ce" "e*e$op%e#t of the co!#try. They re e#) )e" i# pro%otio# #" "e*e$op%e#t of i#"!stry- )ric!$t!re- #" other (ey sectors. They $so pro*i"e "e*e$op%e#t ser*ices th t c # he$p i# the cce$er te" )ro'th of # eco#o%y. The i#"!stri $ )ro'th i#ter# "epe#"s !po# the s!ccess of #e' pro1ects. The s!ccess of the #e' pro1ects "epe#"s $ r)e$y !po# the 8! $ity of the pro1ect ppr is $. The % i# o01ecti*e of the st!"y is to !#"erst #" the ct! $ proce"!res #" steps i#*o$*e" i# pro1ect ppr is $. The report c rriers i# "epths st!"y of fi# #ci#) ppr is $ 'ith re$e* #ce to pro1ect fi# #ci#). The 'ho$e p rt of this st!"y "isc!sses 'h t pro1ect ppr is $ is- * rio!s steps i#*o$*e" i# pro1ect ppr is $- the proce"!re "opt 0y B #(s < fi# #ci $ i#stit!tio#s i# pro1ect ppr is $.

J*mmu & K*7)mi# B*,i7t'#y:

Tr "itio# $ %o#ey$e#"ers ti$$ =>;?:@? perfor%e" e#tire 0 #(i#) i# the st te of 5 %%! + 6 sh%ir t e7or0it #t i#terest r tes. At the s %e ti%e so%e 0 #(s f!#ctio#e" 0!t t *ery $i%ite" sc $e- s!ch s ,!#1 0 N tio# $ B #(- 3ri#"$ ys B #( #" I%peri $ 0 #( of I#"i . The ro$e of these 0 #(s ' s re"!ce" to the ccept #ce of "eposits- s they co!$" #ot )r #t $o #s #" "* #ces to the peop$e of the st te o'i#) to the st t!tory $i%it tio#s. U#"er this sce# rio 0 #(s co!$" #ot %e$ior te the fi# #ci $ #" soci $ positio# of peop$e of the St te. To o*erco%e this critic $ sit! tio# the the# M h r 1 of St te co#cei*e" # i"e of setti#) !p of St te B #( i# the st te. After pro$o#)e" e7ercises #" "e$i0er tio#s the ssi)#%e#t for est 0$ish%e#t of /The 5 %%! + 6 sh%ir B #( Ai%ite"B ' s )i*e# to the $ te Sir Sor 01i N ,och(h #' $ - the the# M # )i#) Director of the Ce#tr $ B #( of I#"i . Mr. S. N.,och(h #' $ for%!$ te" sche%e o# ;D.?>.=>@?- s!))esti#) est 0$ish%e#t of Se%i St te B #( 'ith p rticip tio# i# c pit $ 0y St te #" p!0$ic !#"er the co#tro$ of St te 3o*er#%e#t. Th!s the B #( ' s for% $$y i#corpor te" o# 97t '/ O+t'be# 9:"; #" co%%e#ce" 0!si#ess fro% Dth of 5!$y =>@> t its Re)istere" Office, !e7ide,+y !'*d, S#i,*0*#, *,d K*7)mi# I# its for% ti*e ye rs- the 0 #( h " to e#co!#ter se*er $ serio!s pro0$e%s- p rtic!$ r$y ro!#" the ti%e of i#"epe#"e#ce- 'he# o!t of its tot $ of =? 0r #ches t'o 0r #ches of M!4 f r 0 " #" Mirp!r fe$$ to the other si"e of $i#e of co#tro$ (No' , ( A"%i#istere" 6 sh%ir) $o#) 'ith c sh #" other ssets i# =>DE. Ho'e*er- St te 3o*t. c %e to its resc!e 'ith the ssist #ce of Rs. &.?? $ c(s to %eet the c$ i%s. The B #( ste "f st$y o*erc %e its "iffic!$ties #" (ept )ro'i#). 2o$$o'i#) the e7te#sio# of Ce#tr $ A 's to the St te of 5 %%! + 6 sh%ir- the B #( ' s "efi#e" s 3o*t. Co%p #y s per the pro*isio#s of I#"i # Co%p #ies Act =>9&. The B #( h " its first f!$$ ti%e Ch ir% # i# =>E=- fo$$o'i#) the soci $ co#tro$ %e s!res i# 0 #(s. The ye r =>E= ' s t!r#i#) poi#t for the B #( o# co#fer%e#t of sche"!$e" 0 #( st t!s #" 'it#esse" re% r( 0$e pro)ress i# $$ the *it $ fie$"s of oper tio#s. Reser*e B #( of I#"i "ec$ re" the B #( s /AB c$ ss 0 #( i# =>E&. I# reco)#itio# of "o%i# #t ro$e #" e7 $te" perfor% #ce- RBI e#tr!ste" the B #( s its )e#t for perfor%i#) the )e#er $ 0 #(i#) 0!si#ess of the Ce#tr $ 3o*er#%e#t- especi $$y i# % i#t i#i#) c!rre#cy chest #" co$$ectio# of t 7es. The B #( h s 0ee# forer!##er i# respo#"i#) to the #ee" for tech#o$o)y !p )r " tio# i# %eeti#) its co%%it%e#t to the c!sto%er to offer the 0est of ser*ice #" 'i"e r #)e of pro"!cts. 2ro% s% $$ Be)i##i#) the B #( h s )ro'# to 0eco%e )i #t 'ith 'i"e #et'or( of 9EE 0r #ches<offices spre " o*er the $e#)th #" 0re "th of I#"i . A si)#ific #t co#tri0!ti#) f ctor for this f st )ro'th is the so$i" fo!#"i#) pri#cip$es- 'hich re "e"ic te" to the c !se of tr #sfor%i#) the 0 #( #ot o#$y s fi# #ci $ he rt 0!t $so s soci $ he rt of the co%%!#ity. The B #( is i#*esti#) i# 0i) ' y i# i#for% tio# tech#o$o)y. Ne r$y 9=? 0r #ches h *e 0ee# either p rt$y or f!$$y co%p!teri4e" co*eri#) >FG of the tot $ 0!si#ess of the 0 #(. The 0 #( h s $re "y i#st $$e" ro!#" =E9 ATMs t *it $ $oc tio#s of the co!#try. The ATMs re i#terco##ecte" #" th!s pro*i"e the c!sto%er co#*e#ie#t #" ;D:ho!r

B #(i#) f ci$ities. B #( h s $so co%%issio#e" #y'here 0 #(i#) f ci$ities t %ore th # =?@ 0r #ches thro!)ho!t the co!#try. The 0 #( h s $re "y % "e * i$ 0$e E:% i$ f ci$ities t $$ of its co%p!teri4e" 0r #ches #" $so Te$e:0 #(i#) f ci$ities t %ost of these 0r #ches. The 0 #( h s $so $ !#che" I#ter#et- SMS #" %o0i$e 0 #(i#) f ci$ities. ,rese#t$y the B #( is the f stest )ro'i#) 0 #( i# the I#"i offeri#) 'or$" c$ ss 0 #(i#) pro"!cts<ser*ices to the % sses. To" y 0 #( h s st t!s of * $!e "ri*e# Or) #i4 tio# #" is $' ys 'or(i#) to' r"s 0!i$"i#) tr!st 'ith Sh reho$"ers- E%p$oyees- C!sto%ersBorro'ers- Re)!$ tors #" other "i*erse St (eho$"ers- for 'hich it h s "opte" str te)y "irecte" to "e*e$opi#) so!#" fo!#" tio# of re$ tio#ship #" tr!st i%e" t chie*i#) e7ce$$e#ce- 'hich of co!rse- co%es fro% the 'o%3o*er# #ce is so!rce of co%petiti*e "* #t )e #" critic $ i#p!t for chie*i#) e7ce$$e#ce i# $$ p!rs!its. It $so e#s!res th t 0 #( is % # )e" 0y # i#"epe#"e#t #" hi)h$y 8! $ifie" Bo r" fo$$o'i#) 0est )$o0 $$y ccepte" pr ctices- tr #sp re#t "isc$os!res #" e%po'er%e#t of sh reho$"ers- 0esi"es $so e#s!ri#) th t sh reho$"ers spir tio#s #" societ $ e7pect tio#s re %et. 5+6 B #( is )oi#) fro% stre#)th to stre#)th s it sees tre%e#"o!s re*e#!e )ro'th opport!#ities i# $$ 0!si#esses. The B #( 'i$$ co#ti#!e to i#*est to i#cre se re*e#!e- #" E#h #ce sh reho$"er * $!e thro!)h 'hiche*er %e #s is %ost ppropri te- i#c$!"i#) or) #ic "e*e$op%e#t- c8!isitio#s- 1oi#t *e#t!res #" p rt#erships. I# reco)#itio# of its e7ce$$e#t c!sto%er ser*ice- f ir 0!si#ess pr ctices- o*er $$ oper tio# $ efficie#cy- o*er $$ perfor% #ceetc the 0 #( h s 0ee# fe$icit te" 0y the fo$$o'i#) ' r"s "!ri#) the $ st fe' ye rs. - A7i*, B*,-i,0 A(*#d7 < 8==> - E?+e..e,+e A(*#d < I,7titute '/ E+','mi+ Studie7 J*m,*.*. B*@* U+)it 4y*A*)*# $u#*7-*# 8==8< C'u,+i. /'# F*i# Bu7i,e77 $#*+ti+e7 d*ted 8Bt) M*#+) 8=="5 - !*,-ed ;Ct) *m',0 I,di*D7 T'6 E== C'm6*,ie7 by ('#.dD7 #e,'(,ed #*ti,0 *0e,+y < F &UN & B!A&ST!EETG - A7i*, B*,-i,0 A(*#d 8==> /'# t)e Cu7t'me# C',Ae,ie,+e 6#'0#*mme. Ne( Ide,tity: The #e' i"e#tity for 5+6 B #( is *is! $ represe#t tio# of the B #(Hs phi$osophy #" 0!si#ess str te)y. The three co$o!re" s8! res represe#t the re)io#s of 5 %%!- 6 sh%ir #" A " (h. The co!#ter:for% cre te" 0y the i#ter ctio# of the s8! res is f $co# 'ith o!tstretche" 'i#)s I sy%0o$ of po'er #" e%po'er%e#t. The sy#er)y 0et'ee# the three re)io#s prope$s the B #( to' r"s #e' hori4o#s. 3ree# si)#ifies )ro'th #" re#e' $- 0$!e co#*eys st 0i$ity #" !#ity- #" re" represe#ts e#er)y #" po'er.

U,iHue C)*#*+te#i7ti+7 '/ t)e B*,-:

So$e 0 #(er #" $e#"er of $ st resort to the 3o*er#%e#t of 5 %%! + 6 sh%ir. ,$ # #" #o# :p$ # f!#"s- t 7es #" #o#:t 7 re*e#!es ro!te" thro!)h the 0 #(. S $ ries of 3o*er#%e#t offici $s "is0!rse" 0y the B #(. O#$y pri* te sector 0 #( "esi)# te" s )e#t of RBI for 0 #(i#). C rries o!t 0 #(i#) 0!si#ess of the Ce#tr $ 3o*er#%e#t. Co$$ects t 7es pert i#i#) to Ce#tr $ Bo r" of Direct T 7es i# 5 + 6

I,/#*7t#u+tu#e: G.'b*. St*,d*#d7: The f stest )ro'i#) 0 #( 'ith 9EE 0r #ches cross the co!#try >FG of the 0!si#ess co%p!teri4e" I#ter#et B #(i#)- SMS #" Mo0i$e B #(i#) pro*i"e" ATMs co##ecte" )$o0 $$y to $$ M sterC r" #et'or(e" ATMs Mo0i$e ATM Ser*ice * i$ 0$e I first of its (i#" i# Norther# I#"i E$ectro#ic 2!#" Tr #sfer (E2T) Syste%

C'#6'#*te

e*dHu*#te#:

The Corpor te He "8! rter- re)istere" office of the B #( is $oc te" t Sri# ) r #" is he "e" 0y Ch ir% # #" Chief E7ec!ti*e officer (CEO)- 'ho is ppoi#te" 0y the 5+6 3o*er#%e#t for perio" of @ to 9 ye rs. 3e#er $$y- the Ch ir% # is se$ecte" %o#) rep!te" Eco#o%ists- B #(ers or< #" the A"%i#istr tors of the St te. The Ch ir% # is )!i"e" 0y the Bo r" of Directors of the B #(.

FUTU!E T!EN&S:
5+6 B #( h s tr *erse" $o#) ' y fro% the " y o#e 'ith the so$it ry i% of Jsoci $ 0e#efitH #" s!0st #ti $ pro)ress h s $re "y 0ee# % "e to' r"s this e#". Co%p!teri4 tio# #" !p )r " tio# of tech#o$o)ies- r tio# $i4 tio# of re 'ise 0r #ch str!ct!re- st ffi#)- "e*e$op%e#t of h!% # reso!rces #" stre#)the#i#) of corpor te % # )e%e#t st!"ies re iss!es 'hich B #( 'i$$ ""ress #" i%p$e%e#t i# the co%i#) ye rs. At the s %e ti%e the e%ph sis 'i$$ shift to )re ter se$f:re)!$ tio# thro!)h "here#ce to pr!"e#ti $ #or%s- corpor te )o*er# #ce #" stre#)the#i#) of i#ter# $ s!per*isio# #" !"it syste% s per )!i"e$i#es of RBI. 2!rther shift 'i$$ 0e o# re:orie#t tio# #" retr i#i#) of st ff i# t!#e 'ith the ch #)es i# the oper ti#) e#*iro#%e#tK the #ee" to 'i"e# the scope #" r #)e of pro"!cts #" ser*ices #" 0o*e $$ # i%pro*e%e#t i# the "e$i*ery syste% #" c!sto%er ser*ice $e*e$s. Ho'e*er- it 'i$$ re% i# B #(Hs e#"e *o!r to re"!ce the #o#: perfor%i#) $o #s 0oth i# perce#t )e s 'e$$ s i# 0so$!te ter%s

LISION
/To c t $yse eco#o%ic tr #sfor% tio# #" c pit $ise o# )ro'th.B O!r *isio# is to e#)e#"er #" c t $yse eco#o%ic tr #sfor% tio# of 5 %%! #" 6 sh%ir #" c pit $ise fro% the )ro'th i#"!ce" fi# #ci $ prosperity th!s e#)i#eere". The B #( spires to % (e 5 %%! #" 6 sh%ir the %ost prospero!s st te i# the co!#try- 0y he$pi#) cre te

#e' fi# #ci $ rchitect!re for the 5+6 eco#o%y- t the ce#ter of 'hich 'i$$ 0e the 5+6 B #(.

MISSION
O!r %issio# is t'o:fo$". To pro*i"e the peop$e of 5+6 i#ter# tio# $ 8! $ity fi# #ci $ ser*ice #" so$!tio#s #" to 0e s!per:speci $ist 0 #( i# the rest of the co!#try. The t'o to)ether 'i$$ % (e !s the %ost profit 0$e B #( i# the co!#try.

T)e J*mmu *,d K*7)mi# B*,- Limited C',7tituti', $ub.i+ Limited F'u,ded 9:"; e*dHu*#te#7 M5A5!OA& S!INAGA!, J&K, N'5 O/ ECC b#*,+)e71'//i+e7 .'+*ti',7 I,du7t#y B*,-i,0 Em6.'yee7 C8BC %eb7ite )tt6:11(((5@-b*,-5,et

Fi,*,+i*. C'm6',e,t7 '/ FC#edit A66#*i7*.G $!OCESS

C!E&IT:
Cre"it is co#tr ct! $ )ree%e#t i# 'hich 0orro'er recei*es so%ethi#) of * $!e #o' #" )rees to rep y the $e#"er t so%e $ ter " te.

C#edit i, Fi,*,+e
A cre"it is $e) $ co#tr ct 'here o#e p rty recei*es reso!rce or 'e $th fro% #other p rty #" pro%ises to rep y hi% o# f!t!re " te $o#) 'ith i#terest. I# si%p$e ter%s- cre"it is # )ree%e#t of postpo#e" p y%e#ts of )oo"s 0o!)ht or $o #. With the iss! #ce of cre"it- "e0t is for%e" &e/i,iti', '/ C#edit i, A++'u,t*,+y

As per cco!#ti#) theories- cre"it refers to the s!0tr ctio# of p y%e#t )i*e# 0y 0orro'er or "e0tor fro% # o!tst #"i#) %o!#t. . A si#)$e e#try or the ))re) te of $$ the e#tries o# the ri)ht h #" si"e of the $e")er cco!#t. The %o!#t- 'hich is $eft o*er i# the cco!#t of # i#"i*i"! $.

&e/i,iti', '/ C#edit i, T#*de *,d C'mme#+e I# tr "e #" co%%erce- cre"it is "efi#e" s the s #ctio#i#) of "et i#e" p y%e#ts for pro"!cts th t h *e 0ee# 0o!)ht. Cre"it "epe#"s o# the cre"it'orthi#ess of the "e0tor or recei*er of cre"it.

10

Credit Analysis :
It is the method by which one calculates the cre"it'orthi#ess of a business or or ani!ation" #he audited financial statements of a lar e com$any mi ht be analy!ed when it issues or has issued 0o#"s" %r& a 0 #( may analy!e the financial statements of a small business before ma'in or renewin a commercial loan" #he term refers to either case& whether the business is lar e or small" (redit analysis in)ol)es a wide )ariety of financial analysis techni*ues& includin r tio and trend analysis as well as the creation of $ro+ections and a detailed analysis of cash flows" (redit analysis also includes an e,amination of co$$ ter $ and other sources of re$ayment as well as credit history and mana ement ability" -efore a$$ro)in a commercial loan& a ban' will loo' at all of these factors with the $rimary em$hasis bein the cash flow of the borrower" . ty$ical measurement of re$ayment ability is the "e0t ser*ice co*er )e r tio" . credit analyst at a ban' will measure the cash enerated by a business /before interest e,$ense and e,cludin "epreci tio# and any other non-cash or e,traordinary e,$enses0" #he debt ser)ice co)era e ratio di)ides this cash flow amount by the debt ser)ice /both $rinci$al and i#terest $ayments on all loans0 that will be re*uired to be met" -an'ers li'e to see debt ser)ice co)era e of at least 120 $ercent" In other words& the debt ser)ice co*er )e r tio sho!$" 0e =.; or hi)her to sho' th t # e7tr c!shio# e7ists #" th t the 0!si#ess c # ffor" its "e0t re8!ire%e#ts.

11

TERM LOANS & PROHIBITI ONS

TE!M LOANS:
A Ter% $o # is !s! $$y si#)$e $o # for st te" perio" of ti%e or series of $o #s o# specifie" " tes. They re !se" for specific p!rposes s!ch s c8!iri#) % chi#eryre#o* ti#) 0!i$"i#)- refi# #ci#) "e0t #" so o# #" so forth. Ter% $o # is #ot !s! $$y e7te#"e" for fi#"i#) " y to " y oper tio#s. M t!rity of Ter% $o #s r #)e fro% o#e ye r to ;? ye rs. Ter% $o #s c # 0e c$ ssifie" i#to short ter% $o #s- %e"i!% ter% $o #s #" $o#) ter% $o #s- "epe#"i#) !po# the % t!rity. 2ro% the $e#"ers poi#t of *ie' the % t!rity of $o # sho!$" #ot e7cee" the eco#o%ic $ife of

12

the sset 0ei#) fi# #ce". The "iffere#ce 0et'ee# the * $!es of the sset #" the %o!#t 0ei#) fi# #ce" is the 0orro'erHs e8!ity. The 0orro'erHs e8!ity represe#ts the 0orro'erHs i#*est%e#t i# the sset 0ei#) fi# #ce". It $so pro*i"es the 0 #( 'ith the c!shio# i# the e*e#t of "ef !$t. Ter% $o #s typic $$y c rry f$o ti#) i#terest r tes #" rep y 0$e i# %o#th$y #" 8! rter$y i#ter* $s. Ter% $o #s re for set % t!rity #" o# the 0 sis of % t!rity- ter% $o #s re c$ ssifie" s !#"er. Medium Te#m .'*,7. Me"i!% Ter% $o #s !s! $$y h *e te#or of $ess th # or !pto three ye rs. These $o #s re )e#er $$y rep i" i# %o#th$y i#st $%e#ts fro% 0!si#ess c sh f$o'. L',0 Te#m .'*,7. These $o #s re co%%o#$y set for %ore th # three ye rs. Most of the% re 0et'ee# three #" te# ye rs #" so%e re s $o#) s ;? ye rs. Ao#) ter% $o #s re co$$ ter $i4e" 0y 0!si#ess ssets #" typic $$y re8!ire 8! rter$y or %o#th$y p y%e#ts "eri*e" fro% profits or c sh f$o's. Whi$e % (i#) "ecisio#s 0o!t ter% $o #s 9 C-s co#ti#!e to 0e of !t%ost i%port #ce- these re C)*#*+te#. ch r cter %e #s ho' the co%p #y h s % # )e" other $o #s (0!si#ess s 'e$$ s perso# $) #" 'h t is the co%p #yHs 0!si#ess e7perie#ce. C#edit +*6*+ity. This refers to the s!ccess of the 0orro'ers 0!si#ess s ref$ecte" i# its fi# #ci $ co#"itio# #" 0i$ity to %eet fi# #ci $ o0$i) tio# *i c sh f$o' #" e r#i#)s. B #(s )e#er $$y re8!ire prospecti*e 0orro'ers to s!0%it their fi# #ci $ st te%e#t i# or"er to "eter%i#e their cre"it 'orthi#ess. C'..*te#*.: Co$$ ter $ refers to the ssets th t re p$e")e" for sec!rity i# cre"it tr #s ctio#. The f ct th t 0orro'ers % y $ose their co$$ ter $ if they "ef !$t o# their $o #s ser*es s # i#ce#ti*e for the% to perfor% i# ccor" #ce 'ith the $o # co#tr ct. C*6it*.: C pit $ represe#ts the %o!#t of e8!ity th t fir% h s- th t c # 0e $i8!i" te" for p y%e#t if $$ other %e #s of co$$ectio# of the "e0t f i$. C'm/'#t1 C',/ide,+e: This is re$ te" 'ith the 0!si#ess p$ # i-e ho' cc!r te re the re*e#!es #" e7pe#se pro1ectio#s or 'h t is the co#"itio# of the eco#o%y #" the i#"!stry.

L'*,7 *,d AdA*,+e7 < St*tut'#y *,d Ot)e# !e7t#i+ti',7

B #(s sho!$" i%p$e%e#t these i#str!ctio#s #" "opt "e8! te s fe)! r"s i# or"er to e#s!re th t the 0 #(i#) cti*ities !#"ert (e# 0y the% re r!# o# so!#"- pr!"e#t #" profit 0$e $i#es. $#'6'7*.7 $#')ibited: A) 3r #ti#) of $o #s #" ) i#st p rt$y p i" sh B) 3r #ti#) of $o #s #" pri% ry sec!rity of sh "* #ces ) i#st the sec!rity of sh res of the B #( #" res of other co%p #ies. "* #ces to p rt#ership<proprietorship co#cer#s ) i#st the res #" "e0e#t!res.

13

C) 3r #ti#) of $o #s #" "* #ces ) i#st ter% "eposits of other 0 #(s #" ) i#st Certific te of Deposits. D) 3r #ti#) of $o #s #" "* #ces ) i#st the sec!rity of 0!$$io# < pri% ry )o$" #" to si$*er 0!$$io# "e $ers 'hich re $i(e$y to 0e !ti$i4e" for spec!$ ti*e p!rposes. E) E#teri#) i#to co%%it%e#t for )r #ti#) of $o #s #" "* #ces to or o# 0eh $f of #y of its "irectors- or #y fir% i# 'hich #y of its "irectors is i#tereste" s p rt#er% # )er- e%p$oyee or "irector or #y co%p #y of 'hich #y of its "irectors of the B #( is "irector- % # )i#) )e#t- % # )er- e%p$oyee or )! r #tor or i# 'hich he ho$"s s!0st #ti $ i#terest or #y i#"i*i"! $ i# respect of 'ho% #y of its "irectors is p rt#er or )! r #tor. 2) E7cept 'ith the prior ppro* $ of Reser*e B #( of I#"i - re%it i# 'ho$e or i# p rt #y "e0t "!e to it 0y #y of its "irectors- or # i#"i*i"! $ #y fir% or #y co%p #y i# 'hich #y of its "irectors- or # i#"i*i"! $- #y fir% or #y co%p #y i# 'hich #y of its "irectors is i#tereste" s "irector- p rt#er- % # )i#) )e#t or )! r #tor. 3) Ho$"i#) sh res 'hether s p$e")ee or %ort) )ee or 0so$!te o'#er i# #y co%p #y for # %o!#t e7cee"i#) @?G of the p i" !p sh re c pit $ of th t co%p #y or @?G of its o'# p i" !p sh re c pit $ #" reser*es- 'hiche*er is $ess. H) Ho$"i#) sh res 'hether s p$e")ee or %ort) )ee or 0so$!te o'#er- i# #y co%p #y i# the % # )e%e#t of 'hich #y % # )i#) "irector or % # )er of the B #( is i# #y % ##er co#cer#e" or i#tereste". I) 3r #ti#) of $o #s #" "* #ces to co%p #ies for 0!y 0 c( of their o'# sh res or other specifie" sec!rities 5) U#$ess s #ctio#e" 0y BOD<MCB $o #s #" "* #ces ))re) ti#) Rs ;9 $ cs #" 0o*e sh $$ #ot 0e )r #te" to "irectors of other B #(s- #y fir% i# 'hich #y of its "irector of other B #(s is i#tereste" s p rt#er or )! r #tor #" #y co%p #y i# 'hich #y of the "irectors of other 0 #( ho$"s s!0st #ti $ i#terest or is i#tereste" s "irector or s )! r #tor 6) No officer of the B #( or #y co%%ittee co%prisi#) i#ter $i - # officer of the B #( s the %e%0er sh $$- 'hi$e e7ercisi#) po'ers for s #ctio# of #y cre"it f ci$itys #ctio# #y cre"it f ci$ity to his<her re$ ti*e. The #e7t hi)her s #ctio#i#) !thority sh $$ s #ctio# s!ch f ci$ity.A) A) 3r #ti#) of $o #s #" "* #ces for the p!rpose of setti#) !p of #e' !#its co#s!%i#)< pro"!ci#) O4o#e Dep$eti#) S!0st #ces s specifie" 0y the RBI.

!e7t#i+ti',7 ', '.di,0 S)*#e7 i, C'm6*,ie7 :

I# ter%s of Sectio# =>(;) of the B #(i#) Re)!$ tio# Act- =>D>- 0 #(s sho!$" #ot ho$" sh res i# #y co%p #y e7cept s pro*i"e" i# s!0:sectio# (=) 'hether s p$e")ee- %ort) )ee or 0so$!te o'#er- of # %o!#t e7cee"i#) @? perce#t of the p i":!p sh re c pit $ of th t co%p #y or @? perce#t of its o'# p i":!p sh re c pit $ #" reser*es- 'hiche*er is $ess. 2!rther- i# ter%s of Sectio# =>(@) of the B #(i#) Re)!$ tio# Act- =>D>- the 0 #(s sho!$" #ot ho$" sh res 'hether s p$e")ee- %ort) )ee or 0so$!te o'#er- i# #y co%p #y i# the

14

% # )e%e#t of 'hich #y % # )i#) "irector or % # )er of the 0 #( is i# #y % ##er co#cer#e" or i#tereste". !e7t#i+ti',7 ', C#edit t' C'm6*,ie7 /'# BuyIb*+- '/ t)ei# Se+u#itie7 I# ter%s of Sectio# EEA (=) of the Co%p #ies Act- =>9&- co%p #ies re per%itte" to p!rch se their o'# sh res or other specifie" sec!rities o!t of their free reser*es- or sec!rities pre%i!% cco!#t- or the procee"s of #y sh res or other specifie" sec!ritiesS!01ect to co%p$i #ce of * rio!s co#"itio#s specifie" i# the Co%p #ies (A%e#"%e#t) Act=>>>. Therefore- 0 #(s sho!$" #ot pro*i"e $o #s to co%p #ies for 0!y:0 c( of sh res<sec!rities. !e0u.*t'#y !e7t#i+ti',7 Witho!t prior ppro* $ of the Bo r" or 'itho!t the (#o'$e")e of the Bo r"- #o $o #s #" "* #ces sho!$" 0e )r #te" to re$ ti*es of the 0 #(Ms Ch ir% #<M # )i#) Director or other Directors- Directors (i#c$!"i#) Ch ir% #<M # )i#) Director) of other 0 #(s #" their re$ ti*es- Directors of Sche"!$e" Co:oper ti*e B #(s #" their re$ ti*es- Directors of S!0si"i ries<Tr!stees of M!t! $ 2!#"s<Le#t!re C pit $ 2!#"s set !p 0y the fi# #ci#) 0 #(s or other 0 #(s- s per "et i$s )i*e# 0e$o'. Le,di,0 t' di#e+t'#7 *,d t)ei# #e.*tiAe7 ', #e+i6#'+*. b*7i7 There h *e 0ee# i#st #ces 'here cert i# 0 #(s h *e "e*e$ope" # i#for% $ !#"erst #"i#) or %!t! $<reciproc $ rr #)e%e#t %o#) the%se$*es for e7te#"i#) cre"it f ci$ities to e ch otherHs "irectors- their re$ ti*es- etc. By #" $ r)e- they "i" #ot fo$$o' the !s! $ proce"!res #" #or%s i# s #ctio#i#) cre"it $i%its to the 0orro'ers- p rtic!$ r$y those 0e$o#)i#) to cert i# )ro!ps or "irectors- their re$ ti*es- etc. 2 ci$ities f r i# e7cess of the s #ctio#e" $i%its #" co#cessio#s 'ere $$o'e" i# the co!rse of oper tio# of i#"i*i"! $ cco!#ts of the p rties. A$tho!)h- there is #o $e) $ prohi0itio# o# 0 #( fro% )i*i#) cre"it f ci$ities to "irector of so%e other 0 #(s or his re$ ti*es- serio!s co#cer# ' s e7presse" i# , r$i %e#t th t s!ch 8!i" pro 8!o rr #)e%e#ts re #ot co#si"ere" to 0e ethic $. The 0 #(s sho!$"- thereforefo$$o' the )!i"e$i#es i#"ic te" 0e$o' i# re) r" to )r #t of $o #s #" "* #ces #" ' r" of co#tr cts to the re$ ti*es of their "irectors #" "irectors of other 0 #(s #" their:re$ ti*es. U#$ess s #ctio#e" 0y the Bo r" of Directors<M # )e%e#t Co%%ittee- 0 #(s sho!$" #ot )r #t $o #s #" "* #ces ))re) ti#) Rs. ;9 $ (hs #" 0o*e to I ( ) Directors (i#c$!"i#) the Ch ir% #<M # )i#) Director) of other 0 #(sK (0) #y fir% i# 'hich #y of the "irectors of other 0 #(s is i#tereste" s p rt#er or )! r #torK #" (c) #y co%p #y i# 'hich #y of the "irectors of other 0 #(s ho$"s s!0st #ti $ i#terest or is i#tereste" s "irector or s )! r #tor. U#$ess s #ctio#e" 0y the Bo r" of Directors<M # )e%e#t Co%%ittee- 0 #(s sho!$" $so #ot )r #t $o #s #" "* #ces ))re) ti#) Rs.;9.?? $ (hs #" 0o*e to : ) #y re$ ti*es of their o'# Ch ir%e#<M # )i#) Directors or other DirectorsK (0) #y re$ ti*es of the Ch ir% #<M # )i#) Director or other "irectors of other 0 #(s .

15

(c) #y fir% i# 'hich #y of the re$ ti*es s %e#tio#e" i# ( ) + (0) 0o*e is i#tereste" s p rt#er or )! r #torK #" (") #y co%p #y i# 'hich #y of the re$ ti*es s %e#tio#e" i# ( ) + (0) 0o*e ho$" s!0st #ti $ i#terest or is i#tereste" s "irector or s )! r #tor. The propos $s for cre"it f ci$ities of # %o!#t $ess th # Rs.;9.?? $ (h to these 0orro'ers % y 0e s #ctio#e" 0y the ppropri te !thority i# the fi# #ci#) 0 #( !#"er po'ers *este" i# s!ch !thority- 0!t the % tter sho!$" 0e reporte" to the Bo r". The Ch ir% #<M # )i#) Director or other "irector 'ho is "irect$y or i#"irect$y co#cer#e" or i#tereste" i# #y propos $ sho!$" "isc$ose the # t!re of his i#terest to the Bo r" 'he# #y s!ch propos $ is "isc!sse". He sho!$" #ot 0e prese#t i# the %eeti#) !#$ess his prese#ce is re8!ire" 0y the other "irectors for the p!rpose of e$iciti#) i#for% tio# #" the "irector so re8!ire" to 0e prese#t sh $$ #ot *ote o# #y s!ch propos $. The 0o*e #or%s re$ ti#) to )r #t of $o #s #" "* #ces 'i$$ e8! $$y pp$y to ' r"i#) of co#tr cts. The scope of the ter% Jre$ ti*eH 'i$$ 0e s !#"er.

Spo!se 2 ther Mother (i#c$!"i#) step:%other) So# (i#c$!"i#) step:so#) So#Ms Wife D !)hter (i#c$!"i#) step:" !)hter) D !)hterMs H!s0 #" Brother (i#c$!"i#) step:0rother) BrotherHs 'ife Sister (i#c$!"i#) step:sister)SisterHs h!s0 #" Brother (i#c$!"i#) step:0rother) of the spo!se

!e7t#i+ti',7 ', G#*,t '/ L'*,7 & AdA*,+e7 t' O//i+e#7 *,d !e.*tiAe7 '/ Se,i'# O//i+e#7 '/ B*,-7:
The st t!tory re)!$ tio#s #"<or the r!$es #" co#"itio#s of ser*ice pp$ic 0$e to officers or e%p$oyees of p!0$ic sector 0 #(s i#"ic te- to cert i# e7te#t- the prec !tio#s to 0e o0ser*e" 'hi$e s #ctio#i#) cre"it f ci$ities to s!ch officers #" e%p$oyees #" their re$ ti*es. I# ""itio#- the fo$$o'i#) )!i"e$i#es sho!$" 0e fo$$o'e" 0y $$ the 0 #(s 'ith refere#ce to the e7te#sio# of cre"it f ci$ities to officers #" the re$ ti*es of se#ior officers. (i) Ao #s + "* #ces to officers of the 0 #(. No officer or #y Co%%ittee co%prisi#)- i#ter $i - # officer s %e%0er- sh $$'hi$e e7ercisi#) po'ers of s #ctio# of #y cre"it f ci$ity- s #ctio# #y cre"it f ci$ity to his<her re$ ti*e. S!ch f ci$ity sh $$ or"i# ri$y 0e s #ctio#e" o#$y 0y the #e7t hi)her s #ctio#i#) !thority. Cre"it f ci$ities s #ctio#e" to se#ior officers of the fi# #ci#) 0 #( sho!$" 0e reporte" to the Bo r".

16

Guide.i,e7 /'# Fi,*,+i,0 '/ I,/#*7t#u+tu#e $#'@e+t7:I# *ie' of the critic $ i%port #ce of the i#fr str!ct!re sector #" hi)h priority 0ei#) ccor"e" for "e*e$op%e#t of * rio!s i#fr str!ct!re ser*ices- the % tter h s 0ee# re*ie'e" i# co#s!$t tio# 'ith 3o*er#%e#t of I#"i #" the re*ise" )!i"e$i#es o# fi# #ci#) of i#fr str!ct!re pro1ects re set o!t s !#"er. &e/i,iti', '/ Ji,/#*7t#u+tu#e .e,di,0D A#y cre"it f ci$ity i# 'h te*er for% e7te#"e" 0y $e#"ers (i.e. 0 #(s- 2Is or NB2Cs) to # i#fr str!ct!re f ci$ity s specifie" 0e$o' f $$s 'ithi# the "efi#itio# of Ni#fr str!ct!re $e#"i#)N. I# other 'or"s- cre"it f ci$ity pro*i"e" to 0orro'er co%p #y e#) )e" i#

"e*e$opi#) or oper ti#) #" % i#t i#i#)- or "e*e$opi#)- oper ti#) #" % i#t i#i#) #y i#fr str!ct!re f ci$ity th t is pro1ect i# #y of the fo$$o'i#) sectors- or #y i#fr str!ct!re f ci$ity of si%i$ r # t!re . ) A ro "- i#c$!"i#) to$$ ro "- 0ri")e or r i$ syste%K 0) A hi)h' y pro1ect i#c$!"i#) other cti*ities 0ei#) # i#te)r $ p rt of the hi)h' y pro1ectK c) A port- irport- i#$ #" ' ter' y or i#$ #" portK ") A ' ter s!pp$y pro1ect- irri) tio# pro1ect- ' ter tre t%e#t syste%- s #it tio# #" se'er )e syste% or so$i" ' ste % # )e%e#t syste%K e) Te$eco%%!#ic tio# ser*ices 'hether 0 sic or ce$$!$ r- i#c$!"i#) r "io p )i#)- "o%estic s te$$ite ser*ice (i.e.- s te$$ite o'#e" #" oper te" 0y # I#"i # co%p #y for pro*i"i#) te$eco%%!#ic tio# ser*ice)- #et'or( of tr!#(i#)- 0ro "0 #" #et'or( #" i#ter#et ser*icesK f) A# i#"!stri $ p r( or speci $ eco#o%ic 4o#eK )) 3e#er tio# or )e#er tio# #" "istri0!tio# of po'erK h) Tr #s%issio# or "istri0!tio# of po'er 0y $ yi#) #et'or( of #e' tr #s%issio# or "istri0!tio# $i#esK i) Co#str!ctio# re$ ti#) to pro1ects i#*o$*i#) )ro:processi#) #" s!pp$y of i#p!ts to )ric!$t!reK 1) Co#str!ctio# for preser* tio# #" stor )e of processe" )ro:pro"!ctsperish 0$e )oo"s s!ch s fr!its- *e)et 0$es #" f$o'ers i#c$!"i#) testi#) f ci$ities for 8! $ityK () Co#str!ctio# of e"!c tio# $ i#stit!tio#s #" hospit $sK $) A yi#) "o'# #"<or % i#te# #ce of ) s- cr!"e oi$ #" petro$e!% pipe$i#es %) A#y other i#fr str!ct!re f ci$ity of si%i$ r # t!re

A66#*i7*.: (i) I# respect of fi# #ci#) of i#fr str!ct!re pro1ects !#"ert (e# 0y 3o*er#%e#t o'#e" e#tities- 0 #(s<2i# #ci $ I#stit!tio#s sho!$" !#"ert (e "!e "i$i)e#ce o# the *i 0i$ity of the pro1ects. B #(s sho!$" e#s!re th t the i#"i*i"! $ co%po#e#ts of fi# #ci#) #" ret!r#s o# the pro1ect re 'e$$ "efi#e" #" ssesse". St te 3o*er#%e#t )! r #tees % y #ot 0e t (e# s s!0stit!te for s tisf ctory cre"it ppr is $ #" s!ch ppr is $ re8!ire%e#ts sho!$" #ot 0e "i$!te" o# the 0 sis of #y reporte" rr #)e%e#t 'ith the Reser*e B #( of I#"i or #y 0 #( for re)!$ r st #"i#) i#str!ctio#s<perio"ic p y%e#t i#str!ctio#s for ser*ici#) the $o #s<0o#"s.

17

(ii) I#fr str!ct!re pro1ects re ofte# fi# #ce" thro!)h Speci $ ,!rpose Lehic$es. 2i# #ci#) of these pro1ects 'o!$"- therefore- c $$ for speci $ ppr is $ s(i$$s o# the p rt of $e#"i#) )e#cies. I"e#tific tio# of * rio!s pro1ect ris(s- e* $! tio# of ris( %iti) tio# thro!)h ppr is $ of pro1ect co#tr cts #" e* $! tio# of cre"it'orthi#ess of the co#tr cti#) e#tities #" their 0i$ities to f!$$fi$$ co#tr ct! $ o0$i) tio#s 'i$$ 0e # i#te)r $ p rt of the ppr is $ e7ercise. I# this co##ectio#- 0 #(s<2Is % y co#si"er co#stit!ti#) ppropri te scree#i#) co%%ittees<speci $ ce$$s for ppr is $ of cre"it propos $s #" %o#itori#) the pro)ress<perfor% #ce of the pro1ects. Ofte#- the si4e of the f!#"i#) re8!ire%e#t 'o!$" #ecessit te 1oi#t fi# #ci#) 0y 0 #(s<2Is or fi# #ci#) 0y %ore th # o#e 0 #( !#"er co#sorti!% or sy#"ic tio# rr #)e%e#ts. I# s!ch c ses- p rticip ti#) 0 #(s< 2Is % y- for the p!rpose of their o'# ssess%e#t- refer to the ppr is $ report prep re" 0y the $e " 0 #(<2I or h *e the pro1ect ppr ise" 1oi#t$y.

L'*,7 *,d *dA*,+e7 t' !e*. E7t*te Se+t'#:

Whi$e ppr isi#) $o # propos $s i#*o$*i#) re $ est te- 0 #(s sho!$" e#s!re th t the 0orro'ers h *e o0t i#e" prior per%issio# fro% )o*er#%e#t < $oc $ )o*er#%e#ts < other st t!tory !thorities for the pro1ect- 'here*er re8!ire". I# or"er th t the $o # ppro* $ process is #ot h %pere" o# cco!#t of this- 'hi$e the propos $s co!$" 0e s #ctio#e" i# #or% $ co!rse- the "is0!rse%e#ts sho!$" 0e % "e o#$y fter the 0orro'er h s o0t i#e" re8!isite c$e r #ces fro% the )o*er#%e#t !thorities.

L'*,7 *,d *dA*,+e7 t' Sm*.. S+*.e I,du7t#ie7:

SSI !#its h *i#) 'or(i#) c pit $ $i%its of !p to Rs. 9 crore fro% the 0 #(i#) syste% re to 0e pro*i"e" 'or(i#) c pit $ fi# #ce co%p!te" o# the 0 sis of ;? perce#t of their pro1ecte" ##! $ t!r#o*er. The 0 #(s sho!$" "opt the si%p$ifie" proce"!re i# respect of $$ SSI !#its (#e' s 'e$$ s e7isti#)).

$#'@e+t Fi,*,+e $'#t/'.i' '/ B*,-7:

At the ti%e of fi# #ci#) pro1ects 0 #(s )e#er $$y "opt o#e of the fo$$o'i#) %etho"o$o)ies s f r s "eter%i#i#) the $e*e$ of pro%otersH e8!ity is co#cer#e". =) ,ro%oters 0ri#) their e#tire co#tri0!tio# !pfro#t 0efore the 0 #( st rts "is0!rsi#) its co%%it%e#t. ;) ,ro%oters 0ri#) cert i# perce#t )e of their e8!ity (D?G I 9?G) !pfro#t #" 0 $ #ce is 0ro!)ht i# st )es. @) ,ro%oters )ree- 0 i#itio- th t they 'i$$ 0ri#) i# e8!ity f!#"s proportio# te$y s the 0 #(s fi# #ce the "e0t portio#. Whi$e it is ppreci te" th t s!ch "ecisio#s re to 0e t (e# 0y the 0o r"s of the respecti*e 0 #(s- it h s 0ee# o0ser*e" th t the $ st %etho" h s )re ter e8!ity f!#"i#) ris(. I# or"er to co#t i# this ris(- 0 #(s re "*ise" i# their o'# i#terest to h *e c$e r po$icy re) r"i#) the De0t E8!ity R tio (DER) #" to e#s!re th t the i#f!sio# of e8!ity<f!#" 0y pro%oters sho!$"

18

0e s!ch th t the stip!$ te" $e*e$ of DER is % i#t i#e" t $$ ti%es. 2!rther they % y "opt f!#"i#) se8!e#ces so th t possi0i$ity of e8!ity f!#"i#) 0y 0 #(s is o0*i te".

Guide.i,e7:
(i) A66.i+*ti',7 /'# .'*,7 *,d t)ei# 6#'+e77i,0: ( ) Ao # pp$ic tio# for%s i# respect of $$ c te)ories of $o #s irrespecti*e of the %o!#t of $o # so!)ht 0y the 0orro'er sho!$" 0e co%prehe#si*e. It sho!$" i#c$!"e i#for% tio# 0o!t the fees< ch r)es- if #y- p y 0$e for processi#)- the %o!#t of s!ch fees ref!#" 0$e i# the c se of #o# ccept #ce of pp$ic tio#- pre:p y%e#t optio#s #" #y other % tter 'hich ffects the i#terest of the 0orro'er- so th t %e #i#)f!$ co%p riso# 'ith th t of other 0 #(s c # 0e % "e #" i#for%e" "ecisio# c # 0e t (e# 0y the 0orro'er. B #(s<2Is sho!$" e#s!re th t $$ i#for% tio# re$ ti#) to ch r)es<fees for processi#) re i#* ri 0$y "isc$ose" i# the $o # pp$ic tio# for%s. 2!rther- the 0 #(s %!st i#for% J $$:i#:costH to the c!sto%er to e# 0$e hi% to co%p re the r tes ch r)es 'ith other so!rces of fi# #ce. (0) B #(s #" fi# #ci $ i#stit!tio#s sho!$" "e*ise syste% of )i*i#) c(#o'$e")e%e#t for receipt of $$ $o # pp$ic tio#s. Ti%e fr %e 'ithi# 'hich $o # pp$ic tio#s !p to Rs.; $ (hs 'i$$ 0e "ispose" of sho!$" $so 0e i#"ic te" i# c(#o'$e")e%e#t of s!ch pp$ic tio#s. (c) B #(s < fi# #ci $ i#stit!tio#s sho!$" *erify the $o # pp$ic tio#s 'ithi# re so# 0$e perio" of ti%e. If ""itio# $ "et i$s < "oc!%e#ts re re8!ire"- they sho!$" i#ti% te the 0orro'ers i%%e"i te$y. (ii) L'*, *66#*i7*. *,d te#m71+',diti',7: ) Ae#"ers sho!$" e#s!re th t there is proper ssess%e#t of cre"it pp$ic tio# 0y 0orro'ers. They sho!$" #ot !se % r)i# #" sec!rity stip!$ tio# s s!0stit!te for "!e "i$i)e#ce o# cre"it 'orthi#ess of the 0orro'er. 0) The $e#"er sho!$" co#*ey to the 0orro'er the cre"it $i%it $o#) 'ith the ter%s #" co#"itio#s thereof #" (eep the 0orro'erMs ccept #ce of these ter%s #" co#"itio#s )i*e# 'ith his f!$$ (#o'$e")e o# recor". c) As f r s possi0$e- the $o # )ree%e#t sho!$" c$e r$y stip!$ te cre"it f ci$ities th t re so$e$y t the "iscretio# of $e#"ers. These % y i#c$!"e ppro* $ or "is $$o' #ce of f ci$itiess!ch s- "r 'i#)s 0eyo#" the s #ctio#e" $i%its- ho#o!ri#) che8!es iss!e" for the p!rpose other th # specific $$y )ree" to i# the cre"it s #ctio#- #" "is $$o'i#) "r 'i#) o# 0orro' $ cco!#t o# its c$ ssific tio# s #o#:perfor%i#) sset or o# cco!#t of #o#: co%p$i #ce 'ith the ter%s of s #ctio#. It % y $so 0e specific $$y st te" th t the $e#"er "oes #ot h *e # o0$i) tio# to %eet f!rther re8!ire%e#ts of the 0orro'ers o# cco!#t of )ro'th i# 0!si#ess etc. 'itho!t proper re*ie' of cre"it $i%its. ") I# the c se of $e#"i#) !#"er co#sorti!% rr #)e%e#t- the p rticip ti#) $e#"ers sho!$" e*o$*e proce"!res to co%p$ete ppr is $ of propos $s i# the ti%e 0o!#" % ##er to the

19

e7te#t fe si0$e- #" co%%!#ic te their "ecisio#s o# fi# #ci#) or other'ise 'ithi# re so# 0$e ti%e.

(iii) $'7t di7bu#7eme,t 7u6e#Ai7i',:

) ,ost "is0!rse%e#t s!per*isio# 0y $e#"ers- p rtic!$ r$y i# respect of $o #s !p to Rs. ; $ (hsho!$" 0e co#str!cti*e 'ith *ie' to t (i#) c re of #yN $e#"er:re$ te"N )e#!i#e "iffic!$ty th t the 0orro'er % y f ce. 0)Before t (i#) "ecisio# to rec $$ < cce$er te p y%e#t or perfor% #ce !#"er the )ree%e#t or see(i#) ""itio# $ sec!rities- $e#"ers sho!$" )i*e #otice to 0orro'ers- s specifie" i# the $o # )ree%e#t or re so# 0$e perio"- if #o s!ch co#"itio# e7its i# the $o # )ree%e#t. c) Ae#"ers sho!$" re$e se $$ sec!rities o# recei*i#) p y%e#t of $o # or re $is tio# of $o # s!01ect to #y $e)iti% te ri)ht or $ie# for #y other c$ i% $e#"ers % y h *e ) i#st 0orro'ers. If s!ch ri)ht of set off is to 0e e7ercise"- 0orro'ers sh $$ 0e )i*e# #otice 0o!t the s %e 'ith f!$$ p rtic!$ rs 0o!t the re% i#i#) c$ i%s #" the "oc!%e#ts !#"er 'hich $e#"ers re e#tit$e" to ret i# the sec!rities ti$$ the re$e* #t c$ i% is sett$e"<p i"

(iA) Ge,e#*. :
) Ae#"ers sho!$" restr i# fro% i#terfere#ce i# the ff irs of the 0orro'ers e7cept for 'h t is pro*i"e" i# the ter%s #" co#"itio#s of the $o # s #ctio# "oc!%e#ts (!#$ess #e' i#for% tio#- #ot e r$ier "isc$ose" 0y the 0orro'er- h s co%e to the #otice of the $e#"er). 0) Ae#"ers %!st #ot "iscri%i# te o# )ro!#"s of se7- c ste #" re$i)io# i# the % tter of $e#"i#). Ho'e*er- this "oes #ot prec$!"e $e#"ers fro% p rticip ti#) i# cre"it:$i#(e" sche%es fr %e" for 'e (er sectio#s of the society. c) I# the % tter of reco*ery of $o #s- the $e#"ers sho!$" #ot resort to !#"!e h r ss%e#t *i4. persiste#t$y 0otheri#) the 0orro'ers t o"" ho!rs- !se of %!sc$e po'er for reco*ery of $o #s- etc. ") I# c se of receipt of re8!est for tr #sfer of 0orro' $ cco!#t- either fro% the 0orro'er or fro% 0 #(<fi# #ci $ i#stit!tio#- 'hich proposes to t (e: o*er the cco!#t- the co#se#t or other'ise i.e- o01ectio# of the $e#"er- if #y- sho!$" 0e co#*eye" 'ithi# ;= " ys fro% the " te of receipt of re8!est.

20

21

FINANCIAL TE!MS USE& IN C!E&IT A$$!ASAL $!OCESS

The ppr isi#) officer co%e cross fo$$o'i#) 2i# #ci $ ter%s #" 1 r)o#s th t re !se" for cre"it ppr isi#) #" "ecisio# % (i#) s fo$$o's.:

SECU!ITIES:
So!#" B #(i#) pr ctices i# respect of cre"it portfo$io re8!ire $o #s + "* #ces 0 c(e" 0y "e8! te sec!rity. If the 0orro'er "ef !$ts o# $o #- 0 #(Hs f $$ o# the sec!rity for re $is tio# of the "ef !$te" %o!#t. Therefore- it is fre8!e#t$y referre" s seco#" ry so!rce of rep y%e#t. Sec!rities re"!ce the B #(s ris( 'he# it % (es $o #. There re t'o types of sec!rities * i$ 0$e to B #(s to sec!re $o #. They re ,ri% ry sec!rity #" Co$$ ter $ sec!rity. $!IMA!3 SECU!IT3. ,ri% ry sec!rity is the sset cre te" o!t of the cre"it f ci$ity e7te#"e" to the 0orro'er #" < or 'hich re "irect$y ssoci te" 'ith the 0!si#ess < pro1ect of the 0orro'er for 'hich the cre"it f ci$ity h s 0ee# e7te#"e". COLLATE!AL SECU!IT3: Co$$ ter $ sec!rity is #y other sec!rity offere" for the s i" cre"it f ci$ity. 2or e7 %p$ehypothec tio# of 1e'e$$ery- %ort) )e of ho!se- etc. Co$$ ter $ Sec!rity refers to cert i# ""itio# $ sec!rity o0t i#e" 0y the B #( to sec!re the $o #. 2or e7 %p$e- s y- B #( h s fi# #ce" the p!rch se of % chi#ery 0y ,h r% ce!tic $ % #!f ct!ri#) co%p #y. This % chi#ery 'o!$" 0e the pri% ry sec!rity for this $o #. I# ""itio#- the B #( % y o0t i# co$$ ter $ sec!rity i# the for% of the f ctory 0!i$"i#) o'#e" 0y the co%p #y- s ""itio# $ sec!rity. This 'i$$ )! r" B #(Ms i#terests i# the e*e#t of the pri% ry sec!rity #ot h *i#) s!fficie#t * $!e to $i8!i" te the $o #. So%eti%es- o# cco!#t of "*erse % r(et co#"itio#sthe * $!e of the pri% ry sec!rity )ets ero"e"- e7posi#) the B #( to hi)her ris( th # it h " ori)i# $$y 0 r) i#e" for. FO!MS OF SECU!IT3: The for%s of sec!rity either 0y ' y of pri% ry sec!rity or co$$ ter $ sec!rity is )i*e# here !#"er.: 95 y6't)e+*ti',. U#"er hypothec tio#- the 0orro'er is pro*i"e" 'ith 'or(i#) c pit $ fi# #ce 0y the 0 #( ) i#st the sec!rity of %o* 0$e property- )e#er $$y i#*e#tories. The 0orro'er "oes #ot tr #sfer the property to the 0 #(K it re% i#s i# the possessio# of the 0orro'er- ho'e*er- tit$e

22

of property is tr #sferre" i# the # %e of B #( or $e#"i#) i#stit!tio#. Th!s hypothec tio# is ch r)e ) i#st property for # %o!#t of "e0t 'here #either o'#ership #or possessio# is p sse" to the cre"itor. B #(s )e#er $$y )r #t cre"it !#"er hypothec tio# o#$y to first c$ ss c!sto%ers 'ith hi)hest i#te)rity. B #(s "o #ot !s! $$y )r #t hypothec tio# f ci$ity to #e' c!sto%ers.

85 $.ed0e. U#"er this )ree%e#t- the 0orro'er is re8!ire" to tr #sfer the physic $ possessio# of the property offere" s sec!rity to the 0 #( to o0t i# cre"it. The 0 #( h s ri)ht of $ie# #" c #

ret i# possessio# of the )oo"s p$e")e" !#$ess p y%e#t of the pri#cip$e- i#terest #" #y other e7pe#ses is o0t i#e" fro% the 0orro'er. I# c se of "ef !$t- the 0 #( % y either ) s!e the 0orro'er for the %o!#t "!e- or 0) s!e for the s $e of )oo"s p$e")e""5 M'#t0*0e. Mort) )e is the tr #sfer of the $e) $ or e8!it 0$e i#terest i# specific i%%o* 0$e property for sec!rity ) i#st the "e0t. I# c se of %ort) )e- the possessio# of the property % y re% i# 'ith the 0orro'er- ho'e*er- the $e#"er )et the f!$$ $e) $ tit$e. The tr #sferor of i#terest (0orro'er) is c $$e" %ort) )or- the tr #sferee is c $$e" %ort) )ee #" the i#str!%e#t of tr #sfer is c $$e" the %ort) )e "ee".

B*,-i,0 F*+i.itie7:
2i# #ci#) is the ct of pro*i"i#) f!#"s for 0!si#ess cti*ities- % (i#) p!rch ses or i#*esti#). 2i# #ci $ i#stit!tio#s #" 0 #(s re i# the 0!si#ess of fi# #ci#) s they pro*i"e c pit $ to 0!si#esses- co#s!%ers #" i#*estors to he$p the% chie*e their respecti*e )o $s. There re t'o ' ys of pro*i"i#) f!#"s i.e. fi# #ci#) to the 0orro'ers !se" 0y B #(s or fi# #ci $ i#stit!tio#s s )i*e# 0e$o'.: A5 Fu,d B*7ed Fi,*,+i,0: The f!#" 0 se" fi# #ci#) pro*i"e" 0y 0 #(s i#*o$*e i%%e"i te o!t$ y of f!#"s- 'hich %!st 0e pro*i"e" 0y 0efore h #"s. This f ci$ity i#c$!"es Ter% Ao # f ci$ities- C sh Cre"it $i%ito*er "r ft etc. 95 Te#m L'*,7. A ter% $o # is !s! $$y si#)$e $o # for st te" perio" of ti%e or series of $o #s o# specifie" " tes. They re !se" for specific p!rposes s!ch s c8!iri#) % chi#eryre#o* ti#) 0!i$"i#)- refi# #ci#) "e0t- e#teri#) i#to #e' 0!si#ess #" so o# #" so forth. Ter% $o #s re of % t!rity of = ye r #" 0o*e #" re re p i" o# # %orti4e" 0 sis. The ter% $o #s re %ost$y )i*e# to the 0orro'ers 'ho propose to set !p !#it (pro1ect) for e7 %p$e % #!f ct!ri#) !#it- or it % y 0e to set !p of po'er p$ #t or co#str!ctio# of co%p$e7es- 0!i$"i#)s- ro "s etc.

23

The % t!rity of ter% $o # c $$e" te#or of the $o # co%prises of fo$$o'i#) co%po#e#ts. *5 C',7t#u+ti', $e#i'd: Ti%e t (e# for co%p$etio# of co#str!ctio# cti*ity 0y the !#it ho$"er. b5 M'#*t'#ium $e#i'd: Ho$i" y perio" )i*e# to rep y the ter% $o #. +5 !e6*yme,t $e#i'd: ,erio" i# 'hich the ter% $o # is rep i". 85 C*7) C#edit. C sh cre"it f ci$ity is the %ost pop!$ r %etho" of 0 #( fi# #ce to the 0orro'ers "opte" 0y the $e#"ers. U#"er c sh cre"it f ci$ity- 0orro'er is $$o'e" to 'ith"r ' f!#"s fro% the 0 #( !pto the s #ctio#e" cre"it $i%it. He is #ot re8!ire" to 0orro' the e#tire cre"it s #ctio#e" o#ce- r ther he c # 'ith"r ' perio"ic $$y to the e7te#t of his re8!ire%e#ts #" rep y 0y "epositi#) s!rp$!s f!#"s i# his c sh cre"it cco!#t "5 'Ae# &#*/t. U#"er the o*er "r ft f ci$ity- the 0orro'er is $$o'e" to 'ith"r ' f!#"s i# e7cess of 0 $ #ce i# his c!rre#t cco!#t !pto cert i# specifie" $i%it "!ri#) stip!$ te" perio". O*er"r '# %o!#t is rep i" o# "e% #". O*er "r ft )e#er $$y co#ti#!e for $o#) perio" 0y ##! $ re#e' $s of the $i%its. B5 N',IFu,d B*7ed Fi,*,+i,0: No#:f!#" 0 se" fi# #ci#) re esse#ti $$y i# # t!re of pro%ises % "e 0y 0 #(s i# f *o!r of thir" p rty to pro*i"e %o#et ry co%pe#s tio# o# 0eh $f of their c$ie#ts if cert i# sit! tio#s e%er)e. These #o#:f!#" 0 se" f ci$ities % y 0e i# the # t!re of 0 #( )! r #tee or $etters of cre"it. Lette# '/ +#edit. S!pp$iers p rtic!$ r$y the forei)# s!pp$iers i#sist th t the 0!yer sho!$" e#s!re th t his 0 #( 'i$$ % (e the p y%e#t if he f i$s to ho#o!r its o0$i) tio#s. This is e#s!re" thro!)h $etter of cre"it (A<C) rr #)e%e#t. A 0 #( ope#s # A<C i# f *o!r of c!sto%er to f ci$it te his p!rch se of )oo"s. If the c!sto%er "oes #ot p y the s!pp$ier 'ithi# the cre"it perio"- the 0 #( % (es the p y%e#t !#"er the A<C rr #)e%e#t. B #( ch r)es the c!sto%ers for ope#i#) the A<C. B #(s e7te#" s!ch f ci$ity to fi# #ci $$y so!#" c! Li,e '/ +#edit: The $i#e of cre"it is the % 7i%!% %o!#t th t c # 0e 0orro'e" !#"er the ter%s of the $o #. The $o #s re % "e for the perio"s of o#e ye r or $essK #" they sho!$" 0e !se" to fi# #ce the se so# $ i#cre se i# i#*e#tory #" cco!#ts recei* 0$es. Whe# the i#*e#tory is so$"recei* 0$es re co$$ecte" #" the f!#"s re !se" to re"!ce the $o #. The $o #s re !s! $$y p y 0$e o# "e% #" 0y the 0 #( or 'ithi# #i#ety " ys. B*,- Gu*#*,tee: B #( )! r #tee is co%%it%e#t to forei)# 0!yer th t the 0 #( 'i$$ p y # e7porter for )oo"s shippe" if the 0!yer "ef !$ts or it is # !#"ert (i#) 0y 0 #( to 0e #s'er 0$e for

24

p y%e#t of s!% of %o#ey i# the e*e#t of #o# perfor% #ce 0y the p rty o# 'hose 0eh $f the )! r #tee is iss!e".

CA$ITAL ST!UCTU!E
I# or"er to r!# #" % # )e co%p #y- f!#"s re #ee"e". Ri)ht fro% the pro%otio# $ st )e !pto e#"- fi# #ces p$ y # i%port #t ro$e i# co%p #yHs $ife. If f!#"s re i# "e8! te the 0!si#ess s!ffers #" if the f!#"s re #ot proper$y % # )e" the e#tire or) #is tio# s!ffers. It is therefore #ecess ry th t there sho!$" 0e # opti% $ c pit $ str!ct!re 'hich 'i$$ he$p the or) #is tio# to r!# its 'or( s%ooth$y. The c pit $ str!ct!re is % "e:!p of "e0t #" e8!ity sec!rities #" refers to per% #e#t fi# #ci#) of fir%. It is co%pose" of $o#) ter% "e0tprefere#ce sh re c pit $ #" sh re ho$"ersH f!#"s. EHuity C*6it*.: E8!ity c pit $ represe#ts the re% i#i#) i#terest i# ssets of co%p #y- spre " %o#) i#"i*i"! $ sh reho$"er of co%%o# or preferre" stoc(. At the st rt of 0!si#ess o'#ers p!t so%e f!#"i#) i#to the 0!si#ess to fi# #ce ssetsK this cre tes $i 0i$ity o# the 0!si#ess i# the sh pe of c pit $ s the 0!si#ess is sep r te e#tity fro% its o'#ers. &ebt: De0t is the c pit $ th t 0!si#ess r ises 0y t (i#) $o #. Act! $$y it is $o # % "e to co%p #y th t is #or% $$y rep i" t so%e f!t!re " te. De0t c pit $ "iffers fro% the e8!ity or sh re c pit $ 0ec !se s!0scri0ers to "e0t c pit $ "o #ot 0eco%e the p rt o'#ers of the 0!si#ess 0!t re %ere$y cre"itors. Ty6e7 '/ debt:I Se,i'# &ebt: De0t 'hich h s priority c$ i% o# the ssets of co%p #y. This refers to "e0t sec!re" 0y co$$ ter $ o# 'hich the $e#"er h s p!t i# p$ ce first $ie#. Us! $$y this co*ers $$ the ssets of corpor tio# #" is ofte# !se" for re*o$*i#) cre"it $i#es. SubI '#di,*te &ebt. It is the "e0t 'hose ho$"ers h *e c$ i% o# the fir%Hs ssets o#$y fter se#ior "e0t ho$"erHs c$ i%s h *e 0ee# s tisfie". S!0or"i# te "e0t is referre" s s!0or"i# te 0ec !se the "e0t pro*i"es h *e s!0or"i# te st t!s i# re$ tio#ship to the #or% $ "e0t. This "e0t h s $o'er priority th # other 0o#"s of the iss!er i# c se of $i8!i" tio# "!ri#) 0 #(r!ptcy 0e$o' the $i8!i" tor- )o*er#%e#t t 7 !thorities #" se#ior "e0t ho$"ers i# the hier rchy of cre"itors.

B*,-i,0 A##*,0eme,t7:
The $e#"ers rr #)e f!#" ("e0t) to the 0orro'ers 0y ' y of fo$$o'i#) %etho"s.: SOLE BANKING A!!ANGEMENT. U#"er this rr #)e%e#t cre"it f ci$ities i# f *o!r of the si#)$e 0orro'er re s #ctio#e" 0y si#)$e 0 #(. Ho'e*er- i# c se of $ r)er cre"it e7pos!re- s y Rs ;9.?? crores #" 0o*eso$e 0 #(i#) sho!$" #ot 0e e#co!r )e" s it e7poses the B #( to co#ce#tr tio# ris( MULTI$LE BANKING A!!ANGEMENT: M!$tip$e B #(i#) is 0 #(i#) rr #)e%e#t 'here

0orro'er * i$s of fi# #ce i#"epe#"e#t$y

25

fro% %ore th # o#e 0 #(. Th!s- there is #o co#tr ct! $ re$ tio#ship 0et'ee# * rio!s 0 #(ers of s!ch 0orro'er. A$so i# s!ch rr #)e%e#t e ch 0 #(er is free to "o his o'# cre"it ssess%e#t #" o$" sec!rity i#"epe#"e#t of other 0 #(ers. I# %!$tip$e 0 #(i#)- "iffere#t 0 #(s pro*i"e fi# #ce #" "iffere#t 0 #(i#) f ci$ities to si#)$e 0orro'er 'itho!t h *i#) co%%o# rr #)e%e#t #" !#"erst #"i#) 0et'ee# the $e#"ers. U#"er %!$tip$e 0 #(i#) rr #)e%e#ts- e ch 0 #( is free to #e)oti te ter%s #" co#"itio#s- i#c$!"i#) % r)i#- r te of i#terest etc. As s!ch- 'here the 0orro'er e#1oys 'or(i#) c pit $ $i%its fro% %ore th # o#e 0 #(- "et i$s 0o!t 0orro'i#)s sho!$" 0e o0t i#e" fro% other 0 #(s #" re)!$ r e7ch #)e of i#for% tio# %o#)st fi# #ci#) 0 #(s sho!$" 0e e#s!re". CONSO!TIUM BANKING A!!ANGEMENT. U#"er co#sorti!% fi# #ci#)- se*er $ 0 #(s (or fi# #ci $ i#stit!tio#s) fi# #ce si#)$e 0orro'er 'ith co%%o# ppr is $- co%%o# "oc!%e#t tio#- 1oi#t s!per*isio# #" fo$$o':!p e7ercises. I# co#sorti!% rr #)e%e#t- 'herei# the 0 #( is %e%0er of the co#sorti!%- the ppr is $ %etho" fo$$o'e" 0y the $e " 0 #( % y 0e "opte" pro*i"e" it "oes #ot res!$t i# #y % 1or "e*i tio# of cre"it ssess%e#t. I# c se of $e#"i#) !#"er co#sorti!% rr #)e%e#ti# ""itio# to the ppr is $ % "e 0y the $e "er 0 #(- 0 #( sho!$" $so % (e # i#"epe#"e#t ppr is $ re) r"i#) the *i 0i$ity of the pro1ect #" the reco%%e#" tio#s of the 0 #( sho!$" 0e 0 se" o# s!ch ppr is $. B #(s % y co#si"er opti#) o!t fro% the co#sorti!%- 'here it is #ot s tisfie" 'ith the perfor% #ce<fi# #ci $s<oper tio# of the 0orro'er.

S3N&ICATE BANKING: It is )ro!p of i#*est%e#t 0 #(s 'hich 1oi#t$y !#"er'rite #" "istri0!te #e' sec!rity offeri#) or 1oi#t$y $e#" %o#ey to specific 0orro'er. A 0 #( sy#"ic te is #ot per% #e#t e#tity 0!t for%s specific $$y to h #"$e "e $ th t %i)ht 0e too "iffic!$t or too ris(y for si#)$e !#"er'riter

Se+t'#. Ae#"i#) i#*o$*es e7te#"i#) of cre"it f ci$ities to "iffere#t cti*ities *i4 tr "e% #!f ct!ri#)- co#str!ctio# etc. O# the 0 sis of these cti*ities $o # 0oo( of 0 #( is "i*i"e" i#to "iffere#t sectors. M i# i% of these sectors is to %iti) te the co#ce#tr tio# ris(. Sectors c # 0e 0ro "$y c$ ssifie" i# to ,riority #" No# ,riority sectors $#i'#ity Se+t'#: So%e re s or fie$"s i# co!#try "epe#"i#) o# its eco#o%ic co#"itio# or )o*er#%e#t i#terest re prioritise" #" re c $$e" ,riority sectors. B #(s re "irecte" 0y the Reser*e 0 #( of co!#try th t $o #s %!st 0e )i*e# o# re"!ce" i#terest r tes 'ith "isco!#ts to pro%ote these fie$"s. S!ch $e#"i#) is c $$e" priority sector $e#"i#).

SECTO! Tot $ ,riority sector o!t of 'hich !#"er A)ric!$t!re We (er sectio#s DRI

$e#+e,t*0e '/ *d@u7ted ,et B*,- +#edit u,de# t)e +*te0'#y D?G =FG =?G =G

FINANCIAL ANAL3SIS 26

The B #(s # $yse the 0orro'ers thoro!)h$y to chec( their cre"it 'orthi#ess 0efore fi# #ci#) the 0orro'ers. O#e s!ch # $ysis i#c$!"es fi# #ci $ # $ysis. 2i# #ci $ # $ysis i#c$!"es # $ysi#) the 0 $ #ce sheet- profit + $oss cco!#t #" c sh f$o' of the pp$ic #t co%p #y. 2i# #ci $ # $ysis is s!pporte" 0y r tio # $ysis. 2i# #ci $ # $ysis i#c$!"es thoro!)h # $ysis 0y the 0 #(s or fi# #ci $ i#stit!tio# of the fi# #ci $ st te%e#ts of the pp$ic #t 0orro'er.

Fi,*,+i*. St*teme,t7
2i# #ci $ st te%e#ts re re8!ire" i# i#*est%e#t #" fi# #ci#) "ecisio# % (i#). This fi# #ci $ i#for% tio# of # e#terprise is co#t i#e" i# the fi# #ci $ st te%e#ts #" the three 0 sic fi# #ci $ st te%e#ts of )re t si)#ific #ce to i#*estors re B $ #ce Sheet- ,rofit #" Aoss cco!#t #" c sh f$o' st te%e#t A5 B*.*,+e S)eet: B $ #ce sheet is the %ost si)#ific #t fi# #ci $ st te%e#t. It i#"ic tes the fi# #ci $ co#"itio# of 0!si#ess t p rtic!$ r %o%e#t of ti%e. Most specific $$y B $ #ce sheet co#t i#s i#for% tio# 0o!t reso!rces #" o0$i) tio#s of 0!si#ess e#tity #" 0o!t its o'#ers or i# other $ #)! )e B $ #ce sheet )i*es c$e r i#for% tio# 0o!t Assets- $i 0i$ities #" o'#ers e8!ity of 0!si#ess fir%. B $ #ce sheet i#c$!"es ite%s $i(e sh re c pit $- reser*es #" s!rp$!s - sec!re" $o #s- !#sec!re" $o #s #" c!rre#t $i 0i$ities o# the $i 0i$ities si"e #" fi7e" ssets- i#*est%e#ts- c!rre#t ssets- $o #s #" "* #ces o# the sset si"e.

F'#m*t '/ B*.*,+e S)eet

Li*bi.itie7 C!rre#t $i 0i$ities. I#co%e recei*e" i# "* #ce O!tst #"i#) e7pe#ses ,ro*isio#s B #( o*er"r ft Bi$$s p y 0$e S!#"ry cre"itors 2i7e" $i 0i$ities. Ao#) ter% $o #s Sh re c pit $ Reser*e #" s!rp$!s Am'u,t A77et7 C!rre#t ssets: C sh i# h #" C sh t 0 #( Short ter% i#*est%e#ts Bi$$s recei* 0$e Boo( "e0ts C$osi#) stoc(s. 2i#ishe" )oo"s 3oo"s se#t o# co#si)#%e#t Wor(:i# pro)ress R ' % teri $s ,rep i" e7pe#ses Ao#):ter% i#*est%e#ts 2i7e" ssets. Aoose too$s stores Ai*e stoc( f!r#it!re ,$ #t + % chi#ery Am'u,t

27

, te#ts 3oo"'i$$ 2ictitio!s ssets. Aosses + e7pe#ses #ot 'ritte# off

E.eme,t7 '/ b*.*,+e 7)eet:

*5 A77et7 Side. The ter% /AssesB "e#otes the reso!rce c8!ire" 0y the 0!si#ess fro% the f!#"s % "e * i$ 0$e either 0y o'#ers of the 0!si#ess or 0y others. Asset is #y ite% of eco#o%ic * $!e o'#e" 0y # i#"i*i"! $ or corpor tio#- especi $$y th t 'hich co!$" 0e co#*erte" to c sh. Assets re s!0"i*i"e" i#to c!rre#t #" $o#):ter% ssets to ref$ect the e se of $i8!i" ti#) e ch sset. C sh- for o0*io!s re so#s- is co#si"ere" the %ost $i8!i" of $$ ssets. Ao#):ter% ssets- s!ch s re $ est te or % chi#ery- re $ess $i(e$y to se$$ o*er#i)ht or h *e the c p 0i$ity of 0ei#) 8!ic($y co#*erte" i#to c!rre#t sset s!ch s c sh. Cu##e,t *77et7. C!rre#t ssets re #y ssets th t c # 0e e si$y co#*erte" i#to c sh 'ithi# o#e c $e#" r ye r #" co%prise of "e0tors- i#*e#tories (R ' % teri $- stoc( i# process #" fi#ishe" )oo"s). E7 %p$es of c!rre#t ssets 'o!$" 0e chec(i#) or %o#ey % r(et cco!#ts- cco!#ts recei* 0$e- #" #otes recei* 0$e th t re "!e 'ithi# o#e ye rHs ti%e. M i# co%po#e#ts of c!rre#t ssets re. Fi?ed *77et7. 2i7e" ssets i#c$!"e $ #"- 0!i$"i#)s- % chi#ery- #" *ehic$es th t re !se" i# co##ectio# 'ith the 0!si#ess.

L*,d A #" is co#si"ere" fi7e" sset 0!t- !#$i(e other fi7e" ssets- is #ot "epreci te"0ec !se $ #" is co#si"ere" # sset th t #e*er 'e rs o!t. Bui.di,07 I B!i$"i#)s re c te)ori4e" s fi7e" ssets #" re "epreci te" o*er ti%e. O//i+e eHui6me,t < This i#c$!"es office e8!ip%e#t s!ch s copiers- f 7 % chi#es- pri#ters- #" co%p!ters !se" i# yo!r 0!si#ess. M*+)i,e#y < This fi)!re represe#ts % chi#es #" e8!ip%e#t !se" i# yo!r p$ #t to pro"!ce yo!r pro"!ct. E7 %p$es of % chi#ery %i)ht i#c$!"e $ thes- co#*eyor 0e$ts- or pri#ti#) press. 4e)i+.e7 I This 'o!$" i#c$!"e #y *ehic$es !se" i# the 0!si#ess.

28

IN4ESTMENTS: This i#c$!"es i#*est%e#t of the co%p #y i# sh res of other co%p #iesi#*est%e#t i# %!t! $ f!#"s etc. (0oth short #" $o#) ter%)

B5 LIABILIT3 SI&E.
S)*#e +*6it*.. This is "i*i"e" i#to t'o types. e8!ity c pit $ #" prefere#ce c pit $. The first represe#ts the co#tri0!tio#s of e8!ity sh reho$"ers- 'ho re theoretic $$y the o'#ers of the fir%. E8!ity c pit $ 0ei#) ris( c pit $ c rries #o fi7e" r te of "i*i"e#". ,refere#ce c pit $ c rries fi7e" r te of "i*i"e#". !e7e#Ae *,d 7u#6.u7: Reser*es % y 0e c$ ssifie" i#to t'o 0ro " types. re*e#!e reser*es #" c pit $ reser*es. Re*e#!e reser*es represe#t cc!%!$ te" ret i#e" e r#i#)s fro% the profits of #or% $ 0!si#ess oper tio#s. These % y 0e "i*i"e" i#to )e#er $ reser*e- i#*est%e#t $$o' #ce reser*e- c pit $ re"e%ptio# reser*e- "i*i"e#" e8! $is tio# reser*e- etc. c pit $ reser*es rise o!t of ) i#s 'hich re #ot re$ te" to #or% $ 0!si#ess oper tio#s. E7 %p$es of s!ch ) i#s re the pre%i!% o# iss!e of sh res #" the ppreci tio# reco)#ise" o# re* $! tio# of ssets. Se+u#ed .'*,7: Borro'i#)s of the fir% ) i#st 'hich t #)i0$e sec!rity is pro*i"e" re referre" to s sec!re" $o #s. The i%port #t co%po#e#ts of sec!re" $o #s re. $o #s fro% fi# #ci $ i#stit!tio#s"e0e#t!res- #" $o #s fro% co%%erci $ 0 #(s.

U,7e+u#ed .'*,7: Borro'i#)s of the fir% ) i#st 'hich #o t #)i0$e sec!rity is pro*i"e" re referre" to s !#sec!re" $o #s. The % 1or co%po#e#ts of !#sec!re" $o #s re. fi7e" "eposits- $o #s #" "* #ces fro% pro%oters- i#ter corpor te 0orro'i#)s- #" !#sec!re" $o #s fro% 0 #(s. Cu##e,t .i*bi.itie7 *,d 6#'Ai7i',7. This c te)ory i#c$!"es $i 0i$ities th t re to 0e p i" 'ithi# = ye r #" pro*isio# for t 7es "i*i"e#"s. This c te)ory i#c$!"es ite%s $i(e I#co%e recei*e" i# "* #ce, o!tst #"i#) e7pe#ses, ,ro*isio#s- B #( o*er"r ft, Bi$$s p y 0$e, s!#"ry cre"itors.

$#'/it *,d L'77 *++'u,t:

,rofit #" $oss cco!#t is score 0o r" of the fir%Hs perfor% #ce "!ri#) perio" of ti%e. It )i*es the s!%% ry of re*e#!es- e7pe#ses #" #et i#co%e of fir%. It ser*es s %e s!re of the fir%Hs profit 0i$ity. Cre"itors p rtic!$ r$y 0 #(ers #" fi# #ci $ # $ysts h *e rece#t$y st rte" p yi#) %ore tte#tio# to the fir%s e r#i#) c p city s %e s!re of its fi# #ci $ stre#)th. F'#m*t '/ $#'/it & L'77 A++'u,tK

29

$*#ti+u.*#7 (C#edit 7ide) To 3ross $oss 0<" Office + M # )e%e#t E7pe#sesK Se$$i#) + Distri0!tio# E7p #ses 2i# #ci $ E7p #sesK Rep irs + Depreci tio# Aosses + Misce$$ #eo!s E7pe#sesK To Net profit. (I.e. AAA EP,ENSES + AOSSES)

Am'u,t (!75) OOO.. OOO.. OOOO OOOO OOOO OOOO OOO. OOO.

$*#ti+u.*#7 (&ebit 7ide) By 3ross profit 0<" By I#terest recei*e" By Disco!#t recei*e" By Co%%issio# recei*e" By S!#"ry receipts By Net $oss

Am'u,t (!75) OOO OOO OOO OOO OOO OOO

(I.e. AII INCOMES + 3AINS)

Components of Income statement: !eAe,ue. Re*e#!e ref$ects C sh i#f$o's or other e#h #ce%e#ts of ssets of # e#tity "!ri#) perio" fro% "e$i*eri#) or pro"!ci#) )oo"s- re#"eri#) ser*ices- or other cti*ities th t co#stit!te the e#tityMs o#)oi#) % 1or oper tio#s. Us! $$y prese#te" s s $es %i#!s s $es "isco!#ts- ret!r#s- #" $$o' #ces E?6e,7e7. E7pe#ses ref$ects C sh o!tf$o's or other !si#):!p of ssets or i#c!rre#ce of $i 0i$ities "!ri#) perio" fro% "e$i*eri#) or pro"!ci#) )oo"s- re#"eri#) ser*ices- or c rryi#) o!t other cti*ities th t co#stit!te the e#tityMs o#)oi#) % 1or oper tio#s. Ge,e#*. *,d *dmi,i7t#*tiAe e?6e,7e7 (G & A) I represe#t e7pe#ses to % # )e the 0!si#ess (officer s $ ries- $e) $ #" professio# $ fees- !ti$ities- i#s!r #ce- "epreci tio# of office 0!i$"i#) #" e8!ip%e#t- office re#ts- office s!pp$ies) o Se..i,0 e?6e,7e7 I o represe#t e7pe#ses #ee"e" to se$$ pro"!cts (e.).- s $ ries- co%%issio#s #" tr *e$ e7pe#ses- "*ertisi#)- frei)ht- shippi#)) o ! & & e?6e,7e7 I o represe#t e7pe#ses i#c$!"e" i# rese rch #" "e*e$op%e#t o &e6#e+i*ti', I o is the ch r)e for specific perio" (i.e. ye r- cco!#ti#) perio") 'ith respect to fi7e" ssets th t h *e 0ee# c pit $i4e" o# the 0 $ #ce sheet. o Ot)e# e?6e,7e7 '# .'77e7 I e7pe#ses or $osses #ot re$ te" to pri% ry 0!si#ess oper tio#s. o C*7) /.'( 7t*teme,t.#his statement describes the inflows and outflows of cash and o o

cash e*ui)alent in an enter$rise durin a s$ecified $eriod of time" 1uch a statement enumerates net effects of )arious business transactions on cash and its e*ui)alent and

30

ta'es into account recei$ts and disbursements of cash" FORMAT OF CASH FLOW STATEMENT;

Rs. CAS FLO%S F!OM O$E!ATING ACTI4ITIES. C sh receipts fro% c!sto%ers. C sh p i" to s!pp$iers + e%p$oyees. C sh )e#er te" fro% oper tio#s E7tr or"i# ry ite%s Net c sh fro% oper ti#) cti*ities

Rs.

FLO%S F!OM IN4ESTING ACTI4ITIES. I#"i*i"! $ ite%s of c sh i#f$o's #" o!tf$o's fro% fi# #ci#) cti*ities( p!rch se<s $e of fi7e" ssetsi#terest recei*e") Net c sh fro% i#*esti#) cti*ities CAS FLO%S F!OM FINANCING ACTI4ITIES: I#"i*i"! $ ite%s of c sh i#f$o's #" o!tf$o's fro% fi# #ci#) cti*ities($o#) ter% 0orro'i#)s- rep y%e#t of $o#) ter% 0orro'i#)s) Net c sh fro% fi# #ci#) cti*ities Net i#cre se (Decre se) i# c sh C sh t the 0e)i##i#) of perio". C sh t the e#" of perio"

CAS

!ATIO ANAL3SIS:
R tio # $ysis is tech#i8!e of # $ysis #" i#terpret tio# of fi# #ci $ st te%e#ts. It is the process of est 0$ishi#) #" i#terpreti#) * rio!s r tios for he$pi#) i# % (i#) cert i# "ecisio#s.

Be,+) m*#- '/ -ey Fi,*,+i*. !*ti'7 i, J&K B*,-:

2i# #ci $ r tios re o#$y too$s #" #ot # e#" i# cre"it ppr is $ process. They re %e #s to # e#" #" o#$y p ss )!i"i#) si)# $s. A# $ysis of co%0i# tio# of critic $ fi# #ci $ r tios c # he$p i# proper "ecisio# % (i#). They re $so pr ctic $ co#str i#ts i# e*o$*i#) i#"!stry 'ise 0e#ch% r(s for (ey fi# #ci $ i#"ic tors. 2o$$o'i#) %i#i%!% $e*e$s of (ey fi# #ci $ i#"ic tors re propose" to 0e ccepte"K Key #*ti'7 Mi,imum !em*#-7 C!rre#t r tio =.@@.= M y 0e re$ 7e". =. !pto =.;9.= i# c se of SME sector #" ;. !pto =.=?.= i# c se of e7port cre"it DER ;.= M y 0e re$ 7e" =. !pto @.= i# c se of SME #" $ r)e i#"!stries

31

DSCR

=.@?.=(Mi#i%!%) #" =.&?.=(A*er )e)

I#terest co*er )e r tio

=.;9.=

sector #" ;. !pto D.= i# c se of i#fr str!ct!re pro1ects @. i# other sectors % y 0e ccepte" t $e*e$ hi)her th # ;.= s i# c se of !#its h *i#) st 0$e i#co%e #" f ster )e#er tio# of oper ti#) profits fter co%%e#ce%e#t of propose" cti*ity DSCR !#"er * rio!s sce# rios is %i#i%!% of =.E9.= The ccept 0$e $e*e$ i# 0 se c se sce# rio is prescri0e" s =.@?.=(%i#i%!%) #" =.&?.=( *er )e). Ho'e*er !#"er the sce# rios of "ecre se i# s $es price 0y 9G i#cre se i# critic $ i#p!ts 0y 9G- i#cre se i# pro1ect cost 0y 9G #" i#cre se i# oper tio# $ e7pe#"it!re 0y 9G- DSCR t %i#i%!% of =.=9.= #" *er )e of =.D?.= is prescri0e" to 0e ccepte" This r tio is # i#"ic tor of 0i$ity of the !#it to p y i#terest #" is rri*e" t 0y "i*i"i#) ,BIT 0y i#terest #" h s to 0e # $yse" i# co%0i# tio# 'ith other fi# #ci $ i#"ic tors

S'me im6'#t*,t #*ti'7 u7ed du#i,0 *,*.y7i7 '/ t)e /i,*,+i*. 7t*teme,t7 by t)e B*,-7 t' *7+e#t*i, t)e +#edit ('#t)i,e77 '/ t)e b'##'(e#7 i7 de7+#ibed *7 u,de#: LiHuidity !*ti': These r tios re $so c $$e" s Wor(i#) C pit $ R tio or Short Ter% So$*e#cy R tio. A# e#terprise %!st h *e # "e8! te WC to r!# its " y:to:" y oper tio#s. The i%port #t $i8!i"ity r tios re. Cu##e,t !*ti'. It is "efi#e" s re$ tio#ship 0et'ee# c!rre#t ssets #" c!rre#t $i 0i$ities. This r tio is %e s!re of )e#er $ $i8!i"ity #" is %ost 'i"e$y !se" to % (e the # $ysis of short ter% fi# #ci $ positio# or $i8!i"ity of fir%. It is c $c!$ te" 0y "i*i"i#) the tot $ of c!rre#t ssets 0y tot $ of c!rre#t $i 0i$ities. C! L CA1 CL Accepte" 0e#ch% r( for "eter%i#i#) s tisf ctory c!rre#t r tio is =.@@=. It % y 0e re$ 7e" !pto =.;9.= i# c se of SME sector #" !pto =.=?.= i# c se of e7port cre"it. A# i"e $ CR is ;. The r tio of ; is co#si"ere" s s fe % r)i# of so$*e#cy "!e to the f ct if the CA is re"!ce" to h $f- i.e.- = i#ste " of ;- the# $so the cre"itor 'i$$ 0e 0$e to )et their p y%e#ts f!$$. Mui+- !*ti': This r tio is $so ter%e" s Aci" Test R tio or Ai8!i"ity R tio. This r tio is scert i#e" 0y co%p ri#) the $i8!i" ssets (i.e. ssets 'hich re i%%e"i te$y co#*erti0$e i#to c sh 'itho!t %!ch $oss) to CA. It is e7presse" s. M! L LiHuid A77et7 1 Cu##e,t Li*bi.itie7 The i"e $ QR is =. The r tio is $so # i#"ic tor of short:ter% so$*e#cy of the co%p #y.

32

Net ('#-i,0 +*6it*. (N%C): The NWC is %e s!re of o'#erHs st (e or $o#) ter% $i8!i" f!#" i# the fir%. It h s c$ose re$ tio#ship 'ith c!rre#t r tio. Whe# c!rre#t r tio e8! $s = NWC is 4ero. Whe# c!rre#t r tio is %ore th # = NWC is positi*e #" *ice *ers . Ne) ti*e NWC i%p$ies th t $e#"i#) 0 #( is r!##i#) %ore th # #or% $ fi# #ci $ ris( i# respect of 0orro'er. N%C L Cu##e,t *77et7 I Cu##e,t .i*bi.itie7 NWC is so%eti%es !se" s %e s!re of fir%Hs $i8!i"ity. It is co#si"ere" th t 0et'ee# t'o fir%s- the o#e h *i#) the $ r)er NWC h s the )re ter 0i$ity to %eet its c!rre#t o0$i) tio#s.

LeAe#*0e !*ti'7:
A fir% sho!$" h *e 0oth stro#) short ter% s 'e$$ s $o#) ter% fi# #ci $ positio#. To 1!")e the $o#) ter% fi# #ci $ positio# of the fir% 2i# #ci $ Ae*er )e r tios re c $c!$ te". 2o$$o'i#) r tios re co%%o#$y !se" to # $y4e fi# #ci $ $e*er )e.

&ebt EHuity !*ti'.

De0t E8!ity r tio is c $c!$ te" to %e s!re the re$ ti*e c$ i%s of o!tsi"ers #" the o'#ers (i.e. sh reho$"ers) ) i#st the fir%Hs ssets. This r tio i#"ic tes the re$ tio#ship 0et'ee# the e7ter# $ e8!ities or the o!tsi"erHs f!#"s #" the i#ter# $ e8!ities or the sh reho$"ers f!#"s. It is c $c!$ te" s &ebt EHuity #*ti'L &ebt1EHuity It is re$ 7e" !pto @.= i# c se of SME #" $ r)e i#"!stries sector #" !pto D.= i# c se of i#fr str!ct!re pro1ects.

TOL1TN%:
This is $so c $$e" )e ri#) r tio. This r tio i#"ic tes $e*er )e to the o'#e" f!#"s of the fir%. Hi)her )e ri#) r tio i#"ic te" th t the fir% is %ore $e*er )e" to the e7ter# $ so!rces of f!#"s #" i# t!r# 'i$$ e7pose it to hi)h "e0t cost.

I,te#e7t C'Ae#*0e !*ti':

It is !se" to test the fir%Hs "e0t ser*ici#) c p city. A hi)h i#terest co*er )e r tio %e #s th t the fir% c # e si$y %eet its i#terest e*e# if e r#i#)s 0efore i#terest #" t 7es s!ffer co#si"er 0$e "ec$i#e. It is c $c!$ te" s I,te#e7t C'Ae#*0eLE*#,i,07 be/'#e i,te#e7t *,d t*?1i,te#e7t

&ebt 7e#Ai+e +'Ae#*0e #*ti' (&SC!):

DSCR is the r tio of c sh * i$ 0$e for "e0t ser*ici#) to i#terest- pri#cip$e $o # p y%e#ts. It is pop!$ r 0e#ch% r( !se" i# the %e s!re%e#t of # e#tityHs 0i$ity to pro"!ce e#o!)h c sh to co*er its "e0t p y%e#ts. The hi)her the r tio- the e sier is to rep y $o #. &SC! L EBIT N &e6#e+i*ti',N 6#i,+i6*. #e6*yme,t ', e?i7ti,0 & 6#'6'7ed .'*,7 $#i,+i6*. #e6*yme,t7 Ni,te#e7t 6*yme,t7 Typic $$y %ost co%%erci $ 0 #(s re8!ire the r tio of =.=9:=.@9 ti%es (#et oper ti#) i#co%e <A##! $ "e0t ser*ice) to e#s!re c sh f$o's is s!fficie#t to co*er $o # p y%e#ts o# # o#)oi#) 0 sis. I# 5+( B #( the ccept 0$e $e*e$s i# 0 se c se sce# rio re prescri0e" s =.@?.=(Mi#i%!%) #" =.&?.=(A*er )e). Ho'e*er !#"er the sce# rios of "ecre se i# s $es

33

price 0y 9G- i#cre se i# critic $ i#p!ts 0y 9G- i#cre se i# pro1ect cost 0y 9G #" i#cre se i# oper tio# $ e7pe#"it!re 0y 9G- DSCR t %i#i%!% of =.=9.= #" *er )e of =.D?.= is prescri0e" to 0e ccepte".

$#'/it*bi.ity !*ti'7:
,rofit 0i$ity is the i#"ic tio# of the efficie#cy 'ith 'hich the oper tio#s of the 0!si#ess re c rrie" o#. B #(ers- fi# #ci $ i#stit!tio#s #" other cre"itors $oo( t profit 0i$ity r tios s # i#"ic tor 'hether or #ot the fir% e r# s!st i# 0i$ity %ore th # it p ys i#terest for the !se of 0orro'e" fo!#" + 'hether the !$ti% te rep y%e#t of their "e0t ppe rs re so# 0$y cert i#. O'#ers re i#tereste" to (#o' the profit 0i$ity s it i#"ic tes the ret!r#- 'hich they c # )et o# their i#*est%e#t. The fo$$o'i#) re i%port #t profit 0i$ity r tios.

G#'77 $#'/it M*#0i,.

3ross profit % r)i# ref$ects the efficie#cy 'ith 'hich the % # )e%e#t pro"!ces e ch !#it of pro"!ct. It sho's the perce#t )e of )ross profit to s $es G#'77 $#'/it m*#0i,LG#'77 $#'/it1S*.e7 More the )ross profit % r)i# %ore is the efficie#t pro"!ctio# #" 0etter is the oper ti#) perfor% #ce.

Net $#'/it M*#0i,:

Net profit is o0t i#e" 'he# oper ti#) e7pe#ses- i#terest #" t 7es re s!0tr cte" fro% )ross profit. It is c $c!$ te" s. Net 6#'/it m*#0i,L $#'/it */te# t*?1 7*.e7 Net profit % r)i# sho's the perce#t )e of #et profit to s $es. This r tio ref$ects the efficie#cy of % #!f ct!ri#)- "%i#istr tio#- #" se$$i#) the pro"!cts

OAe#*.. 6#'/it*bi.ity #*ti':

It is $so c $$e" /Ret!r# o# I#*est%e#tB (ROI) or Ret!r# o# C pit $ E%p$oye" (ROCE). It i#"ic tes the perce#t )e of the tot $ c pit $ e%p$oye" i# the 0!si#ess. It is c $c!$ te" s !OI L O6e#*ti,0 $#'/it 1 C*6it*. Em6.'yee O 9== The ROI i#*este" is co#cept th t %e s!res the profit- 'hich fir% e r#s o# i#*esti#) !#it of c pit $. The ret!r# o# c pit $ e%p$oy $so sho's 'hether the co%p #yHs 0orro'i#) po$icy ' s eco#o%ic $$y + 'hether the c pit $ h " 0ee# e%p$oye" fr!itf!$$y.

E*#,i,07 6e# 7)*#e (E5$5S5):

I# or"er to *oi" co#f!sio# o# cco!#t of the * rie" %e #i#) of the ter% c pit $ e%p$oye"the o*er $$ profit 0i$ity c # $so 0e 1!")e" 0y c $c!$ ti#) e r#i#)s per sh re 'ith the he$p of the fo$$o'i#) for%!$ . E5$5SL $AT & $#e/e#e,+e diAide,d 1 N'5 O/ EHuity S)*#e7 The E.,.S. he$ps i# "eter%i#i#) the % r(et price of the e8!ity sh res of the co%p #y. It $so he$ps i# esti% ti#) the co%p #yHs c p city to its e8!ity sh reho$"er.

$#i+e e*#,i,07 #*ti' ($5E5!5):

This r tio i#"ic tes the #!%0er of ti%es the e r#i#) per sh re is co*ere" 0y its % r(et price. This is c $c!$ te" ccor"i#) to the fo$$o'i#) for%!$ . $5E5! LM*#-et 6#i+e 6e# eHuity 7)*#e 1 E*#,i,0 6e# 7)*#e It he$ps the i#*estor i# "eci"i#) 'hether to 0!y or #ot- the sh res of co%p #y t p rtic!$ r % r(et price.

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!ISK ANAL3SIS:
A# $ysis of fi# #ci $ st te%e#ts i#c$!"i#) r tio # $ysis is fo$$o'e" 0y the ris( # $ysis of the s i" 0orro'er 0y the 0 #(s to scert i# the ris( i#*o$*e%e#t i# )r #ti#) $o # to the 0orro'er. U#"er Ris( # $ysis pro%oterHs e7perie#ce- 0i$ity of the pro%oters to i#f!se the re8!ire" e8!ity- % r(eti#) rr #)e%e#ts #" f!t!re fi# #ci $s re t (e# i#to co#si"er tio#. !ISK Ris( % y 0e "efi#e" s !#cert i#ties res!$ti#) i# "*erse o!tco%e- "*erse i# re$ tio# to p$ ##e" o01ecti*e or e7pect tio#s. U#cert i#ties ssoci te" 'ith ris( e$e%e#ts i%p ct the #et c sh f$o' of #y 0!si#ess or i#*est%e#t. U#"er the i%p ct of !#cert i#ties- * ri tio#s i# #et c sh f$o' t (e p$ ce. This co!$" 0e f *o!r 0$e s 'e$$ s !#f *o!r 0$e. The possi0$e !#f *o!r 0$e i%p ct is the RIS6 of the 0!si#ess. B*,-i,0 #i7-7: The % 1or 0 #(i#) ris(s re s !#"er. =. &e/*u.t 1 C#edit !i7-: Cre"it ris( is "efi#e" s the pro0 0i$ity of $osses ssoci te" 'ith re"!ctio# of cre"it 8! $ity of 0orro'er. I# 0 #(s- $osses rise "!e to i# 0i$ity or !#'i$$i#)#ess of c!sto%er to %eet co%%it%e#ts i# re$ tio# to $e#"i#). 85 M*#-et !i7It is the ris(s th t i#*o$*es the possi0i$ity of $osses ssoci te" i#- o# 0 $ #ce sheet #" off 0 $ #ce sheet ite%s "!e to %o*e%e#ts i# the % r(et prices Ty6e7 '/ M*#-et !i7- i,+.ude7:I *5 I,te#e7t #*te #i7-: It is the e7pos!re of 0 #(s fi# #ci $ co#"itio# to "*erse %o*e%e#ts i# i#terest r tes. IRR refers to pote#ti $ i%p ct o# Net I#terest I#co%e or Net I#terest M r)i# or M r(et * $!e of E8!ity c !se" 0y !#e7pecte" ch #)es i# the % r(et. b5 LiHuidity !i7-: The $i8!i"ity ris( rises fro% f!#"i#) of $o#):ter% ssets 0y short:ter% $i 0i$ities. +5 G*6 '# Mi7m*t+) !i7-: A ) p or %is% tch ris( rises fro% ho$"i#) ssets #" $i 0i$ities #" off 0 $ #ce sheet ite%s 'ith "iffere#t pri#cip $ %o!#ts- % t!rity. d5 B*7i7 #i7-: The ris( th t the i#terest r te of "iffere#t ssets- $i 0i$ities #" off 0 $ #ce sheet ite%s % y ch #)e i# "iffere#t % )#it!"e is ter%e" s 0 sis ris(. "5 O6e#*ti',*. #i7-: Oper tio# $ ris( is "efi#e" s the ris( of $oss res!$ti#) fro% i# "e8! te or f i$e" i#ter# $ processes- peop$e- syste%s or e7ter# $ e*e#ts.

35

Ty6e7 '/ '6e#*ti',*. !i7-: *5 T#*,7*+ti', !i7-: It is the ris( risi#) fro% fr !"- 0oth I#ter# $ #" e7ter# $- f i$e" 0!si#ess processes #" the i# 0i$ity to % i#t i# 0!si#ess co#ti#!ity. b5 C'm6.i*,+e #i7-: Co%p$i #ce ris( is the ris( of $e) $ or re)!$ tory s #ctio#- fi# #ci $ $oss or rep!t tio# $oss th t 0 #( % y s!ffer s res!$t of its f i$!re to co%p$y. >5 C',+e,t#*ti', !i7-: If the $o # portfo$io is #ot "i*ersifie" f!$$y th t is to s y th t it h s hi)her 'ei)ht i# respect of 0orro'er or )eo)r phy or i#"!stry etc. the portfo$io )ets co#ce#tr tio# ris(. E5 Sy7tem*ti+ '# I,t#i,7i+ !i7-: If portfo$io is "i*ersifie" f!$$y i.e.- "i*ersifie" cross )eo)r phy- i#"!stry- 0orro'ers- etc the# the portfo$io ris( is re"!ce" to %i#i%!% $e*e$. This %i#i%!% $e*e$ correspo#"s to the ris(s i# the eco#o%y i# 'hich it is oper ti#). This is c $$e" i#tri#sic or syste% tic ris(. B5 C'u,t#y #i7-: This is $so type of cre"it ris( #" is re$ te" to #o#:perfor% #ce of 0orro'er or co!#ter p rty rises "!e to co#str i#ts or restrictio#s i%pose" 0y co!#try. Here #o#:perfor% #ce is e7ter# $ f ctors o# 'hich the 0orro'er h s #o co#tro$. Si#ce ris( rises fro% !#cert i#ties ssoci te" 'ith the ris( e$e%e#t- ris( re"!ctio# is chie*e" 0y "opti#) str te)ies th t e$i%i# te or re"!ce the !#cert i#ties ssoci te" 'ith the ris( e$e%e#t. This is c $$e" ris( %iti) tio#. S%OT A,*.y7i7: S'ot # $ysis is !se" to !#"erst #" the or) #is tio#s i#ter# $ #" e7ter# $ e#*iro#%e#ts. It is # cro#y% for Stre#)ths- We (#esses- Opport!#ities #" Thre ts. Thro!)h s!ch # # $ysis the stre#)ths #" 'e (#esses e7isti#) 'ith # or) #is tio# c # 0e % tche" 'ith the opport!#ities #" thre ts oper ti#) i# the e#*iro#%e#t so th t # effecti*e str te)y c # 0e for%!$ te". A# effecti*e or) #is tio# $ str te)y therefore is o#e th t c pit $ise o# the opport!#ities thro!)h the !se of stre#)ths #" #e!tr $ises the thre ts 0y %i#i%isi#) the i%p ct of 'e (#esses to chie*e pre"eter%i#e" o01ecti*es. SENSITI4IT3 A,*.y7i7: Se#siti*ity # $ysis $$o's to see the i%p ct of the ch #)e i# the 0eh *io!r of critic $ * ri 0$es o# the pro1ect profit 0i$ity. It is ct! $$y ' y of # $ysi#) ch #)e i# the pro1ects N,L (#et prese#t * $!e) for )i*e# ch #)e i# o#e of the * ri 0$es. It i#"ic tes ho' se#siti*e pro1ects N,L is to ch #)es i# p rtic!$ r * ri 0$es. The %ore se#siti*e the N,L- the %ore critic $ is the * ri 0$e.

36

&e6.'yme,t '/ !i7- S+'#e# A66.i+*ti', *,d C#edit !i7- !*ti,0 F#*me('#- i, J&K B*,-:
A# ppr isi#) officer t A"* #ce #" sset p$ ##i#)( A+A,) "ep rt%e#t- 5 + 6 0 #( !se IMACS soft' re too$ to scert i# the cre"it ris( i#*o$*e" i# the cre"it fi# #ci#) #" $so scert i# to price the 0orro'er 0 se" o# the ris( i#*o$*e"

B!IEF ABOUT IMACS SOFT%A!E

B #( h s 0ee# 'or(i#) o# se*er $ i#iti ti*es to stre %$i#e #" !p)r "e the e7isti#) Ris( M # )e%e#t Syste%s to 0ri#) the% i# t!#e 'ith the c!rre#t Re)!$ tory )!i"e$i#es (e#!#ci te" i# the RBI #" B se$:II )!i" #ce #otes) #" pre* i$i#) I#ter# tio# $ Best ,r ctices i# the r pi"$y e*o$*i#) "o% i# of I#te)r te" Ris( M # )e%e#t. I#ter# $ R ti#) of Borro'er cco!#ts is o#e of the processes for effecti*e Cre"it Ris( i"e#tific tio# #" i# this co#te7t 5+6 0 #( h s "e*e$ope" too$ to r te the cco!#t o# # o#)oi#) 0 sis. !i7- S+'#e# A66.i+*ti',: I# or"er to 0ri#) 0o!t 8! $it ti*e ch #)e i# the e7isti#) cre"it processes i# the 0 #(- the Ris( Scorer App$ic tio# h s 0ee# "esi)#e" to he$p the 0 #( i# !to% ti#) the e#tire cre"it process ri)ht fro% Ao # ori)i# tio# to its fi# $ s #ctio# i#c$!"i#) Borro'er Se$ectio#- Cre"it ,ropos $ Cre tio# #" A# $ysis. E ch propos $ fo$$o's 'or(f$o' syste% 'ith pre"efi#e" 0!si#ess r!$es for its # $ysis- r ti#) #" fi# $ s #ctio#. The syste% he$ps the 0 #( i# se$ecti#) ri)ht (i#" of 0orro'ers #" % # )i#) the portfo$io 0oth t %icro (0r #ch) $e*e$ #" % cro (B #() $e*e$. !i7- S+'#e# A66.i+*ti', *7 t)e Bu7i,e77 $#'+e77 T#*,7/'#m*ti', t''.: Ris( Scorer pp$ic tio# h s 0ee# "esi)#e" to ct s the !to% te" cre"it processi#) syste% #" rep$ ce the e7isti#) % #! $ syste% of cre"it processes i# the 0 #(. The Ris( Scorer pp$ic tio# perfor%s fo$$o'i#) f!#ctio#s. St #" r"i4e the 0orro'er se$ectio#- cre"it processi#) #" ppro* $ syste% cross the 0 #( ,ro*i"e re $ ti%e #" effecti*e "ecisio# s!pport syste% i# the for% of r ti#)s #" cco%p #ie" $i(e$y pro0 0i$ity of "ef !$t. Ce#tr $i4e the e#tire 0orro'er " t 0 se of the 0 #(. !i7- !*ti,0 M'de.7: Ris( R ti#) Mo"e$s re the too$s to score 0orro'er o# si)#ific #t 8! #tit ti*e (2i# #ci $ " t ) #" 8! $it ti*e (No#:2i# #ci $ " t ) p r %eters to ssess its $i(e$ihoo" of $oss (,ro0 0i$ity of Def !$t). 5+6 B #( h s "e*ise" Ris(:R ti#) Mo"e$s for fi*e 0ro " $e#"i#) se)%e#ts of. =. ;. @. D. A r)e Corpor te SME SBS Ho!si#)

37

9. ,erso# $ I# ""itio#- there re three ""itio# $ r ti#) %o"e$s for I#fr str!ct!re- NB2C #" ,ro1ect 2i# #ce. I#f ct- ,ro1ect 2i# #ce %o"!$e is the s!0 %o"!$e of A r)e Corpor te #" SME R ti#) Mo"e$. Defi#itio# of Ae#"i#) Se)%e#ts #" pp$ic 0i$ity of s!it 0$e R ti#) Mo"e$. L*#0e C'#6'#*te. A r)e corpor te e7pos!res 'o!$" 0e those 'here ))re) te e7pos!re of the 0 #( to 0orro'er is %ore th # Rs. 9.?? Crores (A))re) te e7pos!re %e #s 2!#" #" No#:f!#" 0 se" $i%its or O!tst #"i#) 0 $ #ces 'hiche*er is hi)her) #" < or 'here *er )e ##! $ t!r#o*er of the co%p #y < co#cer# for prece"i#) three ye rs is Rs. 9?.?? Crores #" %ore. I# c se of co%p #ies < co#cer#s 'ith #o fi# #ci $ history three ye rs pro1ecte" t!r#o*er sh $$ 0e t (e# #" i# c se of co%p #ies 'hich re yet to co%p$ete three ye rs- 0oth ct! $ #" pro1ecte" t!r#o*er sh $$ 0e co#si"ere". A r)e Corpor te r ti#) %o"e$ 'o!$" 0e !se" for 0orro'er r ti#) for the 2!#" < No# 2!#" 0 se" 'or(i#) c pit $ #" < or other short ter% $e#"i#) to $ r)e Corpor te Se)%e#t SME (Sm*.. *,d Medium E,te#6#i7e7): These re % #!f ct!ri#) co#cer#s < co%p #ies 'here ))re) te e7pos!re of the 0 #( to 0orro'er is $ess th # Rs. 9.?? Crores (A))re) te e7pos!re %e #s 2!#" #" No#:f!#" 0 se" $i%its or O!tst #"i#) 0 $ #ces 'hiche*er is hi)her) #" < or 'here *er )e ##! $ t!r#o*er of the co%p #y < co#cer# for prece"i#) three ye rs is $ess th # Rs. 9?.?? Crores. SME r ti#) %o"e$ 'o!$" 0e !se" for 0orro'er r ti#) for the 2!#" #" No#:2!#" 0 se" 'or(i#) c pit $ #" < or Short ter% e7pos!re to SME $e#"i#) se)%e#t. SBS (Sm*.. Bu7i,e77 i, T#*de *,d Se#Ai+e7): These re co#cer#s < co%p #ies i# the tr "e #" ser*ices 0!si#ess se)%e#t 'here ))re) te e7pos!re of the 0 #( is $ess th # Rs. 9.?? Crores (A))re) te e7pos!re %e #s 2!#" #" No#:f!#" 0 se" $i%its or O!tst #"i#) 0 $ #ces 'hiche*er is hi)her) #" < or 'here *er )e ##! $ t!r#o*er of the co%p #y < co#cer# for prece"i#) three ye rs is $ess th # Rs. 9?.?? Crores. SBS r ti#) %o"e$ 'o!$" 0e !se" for 0orro'er r ti#) i# c se of 2!#" #" No#:2!#" 0 se" 'or(i#) c pit $ #" Ter% $e#"i#) e7pos!re to SBS $e#"i#) se)%e#t. $#'@e+t Fi,*,+e: ,ro1ect 2i# #ce s!0:%o"!$e sits o# top of the A r)e Corpor te #" SME r ti#) %o"e$s to he$p the 0 #( i# r ti#) the 0orro'er 'here they ' #t to fi# #ce so%e pro1ect or )i*e "* #ce i# the for% of %e"i!% #" $o#) ter% $o #s for cre tio# of specific t #)i0$e ssets. Th!s- ,ro1ect 2i# #ce Mo"!$e sh $$ 0e !se" i# c se of A r)e Corpor te #" SME 0orro'ers 'ho !#"ert (e pro1ects of #y sort- #y si4e. The ,ro1ect Ris( r ti#) Mo"!$e )e#er tes sep r te ,ro1ect Ris( Score- 'hich sh $$ %o"ify the 0 sic 0orro'er Ris( Score for ,ro1ect cti*ities #" )i*e fi# $ ris( )r "e. I,/#*7t#u+tu#e: A$$ i#fr str!ct!re e7pos!res $i(e Hi)h' ys- Airports- Bri")es- #" Te$eco% etc. e7ec!te" 0y ' y of S,L (Speci $ ,!rpose Lehic$e) or #e'$y cre te" co%p #y ('ith #o reco!rse to the B $ #ce sheet of the ,ro%oter co%p #ies) sh $$ 0e r te" 'ith the he$p of I#fr str!ct!re Mo"e$. I# c se of pro1ects e7ec!te" 0y e7isti#) co%p #ies 'ith pre*io!s fi# #ci $ history- AC Mo"e$ 'ith ,ro1ect Ris( Score S!0 %o"!$e sh $$ 0e !se".

38

!*,0e '/ !i7- G#*de7: The 5+6 0 #( h s !se" r #)e of =? ris( )r "es st rti#) fro% ris( )r "e = "e#ote" s 56B =(p$!s the $e#"i#) %o"e$ cro#y% $i(e AC for A r)e Corpor te- SME for S% $$ #" Me"i!% E#terprises- EC (E%er)i#) Corpor te) for I#fr str!ct!re #" $i(e'ise) to 56B =?. Th!s $ r)e corpor te Mo"e$ 'i$$ )e#er te r ti#) )r "es of 56BAC=- AC; OO.-. AC=?. Si%i$ r$y SME Mo"e$ sh $$ )e#er te o!tp!t i# the for% of 56BSME =OOOSME=? #" so o#. Ris( )r "e = "e#otes the 0orro'ers h *i#) hi)hest s fety #" cre"it 8! $ity (Co#se8!e#t$y $o'est ,D) 'here s 56B =? represe#ts the 0orro'ers 'ho re %ost $i(e$y to "ef !$t o*er o#e ye r hori4o#. The ,D of s!ch 0orro'ers sh $$ 0e hi)hest. !ISK SCO!ING $A!AMETE!S Fi,*,+i*. !i7- S+'#i,0 $*#*mete#7: 3ro'th (S $es )ro'th o*er the prece"i#) t'o ye rs- S $es )ro'th recor"e" i# the $ test ye r sh $$ h *e %ore 'ei)ht )e) ,rofit 0i$ity c $c!$ te" s ROCE (Ret!r# o# C pit $ E%p$oye") Co*er )e (This is the Oper ti#) C sh 2$o's o*er tot $ I#terest. Oper ti#) C sh 2$o's is the Net ,rofit p$!s Depreci tio# "1!ste" for ch #)e i# Net Wor(i#) C pit $) I,du7t#y !i7- S+'#i,0 $*#*mete#7: Cyc$ic $ity of the i#"!stry Tech#o$o)y "epe#"e#ce E#*iro#%e#t $ i%p ct De% #":s!pp$y sit! tio#

Bu7i,e77 !i7- S+'#i,0 $*#*mete#7:

C!sto%er 8! $ity #" co#ce#tr tio# S!pp$ier re$i 0i$ity #" co#ce#tr tio# Co%petitio# i%p ct o# 3, % r)i# I#"!stri $<e%p$oyee re$ tio#s

M*,*0eme,t !i7- S+'#i,0 $*#*mete#7:

I#te)rity B!si#ess Co%%it%e#t Cre"it tr c( recor" 3e#er $ rep!t tio# Co%pete#ce B!si#ess E7perie#ce A0i$ity to r ise f!#"s 2i# #ci $ stre#)th<0!r"e# : "!e to )ro!p I#ter# $ Co#tro$ S!ccessio# ,$ ##i#) I#tr :)ro!p co#f$icts $#'@e+t !i7- S+'#e $*#*mete#7: (Both for AC #" SME Mo"e$s) St t!s of ,ro1ect c$e r #ces

39

I#fr str!ct!re * i$ 0i$ity Ae) $<re)!$ tory e#*iro#%e#t M r(et for pro1ect o!tp!t A0i$ity to h #"$e pro1ects i# h #" 2orce % 1e!re ris( ,ro1ect De0t:E8!ity De0t rep y%e#t perio" Se#siti*ity # $ysis

The ppr isi#) officer p!t !"ite" fi# #ci $ " t #" #o# fi# #ci $ " te i# IMACS soft' re. The fi# #ci $ " t i#c$!"es 0 $ #ce sheet- profit #" $oss cco!#t of the 0orro'er. After p!tti#) !"ite" fi# #ci $ " t - the ppr isi#) officer- p!t #o# fi# #ci $ " t c $$e" S!01ecti*e p r %eters. S!01ecti*e p r %eters re "iffere#t for Differe#t %o"e$s i.e. SME- SBS- AC or IN2RA h s to p!t "iffere#t s!01ecti*e p r %eters. The "et i$s of s!01ecti*e p r %eters for the i#fr %o"e$ is )i*e# 0rief$y s 0e$o'.:

SUBJECTI4E $A!AMETE!S CONFIGU!ATION FO! INF!AST!UCTU!E1 $!OJECT FINANCE MO&EL

!EGULATO!3, $OLITICAL AN& LEGAL !ISK ASSESSMENT: Re)!$ tory E#*iro#%e#t De%erits #" $ice#ces T 7 #" fisc $ i#ce#ti*es ,o$itic $ st 0i$ity E#*iro#%e#t $ i%p ct $!OJECT STATUS: ,ro1ect str!ct!re Ter% of )ree%e#t Det i$e" pro1ect fe si0i$ity report St t!s of pro1ect c$e r #ces S$ONSO! !ISK ASSESSMENT. 2i# #ci $ stre#)th of pro%oters Co%pete#ce of se#ior % # )e%e#t i# the sector Co%pete#ce of se#ior % # )e%e#t i# pro1ect e7ec!tio# Co%pete#ce of the pro1ect % # )e%e#t te % i# the sector

40

 Co%pete#ce of the pro1ect % # )e%e#t te % i# the pro1ect e7ec!tio# B #(i#) history CONCESSION AG!EEMENT !ISK ASSESSMENT To$$ prici#) Re)!$ tory ppro* $s To$$ ris(s TEC NOLOG3 !ISK ASSESSMENT Co#te%por ri#ess of tech#o$o)y Tech#o$o)y R Re)io# $ re$e* #ce Tech#o$o)y I Appropri te#ess of sc $e ,erfor% #ce )! r #tees offere" 0y the tech#o$o)y s!pp$ier CONST!UCTION !ISK ASSESSMENT: Se$ectio# proce"!re of co#tr ctors Co#tr ctors A0i$ityR sector Co#tr ctors A0i$ityR tech#o$o)y A #"+ $ 0o!r * i$ 0i$ity Tr #sport tio# i#fr str!ct!res Co#ti#)e#cies MA!KET !ISK ASSESSMENT Tr ffic Assess%e#t A$ter# te so!rce of re*e#!e De% #" s!pp$y Sit! tio# Cre"it 'orthi#ess of the co#s!%er Co%petitio# A# $ysis

SU$$L3 !ISK ASSESSMENT I"e#tific tio# of s!pp$ier

41

 Q! #tity of s!pp$y I#p!t price of s!pp$y S!pp$ier tr c( recor" $!OJECT COST AN& 4IABILIT3 2i# #ci $ str!ct!re of $o # ,ro1ecte" "e0t ser*ice co*er )e r tio ,rice of e8!ip%e#t De0t e8!ity r tio

Example ! W r"in# Capital Finan$in# %y t&e 'an"

Name of the branch

M.A. ROAD LAL CHOWK

Date of the receipt 29/ !/2 "2 of the proposal / last information Nat#re of the proposal '%istin& ban(in& arran&ement *ropose+ ban(in& arran&ement Acti,it)ector

Rene$al / enhancement of e%istin& facilities )ole ban(in& arran&ement )ole ban(in& arran&ement Man#fact#rer . e%port of carpets Man#fact#rin&

*riorit- classification *riorit- sector

42

43

Particulars of the existing facilities sanctioned by our bank

/-pe of facilit*CL *)L

Limit

0O) as on

Mar&in

/amount in lacs0

Se$(rities: Primary:
a) Hypothecation of all stocks, stocks and spares and book debts. b) Pledge of original prime bank letters of credit/ confirmed orders of financially sound overseas buyers. c) Title to goods and proceeds of exports bills. d) E ! "s cover under E #$ %&T'P ) / E #$ %&T'P() policies.

Collateral:

a) )ortgage of lease deed no. *+* area +, $ighas -. $is/a -0 1hur %including cost of building) situated at village 2ayan Taluka hathur $hadohi valued at .34..- lacs as per valuation enclosed. b) 5nder sale deed no. 0.-, 0.* dated +6.+..*+++ area +- $igha -, $is/a -4 1hur standing in the name of (mt. 7asreen $anu &/8 )r. 9affar #:bal ;nsari and sale deed no. *- mi< area +bigha +. bis/a +- dhur standing in the name of Ha=i ;ddul >alam, 9affar #:bal ? 9affar Hussain ;nsari all (/o @t. ;b. Hamid ;nsari situated at )ehboobpur $hadohi valued at -+..4. lacs. 2imit 3ar in

#y$e of facility 44

4(2 412 (( /amount in lacs0

Se$(rities: Primary:
e) Hypothecation of all stocks, stocks and spares and book debts. f) Pledge of original prime bank letters of credit/ confirmed orders of financially sound overseas buyers. g) Title to goods and proceeds of exports bills. h) E ! "s cover under E #$ %&T'P ) / E #$ %&T'P() policies.

Collateral:

c) )ortgage of lease deed no. *+* area +, $ighas -. $is/a -0 1hur %including cost of building) situated at village 2ayan Taluka hathur $hadohi valued at .34..- lacs as per valuation enclosed. d) 5nder sale deed no. 0.-, 0.* dated +6.+..*+++ area +- $igha -, $is/a -4 1hur standing in the name of (mt. 7asreen $anu &/8 )r. 9affar #:bal ;nsari and sale deed no. *- mi< area +bigha +. bis/a +- dhur standing in the name of Ha=i ;ddul >alam, 9affar #:bal ? 9affar Hussain ;nsari all (/o @t. ;b. Hamid ;nsari situated at )ehboobpur $hadohi valued at -+..4. lacs.

45

-orrower Information
.ddress of 5ead6 re istered office Rayan S(rai)an R ad '&ad &i **+,-+ Fa$t ry at S(ria)an R ad '&ad &i -/0+-0*--* .ddress of the .dministrati)e office Rayan S(rai)an R ad '&ad &i **+,-+ Pri.ate Limited C mpany

.ddress of the ma+or units

(onstitution

7ate of constitution incor$oration

7ate of commencement of business

-/0+-0*--*

4eriod of dealin with the ban'

Sin$e *---

4articulars of 4artners
Name 3r" 8affar 5ussain .nsari 3r" .bdul :alam .nsari 3r" 8affar I*bal .nsari 3s" ;ashi'a .nsari 3s" 1hma .fro! S&are H ldin# 33"939 31"939 29"749 2"199 2"219

(a$ital 1tructure of the a$$licant com$any /amount in lacs0

<*uity (a$ital 1004"20

Internal rating applicable in case of Applicant Borrower is enjoying credit facilities from the Bank Borrower Risk Score Details Firm Name : M/S XYZ Ltd. Bhadohi Utter Pradesh
46

Model Name: Small a d Medi!m " ter#rise

=inancial ;is' 1core 3ana ement ;is' 1core -usiness ;is' 1core Industry ;is' 1core -asic -orrower ;is' 1core 4ro+ect ;is' 1core -orrower ;is' 1core /with $ro+ect0 (onduct of .ccount ;is' 1core =inal ;is' >rade 4robability of 7efault 5"44 4"00 1"50 4"00 4"08 1"00 5"08 2"00 ?:--13<4 /4"410 6"379

.s $er our ban's ris' 3ana ement 3odule& the firm has ot the final ris' rade of ?:-13<4& which en)isa es that the firm carries a low ris' of default" %ther related information @hether name of the .$$licant -orrower& its $ro$rietor6 $artners6 directors is Ao a$$earin in caution6 defaulter list of ;-I6 (I-I26 <(>(" @hether $ro$rietor6 any of the $artners6 directors of the .$$licant -orrower firm Ao is a director or a s$ecified near relation of a director of a ban'in com$any" @hether $ro$rietor6 any of the $artners6 directors of the .$$licant -orrower firm Ao is a director or a s$ecified near relation of any 1enior officer of ran' of 1cale IB and abo)e of the -an'" -an'Cs e,$osure to the rou$ concerns6 associate concerns includin the facilities a)ailed by the $ro$rietor6 $artners Aame of the indi)idual6 firm6 4articulars 2imit >rou$ .$$licant -orrower DE8 ltd" /.$$licant -orrower0 4(2 412 200"00 150"00

Back$ro! d %& 'he (##lica t Borrower

47

36s DE8 2td -hadohi formerly 'nown as <astern s$innin F te,tile 3ills 4)t 2td is a $ri)ate 2td com$any incor$orated in year 2000 by its directors 3r" 8affer 5ussain .nsari& 3r" 8affer I*bal .nsari and 5a+i .bdul :alam .nsari who belon to the same family are brothers in relation& the com$any is en a ed in the business of manufacturin and e,$ort of car$ets" #he com$any is )ery re$uted one in the area and the $romoters are ha)in ood e,$erience in the business and e,$orts of the car$et and also en+oy satisfactory mar'et re$utation"

Back$ro! d %& 'he Promoters

.ll the three $romoters of the com$any are e,$erienced and ener etic business man ha)in ood e,$erience in the in the field of the e,$ort of car$ets" #he com$any is en+oyin a re ate e,$ort facility of 350"00 lacs from the business unit"

Borrowi $ P!r#ose
#he com$any is ha)in a handsome amount of e,$ort orders in hand and is e,$ectin the same in the ne,t financial year for the timely com$letion of e,$ort orders the com$any needs e,tra money to e,ecute these orders"

Details o& Site ) s#ectio

#he factory is situated at ;ayan 1uraiwan -hadohi and was ins$ected by the -ranch head and =ore, in char e on 02"12"2011" #he com$any 'ee$s com$lete record of in)entories and day to day business& the stoc's were found in the factory and were found u$dated"

Finan$ial Analysis
;s in lacs Bala ce Sheet S#read as o *+ march ,-+, STATEMENT 1NFORMAT1ON A(dited 4;%=I# F 2%11 1#.#<3<A# >ross sales6 ;ecei$ts <,$ort 1ales Increase in 9 terms o)er last year %ther %$eratin Income #otal %$eratin Income (ost of 1ales 130"97 1960"77 292"73 2625"09 104"10 1282"21 1829"80 2332"36 1178"11 31"03"2010 A(dited 31"03"2011 Estimated 31"03"2012

48

i0 ;aw materials used in the $rocess of 3anufacture ii0 4ower F =uel iii0 %ther 3f " <,$enses i)0 7e$reciation (ost of 4roduction .ddG %$enin 1toc' of finished oods 1ub #otal .ddG 4urchase of finished oods 1ub #otal 7eductG (losin stoc' of finished oods #otal (ost of 1ales /(ost of >oods sold6 (ost of 1ales0 1ellin & >eneral F .dmin <,$enses 1ub #otal %4-I# Interest %$eratin 4rofit after Interest 4-#6 2%11 4ro)ision for #a,es Aet 4rofit6 2oss

1726"42

891"18

499"64

53"85 39"88 1784"71 26"01 1810"72

1383"76 49"77 2299"98 46"80 2346"78

774"28 36"90 1118"05 22"18 1140"23

1810"72 46"80 1763"92 169"70 1933"62 27"15 30"27 -3"12 22 10"21 11"79

2346"78 44"08 2302"7 136"06 2438"76 186"33 58"16 128"17 98"47 38"42 60"05

1140"23 41"07 1099"16 116"80 1215"96 66"25 17"97 48"28 86"99 86"99

49

a0 7rawin s made by $ro$"6 $artners durin the year b0 2oss brou ht forward from $re)ious year 1ub #otal /aHb0 ;etained 4rofits ;etained 4rofit6 Aet 4rofit /90 -alance 1heet

C(rrent lia%ilities
1hort term borrowin s from -an's /includin bills $urchased 6 discounted and e,cess borrowin $laced on re$ayment basis0 /i0 =rom .$$licant -an' 210 /ii0 =rom other -an's 210 415"74 259"17 404"62 257"75 439"53

259"17

257"75

." 1ub #otal 1undry (reditors /#rade0 4ro)ision for #a,ation %ther (urrent liabilities F $ro)ision /due within one year0 -" 1ub #otal #otal (urrent 2iabilities /.H-0 #erm 2iabilities #otal #erm 2iabilities #otal %utside 2iabilities

77"61 493"35 703"35 75"69 75"69 779"04

135"13 539"75 798"92 43"63 43"63 842"55

194"65 634"18 891"93 15"12 15"12 907"05

50

Aet @orth <*uity (a$ital 1ur$lus /H0 or 7eficit /-0 in 4F2 a6c #otal Aet @orth 7eferred #a, liability #otal 2iabilities .ssets 1231"4 1339"12 1529"36 452"37 496"57 622"31 452"37 496"57 622"31

C(rrent Assets
(ash F -an' -alances In)estments /other than lon term in)estments0 ;ecei)ables other than deferred F e,$orts /includin bills discounted by ban's0 /ii0 <,$ort recei)ables includin 273"97 bills $urchased6 discounted by ban's In)entory6 stoc' in tradeG /i0 ;aw 3aterials /incl" stores and other items used in the $rocess of manufacture0 a0 Im$orted b0 Indi enous /ii0 /iii0 /i)0 1toc's in 4rocess =inished >oods %ther consumable s$ares 140"47 187"45 46"80 103"79 212"18 44"08 129"09 416"62 41"07 /i0 13"57 15"43 2"54

238"83

236"14

51

1ub #otal %ther (urrent .ssets /reali!able within one year0 /i0 /ii0 /iii0 1ub #otal #otal (urrent .ssets .d)ances 7e$osits %thers /s$ecify ma+or items0

374"72

360"05

586"78

86"23

169"75

170"07

46"89 133"12 795"38

88"78 258"53 872"84

47"48 217"55 1043"01

Fixed Assets
>ross -loc' 7e$reciation to date .ddG (a$ital wor' in $ro ress Aet -loc' %ther Aon-current .ssets #otal Intan ible .ssets #otal .ssets #an ible Aet @orth Aet @or'in (a$ital (urrent ;atio #otal outside liabilities6 #an ible net worth #otal term liabilities6 #an ible net worth 1231"4 452"37 92"03 1"13 1"72 0"166 52 1339"12 496"57 73"92 1"69 1"69 0"087 1529"36 622"31 151"08 1"45 1"45 0"024 457"03 39"88 18"87 436"02 515"54 49"77 0"526 466"29 486"35

.e/ Fi a cial ) dicators

.mount in lacs 4articulars <,$ort sales 4.# Aet 1ales to Aet 4rofit (a$ital #an ible Aet @orth @or'in (a$ital Aet =i,ed .ssets (urrent .ssets (urrent 2iabilities (urrent ;atio #%26 #A@ => holdin $eriod ;aw 3at" holdin $eriod 7ebtors $eriod (reditors $eriod 2010 1829"80 11"79 155"19 452"37 452"37 92"03 436"02 795"38 703"35 1"13 1"72 10 days 1 month 9 days 1 month 23 days 2 months 26 days 2011 2332"36 60"05 38"84 496"57 496"57 73"92 466"29 872"84 798"92 1"09 1"69 7 days 1 month 6 days 1 month 6 days 5 months 15 days 2012 1178"11 86"99 13"54 622"31 622"31 151"08 486"35 1043"01 891"93 1"16 1"45 14 days 4 month 16 days 2 months 12 days 10 months 16 days

0omme ts o Fi a cials
Sales: there has been an increase in sales from ;s 1829"80 la'h to ;s 2332"36 la'h durin financial year 2010 to 2012& while as the sales ha)e decreased to ;s 1178"11 la'h in financial year ended 31 march 2012"

53

Net worki $ ca#ital: the net wor'in ca$ital for the financial year 2010 is ;s 92"03 la'h and it has decreased to ;s 73"92 la'h for financial year 2009" =or financial year 2011 it a ain shows a )ery hi h increase to ;s 151"08 la'h" 'otal Net 1orth: the total Aet @orth of the firm has shown continuous increase durin all three financial years" #he total Aet @orth for 2009 is 452"37& 496"57 for 2010 and for 2011 it increased to ;s 622"31 la'h" Fi2ed (ssets: the firm em$loys reasonable amount in increasin its fi,ed assets from year to year" #he net bloc' of fi,ed assets for all three financial years are ;s 436"02 la'h& ;s 466"29 la'h & ;s 486"35 la'h res$ecti)ely" 'otal o!tside lia3ilities/ ta $i3le et worth: there is a decreasin trend of total liabilities6 tan ible net worth as the Aet worth increases by year to year while as the increase in outside liabilities is not $ro$ortionate to that" 0!rre t Ratio: current ratio shows little )ariations durin the three financial years as it was 1"13 for financial year 2009& 1"09 for financial year 2010& 1"16 for financial year 2011" De3tors #eriod: debtors $eriod for the year 2009 was 1 month 23 days and it decreases for financial year 2010 to 1 month 6 days and then for financial year 2011 it ets doubled to 2 months 12 days" #he firm may ha)e increased the debtors $eriod in order to increase the sales as there has been decrease in sales com$ared to the last year" It may ha)e increased the $eriod to attract more customers" 0reditors Period: creditors $eriod shows )ery hi h increase from financial year 2009 to 2009" It is as followsG 2months 26 days for =E 2009 5months 15 days for =E 2010 10months 16 days for =E 2011 Increase in this $eriod may be for the reason that the firm wants to increase its sales as there has been a decrease in sales for last year" 1o to increase the sales they increased creditors $eriod as by doin so more customers will et attracted towards the firm"

St $" T(rn .er Peri dG

i" Stock in process Turno er period: #his $eriod shows a bit of decrease from financial year 2009 to 2010 as it is 1month 9days for 2009 and 1month 6days for financial year 2011" #here is a ra$id increase to 4 months 16days $eriod" #his $eriod is more than stoc' of finished oods $eriod as it ta'es time to et raw material $rocess that and chan e it to final $roduct& as such the $eriod is a bit lon er" Stock of finished goods Turno er period: #his $eriod is )ery small as it is +ust 10 days for 2009& 7 days for 2010 and 14 days for 2011" #his $eriod is )ery small for the reason as the firm does not hold finished oods for lon er time once the oods are manufactured they are *uic'ly made for sale"

ii"

Maxim(m permissi%le %an" !inan$e

1" no 1" 2" 4articulars #otal current assets %ther current liabilities /e,cl" ban' borrowin s0 54 2011 1043"01 616"18

3" 4" 5" 6" 7" 8" 9"

W r"in# $apital #ap 2+3*4 3in" sti$ulated wor'in ca$ital /259 of @(>0 .ctual6 $ro+ected A@( Item 3-4 Item 3-5 34-= /6 or 7 whiche)er is lower0 <,cess borrowin /4-50

426"83 201"72 151"08 225"11 275"75 225"11 50"64

Re$ mmendati nsG

#he firm should be financed for wor'in ca$ital because of followin reasonsG o #he firm is technically sound and is well furnished with modern e*ui$ments" o #he industry has lobal reach and is lobally rowin industry" o #he financials of the com$any are really im$ressi)e" #he firm is continuously showin increasin $rofits year by year and the )arious financial ratios are )ery much satisfactory" o #he firm seems )ery 'een in e,$andin its business as it has increased its fi,ed assets year by yea

0o cl!sio
#he @or'in (a$ital is used to meet day to day business acti)ities" ?ammu and :ashmir -an' follows a four ste$ $rocedure for credit a$$raisal which in)ol)es $ur$ose and cost of $ro+ect& future trends of $roduction and sales& estimation of cost and earnin and $rofitability& cash flow statements durin the $eriod of the loan" =ollowin =undamentals are studiedG Technical feasibility: #his includes $lant ca$acity& technolo y used in manufacturin $roducts etc" !conomic "iability: #his includes Industry 1cenario >lobally as well as in India" #inancial "iability: #his includes detailed analysis of -alance 1heet 4rofit and 2oss .ccount so as to ensure that enou h sur$lus would be enerated so as to ma'e timely $ayment of loan installments and interest" $anagerial competence: . detailed study of mana ement and the $romoters of the com$any should be done to ensure that the com$any is in ri ht hands and has $otential of fulfillin its obli ations" %isk Analysis: It is done to determine the ris' associated with the $ro+ect& it can be done in two ways i"e" by 1ensiti)ity .nalysis which determines the ca$acity to ser)ice the debts under worsened conditions or by (redit ;atin /Internal6<,ternal0 which su ests the credit worthiness of the com$any" .fter studyin all these as$ects a final decision is ta'en by mana ers and necessary chan es are made to a$$ro)e the $ro+ect" #his shows that ?ammu and :ashmir -an' has sound system for credit a$$raisal" 55

Fi di $s
@or'in ca$ital is used to meet day to day acti)ities of any business entity" It $lays an im$ortant role in the wor'in of any or ani!ation" ?ammu and :ashmir -an' hel$s business or ani!ations in raisin of the wor'in ca$ital" #he ban' follows certain $rocedures to lend money to any business entity" =ollowin $oints were studiedG <arlier the ban's would lend money to any firm at any rate in order to ain ma,imum mar'et" Aow the ;-I bein the re ulatory body has set the bench rate so that the ban's wonCt lend below that rate" -an' $ro)ides at least 759 of the total wor'in ca$ital re*uired to any a$$licant business entity after ensurin its $artici$ation minimum at 259" .ssessment of the wor'in ca$ital can be done throu h three different methods de$endin on the turno)er of the com$any

C',+.u7i',:
B #(i#) sector p$ ys the % i# ro$e i# the "e*e$opi#) eco#o%y of the co!#try. There re % #y 0 #(s i# the st te of 5 %%! + 6 sh%ir he$ps i# f!$fi$$i#) the #ee"s of c!sto%ers. A%o#) these 0 #(s 5 + ( B #( is the $e "i#) 0 #( i# the * $$ey- 'hich is tryi#) to )i*e $$ the f ci$ities to their c!sto%ers. B!t i# the 5 + 6 0 #( Cre"it + A"* #ce" Dep rt%e#t p$ ys the % i# ro$e i# ) i#i#) the profits. It is the Cre"it Deport%e#t of 5 + 6 B #(- 'hich s #ctio#s the $o # f ci$ity to 0oth $ r)e s 'e$$ s s% $$ i#"!stries thro!)ho!t the I#"i . Th!s Cre"it Deport%e#t of the 5 + 6 B #( is )e#er $$y c $$e" s the 0 c(0o#e of the 0 #(.

BIBLIOG!A$ 3
Fi,*,+i*. M*,*0eme,t By
56

I M $*,dey

Fi,*,+i*. & M*,*0eme,t A++'u,t By M*,*0eme,t A++'u,t7 By !i7- M*,*0eme,t By Fi,*,+i*. M*,*0eme,t By

&#5 S5N5 M*7e7)(*#i !5K5 S)*#m* M*+mi..*, $#*7*,* C)*,d#*

%EBSITES 4ISITE&:

o o o o

'''.1(0 #(.#et '''.'i(ipe"i .co% '''.%o#eyco#tro$.co% '''.0 #(i#)so$!tio#.co%

DE!LARA ION
I, M#5 !OS AN ALI MI! de+.*#e t)*t I my7e./ ('#-ed ', t)e t'6i+ ,*med *7 %O!KING CA$ITAL FINANCING u,de# J&K BANK *t Z',*. '//i+e M5A !'*d S#i,*0*#5 T)e d*t* *,d
57

t)e i,/'#m*ti', +'..e+ted by my7e./5 N' t)i#d 6*#ty )*7 )e.6ed me i, d'i,0 7'5 I )*Ae my7e./ +',du+ted *.. t)e 7u#Aey7 *,d #e7e*#+) *,*.y7i75

Si0,*tu#e '/ C*,did*te

RESEAR!" #E "ODOLOG$
Rese rch i# co%%o# p r$ #ce refers to se rch for (#o'$e")e. O#e c # "efi#e rese rch s for perti#e#t i#for% tio# o# scie#tific #" syste% tic se rch specific topic.

The 'or" rese rch h s 0ee# "eri*e" fro% 2re#ch 'or" Rese rcher %e #s to se rch.
58

2RANCIES RUMMER- "efi#e" Rese rch s / the c ref!$ i#8!iry or e7 %i# tio# or re$ tio#ship #" to e7p #" or *erify e7isti#) (#o'$e")e. Rese rch is so$!tio# of pro0$e%s- 'hether cre te" or $re "y

)e#er te". Whe# rese rch is "o#e-so%e #e' o!tco%e - so th t the pro0$e% (cre te" or )e#er te") to 0e so$*e.

RESEAR!" DESIGN% Rese rch Desi)# is the co#cept! $ str!ct!re 'ithi# 'hich rese rch is co#"!cte". DA A $PE%

I# this rese rch the type of " t co$$ectio# is.

PRI#AR$ DA A&

SE!ONDAR$ DA A&

DA A SOUR!E%
59

The so!rces of co$$ectio# of seco#" ry " t B''-75 %eb7ite75 M*0*Pi,e75

re.

LI#I A ION OF

"E S UD$
pro0$e% to )et

Hectic sche"!$e of e*ery 1o0 cre tes ppoi#t%e#t for %eeti#).

It ' s too short ti%e perio" to co#*ert #y prospecti*e 0!yer i#to co#s!%ers. No i#for% tio# ' s pro*i"e" 0o!t the pri* te str!ct!re of the 0 #(.
60

It is o#$y for short perio" of ti%e rese rcher is

st!"e#t.

BOARD OF DIRE! ORS '% #ushta( Ahmed !hairman&

)% Sudhanshu Pande*& +% Arnab Ro*& ,% #&I& Shadad& -% Vi.rant /uthia0a& 1% Prof& Nisar A0i& 2% A&#& #atto& 3% Ra4esh /umar Gupta& 5% NIha0 Gar6are&

61

ABOU

78/ BAN/

5 %%! #" 6 sh%ir B #( is the o#$y 0 #( i# the co!#try 'ith % 1ority o'#ership *este" 'ith the St te 3o*er#%e#t I The 3o*t of 5 %%! #" 6 sh%ir . 5 %%! #" 6 sh%ir B #( f!#ctio#s s !#i*ers $ 0 #( i# 5 %%! #" 6 sh%ir #" s speci $i4e" 0 #( i# the rest of the co!#try. It is the o#$y pri* te 0 #( "esi)# te" s RBIHs )e#t. It c rries o!t 0 #(i#) 0!si#ess of st te )o*er#%e#t- 0esi"es co$$ecti#) ce#tr $ t 7es of CBDT. 5+6 B #( fo$$o' $ ))e" 0!si#ess %i""$e 'here0y it see(s to i#cre se

$e#"i#) i# itHs ho%e st te 'hich i# hi)her % r)i#s "espite %o"est *o$!%e- #" t the s %e ti%e it see(s to c pt!re rich $e#"i#) opport!#ities o# pe#:i#"i to 0!i$" *o$!%e #" i%pro*e % r)i#s.

5+6 B #( oper tes o# the pri#cip$e of soci $$y e%po'eri#) 0 #(i#) #" see(s to "e$i*er i##o* te fi# #ci $ so$!tio#s for ho!seho$"s- s% $$ #" %e"i!% e#terprises. The B #(- i#corpor te" i#=>@F is $iste" i# NSE #"
62

BSE it h s

tr c( recor" of !#i#terr!pte" profits #" "i*i"e#"s for

"ec "es. The 5+6 B #( is r te" ,iS- i#"ic ti#) the hi)hest "e)ree of s fety 0y st #" r" #" poor #" CRISIA.

63

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