Project Appraisal System

Project Appraisal At Surat District Co Operative Bank Ltd.
CHAPTER: 1: INTRODUCTION OF BANK & CO

OPERATIVE BANKS
1.1 Introduction
The development of banking is an inevitable precondition for the healthy and

rapid development of the national economic structure. Banking institutions have
contributed much to the development of the developed countries of the world. Today we
cannot imagine the business world without banking institutions. Banking is as important
as blood in the human body. Due to the development of banking advances are increased
and business activities developing so it is rightly said, " The development of banking is
not only the root but also the result of the development of the business world." After
independence, the Indian government also has taken a series of steps to develop the
banking sector. Due to considerable efforts of the government, today we have a number
of banks such as Reserve Bank of India, State Bank of India, nationalized commercial
banks, Industrial Banks and cooperative banks. Indian Banks contribute a lot to the
development of agriculture, and trade and industrial sectors. Even today the banking
systems of India possess certain limitations, but one cannot doubt its important role in the
development of the Indian economy.
Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should be able to meet new challenges posed by
the technology and any other external and internal factors
1.2 Definition
As per Section 5(c) of Banking Regulation Act, 1949 a "Banking Company"

means any company which transacts the business of banking in India.
As per Section 5(b) of Banking Regulation Act, 1949, “banking means the
accepting, for the purpose of lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and withdraw able by cheque, draft or order”.
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Department of Business & Industrial Management
The first bank in India was established in 1786. From 1786 till today, the journey
of Indian Banking System can be segregated into three distinct phases. They are as
mentioned below.
1) Early phase from 1786 to 1969 of Indian Banks.

2) Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
3) New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.
1.3 Challenges facing Banking industry in India
The banking industry in India is undergoing a major transformation due to

changes in economic conditions and continuous deregulation. These multiple changes
happening one after other has a ripple effect on a bank (Refer fig. 2.1) trying to graduate
from completely regulated sellers market to completed deregulated customers market.
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➢ Deregulation: This continuous deregulation has made the Banking market

extremely competitive with greater autonomy, operational flexibility, and
decontrolled interest rate and liberalized norms for foreign exchange. The
deregulation of the industry coupled with decontrol in interest rates has led to
entry of a number of players in the banking industry. At the same time reduced
corporate credit off take thanks to sluggish economy has resulted in large number
of competitors battling for the same pie.
➢ New rules: As a result, the market place has been redefined with new rules of the
game. Banks are transforming to universal banking, adding new channels with
lucrative pricing and freebees to offer. Natural fall out of this has led to a series
of innovative product offerings catering to various customer segments,
specifically retail credit.
➢ Efficiency: This in turn has made it necessary to look for efficiencies in the
business. Banks need to access low cost funds and simultaneously improve the
efficiency. The banks are facing pricing pressure, squeeze on spread and have to
give thrust on retail assets
➢ Diffused Customer loyalty: This will definitely impact Customer preferences, as

they are bound to react to the value added offerings. Customers have become
demanding and the loyalties are diffused. There are multiple choices; the wallet
share is reduced per bank with demand on flexibility and customization. Given
the relatively low switching costs; customer retention calls for customized
service and hassle free, flawless service delivery.
➢ Misaligned mindset: These changes are creating challenges, as employees are

made to adapt to changing conditions. There is resistance to change from
employees and the Seller market mindset is yet to be changed coupled with Fear
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of uncertainty and Control orientation. Acceptance of technology is slowly

creeping in but the utilization is not maximized.
➢ Competency Gap: Placing the right skill at the right place will determine
success. The competency gap needs to be addressed simultaneously otherwise
there will be missed opportunities. The focus of people will be on doing work but
not providing solutions, on escalating problems rather than solving them and on
disposing customers instead of using the opportunity to cross sell.
1.4 Co-operative banks in India
The Co operative banks in India started functioning almost 100 years ago. The
Cooperative bank is an important constituent of the Indian Financial System, judging by
the role assigned to co operative, the expectations the co operative is supposed to fulfill,
their number, and the number of offices the cooperative bank operate. Though the co
operative movement originated in the West, but the importance of such banks have
assumed in India is rarely paralleled anywhere else in the world. The cooperative banks
in India play an important role even today in rural financing. The businesses of
cooperative bank in the urban areas also have increased phenomenally in recent years due
to the sharp increase in the number of primary co-operative banks.
Co operative Banks in India are registered under the Co-operative Societies Act. The
cooperative bank is also regulated by the RBI. They are governed by the Banking
Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.
 Cooperative banks in India finance rural areas under:
• Farming
• Cattle
• Milk
• Hatchery
• Personal finance
 Cooperative banks in India finance urban areas under:
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• Self-employment
• Industries
• Small scale units
• Home finance
• Consumer finance
• Personal finance
1.5 Structure of Co-Operative Banks
Co-Operative Bank
Central
State
Urban
State
Primary
Land
Co-
Land
Co-
Developmen
Development
Agriculture
Operative
Operative
Credit
Banks
tBanks
Banks
Banks
1.5.1 Primary Credit Societies:-

Primary credit societies lie at the local or base level. In rural areas
There is primary agriculture credit and societies (PACs) which cater to the short and
medium-term credit needs of the farmers.
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In urban areas, to provide non agriculture credit, urban co-operative banks

and employees, credit societies are formed. Urban banks usually provided short term
loans to their members, who are small borrowers. They also accept deposits from
members and non-members, too. Thus, their functions and working are more or less
similar to those of a major distention between these and commercial banks which are
joint stock companies.
1.5.2 The Central Co-operative Banks (CCBs):-

The central Co-operative banks are federation of primary societies
Belonging to specific district, by furnishing credit it the primary societies, central Co-
operative banks serve as an important link between these societies and the money market
of the country. No central co-operative banks lends to individuals. It lends to societies
only.
1.5.3 The State Co-operative Banks (SCBs): -
The state co-operative banks lie at the apex of the entire co-operative
credit structure. Every state co-operative bank’s basic functions to furnish loans to the
central co-operative banks in order to enable them to help promote the lending activities
of the primary credit societies. This state co-operative banks, thus serve as the final link
between the money market and the co-operative sector of the country.
1.5.4 Land Development Banks:-
The lend development banks meet the long credit requirement of the firms
for development purpose, viz.., purchase the equipment like pump set, tractors and other
machineries, reclamation of land, fencing, digging up new wells and repairs of old walls
etc. lend development banks are co-operation institution and they grant loan of the
securities of mortgage of immovable property of the farmers. These banks have a two tire
organization structure at the state level, there are central level lend development banks
and at the district or taluka level, there are primary land development banks.
The financial resources of land development banks are raised by floating

debenture in the market. Such debentures carry the guarantees of the state government,
commercial banks, Life Insurance Corporation and other land development bank as a
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measure of mutual support. Lend development banks also avails of the referencing
facilities provided by the national bank for agriculture and rural development in respect
of the term loans granted by them for the schemes of agriculture development. They also
secure short term accommodation from the state governments. Commercial banks and the
state co-operative banks.
1.5.5 The State Land Development Bank:-
The state land development banks rise their resources by floating

debentures in market. These debentures carry the guarantees of the state government and
subscribed by the central and state governments, commercial banks, Life Insurance
Corporation and other land development banks are as a measure of a mutual support. The
land development banks have availed of the refinancing facilities provided by the
national bank for agriculture and rural development is respected of the term loans granted
by them for the schemes of agriculture development. They also secure short term
accommodation from the state government, commercial banks and the state co-operative
banks.
THE SURAT DISTRICT CO-OP.BANK LTD.
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CHAPTER 2 COMPANY PROFILE
2.1 Introduction of the Surat Dis. Co-Operative Bank Ltd:
In the year 1909 on 17th June with the strenuous efforts of late Shri B.A.MODI &
Shri K.G.DESAI society viz, “the Surat District Co-Operative Union Limitation” was
registered. In the year 1921, this society has undertaken banking activities in absolute
terms and in the year 1923. The Surat district co-operative union ltd. was converted in to
“THE SURAT DISTRICT CO-OPERATIVE BANK LTD.” The work extended to
the entire Surat District, which included city of Surat has also towns like Navasari,
Valsad, Billimora and Sizable tribal areas with hiss & dense forests.
The vast Surat District was bifurcated in 1965 & district of Valsad was separated.
At present there are 14 Taluka in Surat District of which 9 are in tribal areas.
Banks had separate department for agriculture advance from the year 1944, and
become an effective central agency for co-ordinate and smooth flow of finance to co-
operative sector in district.
ALL CO-OPERATIVE ORGANIZATION LIKES:-
The Surat District Milk Producer’s Co-operative Union Ltd.

The Purushottom Farmers Co-operative. Ginning and pressing society ltd.
The Surat District Co-operative Spinning Mills ltd.
Cotton Co-operative societies of Olpad taluka.
Surat central Co-operative stores Ltd.
Having since been developed and bank had provided timely to them. During this period,
forest labors co-operative society were also capital in tribal and were engaged in crop
cutting activity for which substantial finance was provided to them.
After1960, when shri Khedut Sahakari Khand Udhyog Mandali ltd Bardoli, came
existence the entire Sugar factories has tooting financial trouble in the beginning.
However bank had provided them enough finance as also assisted even for meeting share
capital also. The sugar cane crop has now become principal crop in District, and out of
total capable area of 490000 Hectares, 83745 Hectares is under sugar cane cultivation.
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The Surat District co-operative bank ltd. amply supported this economics structure of the
crushing capacity of 35500 tones per day. Annual sugar production exceeds to 400 corers
in this sector.
Bank has been enjoying privilege of having prominent citizens in field like social,
co-operative and agriculture, on its board included outstanding lawyers and members of
parliament District Panchayat, major of Surat City and lenders from various walker of life
including ministers.
Immediate past chairman of the board shri Pramodbhai K Desai was award “Kaka
Saheed Godgil Award” for his outstanding services to society as also awarded by the
Gujarat state Co-operative union by Sahakari award. Shri Popatbhai Vyas, the present
director on the board, remained as home minister of the state. Shri Dilipbhai Bhalta, the
present chairman is also the Chairman of “Madhi Vibhag Khand Udhyog Sahakari
Mandali ltd” and also enjoying key position in different co-operative societies
functioning in various fields.
Board has formed committees for loans, staff matters, legal matters and new
construction etc... Also power has been delegated properly to smoothen day-to-day
working.
Bank has been committed for overall up to lift man of the society developing
upon the profit made by the bank, donation from a special platinum jubilee fund, to the
extend of exceeding Rs. 40 lakh every year in made to the hospital, schools, colleges and
charitable institutions.
Also separate fund has been created for donating the educational organization
only. Another trust is also created for donation to the charitable and social service
organization viz. Surat District Co-operative Bank Charitable Trust. Last year bank has
donated Rs. 50 Lakh for ultimate benefit of people affected with natural calamities in
addition to Rs. 36 lakh or so to the different organization setup, for betterment of medical
education etc.
2.2 Organization Structure of the bank: -
ORGANISATION STRUCTURE OF SURAT DIS. CO-OPERATIVE BANK LTD.
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Assistant
Assistant
Manager
Assistant
Manager
Assistant Managing Director
General
(Super
Manager
Manager
(Industry)
Manager
General
vision&
Manager
(Supervision)
(Housing)
(Recovery)
(Industry)
Recovery)
Manager
(Banking)
(ADM)
(Loan
(Manager)
(A/C)
& Adv)
(Recovery)
Manager
(loan)
2.3 BOARD OF DIRECTORS OF SURAT DIS. CO-OPERATIVE

BANK LTD.
Sr. Board of directors

no
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1 Shri Dilipbhai B Bhakta
2 Shri Amarshinh J Chaudhari
3 Shri Bhagabhai P Patel
4 Shri Maganbhai R Patel
5 Shri Narayanbhai H Doanwala
6 Shri Haribhai L Patel
7 Shri Ramanbhai A Patel
8 Shri Shradhbhai S Patel
9 Shri Narendrabhai D Solanki
10 Shri Maganbhai B Vasava
11 Shri Jayshigh D Vasava
12 Shri Kiritbhai R Desai
13 Shri Pravinchandra C. Parekh
14 Shri Parbhubhau N Vasava
15 Mrs. Dr. Vikasben K Desai
16 Shri Chhotubahi L Patel
17 Shri Nayanbhai N Bhartiya
18 Shri Leelachand V. Patel
19 Shri Sureshbhai J Patel
20 Shri Ajaybhai J Shah
21 Shri Pradipshigh G Atodaria
2.4 Staff details of Surat Dis. Co-operative Bank Ltd.
Designation Total staff members
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Manager 137
Clerk/cashier/inspector/go. Manager 246
Peon/Driver etc. 103
2.5 Branches:-
Bank’s registered office is at the J. P. Road, near the Athwagate. Bank’s main branch is
in the Surat city. It is near to Chautapul (kanpith). Bank has other 56 (total 57) branches
which is located in two (Surat and Tapi) district and bank thinking for start 6 new
branches in two year.
2.6 Computerization: -
All 57 branches of Surat district co-operative bank are fully computerized.
2.7 Growth Table of Surat Dis. Co-operative Bank Ltd.
(Rs. In lacs)
Share
capital &
Year Deposits Advances Profits Dividends
funds
1997-98 5641.49 70787.16 29301.44 375.00 15%
1998-99 6113.07 86035.83 23666.51 161.76 15%
1999-00 6528.11 91513.49 25889.64 210.09 15%
2000-01 6934.59 99824.76 35388.69 386.38 15%
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2001-02 7654.09 110574.59 46008.14 425.54 15%

2002-03 8233.94 113999.72 39434.34 451.39 15%
2003-04 9616.36 120979.51 36868.87 471.15 15%
2004-05 10084.04 111604.22 24592.07 305.00 15%
2005-06 10434.40 129343.18 22346.28 246.00 15%
2006-07 10940.52 120340.60 35005.31 293.00 15%
2007-08 12257.00 151929.97 73007.29 555.00 15%
2008-09 14984.00 174318.79 56689.93 700.00 15%
2.8Auditors:-
The audit of the bank shall be conducted only by the Chartered Accountants from
the Panel approved by NABARD.
The auditor is Parikh Mehta and Association (C.A), Baroda.
2.9 Bankers:-
The Gujarat State Co-operative ltd. (Ahmedabad)

State Bank of India. (Surat & Bardoli)
2.10 Customer Service Available in Surat Dis. Co-operative Bank.
➢ Current Account:
The current accounts with The Surat Dist. Co-op. bank Ltd., promises you a
unique banking experience through innovative features and best services for
businessmen, firms, companies, public enterprises etc. that have numerous daily banking
transact.
➢ Savings Accounts:
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A safe and easy way to save your money is with a bank savings account. Interest
will be earned on the money you have on deposit at the bank.
➢ Fixed Deposit:
Bank fixed deposits are one of the most common savings scheme open to an
average investor. Fixed deposits also give a higher rate of interest than a savings bank
account. Monthly interest facility also available in this scheme.
➢ Recurring Deposit:
Recurring Deposit Scheme is meant for investor who wants to deposit a fixed
amount every month. The scheme, a systematic way for long term savings is one of the
best investment options for the low income group.
➢ Bank Enter In Insurance Sector:
Bank is affiliated with AVIVA LIFE INSURANCE COMPANY INDIA PVT.

LTD. for their customers’ life insurance. Bank is also affiliated with UNITED
GENERAL INSURANCE COMPANY for their customer's general insurance
➢ Gold Coin Selling:
Bank has taken distributorship for pure gold coins under the terms of MOU.
Bank is selling gold coins under ICICI bank's pure and international 24 carat gold coins
scheme.
➢ Loans:
The Surat Dist. Co-operative Bank provides different types of loan at less interest
rate. The different type of loans as specified below:
Loans Against Government Securities:

Facility to get loan or overdraft against government securities like National
Saving Certificates (N.S.C.), Kishan Vikas Patra (K.V.P.) Interest rate 8% and 9%
subsequently.
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Individual Home consumable Loan:

Loan on purchase of home consumable product like Refrigerator, Washing
Machine, Television etc. 75% to 90% of purchase bill or maximum limit to 1 lakh
rupees. 36 to 60 monthly installments. Interest Rate 9.50%.
Individual Vehicle Loan:

Up to 75% to 90% of purchase bill. Maximum limit of Rs.1 lakh for two wheeler
vehicle purchase Maximum limit of Rs.10 lakh for heavy vehicle like Car, Jeep,
Tempo, Truck, and Trailor. For 3 to 5 years on interest rate 9.50%.
Loan for higher education studies:

Provides education loan for business education like Medical, Engineering etc.
Maximum limit up to 5 lakh for study in country and up to 15 lakh for abroad
study. Interest Rate 9% to 10%.
Individual Housing Loan:

Loan available for employee, merchants and farmers for construction of new
building and flats, Construction on their plots. Maximum installment credit is up
to 10 years. Interest rate is 9% to 10%
Loan against Fixed Deposit:

Facility to get quick loan/ overdraft for accidental requirement on Fixed Deposit
slip for bank fixed depositor.
Business Loan:
Merchants can get cash based on their current product stock.
Interest rate is 9.50% to 11.25%.
Loan for small Scale Industrial (S.S.I.) unit:

Loan for individual/partnership firm, company, textile, engineering, printing press
unit etc. Installment limits up to 5 years.
Interest rate is 10% to 11%.
Technology Up gradation Fund Scheme:
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Scheme by Central Government, valid up to 31 March 2007. Businessmen can

get benefits by taking the scheme as follow:
a) 5% interest subsidiary or 15% Credit licked Capital subsidiary OR
b) 20% Credit licked Capital subsidiary (Maximum investment amount Rs.100

Lakh and Maximum subsidiary amount Rs.60 lakh).
This loan is pplicable to Textile S.S.I. and non S.S.I. Unit.
2.11 Procedure of taking loan from banks :-

The procedure associated with a term loan involves the following principle steps.
Process of loan
1. Submission of application
2. Primary assessment
3. Branch head recommendation
4. Final assessment of various level of bank
5. Lending committee
6. Documentation of loan application
7. Disbursement of loan
8. Creation of security
(1) Submission of application
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The main & the first step is the submission of the duty filled form or
the loan application it is the choice customer that which types of application he
wants to give depending upon the needs.
(2) Primary assessment
When the application is received, an officer of the recipient

institution reviews it to ascertain whether it is complete for processing. If it
is incomplete the borrower is asked to provide the required additional
information. When the application is considered complete, the recipient
institution prepares of flash report, which is essentially a summarization of
the loan application, to be evaluated at the Senior Executive Meeting (SEM).
Once the SEM, on the basis of its evaluation of the flash report, decides that
the project justifies a detail appraisal, it nominates lead financial institutions.
The factors taken in to account for designating lead institution are: location
of the project, prior experience of institution in handling similar projects,
representation of institutions in the state and promoter group, and existing
work load of the institutions.
(3) Branch head recommendation
The appraisal is moving one step ahead that is to analysis the applicants
eligibility as per the norms provided by the considering his gross income after
detecting his liabilities, his actual repayment capacity is checked as per norms.
(4) Final assessment of various level of bank

After referring the application form and appraisal branch head put his
recommended action whether to accept the application or not & send it the
corporate office.
(5) Lending committee
At the corporate office the final assessment is to be done & decision is

taken to reject the application is forwarded to the particular branch from where
the application has been received. Before it also lending committee decide
whether to give loan or not.
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Example
• Loan for more than 10 lack Rs all BOD need to agree for that particular
Loan.
• Also some of the lending committee is formed by bank in which Directors
are included and they decide whether to give Loan or not.
The branches have the power to take the major decision on the sanctioning of the
loan if it is less than Rs 1 lack.
(1) Documentation of loan application
Once the Loan is Sanction Banks need to check all the document of borrower
as well as guarantor once again and only than and than they can proceed ahead.
(7) Disbursement of loan
If loan is sanction than Bank open the account of borrower in their bank and
issue the check. Before the entire term loan is disbursed the borrowers must fully comply
with all terms and condition of the loan agreement.
(8) Creation of security
The term loans (both rupee and foreign currency) and the differed guarantee
assistance provided by the All-India financial institutions are secured through the first
mortgage, by way of deposit of title deeds of immovable properties and hypothecation of
movable properties. As the creation of mortgage, particularly in the case of land, tends to
be a time consuming process, the institutions permit interim disbursement against
alternate security (institution the form of guarantees provided by the promoters). The
mortgage, however, has to be created within a year from the date of the first
disbursement. Otherwise the borrower has to pay an additional charge of 1 percent
interest
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CHAPTER 3 THEORITICAL FRAMEWORK
3.1 Introduction of Project Appraisal
Project appraisal is the assessment of the viability of proposed long-term

investments in terms of shareholder wealth and the formal analysis of all project costs
and benefits which is used to justify the project proposal. Effective project appraisal
offers significant benefits to a firm.
A good appraisal justifies spending money on a project. Project appraisal or

project planning must be viewed as a process of decision-making over time, starting with
project identification, and proceeding through various stages of various feasibility studies
(for example, engineering, financial etc), then the investment phase, and finally project
evaluation. This is the so-called concept of the project cycle.
Getting the design and operation of appraisal systems right is important. The
proper consideration of each of the key components of project appraisal is essential.
These are,
1) Need, targeting and objectives
2) Options
3) Inputs
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4) Outputs and outcomes

Key issues in appraising projects include the following.
1) Need, targeting and objectives
The starting point for appraisal: applicants should provide a detailed description
of the project, identifying the local need it aims to meet. Appraisal helps show if the
project is the right response, and highlight what the project is supposed to do and for
whom.
2) Options
Options analysis is concerned with establishing whether there are different ways
of achieving objectives. This is a particularly complex part of project appraisal, and one
where guidance varies. It is vital though to review different ways of meeting local need
and key objectives.
3) Inputs
It’s important to ensure that all the necessary people and resources are in place to
deliver the project. This may mean thinking about funding from various sources and
other inputs, such as volunteer help or premises. Appraisal should include the
examination of appropriately detailed budgets.
4) Outputs and outcomes
Detailed consideration must be given in appraisal to what a project does and

achieves: its outputs and more importantly its longer-term outcomes. Benefits to
neighbourhoods and their residents are reflected in the improved quality of life outcomes
(jobs, better housing, safety, health and so on), and appraisals consider if these are
realistic.
3.2 The Purpose of Appraisal
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• The immediate need is to ensure that:
A) Only those projects which satisfy the objectives of the Single Programmed are
offered assistance;
B) The project offers value for money and, especially where funds are limited, those
projects offering the best value are chosen and;
C) There is a transparent selection process.
• An important aspect of appraisal is obtaining an understanding of the anticipated
expenditure and benefits of a project, usually expressed in terms of its inputs (costs) and
outputs (results). The expected timing of this must also be made clear.
• Whilst detailed appraisal is generally necessary before decisions can be taken and offers
made. This will enable any obviously poor or ineligible ones to be eliminated, avoid
duplication and give an early overall view of the success of the measure.
3.3 Benefits to prepare a Project Appraisal
 Project appraisal helps a firm to,
• Be consistent and objective in choosing projects

• Make sure its programme benefits all sections of the community, including those
from ethnic groups who have been left out in the past
• Provide documentation to meet financial and audit requirements and to explain
decisions to local people.
 Appraisal justifies spending money on a project
Appraisal asks fundamental questions about whether funding is required and

whether a project offers good value for money. It can give confidence that public money
is being put to good use, and help identify other funding to support a project. Getting it
right may help a firm make its resources go further in meeting local need.
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 Appraisal is an important decision making tool
Appraisal involves the comprehensive analysis of a wide range of data,

judgements and assumptions, all of which need adequate evidence. This helps ensure that
projects selected for funding:
• Will help a partnership achieve its objectives for its area

• Are deliverable
• Involve local people and take proper account of the needs of people from ethnic
minorities and other minority groups.
• Are sustainable
• Have sensible ways of managing risk.
 Appraisal lays the foundations for delivery
Appraisal helps ensure that projects will be properly managed, by ensuring

appropriate financial and monitoring systems are in place, that there are contingency
plans to deal with risks and setting milestones against which progress can be judged.
3.4 Feasibility of The Project
Project Should Be Feasible And This Is Done By Detail Appraisal Of The Project
Into The Following Different Environment.
3.4.1 Market and Demand appraisal
The first step in project analysis is to estimate the potential size of the market for
the product proposal and gets an idea about the market share that is likely to be capture.
Market and demand analysis is concerned with two broad issues:
1) What is the likely aggregate demand for the product/service?

2) What share of the market will the proposed project achieve?
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The importance of market and demand analysis, it should be carried out in orderly
and systematic manners. The key steps in such analysis are,
1) Situation analysis and specification of objectives

2) Collection of secondary information
3) Conduct of market survey
4) Characterization of the market
5) Demand forecasting
6) Market planning
3.4.2 Technical Analysis
Technical analysis of a project idea includes designing the various processes,

installing equipment, specifying material and prototype testing. The project manager has
to be careful in finalizing the technical aspects of the project as the decision is
irreversible and the investments involved may be high. The project manager has to select
the technology required in consultation with technical experts and consultants.
Technical analysis is concerned primarily with:

• Material inputs and utilities
• Manufacturing process/technology
• Product mix
• Plant capacity
• Location and site
• Machineries and equipments
• Structures and civil works
• Project charts and layouts
• Work schedule
3.4.3 Financial Analysis
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To judge a project from the financial angle, we need information about the
following:
 Cost of project
 Means of financing
 Estimates of sales and production
 Cost of production
 Working capital requirement and its financing
 Estimates of working results
 Break-even point
 Projected cash flow statements
 Projected balance sheets
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CHAPTER 4 RESEARCH METHODOLOGY
4.1 Problem statement
This project desires to understand the “PROJECT APPRAISAL SYSTEM” at The Surat
District Co- Operative Bank Ltd.
4.2 Objectives
The main objective of the project training is to study the PROJECT

APPRAISAL SYSTEM IN SUART DISTRICT CO-OPERATIVE BANK
LTD.
To study entire loan system if Surat District Co-operative Bank Ltd.
To study what is the procedure of obtaining loan from the Surat District
Co-operative Bank Ltd.
To know on which basis the Surat District Co-operative Bank Ltd.
Appraised the loan to the business.
4.3 Research design
4.3.1 Collecting Secondary Data:-
Annual report of the Surat District Co-operative Bank ltd.

Case Study
Other necessary theoretical requirement
26
The information has been collected from the other sources to make a project
report effective and informative. That data are collected from various website and
financial management for making concept very clear.
4.3.2 Studying Secondary Data:-
After collecting secondary data from various sources, the next steps is to study various
data and finding out relevant information and filtering it to further process.
4.3.3 Analysis of Case Studying Computing Following:
Pay back period method

Internal rate of return
Net present value
Profitability index
Debt service coverage ratio
Debt equity ratio
Break even point analysis
Current ratio
Quick ratio
Proprietary ratio
Gross profit ratio
Net profit ratio
Sensitivity Analysis
27
CHAPTER 5 CASE STUDY
Purpose of loan:
A firm requires loan to purchase the STROKE brand Digital Printing Machine, Model
RUBY and for other expenses i.e. transportation, duty, custom clearance, supporting UPS
(15 kv) and A.C.
5.1 Project profile:
Name of the unit M/S Peacock Digital Prints
Address 3rd floor, Plot no. 714, Road no. 7, G.I.D.C. , Sachin, Surat
Constitution PARTNERSHIP FIRM
Registration Date 27 Sep 2008
Registration no. GUJ/SRT/ (17) 27588
Name and address of the partners
(1) Mayur Vasantbhai Patel (HUF)

Age : 41 years
Address : 47, Alaknanda Soc., Bhd Jogani Nagar, Rander
Road, Surat
(2) Jugalkishor Ramratan Bhutra

Age : 30 years
Address : 702, G.I.D.C., Sachin , Surat
(3) Jimmy D. Singaporia

Age : 33 years
28
Address : 202 Akash Ganga Co. Op. Soc., Vanki Bordi,

Saiyadpura, Surat
Partners’ share in profit and loss: Equally distribution i.e. 33.33%
Qualification and experience of the partners:
(1) Mayur Vasantbhai Patel : He is Textile Engineer and working as Dyeing and
Printing master with Aastha Dyeing since last 12 years.
(2) Jugalkishor Ramratan Bhutra : He is graduate and presently running many process
houses under the brand name of Aastha at and around Sachin, Surat.
(3) Jimmy D. Singaporia : He is graduate and presently working as Dyeing

Master with Aastha Dyeing and is having experience for 10 years in the same
firm.
Nature of project
M/s. Shreenathji fashion will do job work of sarees through printing machine. The
firm wants to install 1 printing machines worth Rs. 80.50 lacs.
Manpower
The unit will employ with 10 to 12 persons includes skilled and unskilled labour
and it is available easily.
Cost of project and means of finance
The cost of project will be around Rs. 90.60 lacs which include cost of
PRINTING machine and other expenses i.e. transportation, duty, custom clearance,
supporting UPS (15 kv) and A.C. thereof out of which firm wants to take a bank finance
of Rs. 60.38 lacs.
Cost of Machinery
I. Price of the machine 1,11,000 EURO INR 71,00,000

II. Transportation INR 2,00,000
29
III. Duty under EPCG (3.25%) INR 2,45,000

IV. Custom clearance charges INR 1,50,000
V. A.C. INR 55,000
VI. UPS (15 KV) INR 3,00,000
TOTAL (approx) INR 80,50,000
Means of Finance
Partners’ Capital(25% margin) INR 20,50,000

Bank Term Loan INR 60,00,000
Infrastructural requirements
The unit will have all basic infrastructural facilities in the form of required
electricity power, water, supply and availability of manpower.
Affluent
The unit will not generate any polluting whether air or water.
Name and address of the dealer of the machine
Tex India Enterprise(P) Ltd.
Plot No. 23, Sector-27A, Faridabad, Hariyana.
Any other firm or branch which is presently being run bye the partners:
Neelkanth Chemical, a partnership firm, is a sister concern of Peacock Digital Prints.
Security Offered against the loan:
Primary Hypothecation of machineries imported
Collateral Agricultural Plot of Land at survey No. 96/2114 and 136/2 at

village Segwa Shyedla Moje Olpad admeasuring 10.00 Vingha
having value of about Rs. 100.00 lacs.
30
Guarantors: (1) Kalpeshbhai B. Patel
Age:33 years
Cast: Hindu
Addres(R ): 59, Jogani Nagar-2, New Rander Road, Adajan, Surat.
Business: Trading of chemicals
Annual Income: 13,65,383 Rs.
(2) Mayurbhai V. Patel
Age:41 years
Cast:Hindu
Address(R): 47, Alaknanda Soc., Bhd Jogani Nagar, Rander Road,
Surat.
Business: Consultant
Address(O): 47, Alaknanda Soc., Bhd Jogani Nagar, Rander Road,
Surat.
Annual Income: 17,88,552
5.2 Cost fr project and means of finance
31
COST OF PROJECT AND MEANS OF FINANCE
A.COST OF PROJECT Amt Rs. In ‘000

1)Plant and machinery.
- Imported 7695
- Indigenous (as per separate list ) ------
2) Air conditioner & UPS 355
3) Misc. fixed assets ------
4) Preliminary & pre-operative expenses ------
5) Other ------
6) Other contingency ------
7) Margin for working capital. 1010
TOTAL Rs 9060
B. MEANS OF FINANCE.
9) Promoter’s contribution (25% margin) 3022
10) Unsecured loans ------
11) Financial assistance from financial institution
( Medium term loan ) 6038
TOTAL Rs. 9060
5.3 Balance sheet statements:-
5.3.1 Projected Profitability Working For 5 Years
Particular Year (Amount Rs. IN 000)
2008- 2009- 2010- 2011- 2012-
32
09 10 11 12 13
1) Efficiency percentages 75 75 80 80 85
(%)
2) Net sales 8190 9009 9435 9522 102

10
3) Cost of production
I) Cons. Of raw materials 2457 2703 2830 2857 30

63
II) Power & fuel 458 479 516 513 5

45
III) Direct labor & wages 566 622 685 753 82

8
IV) Consumable stores 322 354 386 403 41

9
V) Repairs & maintenance 448 460 495 509 54

7
VI )Other Manufacturing 655 655 699 699 74

Expenses 3
VII) Depreciation 870 870 870 870 87

0
VIII) Rent Expenses. 36 36 36 36 3

6
ADD: Opening stock of
Work in process 0 110 121 127 12

8
LESS: Closing stock of
Work in process 110 121 127 128 137
4) TOTAL COST OF 570 6168 6511 6639 7042
33
PRODUCTION 2
Finished goods 0 0 0 0 0
5) Cost of sales 5702 6168 6511 6639 7042
GROSS PROFIT 248 2841 2924 2884 3168

8
6) FINANCIAL CHARGES
I ) on term loans 686 540 388 235 83
II) on working capital & 0 0 0 0 0

others
7) ADMINISTRION 321 353 372 379 408

EXPENSES
8) SELLING EXPENSES 0 0 0 0 0
9) PRELIMINARY EXPENSES 0 0 0 0 0
10) PROFIT BEFORE 1481 1947 2164 2269 26

TAXATION 78
11) PROVISION FOR TAXTS 343 537 649 719 87

5
12) NET PROFIT 1138 1410 1515 1550 18

02
13) LESS: DRAWINGS 240 240 240 240 2

40
14) RETAINED PROFIT 898 1170 1275 1310 156

2
15) ADD DEPRECIATION 870 870 870 870 8

70
34
P & P EXPS. 0 0 0 0 0
16) NET YEARLY CASH 1768 2040 2146 2180 243

3
GENERATION (CFAT)
5.3.2 Projected Balance Sheets Working For 5 Years
(Rs. In ‘000)
LIABILITIES 2008 2008-09 2009-10 2010-11 2011-12 2012-13
Promoters’ Contribution 3022 3022 3022 3022 3022 3022

Reserves & Surplus
(1)Central Subsidy 0 0 0 0 0 0
(2)Profit &Loss A/C 0 898 2067 3343 4653 6215

NET WORTH 3022 3920 5090 6365 7675 9237
Secured Loans 6038 3813 2542 1271 0 0
35
Term Loan from Bank
(Excluding T/L inst. Due

in 1 year)
Unsecured Loans 0 0 0 0 0 0
Total 6038 3813 2542 1271 0 0
CURRENT
LIABILITIES
T/L inst. Due in 1 year 0 1271 1271 1271 1271 0
Creditors 0 0 0 0 0 0
Unpaid Expenses 0 124 131 141 146 157
Cash Credit 0 0 0 0 0 0
Total 0 1395 1402 1413 1417 157
TOTAL LIABILITIES 9060 9128 9034 9049 9092 9394
ASSETS
Fixed Assets 8050 7180 6310 5439 4569 3699
New Investments 0 0 500 1500 2500 3500
Total 8050 7180 6810 6939 7069 7199
CURRENT ASSETS
Raw Material- Indigenous 0 236 260 272 275 295
Work in Progress 0 110 121 127 128 137
Finished goods 0 0 0 0 0 0
Debtors 0 788 866 907 916 982
Prepaid Expenses 0 0 0 0 0 0
Cash& Bank Balances 1010 814 977 803 704 781
Total 1010 1948 2224 2109 2023 2195
TOTAL ASSETS 9060 9128 9034 9049 9092 9394
36
5.3.3 Working Capital Assessment
Year (Amount Rs. In ‘ 000)
Particular 2008-09 2009-10 2010-11 2011-12 2012-13
1. raw material-indigenous 236 260 272 275 295

2. work in progress 110 121 127 128 137
3. finished goods 0 0 0 0 0
4. debtors 788 866 907 916 982
5. expenses 0 0 0 0 0
6. cash & bank balances 814 977 803 704 781
TOTAL 1948 2224 2109 2023 2195

Less:
6. T/L inst. In 1 yr. 1271 1271 1271 1271 0
7. creditors 0 0 0 0 0
8. Unpaid exps. 124 131 141 146 157
9. cash credit 0 0 0 0 0
TOTAL 1395 1402 1413 1417 157
Net working capital 553 822 697 606 2038
37
5.3.4 Cash flow statement
Particular Year (Amount Rs. In ‘000)
2008 2008-09 2009-10 2010-11 2011-12 2012-13
Sources of Funds
Net Profit before Tax 0 2167 2487 2552 2504 2760

Promoters’ Capital 3022 0 0 0 0 0
Depreciation 0 870 870 870 870 870
Preliminary Expenses 0 0 0 0 0 0
w/off
Term Loan from bank 6038 0 0 0 0 0
Bank Borrowings 0 0 0 0 0 0
Government Cash 0 0 0 0 0 0
Subsidy
Total 9060 3037 3358 3422 3375 3631
Disposition of Funds
Preliminary & Pre- 0 0 0 0 0 0
operate expenses
Fixed assets 8050 0 0 0 0 0
Increase in Current 0 1010 107 49 7 85
Assets
M.T.L. repayments 0 953 1271 1271 1271 1271
Funds for 0 0 500 1000 1000 1000
Investments
Interest on term loan 0 686 540 388 235 83
38
Taxation 0 343 537 649 719 875

Drawings 0 240 240 240 240 240
Total 8050 3232 3195 3596 3473 3554
Opening Balance 0 1010 814 977 803 704
Surplus/ (Deficit) 1010 -195 163 -174 -98 77
Closing Balance 1010 814 977 803 704 781
5.3.5 Break Even Analysis
Particular Year (Amount Rs. In’ 000)
39
2008-09 2009-10 2010-11 2011-12 2012-13
SALES REVENUE 8190 9009 9435 9522 10210
VARIABLE COST
Cost of sales 5702 6168 6511 6639 7042
Less : considered fixed
Power & fuel (20%) 92 96 103 103 109
Direct labour & wages 141 156 171 188 207
(25% fixed )
Depreciation 870 870 870 870 870
4599 5047 5367 5478 5856
Contribution 3591 3962 4068 4045 4355
P/V Ratio 1 1 1 1 1
P/V as % of installed 84 86 78 76 73
capacity
FIXED COST
Depreciation 870 870 870 870 870
Power & fuel (20%) 92 96 10 103 109
Direct labour & wages 141 156 171 188 207
(25% fixed)
FINANCIAL CHARGES
On term loans 686 540 388 235 83
On working capital & 0 0 0 0 0
others
Administration expenses 321 353 372 379 408
Selling expenses 0 0 0 0 0
40
Preliminary expenses 0 0 0 0 0
2111 2015 1904 1775 1677
Break even point 3351 3137 3048 2914 2712
BEP AS % OF SALES 41 35 32 31 27
BEP AS % OF 31 26 26 24 23
INSTALLED
CAPACITY
41
CHAPTER 6 FINDINGS & ANALYSIS
6.1 CAPITAL BUDGETING
Capital budgeting (or investment appraisal) is the planning process used to

determine a firm's long term investments such as new machinery, replacement
machinery, new plants, new products, and research and development projects.
• Capital Budgeting is a project selection exercise performed by the business enterprise.

• Capital budgeting uses the concept of present value to select the projects.
Capital Budgeting Tools
• Net Present Value
42
• Profitability Index
• Payback Period
• Internal Rate of Return
• Accounting Rate of Return
6.1.1 Net present value (NPV):
NPV is an indicator of how much value an investment or project adds to the value
of the firm.
If It means Then...
the investment would add the project should be
NPV > 0
value to the firm accepted
the investment would subtract the project should be
NPV < 0
value from the firm rejected
We should be indifferent
in the decision whether
to accept or reject the
project. This project adds
no monetary value.
the investment would neither
NPV = 0 Decision should be based
gain nor lose value for the firm
on other criteria, e.g.
strategic positioning or
other factors not
explicitly included in the
calculation.
43
YEAR CFAT(IN ‘000) PVF@5% CFAT( PVF)
2008-09 17.68 0.952 16.83
2009-10 20.40 0.907 18.50

2010-11 21.46 0.864 18.54
2011-12 21.80 0.823 17.94
2012-13 24.33 0.784 19.07
∑CFAT(PVF) = 90.88 (in,000)
NPV = 90.88 – 90.60
= 0.28 (in, 000)
Calculation of PV factor:
Sources Amount Cost Of Total Cost (Rs. In,000)

Capital
( in ,000)
Total debt 6038 0.0084 50.72
Equity 3022 0.12 362.64
44
capital
Total 9060 413.36
Cost of capital = 413.36
9060
= 0.04562
= 5%
Solution:
Cost of debt. (Kd) = It (1-t)
= 12 (1-0.30)
= 8.40
= 8%
It = amt. of interest in period t
t = income tax
Cost of debt (Kd) = 8%
Cost of equity = 12 %
Analysis:
Here NPV is greater than 0 i.e. 0.28 (in, 000), it means investments would add the
value to the firm and project is feasible so it should be accepted.
45
6.1.2 Profitability index:
Profitability index identifies the relationship of investment to payoff of a

proposed project.
Profitability index is a good tool for ranking projects because it allows you to
clearly identify the amount of value created per unit of investment, thus if you are capital
constrained, you wish to invest in those projects which create value most efficiently first.
The project will qualify for acceptance if the PI exceeds one.
The ratio is calculated as follows:
Profitability Index = Present value of cash in flow
Present value of cash out flow
= 90.88
90.60
= 1.00%
Analysis:
The PI of this project is 1.00 % which is equal to 1. Therefore this project is

feasible and it will create value for the firm so it should be qualify for acceptance.
6.1.3 Pay Back Period:
Payback period in business and economics refers to the period of time required
for the return on an investment to "repay" the sum of the original investment. It measure
that how long something takes to "pay for itself".
46
YEAR Net cash accruals Cumulative
(Rs. In ‘000) ( Rs. In ‘000)

2008-09 17.68 17.68
2009-10 20.40 38.08
2010-11 21.46 59.54
2011-12 21.80 81.34
2012-13 24.33 105.67
Net cash accruals 3rd year = 105.67 - 81.34
= 24.33 (in, 000)
Required amt. at the end of the 2012-13 = 90.60 (in, 000)
=90.60 – 81.34
=9.26 (in, 000)
24.33 net cash accruals in 12 months
9.26 net cash accruals in (?)
= 4.56
Pay back period is 4 years and 5 month
47
Analysis:
PB period of this project is 4 years and 5 month and it consider to be a short

period and short periods are more preferable to long period. Therefore this project is
feasible and should be accepted for appraising loan because the initial cost of the project
is recovered within 3 years and 1 month.
6.1.4 Internal rate of return (IRR)
The internal rate of return is a capital budgeting matrix used by the firm to decide
whether they should make investment or not. A project is good investment proposition if
IRR is greater than the rate of return. In general if IRR is greater than the cost of capital,
the project will add value for the money.
YEAR CFAT PVF@5% CFAT(PVF)
( Rs. In ‘000) (Rs In ‘000)

2008-09 17.68 0.952 16.83
2009-10 20.40 0.907 18.50
2010-11 21.46 0.864 18.54
2011-12 21.80 0.823 17.94
2012-13 24.33 0.784 19.07
∑CFAT(PVF) 90.88 ( in ‘000)
48
YEAR CFAT PVF@6% CFAT(PVF)
(Rs. In ‘000) (Rs. In ‘000)

2008-09 17.68 0.943 16.67
2009-10 20.40 0.890 18.16
2010-11 21.46 0.840 18.03
2011-12 21.80 0.792 17.27
2012-13 24.33 0.747 18.18
∑CFAT(PVF) 88.31 (in ‘000)
IRR = PL + [PVL –PVD] ΔPL
Δ PL
= 5+ [90.88-90.60] * 1
2.57
= 5+0.109
49
= 5.11%
Analysis:
The IRR is usually the rate of return that a project earns. Here IRR i.e. 5.11% is
greater so the project will add good value for the money therefore this project should be
accepted.
6.1.5 Average rate of return (ARR)
Average Rate of return (ARR) or return on investment (ROI), or sometimes just

return, is the ratio of money gained or lost on an investment relative to the amount of
money invested. The amount of money gained or lost may be referred to as interest,
profit/loss, gain/loss, or net income/loss.
ROI does not indicate how long an investment is held. With the help of the ARR,
the financial decision maker can decide whether to accept or reject the investment
proposal. The actual ARR would be compared with a predermined or minimum required
rate of return or cut-off rate.
ARR = Avg. annual profit after tax x 100
Avg. investment over the life of project
= 1483
9060/2
= 1483
50
4530
= 32.74%
Analysis:
A project would qualify to be accepted if the actual ARR is higher than the
minimum desired ARR. Here the actual ARR is higher than the cut off rate that is 8.00%.
So the project should be accepted.
6.2 RATIO ANALYSIS
Ratio analysis is a widely used tool of financial analysis. It can be used to

compare the risk and return relationships of different sizes. It is defined as the systematic
use of ratio to interpret the financial statements so that the strengths and weaknesses of a
51
firm as well as its historiacal performance and current financial cindition can be
determined.
A ratio is a quantity that denotes the proportional amount or magnitude of one

quantity relative to another. The ratios show the relationship in the more meaningful way
so as to enable us to draw conclusion from than a single figure.
Different types of ratios are,
6.2.1 SOLVENCY RATIO:
6.2.1.1 Current Ratio:
The current ratio is the ratio of the total current liabilities to

total current liabilities. The ideal C.R. is 2:1.It means that C.A is twice than its C.L and
this is generally considered to have good short-term financial strength means the
company may not have problems meeting its short-term obligations.
CR= Current Assets
Current liabilities
Particulars Year (Rs. In ,000)

2008-09 2009-10 2010-11 2011-12 2012-13
Current Assets 1948 2224 2109 2023 2195
Current liabilities 1395 1402 1413 1417 157
Current ratio 1.40 1.59 1.49 1.43 14.02
52
Analysis:
Here in all years the CR is decreasing but in 2011-12 it is very high so it shows
good capabilities of a firm in meeting the current obligation. So it suggests that project
should be accepted.
6.2.1.2 Quick Ratio:
Quick Ratio measures the ability of a company to use its quick assets to
immediately extinguish its current liabilities. Quick Ratio of 1:1 is considered
satisfactory. It refers that liquid Assets are equal to C.L. The Ratio less than 1:1 shows
the companies condition to be unsound & the higher ratio shows good financial position.
QR = Current Assets – (stock + prepaid expenses)
Current liabilities – BOD
PARTICULARS Year (Rs. In ,000)
2008-09 2009-10 2010-11 2011-12 2012-13
CA- (stock prepaid + 1712 1964 1837 1748 1900

exp.)
CL - BOD 1395 1402 1413 1417 157
Quick ratio 1.24 1.40 1.30 1.23 12.10
Analysis:
Here, in all five years, the ratio is higher or nearer to the original standard that is
1:1. So it is found to be satisfactory and it suggests that project should be accepted.
53
6.2.1.3Proprietary Ratio:
Proprietary ratio shows the relationship between shareholder’s funds and total
assets. The ideal propritory ratio is 1:3. It means company’s Total Assets should be 3
times more than its Owners Fund.
PROPRITARY RATIO = Shareholders fund
Total Assets

2008-09 2009-10 2010-11 2011-12 2012-13
Shareholders Fund 3920 5090 6365 7675 9237
Total Assets 9128 9034 9049 9092 9394
Proprietary Ratio 0.43 0.56 0.70 0.84 0.98
Analysis:
Here in all three years company's Shareholder Fund is less compare to its total assets. So
it is good for the firm and project should be accepted.
6.2.2 FINANCIAL LEVERAGE RATIO:
6.2.2.1 Debt Equity Ratio
The relationship between borrowed fund and owner’s capital is a popular

measure of the long term financial solvency of a firm. This relationship is shown by the
debt equity ratios. This ratio reflects claims of creditors and shareholders against the
54
assets of the firms. Alternatively this ratio indicates the relative proportion of debt and
equity in financing the assets of a firm.
Debt Equity Ratio = long term Debt
Share Holders Equity
Particulars Year (Rs. In ‘000)

2008-09 2009-10 2010-11 2011-12 2012-13
DEBT:
Long term debt 3813 2542 1271 0 0
Shareholder’s fund 3920 5090 6365 7675 9237
Debt equity ratio 0.97 0.50 0.20 0 0
Analysis:
Here in all years the ratios are less than 2:1 so this implies high safety margin for
the creditors and the firm would be able to meet the creditors claims. So the project
should be accepted.
6.2.2.2 Debt Services Coverage Ratio:
It is the ratio of debt service profit to debt payments on a piece of

investment real estate. It is a popular benchmark used in the measurement of an income-
producing property’s ability to produce enough revenue to cover its monthly mortgage
payments. The higher the ratio, the better it is. That would mean the property is
generating enough income to pay its debt obligations.
55
DSCR = Net profit after tax + interest on loan + depreciation
Interest on loan + loan installment

2008-09 2009-10 2010-11 2011-12 2012-13
DIVISION A
Net Profit after Tax 1138 1410 1515 1550 1802
Depreciation 870 870 870 870 870
Interest on term 686 540 388 235 83
loans
Total(A) 2694 2820 2773 2655 2755
DIVISION B
Interest on term 686 540 388 235 83
loans
Term loan 954 1271 1271 1271 1271
installments
Total(B) 1640 1811 1659 1506 1354
Yearly D.S.C.R. 1.64 1.56 1.67 1.76 2.04
(Total-A/Total-B)
Analysis:-
Here in all 5 years the ratios are above the 1 means property will generation
enough income to pay obligations so according to this engal project should be accepted.
56
6.2.3 PROFITABILITY RATIO
6.2.3.1 Gross Profit Ratio
It is also known as gross margin. It is calculated by dividing gross profit by

sales. Gross profit is the result of the relationship between price, sales volume and costs.
A change in gross margin can be bought about by change in any of these factors. A
higher ratio of gross profit to sales is a sign of good management as it implies that the
cost if production of the firm is relatively low. A relatively low gross profit is definitely a
danger signal.
GROSS PROFIT RATIO = Gross profit * 100
Sales

2008-09 2009-10 2010-11 2011-12 2012-13
Gross Profit 2488 2841 2924 2884 3168
Sales 8190 9009 9435 9522 10210
Gross Profit ratio 30.38% 31.54% 30.99% 30.29% 31.03%
Analysis:-
Higher gross margins for a manufacturer reflect greater efficiency in turning raw
materials into income. A ratios of 25% to 30% may be consider good. And here in all 5
years the ratios are above than 30% so it reflect greater efficiency of the firm to turn raw
material into income. So at this engal the project should be accepted.
6.2.3.2 Net Profit Ratio
57
Profit margin is an indicator of a company's pricing policies and its ability to control
costs. Higher the ratio, better is the operational efficiency of the firm.. it gives to measure
overall profitability of the firm.
Net Profit Ratio = Net profit after tax * 100
Net sales
Particulars Year (Rs. In ,000)

2008-09 2009-10 2010-11 2011-12 2012-13
Profit after tax 1138 1410 1515 1550 1802
Net sales 8190 9009 9435 9522 10210
Net profit ratio 13.89% 15.65% 16.06% 16.28% 17.65%
Analysis :
Here in all 5 years, ratios are increasing. So this shows the good ability of firm over
control it costs and its profitability so the project should be accepted.
6.2.3.3 Return On Capital Employed Ratio:
This Ratio is used in finance as a measure of the returns that a company is

realising from its capital employed. The ratio can also be seen as representing the
efficiency with which capital is being utilised to generate revenue. The higher the ratio,
more efficient use of the capital employee.
Return on capital employed = Net Profit Before Interest & Tax X 100
58
Total Capital Employed
Particular Year(Rs. In ‘000)

2008-09 2009-10 2010-11 2011-12 2012-13
N.P.B.I.T 2167x 100 2487x 100 2552 x100 2504 x100 2760 x 100
Total capital 9004 8903 8907 8946 9237
employed
Return on capital 24% 28% 29% 28% 30%

employed ratio
Analysis:
Here the ratios are increasing in each year so it shows the good efficiency of
capital employee to be used which will generate good revenue. It means projected loan
will generate good revenue for the firm.
6.3 SENSITIVITY ANALYSIS
Sensitive analysis is the popular method for assessing risk. It is done to set up the
relationship between the basic underlying factors (like the quantity sold, unit selling
price, life of the project, etc.) and net present value. It estimates the range of variation &
the most likely value of each of the basic underlying factors.
Sensitive analysis method forces the management to identify the underlying

variables and their interrelationship. It indicates the need for further work. If the net
59
present value or internal rate of return is highly sensitive to change in some variables, it is
desirable to gather further information about that variable.
We will see sensitivity analysis in five different cases In Projected Profitability

Working Statement.
6.3.1 Selling Price decrease by 10%
Particulars Year (Amount Rs. In ‘000)
2008-9 2009- 2010- 2011- 2012-

10 11 12 13
1) Efficiency percentages 75% 75% 80% 80% 85%

(%)
2) Net sales 7371 8108 8492 8570 91

89
I) Cons. Of raw 2457 2703 283 285 30

materials 0 7 63
II) Power & fuel 458 479 516 513 5

45

8

9

7

Expenses 3

0
60

6

8
Work in process 110 121 127 128 137
4) TOTAL COST OF 5702 6168 6511 6639 7042

PRODUCTION
5) Cost of sales 5702 6168 6511 6639 7042
GROSS PROFIT 1669 1940 1981 1931 2147
I ) on term loans 686 540 388 235 83

others
7) ADMINISTRION 321 353 372 379 408
EXPENSES
10) PROFIT BEFORE 662 1047 1221 1317 16

TAXATION 56

7
61
12) NET PROFIT 463 733 855 922 11

59
13) LESS: DRAWINGS 240 240 240 240 2

40
14) REPAINED PROFIT 223 493 615 682 919

70
16) NET YEARLY CASH 1093 1363 1485 1552 178

9
GENERATION (CFAT)
%Change in CFAT after (38) (33) (31) (29) (26)

selling price decrease by
10%
Analysis:
Here by decreasing 10% in job work charges, actual CFAT will also decrease by
31% (average of 5 years).
6.3.2 Raw material consumed increase by 10%
2008-9 2009- 2010- 2011- 2012-
62
10 11 12 13

(%)
2) Net sales 8190 90 9435 9522 10210

09
II) Power & fuel 458 479 516 513 5

45

8

9

7

Expenses 3

0

6

8
Work in process 110 121 127 128 137
4) TOTAL COST OF 5948 6438 6794 6925 7348

PRODUCTION
63
5) Cost of sales 5948 6438 6794 6925 7348
GROSS PROFIT 2242 2571 2641 2597 2862
I ) on term loans 686 540 388 235 83

others
7) ADMINISTRION 321 353 372 379 408

EXPENSES
10) PROFIT BEFORE 1235 1678 1881 1983 2371

TAXATION

1
12) NET PROFIT 864 1175 1317 1388 1660
13) LESS: DRAWINGS 240 240 240 240 2

40
14) REPAINED PROFIT 624 935 1077 1148 142

0

70
16) NET YEARLY CASH 1494 1805 1947 2018 229

0
GENERATION (CFAT)
64
%Change in CFAT after (15.50) (11.52) (9.27) (7.43) (5.

selling price decrease by 88)
10%
Analysis:
Here by increasing 10% in raw material consumed, actual CFAT will decrease by
9.92% (average).
6.3.3 Power & fuel expenses increase by 10%
2008-9 2009- 2010- 2011- 2012-

10 11 12 13

(%)
2) Net sales 8190 9009 9435 9522 102

10

0 63
II) Power & fuel 504 527 568 564 600
65

9

7

Expenses 3

0

6

8
Work in process 110 121 127 128 137
4) TOTAL COST OF 5748 6216 6563 6690 7097

PRODUCTION

5) Cost of sales 5748 6216 6563 6690 7097
GROSS PROFIT 2442 2793 2872 2832 3113
I ) on term loans 686 540 388 235 83
66

others
7) ADMINISTRION 321 353 372 379 408

EXPENSES
10) PROFIT BEFORE 1435 1900 2112 2218 2622

TAXATION
11) PROVISION FOR TAXES 431 570 634 665 78

9
12) NET PROFIT 1004 1330 1478 1553 1833
13) LESS: DRAWINGS 240 240 240 240 2

40
14) REPAINED PROFIT 764 1090 1238 1313 159

3

70
16) NET YEARLY CASH 1634 1960 2108 2183 246

3
GENERATION (CFAT)
%Change in CFAT after (7.71%) (3.92%) (1.77% 00% 1.2

selling price decrease by ) 3%
10%
Analysis:
67
Here by increasing 10% in power & fuel exp., actual CFAT will decrease by
2.43%.
6.3.4 Direct labour & wages increase by 10%
2008-9 2009- 2010- 2011- 2012-

10 11 12 13

(%)
2) Net sales 8190 9009 9435 9522 102

10

63
II) Power & fuel 458 479 516 513 5

45

9

7

Expenses 3

0
68

6

8
Work in process 110 121 127 128 137
4) TOTAL COST OF 5759 6230 6580 6714 7125

PRODUCTION
5) Cost of sales 5759 6230 6580 6714 7125
GROSS PROFIT 2431 2779 2855 2808 3085
I ) on term loans 686 540 388 235 83

others
7) ADMINISTRION 321 353 372 379 408
EXPENSES
10) PROFIT BEFORE 1424 1886 2095 2194 2594

TAXATION

8
69
12) NET PROFIT 997 1320 1466 1536 1816
13) LESS: DRAWINGS 240 240 240 240 2

40
14) REPAINED PROFIT 757 1080 1226 1296 157

6

70
16) NET YEARLY CASH 1627 1950 2096 2166 244

6
GENERATION (CFAT)
%Change in CFAT after (9.98%) (4.41%) (2.33% (0.64% 0.5

selling price decrease by ) ) 3%
10%
Analysis:
Here by increase in labour & wages, actual CFAT will decrease by 3.37%
6.3.5 Combine effect of above all four conditions that are,
• Decrease in selling price by 10%

• Increase in R.M by 10%
• Increase in power & fuel exp. by 10%
• Increase in direct labour & wages by 10%
70
2008-9 2009- 2010- 2011- 2012-

10 11 12 13
1) Efficiency percentages 75 75% 80% 80% 85%

(%) %
2) Net sales 737 8108 8492 857 91

1 0 89
I) Cons. Of raw 270 2973 3113 314 3369

materials 3 3
II) Power & fuel 50 527 568 564 600

4

3

9

7

Expenses 3

0
Work in process 0 110 121 127 128
71
Work in process 110 121 127 128 137
4) TOTAL COST OF 605 6548 6915 7051 7486

PRODUCTION 1
5) Cost of sales 605 6548 6915 7051 7486

1
GROSS PROFIT 132 1560 1577 1519 1703

0
I ) on term loans 68 540 388 235 83

6

others
7) ADMINISTRION 321 353 372 379 408

EXPENSES
10) PROFIT BEFORE 313 667 817 905 121

TAXATION 2
12) NET PROFIT 219 467 572 633 848
13) LESS: DRAWINGS 240 240 240 240 24

0
14) RETAINED PROFIT (21 227 332 393 608

)
72

0 0
16) NET YEARLY CASH 849 1097 1202 1263 1478
GENERATION (CFAT)
%Change in CFAT after (51.98 (46.23 (43.99 (42.06 (39.25

selling price decrease %) %) %) %) %)
by 10%
Analysis:
Here by applying all conditions, actual CFAT will decrease by 44.70% (average).
This shows how one variable affect the overall CFAT. If minor changes are done
in the variable, there will be a major effect on the CFAT.
Chapter 7 LIMITATIONS
• Data which are shown in project report for five years are just expected figures. So the
result of project appraisal can not consider the 100% correct result then also I have
tried my best to find out complete result.
• All financial tools which are applied in this appraisal has their own limitations. So the
result can not consider the final result.
• Because of time limitation, I have taken only one case study. I know that this is not
enough to give entire idea about the project appraisal process but I put my enough
efforts to analysis this case study.
73
Chapter 8 CONCLUSION & SUGGESTIONS
As I studied this case, I came to know how various financial tools practically
apply in real appraisal of the project, and how the final decision is made that is whether
project should be selected or not.
All budgeting tools, ratios and sensitive analysis are been used by me in
appraising the project which give proper idea about whether the loan taken by firm will
use in right way, whether it will increase the profit, whether it will expand the firm’s
capacity.
And by doing the practical study, I will conclude that this project looks feasible, it
will create a good result and fulfill the requirement of the firm so this project should be
selected.
SUGGESTIONS
➢ Bank provide loan on the basis of only re-payment capacity of the borrower and it
considers only DSCR to appraise the loan to the business which is not enough to
check the feasibility of the project and appraising such high amount of loan.
Therefore the bank should also consider various capital techniques like pay back
period, NPV, IRR, PI etc. along with DSCR and debt equity ratio.
➢ As I done in financial analysis, different budgeting tools are also need to be
analysis instead of only some ratios, BEP analysis, because they are also
improtant criterias which may be give good result from the different point of
view.
Chapter 9 BIBLIOGRAPHIES
Name of book
74
• Financial management, text, problem and case, by M Y Khan & P K Jain.

• Project planning, analysis, selection, implementation & review by Prasanna Chandra,
addition 4th.
• Bank’s other reports
• Annual report of the bank
Name of site
• www.bankneindia.com
• www.sudicobank.com/aboutus.htm
• http://www.sudicobank.com/services.htm
• en.wikipedia.org/wiki/Project appraisal tech
• Http://en.wikipedia.org/wiki/NPV/IRR/ARR/PI/PB
75

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Project Appraisal At Surat District Co Operative Bank Ltd.

CHAPTER: 1: INTRODUCTION OF BANK & CO

The development of banking is an inevitable precondition for the healthy and

As per Section 5(c) of Banking Regulation Act, 1949 a "Banking Company"

1) Early phase from 1786 to 1969 of Indian Banks.

1.3 Challenges facing Banking industry in India

The banking industry in India is undergoing a major transformation due to

➢ Deregulation: This continuous deregulation has made the Banking market

➢ Diffused Customer loyalty: This will definitely impact Customer preferences, as

➢ Misaligned mindset: These changes are creating challenges, as employees are

of uncertainty and Control orientation. Acceptance of technology is slowly

1.4 Co-operative banks in India

 Cooperative banks in India finance rural areas under:

 Cooperative banks in India finance urban areas under:

• Small scale units

1.5 Structure of Co-Operative Banks

1.5.1 Primary Credit Societies:-

In urban areas, to provide non agriculture credit, urban co-operative banks

1.5.2 The Central Co-operative Banks (CCBs):-

1.5.3 The State Co-operative Banks (SCBs): -

1.5.4 Land Development Banks:-

The financial resources of land development banks are raised by floating

1.5.5 The State Land Development Bank:-

The state land development banks rise their resources by floating

THE SURAT DISTRICT CO-OP.BANK LTD.

CHAPTER 2 COMPANY PROFILE

2.1 Introduction of the Surat Dis. Co-Operative Bank Ltd:

ALL CO-OPERATIVE ORGANIZATION LIKES:-

The Surat District Milk Producer’s Co-operative Union Ltd.

2.2 Organization Structure of the bank: -

ORGANISATION STRUCTURE OF SURAT DIS. CO-OPERATIVE BANK LTD.

2.3 BOARD OF DIRECTORS OF SURAT DIS. CO-OPERATIVE

Sr. Board of directors

1 Shri Dilipbhai B Bhakta

2 Shri Amarshinh J Chaudhari

3 Shri Bhagabhai P Patel

4 Shri Maganbhai R Patel

5 Shri Narayanbhai H Doanwala

6 Shri Haribhai L Patel

7 Shri Ramanbhai A Patel

8 Shri Shradhbhai S Patel

9 Shri Narendrabhai D Solanki

10 Shri Maganbhai B Vasava

11 Shri Jayshigh D Vasava

12 Shri Kiritbhai R Desai

13 Shri Pravinchandra C. Parekh

14 Shri Parbhubhau N Vasava

15 Mrs. Dr. Vikasben K Desai

16 Shri Chhotubahi L Patel

17 Shri Nayanbhai N Bhartiya

18 Shri Leelachand V. Patel

19 Shri Sureshbhai J Patel

20 Shri Ajaybhai J Shah

21 Shri Pradipshigh G Atodaria

2.4 Staff details of Surat Dis. Co-operative Bank Ltd.

Designation Total staff members

All 57 branches of Surat district co-operative bank are fully computerized.

2.7 Growth Table of Surat Dis. Co-operative Bank Ltd.