Professional Documents
Culture Documents
Report On Dena Bank PDF
Report On Dena Bank PDF
ON
CREDIT APPRAISAL UNDER SME SEGMENT
AT
DENA BANK
REGIONAL OFFICE
(NEW DELHI)
SESSION 2010-2012
loans & advances, credit transaction and credit appraisal to Small and Medium
Enterprises. SME sector is critical to India’s economy and potentially a key driver of
After undertaking in the depth of theoretical study such as type of advances, SME
policy of DENA BANK, credit rating, CMA, Working Capital and various financial
under SME’s, It was found that the several industries are growing under banking finance
and SME’s is a one of the fast growing Industries from all the sectors.
As per the 3rd census report, total output of the registered units in the year 2001-02 was
estimated to be Rs. 70,861.73 crores. The SSI sector employed 2,49,32,763 persons
Thus SME plays a very significant role in the socio-economic development of the
country.
The project was an attempt to understand and perform the work in credit transaction
and credit appraisal proposal which I have included is just an example of it.
I have worked on many such proposals, which are beyond the scope of this project.
Hence the whole experience of working in such a renowned public sector unit was very
ACKNOWLEDGEMENT
The project Title ‘‘Credit appraisal under SME segment in Dena Bank” has been
conducted by me during 15th June 2011 to 30th July 2011 at Dena Bank, Regional Office,
Delhi. I have completed this project, based on the primary and secondary research under
the guidance of my bank guide Mr. J.D. Sinha, Sr. Manager (SME).
He has helped me to learn about the process of giving loans & advances to SME
sector by giving me a valuable insight into the role played by Banks in SME sector. My
increased spectrum of knowledge in this field is the result of their constant supervision
and direction that have helped me to absorb relevant and high quality information.
Last but not the least, I feel indebted to all those persons and organizations who have
DECLARATION
I hereby declare that the project report entitled “Credit Appraisal Under SME’s
Administration, is the record of authentic work carried by me during the period from
15.06.2011 to 30.07.2011 and the project report has not formed the basis for the award of
any degree, diploma, associate ship, fellowship or similar other titles. It has not been
submitted to any other university or institution for the award of any degree or diploma.
(Signature)
RIDDHIMA SINGH
DATE:
COLLEGE CERTIFICATE
This is to certify that Miss. RIDDHIMA SINGH is the student of MBA 3 rd Sem. (2010-
12) has completed her summer training and prepared this report on “Credit Appraisal
Under SME segment” at DENA BANK’s Regional Office in New Delhi. Her work is
Chapter No.
Page No.
1. Company Profile
2.2 Milestones
2. Research Methodology
4. Theoretical Analysis
5. Data Processing & Analysis
6. Case Study
8. Conclusions
9. Bibliography
Chapter-1
Company Profile-
DENA BANK
1.1 Overview of Dena Bank
Dena Bank is one of the earliest nationalized banks in India. Since its inception, the
bank has become a renowned name in the field of banking and financial solutions. It is
trusted all over the country by thousands of consumers. By being a customer of Dena
Bank, one can easily enjoy financial stability and also get good returns on the services
Dena Bank was founded on 26th May, 1938 by the family of Devkaran Nanjee under
the name Devkaran Nanjee Banking Company Ltd. It became a Public Ltd. Company in
December 1939 and later the name was changed to Dena Bank Ltd.
In July 1969 Dena Bank Ltd. along with 13 other major banks was nationalized and is
now a Public Sector Bank constituted under the Banking Companies (Acquisition &
Transfer of Undertakings) Act, 1970. Under the provisions of the Banking Regulations
Act 1949, in addition to the business of banking, the Bank can undertake other business
Bank of Baroda
Bank of India
Credit card in rural India known as "DENA KRISHI SAKH PATRA" (DKSP).
One among six Public Sector Banks selected by the World Bank for sanctioning a
loan of Rs.72.3 crores for augmentation of Tier-II Capital under Financial Sector
One among the few Banks to receive the World Bank loan for technological up
(DKSP).
Mission Statement-
Staff - positive work environment and opportunity for growth and achievement,
Vision Statement -
DENA BANK will emerge as the most preferred Bank of customer choice in its area
Logo
The logo of Dena Bank represents Lakshmi, the Goddess of wealth, according to
Hindu mythology. It was the desire of the founding fathers of the Bank that the Bank
should be a symbol of prosperity for all its clients, and the logo represents this promise.
The contemporary 'D' in the logo reflects the dynamism, dedication and the drive
To evolve and position the bank as a world class, progressive, cost-effective and
integrating frontiers of technology and serving various segment of society especially the
weaker section of the society: committed to excellence in serving the public and also
excelling in the corporate values. Corporate excellence emanate from good corporate
professionalism, social responsiveness, and ethical business practices with this in view,
the has been making efforts for adopting the best practices. The bank commitment
management and to ensure best performance by staff at all the levels to maximize the
operational efficiency. Adopting the corporate governance as a work ethos, the bank is
Core Banking
Deposit Scheme Loan Scheme Solution
Dena Connect Dena
Premium Savings Account
India Remit
» Dena Niwas Housing Value Added
Scheme
Finance Scheme
» Premium Current Services
» Dena Vidya Laxmi
Account Scheme
Educational Loan Dena ATM Services
» Dena Jeevan SB Account
Scheme
» Dena Maha Tax Bachat Dena Bill Pay
» Dena Suvidha
Yojana
» Dena Super Premium
(Personal Loan) Scheme Dena m-Banking
» Dena Auto Finance
Current Account
Scheme Telebanking
» Dena Laxmi Gold
Deposit Scheme
» Dena Consumer Electronic Fund
Durable Loan
» Dena Savifix Deposit
» Dena Trade Finance Transfer
Scheme
» Dena Freedom Deposit
Scheme Inbound
» Dena Mortgage Loan
Scheme
Scheme Remittances
» Dena Samruddhi
Deposit Scheme
» Dena Senior Citizen Direct tax
Pensioners’ Loan
» Dena Fixed Deposit
Scheme collection
Scheme
» Dena Senior Citizen
» Dena Rent Scheme Bank assurance
(Finance
Scheme Indirect Tax
» Dena Recurring Deposit
Scheme Distribution of
» Dena Loan Linked Mutual Funds
Recurring Deposit Scheme
» Dena Minor Savings RTGS / NEFT
Scheme Dena e-Tax Pay
1.6 AREA OF OPERATION: - REGIONAL OFFICE
1. Alipore road
2. Asset Rec
3. Chandni Bazar
4. Chattarpur
5. Connaught Circus
6. Daryaganj
7. Dwarka
8. G.B Road
9. Hari Nagar
13. Mayapuri
14. Mayur Vihar
15. Nafgargarh
16. Nangloi
17. Navada
19. Okhla
21. Papargunj
22. Pitumpura
25. Rohini
26. Safdargunj
31. Wazirpur
32. Ajmer
33. Alanpur
34. Alwar
35. Ambawadi
36. Bharatpur
37. Bhilwara
38. Bikaner
40. Kishangarh
41. MN Jaipur
43. Mansarovar
44. Jodhpur
45. Kota
46. Pali
47. Parsad
48. Ramgarh
49. Sikar
50. Udaipur
55. Bavana
56. Shahdara
57. Hanumangarh
58. Chitrakoot
59. Saket
1.8 WORKFLOW MODEL
Research
Methodology
2.1 INTRODUCTION
RESEARCH-
Research is the search for and retrieval of existing, discovery or creation of new
METHODOLOGY-
Selection of method is again a very cautious work and has to be done with proper
understanding.
RESEARCH METHODOLOGY-
various steps are studied that are used for studying the research problem along with
Therefore research methodology not only includes the research methods but also
considers the logic behind the methods in the context of research study .It helps in
explaining why a particular method or technique is being used and why not others ,so
aggregate level and at the Government level. The main reason is Credit appraisal under
Due to the limitations of knowledge about problems and challenges faced by the Credit
Appraisal SME’s and the factors responsible for their sickness are summarized as under:
Infrastructural constraints/bottlenecks
Delayed/inadequate credit
Insistence on collateral/margin
Government policies
Financial problems
The choice of this subject was based on many reasons; there has not been much research
about credit appraisal under SME’s and also, it is a highly actual subject availability of data
The objective of this project report is to study the working of DENA BANK for
providing loans and advances to Small and Medium Enterprises. SME sector is
critical to India’s economy and potentially a key driver of growth, job creation,
innovation and economic prosperity. SMEs contribute about 40% of India’s value
addition manufacturing, almost 50% of India’s total exports and 45% of Industrial
units. They produce different products, ranging from simple items to high-tech
international market.
SCOPE OF THE STUDY
thing practically.
Research Design
seeks to discover new relationships while conclusive research is design to take decisions.
questions that serve as guide for most research projects. This type of research defines
hypotheses which are then tested by conclusive research .Conclusive research design can
be of two types viz. the case method and the statistical method.
In my case I have opted for conclusive research design by opting case study method.
• In my case I have opted for conclusive research design by opting case study
method.
• This research contains secondary data. A little bit primary source of data
• All analysis and conclusion is derived on the basis of the case study data.
• To select this case study random sample technique is used.
Sampling technique:
bit primary source of data collection is also used to get an insight of case study. All
analysis and conclusion is derived on the basis of the case study data. To select this case
As far as the study is concerned, sound information base is needed in order to classify the
problem quickly .Basically data is collected from two sources viz. primary source and
secondary source.
Sources of data:
Primary data
through a direct source like survey to obtain the first hand information. Others resources
Secondary data:
It consists of information that already exists somewhere and has been collected for
specific purpose in the study. The secondary data for this study is collected from various
sources like
• Websites
• Books
• Newspaper
The reasons for using these sources for collecting data are:
Offering credit is an operation fraught with risk. Before offering credit to an organization,
its financial health must be analyzed. Credit should be disbursed only after ascertaining
banks assign credit ratings. These credit ratings are used to fix the interest rate and
quantum of installment.
This study aims to analyze the credit health of organizations that approach Dena Bank
for foreign exchange credit facilities. After analyzing credit health, the credit rating is
determined. On the basis of credit rating, the interest rate guidelines circular is consulted
to fix a price for the credit facilities i.e. determine the interest rate.
2.7 LIMITATION OF THE STUDY
Time:
The short time duration of one & half months is very inadequate.
Vast topic:
Data gathering:
Gathering of data relating to various products of Dena bank was a little difficult task.
Scrutinizing of information:
Data mining was a time consuming task. Useful information had to be extracted after
Introduction &
Emergence of
SMEs
3.1 INTRODUCTION TO SME
YEAR 1950
In the year 1950, SME was defined as a size of Gross Investment in fixed assets
(incl. Plant & machinery, land & building etc.) Not exceeding Rs.5lakhs and strength of
workforce viz. Employment less than 50 workers per day using power or less than 100
Small scale industries (SSI) are those engaged in the manufacture, processing or
preservation of goods and whose investment in plant and machinery (original cost) does
not exceed Rs.1crore. This would include units engaged in mining or quarrying,
servicing and repairing of machinery. In this case of ancillary units, the investment in
plant and machinery (original cost) should not exceed Rs.1crore to be classified under
SSI.
The investment limit of Rs.1crore for classification as SSI has been enhanced to
Rs.5crore in respect of certain specified items under hosiery, hand tools, drugs
pharmaceuticals and stationary items and sports goods by the Government of India.
YEAR 2006
The Government of India has enacted the Micro, Small and Medium Enterprises
Development (MSMED) Act, 2006 on June 16, 2006 which was notified on October 2,
2006. Consistent with the notification of the Micro, Small and Medium Enterprises
Development (MSMED) Act 2006, the definition of micro, small and medium
Introduction:
MICRO:-
investment in plant and machinery (original cost excluding land and building and such items
as in 1.1.1) does not exceed Rs. 25 lakh, irrespective of the location of the unit.
equipment (original cost excluding land and building and furniture, fitting and such items as
SMALL:-
investment in plant and machinery (original cost excluding land and building & the items
specified by the Ministry of Small Scale Industries vide its notification No.S.O.1722 (E)
Dated October 5, 2006 as furnished in Annexure I) does not exceed Rs. 5 crores.
Small (service) Enterprises
equipment (original cost excluding land and building & furniture, fittings and other not
directly related to the service rendered or as may be under the micro, Small and Medium
Enterprises development, (MSMED), Act 2006) does not exceed Rs. 2 crore.
MEDIUM:-
investment in plant and machinery (original cost excluding land and building and the items
specified by the Ministry of Small Industries vide its notification No.S.O. 1722(E) dated
October 5, 2006) is more than Rs. 5 crore but does not exceed Rs. 10 crore.
equipment (original cost excluding land and building and furniture, fittings as such items as
in 1.1.2) is more than Rs. 2 crore but does not exceed Rs. 5 crore.
Bank’s lending to medium enterprises will not be included for the purpose of reckoning
1. Agriculture inputs
3. Electrical, Electronics
4. Bio-engineering
5. Engineering
6. Food Processing
7. Electro-medical equipment
9. Sports goods
SMEs have been passing through a transitional period. Those SMEs who have international
business outlook, competitive spirit, strong technological base, and willingness to restructure
themselves they withstand the present challenges and comes out with shining colures by
STRENGTHS WEAKNESS
CONSULTANCY SERVICES
OPPORTUNITIES THREATS
THEY GET SUPPORT FOR TECHNOLOGICAL UP- SLOW IMPROVEMENTS IN QUALITY TO MEET THE
MARKETING ASSISTANCE AND EXPORT PROMOTION NON-TARIFF BARRIERS FROM DEVELOPED COUNTRIES
SUPPORT
Theoretical
Framework
4.1 DISCUSSIONS ON TRAINING
My Work Profile:-
The summer training was held in the Regional office of Dena Bank. The work profile
at the office was based on the loans and advances given to small and median enterprises
(SME). Hence the whole work was based on the Pre-sanction formalities of credit given to a
particular enterprise. The responsibilities handled at the office were started from reading the
company’s project file (sent by the company to whom the loan is to be sanctioned) and
continued till the loan is sanctioned by the responsible authority according to the limit to be
sanctioned.
4.2 GENERAL INSTRUCTION ON LOANS AND ADVANCES
The loan is sanctioned by keeping in mind the various instructions and conditions:-
1. Efficient management of loans and advances portfolio has assumed greater significance
as it is the largest asset of the bank having direct impact on its profitability. In the wake
provisioning, increased competition and emergence of new types of risks in the financial
sector, it has become imperative that the credit functions are strengthened. RBI has also
been emphasizing banks to evolve suitable guidelines for effective management and
2. With a view to ensure a healthy loan portfolio, our bank has taken various steps to
bring its policies and procedures in line with the changing scenario which also aim at
and post- sanction monitoring systems. Further, bank has been continuously endeavoring
having potential for credit growth. Bank has laid down detailed guidelines to be followed
while considering credit proposals, some of the important ones are listed as under: -
All loan facilities be considered after obtaining loan applications from the borrower and
compilation of Confidential Report on him and guarantors. The borrowers should have
Project for which the finance has been granted should be technically feasible and
economically viable i.e. it should be able to generate enough surplus as to service the
Cost of the project and means of financing the same should be properly assessed and tied
up. Both under-financing and over- financing can have an adverse impact on the
Borrowers should be financially sound, enjoy good market reputation and must have their
stake in the business i.e. they should possess adequate liquid resources to contribute to
Loan should be sanctioned by the competent sanctioning authority as per the delegating
loaning powers and should be disbursed only after execution of all the required
documents.
Projects financed must be closely monitored during implementation stage to avoid time
and cost overruns and thereafter till the adjustments of the bank’s loan.
3. Bank extends loan facilities by way of fund based facilities and/or non fund based
facilities. The fund based facilities are usually allowed by way of term loans, cash credit,
bills discounted/purchased, demand loans, overdrafts etc. Further, the bank also provides
non fund facilities by way of issuance of guarantees, deferred payment guarantees, bills
4. The foregoing list contains the usual types of facilities undertaken by the bank. In case
loan application is received for any particular facility which is not specifically mentioned
above, the same should be forward to controlling offices for considerations, provided the
5. The usual types of facilities sanctioned by the bank to the borrowers, as also other aspects
and Limitation etc. are discussed later. These are the briefly explanations hereunder:
All advantages are granted basically to provide working capital or for term
finance. Working capital means the funds required for carrying on normal trading and/or
manufacturing activities. Term finance covers funds required for acquiring means of
production such as land and building and plant and machinery. Working capital limits are
granted for short periods of say, one year and have to be renewed at the end of that
period.
Proposal for term finance do not require renewal but only a periodical review. WCDL
is payable on demand on specific date, one year from the date of debit to WCDL account
(or against inventory) or for sales i.e. for financing receivables. Limits such as cash credit,
loans/overdrafts are for production whereas bill limits against hypothecation of book debts
Fund limits are those in which the bank’s funds are directly utilized, as for instance, in
the case of limits against stocks or purchasing/discounting of bills. Non-fund limits are those
in which the bank’s funds are not directly involved but where the bank’s funds would be
involved in certain contingencies, as for example, in guarantees and letter of credit limits.
Advances may be granted against security or without security. Thus, an overdraft limit
may be given against shares or securities or as a clean limits. Similarly, bills limits could be
secured or unsecured and so also packing credit limits. Temporary overdrafts are also clean
advances. Limits which are granted against security, are secured by creating a charge over
the security. This charge could be by way of pledge, hypothecation, mortgage (on immovable
property) or assignment.
5.0 OVERDRAFTS:
All overdraft accounts are treated as current accounts. Normally overdrafts are allowed
against the bank’s own deposits, govt securities, approved share or debentures of companies,
life insurance policies, govt supply bills, cash incentive, duty drawbacks, personal securities
etc.
6.0 TERM LOANS:
Tern loans are sanctioned for acquisition of fixed assets like land, building, plant &
machinery, office equipments, furniture & fixture, etc for purchase of transport vehicles, for
purchase of agriculture equipments, machinery & other movable assets like tractors, pumps
The term loan would be a loan, which is not a demand loan and is repayable in terms i.e.
Term loans are normally granted for the period varying from 3 to 7 years and in exceptional
Cash credit account is a drawing account against credit granted by the Bank and is
operated in exactly the same way as a current account on which an overdraft has been
sanctioned. The various types of securities against which CC is allowed are pledge,
In CC accounts borrower is allowed to draw on account within the prescribed limit, and when
required.
Letter of credit (LC) is issued by the bank at the request of its customer in favor of third
party informing him that the bank undertakes to accept the bills drawn on its customers up to
the amount stated in the LC subject to fulfillment of the conditions stipulated therein.
Therefore, when bank issues LC, it assumes responsibility to pay its beneficiary on
production of bills drawn in accordance with the terms and conditions of the LC.
Whenever the bills drawn under LC are not paid by the party from its own resources or out of
available DP in the CC account on its due date, the LC is said to have devolved.
9.0 GUARANTEE:
Issuing of guarantees on the behalf of their customers to third parties is one of the
services rendered by commercial banks. Such guarantees are contracts to perform the
promise or discharge the liability of the constituent on whose behalf they are given, in case of
his default or failure to perform the contracts undertaken by him. The party in whose favor
the guarantee is given is called the beneficiary, whereas the issuing bank is called the
guarantor and the third party on whose behalf of guarantee is given is called the principal
debtor. Every guarantee must specify the amount and period of the liability to be undertaken
by the bank.
A Demand loan account is an advance for a fixed amount and no debits to the accounts are
made subsequent to initial advance except for interest, insurance premium and other sundry
charges.
Demand loan would be loan, which is repayable on demand in one shot i.e. bullet repayment.
Normally, demand loans are allowed against the Bank’s own deposits, govt. securities,
ornaments, and mortgage of immovable property. A separate account for each demand loan
A credit rating scheme has been introduced to encourage the SSI units to get their credit
rating done by the reputed credit rating agencies, with a view to facilitate credit flow to them
and enhancing the comfort-level of lending banks. The scheme, being implemented by the
NSIC, envisages that 75 percent of the cost of the credit rating exercise, with a maximum
limit of Rs.40,000 per SSI unit, would be reimbursed to the SSI units availing of this one-
time facility. Six credit rating agencies namely, CRISIL, ICRA, Dun and Bradstreet, Onicra,
Care and Fitch, which have agreed to credit, rate SSI units through NSIC.
TIME PREMIUM – 0.50% [FOR TERM LOAN FOR MORE THAN 36 MONTHS.]
4.7 CIBIL (CREDIT INFORMATION BUREAU (I) LTD)
In terms of RBI guidelines, all banks have been advised to submit credit information
in respect of their borrowings accounts to cibil, to create a database to be used by the member
credit information to CIBIL, RBI had advised banks that till such time the appropriate
Effective from October 10,1988, RBI replaced the CAS by new scheme known as
Under the scheme RBI would carry post sanction scrutiny of proposals relating to
sanction of term loans as well as working capital limits beyond stipulated level.
When CMA was introduced banks were required to report to RBI for post sanction scrutiny
all sanctions of working capital limits Beyond Rs. 5 crores and term loan exceeding RS. 2
Since December1992, the stipulated level for post sanction scrutiny by RBI for
working capital facilities (fund based) has been raised to Rs.10 crores and above. Any
sanction of term credit including deferred payment guarantees in which the share of the
Data
Processing
&
Analysis
RATIO ANALYSIS
a) Growth in sales
b) Margin of profit
d) Financial strength/health
e) Return on investment
Financial ratios in respect of these parameters should be calculated and used as a measure of
evaluation of performance. However, ratio by themselves cannot be good or bad but must be
judged against ratio of previous years or against those of similar units in the same industry or
of an entire industry. Reasons for an upward or downward trend in ratios have to be found
1. Growth in Sales:
Growth in sales is an important indicator of progress of a unit. The growth may be either in
terms of value or in terms of number of unit sold. Thus, although the figures may show an
increase in sales, the increase may be due to an increase in the price per unit.
2. Margin of profit:
Every concern would like to make a profit. However, the margin of profit and the quantum
have to be compared over the years. There are four ratios through which this can be done.
Net Sales
The efficiency of a concern is judged from the extent to which it utilizes its assets. If assets
are not fully utilized, it would mean that the money invested in these assets is lying idle and
this is a cost to the firm. The assets could be land and building, plant and machinery or
inventory or debtors; each of these should be utilized in such a way that they contribute the
maximum towards the profits of the firm. For a manufacturing concern, the use of assets is
for achieving sales and hence ratios based on sales and assets are used to evaluate
Normally, a higher ratio means better utilization of assets. However, too high a ratio
(especially Current Assets Turnover ratio) could mean inadequate investment for that levels
Or
Turnover of receivables
The higher the number of months ratio, the greater is the investment needed for a given level
of production and sales. Usually, lower ratios indicate better utilization of current assets.
4. Financial Strength:
Liquidity is the ability of the firm to pay off current liabilities (normally) by the conversion
Solvency is the ability of the firm to repay all its borrowings (i.e. current) as well as term
liabilities. This question will of course arise only when the firm will be liquidated and all its
Outside Liabilities = all liabilities except owners’ capital, reserves and surplus/deficit in
Solvency (which also means tangible assets minus total tangible net worth) can also
The higher the proportion of tangible assets to outside liabilities, the better is the solvency.
There are two other measures of solvency, both based on debt/equity ratios. They are:
a. Outside liabilities
Tangible net worth
b. Term liabilities
Tangible net worth
The second measure is used by term lending institutions. The lower these ratios are, the
In order to judge whether the borrower will able to pay loan installments and interest
periodically, the Debt Service Coverage (D.S.C.) ratio is used. It is calculated thus:
D.S.C. Ratio = Net profit (after tax) and interest on long term debts & depreciation
Installment of long term debt & deferred payments & interest
It is also important for the lender bank to assess the firms debt paying capacity over a period.
Such capacity is derived by calculating ratio like Debt Service Coverage Ratio minimum
Debt Equity Ratio = It is a financial ratio indicating the relative proportion of equity and
debt used to finance a company's assets. This ratio is also known as Risk, Gearing or
Leverage. A high debt equity ratio is not preferable by an investor as the company already
has acquired high amount of funds from market thereby reducing the investor share over the
Interest Coverage Ratio is an indicator as to the number of times the profit covers the
interest liability of the company. This is a risk parameter and an indicator to the extent to
which the interest liability will be serviced on the time. Interest for this purpose would mean
gross interest payable by the borrower and profit would mean the gross profit before interest.
The more the number of times of coverage of interest the better it would be for the financial
5. Return On Investment:
Return on any amount invested in a business have to be taken into account when
Case Study
DENA BANK, SME CELL, REGIONAL OFFICE, NEW DELHI
FOR APPROVAL
ASST. GEN. MANAGER
2. PROFILE
Multiple /
Sole EXISTING PROPOSED
Consortium
Asset
Leader Bank N.A. Standard Standard
Classification
Asset Category
Our share: 100.00% as per CMC N.A. P1
Guidelines
FB - 115.00 D2K Codes & Description
READY MADE GARMENTS
NFB- % 0.00 Activity 6519
(NON-BRANDED)
STL- 0.00 Sector 15 SME
TL- 0.00 Special Category
Priority No
4. Major Shareholders:
S.N Name Status No. of Percentage
Share
N.A.( Proprietorship Firm)
5. EXPOSURE: [Rs in lacs]
Borrower EXPOSURE Existing Proposed Variation(+/-)
Fund Based 105.00 115.00 +10.00
Non Fund Based NIL NIL NIL
Forward Cover* 4.00 4.00 0.00
Total Credit Exposure 109.00 119.00 +10.00
Investments NIL NIL NIL
Other Commitments NIL NIL NIL
Total Exposure 109.00 119.00 +10.00
GROUP EXPOSURE
Fund Based 122.29 128.84 +6.55
Non Fund Based NIL NIL NIL
Forward Cover* 4.00 4.00 0.00
Total Credit Exposure 122.29 128.84 +6.55
Investments NIL NIL NIL
Other Commitments NIL NIL NIL
Total Exposure 122.29 128.84 +6.55
6. PRESENT PROPOSAL:
7.
To permit the following::
I. Status of existing and proposed limits (Rs in lacs)
The said property is also mortgaged to the Bank for Mortgage Loan of Rs. 10.85 Lacs
sanctioned to Sh.. Mahesh C. Gupta, Smt. Shashi Khandelwal, Sh. Vikas Gupta, Sh. Mohit
Gupta –O/S as on 10.01.2010 being Rs. 7.95 Lacs and Machinery Term Loan sanctioned to
M/s xyz Apparels Inc-O/S as on 10.01.2010 being Rs. 5.89 Lacs. The conduct of the
aforesaid accounts are satisfactory as reported by the Branch and both the accounts are
classified as Standard.
* Net Worth of the guarantors includes their investment in the subject Company and Group
Companies.
*CA Certificate confirming Net Worth of the Guarantors to be obtained by the Branch before
release of enhanced limit and Branch to ensure the same is in accordance with Net Worth as
mentioned in the Process Note.
IV. Permissions for Deviations, Issue of NOCs etc & Concessions in service charges :
N.A.
Current Ratio :
Current Ratio stood at 1.41 as of 31.03.09. The same is above the minimum
desirable/benchmark level of 1.10 in terms of Bank’s Loan Policy guidelines. The Current
Ratio is estimated at 1.24 as of 31.03.10 and is projected at 1.29 as of 31.03.11, which is
above the benchmark level. The same is indicative of satisfactory liquidity position of the
borrower.
I. Positive indicators
Sales:
Th Net Export Sales projected for the next two years is as under
The Firm projects Export sales of Rs. 360.00 Lacs for the year 2009-10 & Rs. 381.50 Lacs
for the FY 2010-11. The Firm has already achieved sales of Rs. 184.01 lacs till 30-11-09
having achievement index 76.67% & have confirmed orders for Rs. 85.87 lacs as on
10.01.2010 to be shipped out by end of January, L/C of which already been received. We
have further been informed that they are in final stages of negotiation for further orders of
approx. Rs. 50.00 lacs. Thus the Firm is optimistic towards achieving the estimated
Turnover.
Unsecured Loans:
Borrower has informed that there was an unsecured loan for Rs. 6.32 lacs from Mr. M.C.
Gupta, father of the prop. during the FY 2008-09. Unfortunately due to his ill health the same
had to be liquidated to him during February- March 2009, consequently the total unsecured
loans fell to Rs. 1.29 as on 31.03.2009 as against projections for Rs. 7.50 lacs. At present
unsecured loan stood at Rs. 2.66 lacs and Branch to obtain and keep on record an undertaking
from the borrower that the same would be continued during the currency of Bank finance.
III. Auditor’s remarks and Management replies. Nil as reported by the Branch.
C. TURNOVER METHOD:
(Rs. In lacs.)
S.No. Last Year Estimates Projections
Actual
Year Ending 2008-09 2009-10 2010-11
(i) Projected/Accepted Turnover 312.24 360.00 381.50
(ii) Working Capital Funds @ 25% 78.06 90.00 95.37
of (i)
(iii) Of which Bank Finance @20% 62.45 72.00 76.30
(iv) Min. 5% Borrower’s 15.61 18.00 19.07
Contribution
(v) Actual/Projected NWC 17.11 19.80 23.90
Receivables :
In Balance Sheet Analysis, receivables have been taken as Rs 8.72 lacs as Rs 102.85 lacs out
of them have been excluded since these bills have been negotiated under FLC and
accordingly FLC outstanding is also excluded from Bank Borrowings. The Firm exports on
L/C-90 days DA/DP basis.
Receivables have been estimated at 0.65 months (Rs 18.00 lacs) and projected at 0.69 months
(Rs 20.00 lacs), as Rs 50.00 lacs have been excluded from Bank Borrowings towards export
bills negotiated under FL/C. The estimated and projected holding of receivables is considered
need based and reasonable to achieve the estimated/projected sales turnover.
Sundry Creditors:
The creditors for goods during FY 2008-09 stood at 1.43 months’ purchases (Rs 17.89 lacs)
which is estimated at 0.56 months’ (Rs 9.00 lacs) during FY 2009-10. The main reason for
low creditors’ level during FY 2009-10 is as under :
The Firm has represented that they had received certain goods during the last week of
March’09 for their suppliers, which were under checking as on the Audited date (31.03.09)
and hence remained unpaid as on that date. The same was paid during 1st week of April out
of available PCH limit. The creditors’ level is projected at 0.67 months (Rs 8.50 lacs) during
FY 2010-11, which is almost in line with the creditors’ holding level during FY 2009-10. In
view of the above, the estimated and projected creditors’ holding period is considered need
based and reasonable.
Based on the accepted level of holding and receivables, the working capital limit works out
to Rs 70.00 lacs under Modified MPBF Method during FY 2009-10 and FY 2010-11.
However, the Drawing Power, as of 31.03.10, based on the accepted holding levels as above,
works out as under:
Particulars Amount (Rs in lacs) Margin Drawing Power
(Rs in lacs)
2009-10 2010-11 2009- 2010-11
10
Stocks 60.00 60.00
10.00%
Less: Sundry Creditors 9.00 8.50
45.90 46.35
Paid Stock 51.00 51.50
Receivable 18.00 20.00 10.00% 16.20 18.00
Total 62.10 64.35
Say Say
62.00 65.00
The D.P. works out to Rs 62.00 lacs during FY 2009-10 and Rs 65.00 lacs during FY 2010-
11. Since only around tow and half months is left before the end of the current financial year,
the limits, based on the accepted projections of FY 2010-11 works out to Rs 65.00 lacs.
Accordingly and in line with the Branch recommendation, we recommend for enhancement
in working capital limits by way of PCH-cum-FBP limit from Rs 55.00 lacs to Rs 65.00 lacs.
However, the operative limit would be capped at Rs. 62.00 lacs during FY 2009-10. The full
limits i.e. upto Rs. 65.00 lacs may be released only during FY 2010-11, subject to availability
of D.P.
In view of the above, the borrower is unable to utilize the FBP limit. The borrower requires
separate Bills Negotiation Limit for negotiation of the Bills under L/C, which is outside
overall MPBF.
The overall record has been satisfactory and no bills have been returned unpaid. Accordingly,
Branch has recommended for renewal of the Bills Negotiation under L/C limit of Rs 50.00
lacs and we endorse the Branch recommendation.
a. Adverse features affecting credit decision and action proposed (including non-
compliance to terms and conditions of sanction and present position)
Sr Pending Matters Present position Steps taken / Remarks
No
N.A.
c. Directors’ name figuring in RBI/ Wilful Defaulters’ / CIBIL / SAL – ECGC list and
comments thereon. Impact on taking exposure where names are appearing in the
defaulters list: Nil
*Before release of enhanced limit Branch to obtain C.A. certificate and ensure that the
borrower has paid all its’ Statutory Dues upto date.
f. RISK ASSESSMENT
Risk Risk Factor Risk Mitigation
Industry/Activity Risk Fluctuations in the Forex The Firm hedges by
market. Forward Contract.
i. As per the estimates in CMA data submitted by the Borrower the D.P. stood at the
level of Rs. 62.10 lacs during FY2009-10 and Rs.64.30 thereafter. Accordingly the
operative limit can be capped at Rs. 62.00 lacs during FY 2009-10. The full limits
i.e. upto Rs. 65.00 lacs may be released during FY 2010-11 subject to the availability
of the Drawing Power.
ii. It is also being observed that at the time of last sanction/renewal Capital was
estimated at the level of Rs. 22.50 lacs for FY 2008-09, whereas as per the Audited
B/S of 31.03.2009 Capital stood at the level of Rs. 19.17 lacs.
Therefore it is being stipulated that the Firm has to introduce fresh Capital or
Unsecured Loan of Rs. 3.00 lacs before release of the enhanced limits.
23. DISCRETIONARY POWER FOR SANCTION AND FOR APPROVAL OF
DEVIATION, IF ANY:
The credit proposal falls within the overall discretionary powers of Asst. Gen. Manager-
NDR.
24. RECOMMENDATION:
Though the Firm was established in April 2008, however the Proprietor, Sh. Mohit
Gupta is associated with the Bank since 1999 by virtue of being a Partner in M/s xyz
Apparels Inc.
Overall conduct of the a/c is Satisfactory, as reported by the Branch. One Time
Additional FBNLC limit of Rs. 100.00 lacs sanctioned by DGM, NDR on 02.02.2009 and
liquidated on time.
The family members of the Proprietor are maintaining substantial deposit in the Branch.
(O/s as on Nov. 2009 Current A/c 0.50 lacs, Saving A/c 1.50 lacs, Term Deposits 20.00 lacs).
Though the borrower has not offered any fresh collateral, however, extension of
Equitable Mortgage over the existing property would result in the coverage of 527.99%,
which is satisfactory.
Overall financial indicators of the borrower are satisfactory as per Bank’s Policy
Norms.
i. The operative limit can be capped at Rs. 62.00 lacs during FY 2009-10. The full limits
i.e. upto Rs. 65.00 lacs may be released during FY 2010-11 subject to the availability of the
Drawing Power.
ii. It is also being observed that at the time of last sanction/renewal Capital was estimated at
the level of Rs. 22.50 lacs for FY 2008-09, whereas as per the Audited B/S of 31.03.2009 Capital
stood at the level of Rs. 19.17 lacs. Therefore it is being stipulated that the Firm has to introduce
fresh Capital or Unsecured Loan of Rs. 3.00 lacs before release of the enhanced limits.
Credit Risk
Marks secured Grade Interest Slab
Rating
95%+ AAA High - Prime BPLR
Medium -
90% - 94% AA BPLR + 0.25
Prime
85% - 89% A Low - Prime BPLR + 0.50
80% - 84% BBB Excellent BPLR + 0.75
75% - 79% BB Best BPLR + 1.00
70% - 74% B Better BPLR + 1.25
65% - 69% C Very Good BPLR + 1.50
60% - 64% D Good BPLR + 1.75
55% - 59% E Satisfactory BPLR + 2.00
Non-Performing
Assets
NPA – SS Sub-standard
NPA - D1 Doubtful - 1 Interest to be
NPA - D2 Doubtful - 2 calculated at agreed rates
NPA - D3 Doubtful - 3 but not to be charged
NPA - Loss Loss
3 Management Risk 15 15 13
Security (Collateral) 5 5 5
4
Annexure II
Detailed Terms & Conditions
RO/NDR/SME/24/10 12.01.2010
“ I/We hereby agree as pre-condition of the loan/advance( fund based and non-fund
based ) given to me/us by the Bank that in case I/We commit default in the repayment
of loan/advance or in the repayment of interest thereon or any of the agreed installment
of the loan on due dates the Bank and/or RBI will have an unqualified right to disclose
or publish my/our name or the name of the company/firm/unit and it’s
directors/partners/proprietor as defaulter in such manner and through such media as the
bank or RBI in their absolute discretion may think fit.”
28. Declaration about no pending court cases (as per H.O. circular no. 351/02/2003) to
be obtained and kept on Branch records.
29. An undertaking to be obtained from the borrower, that the Directors/Guarantors are
not, in any way, connected with any senior official (Scale-IV and above) of the Bank.
30. Commitment Charges: The utilization of limit should be made within 3 to 6
months of date of communication of sanction to the party for working capital. If
average utilization is less than 75% in case of working capital facilities, commitment
charges will be levied @ 0.50% p.a. at quarterly rests on the sanctioned amount.
31. Further an undertaking is to be obtained from the borrower that it will not effect
any change in neither management nor declare/pay dividend nor encumber any of the
securities charged to the Bank, without the express consent of the Bank.
32. Branch to submit certificate of compliance of terms and conditions, as per
prescribed format, to Regional Office.
33. General Undertaking as per H.O. Circular No. 54/1/2004 dated 22.05.04 to be
submitted by the borrower.
34. Branch Official should visit the site/property offered as collateral and cross-check
its’ Valuation/Title/Marketability etc. through discrete / market enquiries and ensure
that the valuation done by the valuer is justified. Significant divergence observed, if
any, vis-à-vis Reports submitted by Bank’s Approved Valuer and Panel Advocate
should be immediately brought to the notice of the sanctioning authority.
36. Declaration to the effect that no court cases are pending against the company, its
directors and the group concerns (as per H.O. circular no. 351/02/2003) to be obtained
and kept on Branch record.
37. Compliance of terms and conditions should be sent to RO in terms of H.O. circular
no.253/41/2002 dated 30.11.2002.
38. The borrower to furnish an undertaking that, where it transpires that the borrower
has given a false declaration, the Bank shall forthwith recall the loan.
39. The Company to submit full details of all the items of Statutory Dues along with
CA Certificate of latest date and Branch to ensure that there are no over dues.
40. Consent clause to be submitted by the borrower & guarantor permitting the Bank
for submission of credit information to Credit Information Bureau (India) Ltd.
41. The Branch to ensure that all the suggestions as suggested by the advocate in Non
Encumbrance Report / Legal Search Report ought to be complied before disbursement.
The Branch Head should personally ensure that if the proposed mortgagor acquired the
title from Government then Non Encumbrance Report / Legal Search Report should be
at least 30 years and if the proposed mortgagor acquired the title from sources other
than the Government then Non Encumbrance Report / Legal Search Report should be
at least 13 years. The Branch also obtains all the documents (chain of documents) in
Nature of Type of Value Basis / Source Whether
original which are mentioned in the Non Encumbrance Report / Legal Search Report.
Security Charge eligible
42. If the last documents of the mortgaged property is Lease Deed / Perpetualunder
Lease
Deed then the Branch Manager personally go through the Lease Deed / Perpetual
CRM
Lease Deed and before creating mortgage obtain the stipulated permission from the II
(Basel
lessor and if there is any redemption clause (in case of sale of the property theNorms)
lessor
Residential Equitable 680.26** Valuation Report by Banks’ No
have the first right in some percentage of the difference between the premium value
property belonging
and market / saleMortgage Panel Advocate
value) in the Lease Deed / Perpetual Lease Deed,Shrithen
K.C.
valuation of
to Mr.
the M.C. Gupta
property Talwar, as clause.
should be computed according to redemption on 20.02.08.
situated at 15B As per Legal Opinion-cum-
Friends Colony Non-Encumbrance
(West), New Certificate by our
Delhi-65, Panel Advocate, Shri Kalim
comprising of 418 Ur Rehman dated 08-07-08,
sq. yards having the subject property bears
construction on clear title and is marketable.
Ground, First and
Second Floor.
Total Collateral Security (considering Realisable Value of property) is Rs 680.26 lacs
The said property is also mortgaged to the Bank for Mortgage Loan of Rs. 10.85 Lacs
sanctioned to Sh.. Mahesh C. Gupta, Smt. Shashi Khandelwal, Sh. Vikas Gupta, Sh. Mohit
Gupta –O/S as on 10.01.2010 being Rs. 7.95 Lacs and Machinery Term Loan sanctioned to
M/s xyz Apparels Inc-O/S as on 10.01.2010 being Rs. 5.89 Lacs. The conduct of the
aforesaid accounts are satisfactory as reported by the Branch and both the accounts are
classified as Standard.
SPECIAL CONDITIONS ON CASE TO CASE BASIS
1. Plant and Machinery, equipments, furniture and fixtures to be taken as
additional security to cover both the fund based and non-fund based limits.
2. C.A. certificate confirming Net Worth of the Proprietor and Guarantors to be
obtained by the Branch before release of enhanced limit and Branch to ensure that
the same is in accordance with Net Worth as mentioned in the Process Note.
3. With a view to ease the liquidity position, we propose a stipulation that the
borrower should liquidate the OD facility before release of enhanced limits.
4. The Operative Limit can be capped at Rs. 62.00 lacs during FY 2009-10. The
full limits i.e. upto Rs. 65.00 lacs may be released during FY 2010-11 subject to
the availability of the Drawing Power.
5. It is also being observed that at the time of last sanction/renewal Capital was
estimated at the level of Rs. 22.50 lacs for FY 2008-09, whereas as per the
Audited B/S of 31.03.2009 Capital stood at the level of Rs. 19.17 lacs. Therefore it
is being stipulated that the Firm has to introduce fresh Capital or Unsecured Loan
of Rs.3.00 lacs before release of the enhanced limits.
B. TERM LIABILITIES
a) Term Loan 7.51 3.50 10.80 8.20
b) Unsecured Loan 11.99 1.29 2.38 1.06
Other Term Liabilities 0.00 0.00 0.00 0.00
Total Term Liability 19.50 4.79 13.18 9.26
C. NET WORTH
i. Capital 22.10 15.62 21.17 26.60
ii. Reserves & Surplus 3.55 5.95 7.40
Total (I + ii) 22.10 19.17 27.12 34.00
J. FINANCIAL
PERFORMANCE
i. Gross Sales Domestic 0.00 0.00 0.00
Export 262.11 287.61 330.00 350.00
Duty Drawback 26.17 24.63 30.00 31.50
Less: Excise Duty 0.00 0.00 0.00 0.00
Net Sales 288.28 312.24 360.00 381.50
Growth (%) 8.31% 15.30% 5.97%
ii. Gross Profit 6.49 4.65 8.31 10.64
iii. Depreciation 3.37 1.10 2.36 3.24
iv. Taxation 0.00 0.00 0.00 0.00
v. Net Profit 3.12 3.55 5.95 7.40
vi. Dividend 0.00 0.00 0.00 0.00
- Amount
- Percentage
vii. Profit retained in
business 3.12 3.55 5.95 7.40
ix. Interest 13.86 7.11 9.00 9.50
x. PBDIT 20.35 11.76 17.31 20.14
K. RATIO ANALYSIS
i. Current Ratio 1.29 1.41 1.24 1.29
ii. Total Debt/Equity 3.14 2.17 3.03 2.40
iii. Gross Profit/Sales 2.25% 1.49% 2.31% 2.79%
iv. Net Profit/Sales 1.08% 1.14% 1.65% 1.94%
v. Debtors/Sales 0.73 0.34 0.60 0.63
vi. Creditors/Purchase 2.36 1.43 0.56 0.67
vii. Interest Coverage
Ratio 1.47 1.65 1.92 2.12
viii. Current Assets to
Turnover Ratio 5.40 15.84 6.00 6.36
Annexure 4
Annexure 5
(Rs. In lakh)
B. With other bank/FIs/others
Details of limits Outstanding Asset
Bank/FIs
Name Classi-
/Others FBWC TL NFB FBWC TL NFB
fication
Nil
Annexure 6
Profile of the group concerns with brief financial indicators
The Firm is having a sister concern under the name and style of M/s xyz Apparels.
A machinery Term Loan is still operational having current O/s as of 10.01.2010 being Rs.
5.89. The Account is classified as Standard.
Annexure 7
Details of properties/assets etc. Under collateral security viz. Valuer, valuation date,
encumbrance & marketability status etc.
Nature of Type of Value Basis / Source Whether eligible
Security Charge under CRM
(Basel II Norms)
Residential Equitable 680.26** Valuation Report by Banks’ No
property Mortgage Panel Advocate Shri K.C.
belonging to Mr. Talwar, as on 20.02.08.
M.C. Gupta As per Legal Opinion-cum-
situated at 15B Non-Encumbrance
Friends Colony Certificate by our
(West), New Panel Advocate, Shri Kalim
Delhi-65, Ur Rehman dated 08-07-08,
comprising of the subject property
418 sq. yards bears clear title and is
having marketable.
construction on
Ground, First
and Second
Floor.
Total Collateral Security (considering Realisable Value of property) is Rs 680.26 lacs
The said property is also mortgaged to the Bank for Mortgage Loan of Rs. 10.85 Lacs sanctioned to
Sh.. Mahesh C. Gupta, Smt. Shashi Khandelwal, Sh. Vikas Gupta, Sh. Mohit Gupta –O/S as on
10.01.2010 being Rs. 7.95 Lacs and Machinery Term Loan sanctioned to M/s xyz Apparels Inc-O/S
as on 10.01.2010 being Rs. 5.89 Lacs. The conduct of the aforesaid accounts are satisfactory as
reported by the Branch and both the accounts are classified as Standard.
Annexure 8
Additional comments, if any along with investments details in associate /sister concerns,
comments on balance sheet, auditors remarks etc. Nil ______________________
Chapter-7
Findings
After undertaking the in depth theoretical study such as types of advances, SME policy of
DENA BANK, credit rating, CMA, working capital and various financial under SMEs, it was
found that the several Industries are growing through credit/advances granted by banks and
SMEs is a one of the fast growing Industries within all the sectors.
In India, the Micro and Small Enterprises (MSEs) sector plays a pivotal role in the overall
industrial economy of the country. It is estimated that in terms of value, the sector accounts
for about for 39% of the manufacturing output and around 33% of the total export of the
country. Further, in recent years the MSE sector has consistently registered higher growth
rate compared to the overall industrial sector. The major advantages of the sector is its
employment potential at low capital cost. As per available statistics, this sector employs an
estimated 31 million persons spread over 12.8 million enterprises and the labour intensity in
the MSE sector is estimated to be almost 4 times higher than the large enterprises.
As per the 3rd census report, total output of the registered units in the year 2001-02 was
estimated to be Rs. 70,861.73 crores. The SSI sector employed 2,49,32,763 persons during
that period. There were 50606 exporting units accounting for exports to the tune of Rs.
14,199.56 crores.
Thus SME plays a very significant role in the socio-economic development of the
country.
Chapter- 8
Conclusion
The project entitled CREDIT APPRAISAL UNDER SME gives the detailed knowledge
of the whole process of loans and advances which DENA BANK performs. Starting from the
loan application from the borrower and compilation of confidential reports on him and the
guarantor, the process continues till the disbursement of loan and after it the close monitoring
The project was an attempt to understand and perform the work in credit transaction and
Hence the whole experience of working in such renowned public sector unit was very good
Chapter-9
Bibliography
• Magazines
1. Business week
2. Frontline
3. Business World
• News Papers
1. Business standard
2. Financial Express
3. Economics Times
4. Times of India
• Websites
1. www.denabank.co.in
2. www.google.com
3. www.wikipedia.com
4. www.yahoofinance.com
5. www.indiabankassociation.org.in
6. www.smetoolkit.org
7. www.economicstimes.com
• Last but not the least, I feel indebted to all persons and organization who have helped me
directly or indirectly in the successful completion of this study.