A Project

Report On
CREDIT APPRAISAL SYSTEM OF
SME SEGMENT AT AXIS BANK

BY

SAURABH GHADI

SAP ID :77221247070

A project report submitted in partial

fulfillment of the requirements For the
degree of Master of Business Administration
of
NMIMS
University,
INDIA
1
 ACKNOLEDGEMENT

I might like to begin this report by emphasizing my sincere and sincere commitment to all of
the people who have supported me throughout this endeavor.I would not have been able to
complete the task without their dynamic direction, assistance, participation, and consolation.I
am utterly obligated to (PROF NAME) for genuine guidance and assistance in completing
this task.I would like to express my gratitude to my direct reports for their significant
guidance and support in bringing this project to a successful conclusion.I extend my gratitude
to (UNIVERSITY) for providing me with this opportunity.In addition, I recognize with a
profound love my gratitude to my family and friends for always supporting me financially
and ethically.

Last but not least, I would like to express my gratitude to all of my companions for their
straightforward or indirect assistance with finishing this assignment report.

This brief acknowledgement does not imply indifference to gratitude.

Thanking You

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 PREFACE

There are always two different sides to information, real and imaginary.The most practical

approach to achieving one's goal is grounded.However, it is essential to have clear plans for

achieving that goal, as implied by the hypothetical information.To put it simply, hypothetical

instruments are those that reverse the functional one.

Manhood is based on experience.One can generate novel ideas by coming face to face with

reasonable circumstances.Hypothetical tests are something that largely vanished.The

executives understudy can use anything the person learns in school.Since the beginning, the

importance of business and administration has increased gradually.

This project helped me comprehend the concept of credit examination and the bank's credit

evaluation process.Based on the skills I demonstrated in my foundation exam, I have

endeavored to devote all of my effort to completing this task.In an effort to acquire precise,

measurable data, I have expended all of my energy.In any case, I would appreciate it if the

reader pointed out any errors.

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 TABLE OF CONTENT

Chapter No. Content

Executive Summary
1 Objective and Research Methodology
2 Indian Banking Sector
Introduction
Banking Reforms
Classification of banks
Success path for banker
Challenges facing by Banking Industry in India
Banking Activities
Porter’s Five Force Model
SWOT Analysis
3 Introduction to Axis bank
Business Division
4 Introduction to SME sector
History

Description of SME in the manufacturing sector

5 Overview of Credit Appraisal
Brief overview of credit
Brief overview of loan
Credit appraisal Process
Loan administration pre sanction process
Loan administration post sanction credit process
Types of lending arrangement
6 Credit appraisal model at Axis bank

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 Scheme of Credit to SME sector
Sanctioning powers for schematic Loans under MSME and Mid
7 Introduction to credit risk management
Definition

Determinants of Credit Risk

Introduction to credit tools
Rating Tool for Small and Medium Enterprises (SME)
Definition of Parameters used in SME tool
Subjective Assessment of Quality of Management
Monitoring Tool
Rating Scale
8 Case Study of Dynamic Products Ltd.
9 Findings
10 Conclusion
11 Bibliography

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 EXECUTIVE SUMMARY

Over the course of the previous ten years, there has been a tremendous amount of progress

made in the Indian financial sector.India's financial sector has been one of the few to maintain

strength while continuing to provide development opportunities as the world struggles to

recover from the global financial crisis, a feat that is unlikely to be replicated by other

developed markets worldwide.Creating level of Non Performing Resources is a significant

concern for present day similarly as standard financial associations.If the credit evaluation

framework is convincing, it will unquestionably consider drastically lowering the number of

NPAs.

A process called credit appraisal is used to figure out the risks that come with expanding the

credit office.It is frequently communicated by financial institutions that provide financial

assistance to their customers.A credit hazard is a risk that arises when a bank fails to repay a

customer's credit.To reduce the credit risk, it is essential to evaluate the client's legitimacy in

this manner.These estimates of the client's financial situation and their capacity to repay the

credit in the future are played out in an appropriate assessment of the client.Most of the time,

credit offices are approached against insurance, a security.Nevertheless, banks are typically

interested in the genuine credit amount to be reimbursed alongside the premium, despite the

fact that the advances are supported by the guarantee.The client's earnings are learned in this

manner to ensure the prompt payment of head and premium.

It is the method for determining an advance candidate's credit worth.When determining an

individual's credit worth, factors such as age, pay, the number of children, the nature of the
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business, the progression of work, the reimbursement limit, previous advances, MasterCard,

and other similar factors are taken into consideration.This is why each bank or lending

foundation has its own board of directors.

There is no guarantee that an advance will not run into problems;Even if the proper credit

assessment methods and checks are carried out, the advance misfortune likelihood and issues

will typically be minimized, which should be the goal of every lending official.

The task focuses on the credit examination cycle for the Axis Bank SME (Small and Medium

Enterprise) division.The first section manages the research approach and goal, while the

second section manages the banking area's presentation and flow situation.The prelude to

SME and its experiences are the subject of the third section.The review of credit evaluation,

the credit examination measure, and the pre- and post-approval measure are all managed in

the fourth section.The next section shows the Axis Bank's credit evaluation process and

plans.The board and rating instrument are discussed in the sixth section.In the following

section, the method for credit evaluation and contextual investigation of Dynamic Products

Ltd. are outlined.Examining results in a conclusion and finding.

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CHAPTER -1

OBJECTIVE AND RESEARCH METHODOLOGY

 PROBLEM STATEMENT:

To study the credit appraisal system in SME sector, at AXIS Bank Ahmadabad.

 OBJECTIVES:

 to investigate the methods of credit appraisal.

 to comprehend the proposed venture's financial, commercial, and professional

viability, as well as its financing strategy.

 To comprehend the essential example and the security cover options available for
asset recovery.

 to investigate the Axis Bank credit examination procedure.

 RESEARCH DESIGN:

 The procedure for gathering and analyzing data in the condition is called an
exploration configuration.All things considered, it is the study project's outline.

The exploratory design of the research will be used.

 DATA COLLECTION:

● Primary data:

It will be gathered through Informal meetings with Branch Manager and other staff
individuals at Axis bank.

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● Secondary data:
It will be gathered from Business Newspapers, magazines, inward reports of Axis
bank, books, Journal and sites

Case Study: To understand how credit appraisal is done, I will be taking cases study of
Dynamic Products. Ltd. which is in manufacturing of Food color product.

 LIMITATIONS OF STUDY

Because the FICO score is one of a bank's most important areas, some details might
not come up, which could make it impossible to analyze the information and solve the
problem.

Any suggestions that are made will be based on particular suspicions because a portion
of the data is not discovered.

●Finding of the examination will be established on the doubts that respondents have
given right information.

●Data gave by respondents may be uneven.

The research is academic in nature.

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CHAPTER - 2
INDIAN BANKING SECTOR

Introduction

India cannot have a strong economy without a solid financial foundation.In addition to being
trouble-free, India's financial arrangement ought to have the flexibility to address new issues
brought on by innovation and other external and internal factors.

Since its inception thirty years ago, India's financial system has achieved a number of
remarkable feats.Its extensive reach is the most striking.In India, it is not restricted to
metropolitans or cosmopolitans at this time.To tell the truth, the Indian financial system has
spread to even the most remote parts of the country.This is one of the essential reasons of
India's advancement cycle.

India currently has 96 booked business banks (SCBs), including 27 public area banks (in
which the Indian government holds a stake) and 31 private banks (in which the government
does not hold a stake;38 unidentified banks and could be openly recorded and exchanged on
stock trades.Over 53,000 branches and 49,000 ATMs make up their consolidated
organization.A rating agency, ICRA (Investment Information and Credit Rating Agency of
India Limited), stated in a report that public banks hold more than 75% of the financial
industry's total resources, while private and unfamiliar banks each hold 18.2% and 6.5
percent.

In the not too distant past, a record holder had to wait a considerable amount of time at the
bank counters to obtain a draft or withdraw his own cash.He must make a decision today.The
time when the most efficient bank could move money from one branch to another in two days
is long gone.At the moment, it's as common as texting or calling for pizza.Cash is now the
thing to worry about.Although traditionalist, the first bank in quite some time was established
in 1786.The development of the Indian banking system can be broken down into three
distinct phases between 1786 and the present.The following are some of them:

The initial phase of Indian bank nationalization, which lasted from 1786 to 1969 and until
1991, prior to Indian banking sector reforms,
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With the introduction of Indian financial and banking sector reforms in 1991, the Indian
banking system entered a new phase.

I've prefixed the scenario with Phase I, Phase II, and Phase III to make this article more clear.

◈ BANKING REFORMS

Phase I

In 1786, the General Bank of India was established.Bengal Bank and Bank of Hindustan
came next.The East India Company established the Bank of Bengal in 1809, the Bank of
Bombay in 1840, and the Bank of Madras in 1843. They were given the names Presidency
Banks.In 1920, these three banks merged into Imperial Bank of India, which started out as
private investors' banks with mostly European investors.

The first Indian-owned bank, Allahabad Bank, was established in 1865. In 1894, Punjab
National Bank Ltd. opened its first branch in Lahore.The Bank of India, Central Bank of
India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were established
sometime between 1906 and 1913.In 1935, Save Bank of India appeared.

Banks also occasionally experienced disappointments between 1913 and 1948, when the
main stage of development was extremely moderate.There were approximately 1100 small
banks.The Banking Companies Act, 1949, was drafted by the Indian government to make
business banks' operations easier. The Banking Regulation Act, 1949, was enacted in
response to a correcting Act of 1965 (Act No.23 of 1965).As the Central Banking Authority,
Save Bank of India was given broad powers to oversee Indian banking.

The general public has less faith in the banks at that time.The store's assembly was moderate
as a result.The investment funds that the Postal Office offered through its bank were similarly
more secure.Additionally, brokers typically received reserves.

Phase II

After independence, the government made significant progress on this Indian Banking Sector
Reform.It nationalized Imperial Bank of India in 1955, opening extensive financial offices

11
throughout the country and semi-metropolitan areas.State Bank of India was created as the
RBI's primary specialist to handle banking transactions for the Union and State Governments
across the country.

On July 19, 1969, a significant nationalization cycle was completed, and seven of the banks
that formed an auxiliary of the State Bank of India were nationalized in 1960.Mrs. Indira
Gandhi, the Indian Prime Minister at the time, exerted herself to achieve this.The nation's 14
major commercial banks were nationalized.

In 1980, seven additional banks participated in the second period of nationalization known as
Indian Banking Sector Reform.As a result of this development, the government now
controlled 80% of India's financial sector.

The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India.

1959: Nationalization of SBI subsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980: Nationalization of seven banks with deposits over 200 crore.

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After the nationalization of banks, the pieces of the public region bank India rose to around
800% in stores and advances took a huge jump by 11,000%.

Banking while the government was in control gave the public a profound sense of
confidence and certainty about these establishments' ability to be maintained.

Phase III

In its changes measure, this stage has introduced significantly more financial products and
offices.A council under M. Narasimham's leadership was established in 1991 to promote the
development of banking practice.

There are a lot of new banks and ATMs all over the country.An effort is being made to
provide clients with palatable assistance.There are options for online and telephone
banking.The entire framework proved to be faster and more beneficial.Time is more
important than money.

India's monetary arrangement has demonstrated a great deal of adaptability.It is protected

from any emergency caused by a macroeconomic shock from the outside, as other East Asian
nations did.The unfamiliar stores are high, the capital record is not yet fully convertible, and
banks and their clients have restricted unfamiliar trade presentation all contribute to this. All
of these factors are the result of an adaptable conversion standard system.

Classification of Banks:

The banking industry in India, which is governed by the Banking Regulation Act of India of
1949, can be broadly divided into two significant categories: planned banks and non-booked
banks.Business banks and co-employable banks are included in booked banks.In terms of
ownership, business banks can also be divided into nationalized banks, local provincial
banks, private area banks, and the State Bank of India and its gathering banks (the old/new
homegrown and unfamiliar).The public, private, and unfamiliar banks make up the Indian
financial sector.Old and new banks split up the private area banks once more.

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 Banking System in India

Reserve bank of India (Controlling Authority)

Development Financial institutions Banks

IFCI IDBI ICICINABARD NHBIRBIEXIM Bank SIDBI

Commercial Regional Rural Land Development Cooperative

Banks Banks Banks Banks

Public Sector Banks Private Sector Banks

SBI Groups Nationalized Banks Indian Banks Foreign Banks

Nationalized /Public sector banks

 Dominate the banking system in India.

 Nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi.

Private Banks

 Made banking more efficient and customer friendly.

 Jolted public sector banks out of complacency and forced them to become more
competitive.

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Foreign banks

 Have brought latest technology and latest banking practices in India.

 Have helped made Indian banking system more competitive and efficient.

Major Banks in India

 Axis Bank  Indian Overseas Bank

 ABN-AMRO Bank  IndusInd Bank
 Abu Dhabi Commercial Bank  ING Vysya Bank
 American Express Bank  Jammu & Kashmir Bank
 Andhra Bank  JPMorgan Chase Bank
 Allahabad Bank  Karnataka Bank
 Bank of Baroda  Karur Vysya Bank
 Bank of India  Laxmi Vilas Bank
 Bank of Maharastra  Oriental Bank of Commerce
 Bank of Punjab  Punjab National Bank
 Bank of Rajasthan  Punjab & Sind Bank
 Bank of Ceylon  Scotia Bank
 BNP Paribas Bank  South Indian Bank
 Canara Bank  Standard Chartered Bank
 Catholic Syrian Bank  State Bank of India (SBI)
 Central Bank of India  State Bank of Bikaner & Jaipur
 Centurion Bank  State Bank of Hyderabad
 China Trust Commercial Bank  State Bank of Indore
 Citi Bank  State Bank of Mysore
 City Union Bank  State Bank of Saurastra
 Corporation Bank  State Bank of Travancore
 Dena Bank  Syndicate Bank
 Deutsche Bank  Taib Bank
 Development Credit Bank  UCO Bank
 Dhanalakshmi Bank  Union Bank of India
 Federal Bank  United Bank of India
 HDFC Bank  United Bank Of India

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  HSBC  United Western Bank
 ICICI Bank 
 IDBI Bank
 Indian Bank

Success Path for Banker

In today's environment, where competitors' products and prices are close substitutes,
attracting customers and achieving growth is perhaps the most pressing challenge facing bank
ranking directors.The conventional bases for differentiation, such as product highlights or
cost, are becoming less distinct.As a result, government agencies are forced to look for better
ways to appeal to their target audience while maintaining their current position.According to
the direct annual review conducted by FICCI, they rank the business practices that have
helped them increase client retention and security (on a scale of 1 to 8, with 8 being the most
important marketing strategy).The following are the Mode score results from public, private,
and international banks:

Innovation is now a business driver rather than just a business empowering agent.We rely on
innovation to provide crucial arrangement, whether it's providing customer service, reducing
operational costs, achieving benefit, or creating hazard the board frameworks.Evidently,
innovative up level was recognized as one of the most effective strategies for customer
16
acquisition and retention, followed by ATM network expansion, advertising, and additional
deal power.

Customer satisfaction and client retention are inextricably intertwined.Customers may be

happy to collaborate with their bank through advantageous and less expensive banking
channels to make installments, but they actually anticipate higher management
requirements.The bank's image is heavily reflected across all channels by a trustworthy
help.Pre- and post-banking assistance was rated highly by customers by 93.75 percent of
banks that responded, according to the survey.75% of banks who participated in the survey
believed that providing a personal touch in the transactions helped them win new customers.

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Challenges facing by Banking industry in India

Due to changes in monetary conditions and continuous liberation, the financial industry in
India is undergoing significant change.A bank's impact is gradually increasing as a result of
these numerous developments occurring one after another (see fig.).trying to transition from a
completely managed merchants market to a completely free clients market.

Banking Activities

The size, distribution, and scope of bank operations in India have significantly
increased over the past thirty years.Non-conventional activities like shipper banking,
common assets, new monetary services and products, and human asset development
have all been incorporated into the business profile of banks.

In today's world, financiers are faced with a plethora of challenges.They act as the
18
 watchdog for stocks, shares, and other resources. Banks finance imports and exports,
and they report identifying the goods that are imported and traded at some point
through brokers.As a result, instead of managing trade bills, they must manage filling
bills, railroad receipts, distribution center warrants and receipts, marine protection
plans, and other records.They issue letters of credit, secured checks, visas, and
roundabout notes to customers who want to travel abroad as investors, as well as
influence the purchase and shipment of goods.By guaranteeing their debentures and
offers, they provide modern businesses with working capital and partially also
account for their fixed capital requirements.The financial industry is expanding into
new areas in India, including dealer banking, renting lodging money, investment, and
monetary administrations.Our banks offer a wide range of services, ranging from
traditional money on one side to global banking on the other.

According to survey done by FCCI, Following shows most profitable noninterest income of
bank.

19
 Competitive Forces Model
(Porter’s Five Force Model)

(2)

Potential Entrants is high as

development financial
institutions as well as private
and Foreign Banks have
entered in a big way

(5) (1) (4)

Organizing power of the Rivalry among existing Bargaining power of buyers

supplier is high. With the firms has increased with is high as corporate can raise
new financial instruments liberalization. New products funds easily due to high
they are asking higher return and improved customer Competition.
on the investments services is the focus.

(3)
The threat of substitute
product is very high like
credit unions and investment
houses. There are other
substitutes as well banks like
mutual funds, stocks,
government securities,
debentures, gold, real estate
etc.

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 1. Rivalry among existing firms
The current banks have become more competitive as the cycle of development has
progressed.In order to attract customers, each bank is developing novel offerings, and
customized loans are offered.The nature of the services provided by banks has significantly
changed.

2. Potential Entrants
Beforehand the Development Financial Institutions essentially gave venture account and
improvement exercises. However, they presently went into retail banking which has come
about into hardened rivalry among the leading players.

3. Threats from Substitutes

Prior to that, the Development Institutions primarily provided project accounts and
improvement exercises.However, they recently entered retail banking, which has resulted
in fierce competition among the major players.

4. Bargaining Power of Buyers

The non-banking monetary rivalry is rapidly growing.In venture houses and credit unions,
the risk of substituting an item is very high.Banks can be replaced by common assets, stocks,
government protections, debentures, gold, land, and so on.

5. Bargaining Power of Suppliers

With the coming of new monetary instruments giving a higher pace of profits to the
speculators, the interests in stores isn't filling in a staged way. The providers request a better
yield for the speculations.

6. Overall Analysis
The most contentious issue is how banks can leverage their strengths to improve the
future.Since the availability of resources is more and course of action of resources is less,
banks should progress new things and organizations to the clients.In order to reduce NPAs,
loans should be authorized with a reasonable deduction.Banks have a big job to do now
that the Indian economy is recovering normally.

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SWOT Analysis

The financial Additionally, the financial sector is viewed as an intermediary for the
economy as a whole.As a result, "Patterns in the Indian Economy" should be reflected in
the bank's presentation.The banking industry has changed significantly as a result of
changes in the financial sector, including new competition, new bookkeeping standards,
and data innovation.The banking environment has changed as a result of the elimination of
loan fees and bank participation in venture financing.

The SWOT analysis is used to show the banking industry.It basically helps with figuring
out the strengths and weaknesses of the company, as well as how to improve by turning
open doors into strengths.Additionally, it contributes to the serious atmosphere among
banks.

a) STRENGTH

1.Greater Funds Security Compared to Other Venture Options Banks Since its inception, it
has been a superior protection route.Banks have been able to rely on public confidence for
a considerable amount of time due to the palatable implementation of RBI's prudential
standards.
2.Banking network Since nationalization, banks have opened more branches all over the
country, which has helped save money and helped build big businesses in the rural and
urban areas.Private banks are allowed to operate, but they mostly accumulate funds in
cities.
3.Large Customer Base This is primarily due to the financial sector's massive
organization.Due to the disappointment of NBFCs, contributors in rural areas tend to favor
banks.
4.Due to the ease of capital acquisition, corporations favor cash from banks.Banks are a
good option for middle-class individuals in need of personal financing due to their low
interest rates.

b) WEAKNESS

1. Customer credit is the primary source of bank financing.Basel Committee Before banks
are required to adhere to the Basel advisory group's standards, it is difficult for them to
implement the global norms of the Basel panel.
2.The Indian economy as a whole benefited from the powerful unions' nationalization of
banks.However, this had also proven to be problematic because strong connections have a
significant impact on dynamic.They oppose the use of computers.
3.Priority Sector Lending During nationalization, need area lending was acquired to
improve public health.Although this is beneficial to the economy, banks have failed to take
into account the quality of the resources and were more concerned with meeting
government standards.As a result, loans were made for non-profit reasons.
4.In the financial industry, high non-performing assets (NPAs) have become a source of
concern.This is due to the fact that they had to be reduced in order to comply with the
global guidelines for advancement in the entire extraordinary advances.

c) OPPORTUNITIES

1.Universal Banking Banks have moved up the value chain to offer more products and
22
services to their customers.such as home accounts, bonds, capital markets, and so on.
Every Indian bank has the potential to become a general bank, providing all financial
services under one roof.

2.Differential Interest Rates As the RBI's control over banks decreases, banks will have
more freedom to set their own loan costs, which is in the banks' best interest.

3.High Household Savings The amount that households save has been steadily
rising.Additionally, interest in financial resources has grown.Banks should take advantage
of this opportunity to raise assets.

4.Untapped Foreign Markets Numerous Indian banks have not sufficiently penetrated
unfamiliar business sectors to generate palatable business; consequently, these business
sectors may have a clear open door.

5.Interest Banking The growth of data innovation has simplified banking.Web banking can
effectively promote businesses.
D. The ThreatsMutual funds, NBFCs, and Capital Markets There is a significant industry
of family investment funds.Retail NBFCs, Capital Market Instruments, and Mutual Funds
are gaining popularity.

WEAKNESS

1. These tools frequently provide expert re-visits at a higher level.

2.Changes in Government Policy The reorganization of the government's strategy poses a

threat to the financial sector.Loan fees and the state of the banking industry as a whole may
change as a result of significant shifts in store activation credit arrangement strategies.

3.As swelling decreases, loan costs decrease as well.The speculators will move his ventures
to the next profitable areas in this manner.

4.Recession The economy has failed to function properly as a result of the business cycle's
downturn, posing a risk to the financial sector.Globalization and the market-based
economy are now competing for a share of the industry as a whole.In the financial sector,
there is a narrow spread.The banks need to grow at a faster rate and reduce overhead costs
to compete.They are able to present new products and enhance existing administrations.

23
CHAPTER -3
INTRODUCTION TO AXIS BANK

After the Indian government granted permission for the establishment of new private banks in
1994, Axis Bank was the first of these new private banks to begin operations.The Bank was
progressed commonly by the Director of the predefined undertaking of the Unit Trust of India
(UTI - I), Extra security Enterprise of India (LIC) and General Protection Organization of
India (GIC) and other four PSU protection offices, for instance Open Insurance Agency Ltd.,
The New India Affirmation Organization Ltd., The Oriental Insurance Agency Ltd. besides,
Joined India Insurance Agency Ltd.

The Bank's Enlisted Office is at Ahmedabad and its Focal Office is arranged at Mumbai.As
of March 31, 2011, there were more than 1281 branches and Extension Counters in the
Bank's extensive network.As of September 30, 2011, the bank had a network of more than
7591 ATMs, offering its customers financial peace of mind around the clock.One of the
nation's largest ATM networks is here.

The bank is good at corporate and retail banking, and it wants to get the best business
practices around the world to become great.

The upkeep of legal requirements like the money hold proportion (CRR) and legal liquidity
proportion (SLR) as well as the speculation of such assets is the responsibility of business
divisions Treasury, the executives Depository.Additionally, it addresses the bank's assets and
liabilities.The money market, foreign trade, derivatives, merchant banking, and capital
business sectors can be grouped into essential managing exercises. Pivot Bank is an enlisted
dealer banker.The services that are provided are:

Private circumstance or partnership Issue the board Debenture trustees Depository services
Project warning services, capital market services, and warnings about mergers and
acquisitions Retail financial services All branches have a dedicated monetary warning work

24
area where the common asset plans are displayed.The objective is to provide customers with
a wider variety of investment avenues, thereby strengthening client relationships.The sale of
Depository services and the offer of Gold Coins are two other items the office deals with.

Corporate and institutional banking, cash management services, business current accounts,
correspondent banking, and government business retail banking are all important parts of the
bank. Retail banking is one of the most important parts.It has the largest portfolio assortment,
which includes retail risk and resource items.By definition, retail banking refers to services
provided by banks to individual customers rather than corporate financial, which caters to
businesses.

The capacity includes expanding reserve and non-store-based credit offices to a wider range
of customers across the country. The office anticipates increasing the premium spread
acquired on assets available with the bank while maintaining the risk on the credit portfolio at
adequate cutoff points. Other significant capacities include: Managing administrative issues
that include consistency with the guidelines of other specialists, such as RBI guidelines,
FEMA guidelines, and so forth; Keeping track of the business volumes being produced by the
branches and controlling the edges; Maintaining relationship with journalist Banks Outside
India AdvancesAdditionally, the office aims to increase charge-based pay from both asset-
based and non-reserve-based activities.

25
CHAPTER – 4
INTRODUCTION TO SME

In the context of India, the terms "small and medium enterprises" (SME) and "medium-scale
modern units" are collectively referred to as "small scope mechanical" (SSI).A modern unit is
considered a SSI unit if it has an absolute interest in its fixed resources, rented resources, or
recruit buy resources of up to Rs 10 million. A medium unit has an interest of up to Rs 100
million.A SSI unit should not be possessed or restricted by another mechanical unit, nor
should it be an auxiliary of another modern unit.
There are numerous ways to identify a SME worldwide.On October 2, 2006, the Micro,
Small, and Medium Enterprises Development (MSMED) Act, enacted by the Ministry of
Micro, Small, and Medium Enterprises, Government of India, brought about a singular
standard definition in India.
Nevertheless, the shifting financial situation altered this definition, which now has distinct
definitions.For instance, a SME definition of assembling projects is distinct from the
requirements for a SME definition of administration projects.
History The nation's growth and prosperity are dependent on small and medium-sized
businesses, or SMEs.Since then, this area has been empowered and has received recognition
and significance directly from autonomy.
However, despite the fact that it began from a less significant perspective and employed a
significant number of people, it gradually gained notoriety.
When it first started gaining momentum, this area was categorized as a venture with
investments in plant and equipment of up to Rs 1 lakh and arranged in towns and cities with
fewer than 50,000 people.The arrangement explanation enacted a unique law to recognize
and protect individuals who work for themselves in bungalow and home
businesses.Bypassing large urban communities and state capitals, area enterprises jogs (DICs)
were established and made the point of convergence of SSI improvement.In addition, the
government began providing unique forms of assistance to the SSIs in the form of item
normalization, quality control, and advertising studies to enable them to market their products
in an undeveloped market.
With the Industrial Policy of July 1991, which discussed advancement without precedent in
India's development history, the situation for the small scope area changed.This meant that
medium and large projects would no longer require licenses to operate.Toll organized tries
26
could be totally new guaranteed and new worth help was explicitly allowed.With fewer
restrictions, businesses could import capital goods.
The Abid Hussain Committee, a higher-level board of trustees established by the public
authority in 1996, was tasked with surveying strategies for small businesses and
recommending measures to assist in defining a solid and creative strategy bundle for the rapid
development of SMEs.The Indian economy underwent rapid change as a result of
advancement.At this point, Indian businesses were not shielded from the global economy.To
be honest, there was a pressing need to strengthen them, particularly small and medium-sized
businesses (SMEs).
At 3.1% in 1991, the rate of growth of SSIs was almost as fast as that of the entire modern
area.The development rate of SSIs surpassed that of the entire mechanical industry between
1991 and 1995.However, the development rate of SSIs was slightly lower than that of the
entire mechanical sector in 1995-96; however, it increased once more in 1996 and remained
higher than the overall modern development rate until 1999.Up until 2006, the SME sector
experienced a significantly greater turn of events and public support..

Depiction of SME in the assembling area

For the purposes of the First Schedule to the Industries (Development and Regulation Act),
1951, the term "enterprise" refers to a contemporary endeavor or business concern that is
associated with the production, preparation, or protection of goods.

The MSMED Act of 2006 defines MSMEs (minimum, small, and medium enterprises) for
the manufacturing sector as follows:

25 lakh.

does not go beyond Rs 5 crore.

however doesn't outperform Rs 10 crore.

nterest in plant and equipment exceeds Rs 5 crore. Among these, the cost of land, buildings,
and other items as specified by the Ministry of Small Scale Industries in its notice No. SO
1722 (E) dated October 5, 2006, is not included..

27
CHAPTER - 5
OVERVIEW OF CREDIT APPRAISAL

Before providing loans, advances, or project financing, banks conduct a credit appraisal,
which also examines the commercial, financial, and technical viability of the proposed
project, its funding pattern, and the primary and collateral security cover available for its
recovery.

Brief overview of Credit

Before granting loans, advances, or venture accounts, banks conduct a credit examination,
which also examines the proposed project's business, financial, and professional suitability, as
well as its financing design and the necessary and guarantee security cover available for asset
recovery.

A cycle to identify the risks associated with the expansion of the credit office is referred to as
a brief diagram of credit credit appraisal.It is frequently communicated by financial
institutions that are associated with providing clients with financial assistance.A credit hazard
is a risk that arises when a bank fails to honor a customer's credit.To reduce the credit risk, it
is essential to assess the client's legitimacy in this manner.An accurate assessment of the client
is carried out, which provides estimates of the client's financial situation and future ability to
repay the Loan.In general, the credit offices are contacted in exchange for a security known as
guarantee.However, banks are typically motivated by the actual Loan amount to be
reimbursed alongside the premium, despite the fact that the Loans are supported by the
guarantee.In this manner, the client's earnings are discovered to ensure timely head and
interest payments.

It is the method for determining a Loan candidate's credit worth.When determining an

individual's credit worth, factors like age, pay, the number of children, the nature of the
business, the progression of work, the reimbursement limit, previous loans, visas, and so on
are taken into account.This is why each bank or lending foundation has its own board of
directors.
28
In any case, it's important to remember that the three "C"s of credit are essential and apply to
all loans and borrowers.

Character Capacity Collateral If any of these are missing from the situation, the official
making the loan should investigate whether or not the credit is appropriate.There is no
guarantee that a Loan will not encounter problems;However, if the proper credit assessment
procedures and monitoring are carried out, the loan's misfortune likelihood and issues will
typically be minimized, which should be the goal of every loaning officer.

Credit is the transfer of assets, such as a loan, from one party to another with the expectation
that the second party will either reimburse the first party or restore the assets (or material(s) of
equivalent worth) in the future rather than repaying the first party immediately.The first party
is referred to as a leaser, also known as a moneylender, and the second party is referred to as
an account holder, also known as a borrower.

Credit gives you the ability to buy things now and pay for them later.When we purchase
things, we use acknowledge as permission to repay the loans over time.Utilizing credit cards
is the most common method for improving credit.Individual loans, home loans, vehicle loans,
student loans, private company loans, and exchange are examples of other credit plans.A
credit is a legal agreement in which one party receives money or property from another and
promises to repay him with interest at a later date.In simple terms, a credit is a plan to pay off
a loan or purchase in installments.An obligation is established when a credit is granted.

29
Brief review of Loans

Advances can be of two sorts store base and non-reserve base:

A. Fund Base includes:

• Working Capital

• Term Loan

B. Non-fund Base includes:

• Letter of Credit

• Bank Guarantee

• Bill Discounting

A. Fund Base:

• Working capital

Achieving benefits is the objective of any industry's management.Assets will be expected to

maintain the business, such as its day-to-day operations, as well as acquire "fixed resources"
like land, buildings, machinery, types of gear, vehicles, instruments, and so on.
To support creation and transactions, assets will be required for day-to-day work.For
creation, holds are expected for procurement of rough materials/stores/fuel, for work of
work, for power charges, etc funding the arrangements by means of different
borrowers/receivables.

As a result, an industry's capital or assets can be divided into fixed capital and working
capital.In this context, working capital is the ratio of current assets to current liabilities.The
excess of current assets over current liabilities is treated as net, for

30
taking care of finishing stock till they are sold out and for working capital or liquid
abundance and addresses that piece of the functioning capital, which has been given from the
long source.

• Term Loan A term loan with a fixed term of at least three years is frequently offered for the
purpose of financing fixed resources obtained through a reimbursement plan.
A term loan is one that is granted with the intention of acquiring capital resources, such as
land, buildings, equipment, modernization, redesign, or justification of plant, and is
repayable in installments in accordance with a predetermined plan from the future acquisition
of the project.
The following distinctions between a Term Loan and the Bank-managed working capital
credit are clear from the above definition:
o Obtaining capital resources is the purpose of the Term Loan.
o The term loan is a development that can only be repaid in equal installments over a number
of years rather than on interest alone.
o If the goods and wares are offered as security, the repayment of the term loan is not out of
the question.The reimbursement should come from the money that the unit makes in the
future.
o The security is not the products that can be sold quickly, but rather the units' fixed
resources.

As a result, it can be seen that Term Loans are not the same as traditional working capital
advances in terms of duration and operation.The bank is responsible for a significant amount
of time, and the risk that comes with it is even greater.Due to the vulnerability of the
reimbursement, a Loan carries some risk.The risk that comes with the credit also rises in
proportion to the length of the credit, as the professional risk of reimbursement increases.

Despite this, it is possible to conclude that Term Loans are not nearly as deficient in liquidity
as they appear to be.In contrast to temporary loans for working capital, particularly money
credits, which are restored year after year, these loans are dependent on a positive
reimbursement program.The term loans would be repaid in the usual way out of the
company's or exchange's anticipated pay.

Because of these particular characteristics, Term Loans are distinguished from bank-issued

31
short-term credit, which is why it is crucial to have a different method for evaluating and
analyzing such a proposition.

A Term Loan's repayment is contingent on the receiving unit's anticipated future

earnings.Consequently, the fundamental task of the bank before giving Term Advances is to
promise itself that the predicted pay from the unit would give the significant aggregate to the
repayment of the Credit.A thorough investigation of the plan and its capital resources will be
part of this.

Financial perspectives, specialized viewpoints, monetary angles, a projection of future yield

patterns, deals, and cost, return, asset flow, and benefits metrics

B. Non-reserve Base:

• Letter of Credit: The merchant of any goods or services wants to receive the payment as
soon as the goods or services are delivered.If the seller and the buyer are in better locations
—either within the same nation or outside of it—this may not be apparent.The buyer's
confirmation of their intent to pay is important to the seller.The buyer simultaneously wants
the payment to be made only when the goods are actually received.The requirement for
Letters of Credit (LCs) emerges here.The goal of LC is to provide a method for both the
dealer's installment and the purchaser's delivery of goods and services simultaneously..

32
Definition

A Letter of Credit (LC) is a plan in which a bank (the responsible bank) acts in response to a
request from a client (the candidate) and in accordance with the client's guidelines, or for its
own benefit, to either pay an outsider (the recipient) or acknowledge and cover trade tabs
(drafts drawn by the recipient);or o Permits a different bank to influence the payment or
acknowledge and manage the trades (drafts) in question;or o Permits a different bank to
implement the terms and conditions of the acknowledgement.against the particular document
or documents, stating that

"an agreement to play out the guarantee or release the risk of the third individual if there
should be an occurrence of the default," is the definition of an assurance agreement.The
parties to the certification agreement are:

a) Candidate:The primary account holder, or the person at whose request the guarantee is
carried out. b) Beneficiary:Person who receives the assurance and has the authority to put it
into action in the event of a default.

c) Warranty:the person who agrees to let go of the candidate's commitments in the event of
his default.

As a result, ensure is a crucial insurance contract for both the recipient and the primary co-
candidate.

The purpose of bank guarantees Bank guarantees are utilized for both medical and
preventative purposes.Bank ensures include both monetary certifications and execution
guarantees.The agreement's terms organize the guarantees, namely,rationality, growth, and
security.

In most cases, branches may issue guarantees for the following reasons:

a) In place of a security deposit or earnest money deposit for tender participation;

b) The contractor's request for an advance payment, also known as a mobilization advance,
prior to the project's beginning and for funds to be received at various stages, such as plant
layout and design/drawings in project finance;

c) In relation to supplies of raw materials or buyer advances;

d) Concerning the timely fulfillment of particular contracts by the borrowers and the full
33
payment of the bills;

e) A performance guarantee for the warranty period when the contract is finished, which
would allow the suppliers to finish before the warranty period ends;allow units to periodically
draw funds from the concerned indenters in exchange for partial contract execution, among
other things.

f) Export performance guarantees on behalf of exporters favoring the Customs Department

under the EPCG scheme;

g) Bid bonds on behalf of exporters

• Discounting on bills:

Definition:

“The bill of exchange is an instrument in writing containing an unconditional order directing

a certain person to pay a certain sum of money only to, or to the order of, a certain person, or
to the bearer of that instrument,” according to the Negotiable Instrument Act.

Exchange bill discounting:

If a seller (Drawer) requires cash, they can discount the bill by handing over the B/E to a
bank, NBFC, business, or high-net-worth individual.In India, the original B/E is held by the
financing organization until the drawee pays at maturity.Financiers charge interest on the bill
amount for the duration of the bill, referred to as discount charges, in order to discount the
bill. The typical maturity periods are 30, 60, 90, and 120 days..

Types of Bills
1. Demand Bill
2. Usance Bill
3. Documentary Bills
a. Documents against acceptance (D/A) bills
b. Documents against payment (D/P) bills
4. Clean Bills

Advantages

34
o To Investors
1. Short Term source of finance
2. Outside the purview of Section 370 of Indian Companies Act 1956
3. No tax deducted at source
4. Flexibility

o To Banks
1. Safety of funds
2. Certainty of payment
3. Profitability

35
 Credit Appraisal Process

Receipt of application from applicant

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

Pre-sanction visit by bank officers

Check for RBI defaulters list, willful defaulters list, CIBIL data, ECGC, Caution list
etc

Title clearance reports of the properties to be obtained from empanelled

Advocates

Valuation reports of the properties to be obtained from empanelled valuer/engineers

Preparation of financial data

Proposal preparation

Assessment of proposal

Sanction/approval of proposal by appropriate sanctioning authority

39
 Documentations, agreements, mortgages

Disbursement of Loan

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

40
 Loan administration pre- sanction process
Appraisal, Assessment and Sanction functions

1. Appraisal

Fundamental examination

 The feasibility of a business's activities and the advertisers' capacity to run it

profitably and reimburse the bank for any levy that falls are all parts of a sound
credit examination.
 The accompanying parts of a proposal are also examined.
 Prudential exposure standards, industry exposure limits, gathering exposure limits,
industry-related danger factors, credit risk rating, profile of advertisers/senior
management faculty of the task, rundown of defaulters, alert records,
agreeableness of advertisers, and consistency with respect to moving borrower
accounts from one bank to the next, if relevant are all important considerations.
 governmental regulations that have an impact on the company;For instance,
projects that deliver or burn through ozone-depleting substances cannot be funded;
 The company's Memorandum and Articles of Association should be carefully
examined to ensure (I) that there are no statements biased to the Bank's
advantages, (II) that there are no restrictions placed on the Company's acquiring
forces and tasks, and (III) the extent of movement of the organization.
 Candidate's status compared to other units in the business.
 Monetary status in broad terms and whether it is satisfactory.

Furthermore, the following perspectives must be examined in order for the

proposition to support a project:
Regardless of whether the task cost appears satisfactory, the obligation/value
equipment that is proposed, and the ability of reputable advertisers to access the
capital market for obligation/value upholding

41
Regardless of whether the fundamental components of the task—such as the
request, cost of production, productivity, and so on—are initially all in one place,
the following documents are required for the loan process: an application for
credit; a duplicate of the Memorandum and Article of Association; a duplicate of
the merger of the business; a duplicate of the beginning of the business; a
duplicate of the goal with regard to the requirement of credit offices; a brief
history of the company, its customers and supplies; past histories;Also, provide
some information about the organization's leaders: • Financial reports for the last
three years, including a summary of the temporary budget.

• A duplicate of the organization's PAN/TAN number • A duplicate of the

organization's last electricity bill • A duplicate of the GST/CST number • A
duplicate of the Excise number • A photograph ID for each chief • Address
evidence for each chiefIf the branch (a reference to the branch includes a
reference to SECC/CPC and so forth generally) determines that the proposal is
adequate, it will request from the applicant(s) a comprehensive application in the
recommended proforma along with a copy of the proposition/venture report
outlining the organization's specific credit requirements and other fundamental
information.The data ought to include, among other things:

a hierarchical structure with a list of the Board of Directors and a demonstration

of the skills, experience, and fitness of the most important staff members who are
responsible for the primary practical areas, such as purchase, production,
marketing, and money;all things considered a concise on the regulatory resources
and whether these are feasible with the size and degree of the proposed activity.

a copy of the market overview report, as well as demand and supply projections
based on the overall market prospects.Current practices for the specific product or
service, particularly in relation to Terms of Credit Deals, the likelihood of Bad
Debt, and so on Evaluations of Deals Cost of Creation and Benefit, may be
mentioned in the report. Other examples include the demand and supply gap, the
competitor's offer, the candidate's advantage, and so on.

Broadened advantage and setback record and resource report for the functioning
quite a while during the

42
Cash of the Bank help.

If requesting integrates funding of project(s), branch should get too

Assessment report from another bank/money related association if assessment has

been done by them.

If the company is currently financed by term loan specialists, a "No Objection

Certificate" and a report from merchant financiers are required if the company
intends to enter the capital market or any other crucial location.

In addition to the aforementioned, concerns that are currently in existence should

also be the subject of attention-grabbing considerations in terms of the problem's
historical context, its previous presentation, its current financial situation, and so
forth.If the most recent evaluated asset report is more than a half year old, a
favorable to forma accounting report as on an ongoing date should be obtained
and dissected. These information and data should be enhanced by the supporting
declarations, such as the Examined benefit misfortune record and accounting
report for as long as three years.For non-corporate borrowers, paying little mind
to showcase segment, getting a charge out of credit limits of Rs.10 lacs or more
from the monetary structure, examined money related record in the IBA certified
associations ought to be assembled by the borrowers.

Credit data reports from the candidate company's current investors, as well as
financial summaries and acquiring relationships of Associate firms/Group
Companies, if any.

43
A. Detailed Appraisal

A task's feasibility is evaluated to determine whether the business would be able to

fund its Loan and premium commitments with company funds.All of the borrower's
information and data should be checked against each other when evaluating a project
or loan proposal, and whenever possible, correlations between businesses and
industries should be made to verify them.

The financial assessment did in light of the association's examined resource reports
and advantage and disaster addresses the latest three years ought to help with setting
up the ongoing plausibility.
In addition to the financials, the following perspectives should be examined:
The organization's devaluation strategy, whether it is a straight line or recorded value
strategy, as well as whether or not the strategy for deterioration has been altered in the
past and, if so, the reasons for this;

Regardless of whether the company has previously revalued any of its fixed resources
and the current status of any revaluation saves that have been made as a result;
History of past illness and record of significant reimbursement defaults, if any,

Assuming any;

 The state of the organization's expense evaluation, specifically, whether the yet
to be determined sheets' arrangements are sufficient to address the
organization's duty liabilities;
 An explanation of the nature and cause of the unexpected liabilities;
 upcoming lawsuits brought by or against the company and the financial
consequences of those lawsuits (such as cases involving customs and extract,
deals charge, and so on);
 Capabilities and negative remarks, if any, made about the organization's records
by legal inspectors;

Profit strategy;

 Other proportions pertinent to the undertaking, in addition to

44
 monetary proportions;
 Deal patterns and productivity, past deals and benefit projections
deviations, and appraisals and projections of deal values;
 Use and limit on creation:anticipated and past;
 analyzed the need for working capital in relation to the adequate
growth of stock, receivables, and other current resources;
 Increased levels:regardless of whether they are satisfied;•
Adherence to loaning standards and other mandatory regulations as
significant

Venture financing:

 If the suggestion incorporates supporting another undertaking, the business,

financial and
 Money related possibility and alternate points of view are to be reviewed as
displayed under:
 Legal authorizations from various government departments.
 Subtleties of sourcing of energy requirements, such as power, fuel, and so forth
 Contamination control leeway
 Cost of the venture and wellspring of money
 Develop of fixed resources (prerequisite of assets for interests in fixed
resources to be basically inspected as to creation factors, improvement in the
nature of items, economies of scale, and so forth) • Collaboration arrangements
as material

45
  Plans proposed for raising obligation and value
 Capital structure (position of Authorized, Issued/Paid-up Capital, Redeemable
Inclination Shares, and so on)

 Debentures, term loans, conceded installment offices, and unstable loans and stores
are examples of obligation parts.The organization's unstable loans should be
subordinate to the banks' and financial institutions' term loans, and they should be
allowed to be reimbursed only with the prior approval of a significant number of the
banks and financial institutions involved.• Attainability of plans to get to the capital
market • Attainability of the projections/evaluations of deals, cost of creation, and
benefits covering the time of reimbursement • Equal the initial investment Point in
Terms of deals worth and level of introduced limit under a • Ordinary creation year •
Incomes and asset streams • Proposed amortization plan • Whether benefit is
satisfactory to meet specified reimbursements concerning Debt Service Coverage
Ratio, Return on Investment • Industry profile and prospects • Basic variables of the
business and whetherfocusing on the following aspects:

 o Unique characteristics o Profitability factors o Business financing pattern o

Inventory/Receivable levels o Capacity utilization o Production efficiency and costs o
Bank borrowing patterns o Financial ratios & other relevant ratios o Capital Market
Perceptions o Current price o 52week high and low of the share price o P/E ratio or
P/E Multiple o Yield (percentage)- half-yearly and yearly Also examine and comment
on the status of approvals from otherIn the case of existing units, a pre-sanction
inspection of the factory or project site should be conducted.To guarantee a more
serious level of responsibility from the advertisers, the part of the value/Credits which
is proposed to be gotten by the advertisers, their relatives, companions and family
members should be brought forthright.However, if there are genuine and acceptable
reasons, this relaxation may be taken into consideration on an individual basis.In such
a situation, the promoter ought to provide a specific plan that clearly identifies the
sources for meeting his contribution.The remaining sum, which is expected to come
from other places,debt instruments, public equity,should also be securely fastened.

 B. The Bank's current relationship:

 • Compile a profile of current exposures for existing customers:

46
 •Credit offices presently allowed

 •Direct of the current record

 •Usage of cutoff points - FB and NFB

 •Event of inconsistencies, if any

 •Recurrence of inconsistency i.e., number of times and complete number of days the
record was unpredictable during the most recent a year

 •Reimbursement of Term responsibilities

 •Consistence with prerequisites in regards to accommodation of stock articulations,

Monetary

 •Follow-up Reports, reestablishment information, and so on.

 • Stock turnover and the payment of book debts • Account value divided by income
earned • Proportional share of non-fund and foreign exchange business • Value of
concessions extended • Compliance with other terms and conditions • Action taken on
RBI Inspection Report comments and observations:Reports from the CO Inspection
and Audit: C. Credit risk rating:Create a rating for (i) Term Finance and (ii) Working
Capital.

 D. Reports on Opinions:Make opinion reports about the company, the partners or

promoters, and the guarantors that are proposed.

 E. Charges that are currently on the unit's assets:Report on the search for charges
using ROC if a business.

 F. The facility's structure and the sanctions:

 Fix the terms and conditions for the proposed exposures, facility-by- facility and
globally:

 • Limit for each facility, with sublimits; • Security, including primary and collateral; •
Guarantee; • Margins, depending on the facility; • Interest rate; • Commission,
exchange, and other fees; • Value of concessional facilities; • Repayment Terms, if
any; • ECGC cover, if any; • Other standard covenants

47
 The proposal ought to be examined in terms of (i) the advantages and disadvantages
of the proposed exposure, (ii) the risk factors and the measures proposed to mitigate
them, and (iii) any proposed deviations from the usual practices of the Bank and the
reasons for them.

 Prepare a proposal draft in the prescribed format with suggestions for approval and
the necessary back-up information.

 J. Support for Assessment:

 Engage in conversation with the assessor, provide additional feedback based on the
evaluation, incorporate these and any necessary changes into the draft proposal, and
create a comprehensive sanction proposal.

 2.Assessment:

 The following is an indicative list of the tasks associated with the assessment
function:

 • Examine the borrower's application, financial statements, and any other reports or
documents the appraiser looked at alongside the draft proposal and any supporting
details or notes.

 • Communicate with the appraiser and the borrower.

 • Conduct a pre-sanction visit to the applicant's project or factory site.

 • Look over the financial analysis (Balance Sheet, Operating Statement, Ratio
Analysis, Fund Flow Statement, Working Capital Evaluation, Project Costs and
Sources, Break Even Analysis, Debt Service, Security Coverage, etc.)to determine if
this appears to be in order.Make arrangements with the appraiser for the proper lines'
analysis in the event of any deficiencies.

 • Give the following aspects of the proposed exposure careful consideration.

 o The borrower's projected performance in relation to previous estimates and

performance o Market conditions o The viability of the project o The borrower
entity's strengths and weaknesses o The Bank's lending policy and any other
guidelines it issues from time to time o The guidelines of the RBI o The background
of promoters and senior management o Inter-firm comparison o Technology used in
48
 the company o

 o The proposed facility layout.

 o Adequacy/correctness of limits/sublimits, margins, moratorium, and repayment

schedule o Adequacy of proposed security cover o Credit risk rating o Pricing and
other charges and concessions, if any, proposed for the facilities o Risk factors of the
proposal and steps proposed to mitigate the risk o Deviations proposed from the
Bank's norms and justifications for them • To the extent that the inputs/comments are
inadequate or require modification, arrange for additional inputs/

 • A sanction recommendation:Describe briefly the evaluation's findings and whether

the proposal is financially viable.Briefly discuss the significance of the connections
between the business and the Group.Indicate whether the proposal poses a reasonable
banking risk all things considered.Provide recommendations for the grant of the
necessary credit facilities, both fund-based and non-fund-based.

 3.Sanction:

 The following is an indicative list of the activities that contribute to the sanction
function:

 Check the proposal to see if the report appears to present it in an adequate and
comprehensive manner.Send any important information that is missing from the
proposal back to the Assessor so that the necessary data or clarifications can be
provided.

 Consider the following aspects of the proposed exposure carefully in light of the
applicable instructions:

 Risk factors critical to the exposure and the adequacy of safeguards proposed • Value
of the existing connection with the borrower • Credit risk rating • Security, pricing,
charges, and concessions proposed for the exposure and covenants o Stipulated vis-à-
vis the risk perception • Borrower's status in the industry • Industry prospects •
Experience of the Bank with other units in similar industry • Overall strength of the
borrower • Projected level of operations

 Accept the proposal in accordance with the terms or by stipulating modified or

additional conditions or safeguards; Defer decision on the proposal and return it for
49
 additional data or clarifications;

Loan administration - Post sanction Credit process

.
Need

Decisions regarding lending are based on a sound evaluation of

creditworthiness.Although they are a useful guide for projecting the trend in
performance, a past record of satisfactory performance and integrity is not a guarantee
of future performance.Promises and projections serve as the foundation for credit
assessment.If the borrower didn't keep his performance promises, a loan that was
given based on a good appraisal could fail.As a result, proper supervision and follow-
up are essential.

a) banker can't take solace in the fact that his loans have enough security.He must: a)
choose the right borrower;

b) make sure the terms and conditions are followed;

c) keep an eye on performance to see if the business is still viable; and

d) make sure the money is used.

e) In the end, guarantee the safety of lent funds.

Stages of post sanction process

The three stages of the post-sanction credit process are as follows:follow-up, supervision, and
monitoring all work together to make credit management more efficient and effective and to
keep standard assets at a high level.The following is a breakdown of the three stages of the
post-sanction process's goals.

50
Types of Lending Arrangements

Introduction
Business elements can have different kinds of getting courses of action. They are
 One Borrower – One Bank
 One Borrower – Several Banks (with consortium game plan)
 One Borrower – Several Banks (without consortium game plans – Multiple
 Banking
 One Borrower – Several Banks (Loan Syndication)
 One Bank

The most recognizable among the above for more modest credits is the One Borrower-One
Bank game plan where the borrower limits all his monetary dealings with just one bank.

Now and again, units would want to have banking plans with more than one bank by virtue of
the enormous monetary necessity or the asset limitation of his own financier or because of
fluctuating terms and conditions offered by various banks or for sheer regulatory comfort.
The preferences to the bank in a different financial plan/consortium course of action are that
the introduction to an individual client is restricted and hazard is proportionate. The bank is
additionally ready to spread its portfolio. On account of getting business substance, it can
meet its finances necessity without being obliged by the restricted asset of its own financier.
Other than this, consortium course of action empowers partaking banks to spare labor and
assets through regular examination and investigation and sharing credit data.

The different game plans under borrowings from more than one bank will vary by virtue of
terms and conditions, technique for evaluation, coordination, documentation and management
and control.

Consortium Lending
At the point when one borrower profits advances from a few banks under a plan among all
the loaning brokers, this prompts a consortium loaning courses of action. In consortium
51
loaning, a few banks pool banking recourses and aptitude in credit the board together and
account a solitary borrower with a typical evaluation, normal documentation and joint
oversight and follow up. The borrower appreciates the preferred position like single window
profiting of credit offices from a few banks. The game plan proceeds until any of the bank
moves out of the consortium. The bank taking the most noteworthy portion of the credit
willnormally be the head of consortium. There is no roof on the quantity of banks in a
consortium.

Multiple Banking Arrangement

Different Banking Arrangement is one where the principles of consortium don't make a
difference and no bury se understanding among banks exists. The borrower profits credit
office from different banks giving separate protections on various standing and conditions.
There is no such game plan called 'Different Banking Arrangement' and the term is utilized
distinctly to signify the presence of banking course of action with more than one bank.
Banking Arrangement has come to remain as it has a few preferences for the borrower and
the banks have the opportunity to value their credit items and non-reserve based office as per
their business judgment. Consortium course of action occasioned delays in credit choices and
the borrower has discovered his way around this trouble by the different financial game plan.
Furthermore, when units were not progressing nicely, agreement was once in a while
pervasive among the consortium individuals. On the off chance that one bank needed to call
up the development and ensure the security, another bank was keen on proceeding with the
office by virtue of gathering contemplations.

 Focuses to be noted if there should arise an occurrence of various financial

game plans
 Despite the fact that no proper game plan exists among the financing banks, it is
desirable over have casual trade of data to guarantee monetary order
 Charges on the security given to the bank should be made with most extreme
consideration to prepare for weakening in our security offered and to try not
to twofold fund
 Authentications on the exceptional with different banks should be acquired on the
periodical premise and likewise confirmed from the Balance sheet of the unit to dodge
overabundance financing

52
Credit SyndicationA partnered credit is an arrangement between at least two loaning
foundations to give a borrower a credit office utilizing regular advance documentation. It is an
advantageous method of raising long haul reserves.

His favored borrower orders a lead chief to sort out a development for him.The request
enlightens the subtleties of the development and the instructed bank's honors and
obligations.
The ordered financier, also known as the lead trough, prepares a data reminder and sends it
to the subsequent moneylender banks, asking for their assistance with the credit.The major
banks make a decision regarding the proposal based on the notice and their own free
monetary and monetary development.The credit agreement is supported by all participating
banks. The ordered bank convenes the group to discuss the partnership methodology, which
includes coordination, correspondence, and control within the partnership cycle. It also
completes the bargain timing, the board charges, the cost of credit, and so on.To enable the
borrower to tie up payment with the other lending banks, the lead trough requires earlier
notification of the credit draw.
The following are some of the advantages of syndicated loans:
• The arranger brings together a group of banks;
• The borrower does not need to have contact with any of the participating banks;
• Enormous credits can be raised through partnership by reaching out to global business
sectors;
• For the borrower, competition among the moneylenders results in better terms;
• The risk is shared;
• Small banks can also approach large ticket advances and top-notch credit examination and
the executives Points of Interest;
• A precise, time

53
 CHAPTER - 6
CREDIT APPRAISAL MODEL AT AXIS BANK

Scheme of Credit to SME Sector

AXIS bank provides credit to SME sector under following Schemes

A. SME – Schematic (Fast Track)

It incorporates organized items essentially to offer quick types of assistance to customers. It

incorporates different items like:

 Mpower OD and Mpower Term Loan

 Business Loan for Property

 Force Rent

 Force Trade

 Zero Collateral Loans (ZCL) to MSE under CGS

 Card Power

 Endeavor Power

 Business Power

Mpower OD and Mpower Term Loan:

The product aims to meet the working capital and term account requirements of an exchange
project.The office offers both a cash credit (for the requirements of working capital) and a term loan
(for the use of financing capital).Hypothecation of Working Capital resources serves as security for
the office, which is further secured by charge over a enduring property or financial resource.Under
the product, offices that are not funded by a fund can also be given.Under the item, the highest loan
amount is Rs.2.50 Crs.

Property Loan for a Business:

The item is geared toward giving money to businesses and buying a stable house.The office
functions as an EMI-based term loan.Under the item, the highest loan amount is Rs.$5 million.

Force Lease:

Giving property owners a term loan against their rent rental receivables is the primary goal of the
product, which is typically referred to in market speech as "Rent Rental Discounting."The loan
amount is determined by estimating the net present value of the rental receivables over the rent
54
period (after taking edge and expenses into account).The loan is also secured by a charge over the
property, and the rent rentals are hypothecated in support of the bank.The item indicates a 1.5-times
base security inclusion.
Under the item, the largest loan amount is Rs.20 billion.

Market Force:

The product aims to fulfill an exchange project's working capital and term account requirements.The
office offers both a money credit for working capital requirements and a term loan for capital
financing.The office is secured through the hypothecation of working capital resources and further
secured by charge over an inexhaustible property or financial resource.The item may also permit
offices that are not based on reserves.Under the item, the highest Loan amount is Rs.2.5 billion.
Under CGS, Zero Collateral Loans (ZCL) to MSE:

MSEs and IT-related administrations can take advantage of this item's working capital and term
account benefits from the bank.The office is protected by the ensure front of credit ensure reserve
trust for small and small businesses (CGTMSE), and no insurance security can be taken in these
situations.The item's highest credit limit is Rs.1.00 crore.

Card Stamina:

This is a strategy for financing pour EDC machine units using credit or check cards.Borrowers can
choose between term credit offices and interest advance offices up to a maximum of Rs.2.5
billion.With a few exceptions like alcohol, tobacco, occasional businesses, and so on, all trading and
retail activities that use credit cards are eligible for the advances.

Venture Capacity:

This thing has been made to meet the credit needs of the Miniature and little endeavors covering
both collecting and the organization regions.The services that are offered include sending credit in
rupees;credit and non-reserve based pre- and post-shipment offices like LC and BGThe lowest
possible threshold is Rs.1.00 Crore.

Power in Business:

Business Power is a volatile term loan with a maximum advance amount of Rs.35 lacs) will be
reimbursed through EMIs over a maximum of four years.

SME-Non Schematic (Standard) For a business in the early stages of development with a wide range
of opportunities to investigate, timely access to credit is a fundamental solution expected to reach
new heights.Pivot Bank recognizes this and strives to serve as both a bank and a financing partner so
that business needs can be prioritized while financing concerns are addressed.
Their services, which range from funded to non-funded, short-term to long-term, credit to trade
services, guarantee that money will be transferred in the manner that is most beneficial to business.

Administrations:

Money Credit, Working Capital Demand Loan, Fare Finance, Transient Loan, Term Loan, Clean
Bill Discounting, LC Backed Bill Discounting, Co-Acceptance of Bills, Credit Facilities Against
Guarantee or Stand By Letter of Credit Given by Foreign Banks, Letter of Credit, Bank Guarantee,
Dissolvability Certificates, and Money Credit are just a few examples of the various types of money
55
credit.

To meet the needs for everyday working capital, banks provide Cash Credit offices.Credit is granted
against the essential security of stock, borrowers, other current resources, and so forth, as well as
insurance security of mobile fixed resources, steady property, individual or corporate assurance, and
so forth. Interest is charged on the amount used instead of the amount endorsed.
In addition, rather than a money credit office, the bank provides working capital offices through
Working Capital Demand Loan.The fundamental or protection security will be as referred to in

genuine cash credit office.In this case as well, interest is paid on the amount that is drawn rather than
the amount that is used.

Finance of Trade:

Pre-Shipment Credit, Letter of Credit, or Post-Shipment Credit can be provided by a bank to send
out goods in response to a company's request.Credit is available for acquiring raw materials, making
products, handling and bundling them, and shipping them.Depending on the borrower's
requirements, the money is given in Indian or foreign currency.

Temporary Loan:

The bank offers Term Loans for capital expenditures and Working Capital offices to meet daily
working capital requirements.In any case, there may come a time when a temporary or specially
appointed account is required for general corporate purposes, meeting temporary gaps in working
capital, or covering unexpected expenses.In such instances, it provides residents with up to a year-
long Short Term Loans to ensure the smooth operation of the business.

Term Loan:

when long-term assets are required for capex, limit developments, plant modernization, etc.In light
of these requirements, the bank offers term loans with a reasonable term, a right to cancel them
whenever they are needed, and reimbursement options based on the client's assessed incomes.A first
charge on the fixed resources obtained from the loan amount is the primary guarantee for these
loans.In addition, appropriate insurance protection is taken whenever necessary.

Discounting for Clean Bills:

Bank gives clean bill restricting workplaces to help receivables.Credit is granted against bills or
receivables that are rebated by the bank.Depending on the length of the bill, this office can be used
for anywhere from three to six months.

Discounting LC-backed bills:

Receivables are subsidized by bank rebate bills drawn under Letters of Credit provided by presumed
banks.Depending on the length of the bill or Letter of Credit, this office can be used for anywhere
from three to six months.

Bill Co-Acceptance:

Depending on the borrower's requirements, the bank also offers co-acknowledgment of exchange
bills.
56
 Facilities for credit with a guarantee or a stand-by letter of credit from foreign banks:
Different new associations set up helper in India.These organizations receive funding from the bank
in exchange for assurances or SBLCs of satisfactory unfamiliar banks.

Credit Letter:

The Bank offers a variety of non-fund-based offices in addition to reserve-based working capital
offices, such as letters of credit, bank guarantees, solvent authentications, and so on. Letters of credit
are given to meet exchange buys.Depending on trade cycle, these are typically accommodated for
three to six months.Aside from that, bringing in capital goods or hardware qualifies for an Import
Letter of Credit.These LCs are for a period of one to three years of residency, depending on the
borrower's requirements.

Bank Security:

The bank offers its customers Bank Guarantee to a variety of entities, including the government,
semi-government, and business, among others.It provides a variety of guarantees, such as a
performance guarantee, monetary guarantee, EPCG, and so on. Depending on the reason for the
guarantee, the duration of the Bank Guarantee can range from one year to ten years.
Certificates of Dissolvability:
Bank also gives dissolvability support depending on the need of the borrower.

Sanctioning powers for schematic Loans under MSME

and Mid Corporate

To have better control over the portfolio, it is felt that the spending plan for schematic advances ought
to be administered remarkably to pick branches, where the potential and work maintain exist for such
business.

In a similar vein, Advances Cells have chosen which branches to include in the financial plan.There
will be no authority given to the Branch Heads of branches located at points where Advances Cells
have been established.Branch Heads of free branches where spending plans have been apportioned
will have approving abilities as per arrangement of powers given underneath.Endorsing powers will
not be granted to the Branch Heads of other independent branches where spending plans have not
been allocated.In any case, these branches would continue to source business, and such a proposal
would be prepared and approved at the specific Advances Cells.The Advances Cells would also be
used for the audit and restoration of existing loans at these branches.

It is believed that the financial plan for schematic advances should be distinctly divided to choose
branches, where the potential and labor uphold exist for such business. Branches would continue to be
accountable for all post approval customs, maintaining the nature of resources held in their books,
occasionally refreshing the drawing power, and obtaining stock explanations and periodic review of
obtained units. In order to have better command over the portfolio, it is believed that the financial plan
should be apportioned distinctly to choose branches.

In a similar vein, the budget has been restricted to specific branches that Advances Cells will
select.There will be no endorsement powers available to the Branch Heads of branches located at
57
 points where Advances Cells have been established.Endorsing powers will be granted to branch heads
of independent branches to which financial plans have been assigned in accordance with the
appointment of forces listed below.Endorsing powers will not be granted to the Branch Heads of other
independent branches where spending plans have not been distributed.However, these branches would
continue to source business, and these proposals would be managed and approved at the specific
Advances Cells.The Advances Cells would also be used for auditing and reestablishing existing loans
at these branches.

The branches would continue to be responsible for all post-authorization procedures, including
maintaining the nature of the resources in their books, occasionally refreshing the drawing power,
pompous stock announcements, and periodic evaluation of obtained units.

The following is a list of the various officials' sanctioning authority:

Sanctioning Authority Exposure Limits Interest rates Reviewing Authority

(in Rs. Lacs) Concessions
Senior Manager AVP / VP-Advances at
50 NIL
the Advances Cell
AVP 250 NIL DVP/VP-Advances
DVP / VP 1000 Upto 100 bps SVP – Advances
SVP (Advances) at ZO 2000 Upto 100 bps Zonal Head

All solicitations for financing cost concessions are to be sent to the Advances Cells.

58
By the fifth of the following month, the most recent proposal approved at Advances
Cells/Zonal Offices must be submitted for survey by the following more significant position
authority via a month-to-month control return, in the recommended design and not dependent
on the situation.In addition, proposals approved by Branch Heads/Advances Cells (led by
AVPs/Managers) during a particular month must be submitted for audit by the appropriate
authority at the Zonal Office or Advances Cells, as the case may be, via a month-to-month
control return by the fifth of the following month, in the approved format and not dependent
on the circumstances.By the fifth of the following month, the concessions in paces of interest
or varieties approved by the VP (Advances) and SVP (Advances) individually must be
submitted for audit by the SVP(Advances)/Zonal Head through a month-to-month control
return in the approved design.

The joined presentation ought to serve as the standard for authorizing the cutoff points in the
event that a mixture of schematic Loan items is to be offered.

59
CHAPTER - 7

Introduction to Credit Risk Management

Definition

The possibility that a borrower will fail to fulfill their obligations to the bank in accordance
with the terms that have been agreed upon is the most common type of credit risk on which a
bank is dependent.The borrower's failure to repay obligations and reluctance to do so may be
the cause of this default.
The bank wants to reduce this risk, which could come from just one borrower or the entire
portfolio.Having highly developed frameworks for evaluating borrowers can address the
former.the latter, on the other hand, can be restricted by avoiding centralized
acknowledgement introduction for a few borrowers with comparable risk
profiles.Considering the growing competition and narrowing spreads on both sides of a
bank's balance sheet, the factors that determine a bank's portfolio's credit risk can be divided
into two categories: external and internal factors. These factors have made credit risk
significantly more important to executives.The outer components are out of the banks'
hands.These include a wide range of factors, including the state of the economy and the
connections between various industries.The risk posed by external variables can be mitigated
by spreading the credit portfolio across projects, especially taking into account any desires
for negative portfolio enhancements.
Because banks don't have much control over these outside factors, the only way they can
reduce the credit risk they face is to deal with the things inside.
These include the bank's internal processes and cycles, such as loan agreements, examination
measures, and checking frameworks, among other things. These internal factors can be
addressed halfway through compelling rating and observing frameworks, passage level
models, and so on. These cycles would enable improvement in the nature of credit options.
The portfolio's quality would unquestionably rise as a result of this.Rating frameworks serve
as an important guide prior to approval, whereas observing frameworks are useful tools at the
post-authorization stage.

Introduction to Credit Tools

The board has improved credit risk through the creation of devices by the bank.These focus
60
on the areas of corporate rating (pre-authorization of loans) and loan verification (post-
endorsing).The client's familiarization with the FICO score instrument is the primary focus of
this manual.

Credit Score:The FICO assessment is the process of giving borrowers a letter rating to
indicate their financial stability.Rating is given based on the borrower's (the business) ability
to pay back the debt and willingness to do so.The likelihood of an organization defaulting is
lower the higher its rating.The likelihood of default for the organizations allotted with a
comparable FICO score is comparable.

The bank can use the dynamic FICO score to make important decisions about credit, such as:

Whether or not to lend to a specific borrower;what to charge; what items are to be provided
to the borrower and for how long; at what level should endorsing be completed; when should
reestablishment and checking occur; and it should be noted that the FICO score is one of the
data sources used in assuming acknowledgment decisions.Before making a decision, a
number of factors should be taken into consideration, including the borrower's relationship
with the lender, the amount of insurance provided, and the borrower's income.Based on
previous data, the rating enables the bank to estimate the likelihood of the borrower's default.

The main features of the rating system are:

I) Comprehensive boundaries inclusion

ii) A lot of information is needed.

iii) A mixture of target and abstract boundaries.

iv) Pattern analysis is included.

v) Thirteen boundaries are compared to various parts of the fragment.The most recent
information/proportions that have been examined for various parts in the portion can be
found in the apparatus.The information is periodically updated.

vi) Captures industry viewpoint.

vii) Eight-level evaluations heavily planned with the evaluations of the external FICO
assessment office, which are typically used in India.

The centralized information base is one of the electronic FICO score device's special features.
61
ii) Easy receptiveness and faster estimation of scores.

iii) Individual admission to customers based on activity area.The Credit Department and the
Risk Department at the Central Office approach all records, while Branches only deal with
information pertaining to their own branch. Zonal workplaces deal with information
pertaining to all branches under their control.

iv) A sufficient security framework and arrangement of review trails to protect

confidentiality.

v) Keeping previous rating records in the framework for the collection of experimental data
on movement in ratings.The bank will be able to appear at the PDs (Probability of Default)
factor as a result of this.

Rating Tool for Small and Medium-Sized Businesses (SME) The SME rating tool was
created to give the Bank's SME borrower a credit rating.The tool's goal is to provide a
uniform method for the bank to assess the credit risk of various borrowers.However, it should
be noted that this tool is not an independent procedure for approving a SME borrower's
loan.It ought to be augmented by additional important inputs for the sanctioning procedure.

The following broad considerations have been taken into account when determining the
Borrowers' SME rating:

• Financial performance

• Business performance

• Industry outlook

• Management quality

Account conduct (after the Monitoring tool's rollout) Within each of these broad categories, a
variety of parameters have been used to determine the borrower's overall rating.The tool's
structure and how to use it will be discussed in greater detail in the following sections..

62
  Parameters used in credit rating of SME:

The rating tool for SME borrowers assigns the following weightings to each one of the four
main categories
i) Scenario (I) without monitoring

Parameter Weight age (%)

Financial performance 40
Operating performance of business 22.5
Quality of management 22.5
Industry outlook 15

ii) Scenario (II) with monitoring tool: The weightages would be conveyed separately on roll
out of the tool.

Parameters:

 Financial performance
The instrument in its present structure utilizes different boundaries for rating a
borrower on its monetary strength. These different sub-boundaries give us a thought
of the various wellsprings of danger being looked by an organization in various
regions.

 Operating performance of business

Operational productivity of a borrower is significant in determining the age of money
for reimbursement of its obligation commitments. The boundaries in this
classification survey the borrower's capability in its essential exercises.

 Quality of management

63
 Nature of the administration of a borrowed unit directly affects the exhibition of the
unit. Likewise, it would directly affect the honesty of the borrower particularly in
Terms of its readiness to reimburse its obligation.

 Industry
To embrace the FICO score of any borrower, it is essential to evaluate the peril of the
business to which that borrower has a place. Borrowers, which are comparably
positioned in Terms of monetary execution, working execution of business and nature
of the board may have diverse FICO scores because of the dangers innate in their
industry. The danger evaluation in industry areas is done at the Central Office level
and proper score for every industry has been distributed in the device. On
determination of the significant business area, the apparatus will naturally figure the
apportioned score.

 Three types under SME tool

i) Manufacturing
ii) Services and
iii) Trading
Various parameters under each of the above stated parameters for these three types of SME
tool are as under:

1 Manufacturing

i) Financial performance

Sr. No. Sub parameters Weightage (%)

F1 Net Sales Growth Rate (%) 10
F2 PBDIT Growth Rate (%) 7
F3 PBDIT/Sales (%) 10
F6 TOL/TNW 10
F7 Current Ratio 10

64
F8 Operating Cash Flow 8
F9 DSCR 8
F12*$ Foreign exchange risk 10
F13 Expected values of D/E, if 50% of NFB credit 5
devolves (corrected for margin)
F24 Realisability of Debtors 12
F27* State of export country economy 5
F28* Fund repatriation risk 5
TOTAL 100
* Applicable for export units
$Applicable for units having imports and or exports

ii) Operating performance of business

Sr. No. Sub parameters Weightage (%)

B7 Credit period allowed 10
B8 Credit Period Availed 10
B9 Working Capital Cycle 20
B10 Tax incentives 10
B13 Production Related Risk 10
B14 Product Related Risks 10
B15 Price Related Risk 10
B20 Client Risk 10
B21 Fixed Asset Turnover 10
TOTAL 100

iii) Quality of management

Sr. No. Sub parameters Weightage (%)

M1 HR policy/track record of industrial unrest 15
M2 Track Record in Default of Statutory Dues 16

65
M3 Market Report of Management reputation 15
M4 History of FERA violation/ED enquiry 8
M6 Too Optimistic Projections of Sales and Other 16
Financials
M9 Technical & Managerial Expertise 15
M8 Capability to raise money 15
TOTAL 100

2 Services

i) Financial performance

Sr. No. Sub parameters Weightage (%)

F1 Net Sales Growth Rate (%) 10
F2 PBDIT Growth Rate (%) 7
F3 PBDIT/Sales (%) 10
F6 TOL/TNW 10
F7 Current Ratio 10
F8 Operating Cash Flow 8
F9 DSCR 8
F12*$ Foreign exchange risk 10
F13 Expected values of D/E, if 50% of NFB credit 5
devolves (corrected for margin)
F24 Realisability of Debtors 12
F27* State of export country economy 5
F28* Fund repatriation risk 5
TOTAL 100

* Applicable for export units

$Applicable for units having imports and or exports

ii) Operating performance of business

66
 Sr. No. Sub parameters Weightage (%)
M1 HR Policy/Track Record in Industrial Unrest 15
M3 Market Report of Management Reputation 20
M4 History of FERA violation/ED enquiry 10
M6 Too Optimistic Projections of Sales and Other 20
Financials
M8 Capability to raise money 15
M12 Mix of Professional and Traditional 20
Management
TOTAL 100

iii) Quality of management

Sr. No. Sub parameters Weightage (%)

M1 HR Policy/Track Record in Industrial Unrest 15
M3 Market Report of Management Reputation 20
M4 History of FERA violation/ED enquiry 10
M6 Too Optimistic Projections of Sales and Other 20
Financials
M8 Capability to raise money 15
M12 Mix of Professional and Traditional 20
Management
TOTAL 100

3 Trading

i) Financial performance

67
 Sr. No. Sub parameters Weightage (%)
F1 Net Sales Growth Rate (%) 10
F2 PBDIT Growth Rate (%) 7
F3 PBDIT/Sales (%) 10
F6 TOL/TNW 10
F7 Current Ratio 10
F8 Operating Cash Flow 8
F9 DSCR 8
F12*$ Foreign exchange risk 10
F13 Expected values of D/E, if 50% of NFB credit 5
devolves (corrected for margin)
F24 Realisability of Debtors 12
F27* State of export country economy 5
F28* Fund repatriation risk 5
TOTAL 100

* Applicable for export units

$Applicable for units having imports and or exports

ii) Operating performance of business

Sr. No. Sub parameters Weightage (%)

B3 Inventory Turnover 16
B7 Credit period allowed 10
B8 Credit Period Availed 12
B9 Working Capital Cycle 16
B10 Tax incentives 10
B14 Product Related Risks 12
B15 Price Related Risk 12
B24 Sustainability of Sales 12
TOTAL 100

68
iii) Quality of management

Sr. No. Sub parameters Weightage (%)

M1 HR Policy/Track Record in Industrial Unrest 15
M2 Track Record in Default of Statutory Dues 16
M3 Market Report of Management Reputation 15
M4 History of FERA violation/ED enquiry 8
M6 Too Optimistic Projections of Sales and Other 16
Financials
M8 Capability to raise money 15
M12 Mix of Professional and Traditional 15
Management
TOTAL 100

69
Definition of Parameters used in SME tool

F1 - Net Sales Growth Rate

Importance of this indicator
This proportion alludes to the accumulated yearly development pace of net deals over a time
of three years.

The organization's development proportion opposite different organizations in the business

will be a decent device to evaluate its exhibition. On the off chance that the development rate
is low contrasted with others in the business, at that point it will empower us to examine the
issues exceptional to this organization.

Equation

 The accumulated yearly development rate in the course of recent years is determined
in rate Terms.
 CAGR (Compounded yearly development rate) for a very long time =
 [{(Value of deals in current year)/(Value of deals in year – 3)}(1/3) – 1}]*100
 Consequently it is the third foundation of deals in current year isolated by deals three
years prior,
 short 1, communicated as percent.

Notes

• Net deals = Gross deals – Indirect expenses

• For banks, NBFCs, and other monetary
foundations: o Net deals = net interest pay + other
pay

F2 - PBDIT Growth Rate

Importance of this indicator
This proportion alludes to the accumulated yearly development pace of benefits before
devaluation (non money), account costs (premium) and assessment over a time of three years.
70
A steady development in this proportion shows an improved presentation of the organization,
reflected in expanding productivity (contrasted with its business development).

Formula
The compounded annual growth rate over the past 3 years is calculated in
percentage Terms.
CAGR (Compounded average growth rate) for three years =
[{(Value of PBDIT in current year)/(Value of PBDIT 3 years back)}(1/3) – 1}]*100
Thus it is the third root of PBDIT in current year divided by PBDIT three years
ago, minus 1, expressed as percent.

Notes
• PBDIT denotes profit before depreciation, interest and tax.
• For banks, NBFCs, and other financial institutions, use PBT instead of PBDIT

F3 - PBDIT/Sales
Importance of this ratio
This proportion demonstrates the benefit before deterioration, premium and assessment as a
level of net deals.
The benefit before interest, devaluation and duty is a pointer of the operational productivity.
In the event that this proportion as a level of deals is high, at that point it is a positive sign of
the working effectiveness in Terms of crude material utilization, representative profitability
and force utilization in addition to other things. A high worth shows more prominent
productivity and thus betters capacity to reimburse the obligation. The proportion is a
proportion of the edge accessible to an organization from its activities.

Formula
This ratio (in %) is computed by dividing the PBDIT with Net Sales.
(PBDIT/Net Sales) x 100
• PBDIT = Operating profit before depreciation, interest and tax
• For banks, NBFCs, and other financial
institutions: o Net sales = net interest income +
other income

71
o Use PBT instead of PBDIT

72
 F6 - TOL/TNW
Importance of this ratio
This proportion gives an all-encompassing portrayal of absolute external liabilities
comparable to unmistakable total assets of organization. It mirrors the limit of the specialty
unit to guarantee the loan bosses of the security they have for installment of both interest and
portion. It shows the degree to which the loan bosses are covered by resource.
This proportion shows how much external borrowings are turned to in correlation with
proprietors' assets

Formula
The total outside liabilities are divided with the tangible net worth of the
company.

Total Outside Liabilities

Tangible Net Worth

• TOL = Total liabilities - TNW

• TNW as defined in Debt Equity ratio
• Also calculate this ratio for banks, NBFCs and other financial institutions, as it will
give an indication of the capital adequacy of the company

F7 - Current Ratio
Importance of this ratio
Current resources of organization are the resources that can be handily sold and changed over
into money. The current proportion quantifies momentary liquidity of the organization and
capacity to meet its transient monetary commitments. A high proportion is acceptable from
the perspective of the bank yet a high proportion may influence benefit through a high stock
conveying cost.
Formula
The ratio is worked out by dividing the Current Assets with Current Liabilities
Current Assets
Current liabilities (including instalments due during the year)

73
• To get a meaningful current ratio, we should account for the vulnerability of a company to
short Term insolvency. The current ratio could be high because of excess inventory or slow
realisation of debtors. Therefore, current assets must not include inventory which is older
than the normal working cycle of company (say 6-8 month), receivables over 6 months, dies,
spares required for more than 9 months of production and disputed receivables. If such
“excess assets” exist then please make necessary notes in the remarks column. In such cases
please indicate your assessment of the value of current ratio.
• Also calculate this ratio for banks, NBFCs and other financial institutions, as it will give an
indication of the duration mismatch of the company’s balance sheet

F8 - Operating Cash Flow

Importance of this indicator
This measure shows the organization's money inflows and surges emerging from its
activities. It is unique in relation to reserves stream of business.
It encourages us to assess the organization's capacity to create money inflows from tasks to
pay obligation, premium and profits, and to clarify the distinction between net gain and net
income for working exercises. The working income can demonstrate the organization's
requirement for outside financing.
While reserves stream is acceptable to coordinate long haul and transient use and wellspring
of assets, this pointer attempts to catch the capacity of the firm to have the option to meet its
business commitments.
Calculation
Operating cash flow ( for the last financial year) is computed in the following manner

Head Amount
Net Sales
Other income
Total receipts
Less: COGS
Gross Profit
Less: SGA/Operating expenses

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PBDIT
- Increase / + decrease in non cash current assets
+ Increase / - decrease in current liabilities
Operating cash
Less: Income tax paid
Post tax operating cash
Less: Interest paid on LT & ST
Less: Dividend paid
Cash from operations

Repayment due of long Term debt

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How to rate
Compare “cash flow from operations” to “repayment due of long Term debt”.
The rating is done as explained in the table below.

Description Score
The company is likely to default on repayment of its Loans and O
Interest
The company is not in a position to meet its repayment obligations 1
from its own resources and it faces difficulties to arrange outside
funds
The company is in a position to meet its repayment obligation from 2
its own resources and Term funds that are already applied for (and
expected to be sanctioned shortly)
The company is in a position to meet its repayment obligation from 3
its own resources and Term funds
The company is in a comfortable position to meet its repayment 4
obligation from its own resources (no need for outside funds)

F9 - DSCR (Debt Service Coverage

Ratio) Importance of this ratio
This proportion quantifies the limit of the organization to support its obligation for example
reimbursement of head and interest. DSCR measures the occasions an organization's profit
cover it’s all out long haul obligation adjusting necessity, remembering interest and head
reimbursements for Term Loans, over a time of one year.
This proportion will assist us with assessing if a satisfactory income will be accessible to
meet obligation commitment and furthermore for giving edge of security to banks. This
proportion likewise assists with deciding when reimbursement ought to initiate and the
compensation back time of the Loan. This proportion is a decent marker of the drawn out
dissolvability of an organization.

Formula
The profit before depreciation and interest (PBDI) is divided by installments due

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during the year plus interest.
PBDI
Instalments for the year + interest

• Do not fill in this ratio for banks, NBFCs and other financial institutions

F12 - Foreign exchange risk

Importance of this indicator
Antagonistic developments in the unfamiliar swapping scale can tremendously affect the
organization's monetary strength.
Unfamiliar trade danger might be either exchange based or portfolio based. Exchange based
danger is because of delays between buys being made and installment being made, or deals
being made and installment being gotten against these deals. Portfolio put together danger is
with respect to record of unfamiliar trade Loans where the reimbursement is made on future
dates in unfamiliar money. The rater has to know how the probable change in swapping scale
will influence the benefits of the organization. Contingent upon structure of global exchange,
the unfavorable swapping scale development could influence the benefit/income. Judicious
borrowers fence their presentation to unfamiliar trade. Just the un-supported piece of the
unfamiliar trade presentation should be considered.

How to rate
The rater has to subjectively rate this indicator on a score of 0 to 4 based on his perception
and knowledge of the foreign exchange risk. A potential model to allocate score can be the
following:

Description Score
The risk involved is > 10% of TNW 0
The risk involved is between 8% and 10% of 1
TNW
The risk involved is between 5% and 8% of TNW 2
The risk involved is less than 5% of TNW 3
The entire portfolio is hedged 4

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Important notes

• The foreign exchange risk can be quantified by using the forward exchange rates prevailing
in the currency market.
• The risk involved can be estimated by evaluating two measures:
1. exports as % of TNW
2. Natural hedge involved, with a proxy measure being (1- imports divided by exports)
(always divide the smaller number by the larger one). When this ratio is
1, foreign exchange risk from exports and imports cancels each other out (provided it is
to/from similar currency zones)

Example: total sales = 100, exports = 20, imports = 10, TNW = 200
Risk involved = exports x (1- imports/exports) = 20 x (1- 10/20) = 10
= 5% of TNW

• Also calculate this ratio for banks, NBFCs and other financial institutions

F13 - Expected values of Debt Equity ratio if 50% NFB credit devolves
Importance of this indicator
This marker gives us a thought regarding the future expected obligation value structure in an
extraordinary circumstance.

It recalculates the Debt/Equity proportion when half of non-store based cutoff points regress.
In doing as such, it gives a feeling of the drawn out monetary steadiness in an outrageous
circumstance. This is a significant decent encouraging element for the bank. Most
organizations need to set up an edge for their non-store based credits. The new D/E
proportion should be amended for this when the cutoff points lapse, since some portion of it
will be covered by the edge

Calculation
The calculation is the same as for F5 – Debt/Equity ratio, with
Debt = Long Term debt
+ 50% of the company’s non-fund based limits
- margin that the company put up for its non-fund based limits.

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• Do not calculate this ratio for banks, NBFCs and other financial institutions
F24 - Reliability of Debtors
Importance of this indicator
This marker ought to show the nature of the account holders of the organization and if cash
can be recuperated from them rapidly and without any problem. A ton relies upon how
inspectors have treated the receivables.

There are numerous manners by which the evaluators can mess with the receivables viz. the
receivables might be contested. Receivables might be random to business action of the
organization or there could be high measure of terrible obligations in the receivable
arrangement of the organization. Any postponement in receipt of installment from account
holders/non-receipt of sum can hamper the creation pattern of an organization just as
increment assortment costs and the likelihood of default with respect to the borrower of the
organization. Henceforth the reliability of the account holders of an organization is a basic
contribution for evaluating the monetary danger of a borrower.

F27 – State of the export country

economy Importance of this indicator
The economy of the country (is) to which is being sent out, will significantly affect the
exporter's business. A stoppage in the monetary development may even have a more than
direct effect on the exporter's turnover and benefit, since shippers will normally may have the
response to reduce expenses by cutting associations with abroad's providers.

How to rate
The rater has to subjectively rate this indicator on a score of 0 to 4 based on his perception
and knowledge of the foreign exchange risk. The minimum score of 0 could be assigned to
exporters who trade the bulk of their products/services with 1 single country, that is currently
in a recession. The maximum score of 4 can be granted to parties who have a wide portfolio
of export countries, with most (or all) of these countries showing strong economic growth.

F28 – Fund repatriation risk

Importance of this indicator

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Exporters are frequently paid in the money of the nation to which they export.Some of these
monetary forms might be hard to trade or to wire back to India. All things considered, critical
expenses and dangers are associated with the bringing home of assets, which could influence
the general danger profile of the exporter
How to rate
The rater has to subjectively rate this indicator on a score of 0 to 4 based on his perception
and knowledge of the foreign exchange risk. The minimum score of 0 could be assigned to an
exporter who trades the bulk of his products/services with a country that has very stringent
foreign exchange and currency repatriation policies. The maximum score of 4 could be
granted to exporters who only trade with countries, which have no restrictions on the flow or
repatriation of funds.

B3 - Inventory Turnover(Trading)
Importance of this ratio
This proportion demonstrates the speed (number of times) with which the stock courses in the
business, during the pertinent period.

A decline in proportion could be a huge peril signal. Low proportion could demonstrate the
presence of sluggish things in stock. A high proportion is acceptable from the purpose of
liquidity since stock will be immediately changed over into money. This proportion likewise
demonstrates the proficiency of the organization in using its stock and keeping up it at an
ideal level. Subsequently, the higher the proportion, the higher the deals per unit of interest in
inventories. A lower proportion brings about high conveying cost and hindering of assets,
accordingly restricting the liquidity of the organization.

Formula
The ratio is worked out by dividing the net sales with average inventory maintained.
Net sales
Average inventories
• Average inventory = (opening stock of inventory + closing stock of inventory)/2
• Inventory = raw materials + WIP + finished goods
• Do not calculate this ratio for banks, NBFCs and other financial institutions

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 B7 - Credit period allowed
Importance of this indicator
This shows the time of acknowledgment of deals continues. It is the normal time span that
clients who purchase using a loan take to satisfy their obligations. It shows the productivity
of the executives in the red assortment.

A lower estimation of this proportion demonstrates a quick acknowledgment of offer

continues. The business' training should be given due thought. A high proportion could be
demonstrative of contested receivables or a high measure of terrible obligations. The
examination official should be cautious while surveying this proportion, since it likewise
mirrors the dealing power delighted in by the organization in the market as for the
purchasers.

Formula
The period of collection (in days) is calculated by dividing the average debtors outstanding
with average daily sales.
Average debtors
Average daily sales

Average debtors = (Sundry debtors in the beginning of the year + sundry debtors at the
close of the year)/2

• Do not calculate this ratio for banks, NBFCs and other financial institutions

B8 - Credit period availed

Importance of this indicator
It quantifies the normal time taken by the organization to pay its providers for buys made
using a loan. This proportion relates credit profited to its all-out buys. This marker is a
proportion of the dealing power that the organization appreciates with its providers. A more
grounded organization will profit a more extended credit period from its providers than a frail
organization. A more drawn out credit period offered by providers additionally shows that the
providers are sure of the capacity of the organization to pay them. An expression of alert, an
extremely high proportion could demonstrate transient liquidity issues moreover.

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Formula
The credit period availed (in days) is computed by dividing the average (non financial)
creditors outstanding during the year with average daily cost of sales.
Average creditors
Average daily cost of sales

Average creditors = (Sundry creditors in the beginning of the year + sundry creditors at
the close of the year)/2

• Do not calculate this ratio for banks, NBFCs and other financial institutions

B9 – Working capital cycle (Manufacturing,

Trading) Importance of this indicator
Working capital speaks to a significant piece of the utilized capital of numerous
organizations. Along these lines, a decent performing organization ought to deliberately deal
with this piece of its resources, since it speaks to a significant contribute Also, the manner in
which an organization approach their working capital, says a great deal regarding the
administration of the organization. As it were one could contend that great working capital
administration is a marker of good administration Factors to be viewed as Inventory turnover
and credit period permitted.

How to calculate
Net sales
Working capital

Working capital = Raw materials and spares+ Finished and semi finished goods+
Debtors

• Do not calculate this ratio for banks, NBFCs and other financial institutions

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 B10 - Tax Incentives
Importance of this indicator
Expense motivators can be a significant driver of productivity for some organizations. A unit
situated in reverse region or in a portion of the states (like Goa or association domain of
Daman and Diu and so forth) appreciates unique expense motivating forces. (The two states
award personal expense and deals charge occasions for 3-5 yrs.) Such duty occasion period is
useful for organization to exploit particularly in a ware market and along these lines improve
productivity.

The most effective method to rate

The rater needs to emotionally rate this marker on a score of 0 to 4 dependent on his
discernment and information on the public authority arrangements and industry. The rater
ought to likewise know about the administration qualities and their capacity to utilize the
current government motivations. Score of 4 shows a high likelihood of effectively getting
charge motivating forces. Score of 0 methods no or negative impact of duties.

B13 - Production related risk

(Manufacturing) Importance of this indicator
This estimates the danger of an organization as for its creation exercises. It assesses the
capacity of organization to continue the creation movement at a differentiated level. An
organization having little creation related vulnerabilities underway would be better positioned
in the business. Issues underway would prompt effect on by and large execution of the
organization. In this way the productivity, dependability and consistency of nature of the
creation exercises are a basic deTerminant of execution. The condition of innovation can be
viewed as a general driver of this danger

Variables to be thought of

Limit Utilization; Availability of crude material, State of innovation utilized; Flexibility in

item producing; Patents and restrictive innovation; R&D Number of assembling plants.

Instructions to rate

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The rater needs to emotionally rate this pointer on a score of 0 to 4 dependent on his
discernment and information on the creation hazard. A potential model to allocate score can
be the following:
Score =2, if company is upgrading Score = 4, if company is upgrading
but has old technology and technology is new
Score = 0,1 if company is not Score = 3, if company is not upgrading but
upgrading and has old technology has new technology

• Do not calculate this ratio for banks, NBFCs, other financial institutions or service
Companies
B14 – Product/service related risk
Importance of this indicator
This marker quantifies the danger identifying with the items produced/administrations gave
by the organization.
The dangers related with the item can be those identified with out of date quality,
replacement, decline sought after and so forth An item should be of a steady high caliber; in
any case its market notoriety will endure. The organization's capacity to normalize item
quality, getting ISI benchmarks or ISO authentications will add for its potential benefit. The
normal item life cycle will likewise add to the general item hazard. The more limited the
normal existence of the item, the less secure the organization's business execution

Variables to be thought of
Item range; Product/administration quality; Brand esteem, Highly altered
item/administration; Obsolescence, Demand supply position/hole.

Instructions to rate
The rater needs to abstractly rate this pointer on a score of 0 to 4 dependent on his insight and
information on the item hazard. A potential model to allocate score can be the following:

Description Score
High variability in product/service quality (e.g. frequent recalls) and 0
short product life (<1 year)

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High variability in product/service quality and medium product life 1
(1 to 3 years)
Low variability in product/service quality and medium product life 2
(1 to 3 years)
No variability in product/service quality and long product life (> 3 3
years)
No variability in product/service quality and very long product life (> 5 4
years)

B15 - Price Related Risk

Importance of this indicator
This pointer quantifies the capacity of an organization to direct costs in the commercial
center just as to reduce its costs in the event of a value war. The value intensity of an
organization is a significant pointer of the serious situation of an organization. An
organization that is in a situation to charge a premium over its rivals is better positioned in the
business. Likewise, an organization with lower costs is in a decent situation to withstand
value rivalry on the lookout. On the off chance that the organization's items appreciate a high
standing, it can value the item for its potential benefit.

Components to be thought of
Economies of scale/savvy innovation; Brand Equity; Pricing Flexibility; Financing edge over
contenders; Bargaining intensity of purchasers

Step by step instructions to rate

The rater needs to emotionally rate this marker on a score of 0 to 4 dependent on his/her
discernment and information on the value hazard. A score of 4 implies that the organization
isn't at all liable to value hazard, for example can charge an economical value premium. A
score of 0 shows that the organization has no control at all over its value, subsequently being
liable to excessive cost hazards.

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 B20 – Client risk(Services,
Manufacturing) Importance of this indicator
More modest to moderate sized organizations can confront extensive dangers at the customer
side. This danger is twofold: number of customers and nature of customers. Medium-sized
organizations now and again rely upon a tiny arrangement of customers, or have 1 prevalent
customer who represents the deciding moment the organization. Additionally, medium
estimated organizations are once in a while firmly associated with customers with an obscure
or helpless standing. This may antagonistically affect their own standing, yet additionally
speak to an obstruction to enrolling and holding of ability, development.

Factors to be considered
Number of clients, quality/reputation of clients

How to rate
The rater needs to emotionally rate this pointer on a score of 0 to 4 dependent on his/her
insight and information on the customer hazard. A score of 4 implies that the organization has
a very much broadened arrangement of top notch customers. A score of 0 demonstrates that
the organization relies upon a little arrangement of customers, which can be seen as second or
third position in their particular industry.

B21 – Fixed asset turnover

(Manufacturing) Importance of this indicator
Fixed assets represent an important part of the capital employed at manufacturing companies.
A well performing company should therefore make sure that it gets the maximum out of its
machine park.
How to rate
Net sales
Fixed tangible assets

With fixed tangible assets = replacement or acquisition value of fixed tangible assets
(land, machines, buildings,..)

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 B22 – Quality of internal processes & systems
(Services) Importance of this indicator
The business execution of administration organizations is frequently controlled by the nature
of their inner cycles and frameworks. It is in this way essential to survey how these
organizations score on these measurements, since they will be a significant supporter of the
possible achievement and/or danger of the organization.

Factors to consider
Consistency of delivered service, timeliness or response time, internal sharing of know-how,
quality of internal training programs,

How to rate
The rater needs to abstractly rate this marker on a score of 0 to 4 dependent on his/her
discernment and information on the nature of inward cycles and frameworks. A score of 4
implies that the organization's cycles and frameworks are viewed as top class in the business.
A score of 0 demonstrates that the organization has a helpless assistance offering and coming
about standing.

B23 – Competence to
innovate(Services) Importance of this indicator
The accomplishment of an organization can frequently be identified with the general
execution of its administration offering. Along these lines, an organization's capacity to create
administrations which react to its clients' requirements (through proficiency, customization,
adequacy …) will impact its serious position and thus its prosperity.

How to rate
The rater needs to abstractly rate this pointer, in view of his comprehension of the
organization's advancement capacities. A rating scale from 0 to 4 will be utilized. A score of
2 implies that the organization can be viewed as having "normal" development aptitudes. A
score of 3 or 4 demonstrates a more grounded or remarkable (separately) innovational
strength contrasted with its rivals. A score of 1 or 0 demonstrates a more vulnerable or poor
(individually) advancement expertise contrasted with contenders.

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 B24 – Sustainability of
sales(Trading) Importance of this indicator
A significant driver of the accomplishment of an exchanging organization, is the degree of
deals it can create. In this way, the danger related with an exchanging organization is a lot of
connected to the manageability of its deals. An organization with maintainable deals will
have a center arrangement of items, which won't switch rapidly. Entrepreneurial exchanging
organizations do risk making some unacceptable "wager", bringing about noteworthy
decreases in deals.

How to rate
The rater needs to emotionally rate this pointer, in light of his comprehension of the
organization's business maintainability. A rating scale from 0 to 4 will be utilized. The most
extreme score of 4 can be allocated to exchanging organizations with a solid arrangement of
center items, demonstrating consistent development because of a very much spread out
technique. The base score of 0 could be given to artful exchanging organizations,
demonstrating an arbitrary way in presentation, and without an obvious system.

Subjective Assessment of Quality of Management

How to rate:
The rater should rate the ratios and indicators on the score of 0 to 4 depending on his
understanding and comfort levels.
A score of 4 means that the rater feels that promoters and their management will perform
very well on the ratio/indicator. Adversely, the rater should assign a score of 0 if he/she
thinks that management will perform poorly on the ratio/indicator.

The importance of each of the above ratios and indicators are now listed.

M1 - HR policy / Track record of industrial unrest

Importance of this indicator
This factor identifies with work turmoil, lock out, and work delayed down, strike and stressed
administration – worker connection. Modern amicability is a critical factor for achievement

88
of an industry/business. To put it plainly, this pointer mirrors the nature of the organization's
HR strategy.

Elements to evaluate include: is the HR framework reasonable and evenhanded, are

advancements dependent on benefits, does the organization give a steady climate, and do
representatives feel increased in value?
M2 - Track record in default of statutory dues (e.g. Electricity bills, PF dues, etc.)
(Manufacturing ,Trading)
Importance of this indicator
This calculates considers the earnestness of the organization and its administration towards
legally binding commitment. On the off chance that administration isn't not kidding about the
legitimate and legal levy, at that point there is a high likelihood of it not being resolved to
satisfy the Loans taken from the bank.

M3 - Market report of management

reputation Importance of this indicator
This market report evaluates the standing or general discernment about honesty and
reasonable managing of the advertisers. The standing of advertisers with respect to their
honesty, clinging to responsibilities, reasonable dealings have significant bearing on nature of
the executives. This by chance gets one of the main proportions and pointers, as past conduct
is frequently a decent intermediary for their future conduct.
Adverse performance of associate concerns controlled by the corporate should also be
considered.

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 M4 - History of FEMA violation /ED enquiry
Importance of this indicator
An organization may have a history of FEMA infringement or might have confronted attacks
by the Enforcement Directorate. Organizations likewise enjoy unfortunate act of power
burglaries or avoidance of ST, IT or Excise or enjoy Hawala exchanges, under-invoicing or
over-invoicing. Such examples talk about helpless trustworthiness of organization and
demonstrate about organization neutralizing public premium.

M6 – Too optimistic projections of sales and other

financials Importance of this indicator
There is now and again a cognizant endeavor to over-gauge monetary projections to make
sure about abundance borrowings. Repetitive non-accomplishment of targets could be
demonstrative of such practice. Cautious investigation of past histories help build up a
thought of dependability of projections.

M8 – Capability to raise resources

Importance of this indicator
The board's capacity of raising extra assets is a significant factor in evaluating the financial
soundness of the organization. In the event that administration is probably going to locate
extra external financing (from capital market, accomplices, family, bunch organization…) at
whatever points this is essential, this ought to add to a diminished danger for the bank
M9 - Technical & Managerial expertise(Manufacturing)
Importance of this indicator
This pointer identifies with the specialized information and experience of the advertisers in
the important zone of activity. Specialized abilities will add to a more noteworthy
effectiveness of tasks and nature of items. Administrative ability will empower the executives
to evade common entanglements and to assemble a reliable and possible technique.

M12 – Mix of professional and traditional management

(Services,Tarding) Importance of this indicator
This pointer attempts to assess the polished methodology of the organization's administration.
It is significant that the administration comprises of individuals who know the business, the
business and who have the fundamental experience to make things work. Notwithstanding, a
great deal of organizations are still family-possessed, which is frequently reflected in the

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structure of the supervisory group. Accordingly, it is essential to survey if the organization
keeps a decent harmony between conventional administration (who regularly own the
customer relations) and expert administration.

Monitoring Tool

Introduction
The online FICO score model comprises of the accompanying two instruments:

1) Credit rating apparatus

2) Monitoring apparatus

The model has been furnished with the accompanying two alternatives:

1) Scenario I

2) Scenario II

At the hour of embracing of another turn of events, the concerned client should be evaluated
in the FICO appraisal model under the Scenario I elective. This would start the Credit rating
device gave in the rating model and reliant on the data entered, the gadget would enroll a
FICO appraisal for the client.

After the approval and administering of the turn of events, rating of the borrower should be
reviewed at a repeat exhibited by the rating astute schedule (as appeared in the Credit Policy
of the Bank). This rating movement should be done in the model under the Scenario II other
option. This would incite both the Credit rating instrument and the Monitoring mechanical
assembly in the model. The model would re-measure the overall rating ensuing to retaliation
the data both from rating gadget and the noticing gadget. At the point when a record has been
re-assessed using the Scenario-II decision, further changes/re-assessments identifying with

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 that record will essentially should be done using Scenario-II decision figuratively speaking.
By the day's end, the permission to Scenario-I decision will be impeded in such cases

The following LCMC SME

weightages have been Scenario 1 Scenario II Scenario 1 Scenario II
allocated under the
above stated respective
scenarios: Parameters
Financial 40.00 35.00 55.00 47.50
Business 22.50 17.50 15.00 15.00
Management 22.50 20.00 15.00 15.00
Industry 15.00 12.50 15.00 12.50
Monitoring Tool Not Applicable 15.00 Not Applicable 10.00
(Conduct)

(The above stated weightages are subject to change)

Bases on an activity led to analyze the heartiness of the observing instrument; the past
lead rating boundaries have been consolidated and separated into two gatherings:

1) Hurdles: These are boundaries which come up short on the separating power between a
decent and an awful record however they are by the by significant taking everything
into account.

2) Discriminants: These are boundaries which have higher segregating power between a
decent and an awful record and perhaps utilized for anticipating defaults.

Since contributions for the observing instrument will be accessible with the branches,
information contribution to the checking device will be finished by the branches as it
were. If there should be an occurrence of any explanations the client may connect
with the Risk Department at Central Office.

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93
 Parameter

Hurdles

A1 Creation of Charge on Primary Security

A2 Creation of charge on collateral and / or execution of personal /

corporate guarantee

A3 Other Terms & conditions not complied with

A4 Receipt of periodical data / Stock & Book Debt statements

A5 Receipt of Balance Sheet / Renewal data

A6 Compliance of financial covenants

A7 Unit inspection reports observations

A8 Routing of proportionate turnover / business

A9 Utilisation of facilities (not applicable for Term Loan)

A10 Adequacy of insurance for the primary / collateral security

B1 Negative Deviation in Net Sales (actual vs. estimates)

B2 Financial Discipline

Overdue discounted bills during the period under review

Devolved bill under L/C outstanding during the period under

review

Invoked BGs issued outstanding during the period under review

Frequency of RETURN of cheques per quarter deposited by

borrower

Frequency of issuing of cheques without sufficient balance per

quarter

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 Payment of INTEREST or INSTALMENT

B3 Frequency of requests for Ad Hoc increase in limits

B4 Frequency of overdrawing in CC account

B5 Any other adverse features financial / non-financial, including

corporate governance issues such as adverse publicity, strictures
from regulators, political risk and adverse trade environment not
covered elsewhere

.
Hurdles

A1: Creation of Charge on Primary Security

Essential security alludes to the resource/s taken as the principle substantial security for the
subsidizing of which the bank awards account, for example, stock, receivables, other current
resources, fixed resources, and so forth At the point when these resources are taken as
security, they should be appropriately charged to the bank via hypothecation, home loan, vow
and task which should be lawfully enforceable. In the event that the essential security isn't
appropriately made or charged as needed under the applicable law, the bank's development
may become unstable in this manner expanding the danger in the introduction. Check
whether the charge on essential security specified in the approval has been made and enrolled
with the RoC (any place required) or some other power. On the off chance that any of the
prerequisites of legitimate formation of charge on the essential security isn't satisfied, charge
on the specified security is considered as not made for this activity. Regardless of whether the
postponement in production of security is permitted by the authorizing authority, security is
considered as not made.
A2: Creation of charge on collateral and / or execution of personal / corporate
guarantee

Guarantee security is taken as an extra security far beyond the essential security. The
guarantee security offers extra solace to the bank mostly alleviating the danger associated
with the presentation. The necessities expressed in regard of the essential security (under A1)
are relevant for the insurance security moreover.

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An individual/corporate assurance further improves the level of alleviation of danger. Ensure
that these have been executed/acquired carefully according to the approval Terms and lawful
necessities
A3: Other Terms & conditions not complied with
Aside from the security, different Terms and conditions are specified for empowering the
bank to moderate danger from the presentation. A portion of the specifications expect more
prominent significance to the wellbeing of advance, for example, obtention of NOC from the
current loan specialists for making of first/second/paripassu charge for the bank, acquiring
another bank for sharing/tying up the hole, end use confirmation, and so forth
A4: Receipt of periodical data / Stock & Book Debt statements

Convenient receipt of different information from the borrower is of most extreme

significance in observing the soundness of a record. Aside from determining the drawing
power (any place relevant), the information is considered as a pointer of lead of the
borrower's business activity which have suggestion on the direct/execution of the record. Non
receipt of such information (under any circumstances) itself is considered as a danger factor.
Indeed, even in the event of regular deferrals in accommodation of stock proclamations, FFR,
and so forth the boundary should be evaluated as 'Not Complied'
A5: Receipt of Balance Sheet / Renewal data

The accounting report is one of the wellsprings of unmistakable data on the organization's
activity which can be dispassionately dissected to evaluate the viability of the plan of action.
Examination of the monetary record can help notice striking and unusual highlights in the
zones of income, store stream, capital base, creation, inventories, receivables, deals,
borrowings, redirection of assets, and productivity. An ideal submitted monetary record
empowers the Bank to survey expected unfriendly highlights and make a fitting move well as
expected. Non conclusion of examined accounting report, non accommodation/postponed
accommodation of evaluated monetary record/reestablishment information thinks about
inadequately the corporate administration of the borrower and considered as one of the
danger factors.

A6: Compliance of financial covenants

Monetary contracts are specified for alleviating danger in an introduction. A portion of these
specifications identify with formation of Debt Service Reserve, upkeep of least resource
cover, current proportion level, TOL/TNW proportion, implantation of assets by advertisers,

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raising of long haul reserves, liquidation of speculations, limitations of ventures/profit and so
forth These danger moderation measures give additional solace to the bank while endorsing
the development. On the off chance that the specified monetary pledges are not consented to,
halfway or completely, the introduction would convey a higher danger which should be
caught in the observing instrument.

A7: Unit inspection reports observations

Actual investigation of borrower's unit empowers the bank to confirm the data provided by
the borrower. Examination should cover the accompanying demonstrative regions:

• Idle plant and hardware.

• Attendance of work/staff and their working conditions.

• Adequate accessibility of utilities/foundation, for example, water, power, and so forth

• Quality and estimation of stock and completed item.

• Legal/legal/moneylender's notification glued in the manufacturing plant or on the Plant and

Machineries.

In the event of borrowers occupied with exercises other than assembling, the borrower's
godown/office/branches/sources should be visited for determining the general lead of
business.

A8: Routing of proportionate turnover / business

The user is required to select whether the borrower enjoys:

Sole Banking

Multiple / Consortium Banking

And rate the borrower as per the options provided there under.

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Aside from enhancing other pay from the borrower the directing of whole/proportionate
turnover/business empowers the bank to catch the borrower's income which a significant
marker of the borrower's activities.

In the event of sole financial game plan, the borrower is relied upon to course its whole
turnover/business through the bank. In different cases, at any rate proportionate business
should be directed.

Focuses to note: In the event of Term Loan office without working capital office, the
directing of turnover/business through the bank is considered as an additional bit of leeway to
the bank, in spite of the fact that it may not be one of the specifications.

A9: Utilisation of facilities (not applicable for Term Loan)

Full use of money credit offices without varieties for a significant stretch requires nearer
investigation to guarantee that the liquidity of the borrower isn't stressed. The boundary
means to catch such hazard. Ideal use of record separated from demonstrating sufficiency of
borrower's income additionally guarantees satisfactory profit for the bank.

A10: Adequacy of insurance for the primary / collateral security

Deficiency of protection demonstrates low estimation of resources or the likelihood that the
borrower has lacking revenue in the resources. Underinsurance would bring about utilization
of 'normal provision' driving lower settlement of guarantee. These suggestions are
unfortunate from a bank's perspective.

Discriminants

B1: Negative Deviation in Net Sales (actual vs. estimates)

The measure of assessed/extended net deals is one of the significant boundaries of credit
evaluation. Non-accomplishment of assessed/extended net deals by the organization shows
difficulty in the borrower's business execution. Non-accomplishment of deals could be one of
the early pointers of the debilitating of a record and we need to search for the explanation/s

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for the set back. The client needs to enter the business turnover according to the most recent
Audited Annual report just as the business turnover assessed/extended in the credit evaluation
for the relating time frame

B2: Financial Discipline

Overdue discounted bills during the period under review

Non acknowledgment of bills limited by the bank thinks about antagonistically the borrower's
client profile and subsequently considered as danger.

Devolved bill under L/C outstanding during the period under review

Sufficient incomes are one of the significant pointers of acceptable wellbeing of a borrower.
Devolvement of bills under LC demonstrates lacking incomes of the borrower. Generally, in
a large portion of the cases, such highlights are the beginning stage of monetary insufficiency
eventually prompting default. A borrower having sufficient incomes and proficient income
the executives framework would not permit devolvement of unforeseen risk, for example,
charges under LC.
Invoked BGs issued outstanding during the period under review

Summon of an assurance demonstrates the borrower's inability to play out the agreement or
meet the prerequisite for which the assurance was given and considered as a danger factor.
Further, non-installment of the conjured Bank Guarantee commitment inside a sensible
period is viewed as dangerous.

Frequency of return of cheques per quarter deposited by borrower

Return of checks kept by the borrower demonstrates low credit value of the borrower's
customers or the merchandise provided by the borrowers don't adjust to the Terms of offer
subjectively. This may eventually influence the matter of the borrower and subsequently
considered as a danger factor.

Frequency of issuing of cheques without sufficient balance per quarter deposited by

borrower

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Issuance of checks by the borrower without keeping up adequate equilibrium in the record
impacts his credit value. This would have negative effect on the soundness of the borrower.
Payment of interest or instalment

Inability to meet interest/portion installment commitment shows crystallization of credit

hazard. Default/delay in installment of interest or portion speak to a solid notice signal about
the wellbeing of the record.
B3: Frequency of requests for Ad Hoc increase in limits
Regular solicitations for specially appointed expansion in cutoff points show absence of
appropriate administration of assets or failure of the borrower to raise assets from different
sources or absence of incomes to deal with the working capital cycle. The sign adds to hazard
profile of the borrower.

B4: Frequency of overdrawing in CC account

The prerequisite of working capital money is evaluated based on borrower's

assessed/extended degree of tasks. Subsequently, the borrower should have the option to deal
with his finances necessity inside the authorized offices. Successive overdraft of the CC
record because of any explanation, (for example, Term portion, interest, brief liquidity
confound and so forth) demonstrates helpless administration of working capital money and
might be a possible danger of default.

B5: Any other adverse features financial / non-financial, including corporate

governance issues such as adverse publicity, strictures from regulators, political risk
and adverse trade environment not covered elsewhere

No introduction is without hazard nor would all be able to chance elements in a presentation
be dispassionately recorded or predicted at a given purpose of time. As this boundary is
emotional the rater should choose an appropriate alternative dependent on his/her
comprehension of the borrower and the introduction.

Elements including market influences like capital market insight (consistent fall in the stock
value which are signs of disintegrating monetary conditions, just as different issues) might be
thought of while choosing the choice.

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Rating Scales
The rating tool for SME has an 8-point rating scale, which ranges from SME 1 to SME 8.

Borrower Rating Range of Scores Risk Level

SME 1 Above 85 Lowest risk
SME 2 76-85 Lower risk
SME 3 66-75 Low risk
SME 4 56-65 Moderate risk
SME 5 46-55 High risk
SME 6 36-45 High risk
SME 7 26-35 Higher risk
SME 8 Below 26 Highest risk

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 CHAPTER- 8

CASE STUDY

Details of case study

Name M/s Dynemic Products Limited (DPL)
Constitution Public Limited Company
Office Address B- 301, Satyamev Complex-1, Opp. New Gujarat High Court,
S.G.Highway, Sola, Ahmedabad-380 060, Gujarat, India.
Line of activity Manufacturing of Food Colour Products
Sector Chemical and Chemical Products
Dealing with us New Connection
Incorporation 14th June 1990
Name of Directors Mr. Dashrathbhai Prahladbhai Patel (DIN : 00008160)
Mr. Rameshbhai Bhagwanbhai Patel (DIN :
00037568) Mr. Hitendra Hargovinddas Sheth (DIN :
00037705) Mr. Jagdishbhai Sevantilal Shah (DIN :
00037826) Mr. Harishbhai Keshavlal Shah (DIN :
00037932)
Mr. Bhagwandas Kalidas Patel (DIN : 00045845)
Mr. Dixit Bhagwandas Patel (DIN : 00045883)
Mr. Shashikant Purshottambhai Patel (DIN : 00045957)
Mr. Vishnubhai Gangarambhai Patel (DIN : 00270413)
Mr. Shankarlal Baluram Mundra (DIN : 00388204)
Group Not a recognized group
Rating External: Not done.
Internal: SME 3 (ABS 31.03.2009)
Associate Concern Dynemic Overseas (India) Private Limited
Dynemic USA Inc.
Share holding pattern As mentioned below
Share Price movement Listed on the BSE
Current Market Price – Rs.22.35/- (27.11.2009)
52 week high/low – Rs. 15.15 ( 22 Apr' 09) / Rs. 27.35 ( 16 Jan' 09)

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Brief Background:
The Company was solidified on fourteenth June, 1990 as Private Limited Company. The
Name was thusly changed to Dynamic Products Limited on 31/12/1992. The Company was
progressed with the objective of carrying on the matter of amassing S.P.C.P, the rough
material for Food Color, responsive and Razzle Dyes.

In the Year 2000 the association picked up the running industry of M/s Safforn Dye Stuff
Industries and started manufacturing wide extent of food tones at the premises 3709/6, GIDC
Estate, Ankleshwar having plot district of admeasuring 3700 Sq.Mtr.

As the association hopes to give entire arrive at emotional and quantitative help of food
industry, as its Unit I. The association started collecting of food tones to be explicit
Tratrazine in the year 2000-01. Both the units at Ankleshwar are Ultra current and have eco
big-hearted plants with in house testing workplaces to control quality at every level of
gathering. The Company got unselfishness in the restricted capacity to center time due to its
quality thing. The association has excellent state of craftsmanship in house research focus
which direct preliminary of every limit of food tone and Dye intermediates set down under
open and worldwide trained professionals. The Company exchanges its thing to around 41
countries around the globe. All these have driven the association to acquire and hold a status
of greatest producer and supplier of food tones and shading intermediates in India.

Qualitative Factors:

 The Company has a favorable to dynamic Management and Promoters who have
hands on involvement with assembling of Dyes InTermediaries and Food
Colors.

 Profit making Company since most recent 13 years.

 The organization has amazingly an honor for Indirect Export of Self

Manufactured Dyes for the year 2001-02 and 2002-03 got by Gujarat
Dyestuffs Manufacturers' Association.

 The organization has gotten authentication of endorsement From Bureau

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Verities Quality International (BVQI) for accomplishment of ISO 9001: 2000
quality

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 principles, the Company has additionally gotten testament of endorsement from
Bureau Verities Quality International (BVQI) for accomplishment of 14001:1996
and 14001:2004 quality guidelines for the two its units satisfied at Ankleshwar.

 The organization has additionally gotten HAACP Code: 2003 endorsement of

enlistment from TQCS International (Group) Pty Ltd under sanitation program
for the two its units arranged at Ankleshwar

 The organization was granted with prize for trade execution of more than Rs.
6.00 and 8.00 Crore for Self

 Manufactured Indirect Export of Dyes and intermediates in the year 2002-03 by

Gujarat Dyestuffs Manufacturers ‘Association.

 Both the Units of the organization are trading Oriented Units and have gotten
the status of One Star Export House.

Marketing Strategy/Marketing arrangement

Solid and experience individuals are driving organization's showcasing division.
Organization's complete turnover is partitioned into:

Exports Sales

Local Sales

Exports Sales:

•Company's 70% turnover is produced via sends out deals. Organization has its own quality
in all most all nations. The organization is trading Food tones in Latin America, African
nations, Middle East, Far East, US and Europe. Practically all fare clients are managing
organization for a long time.

•Out of absolute fares turnover 60 to 70% rate orders are rehashed requests and rest of
the requests are new requests.

•The Company has locale savvy Export Managers who can cook the need of clients
separately. Because of the quality and convenient conveyance of the material the
organization have less rivalry from these nations.

•Globally numerous nations have stopped creation of Dyes, Food tones and Intermediates,
new market has opened for Indian producer of Dyes and Intermediates. As Dynamic Products

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 Ltd is as of now an all-around perceived name in the field worldwide, it has more occasions
to get from developing International market

Local Sales:
 In Local Market Company is doing advertising its Dyes and Intermediates to the end
clients.
 The organization is the biggest maker of S.P.C.P in India which creating rehashed
request from the neighborhood clients.
 Now, organization is intending to advertise the food tones in little pressing through its
sellers and wholesalers which cook the neighborhood needs.
 Company is likewise wanting to organize showcasing course of action with soda pop
fabricates and drug makes for food tones.

Proposal for Proposal for fresh sanction of credit facilities by way of take over

(with enhancement) from HDFC Bank

a) Sanction of Cash Credit Limit of Rs. 500.00 lacs for working capital
requirement ( take over of Rs. 500.00 lacs from HDFC Bank).
b) Sanction of Letter of Credit (Inland/Foreign) of Rs. 300.00 lacs for working
capital requirement as a sub-limit of cash credit limit (take over of Rs. 300.00
lacs from HDFC Bank).
c) Sanction of EPC/FBD/FBP/PCFC/PSCFC of Rs. 500.00 lacs for working
capital requirement as a sub -limit of cash credit limit (take over of Rs. 500.00
lacs from HDFC Bank).
d) Sanction of Corporate Loan of Rs. 200.00 lacs (take over of Working Capital
Term Loan of Rs. 200.00 lacs from HDFC Bank).
e) Sanction of LER limit of Rs. 25.00 lacs (equivalent to forward cover of
Rs.500.00 lacs).
f) Waiver of credit opinion report from existing bankers of M/s. DPL (HDFC
Bank) and group concerns of M/s. DPL i.e. M/s. Dynemic Overseas (India)
Limited based on justifications given in the proposal.
g) Concession in processing fees at Rs. 1.00 lacs against norm of 1.00%.
h) Permitting time of 30 days for completion of take over formalities with HDFC
and creation of mortgage by CMC.

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Existing &
Proposed Facilities
(Rs. in lacs)
Existing Proposed Proposed
Type of Facility Limits + Inc / Limits
(HDFC) – Dec (Axis Bank)
Cash Credit Limit – Stock cum Book 500.00 -- 500.00
Debt
Corporate Loan 200.00 -- 200.00
EPC/FBD/FBP/PCFC/PSCFC – As a (500.00) -- (500.00)
sub limit of Cash Credit Limit
LC(Inland /Foreign) - As a sub limit (300.00) -- (300.00)
of Cash Credit Limit
LER Limit (as a sub-limit of CC (15.00) +25.00 +25.00
limit)
700.00 +25.00 725.00
Total
WC/LC/LER : To meet working capital requirements.
Purpose
Corporate Loan : For NWC built up.
Tenor WC/LC/LER : 12 months.
Corporate Loan : 24 months from the date of first disbursement.
Repayment WC/LC/LER : On Demand.
Corporate Loan : 23 monthly instalments of Rs. 834000 each and last
instalment of Rs. 818000. Repayment to commence from December 2011.
Interest to be serviced as and when debited.
Security Primary  Hypothecation of entire current assets (Pari passu) of the
company (Both present & future). (Value as on 31.03.2011
is of Rs. 1326.42 lacs).
 Hypothecation over Plant and Machinery (Pari Passu)
(Both present & future). (Value is of Rs. 1529.55 lacs as
per empanelled valuer of Citi Bank).
Collateral Pari – Passu charge being shared by Citi Bank Limited on
following properties :
i. Factory Land and Building, Plant and Machinery at Plot No.
6401,6415,6416, G.I.D.C., Ankleshwar, Dist.Bharuch
admeasuring 5664 sq.mts. standing in name of M/s. Dynemic
Products Limited.

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 ii. Office situated at B- 301,308,309,310 Satyamev Complex-1,
Opp. New Gujarat High Court, S.G.Highway, Sola,
Ahmedabad-380 060, Gujarat admeasuring 4272 square feets
standing in the name of M/s. Dynemic Products Limited.
iii. Factory Land and Building, Plant and Machinery at Plot No.
3709/6,3710/3,3710/1, G.I.D.C., Ankleshwar, Dist.Bharuch
admeasuring 12290.80 sq. mts. standing in name of M/s.
Dynemic Products Limited.
Guarantee Personal Guarantee of :

 Mr. B.K.Patel having net worth of Rs. 264.88 lacs

(approx.) as on 31.03.2011.
 Mr. Ramesh B.Patel having net worth of Rs. 152.57 lacs
(approx.) as on 31.03.2011.
 Mr. Dashrath P.Patel having net worth of Rs. 257.89 lacs
(approx.) as on 31.03.2011.
 Mr. Shashikant P.Patel having net worth of Rs. 148.22 lacs
(approx.) as on 31.03.2011.
 Mr. Dixit B.Patel having net worth of Rs. 36.33 lacs
(approx.) as on 31.03.2011.

Credit Nil.
enhancement

Interest Rate BPLR - 3.50% i.e. 11.25% p.a. with monthly rests (presently BPLR @ 14.75%).

LC Charges Bank’s standard schedule of charges.

Processing fees Rs. 1 lacs for the sanctioned facilities plus applicable taxes.

Banking Multiple with Citi Bank (Proposed).

Arrangement

Unit visit
The unit was visited Mr. Asim Bhaduri (VP – SME and Center Head), Mr. P.C.Dash (AVP
and SCO – SME) and Mr. Kuntal Bhatt (Manager and RM - SME) on thirteenth November
2011 and the general activities of the unit were discovered to be palatable.

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Operational & Financial Analysis
(Rs. in lacs)
Particulars 31.03.09 31.03.10 31.03.11 31.03.12 31.03.13
(Actuals) (Actuals) (Actuals) (Projected) (Projected)
Gross Sales 3231.12 3657.70 4911.20 6500.00 7500.00
Net Sales 3231.12 3657.70 4911.20 6500.00 7500.00
Net Sales Growth Rate % 12.79% 13.20% 34.27% 32.35% 15.38%
Operating Profit 227.49 313.80 261.62 621.29 729.97
Other Income 141.52 (5.36) 56.07 55.00 65.00
PBDIT 322.88 412.89 503.87 881.74 1018.09
Depreciation 47.94 50.62 96.12 110.94 107.00
Interest 47.45 48.47 146.12 149.50 181.12
PBT 369.01 308.44 317.69 676.29 794.97
PAT 266.95 184.99 190.03 446.42 524.76
Cash Profit 182.35 103.07 153.62 424.83 499.22
Operating Profit Margin % 7.04% 8.58% 5.33% 9.56% 9.73%
PBDIT Margin % 9.99% 11.29% 10.26% 13.57% 13.57%
PAT Margin % 8.26% 5.06% 3.87% 6.87% 7.00%
Paid up Capital - Equity 1132.84 1132.84 1132.84 1132.84 1132.84
Unadjusted TNW 2649.73 2707.33 2764.96 3078.84 3471.06
Unadjusted TOL 1109.42 1589.26 2331.73 2890.12 3094.44
Unadjusted TOL/ TNW 0.42 0.59 0.84 0.94 0.89
Adjusted TNW 2710.84 2725.68 2828.34 3237.48 3629.70
Adjusted TOL 1048.31 1570.91 2268.35 2731.48 2935.80
Adjusted TOL/ TNW 0.39 0.58 0.80 0.84 0.81
Interest Coverage 9.82 8.44 3.84 6.27 5.98
Current Ratio 1.76 1.34 0.94 1.13 1.24
DSCR 7.67 1.83 1.21 2.35 2.20
NOCF 105.69 230.12 654.38 (269.99) 149.24
Net Profit / NOCF 2.53 0.80 0.29 (1.65) 3.52
NOCF / Interest 2.23 4.75 4.48 (1.81) 0.82
NOCF / Financing Payments 0.08 0.13 0.29 (0.08) 0.04

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Total Debt / NOCF (No. of 1.17 0.78 0.60 (0.45) (0.00)
years)

Rating

The rating of the company as per SME Rating Tool comes to SME - 3 (ABS 31.03.2011).
The segment wise scoring is as under:

Particulars Rating
Overall Scoring SME-3
Financial scoring SME-4
Business scoring SME-3
Management scoring SME-3
Industry scoring SME-3

CIBIL/RBI/ECGC Defaulters’ List/CA Verification/ Auditor Verification

Particulars As of Date Position

RBI Defaulters list 31.12.2011 No match found.
ECGC Specific Approval List 31.07.2011 No match found.
CIBIL Defaulters List Satisfactory.
CA Verification (Auditor) 13.11.2011 Verified.
Auditor’s Firm Verification 13.11.2011 Verified.

Reference Check

Reference check was made through a portion of Bank's customers in a similar line of action
financed by Axis bank and the equivalent was accounted for to be agreeable.

Analysis

 The advertisers of the organization are having rich experience of over 19 years in
different Industries.

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 The proposed development of the organization is having tremendous market
possibilities.

 The Company is the pioneer in Manufacturing and fare of food tones.

 The general FICO score of organization is SME – 3.

 The business is 19 years of age.

 The offer of the organization has been demonstrating an expanding pattern over time
viable. The offer of the organization was expanded from Rs. 3231.12 lacs in FY08-09
(Aud) to Rs. 3657.70 lacs (Aud) in FY09-10 and further to Rs. 4911.20 lacs in FY10-
11 (Aud).

 Since the organization is into Manufacturing of Food Colors, the net edge ordinarily
stays between 5.00% - 9.00%. The net benefit of the organization was diminished
from Rs. 266.95 lacs in FY08-09 (Aud) indicating edge of 8.26% to Rs. 184.99 lacs in
FY09-10 (Aud) demonstrating edge of 5.06%. Be that as it may, similar was kept up
at Rs. 190.03 lacs in FY10-11 (Aud) demonstrating edge of 3.87% because of decline
in edges in the substance business by virtue of crude material value changes around
the world. Similar was an abnormality. In any case, presently the business is on
restoration and blast way. Considering the equivalent, the organization has assessed
the benefit of Rs. 446.42 lacs for FY11-12 @ edge of 6.87%, which might be
acknowledged.

 The TOL/TNW of the organization expanded from 0.42 in FY08-09 (Aud) to 0.59 in
FY09-10 (Aud) and to 0.84 in FY10-11 (Aud). The organization has assessed
TOL/TNW at 0.94 and 0.89 for FY11-12 and FY12-13 separately because of
expanded bank borrowings, which might be viewed as agreeable.

 The current proportion of the organization was 1.76 in FY08-09 (Aud) which
diminished to 1.34 in FY09-10 (Aud) and which further plunged to 0.94 in FY10-11
(Aud), by virtue of capex extension which will be finished in the current monetary.
The organization has assessed its present proportion at 1.13 and 1.24 for FY11-12 and
FY12-13, which is sensibly adequate as respects to the liquidity position of the
organization.

 The NOCF is positive during FY 2010-11 (Aud) by Rs. 654.38 lacs. NOCF is
assessed negative in FY 2011 – 12 at Rs. 269.99 lacs, according to extended
financials put together by the organization because of expansion in stock and
receivable which is keeping in accordance with the increment in turnover and the
holding levels are according to the business practice.

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 The general direct of the record, reimbursement status and so on at Citi Bank and
HDFC is agreeable.

 The primary chief is dynamic and has rich experience of over 20 years in his line of
movement.

 The organization is an enlisted SSI unit.

 Market reference of the organization is agreeable

 The by and large extended exhibition and monetary of the unit are agreeable.

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Analysis

The market notoriety of advertiser is agreeable.

 Firm has accomplished deals of Rs. 204.49 lacs in FY. 2009-10 and Rs. 431.02 lacs in
FY. 2010-11, this is more than twofold of the most recent year. Firm has submitted
assessed deals of Rs. 568.57 lacs for FY 2011-12, against which firm has
accomplished deals turnover of Rs. 235.70 lacs till 31st October 2011, which is 41.45
% of assessed deals.

 Benefit of the firm is likewise indicating expanding pattern y-o-y bases. Firm has
accomplished PBT of Rs. 3.71 lacs in FY 2009-10 and Rs. 8.55 lacs in FY 2010-11.
Benefit has additionally rose in accordance with increment in deals of past monetary
year. PBDIT of the firm is likewise on expanding pattern, which can be considered as
acceptable.

 Total assets of the firm is expanding y-o-y bases, with furrow back of the benefit in
the business. Unadjusted equipping of the firm is on higher side for FY 2010-11
fundamentally because of higher side of loan bosses at specific point in March 2010.
In March 2011, owner presented that acquisition of crude material was at better cost
and the providers additionally permitted credit period. Henceforth, the lender base
was on higher side.

 Indebted person's degree of the firm is normal 60 days for all the previous 3 years.
Owner has presented that normal installment term is 60 days kept up in the business.
Indebted individuals keep up routineness in installment, which can be considered as
worthy.

 The Current Ratio of the firm has been on higher side, over the benchmark level of
1.33 for all the previous 3 years. Current proportion for FY 2009-10 was 1.44 and for
FY 2010-11 was at 1.77. Assessed proportion is 1.66 for FY 2011-12. In spite of the

113
 fact that, it has been kept up over the benchmark level, which can be considered as
worthy.

CHAPTER - 9

FINDINGS

 Credit examination is done to check the business, monetary and specialized

practicality of the undertaking proposed its subsidizing design and further checks the
essential or guarantee security cover accessible for the recuperation of such assets

 Credit is the center action of the banks and significant wellspring of their income
which go to pay revenue to contributors, compensations to representatives and profit
to investors

 Credit and danger go connected at the hip

 In the business world danger emerges out of:-
 Lacks/slips with respect to the administration
 Vulnerabilities in the business climate
 Vulnerabilities in the mechanical climate
 Shortcoming in the monetary position

 Bank's primary capacity is to loan reserves/give account yet apparently standards

are taken as rules not as a dynamic

 A broker's assignment is to indentify/evaluate the danger factors/boundaries and

oversee/alleviate them on constant premise

 The Credit Appraisal measure embraced by the bank consider all potential
elements which go into evaluating the danger related with an advance

 These have been classified comprehensively into monetary, business, mechanical,

114
 the board hazards and are evaluated independently

 The evaluation of monetary danger includes examination of the monetary strength

of the borrower dependent on execution and monetary markers

 The standards of the bank for giving credits are not tough, for example regardless
of whether a specific customer isn't having the good assessed and monetary
exhibition, in view of its past record and future development viewpoint, the credit is
given.

 By giving different plans of advances, Axis bank attempts to take into account the
monetary prerequisites of practically all the sorts of SME units.

115
CHAPTER - 10

CONCLUSION

 Finance the board is the foundation of any associations and subsequently

yields various occupation alternatives going from key monetary intending
to deals.

 From the investigation of Credit examination of SME, it tends to be presumed

that credit evaluation should thusly be founded on the accompanying
components, the equivalent are applied at Axis Bank:

o Financial execution

o Business execution

o Industry standpoint

o Quality of the executives

o Conduct of record

 Axis Bank credit strategy contains different standards for approval of

various sorts of advances. These everything standards don't have any
significant bearing to each and every case. Pivot Bank standards for giving
advances are adaptable and it might contrast from case to case.

 Usually, it is seen that credit examination is essentially done based on major

sufficiency. Yet, after various sorts of contextual analyses, our decision was
with the end goal that credit evaluation framework isn't just searching for
monetary riches. Other solid boundaries additionally assume a significant
function in examining credit value of the firm/organization.

 In all, the feasibility of the undertaking from each angle is dissected, just as
kind of business, industry, advertisers, past records, insight, extended
information and assessments, objectives, long haul designs additionally

116
assumes vital function in expanding odds of getting venture endorsed for
credit.

117
CHAPTER - 11
BIBLIOGRAPHY

Web Sites
www.rbi.org.in
www.Axis Bank.com
www.indianbankassociation.com
www.bankersindia.com
www.wikipedia.com
Books:
“Credit and banking” By: K. C. Nanda

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