 6 C ‘s of credit - Character, Capacity, Capital, Collateral, Conditions and Credit Score

 Corporate credit - Customers with turnover of Rs.250 crore & above

 Modes of banking Arrangement – a)Sole {borrower credit requirement exceeds 50% of exposure
ceiling or 100.00 crs whichever is higher consortium/multiple/syndication} b)Consortium
{Accounts with less than 10% share under consortium and accounts with more than 10% share
(Entry level and A rated or above)} c) Multiple {total working capital limits availed by the borrowers
are within a 10% tolerance of the working capital limits assessed by us  In such cases, Bank's
exposure for working capital needs should normally not exceed 75% of the total working capital
requirements of the borrower. } d)Syndication { Debt Syndication is an arrangement whereby a
number of banks, known as a Syndicate, agree jointly to provide credit facilities to a borrower on
uniform terms and conditions underwriting – Lead arranger underwrites entire debt and then
downsells its exposure to other lenders Best effort – tie up on a best effort basis Joint
syndication – two or more lead arranger} e)Joint Lending Arrangement f)Sub-Participation
 Elongated repayment period – Approval from competent authority (1 level above sanctioning
authority)
 Credit Origination  Primary (Direct acquisition of customer Lead, Multiple/Consortium
participate) Secondary (Takeover of accounts, Sub participation, Downsell)
 Infrastructure Investment Trust - InvITs are designed to pool small sums of money from a number of
investors to invest in assets that give cash flow over a period of time. Part of this cash flow would be
distributed as dividend back to investors. Lending to InvITS HLC4/AA rated and above.
 LEI - The Legal Entity Identifier (LEI) is a 20-character code used to uniquely identify parties to
financial transactions worldwide.
 Status Report – Group companies/JV/SPV Rating below BBB/unrated  Status Report and rest
others  CRILC. Group companies/JV/SPV reflects in any of defaulter  mandatorily Status report
 TEV Study  Activity is an industrial activity (Production/Manufacture of articles/goods and
Power/Hospital Sector)  Project Cost is more than Rs 20.00 crs and/or Fresh/additional limit
sought is Rs 10.00 crs or more  Project cost is more than 1000 crore two independent TEV to be
carried out TEV validity is for 1 year subject to there is no change in scope
 Exemption from TEV – Working Capital Finance is requested only when additional finance is for
existing activity & additional finance is less than 50% of existing WCL & performance and operation
level is satisfactory for atleast last 3 years
 Waiver of TEV - In case of canvassed business (take-over accounts or existing accounts having
proven track record of at least for 3 years of satisfactory performance, credit rating of at least 'Entry
Level', sound experience and financial background of promoters, the requirement of TEVS may be
waived
 In case of holding company which is financed by our bank invests more than 10% of the Tangible
Net Worth in any Special Purpose Vehicle (SPV), the Corporate Guarantee of such SPV be
explored. Funding to holding company as well as its subsidiaries be restricted or monitored
 Mezzanine capital is a type of financing that sits between senior debt and equity in a company's
capital structure. Technically, mezzanine capital can be either a debt or equity instrument with
a repayment priority between senior debt and common stock equity. Redeemable preferred
stock equity, with warrants or conversion rights, is also a type of mezzanine financing
 Current Ratio – Educational Institution s are exempted from current ratio norms. Current Ratio is not
to be reckoned for working capital facilities in case of hotels and hospitals.
 Stressed Sector – Textile, Telecom, Diamond/Gems and Jewelleries, Commercial Real Estate and
Power Generation (excluding Renewables and Power Transmission). Adequate Security, Risk
mitigants and safeguards
 Upto 10 lakhs as per existing delegation, 10 lakhs -5 crs not less than ZLCC, 5crs – 15 crs not less
than NBGLCC, 15 crs and above HLCC II, any deviation in stressed sector – HLCCI

Partly Secured
Sec/Unsec
ACC I MD + Other EDs+CRO + CGMs of all credit vertical FP FP
ACC II Senior most ED + Other Eds + CRO+ CGMs of all credit vertical 100 crs 200 crs
ACC III CGM of corporate credit + CRO + CGMs of all credit vertical 50crs 100 crs
 Exemptions – Aggregate limit below 7.5 crs, existing account with us for atleast 1 year and does not
belong to Sensitive/Streesed/NBFC/MFI/below entry level, Priority sector advances, PSU,CG and
SG guaranteed
 Should Deferred Tax assets be considered as Intangible Assets
o DTA/DTL arise because businesses commonly keep two sets of financial records: one to
show to investors and creditors, and one to show to tax agencies
o Accounting rules concerned to depreciation of physical assets and/or recording of warranty
expenses are significantly different from the tax treatment of same items.
o If the income as per books is more than taxable income then it means that we have paid
less tax as per book’s income and we have to pay more tax in future and thus recorded as
Deferred Tax Liability (DTL). Similarly if income as per books is less than taxable income
then it means we have to paid more tax and has to pay less tax in future. So it will be a
Deferred Tax Asset (DTA).
o Accountants describe assets as either tangible or intangible. Your business' tangible
assets are those that have a physical presence: buildings, land, furniture and the like.
Intangible assets are those that don't have a physical form. Your brand name, for
example, is an intangible asset. Cash is a tangible asset because even if it is merely a
number in an electronic banking file, you can still turn it into a physical form. A deferred
tax asset, however, has no physical form to take. It's not a pile of money, nor can it be
turned into one. It's essentially a "credit" -- an accounting device that lets you lower your
future reported expenses. As such, it is an intangible asset.
 What is TNW and why intangible assets are deducted to arrive at TNW
o Tangible net worth is the sum total of one's tangible assets (those that can be physically
held or converted to cash) minus one's total debts.
o Companies use their tangible net worth to tell them how much the company is really
worth if they ever decide to sell the business.
o TNW = Total Assets – Liabilties – Intangible Assets
o Assets are everything that you own that can be converted into cash. By this definition,
assets include:
 Cash
 Investments
 Real property (land and permanent structures, such as homes,
attached to the property)
 Personal property (everything else that you own such as cars, boats,
furniture, and jewelry)
o These are your tangible assets or everything you can hold. Keep in mind, though, that
investments are financial assets—not tangible ones. But because they can be converted
to cash, they're often put in the tangible category for purposes like this.
 o Intangible assets, on the other hand, are assets you cannot hold. Goodwill, copyrights,
patents, trademarks, and intellectual property are all considered intangible assets since
they cannot be seen or touched even though they are valuable
 Renewables Policy
 DER = 2.33 (S)/3:1 (W)  IRR/ROE = 14-16% (S) and 9-11% (W) Plant cost = 3-4crs
(S)/6.80-7.20 crs (W) O&M/Fixed cost = 1% of capex (S/W)  Useful life of machinery
= 25-30 years (S/W)  PLF = 22-24% (S)/34-40% (W)  Construction cost = 1-1.5
years (S)/2-2.5 years (W)  DSCR = 1.25(S/W)
 New/Existing Borrower with credit rating within entry level  Delegated authority and
below entry Level  HLCC I
 Constrcution contractor
 Scope – Civil and Engineering work contracts (excluding roads and Highway project and
CRE)
 Pre construction – Term Loan (purchase of earth moving equipment, machineries,
mixers, vehicles, mobilisation of resources and NFBL ( Bid Bond Guarantee, mobilisation
BG, Performance BG) and Construction / post Construction – FBL, Retention BG
 DER = 4:1 or higher may be accepted, CR = 0.70 and above, DSCR = 1.5
 AS7 – Percentage Completion Method or Completed Contract Method
 Percentage completion method % completion = Total cost incurred/Estimated total cost
Revenue recognised = % completion * contract value
 Margin for WC – 25%
 Margin for BG – 15% for PBG and 25% for FBG
 Assessment of BG

Financial Indicators

31.03.2023 30.06.2023 30.09.2023 H1/FY2023-24

Total business 1185000 1215000 1247000
Gross Advances 515000 543000
Domestic Advances 430000 452000
RAM% 55.11 55.39 55.5
Operating profit 13400 3752 3752 7504
Net Profit 4000 1551 1448 3000
NIM% 3.01 3.03 3.08 3.05
Cost to income
ratio% 51.08 49.14 49.44 49.29
GNPA% 7.31 6.67 5.84
NNPA% 1.66 1.65 1.54
ROA% 0.49 0.71 0.67 0.68
ROE% 10.31 14.9 12.64 13.72
CRAR 16.28 15.6 15.63
Net Interest Income 47700 29300
 Total Deposits 31.03.2023 1942
19.12.2023 1113

Total CASA 31.03.2023 388

19.12.2023 400

Total Advances 31.03.2023 5000

19.12.2023 13000
31.03.2024 5500

Andheri LCB 30.09.2023 Andheri LCB 30.09.2023

NFBL 2500 Gross profit 300
LC 600 Net Profit 107
BG 1850
SBLC 50

 IRR - IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to
zero in a discounted cash flow analysis.
 NPV - Net present value (NPV) is the difference between the present value of cash inflows and
the present value of cash outflows over a period of time. NPV measures current value of a future
stream of payments using the proper discount rate. In general, projects with a positive NPV are
worth undertaking, while those with a negative NPV are not. This rate is derived considering the
return of investment with similar risk or cost of borrowing, for the investment.

 Principles of lending – Safety, Liquidity and Profitability

 YTM - Yield to maturity (YTM) is the total return anticipated on a bond if it is held until maturity. It
represents the average annual return earned by an investor who purchases a bond at its current
market price and holds it until maturity, collecting all interest and principal payments due. YTM
assumes that all coupon payments are reinvested at the same rate until the bond matures.
Provides a Standardized Way to Compare Bonds, helps in pricing bond, useful for valuation.
 Cash Flow and Fund Flow statement
 The cash flow will record a company's inflow and outflow of actual cash (cash and cash
equivalents). This is different from the income statement, which records data or transactions that
may not have been fully realized, such as uncollected revenue or unpaid income. The cash flow
statement, on the other hand, will already have this information entered and will give a more
accurate portrait of how much cash a company is generating.
 Cash flow sources can be divided into three different categories on a cash flow statement:
o Cash flows from operating activities: Cash generated from the general or core
operation of the business would be listed in this category.
o Cash flows from investing activities: This section would cover any cash flow spent on
investments like new equipment.
o Cash flows from financing activities: This category includes any transactions involving
debtors, such as proceeds from new debts or dividends paid to investors
 The fund flow records the movement of cash in and out of the company.
 The cash flow statement is best suited to gauge a company's liquidity profile whereas the fund
flow statement is best geared towards long-term financial planning.

Cash Flow Statement:

1. Definition:

 The Cash Flow Statement is a financial statement that provides a summary of a

company's cash inflows and outflows during a specific period.

2. Purpose:

 It helps in understanding the sources and uses of cash, providing insights into a
company's liquidity and its ability to meet short-term obligations.

3. Components:

 Operating Activities: Cash transactions related to core business operations.

 Investing Activities: Cash transactions related to the purchase and sale of long-term
assets.
 Financing Activities: Cash transactions with the company's owners and creditors.

4. Key Points:

 Focus on cash movements, not profitability.

 Helps in assessing a company's ability to generate positive cash flow.

Fund Flow Statement:

1. Definition:
 The Fund Flow Statement is a financial statement that provides information on the
changes in a company's financial position between two balance sheet dates.

2. Purpose:

 It helps in understanding how funds move within a company, indicating changes in

its working capital and long-term funds.

3. Components:

 Sources of Funds: Increase in long-term liabilities, equity, and non-current liabilities.

 Uses of Funds: Decrease in long-term liabilities, equity, and non-current liabilities.

4. Key Points:

 Focus on changes in the financial structure.

 Indicates the reasons for changes in the working capital.

Key Differences:

1. Time Frame:

 Cash Flow Statement covers a short-term period.

 Fund Flow Statement covers a more extended period and provides a broader view.

2. Focus:

 Cash Flow focuses on cash transactions.

 Fund Flow focuses on changes in financial position.

3. Purpose:

 Cash Flow assesses liquidity and short-term solvency.

 Fund Flow explains changes in the financial structure and working capital.

4. Components:

 Cash Flow has operating, investing, and financing activities.

 Fund Flow has sources and uses of funds.

5. Nature:

 Cash Flow is more transactional.

  Fund Flow is more abstract, dealing with changes in financial structure.

Sample Explanation:

"In summary, the Cash Flow Statement is a detailed account of a company's cash
transactions over a short period, highlighting its operational, investing, and financing
activities. On the other hand, the Fund Flow Statement provides a holistic view of a
company's financial position over a more extended period, focusing on changes in its
financial structure and working capital. While the Cash Flow Statement assesses
short-term liquidity, the Fund Flow Statement helps in understanding the long-term
health and sustainability of the company's financial position."

Letter of Credit
a) Any credit means an arrangement that is irrevocable and constitutes a definite undertaking of
the issuing bank to honour a complying presentation. In a LC transaction, the seller (exporter) is
given guarantee of payment by the commercial bank provided the goods confirm the quality
standards and other stipulations made by the buyer.
b) Applicant (Buyer), Beneficiary (Exporter), Issuing Bank (Buyer’s Bank), Advising Bank (Exporter
Bank), Confirming Bank (Bank in case of 2nd confirmation protects the beneficiary against failure
or default of the issuing bank), Negotiating bank (Advising bank, issuing bank, another bank),
Reimbursing Bank
c) Irrevocable LC (LC can neither be amended or cancelled without an express agreement of all
the parties concerned), Sight LC & Usance LC, Red Clause LC (issuing bank authorises
advising bank to advance a part of LC amount to the seller to meet pre shipment expenses 
here credit risk is borne by issuing bank but with recourse) , Green Clause LC (Red clause LC +
provide storage facilities at port of shipment ), Revolving LC,(Amount of credit Rs 1 lakh
revolving 11 times to maximum Rs 12 lakhs Import of goods in India on revolving LC with
approval of RBI), Transferrable LC (The first beneficiary (trading house/middle men)makes
available the DC to the actual producers of goods without making use of his own credit line 
The primary seller does not have the capacity to fulfil the entire order and needs assistsnce of
other sellers), Back to Back LC (Trading Houses may request their bank ot issue LC in facor of
actual suppliers of goods on the strength of the existing LC established in favour of
middlemen/trading houses.)
d) Standby Letter of Credit – It is a financial instrument issued by a bank to guarantee payment to
beneficiary in the event applicant fails to fulfil its contractual or financial obligation.
e) Documents – Invoice Bill, Bills of lading/Airway Bill, Bill of Exchnage, Shipping Bill, Marine
Insurance, Quality Certificate, Fumigation certificate, Certificate of Origin, Packing List

Bank Guarantee

a) It is a collateral contract which is consequential to the main contract between applicant and
beneficiary.
b) Guarantee (3 parties, liability of the issuing bank begins only after default is committed by
principle debtor) versus Indemnity
c) Situations where guarantees are issued  BG against EMD, BG against mobilisation advance,
BG against retention money, BG against supply of materials
d) Situations where BGs should not be issued 
e) Financial Guarantee – regarding the financial ability/worth of its client to meet certain financial
obligation, making payments and satisfying the dues.
f) Performance BG – guarantee to the beneficiary to make good the monetary loss in the evet of
non performance or short performance of contract.
g) Bid Bond – BGs required in lieu of earnest money deposit  Advance payment guarantee –
guarantee amount should reduce in proportion to the value of delivery  Retention BG 
Maintainance Guarantee
h) Deferred Payment Guarantee Bank executed the guarantee on behalf of the buyer to the
seller’s bank. On behalf of this BG, seller’s bank will discount drawn by buyer and pays the
payment to seller. DPG is a substitute of term loan. Lending bank does not lay down any funds
in case of DPG

Calculation of yield on SIDBI loan

Our Treasury branch has advised that the bank is availing refinance from SIDBI from time to time and as
on 30.10.2023, the O/s amount is Rs.28793 crore at a weighted average cost of 6.99% p.a (CRR adjusted
cost is 6.62%).

Further, the proposed LOC of Rs.3000 Crore shall be secured by cash collateral of Rs.360 crore (12%)
and SIDBI has requested the finance at ROI of 7.50% p.a. Based on which, the yield is calculated as
under:

Proposed Cash Collateral (TDR) (A) Rs.360.00 Crore

CRR @ 4.50% (B) Rs.16.20 Crore
SLR @ 18.00% (C) Rs. 64.80 Crore
Funds available for deployment (A-B-C) Rs.279.00 Crore

Yield calculation:

Interest on LOC-III of Rs.3000 cr @7.50% p.a. Rs. 225.00 Crore

Yield on Advances @8.54% (Sept-2023) on Rs.279 Cr Rs. 23.83 Crore
Yield on Investment @6.74% (Sept-2023) on SLR portion of Rs. 4.37 Crore
Rs.64.80 Cr
Total Income Rs.253.20 Crore
Interest payable on TDR of Rs.360 Crore @7.20% p.a. Rs.25.92 Crore
Net Income - A Rs.227.28 Crore
Yield (227.28 / 3000) 7.576%

Cost of Deposits as on Sept-2023) 4.49%

RAROC

RAROC= Net Revenue/Required Capital

The RAROC generated by a business unit or a loan proposal shall be at least equal
to or more than the weighted average cost of capital (WACC).

Renewables

Increasing demand due to rising population / poor financial of power discoms (1 lakh crore)

Alternative Renewable Energy  Capacity 131GW (Sept 23) 280GW (2027) 450 GW (2030)

Government Initiative  Production Linked incentive schemes for solar module and solar cell 
preapproval for setting up 59 solar parks of 40 GW

Solar Energy 71GW (Sept 23) 190GW (2027)

Challenges  Cost of project, tariff, land availability, Dependency on weather

ABFL ABHFL
31.03.2 31.03.2 31.03.2 31.03.2 31.03.2 31.03.2
S Particul 021 022 023 S Particul 021 022 023
r. ars Audite Audite Audite r. ars Audite Audite Audite
d d d d d d
Net 11802. 11895.
1 AUM 48689 55180 80556 1 13557
AUM 6 5
Gross
2.93% 3.58% 3.12% 2.94 3.49 3.23
2 GNPA 2 NPA %
Net
1.71% 2.16% 1.68% 2.17 2.63 2.16
3 NNPA 3 NPA %
Cost to Cost to
income 31.20% 29.80% 32.12% income 39.98% 37.80% 42.11%
4 ratio 4 ratio
5 NIM 5.98% 6.18% 6.84% 5 NIM 3.23% 4.24% 5.08%
6 CRAR 22.70% 21.77% 16.38% 6 CRAR 21.73% 23.94% 21.58%

Muthoot Finance

31.03.2021 31.03.2022 31.03.2023

Sr. Particulars
Audited Audited Audited

1 Net AUM 58053 63210

Gross NPA
2.99 3.79
2 %

Net NPA % 2.68 3.4

3
Cost to
income 17.63% 31.82%
4 ratio
5 NIM 13.03% 11.38%
6 CRAR 29.97% 31.77%

Muthoot Fincorp
31.03.2021 31.03.2022 31.03.2023
Sr. Particulars
Audited Audited Audited

1 Net AUM 18700.5 17323.1 17615.1

Gross NPA
1.92% 2.88% 2.11%
2 %

Net NPA % 1.01% 1.57% 0.58%

3
Cost to
income
4 ratio
5 NIM 8.85% 9.12% 10.14%
6 CRAR 16.85% 19.42% 21.34%

IBPC
 The Participations would be strictly inter bank confined to scheduled commercial
banks.
 The aggregate amount of such Participations in any account should not exceed 40
per cent of the out standings in the account at the time of issue. During the currency
of the Participations the aggregate amount of Participations should be covered by the
outstanding balance in the account.
 In the case of the issuing bank, the aggregate amount of Participations would be
reduced from the aggregate advances outstanding. Such transactions will not be
reflected in the individual borrower's accounts but will be only netted out in the
General Ledger. The participating bank would show the aggregate amount of such
Participations as part of its advances. The issuing bank will maintain a register to
record full particulars of such Participations.
 Participations will not be transferable.
 91 days -180 days
 No Risk Sharing – tenure will be 90 days, The issuing bank will show the amount of
Participations as borrowing while the participating bank will show the same under
Advances to bank i.e. due from banks.

Breakeven Sales
a. Break Even Analysis
Particulars 2024 2025 2026 2027 2028 2029 2030
Revenue (a) 8186 8192 9557 9557 9557 9557 9557
Variable cost 7313 6754 7820 7793 7929 8073 8224
(b)
Fixed Cost (c) 601 1203 1252 1140 1061 999 617
Contribution 872 1438 1737 1764 1628 1484 1333
(d=a-b)
BEP (%) (e=c/d) 68.85 83.70 72.11 64.64 65.16 67.33 46.30
Breakeven 5636 6857 6892 6178 6228 6435 4425
sales (f=a x e)
Margin of 31.15 16.30 27.89 35.36 34.84 32.67 53.70
Safety (%)

Project 3550  Debt 2484 crs  Equity 1050

Debt  SBI 1000 crs  BOI 800 crs (650+150)
DSCR = 1.85./1.75
IRR = 14%