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Selected Cases in Banking-64-70
Selected Cases in Banking-64-70
Quantitative Aspects
Shri Sumit Garg
Being a credit officer in the Branch, give your comments on viability in the
proposal considering qualitative and quantitative aspects. Detail of the proposal
as under.
Background of Firm
M/s ABC Partnership firm is engaged in the trading business of Mobile Handsets. The
Partnership firm was incorporated on 5th April 2015 by Partners Mr Anand kumar and Mr
Garish Patel. They are carrying out the business for last 3 years. Mr Anand Kumar is the Key
promoters of the firm. The firm is mainly trading in mobile phones in the range of Rs 3000 to
Rs. 7000 per handset and the same are imported from China. M/s ABC firm purchases the
mobile handsets from various vendors mainly from the SK Telecom, China Telecom, XO
Mobiles, ZIOMI China etc and sell them to the customers in Punjab, Delhi, Rajasthan, and
Gujarat.
Firm purchases the mobile handset from 10 to 12 vendors out of which only 5 vendors
contribute approximately 75 per cent of total purchase .The firm is selling mobile handset to
about 50 Retail shopkeepers out of which major sales come from 10 Retail shopkeepers
which is around 70 per cent of total sale. Firm has been able to register a drastic growth in
sales turnover in a very short period.
Shri Sumit Garg (sgarg1406@gmail.com) Senior Manager & Faculty, Bank of Baroda Academy,
Chandigarh.
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Mr Garish Patel is 47 yeasr old and has been associated with Mr Anand Kumar for last 3
years. He is having lots of ancestral properties.
The above loan is secured by equitable mortgage of 5 immovable properties and all the
properties belongs to Mr Garish Patel and as per valuation report of OBC bank value of the
property is Rs 900 lacs.
Value of Securities
Sr. No. Description Value on lacs
A Primary
i Hypothecation of goods ( Mobile handset) 1150
ii Debtors less than 6 months 200
iii Debtors more than 6 moths 50
Total 1400
B Collateral
Equitable mortgage of immovable properties 900
Mr Anand Kumar alone takes care of entire business of Purchase of Mobile handset from all
vendors and sells the handsets to different customer segments.
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The ABC firm has achieved sales of Rs 25 crore in FY 2015-16, sales of Rs 52 crore in FY
2016-17 and sales Rs 80 crore in FY 2017-18. Firm is able to generate profit of Rs 2 crore, Rs
3.5 crore and Rs 5 crore respectively in each year. As per Balance Sheet of FY 2016-17 closing
Debtors is Rs 5.20 crore and in FY 2017-18 closing debtors is Rs 9.30 crore. Details of bank
account statement mentioned is below:
Quarter Ending Debit ( Rs crore) Credit (Rs crore) Number of times O/S above the
sanction limit
June 2017 19 16 3
September 2017 23 20 3
December 2017 21 21 1
March 2018 15 17 0
The firm has submitted the GST return for the FY 2017-18 and the returns shows the total
sale of Rs 80 crore which is tallied from the PL statement submitted by the borrower.
Facilitator Note
Learning Objective
1. Participant to know the Method of Borrower Appraisal as part of credit decision.
2. Understand the Importance of Due-Diligence in making a credit decision.
3. Understand what all vital data we should collect about borrower's conduct while
analyzing an account statement.
4. Understand the importance of Market Report, sources for the same etc.
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Capital and Collateral
Age of key Promoter is 48 years and he is staying in a rented house with his wife and
daughter. He must have his own house because he is engaged in business for the last 28
years and he has earned a good amount of profit from all his previous businesses.
Collateral is not from the key promoter which shows suspicious in the mind. Only the
second Partner offering collateral of Rs 9 crores though he is not a key person of the business.
Check Point for Banker in above case study as per Qualitative Appraisal
1. Credit Officer should ask from the Promoter that he is having 28 years experience of
business and earns a good amount of profit from all his previous business. Why he is
staying in a rented house? Where he invests all his profit from all previous business?
Collect Documentary proof of his investment.
2. Why the key promoter is not offering any collateral security, in spite of earning a good
amount of profit from all his previous business. Banker should insist some collateral
security from the key Promoter also
3. Banker should ask the detail of main suppliers and customers of the key promoter's
previous business. Enquire from them and also from reputed people in the same
industry about key Promoter. If banker receives positive report, it is good.
Check Point for Banker in above case study as per Quantative Appraisal
1. Credit summation in the bank account statement is the cash realization from sales
which means Opening Debtor + Sales – Closing Debtors. In the above case, total sale
of firm as per GST is Rs 80 crore, total credit summation in account is Rs 74 crore
Opening debtor is Rs 5.20 crore , closing debtor is Rs 9.30 crore. This means, total
credit in account of sale is Rs 74-5.20+9.30=78.10 against the sale of Rs 80 crore. So, Rs
1.90 crore sale is not routed through the account.
2. The banker needs to check the cash book of the borrower for Rs 1.90 crore sales. There
is a chance of fake sale and the borrower is maintaining an account with other bank.
3. Banker to check credit summation for current year vis-à-vis previous year quarter wise.
4. Banker to check whether there is timely payment of statutory dues through the account
like TDS, GST, PF deposited by company, Salary Payment of Employees etc.
5. Analysis of average utilization of CC limit, cheque returns, penal interest and excess/
overdue. In the case, there is a regular excess in the account which is a negative sign.
6. Annual sale is above Rs. 2 crore
7. Check the debtors' and creditors' names matches with account statements and stock
statement.
8. Age wise break up of debtors and creditors should be obtained.
9. Banker should check genuine reasons for the fund requirement and the amount
requested.
10. Banker should go through MCA website and Probe 42 in a company case, CIBIL data,
and RBI willful defaulter list.
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11. Cross check the closing stock of balance sheet with the stock statement submitted by
the borrower.
12. Take documentary proof for calculating net worth of the borrower and the branch
should analyze the net worth of Mr. Anand Kumar and also ascertain the movement in
capital of Mr. Anand Kumar in business to ascertain his genuineness.
13. Check the nature of the collateral, valuation and security quality issues.
14. Check the nature of the goods mentioned in the GST returns vis-à-vis nature of Goods
the firm is selling.
15. Major amount of working capital is blocked in stock as evident from the security
column. Branch may verify the godsown of the firm and ascertain the availability of
the actual stock in comparison with stock statement submitted by the borrower.
16. Branch to analyze financial ratios of the firm based on audited as well as provisional
Balance Sheet to ascertain the financial condition in the firm.
17. The credit opinion report may be called from the existing banker in RBI format, seeking
the conduct in the account along with other information including securities details
with them
18. After receipt of the above information/papers and analysis the banker shall be in a
position to decide on the proposal.
Qualitative Appraisal Basis on the Intention of Borrower and Judgment of Credit officer.
For this we have to follow 5C's principal
Capacity lender look at the length of time an applicant has been at his business/job and
stability of business/job along with the examining of income.
Capital lender considered any capital the borrower puts towards a potential investment.
Large Contribution by Key promoters and dependent on the business for his livelihood and
the business has good opportunity to grow all these things reduce the chance of default.
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Collateral If a key promoter is giving good collateral as security – especially residential
house in which he is staying with his family, it indicates that the borrower is confident about
his business and it reduce the chance of default.
Conditions refer how a borrower intends to use the money. Lender will also considered
economic environment, Government guidelines for industry that could affect the business.
So put condition in sanction accordingly like Pollution control License required etc.
Loan Application
All pages of loan application to be filled up carefully and signed by the applicant. At the
time of documentation banker should ensure that same signature matches with the application
form and obtained all documents as per check list.
Through application form banker able to know activity of the business, key person profile,
Detail of Machinery, Financial of the company, Statutory obligation, facility requested, security
offered etc. for our cross verification.
Through bank account statements credit officer are able to know total credit in account in
comparison of sale, Cheque Dishonor, Account overdrawn, Payment of Electricity bill/ salary
etc regularly, Payment of GST etc.
Cross Check the nature of goods mentioned in GST and the nature of Goods Firm is selling.
For ex. Firm is a manufacturing Unit and in GST return we see that the company is also
trading other item.
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Previous year financial statement to be audited before 30 September of current year if audited
statement of previous year not available credit officer can considered provisional statement
subject to condition that variation in audited and provisional is not more than 5 per cent.
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