Syndicate Institute of Bank

Management, Manipal

Training Program on High Value Advances

13 to 18th September, 2010
Credit Appraisal for Large and
Corporate Advances
Prof Chowdari Prasad, TAPMI, Manipal
Sept 13, 2010
9/13/2010 High Value Advances 2
 Financial Results March, 2010
Quarter ended Quarter
Year ended Year ended
Parameters Mar 09 ended
Mar 09 Mar 10
Mar 10
Operating Profit 1671 1873 466 552
Net Profit 913 813 207 168
Net Interest Income 2548 2740 547 861
Net Interest Margin 2.75 2.35 2.37 2.89
Capital Adequacy Ratio (%) 12.68 12.70 12.68 12.70
Gross NPA Ratio (%) 1.93 2.19 1.93 2.19
Net NPA Ratio (%) 0.77 1.07 0.77 1.07
Business 198380 208476
Deposits 115885 117026
Advances 82495 91450
Cost of Deposits (%) 6.98 6.14
Yield on Advances (%) 10.73 9.40
CASA Share (%) to Dom. Dep 28.89 32.86
Credit- Deposit Ratio (%) 71.19 78.15 Rs. In Crore
9/13/2010 High Value Advances 3
 About Syndicate Bank 2010
www.syndicatebank.in Rs. In Cr
Quarter ended Quarter ended
Parameters Jun 10
Jun 09
Operating Profit 516 587
Net Profit 262 265
Net Interest Income 565 964
Net Interest Margin (%) 2.12 3.09
Capital Adequacy Ratio (%) 13.39 12.37
Gross NPA Ratio (%) 1.91 2.31
Net NPA Ratio (%) 1.02 1.06
Earning per Share 20.04 20.34
Business 199686 202622
Deposits 116317 108560
Advances 83367 94062
Cost of Deposits (%) 6.62 5.27
Yield on Advances (%) 9.71 9.08
9/13/2010 High Value Advances 4
 About TAPMI in 2010
www.tapmi.edu.in

• Founded by late Shri TA Pai in 1980 as MIM

• Renamed as TAPMI after his demise
• First Batch of 2 year PGP commenced in 1984
• Completed 25 plus years of Excellence in
Management Education as on date…
• Fully residential top-class Campus in 2009
• Eminent Personalities visit TAPMI in 26 years
• Expansion, diversification & collaborations
9/13/2010 High Value Advances 5
 TAPMI : Vision and Mission
• VISION: “to make TAPMI an excellent institution in the
India / Asia-Pacific region, a place that is intellectually
exciting, financially and academically autonomous, with
sustainable competitive advantage in all its activities”.

• MISSION: "We are committed to excellence in

management education, research and practice by
nurturing and developing global wealth creators and
leaders. We shall continually benchmark ourselves
against the best-in-class institutions. We shall foster
continuous learning and reflection, achievement-
orientation, creative interdependence, and respect for
diversity with a holistic concern for ethics, environment
and the society"
9/13/2010 High Value Advances 6
 About me
• Four decades of service in Public / Pvt Orgns ‘ (1971)
• Post Graduate in Commerce, Osmania University plus
CAIIB, CIF, Dip TD, Dip MB, Dip IR, Comp’…Hindi (GOI)
• Worked in Andhra Bank, SBI, VBLL – 25 years
• Vice President in a 100% EOU for 3 years in Hyd, AP
• Teaching at TAPMI, Manipal since May 1999
• <3 years break in Alliance B-School (2006-2009)
• Academic Adm’n, Training, Research, Consulting etc.
• Life Member – IIBF, ISTD, AIMA, Director – LC, 2 BOS
• Reach : chowdarip@tapmi.edu.in or 9482549472
• Find me in google.com; scribd.com; or wiziq.com…
9/13/2010 High Value Advances 7
 Agenda for Today…
• Advances Portfolio • Types of Credit Facilities
• Lending Policies • Documentation
• Credit Management • Monitoring & Follow Up
• Credit Policy in a Bank • Prudential Norms on
• Regulatory Framework Capital Adequacy and
• Prudential Norms Credit Risk Management
• Recovery Management
• Types of Borrowers
• Microfinance
• Credit Evaluation : WC
• Credit Rating, Credit
• Credit Evaluation : TLs Scoring and Credit
• Dynamics of Foreign Exch Information Bureau
• EXIM Bank, ECGC • Comprehensive Case Study

9/13/2010 High Value Advances 8

 Advances Portfolio
1. Working Capital Advances – Cash Credit a/cs
1. Against Stocks, Bills Receivables, etc.(Hyp’n/Pledge)
2. Bridge Loans, Overdrafts, Consortium, etc.
3. Pre-Shipment and Post-Shipment Advances
2. Term Loans for (with or without mortgages)
1. Land, Buildings
2. Plant & Machinery – moveable or immoveable
3. Lease Financing, Hire Purchase of machinery
4. Non-Fund Based
1.LCs 2.Guarantees 3.Deferred Payment Guarantees
9/13/2010 High Value Advances 9
 Lending Policies of Bank
• Primary and Secondary Functions of a Bank
• Directed Lending and Normal Lending
• Wholesale and Retail Banking / Lending
• Requirements for Effective Lending
• Various Laws like Contract Act, Partnership Act,
Companies Act, Sale of Goods Act, Transfer of
Property Act, Stamp Act, Information Technology
Act, Income Tax and other Acts (Sales Tax, Excise
& Customs Rules) Registration Act, Industrial
Laws (PF, Wages, Bonus, ESI etc), FEMA, etc…

9/13/2010 High Value Advances 10

 Bank Lending
• Directed or Normal Lending
• Retail or Wholesale Lending?
– Wholesale Lending is lending to Corporates
– Small number of Large Advances : Follow up is easy
– Products are customized and complicated too
– Cost of maintenance is low
– Personal attention can be extended; Relationship
– Risk is very high
– Yields may be low
– Highly demanding customers;
– Encourages concentration of wealth in few hands
9/13/2010 High Value Advances 11
 Principles & Objectives of
Credit Management
• Objectives of Credit Management
• Qualities of a Good Borrower : 6 Cs of a Bank
• Cardinal Principles of Bank Lending
• An “Ideal Advance?”
• Stages in a ‘Credit Cycle’
• Client / Customer Acceptance Criteria?
• Modes of Credit Disbursement
• Fair Practices Code

9/13/2010 High Value Advances 12

PROJECT APPRAISAL
a) Market and Economic aspects.
b) Technical aspects.
c) Financial aspects.
d) Managerial aspects.
Post-sanction Supervision and Follow Up of Loans
Post-sanction, supervision and follow-up of loans is an important function as it
helps in keeping a watch on conduct and operational/financial performance of the
borrowal accounts.
 6 C’s
1. Character: difficult to judge / measure
2. Capacity: To possess required skills
3. Capital: Owners’ stake in business or Margin
4. Collateral: additional / secondary security
5. Conditions: Economy, Demand, Prospects,
availability of raw material/men,
Infrastructural facilities, etc.
6. Credit Record: Track Record, Market Credit
Reports or through CIBIL sources….
9/13/2010 High Value Advances 14
 “Ideal Advance”
• According to L.C. Mather, an ideal advance is
one which is
– Granted to a reliable customer;
– For an approved purpose;
– In which the customer has adequate experience;
– Safe in the knowledge that the money will be used
to advantage and
– Repayment will be made within a reasonable
period from Trading receipt or other known
maturities.

9/13/2010 High Value Advances 15

 ‘Credit Cycle’
1. Prospecting: present customers/market survey
2. Credit Investigation: gathering information…
3. Credit Proposal: Basic info, Risk Assessment, etc
4. Credit Approval: critical stage;
5. Credit Disbursement: related to progress of
work; Mode of Disbursement – cash / kind….
6. Credit Monitoring: On an on-going basis thro
visits to unit, inspections, stock statements, bills
and transactions in the loan account…..
9/13/2010 High Value Advances 16
CONSIDERATIONS BEFORE MAKING OR
RECOMMENDING ADVANCES
i. The means of the applicant and guarantors should be verified by
independent enquiries and if possible by examination of their books.
ii. The details of the assets of the applicant, with specific reference to his liquid
assets viz. cash, book debts, stocks etc.
iii. The details of the liabilities of the applicant – whether short-term or long-
term.
iv. The extent of the margin available with the applicant, which is indicated by
the excess of the liquid assets over the current liabilities.
v. The experience of the applicant in the business or the line of activity in which
he proposes to utilize the money to be borrowed from the bank.
Pre-sanction and Post-sanction Follow Up Check List
In order to strengthen the pre-sanction appraisal and to avoid the quick mortality
cases, banks today have evolved check lists governing areas of pre-sanction
appraisal and post-sanction follow-up for meticulous compliance by all those
associated with the credit dispensation.
 RBI Guidelines : Fair Practices
• DBOD Leg.No.BC.104/09.07.007/2002-03 dated May
05, 2003 to all the banks / AIFIs : Guidelines on Fair
Practices Code for Lenders

• DBOD No. Leg. BC.65/09.07.005/2006-07 dated

March 06, 2007 to ASCBs/AIFIs : Guidelines on Fair
Practices Code for Lenders

• DBOD No. Leg.BC.28/09.07.005/2007-08 dated

August 22, 2007 to ASCBs/AIFIs : Guidelines on Fair
Practices Code for Lenders : Furnishing Copy of Loan
Agreement
9/13/2010 High Value Advances 18
FAIR PRACTICE CODE
 Credit Information Bureau (I) Ltd. (Cibil)

 Loaning Powers And Responsibilities of Incumbents

 Pricing of Credit (Interest Rates) and Credit Rating System

 Advances to Limited Liability Companies

 Advances To Partnership Firms

 Advances to Hindu Undivided Families (Huf)

 Credit Policy in Banks
• Meaning of Credit Policy of a Bank
• Four Types of Credit Culture:
– 1. Quality of Loans
– 2. Short term gains are priority
– 3. Market Share and Growth and
– 4. No clear priorities or focus leading to ambiguity!
• Objectives of a Sound Credit Policy
• Regulatory requirements under Credit Policy
• Credit Policy as a Risk Management Tool

9/13/2010 High Value Advances 20

12/07/21 Technology in Indian Banking 2010 21
12/07/21 Technology in Indian Banking 2010 22
 Regulatory Framework
• Cash Reserve Ratio (CRR)
• Methodology for maintenance of CRR
• Statutory Liquidity Ratio (SLR)
• Approved Securities for SLR
• Penalty for Non-Maintenance of CRR / SLR
• Priority Sector Lending @ 40% of Advances
• Capital Adequacy Ratio at 9% and above…
• Basel I, II and now towards III
• Asset Liability Management / Risk Management
• Benchmark Prime Lending Rate / Base Rate?
9/13/2010 High Value Advances 23
CREDIT RISK MANAGEMENT
"Credit risk," means the possibility of loss associated with diminution in the credit
quality of borrowers or counter parties. These counter parties may include an
individual, corporate, bank, financial institution or a sovereign.

In a bank's portfolio, losses stem from outright default due to inability or

unwillingness of a customer or counter party to meet, commitments in relation to
lending, trading, settlement and other financial transactions.

Banks have put in place "Credit Risk Management Division" to monitor credit
portfolio from time to time on a periodical basis besides enabling Technology-
based risk rating tools to assess the loan proposals and track deficiencies.
 Prudential Norms
• Income Recognition & Asset Classification norms
• Meaning of Standard Asset, Sub-Standard,
Doubtful and Loss Assets
• Norms for treating an advance as Non-
Performing Asset
• Provisioning norms for various classes of assets
• RBI Guidelines on appropriation of recoveries
• Concept of ENPA (Earnings to Net NPAs)

9/13/2010 High Value Advances 25

 Types of Borrowers
• Various types of borrowers: Sole Prop; HUF; Partnership
Firms (AOPs, LLPs and LLCs); Societies / Clubs /
Associations / Trusts / Multi-National Companies and
• Private and Public Limited Companies – MOA / AOA / List
of Directors /Cert of Incorporation/ Cert of
Commencement/ Common Seal/ Powers / Prospectus for
IPO / Resolutions / AGMs and EGMs / Registrar of
Companies requirements / Listing requirements / Q1-4…
• Special features of each type of borrower as above…
• Salient points to be noted while dealing with Minors
• Limited Co – formalities for creation of charge on assets
• MCA 21–e-Filing of returns of Limited Companies
• Hindu Undivided Family – precautions to be taken
9/13/2010 High Value Advances 26
 Types of Credit Facilities
• Types of facilities
• Overdraft, Cash Credit, bills facility, Term Loans
• Fund-Based and Non-Fund Based facilities
• Bank Guarantees (BG)
• Letter of Credit (LC)

9/13/2010 High Value Advances 27

 Credit Evaluation :
Working Capital Finance
• Meaning of Working Capital
• Kinds of Working Capital
• Operating cycle
• Factors affecting the level of working capital
• Assessment of Working Capital
• Methods of Assessment of Working Capital
• Tools of financial statement analysis

9/13/2010 High Value Advances 28

 10 Factors affecting WC
1. Nature of Business
2. Growth of Business
3. Seasonality of Business
4. Production Policy
5. Period of Conversion
6. Selling Policy
7. Taxation Policy
8. Government Regulations
9. Ploughing back of Profits and
10.Business Cycles

9/13/2010 High Value Advances 29

Working Capital Loan And Cash Credit System

• Working capital lending still a major

functional area for commercial banks
• Conventionally, working capital financing in
India is in the form of cash credit facility
• Under the cash credit system, the lending
bank sanctions a maximum loan limit to a
customer
• Utilisation is subject to availability of
adequate assets pledged or hypothecated
Working Capital Loan And Cash Credit System

• The drawing power is adjusted at regular

intervals (normally once a month) by
considering the level of current asset that has
been paid for and deducting margin(s) therefrom
at stipulated rate(s)
• These margins are worked out in line with
the lending norms of Tandon Committee.
• The amount of loan outstanding can vary
freely within the drawing power and at times
the balance in the cash credit account can
even be in credit
Working Capital Loan And Cash Credit System
Interest is payable based on the actual level of
loan enjoyed on a daily product basis
Thus, a fixed limit is worked out for any loan
account by assessing the customer’s peak
requirement on the basis of its projected holding of
current asset
Once this limit is set, the borrower becomes
virtually entitled to draw, subject to sufficient
current asset holding, any amount up to the limit.
Working Capital Loan And Cash Credit System
The borrower has
the option to draw at any point of time,
without any prior notice, up to the extent of the
limit
but no corresponding obligation either to
compensate the banker for this option or to
ensure an optimum utilization of the facility at
all points of time
Tandon Committee Norms – Style Of Credit

The first and the most substantial work in the field

of working capital finance in India was done by the
Tandon Committee

The Committee aimed at inculcating in the

borrowers the habit of making an effective financial
planning through a system of reward and penalty

It suggested that the working capital facility should

be bifurcated into two components
Tandon Committee Norms – Style Of Credit

(i)                  A fixed or demand loan component,

interest on which is to be charged at a certain fixed
rate throughout the year

(ii)                A variable or cash credit component,

interest on which is to be charged at a somewhat
higher rate. This component would indicate by
what amount the level of borrowing for a particular
customer exceeds the demand loan component
Tandon Committee Norms – Style Of Credit

If a borrower projects the demand loan component

at a “higher than necessary” level, he would end
up paying interest on amounts not actually
required by it.

If he projects the demand loan at a low level, much

of its withdrawals will attract a higher rate of
interest and the overall interest cost over the year
would not be minimized.
Tandon Committee Norms – Style Of Credit

It would, therefore, be in the interest of the

borrowing company to ensure an efficient financial
planning and to project correct levels for its
projected fund requirement

Once the monthly requirement of working capital is

submitted by a borrowing company, the lending
bank has to work out the optimum level for
demand loan that will minimize the annual interest
burden
CHORE COMMITTEE
Recommendations of the committee are summarized below:-

I. Continuance of the existing system

II. No bifurcation of cash credit accounts

III. Separate limit for peak level and non peak level periods

IV. Regulation of drawal of funds/Qtrly Statements:

V. No frequent sanction of Adhoc or Temporary Limits.

VI. Enhancement of Borrowers contribution

VII.Compulsory implementation:

a) Exception

b) Encouraging Bill Finance

WORKING CAPITAL ASSESSMENT
GROSS WORKING CAPITAL AND NET WORKING CAPITAL – AN EASY UNDERSTANDING
Areas Gross Working Capital Net Working Capital

Refers to the sum of current assets employed in the business for day-to- Refers to the difference between current assets
Meaning day operations and for utilizing the fixed assets at the optimum level. Total and current liabilities. Excess of current assets
of the current assets is not deducted from the total of current liabilities over current liabilities is net working capital

Total current assets said in the opposite side

minus
• Cash and bank balances, • creditors for raw materials and consumable
• sundry debtors and bills receivables, stores
• raw materials, • bills payable
• work in progress, • advance payments received from customers
Components
• finished goods, • deferred installments payable within a year
• consumable stores , • term loan and debenture payable within a
• prepaid expenses, year
• advances given to suppliers of raw materials • Salary, wages, sales tax, excise duty, PPF,
ESI outstanding
• dividend and tax payable

Generally current assets are financed by both long Net working capital is financed only by long-
-term and short-term sources of funds. Long-term source of funds refer to term sources
Financing
share capital, debentures, term loans and short-term sources refer to bank For e.g.; share capital, debtors,
overdrafts, cash credit and sundry creditors term loans

It may be positive or negative. Positive figure

It is always a positive figure which suggests that without current assets, a
gives the company’s financial strength.
Sign convention company cannot run. Hence gross concept is nothing, but the sum of all
Negative figure indicates the company’s poor
current assets
financial position.
 Credit Evaluation : Term Loans
• Meaning of Term Loan
• Deferred Payment Guarantee (DPG)
• Factors to be considered while considering a
Term Loan proposal
• Technical, Economic and Financial Feasibility of a
Project
• Use of Break Even Analysis, Sensitivity Analysis,
Leverage, Interest Coverage and Debt Service
Coverage Ratios
9/13/2010 High Value Advances 40
 Dynamics of Foreign Exchange
• Foreign Trade Policy in India : 2009-14
• Foreign Exchange Rates : Direct / Indirect; (TT /
BC / TC /Currency) Buying/Selling; Spot/Forward
• Pre-Shipment and Post-Shipment Credit
• Meaning and Types of Letter of Credit
• Common Documents used in International Trade
• EEFC., Exchange Earners Foreign Currency a/cs
• External Commercial Borrowing (ECB)

9/13/2010 High Value Advances 41

 Various Types of LCs
1. Inland and Foreign Letters of Credit
2. Demand and Usance Letter of Credit
3. Confirmed and Unconfirmed LC
4. Revocable and Irrevocable LC
5. Revolving LC
6. Red-Clause and Green Clause LC
7. Back-to-Back LC
8. Transferable and Non-Transferable LC

9/13/2010 High Value Advances 42

 Common Documents under L/C
1. Commercial Invoice 8. Bill of Lading
2. Consular Invoice 9. Airway Bill
3. Packing Note / List 10. Post Parcel
4. Certificate of Origin 11. Railway/Lorry Receipt
5. Insurance Certificate 12. Bill of Entry
6. Bills of Exchange or 13. Exchange Regulation
Drafts (DA or DP basis) Forms for Exports – GR.
in 2 or 3 sets Or PP or VP/COD or
7. Drawing arrangements SOFTEX Form
14. Customs Clearance….
9/13/2010 High Value Advances 43
LETTER OF CREDIT
Definition
In simple terms, a letter of credit is an undertaking by a bank to make a payment to
a named beneficiary within a specified time, against the presentation of documents
which comply strictly with the terms of the letter of credit. The following diagram
shows those involved in a Letter of Credit transaction:

Advising/
Issuing Bank
Confirming Bank

Importer Exporter
(Applicant) Underlying (Beneficiary)
contract
Cont….
 SWIFT www.swift.com
• Society for Worldwide Inter-bank Financial Telecommunication
• HQ La Hulpe, Brussels, Belgium
• Provides reliable, fast tele-communication facilities for
exchange of financial messages all over the world between
Banks and FIs
• As non-profit making co-operative society in 1973 by 239 banks
in 15 countries
• Hubs in Brussels, New York and Netherlands
• Rules in 1975; first message in 1977
• >7,000 members in 200 countries now
• Handles over 7 million messages every day
• India – a member since 1991
• 88 Indian banks are members as on date

12/07/21 Technology in Indian Banking 2010 45

 SWIFT contd...
• Any Bank / FI can become a member
• Allots an address called Bank Identi-fication
Code (BIC) of 8 characters
• Enables members to send secure and reliable
messages – authenticated...
• Correspondent bank arrangements...
• Advantages: 24 hours service, system based –
fraud-free – faster – accurate – confidential –
funds/LCs/Guarantees
12/07/21 Technology in Indian Banking 2010 46
 Documentation
• Meaning & Importance
• Evidence
• Steps involved in documentation
• Procedure for execution of documents
• Attestation / Registration of Documents
• Time Barred / Renewal of Documents
• Documents normally obtained from borrowers
• Types of Charges / Hypothecation/ Pledge/ Lien/
Assignment and / Different Types of Mortgages
9/13/2010 High Value Advances 47
 Monitoring and Follow-up
• Meaning
• Importance of Monitoring
• Pre & Post-Disbursement Care
• Off-Site and On-Site Monitoring
• QIS Returns
• Unit Inspection / Insurance of Assets
• Early Warning Signals
• Unfair Practices normally followed by borrowers

9/13/2010 High Value Advances 48

Prudential Norms on Capital Adequacy
and Credit Risk Management
• Narasimham Committee Recommendations
• Basel I, II and now III norms
• Approaches under Basel II
• Tier I, II and III Capital
• Meaning of Risk Weighted Assets
• Mode of Computing the Capital Adequacy
Ratio of a Bank
• Various Risk faced by a Bank

9/13/2010 High Value Advances 49

 Recovery Management
• Legal and Non-Legal Methods of Recovery
• Debt Recovery Tribunals (DRTs)
• Compromise / One Time Settlements
• Corporate Debt Restructuring (CDR)
• Asset Securitisation and Asset Reconstruction
• SARFAESI Act, Provisions applicable to Banks
• Notices Issued to Borrowers under the Act

9/13/2010 High Value Advances 50

 Microfinance
• Financial Problems faced by rural people in India
• Meaning of Microfinance
• Origin and Growth of Micro Finance in India and
abroad
• Self Help Groups (SHGs) and their formation
• Role of NABARD in Micro Finance
• Assessment of Micro Finance Proposal
• Grading of MFIs and NGOs

9/13/2010 High Value Advances 51

 Credit Rating, Credit Scoring & Credit
Information
• Credit Scoring Mechanism of Syndicate Bank?

9/13/2010 High Value Advances 52

 Credit Rating Agencies in India
• Rating and Methodology
• Regulatory frame : SEBI
• CRISIL
• ICRA
• CARE
• Fitch (formerly Duffs & Phelps)
• ONICRA
• SMERA
• Brickwork Ratings
 www.brickworkratings.com

9/13/2010 High Value Advances 54

 1 2 3 4 5
Initial Introductory meet Supply of data by Rating Exercise by Analysis of new facts and
contact by of CRA & Issuer issuer analysts’ team enlisting new unresolved
issuer questions

1 2 3 4

Analysis of new Locating Credit watch Detailed analysis

data on possibility of Notification to meeting with issuer
company rating issuer

6 7 8 9
Meeting with Preparation of Rating committee Notification of
issuer resolving rating profile discussion & vote rating decision to
questions or for rating to determine issuer
site visit by committee rating
analyst

Issuer appeals No Formal Rating

against rating notification to surveillance
issuer system

Yes
Additional facts
are presented
to rating
committee for
decision
 C I B I L : Background

• October 1999 : Working Group constituted by

RBI recommends

• Imperative Need for C I Bureau

• To be in the private sector
• To be of world class

12/07/21 Credit Information Bureau 56

 Membership of CIBIL

• Banks : Public, Private, Foreign etc

• All Financial Institutions
• Non-Banking Financial Companies
• Housing Finance Companies
• Credit Card Companies

• Members will also be Customers !

12/07/21 Credit Information Bureau 57

 C I B (India) Ltd.
• March 2000 : MOU signed by SBI, HDFC, Trans
Union International Inc., and Dun & Bradstreet
Information Services P Ltd.
• January 2001 : Shareholders Agreement signed
to establish
• SBI : HDFC : T U : D & B
• 40% : 40 % : 10 % : 10 %
• Authorised Cap Rs 50 cr; Issued Rs 25 cr

12/07/21 Credit Information Bureau 58

 THANKS

9/13/2010 High Value Advances 59

 Comprehensive Case Study

9/13/2010 High Value Advances 60

 Abridged B/S of MMC Ltd.
(as on 31st March, 2xx0) Rs in Lakhs
Liabilities Amount Assets Amount

Capital 900 Goodwill 200

Reserves 50 Land and Building 200

Profit and Loss a/c 90 Plant and Machinery 400

Term Loan 150 Furniture and Fixtures 200

Bills Payable 40 Stocks 400

Deposits – Short Term 125 Trade Debtors 300

Trade Creditors 250 Cash at Bank 15

Bank Borrowing 110

Total 1715 Total 1715

9/13/2010 High Value Advances 61
 B/S of MMC Ltd…2
• Other Information:
– Projected Sales for next year – Rs. 1,200 lakhs
– Term Loan Instalment for next year – Rs. 15 lakhs
• Required:
1.Regroup the B/S as per Banker’s requirement
2.Calculate Current Ratio, Quick Ratio, Long Term
Debt Equity Ratio and TOL / TNW
3.What points you would take into account while
preparing the proposal recommending the limits
requested?
9/13/2010 High Value Advances 62
 B/S of MMC Ltd…3
4. Work out the Working Capital Requirement of
the Company under MPBF (Method 2) and
Projected Turnover Methods.
5. What are the terms and conditions you would
prescribe when the request is favourably
considered?
6. What are the securities you insist and how they
will be taken as security for the bank’s facilities?
Mr M, one of the Directors has agreed to offer
his residence as a security for the proposal.

9/13/2010 High Value Advances 63

 B/S of MMC Ltd…4
7. List out the important documents to be obtained
and procedure for creation of the bank’s interests
on the securities.
8. After two months of disbursement, you visit the
unit. What points do you look for before, during
and after the visit?
9. After a couple of years, you find that the account is
always overdrawn, the borrower is not able to
service the interests, the cheques are bouncing,
Stock Statements not being submitted, despite
being repeatedly followed up. How would you react
to the situation?

9/13/2010 High Value Advances 64

 B/S of MMC Ltd…5
10. The bank is forced to classify the a/c as NPA. The
particulars of the account are:-
a. Sanctioned Limit Rs. 2 cr
b. Balance Outstanding Rs. 2.20 cr
c. Interest debited / not recovered Rs. 0.10 cr
d. Value of stocks Rs. 1.00 cr
e. Value of Residential Building Rs. 0.50 cr
Find out the provisioning required during the
satisfactory conduct of the a/c; in the year following
the a/c becoming NPA (Assuming that there is no
recovery after declaring it as a NPA)
9/13/2010 High Value Advances 65
 B/S of MMC Ltd…6
11. If a dialogue with the borrower and its
directors / key personnel fails, what measures
should the bank adopt to recover its dues?

9/13/2010 High Value Advances 66

 Any Questions Please?

9/13/2010 High Value Advances 67