CCP604 (B)

DEPARTMENT OFTECHNICALEDUCATION
ANDHRA PRADESH
Name :Sreenivasa Rao B.
Designation :Lecturer in CCP
Branch :Commercial and Computer Practice
Institute :S.U.V.R&s.R GPW, Ethamukkala
Semester :VI SEMESTER
Subject name :Banking II
Subject code :CCP 604 (B)
Major topic :Loans and Advances – Short Term
& Long Term
Duration :50 minutes
Sub topic :Procedure for Appraisal of a Loan.
CCP604(B).13 1
Teaching aids :PPT
Objectives
On completion of this period you would be

able to
 Explain the Procedure for Credit Appraisal.
CCP604(B).13 2
Recap
 Meaning of Credit Appraisal.
 Importance of Credit Appraisal.
 Credit Information.
CCP604(B).13 3
Credit Appraisal by Commercial
Banks
 Generally, commercial banks cannot finance on a

long term basis to industries as most of their funds
are short term in nature.
 Term loans are not only huge but they are given
for a longer period and there are greater risk
involved.
CCP604(B).13 4
Credit Appraisal by Commercial Banks
 But, the earnings of the banker should be more to

compensate the loss.
 The lending institutions will have to find that the

income received from the utilizations of these loans
by the borrower firm is sufficiently large that they are
able to repay the loan.
CCP604(B).13 5
Procedure for credit appraisal
 Examination of Business plan/Project:
An appraisal made by a banker on the viability

of the project from the point of repayment is
known as Project Appraisal.
CCP604(B).13 6
Procedure for credit appraisal…
There are four major steps which have to be studied in

project appraisal to a ascertain its feasibility . They
are
1. Technical feasibility.
2. Economic feasibility.
3. Management feasibility.
4. Financial feasibility.
CCP604(B).13 7
2) Scrutiny of cash –flow statement:
 Examination of month by month the cash inflows

and outflows under major heads.
 The cash flow statement is in the nature of a

cash budget.
CCP604(B).13 8
 The cash flow estimate helps the banker to fix

up a well timed repayment scheduled as per the
cash accruals shown in the statement.
 The study of cash flow statement involves the
calculation of debt service coverage ratio.
 It helps to decide as to when the repayment
should begin, its quantum, the repayment
period etc.,
CCP604(B).13 9
1) Study of Fund flow statement:

 Fund flow statement is a technical device desired to
highlight the changes in the financial position of a
business enterprise between opening and closing
balance sheet dates.
 It reveals how the working capital funds have become
available and how they have been applied in the
business.
CCP604(B).13 10
 This statement highlights the relationship

between funds provided by operations and net
working capital requirements.
 The fund flow analysis is very useful to study

the liquidity position of a concern.
CCP604(B).13 11
4) Application of Ratio Technique

Ratio technique is used for measuring the past
performance of a concern and for projecting its future
trend.
 A ratio is a simple expression of one figure in
comparison with another figure.
 Any improvement or deterioration in the financial
condition and performance of a company can be
ascertained through ratio analysis.
 For this, financial statements and income statements
are absolutely essential. CCP604(B).13 12
5) Inter – firm comparison
 Before taking any credit decision, the banker make

it obligatory to compare the performance of the
concern with similar units in the same industry.
 Sometimes, they used to compare with the
standards already established so that they may not
be deceived by fraudulent figures given by the
concern.
 It acts as a counter check to access the concern’s
efficiency in its various operations.
CCP604(B).13 13
6) Analysis of managerial competence
 The appraisal of managerial competence

becomes a must in addition to the appraisal of
technical, economic and financial feasibilities .
 The repayment prospects of a loan depend upon

the competence and integrity of the management.
CCP604(B).13 14
Summary
 The financial soundness of concern is

ascertained through various tools and finally
credit decisions are taken.
 Just as a doctor finds out the physical
condition of a patient through various tools like
scan, X-rays etc., the banker finds out the
financial conditions of an enterprise through
various tools like ratio analysis, fund flow
statement analysis, cash flow statement
analysis etc., and finally prescribes the credit
limit.
CCP604(B).13 15
Quiz
1. The following one helps a banker to fix the

repayment schedule:
a) Balance sheet
b) Fund flow statement
c) Cash flow statement
d) Income statement
CCP604(B).13 16
Quiz
1) The aspects of credit appraisal include
a) Technical feasibility analysis

b) Economic feasibility analysis
c) Financial feasibility analysis
d) All the above
CCP604(B).13 17
Frequently Asked Questions
1. What is credit appraisal ?
3. Outline the procedure for credit appraisal and

bring out its important ?
CCP604(B).13 18

CCP604 (B)

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CCP604 (B)

Uploaded by

Copyright:

Available Formats

DEPARTMENT OFTECHNICALEDUCATION

On completion of this period you would be

 Explain the Procedure for Credit Appraisal.

 Meaning of Credit Appraisal.

 Importance of Credit Appraisal.

 Generally, commercial banks cannot finance on a

 But, the earnings of the banker should be more to

 The lending institutions will have to find that the

 Examination of Business plan/Project:

An appraisal made by a banker on the viability

There are four major steps which have to be studied in

2) Scrutiny of cash –flow statement:

 Examination of month by month the cash inflows

 The cash flow statement is in the nature of a

 The cash flow estimate helps the banker to fix

1) Study of Fund flow statement:

 This statement highlights the relationship

 The fund flow analysis is very useful to study

4) Application of Ratio Technique

 Before taking any credit decision, the banker make

 The appraisal of managerial competence

 The repayment prospects of a loan depend upon

 The financial soundness of concern is

1. The following one helps a banker to fix the

b) Fund flow statement

c) Cash flow statement

1) The aspects of credit appraisal include

a) Technical feasibility analysis

1. What is credit appraisal ?

3. Outline the procedure for credit appraisal and

You might also like