NUMBERTREE

ADVISORS
TRAINING MANUAL
Credit Process At NumberTree
Checklist Before Client
Meeting
Rating scale for Long-Term Instruments
 DUE DILIGENCE
•Due diligence is an investigation or audit of a potential investment or
product to confirm all facts, such as reviewing all financial records, plus
anything else deemed material. It refers to the care a reasonable person
should take before entering into an agreement or a
financial transaction with another party.
•Due diligence can also refer to the investigation a seller does of a buyer;
items that may be considered are whether the buyer has adequate
resources to complete the purchase, as well as other elements that would
affect the acquired entity or the seller after the sale has been completed.

•Below are detailed steps for individual investors undertaking due

diligence:
Step 1: Analyze the Capitalization (Total Value) of the Company
Step 2: Revenue, Profit, Margin Trends & Balance Sheet Exam
Step 3: Competitors and Industries
Step 4: Valuation Multiples
Step 5: Management and Share Ownership
Step 6: Research on Fraud Cases, Existing Charges, Default cases if any.
 EXECUTIVE SUMMARY

•Executive Summary is SNAPSHOT of the proposal starting from Date of

Incorporation till the latest Shareholding pattern.
•Highlights of Executive Summary are:
 Name of Company with Location
 Date of Incorporation
 Line of activity
 Credit rating
 Brief Financials
 Existing Banking Limits
 Present proposal along with Use of funds and collateral security details
 Management Details with Shareholding Pattern
 CMA
•CMA data is Credit Monitoring Arrangement data. It is the report to be presented to bank to show
your past financial history, current financial position and future financial planning.
•It covers following statements:
 Details of existing and proposed fund limit: In this report, details about your current
financial condition, borrowed fund and proposed fund are covered. If the business is new,
proposed data is required to be given.
 Operating statement: You are required to show past 3 years and future 3 years
( Proposed) operating statements. There may be some changes as per loan needed and
business nature. The profit and loss account should be presented here.
 Analysis of balance sheet: Details about your balance sheets of past years are required to
show. It is also required to show proposed balance sheet data to show a picture of your
future business plan. Details about current assets, fixed assets, current and long-term
liabilities are presented in this statement.
 Comparative statements of current assets and liabilities: This statement describes the
viability of your working capital cycle.
 Calculation of MPBF: Calculation of maximum permissible bank finance. This statement
shows the capacity of the borrower to borrow money. It depends on two methods which
are dependent on working capital.
 Fund flow statements: This statement shows the fund flow statements for current and
future years. It shows the fund utilisation and sources of funds.The statement is
important because it highlights the utilization of fund. To make sure the bank that you are
using the fund for the purpose you have borrowed.
 Ratio analysis: This is also one of the long and important statements of CMA data. It
covers key ratios. Some ratios are the current ratio, MPBF, Net worth ratio, quick ratios,
turnover ratios, debt-equity ratios, DSCR etc.
 CREDIT FACILITIES PROVIDED BY BANKS

Credit Facility

Fund Based Credit Facility Non-Fund Based Credit Facility

A) Working Capital
a) Cash Credit A) Bank Guarantee
b) Bank overdraft B) Letter of Credit
c) Bill Discounting
B) Term Loan
 FUND BASED CREDIT FACILITY
A. WORKING CAPITAL

•Firms need cash to pay for all their day-to-day activities. The money
available to them to do this is known as Firm’s Working Capital.
•The main sources of working capital are current assets as these are the
short term assets that firm can used to generate cash. However, the firm
also has current liabilities & so these have to be taken account of when
working out how much working capital a firm has at its disposal.
•Apart from financing for investing in fixed assets, every business also
requires funds on a continual basis for carrying on day to day operations.
These include amount expenses incurred for purchase of raw materials,
manufacturing, selling & administration until such goods are sold.
 CASH CREDIT

•This method runs like a current account except that the money that
can be withdrawn from this account is not restricted to the amount
deposited in the account.
•Instead, the account holder is permitted to withdraw a certain sum
called ‘Limit Credit Facility’ in excess of the amount deposited into the
account.
•Cash credits are payable on demand. These are, therefore counter part
of demand deposits of the bank.
•It is the facility where the borrower can borrow the money mainly for
working capital needs, up to a certain specified limit.
•It is sanctioned for a period of one year & can be further renewed for
the satisfactory operations. This facility is given against primary and
collateral securities.
 BANK OVERDRAFT

•The word overdraft means the act of overdrawing from a bank account.
In other words, the account holder withdraws more money than a bank
account than has been deposited in it.
•An Overdraft occurs when withdrawals from bank account exceeded the
available balance which gives the account negative balance – a person
can be said to be ‘overdrawn’.
•If there is prior agreement with the account provider for an overdraft
protection plan & the amount overdrawn is within this authorized
overdraft then interest is normally charged at the agreed rate. If the
balance exceeds the agreed terms then fees may be charged & higher
interest rate might apply.
•Bank can design various products under overdraft such as overdraft
against:
 Fixed deposits
 Securities
 RBI Bonds
 BILL DISCOUNTING

•Bill Discounting is a major activity with some of the smaller banks.

•Under this particular type of lending, Bank takes the bill drawn by
borrower on his customer & pays him or her immediately
deducting some amount as discount/commission.
•The bank then presents the bill to the borrower’s customer on the
due date of bill & collects the total amount. If the bill is delayed,
the borrower or his customer pays the bank a pre-determined
interest depending upon the terms of transaction.
 B. TERM LOAN

•Banks lend the money in this mode when the repayment is sought
to be made in fixed, pre-determined instalments.
•This type of loan is normally given to the borrowers for acquiring
long term assets i.e. assets which will benefit borrowers over a long
period (exceeding at least one year). Purchases of plant &
machinery, constructing building for factory, setting up new
projects, Financing for purchase of automobiles, consumer durables
fall in this category.
•The loan requires collateral and a rigorous approval process to
reduce the risk of repayment.
•A term loan is appropriate for an established small business with
sound financial statements and a substantial down payment to
minimize payment amounts and total loan cost.
 NON-FUND BASED CREDIT FACILITY
BANK GUARANTEE

•A contract of guarantee can be defined as a contract to perform the

promise or discharge the liability of third person in case of his default.
• The purpose of Bank Guarantee is to serve advance payment, security
deposits and performance guarantee to its clients.
•It is a guarantee from the bank to the debtor for the payment against
his debts. There are three principal parties involved in these as under:
 Principal Debtor: The person who has to perform or discharge
the liability & for whose default the guarantee is given.
 Principal Creditor: The person to whom the guarantee is given
for due fulfillment of contract by principal debtor.
 Guarantor or Surety: The person who gives the guarantee.
 LETTER OF CREDIT

•Letter Of Credit is a method of settlement of payment of a trade

transaction & it is widely used to finance the purchase of machinery &
raw material etc.
•It contains a written undertaking given by the bank on behalf of
purchaser to the seller to make payment of a stated amount on
presentation of stipulated documents & all the terms incorporated
therein. It serves as an assurance for both the buyer and the seller.
•The buyer here is the Applicant and the seller is the beneficiary. The
buyer’s bank is the issuing bank in the country of import and the
seller’s bank is the advising bank in the country of export.
•The buyer informs the issuing bank to issue a LC to the seller. The
advising bank then makes the necessary payment against presentation
of required documents of the transaction within the given time frame.
•The payment is made only after a wise scrutiny of the relevant
documents. Note that scrutiny is done of documents and not the
actual goods. Thus LC is an undertaking given by the issuing bank to
seller and is issued on behalf of the buyer.
 RATE CHART

Facility Rates

Cash Credit 9.0 – 12.00%

Letter of Credit 1.00%- 2.00

Bank Guarantee 1.00%- 2.00

*Subject to Internal Bank Rating

 OUR SERVICES
• Term loans-Project Finance • Bridge Finance
• LC and BG limits • Equipment Finance
• ECB- external Commercial • Acquisition finance
Borrowings ( term loan in • Unsecured Loan
Foreign Currency) • Real Estate Finance
• Cash Credit/Over Draft • FDI in real Estate
• Buyers Credit • LC Bill Discounting
• Securitisation • Inter Corporate Deposit
• Structured finance • Secularization of rentals
• Factoring • Import Export Finance