important factors that are considered in credit appraisal of axis bank are
TRANSCRIPT
Important factors that are considered in credit appraisal in Bank are:
1. Background of the company: Business of the company, key milestones achieved since
incorporation, Business Segments and Product Profile, Capacities and Production facilities,
Technical Collaborations, Marketing , Group companies.
2. Promoters & top management – (a) have the promoters/senior executives ever
defaulted in the past either in this company or in any of the group companies and the reasons for
the same b) market reputation c) non-compliance of any regulatory guidelines, Management
achievements and skills (project management skills/ market share/ shareholder value/ strong
marketing and production skills/operational efficiencies / decision making skills/ challenges
faced and their ability to overcome them etc.). Key man risk and succession plan. References,
capacity, address, educational qualification, experience in the field, technical expertise, network
so that the real worth of the business promoters can be assessed. In case of partnership firm, the
study of the above mentioned factors of all the partners are studied.
3. Industry analysis: industry related Outlook (demand/supply/margins), Global Scenario,
Competitiveness of Indian Industry (areas of strength and weakness to be identified/ growth
segments/ export potential/import threats- tariff / regulatory protections if any) are analyzed.
4. Business module: Please highlight the major strengths and weaknesses visa-a-vie
competitors, sources of purchases, raw materials & spares, credit period, purchase orders that the
business receives, time required for preparing raw material, transit time, payment terms,
conversion of the raw materials time, raising of the invoices for the output, stake holders of the
business, standard credit turn over (usually 90 days) , vendor analysis is done under the head of
the business module as value chain analysis of the business helps in understanding the business
better.
(Specific aspects to be covered may include (only relevant ones, not each one) -
Technology/R&D/Distribution/Market segmentation/Location/Outsourcing/Access to low cost
inputs/Integration in value chain/Business model which may be difficult for competitors to
replicate).
5. Production process: The production details of the business venture needs to be analyzed
in terms of the installed capacity, the conversion time of the inputs to output, utilized capacity &
the number of shifts that are carried in the organization.
6. Product profile: the product produced, its potentiality, the target market, life cycle of the
product, usage cycle, demand, competitor’s product, quality, product prices, substitutes are also
important factors of the credit appraisal determination.
7. Financial & operational analysis: the financial analysis of the project is the factor on
which the viability of the project can be traced. The factors of the financial analysis are sales,
sales trend for past 5 years, profitability aspects which include profit before depreciation interest
& tax, profit before tax, profit after tax, operating margins, cash accrual, liquidity ratio, gearing
ratio, leverage ratio, credit holding period, cash flow & fund flow of the firm.
(Rs. crores)
(YEAR 1) (YEAR 2)Last
Year
Last
Year
(Current
Year)
(Next
Year)
Audited Audited Estimates Audited Estimates Projections
Net Sales
Operating Profit
Other Income
PBDIT
Depreciation
Interest
PBT
PAT
Cash Accruals
Paid up Capital
Tangible Net worth
(TNW)
TTL
TOL
Net Sales Growth
(in %)
Operating Profit
margin (in %)
PBDIT Margin (in
%)
PAT Margin (in %)
ROCE (in %)
TOL / TNW
TTL / TNW
Current Ratio
Current Ratio w/o
TL Inst.
Interest Coverage
DSCR
In case of renewal of working capital loans the estimates made for the year at the time of the last
assessment are to be given in brackets.
Cash Flow Analysis:
(Cash flow statements would be annexed to the balance sheets in case of those companies/firms,
which have a turnover of more than Rs.50.00 crore or borrowings in excess of Rs.10.00 crore
during a given accounting period (As-3))
Generation of cash from all the three activities is given as per the following table with brief
comments on the ratios suggested as per Circular No.: Credit/13/2008-09 dated 12 th December
2008.
(Rs. in crores)
Audited
Year before last
Audited
Last year
Estimates
Current year
Opening cash & cash equivalents
Net operating cash flow after working
capital changes
Cash flow from investing activities
Cash flow from financing activities
Surplus/Deficit
Closing cash & cash equivalents
Funds Flow Analysis:
Funds Flow Analysis reveals the effect of change in the financial position between two balance
sheet dates in the NWC of the Company/Firm. As WC lenders, Bank would like to know
whether the funds provided by it have been put to proper uses, whether the NWC of the
Company/Firm is increasing or not, if increasing, what are the components that have funded the
increase. For this purpose, Funds Flows Analysis is carried out by examining the sources and
uses of funds and brief comments on cash accruals vis-à-vis estimates, repayment of term loans,
infusion of equity/quasi equity, investment in fixed assets, payment of dividend, retention of
profits be furnished.
(Rs. in crores)
Audited
year before
last
Estimated
for last
year
Audited
for last
year
Estimates
for
current
year
Projection for
next year
Long Term sources
Long Term uses
Surplus/Deficit
Short term sources
Short term uses
Surplus/Deficit
7. Position of Existing Accounts:
(Rs. crores)
FacilityExisting
Limit
Drawing
PowerOutstanding Irregularity
Fund Based WC
Cash Credit
Demand Loan
Export Packing Credit
Post Shipment Credit
Others
Total –A
Non Fund Based WC
Letter of Credit
Bank Guarantee
Others
Total – B
Total WC – C (A+B)
Term Loan
DPG
LC for Capital Goods
Total – D
Grand Total (C+D)
(In case of irregularity, reasons thereof and likely time by which it would be adjusted to be
stated).
(In case of Term loan the drawing power would be the operative limit i.e. the loan amount minus
the installments due. However, if there is undrawn portion, the same to be clearly shown)
Details of Proposal
Sanction/ Enhancement/ Renewal of working capital limits as follows
(Rs. crores)
Facility Existing LimitProposed
Increase/(Decrease)Total
Fund Based
Cash Credit *
Demand Loan
Export Packing
Credit
Post Shipment Credit
Total –FB
Non Fund Based
Letter of Credit
Bank Guarantee
Total – NFB
Total
Sanction of Term Loan / DPG / LC facilities
Amount of Loan/ nature of the loan / Capital goods LCs as sublimit under LCs if any to be
mentioned.
Proposed Project
Description of the project (also discuss the location, infrastructure, utilities, technical
arrangements, EPC Contractors, impact on environment, if appraisal of the projected has been
carried out by any agency/ institution, etc.)
Project Cost (Rs. crores)
Particulars Already Incurred To be Incurred Total
Land
Land Development
Building
Plant and Machinery – Imported
Plant and Machinery –
Indigenous
Misc. Fixed Assets
Technical Fees
Others (if any to be specified)
Contingencies
Sub Total – A
Interest During Constriction
(IDC)
Preliminary and Pre-operative
Expenses
Margin Money for Working
Capital
Sub Total ( B)
Total (A+B)
Means of Finance: (Rs. Crores)
Particulars
Already
brought/ tied
up
To be brought/
tied upTotal %
Promoters Equity
Public Issue
Subsidy
Internal Accruals
Sub Total (A)
Term Loans (Rupee)
Term Loans (Foreign
Currency)
DPG
Other Debt
Sub Total (B)
Total (A+B)
9. Security / Collateral details: the security that the customer is providing to the bank is
referred to as the collateral security. This collateral is very important factor of study because it
minimizes the risk in case of nonpayment of the loan that the assesses would be supposed to &
this collateral will help the banker to reduce the level of the NPA.
Primary:
Collateral:
EM charge on the following immovable properties:
(Rs. in crores)
Sl.
No.
Description of
the Property
Owner of the
Property
Valuation Date Valuation
Amount
Personal Guarantee: (Please give the net worth details)
(As of a recent date/31st March of the last financial year).
Corporate Guarantee: (Please give net worth of the firm/company)
(As of a recent date/31st March of the last financial year).
Security Coverage Ratio:
Total Exposure Value of the Collaterals Collateral Security
(%)
Collateral Security (Value to be mentioned. In case of corporate guarantee brief profile and
financials of the company extending the guarantee and the aggregate guarantees executed by the
entity on behalf of associate concerns to be given in annexure. In case of personal guarantees
net-worth to be obtained)
Time being granted for security creation.
Disbursement
To whom the disbursements are to be made, are multiple disbursements allowed, last date for
disbursements if any, supporting documents to be submitted for disbursement of funds.
Other Proposals (if any)
Changes if any to Existing Terms / Standard Terms / Deviations from Credit Policy
Changes other than those related to pricing are to be discussed
10. Risk Analysis
Risk Factors Risk Mitigates
11. Assessment of limits: the assessment of the limits of a particular project is done. There are
two types of assessing limits they are fund based limit & non fund based limits. The assessment
is done be following
12. Collateral details: the security that the customer is providing to the bank is referred to as the
collateral security. This collateral is very important factor of study because it minimizes the risk
in case of nonpayment of the loan that the assesses would be supposed to & this collateral will
help the banker to reduce the level of the NPA.
13. Credit rating & pricing: the ratings to the business proposal submitted or new venture
project details are studied, analyzed & ratings are given on the basis of the financial, business,
industry, management & conduct parameter so that the credit that can be given to a proposal can
be assessed & sanctioned.
13. Conduct and Value of Account
Conduct
Security creation/ timely payment of dues/conduct of the account/utilisation of limits
(reasons for low utilisation is any)
Audit comments
RBI audit/Internal audit/Statutory audit comments and responses to be given
Value of account
(In case we have a strong relationship with the other companies in the group the values of
connection to be mentioned)
14. SWOT Analysis: the situational analysis which includes in-depth study of the strengths,
weakness, opportunities & threats of the business is done & conclusions are made.
15. Prudential Exposure Norms (Rs. Crores)
Max.
Permissible
Exposure
Existing
Exposure
Proposed
Exposure
Total
Exposure
RBI InternalFund
Based
Non-
Fund
Based
Fund
Based
Non-
Fund
Based
Company
Group
Company 1
Company 2
Total
Exposure
(If internal norms are being exceeded, justification for the same and plans if any, to reduce
exposure to be given).
16. RBI Defaulters List, RBI Willful Defaulters List/Ecgc Caution List:
Particulars Date Position
RBI Defaulters list
ECGC Specific Approval List
17. CIBIL Defaulters List:
Credit reports of Credit Information Bureau (India) Ltd (CIBIL) should be made use of without
fail for new clients and in case of existing clients at the time of annual review/renewal of limits.
Copy of CIBIL Credit Report to be enclosed to the proposal.
18. Value of the account
(In case of Review/renewals) (Delete whatever not applicable)
(Rs. in crores/lacks)
Facility
01.04.XXX
to
31.03.XXX
For current
periodRemarks
Cash Credits:
Debit Summations in the account.
Credit Summations in the account.
Maximum Balance
Minimum Balance
Average Balance
Interest earned in the account during
the period of review.
Any cheque returns during period of
review.
Term Loans:
Installments and interests paid in time.
Interest earned on term Loan during
the period of review.
Export Packing Credits:
Interest earned on EPC.
Whether liquidation of PC’s are on
time.
LC:
Number of LCs opened.
Amount of LCs opened.
Number of LCs devolved.
Amount of LCs devolved.
Commission earned.
BG:
Number of BGs issued.
Amount of BGs issued.
Number of BGs invoked.
Amount of BGs invoked.
Commission earned.
FBILL/Inland Bills:
Number of Bills Discounted.
Amount of Bills Discounted.
Number of Bills Dishonored.
Amount of Bills Dishonored.
Number of Bills Overdue.
Amount of Bills Overdue.
Interest earned on the bills.
Whether entire export sales is routed through us.Other checks:
Whether stock statements submitted
regularly.
Number of occasion’s excess drawings
allowed.
Whether excess drawings regularized
within stipulated time.
Whether insurance is adequate and
current.
Whether security documents are
current and in order.
Availability of Search report ROC -
Verification of charges
Compliance of Terms & Conditions
stipulated during last sanction –
Pending Terms & Compliance.
19. Other Observations (if any)
(Observations if any, from Internal/credit audit, RBI Inspection etc. & reply thereto)
20. Recommendations
Basis of recommendation to be given. Terms and conditions as per appendix.
We certify that RBI instructions/Central Office instructions including instructions on
documentation/instructions of other regulatory authorities/local laws etc have /will be complied
with.
21. Terms & conditions:
All terms & conditions as per Circular No. Credit/21/2006-07 dated 17.06.2006 to be
complied.
All terms & conditions as per Circular No. Credit/07/2008-09 dated 22.09.2008 to be
complied.