Вы находитесь на странице: 1из 18



The cardinal principle of good lending is that the amount lent, should be repaid along
with interest thereon within the stipulated time. In order to ensure the safety of the funds lent
and its prompt repayment, it is necessary that, the banker should follow-up the credit,
supervise and monitor it. The banker should therefore remain always watchful that, the funds
lent are properly utilized and that at no time he is exposed to the risk of contaminated
Following steps would ensure sustained repayment of advances.

1. Proper Documentation
The importance of documentation lies in the fact that if at any time, a filing of a suit
against the borrower becomes necessary; the documents obtained will form the basis on
which the decree would be passed by the court. In view of this, it is important that the
documents are properly executed, they are properly stamped as per the law in force, and the
blanks in the documents are duly filled in, and are duly authenticated by the borrower.
Besides, the documents should be checked to see that they are not barred by the law of
To keep the documents alive, it is necessary that either periodically letter of
acknowledge of debt, or balance confirmation or fresh documents are obtained.
The basic objective of the process of documentation is to formally write down the
contract with the borrower with all stipulations of sanction in a legally binding form
Documents establish the legal framework for the relationship of a bank with the borrowers.

Following are some of the guidelines for documentation:

(A) Board resolution accepting the Letter of intent issued to the company
(B) Draft loan agreement prepared in two parts to convey the following points:
i) Definitions Loan Agreement and General Conditions
ii) Amount and terms of Loan:
Interest, security, validity for drawal, repayment, conversion option with specific
clause in case of default or mismanagement, etc. may be specific.

iii) Security:
First Pari-passu charge on all movable and immovable assets, present and future
of the company, subject to prior charge in favour of the companys bankers for
working capital advances.
iv) Clause relating to appointment of nominee director(s).
v) Effective date of Agreement
Execution of loan agreement after Company accepts the Draft Loan Agreement Deed
of hypothecation etc.
Execution of necessary undertaking relating to Non disposal of share or overrun etc.

Following are some of the features of Loan Agreement / Documents:

- Stipulations in agreement are not to inhibit but to aid for successful implementation.
- Flexible approach to use discretion to invoke regulatory mechanism analysing
situations warranting intervention.
- Not to have suppression control but to create an efficient tool for bringing influence
on proper implementation/operation of projects in view of large stake.

2. Proper Disbursement Procedure :

The loan should be disbursed only after obtaining the necessary documents. It is
preferable to disburse the funds, keeping in view the end-use of the funds. In case of demands
or term loan facilities, direct payment can be made to the suppliers of machinery and
equipment. In case of accounts such as overdraft and cash credits should be scrutinized to
ascertain that the funds are utilized for the business purpose only. Cash withdrawals should
be discouraged.
Credit is a scarce resource and it is the moral obligation of every banker to see that the
funds are utilized for the purpose, for which they are borrowed. However, lending is a
difficult area and the circumstances under which a banker is required to lend are different
from each other. Credit management is a difficult area not only at the time of granting an
advance but also, at every stage of follow-up of the advance till its recovery in fully made.
It thus shows that one important area of follow-up of an advance is to ensure that the
funds lent are used for the exact purpose for which the loan is given. Borrower however, tend
to apply the funds to the most pressing items of expenditure with the result that, often bank
funds are sometimes used for the purpose other than the one for which they were made
available. Funds used in a business may either be short-term or long-term. Short term funds

are expected to be utilized only for building up current assets and long term funds for
acquisition of fixed assets.
The utilization of funds for purposes other than for which they are intended is diversion.
When the funds are utilized outside the business of the firm, it is known as diversification,
more particularly, the utilization of short-term funds for long-term purposes is called
diversion of funds.
Diversion of funds may take place due to variety of reasons. More important among
them are:
(i) Delay in getting long-term finance from the term lending institutions or commercial
(ii) Non-availability of long-term finance.
(iii) Lack of control by short-term financers (usually bankers) over the utilization of
short-term finance. There is an area where proper post sanction follow-up helps a
banker in detecting and preventing diversion of funds.
(iv) Bad financial management of the unit.
(v) Failure on the part of bankers to assess the short term financial requirements
properly and as a consequence, over financing of short-term needs, thus giving an
opportunity to the borrower to divert the excess funds for long-term use.
(vi) Tendency among the borrowers to accumulate fixed assets, such as assets giving a
feeling of security. This tendency may result in diverting short-term funds towards
acquisition of fixed assets sometimes unproductive assets.
Ways of Diversion
Diversion of funds usually happens through the following:
(i) Utilization of short-term funds such as bank finance for working capital is used for
acquiring fixed assets.
(ii) Investments or inter-corporate deposits with subsidiary and associates.
(iii) Withdrawals of cash from the account for purposes other than the business i.e.,
investments in chit funds etc.
(iv) Appointment of associates as sole-selling or purchasing agents at more than the
normal commission.
(v) Assignment of job work to associates on more favourable terms than to others and
(vi) Opening of accounts in other banks and routing the sale precedes through them.

Minimizing Diversion
The following steps would be useful to minimize the diversion of funds.
(i) Frequent analysis of financial statements, at least twice a year.
(ii) Careful scrutiny of items such as Loans and advances recoverable shown under
current assets to determine the profile of current assets.
(iii) Periodic scrutiny of cash credit accounts is necessary to ascertain as to whom the
payments are made and to enable a banker to detect diversion of funds immediately.
(iv) Prompt and effective post-sanction inspection to ensure the end use of funds.
When the end use of funds is ensured, the bank is to a great extent assured that, the
borrower is following financial discipline. A disciplined borrower is more likely to be regular
and prompt in repaying the dues to the bank and is amenable to the guidance given by his
banker. This would help in regular repayment of the advance.

Term Loan Disbursement

The next logical step after documentation is disbursement. Some of the points for
consideration in disbursement are:
- Disbursement is made according to the pre determined implementation schedule.
- Availability of funds should be such that right amount is available at the right time
and within estimated costs.
- Any delay in disbursement is to be avoided.
Following are the steps in the disbursement procedures after execution of documents
and receipts of disbursement request. While making disbursements following points are
taken into consideration:-
- Physical progress of implementation, arrangements made for procuring raw
materials, power, water, effluent treatment etc.
- Statement of expenditure incurred in the required formats certified by Chartered
- Statement of projected expenditure for the next quarter and the means of financing
- Compliance of certain terms and conditions like broad basing of Board converting
private limited company into public limited as well as constitution of Management
Committee, selling arrangement and other conditions stipulated to strengthen weak

After verifying these aspects; disbursement is made. It is always ensured that
quantum of disbursement is need based and in time. Mechanism of disbursements is a very
effective tool of monitoring progress of the project and to curtail slippage/overrun if any.

3. Importance of Inspection
Periodically the unit and the securities charged to the bank should be verified physically.
At the time of granting the advance, the banker stipulates various terms and conditions. The
banker should continue to keep a close watch that, these terms and conditions are duly
observed. Inspection of the unit and securities throw light and the banker can have a first
hand report on its comfort level.

4. Obtaining Various Statements

The banker requires a number of statements pertaining to the operation of the unit.
These statements should be regularly obtained and thoroughly scrutinized. The operating
budget, funds flow statement; stock statements are some of the important returns the
borrower is required to submit to the bank, periodically. The banker should obtain quarterly
balance sheet and profit and loss accounts. In addition, banks could also obtain projected
balance sheet and profit and loss accounts.

5. Continues Review :
Every borrowed account should be reviewed on an annual basis. At the time of granting
the advance, the borrower makes his lending decision based on certain assumptions. It is
necessary that those assumptions holds good throughout the continuance of the advances.
Annual review provides an opportunity to closely look into the borrowers condition in
general and its financial health in particular.

6. Close Watch on Market Information

The banker should closely keep in touch with the environments in which he operates.
Market reports are an important source to know as to what is happening in the industry and
trade. Also environmental data, trends in the industry, market research reports, etc. are
available from many sources. The banker should have resource to such information to know
the general business condition.

Passage Between Normal and Bad Accounts
It is important to note that any account do not become sticky and bad overnight. The
passage between normal and bad can be summarized in the following chart:

Passage between Normal and Bad Account (Characteristics)

(1) Normal Account
(i) Document complete
(ii) Generation of income from business is satisfactory
(iii) Repayment of advance is punctual
(iv) Turnover of inventory and assets is satisfactory
(v) Borrower is co-operative
(2) Sub-standard account
(i) Cheques drawn on accounts being frequently returned
(ii) Turnover of inventory and assets declined
(iii) Turnover in the account declining
(iv) Shortage of cash for salary payments
(v) Payment of interest and other bank charges delayed
(vi) Maintenance of margin becomes difficult for borrower
(vii) Statutory govt. obligations (tax etc.) not discharged
(viii) Sale of assets started abruptly
(3) Irregular Account
(i) Outstanding balance exceeds the drawing power
(ii) Document not renewed / extended
(iii) Period of repayment over but debt not paid
(iv) Generation of income not adequate
Liquidity of unit reduced
(4) Sticky Accounts
(i) Documents near to time bar
(ii) No generation of income
(iii) No operation in the account
(iv) Security becoming older and older
(v) Borrowers not co-operative
(5) Suit Filed Account
(i) Documents to be protected from law and limitation

(ii) Borrowers not co-operative
(iii) Ultimate resource for providing Banks charges
Sticky and bad advances are characterized by irregularity, default in payment and
mounting overdues. It is not that, every account becomes sticky and bad overnight. It
gradually develops the sickness.
A mere scrutiny of the ledger would show that there has been a significant decline in
the number of operations in such accounts more particularly in deposit accounts. This is
further ascertained by decline in balances in the deposit accounts maintained by the party in
his name or those in the name of his relatives and or members of the family. The account is
characterized by frequent return of cheques and failure/delay in retiring the bills drawn in the
account. In fact, the last two indicators are positive evidence of incipient sickness and gradual
loss of control over affairs of the business on the part of the entrepreneur.
The worsening conditions of the account is further manifested in delays in furnishing
statements, financial statements and other such statement required by the bank. Similarly, in
such a case, the turnover rate of the stock held by the bank as security turns out to be almost
negligible. It is here that the significance of checking the stock statements submitted by the
borrower lies.
The entrepreneur may continuously hide this aspect by submitting wrong statements,
once he realizes that the bank staff is not serious enough to verify the same.
Another indicator of a sticky and bad account is reflected in frequent requests by
proprietors for temporary drawing over and above the D.P. limit. This may be due to over
trading initially, but persistent over trading more often than not breeds and enhance sickness
to an extent which it may not be easy to redeem. In the case of term loan accounts, default in
repayment of installments is a positive indicator of the account tending to become sticky and
There are other external indication of sickness, a feeling of which should be enough to
cause concern on the financing banker. One such indicator is the availment of credit faculties
by the entrepreneurs with other banks without the knowledge of his banker. Reports of credit
enquiries and or legal proceedings against the borrower are also pointers towards this
phenomenon. These signals together or separately should open the eyes of the financing
banker to the bare fact that there is something black some where and that, he should make an
inquiry into the causes at the earliest.
It would be very much relevant here to make a mention of the causes of the accounts
getting into red. Initially, sometimes an out-of-order account may be opened and certain

facilities allowed. Subsequently, due to non-availability of certain equipment, tools, power
etc., on the one hand and due to increase in the prices of raw material, the unit may find it
difficult to start production.
Again, the funds of the unit may be locked-up, may be temporarily due to depression
in the market which may prevent the entrepreneur to pay regular wages to the labour,
resulting in the suspension of production and this imposing upon itself, though
Unconsciously, the vicious circle of no production, no sales, no bank refunds etc.
It is here that the skill of the banker lies in distinguishing genuine reasons for
irregularity, non-payment from non-genuine ones. If the banker feels that the non-payment is
willful and intentional, he has to expedite the follow-up leading to legal measures being taken
against the borrower. But if the bank takes a rigid stand and insists on compliance of the
terms as per sanction, there is a possibility that the borrower may avoid the banker and start
passing on business to some other bank.
This may aggravate the situation and worsen already existing situation. Under such a
situation, the banker has to use his discretion which is going to have far reaching
consequences for the borrower as well as the banker.
This brings to the form the problems of follow-up and other measures to be taken on
this issue. Looking to the problem in all its aspects, it can be said that firstly a study should
be made about the personal habits, credit worthiness and reputation of the borrower. Though
this is an essential prerequisite which should be done prior to the sanctioning of the loan
proposal, but a subsequent investigation may unravel many new things and even throw light
on bad practices and habits acquired by the borrowers subsequent to the loan proposal.
The moment, at which the banker observes any irregularity in the loan account, he
should pursue the matter immediately and should try to remove it by personal contact with
borrower, influencing him through guarantor. In case of default of installment or repayment
of cash credit, first contact the borrower personally, give him sometime, (not a longer time)
and then send an ordinary letter explaining the situation, even if no response is coming send a
notice by registered post called upon the borrower and guarantor to repay the arrear within a
specific period and threatening legal action.

Follow-up tools : for close monitoring of the unit there is a need to have the follow up
process to be carried out in a structured manner. Following are some of the tools.

(i) Progress Reports:
During the construction stage and after the unit goes into production and the reports are
obtained quarterly. The reports received during the construction period reveal progress
achieved towards the implementation of the project and the schedule of construction
estimated at the time of the appraisal of project. Delays as revealed by the reports are
expeditiously taken up with promoters to find out the reasons thereof and to initiate corrective
action. The reports submitted during the operation stage reveal important information like
production, sales, inventory, receivables, profitability order book position etc. Any
undesirable features revealed by a report e.g., low capacity utilisation, decline in sales,
accumulation of inventory, blocking up of funds in receivables, decrease in orders in hand
and adequate profits are taken up with the unit concerned, reasons ascertained and remedial
measures suggested. Every progress report should be thoroughly scrutinised and an office
note should be put up highlighting important issues.
(ii) Nominee Directors Reports:
The institution appoints nominees drawn from panel on the Board of the assisted units.
The nominees are expected to safeguard the interest of institutions and ensure financial and
operational discipline in the units by effective participation in the deliberations of the Board
meeting. The nominees also submit reports on the proceedings of the Board Meetings,
Attends Audit Sub-Committee Meetings and keep the institutions informed about the
important developments in the unit concerned.
(iii) Annual reports - Analysis of Balance Sheet Profit & Loss Account, Auditors
These are very important tools available to us which are used to assess the progress of
the unit as compared to the previous years. The Directors report accompanying the annual
report often provides valuable information regarding the working of the unit and projections
for the future.
(iv). Periodical Visits:
Institutional visit each assisted unit generally once a year. Visiting team usually
comprises officers from the lead institution and one representative each from the participating
institutions I banks. A quarterly follow-up visit program is chalked out in advance. The team
is expected to physically verify the progress achieved by the unit and check, at random the
correctness of the progress reports submitted by it. Besides, the team holds discussion with
the management about the problems if any, faced by the units, its general performance and
any special features. The findings of the team are communicated to the management of the

unit for comments and rectification. If the team points out irregularities of a serious nature
they are discussed at senior level to evolve a common approach for rectification thereof.
(v). Visits by the Senior Executives:
The senior officers of the institutions sometimes visit the associated units to maintain
close contact with the entrepreneurs and understand their problems.
(vi). Annual general meetings, Chairmans Statement:
The representatives of the financial institutions would attend the annual general
meetings of the assisted unit to obtain some idea of the thinking of the shareholders about the
performance of the unit and calibre of the management.
(vii). Discussion with the entrepreneurs:
To have a feed back about various aspects of implementation and operations of the
unit not only to take timely corrective action but also to serve as a guide for future appraisals.
Besides above tools of follow-up, institutions generally use the following tools to
achieve effective follow-up:-
i) Health of the industry /market reports.
ii) Feed back formal/informal from
- Competitors
- Consumers
- Employees /workers of unit
- Bankers
- Rating Agencies
- Government agencies
- Others (collaborators, sub-contractors, suppliers, consultants)
iii) Special audits - concurrent, stock, energy, management, social
iv) Special study/review of operations/inter firm comparison
v) Effective communication
The monitoring mechanism evolved by the institutions is all embracing, capable of
detecting the warning signals of incipient sickness. Even then, the institutions have generally
not been able to detect, sickness in the assisted units until it is fairly advanced. The main
reason for this appears to be a lack of communication between the borrower and the bank
particularly in regard to adverse developments in a unit.
Further, the business community at times tends to avoid disclosing vital information
to the institutions and banks in the initial stages and try to consolidate their personal wealth
before dropping the terribly sick unit in the laps of the banks/institutions. The institutions,

notwithstanding their sympathetic approach to the entrepreneur, and their problems, have not
been able to do much in resolving the impasse. Another reason for the institutions not being
advised about adverse developments could be the absence of proper management information
systems in the units so that the management themselves are not in a position to diagnose
incipient sickness on time. Whatever may be the reason, the fact remains that the progress
reports have seldom been submitted to the institutions in time. Often they contain
incomplete/incorrect information defeating the very purpose for which they are obtained.
When called for discussions, the entrepreneurs find out convenient excuser to put off the
meetings for long periods. The information required for undertaking inspection is generally
delayed and the irregularities pointed out by the term are not promptly attended to.
It is felt that while the existing monitoring mechanism has been adequate, to make it
effective its implementation would have to be more aggressive and purposeful. It is also felt
that for any monitoring system to be successful, there should be a proper rapport with the
entrepreneurs. It is observed that the general sympathetic approach, adopted by the
institutions towards the entrepreneurs and their difficulties has gradually started building up
mutual confidence and the entrepreneurs have started confiding in the institutions about their
problems at reasonably early stages. It the commercial banks could also build up similar
rapport the atmosphere of hesitancy and distrust could be avoided facilitating prevention and
eradication of industrial sickness.
(b) Early warning signals:
We now present some of the early warning signals which apart from the use of financial
ratios with high predictive value may be received which will have to be detected for suitable
action. These are:
a) Increase in fixed assets without corresponding long term funding
b) Difficulties experienced in realizing companys dues from dealers or customers;
c) Receipt of adverse comments on the working of the company from consumers or
d) Increase in payable accounts;
e) Increased litigation;
f) Intentionally delaying plant visit by official of the institutions and non-cooperation
with them once they are in the factory;
g) Irregular payment of institutional dues;
h) Increase in stocks of finished goods;
i) Failure to meet statutory and depositors liabilities;

j) Declining availability of funds as reflected in the cash flow statement.
k) Irregular submission of periodical reports by the assisted concerns.
l) Thoughtless expansion of operations;
m) Worsening or the debt-equity ratio
n) Operational losses
o) Lack of interest on the part of the management in the companys affairs;
p) Inability of the lead commercial bank to fully keep the institutions appraised of the
problems faced by the company.
The above list is quite comprehensive and points to various potential problem areas.
Once these signals are received the institutions can place the account under intensive care and
initiate suitable measures to bring the position under control.
Typical follow-up problems at various stages of project cycle and how to tackle them
The typical follow-up problems are faced at various stages such as planning stage,
construction stage (for overruns), start-up stage, and then in the operation stages. The reasons
could be due to management, technical, financial and external issues. Although the
complexity of the solution depends upon the problem the financial institution, company and
banks have to overcome them by various methods. Following are some of the typical follow-
up problems and remedial action.
A) Follow-up Problems - Management:
Management forms the internal core of the project and any weakness is bound to
show up in the ultimate result. Some of the typical management problems are:
- specialised entrepreneur has knowledge and interest in his own field
- inability to delegate work and share responsibility
- attempt to run modem enterprises as family business
- dissension in the promoters group
- proprietary and autocratic style of management
- too ambitious a promoter
- management inadequacies such as lack of co-ordination and commitment
- limited financial resources and lack of the financial discipline
- lack of expertise/no-concept of man management
- failure to create proper organisation climate
- change in the investment climate
- resistance to change
Some of the remedial measures could be

- careful management appraisal and proper selection of chief executive
- monitoring committee at the implementation stage
- appointment of business committee and nominee directors
- identify weak areas of management and strengthening them
- by appointment of new persons at various levels of management, proper delegation
and broad basing of the Board
- professional use of management techniques
- suitable training program - scientific system, of recruiting
B) Follow-up Financial Problems: (Time and Cost overrun)
Financial problems form an important sources of difficulty which a large number of
units face at various stages such as planning, construction (overruns), project cost. start-up
stage and working stage.
At the planning stage the promoters have to bear, part of preliminary and preoperative
expenses besides, his own contribution. Promoters with comparatively small means may have
difficulty in this regard.
At the construction stage the financial problems of loan disbursement etc., may rise due
to delay in completion of legal formalities, problem of raising requisite share capital,
promoters contribution and cancellation of public issue due to environmental factors.
However cost and time over run is the common problem. These problems are due to
internal/external factors. Internal factors are basically controllable by us whereas extemal
factors are uncontrollable.
Controllable factors are as follows
- cost underestimation
- change in project concept
- incompetent management
- over expenditure
- dishonest management
- delay in recruitment of the implementation staff
- failure to comply with institutional conditions
- inadequate contingency provision
Factors which are generally uncontrollable
- Delay in receipt of utilities
- escalation of prices of inputs
- delay in disbursement of assistance\

- delay in development of industrial area/infrastructure
- changes in Govt. policies
- foreign currency fluctuations
- unforeseen political developments
- delay in delivery of machineries
- change in market conditions delay in receipt of know-how
As a result of time the cost overrun
- increase in pre-operative expenses mainly interest during construction
- unviable operations/cash losses and inability to pay
- adverse impact in viability of the project
- sickness at birth
Normally there is tendency to use all contingencies as well as margin for working
capital to meet the overrun in the cost. However this is not the permanent solution. Even in
the .start-up stage which is the weakest stage of the project, the financial institutions will
have to provide necessary help. At that stage sometime requirement of working capital goes
up due to change in conditions and norms, which leads to financial difficulties. Financial
problems also arise during operations when the working of the unit become uneconomic so
that cash generation is either insufficient or in extreme cases it may start losing cash. If
additional finance is not available at this state it would again lead to greater difficulties for
the project.
Evidently no common solution can be offered to these problems. Each case has to be
examined on merits and tailor made solution has to be evolved which would meet needs of
the companys requirement best.
In most cases there will be need for additional funds which may not be possible to be
met by loans if the debt servicing capacity of the company does not permit. So they may raise
resources by some of the following methods:
- issue of debenture (fully or partly secured)
- issue of convertible debentures
- unsecured deposits from associates.
- conservation of cash resources
In extreme cases it may be necessary to ask the promoter to get a new partner who
would be prepared to put in additional money, such a solution would arise when the banks
stake in the company is already too large and it is not possible for it to consider any further
financial assistance. Although this may go against the social policy of the bank to create and

encourage new entrepreneurs in the rare situation this may have to be resorted to. Besides this
certain institutional safeguards which may be useful to avoid future financial difficulties of
unit are:
- Proper project appraisal
- Effective co-ordination between appraisal and follow-up wings, wherever
these are separate
- Well designed information system
- Appointment of nominee director immediately after sanction in respect of
important cases
- Use of project scheduling technique like PERT/CPM and their constant
- Closer co-ordination between term lending institution and banks
- Co-ordination between financial institutions and local industrial promotion
agencies and authorities
- Streamlining operations of the financial institutions to avoid any delays
C) Follow-up technical problems:
The technical problems faced by an industrial enterprise may be broadly grouped
under the following three phases
Phase I Problems relating to project conception and formulation
Phase II Problems faced during the construction and project implementation stage
Phase III Problems pertaining to their period when the project is in operation
There is however good degree of commonly of problems because of the overlapping
of the phases. Further not all the problems are technical in nature but are result of some other
non-technical factors.
Following are the problems relating to the first phase
- Locational factors such as nearness to the market, availability of raw materials and
other inputs like power, water, fuel, skilled manpower, infrastructural support, are very
important climatic conditions consistent with technical process. Flood history and
seismic zones if not chosen correctly will lead to various problems. Selection of process
technology adoption of appropriate technology to give desired quality and quantity.
- Size of the unit - under utilisation of plant capacity due to socio-economic
- product mix - incorrect decision to manufacture optimal product mix.
- collaboration tie ups - failure of proper assessment regarding transfer of technology.

- selection of plant and machinery, role of foreign technicians in plant infrastructure and
project commissioning is likely to affect the viability of project
- detailed project engineering - faulty preparation
- project office and site support operation
- inadequacies in staff and lack of proper placement

Typical problems which may arise during the second phase are as follows:
- civil construction - the problems relate to the use of sub standard material, loss of
materials, storage of works due to rains, strikes etc.
- machinery procurement - procurement and actual receipt at site may be delayed.
Improper scheduling and faulty equipments etc., are some of the problems in this area.
- plant installation - delay installation due to non arrival of foreign technicians and
other infrastructure facilities not being available
- power supply and trial runs - bad power supply position can cause many problems.
- procurement of raw materials - non continuous supply of raw materials and problems
of inventory management
- repairs and maintenance - negligence in proper up keeping of the plant
- power supply and voltage problems
- research and development, quality control - inadequate attention to quality control
- production organisation - non availability of properly staffed production organisation
- co-ordination - close harmony between production, finance, marketing and personnel
of the enterprise is very essential.
- information and data collection - inadequate data processing facility in high
technology industries would make the task of optimal production more difficult if not
possible. Efforts should however be made to add such machines on planned basis
keeping in view the overall growth of the concern.
These are some important points from institutional point of view for the remedial action used
for in depth data and planning of project implementation
- minute details of technical appraisal be looked into and should be followed up with
effective monitoring of production data and periodical discussions with production
- proper care should be taken to ensure that in foreign collaboration tie-up suitable
clauses about installation and production problems be enclosed.

- Nominee Directors should pay more attention to the technical problems of the unit for
taking suitable remedial action.
D) Follow-up Problems - Market Aspects
Market aspects of the project have to be viewed in conjunction with the financial
technical, and other operational aspects of the project. Some of the factors (external)
responsible for problems in market aspects are
- delay in implementation of the project may lead to increase in competition from
similar products and resulting into pricing changes
- promoter may loose whatever selling segments he might have tied up
- loss of monetary opportunities, increase in the cost of production and imbalance in
the economics of scale due to delay in implementations
- change in the import/export policy
- changes in the fiscal incentives or changes in reservation of items, policy etc.
- non-availability of raw materials and its shortage can lead to rise in prices and
market accordingly.
Some of the factors (internal) responsible for the market problems are as follows:
- incorrect selection of product such as lack of detailed knowledge about the product,
its profitability and market for product is not fully developed etc., resulting into
money/funds being spent on unplanned things and finally the account becomes
- Some broad suggestions for effective follow-up to overcome market difficulties
have often been discussed among the institutions some of them are
i) When the demand is declining the institution could take the matter up with bulk
purchaser like government department to provide necessary support.
ii) Temporary decline in demands can be overcome by granting timely reliefs in
payments of instalments and interest.
iii) Diversification /modemisation etc., if required to manufacture
technologically superior product to meet the market demand can be undertaken
Management and effective control of asset side of the balance sheet is extremely
important to maintain the profitability, EPS and market capitalization of bank.
Proper, scientific, professional, systematic and continuous monitoring and follow up
of the assisted units would ensure the development of healthy portfolio for the Bank. Early

symtoms of potential sickness in the assisted unit should be identified and appropriate actions
need to be initiated in order to arrest the possible degeneration of Banks assets. Many
problems relating to contaminated portfolio could be avoided if monitoring of the unit is done
in a structured manner. Some of the banks where aforesaid system is not in place due to lack
of manpower or any other constraint, they may also consider the outsource this function from
outside professional firms who should possess required skills and duly qualified as per
guidelines of Reserve Bank.

Dr. J P Joshipura
FCA, Ph.D., Director,
Som Lalit Institute of Management