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It gives me great pleasure to express my gratitude towards all the individuals who

have directly or indirectly helped me in completing this project. First of all, I am

extremely grateful to Mr.Dilip Dehadraya, General Manager, Credit-2, Cosmos Co-

operative Bank Ltd., Head Office, Pune for providing me summer project in Long Term

Financing by Bank. I would also like to express my sincere gratitude to Mr.Vinayak

Joshi, Manager, Credit-2, Cosmos Co-operative Bank Ltd., Head Office, Pune for his

invaluable guidance during the project period, which helps me in completing this project.

I wish to express my sincere thanks to our Director Dr. S. Kasande and my

project guide Dr. Sharad Joshi for providing me valuable guidance and inputs, which

help to complete this project in true sense.

I also extend my thanks to all the staff of Cosmos Co-operative Bank Ltd., Head

Office, Pune, for their support, which helped me a lot in completing this project.

This project report is a collective effort of all and I sincerely remember and

acknowledge all of them for their excellent help and assistance throughout the project.




1 Executive Summary…………………………… 1

2 Company Profile………………………………. 2

3 Objective of the Study………………………… 9

4 Research Methodology………………………... 10

5 Theoretical Background………………………. 11

6 Findings………………………………………... 29

7 Case Studies…………………………………… 32

8 Suggestions & Conclusion…………………….. 65

9 Limitations……………………………………... 67

10 Bibliography…………………………………… 68

Annexure……………………………………….. 69

A term loan is a loan from bank for a specific amount that has a specified

repayment schedule and the maturity period varies from one to ten years. The banker has

to take lot of care while financing term loans as these loans are usually of high amount

and if defaulted bankers have to bear heavy losses, therefore to avoid losses; appraisal of

term loan should be inbuilt method of assessment of risk element contained therein. The

appraisal of the term loan is divided in distinct parts so that the entire process is done in

the structured manner so that the interest of the lending banker is not jeopardized.

Appraisal of managerial competence is necessary because the ultimate success of

even a very well conceived and viable project may depend on how competently it is

managed by the promoters. Examination of the technical feasibility aspects involves an

assessment of the propriety of the technology / process for the unit, collaboration aspects,

size of the plant and other logistics of operation. Examination of the market and demand

forecasting is to find out whether the enterprise is in a position to generate adequate

surplus over a period of time. Appraisal of financial feasibility aspects includes

identification of various elements of project cost, ascertaining the respective amounts and

also projections in respect of the various financial parameters and their validation.

The appraisal is done to ensure that the loan is given to the company, which is

managerially, technically, and financially feasible and which ensures the repayment of the

interest along with principal amount and makes the proper utilization of the funds. The

proper assessment of loan will make sure that the loan will be given to a right person for

right use which in turn reduces the amount of risk involved in long term financing.


The Cosmos Co-operative Bank Ltd. is the second oldest bank in the country.

Bank has completed 102 years of service successfully. Today the Bank enjoys the status

of one of the leading Multistate Scheduled Co-operative Banks, with its rich heritage,

integrity, adherence to the prudent banking practices, technology advancement and

customized product and services. As on 29.02.2008 the Bank is operating in 79 branches

and 11 extension counters through 5 states of Maharashtra, Madhya Pradesh, Karnataka,

Andhra Pradesh and Gujarat with an approximate set-up of Rs.8107 crores (Deposits

approx. Rs.5072 crore and Advances approx. Rs.3035 crore).


The Cosmos Co-operative Credit Society was established on 18 th January 1906 by

Shri. K.S.Gore and Shri S.H.Barve with the aim to fulfill the financial needs of middle

class people. The Society’s transformation into Cosmos Co-operative Urban Bank on 22

may 1928 was the first turning point. The Bank’s fast and advanced growth led to

construction of the Bank’s own premises on Laxmi Road, Pune in December 1943.

On 11th March 1980, Cosmos Co-operative Urban Bank acquired Banking License

to carry out banking business in India. Within just 10 years, on achieving a target of

deposits worth Rs.100 crores, the Bank got the Scheduled status from Reserve Bank of

India. This achievement became another turning point for the Bank’s fast and advanced


On 28th November 1997, the Bank was registered under the Multistate Co-

operative Society’s Act. This enabled the Bank to open branches outside Maharashtra, in

four other states. In 2003, Cosmos became the first Co-operative Bank in India to

implement Centralized Banking Solutions System. In 2006, the Bank celebrated its

Centenary Year. In 2007, Cosmos went global with launching of Foreign Exchange

Services. The Bank’s turnover has crossed Rs.8000 crores and it is projected to touch

Rs.10000 crores, in the near future.

LEADERSHIP: The Bank is the market leader in urban banking sector in many areas; a

few of them are as under:

 The first co-operative bank in the country to successfully implement Centralized

Banking Solution (C.B.S.). For this project the Bank is tied up with Infosys for

Finacle software and set up a state-of-the-art Data Centre designed and erected by

IBM and Networking solution by Wipro, to offer Any-where Banking, ATM,

Multi-city cheque book facility and many other technological products to its


 For prudent investment and fund management, the Bank has set up a full-fledged

Treasury Department and a Dealing Room, well linked to N.D.S. (Negotiated

Dealing System) and RTGS (Real Time Gross Settlement) and a membership of

INFINET (Indian Financial Network) and CCIL (Clearing Corporation of India


 To meet the changing needs of the customers, the Bank is continuously adding to

its products and services, like-

 All Foreign Exchange Facilities under cat. I license.

 SMS Banking Facility

 Mobile Payment Services

 Cosmos Quick Bill Pay

 Bank Assurance Facility

 National Electronic Funds Transfer (NEFT)

 Franking

 Point of Sale-POS Facility


SR.NO. INDICATORS 31/03/2007 31/03/2008
2 RESERVES 432 504
3 NET WORTH 509 586
4 DEPOSITS 4300 5300
5 ADVANCES 2400 3200
6 INVESTMENTS 1900 2100
7 PROFIT 60 73
9 3.29% 2.29%
10 CRAR 12.36% 12.13%
13 NO. OF EMPLOYEES 1571 1670
14 NO.OF MEMBERS 45566 50473

Permissible Credit Exposure Limit

Single borrower credit exposure limit --- Rs. 62.00 crores

Group borrower credit exposure limit --- Rs. 165.00 crores


Cosmos Foundation is a public charitable trust founded under initiative of shareholders of

on 16.10.1987. The registered office of the foundation is at 269/270, Shaniwar Peth,


The main objectives of the foundation are –

 To give loans towards the Cosmos Bank members at concessional rates for

pursuing high education abroad.

 To give medical help to members upto specified limits.

 To felicitate the awards to the member’s children who excel in Std. X and XII


 To promote educational spirit and to maintain, support, propagate intellectual

qualities educational facilities, etc.

 To arrange educational seminars, conferences, etc.

 To grant relief in the event of natural calamities such as earthquakes, floods,

famine, etc.

 The Foundation also provides outsourcing facility.

 Special arrangement as Executor & Trustee for Preparation & execution of Will

especially for the Senior Citizens.


 Successful implementation of a Centralized Banking System, this enabled

customers services such as anywhere Banking, depository services, ATM, etc.

 Introduction of 7-day branch working and introduction of 8 - hour cash counters.

 Being the 1st Co-operative Bank to have a dress code for its employees.

 Being the 1st Co-operative Bank to have cordial relationship with employees

through internal employees' union.

 Appointment as an authorised agent to sell RBI Savings Bonds.

 Authorisation to promote General Insurance Business.

 Authorisation to accept NRI Accounts.

 Authorisation to Conduct Money changing Business.

 Participant in Real Time Gross Settlement System.

 Authorised to provide Franking facility.

 60 On site ATMs, Tie up with 34 banks for their 12,000 + ATMs all over India.

 Member of INFINET (Indian Financial Network).

 Member of CCIL (Clearing Corporation of India).

 Authorised by Gujarat Government to accept surplus funds from Co-operative

banks in Gujarat State.


Besides running the business ethically and professionally we also ensure that we meet our

social commitments by...

 Awarding the annual 'Cosmos Puraskar' to the chosen persons for their

outstanding contribution in certain feilds of social relevance.

 Donations to Charitable, Educational Institutions, Relief Funds, Beautification

Projects in Cities, etc.

 Constructing a beautiful fountain and island at Omkareshwar Chawk in Pune.

 Giving donations/sponsorships to many social events & national calamities.


 Best Co-operative Bank Award (1998-99) instituted by Indian Bank Association.

 Ideal Bank Award instituted by Business Express Shree Foundation, Sangli-2005.

 Technology Award instituted by Indian Bank Association-2005.


Cosmos is the first Urban Co-operative Bank to implement Centralized Banking System.

All 79 Branches, 11 Extension Counters, All Regional Offices and The Head Office are

interconnected through the Data Center situated at Head Office and have gone live on


This system has brought umpteen benefits to the Bank's customers, such

 Anytime banking through our ATM network.

 Installation of a total of 60 ATMs at each of our Branches/ Extension Counters is

completed. And Installation of Offsite ATM is in process.

 Multi-city Cheque Book Facility - Collection & credit of cheques 'At Par' in 11


 Facility to transfer funds instantaneously to any A/C in any of our branch


 Periodic interest on Fixed Deposits is disbursed through the Electronic Clearing

Scheme (ECS).

Following are Major I.T. Partners Cosmos Bank in Technology Advancement:

INFOSYS - Core Banking Software ‘FINACLE’.

IBM - Infrastructure & Hardware.

WIPRO - Networking Hardware & Services.


 Internet Banking Facility for customers.

 POS Terminal.

 Utility Terminal.

 SMS Banking.

Strengthened by the trust of its customers, Cosmos will continue to make rapid progress.

With a strong financial base, professional management and implementation of modern-

most Technology, Cosmos is poised to bring about a new revolution in Co-operative

Banking. It is committed to financially support each of its valued customers with new

initiatives, customer-friendly schemes and unique products as well as services.


 To understand the purpose behind the appraisal of term loan.

 To study the procedure of appraisal of term loan and the various steps in appraisal

of the term loan.

 To know about the various criteria that should be considered by the banks while

processing loan proposal & how it is decided whether to accept the proposal or

reject it.


This is analytical research area where we analyze information with cause and its

effects relationship. This analysis leads to the simple conclusions of whether to lend

money to the concern firm for business.

Also if the money is lend then there is reality the norms are not always perfect and

hence it is essential to prioritize stringent parameters and secondary parameters.

Research Type Analytical

Source of Data Primary and Secondary

Sample Unit Industries applying for loan

Sample Case studies

Sample Technique Allocation of Case

Analysis Tool used Financial Analysis

Primary Data:

 Observation, Discussion with the Manager.

 The company profile, Annual Reports, various documents submitted by the

applicant along with the loan proposal has been obtained from the Bank.

Secondary Data:

Secondary data relating to the procedure of assessment of term loan, old sanction

proposals, etc. have been sourced from reference books and internet.



Banks perform two main functions of accepting deposits and lending loans. Lending

money to different kinds of borrowers is the most important functions of a bank. Bank

lends money by the way of short-term loans and long term loans. Long-term loans mainly

consist of Term Loans.

A term loan is a loan from bank for a specific amount that has a specified

repayment schedule and a floating interest rate. Term loans almost always

mature between one and 10 years. Term loan is required for the purpose of setting up of

new business activity, renovation, modernization, expansion/extension of existing units,

purchase of plant and machinery, vehicles, land for setting up a factory, construction of

factory building or purchase of other immovable assets. These loans are generally secured

against the mortgage of land, plant and machinery, building and other securities.

Term loans are made available in different forms. Fund-based term loans are provided for

outright acquisition of capital goods. On the other hand, non-fund based term loan are in

the form of Deferred Payment Guarantees (DPG) where the liability to make payment

crystallizes after the bills against such guarantees are presented for payment. Bank also

underwrite the equity issues floated by companies, and in the process, banks assume a

long-term exposure in the company. Decision-making in all such credit proposals require

appraisal of all those aspects which have a bearing on the operation of the company over

an extended time period.

The scope and approach in providing term credit by lending bankers are therefore

different from working capital credit or other conventional form of advances. Term loan

is a form of a participation loan in as much as the lending institution has a stake in the

unit for a fairly long time period, which is akin to holding a share in the equity or

debenture issued by the bank. Longer the period of repayment, the riskier is the

proposition, and therefore any appraisal of term loan should have an inbuilt method of

assessment of the risk elements contained therein.


The basic purpose of appraisal of a proposal for providing term credit

requirements is to ensure that the borrower acquires the proposed fixed assets, puts them

to use in producing merchandise which would have a market, and generate enough cash

from operations to repay the term loan and service the interest commitments thereon over

the stipulated period of repayment. The appraisal process therefore envisages a

meticulous examination of all relevant aspects of the economics of the project. A few

important questions that come to the mind of a credit analyst in course of a term loan

appraisal are given below:

 Who are the promoters and what are their credentials? Does the available

information suggest that they are capable of promoting and managing the project


 Whether the finished goods produced would have an assured market (demand /

supply analysis),

 Whether the technology proposed to be employed is adequate,

 Whether the plant capacity is adequate i.e. whether commensurate with the

existing and future demand pattern envisaged,

 Whether the projections relating to operations and profitability of the project over

the repayment period are realistic,

 Whether the amount of the proposed loan is adequate vis-à-vis the term

requirement of the project,

 Whether the projected cash generation is adequate to service the loan?

 Most importantly, if the loan is not repaid by the entrepreneur in terms of the

agreed schedule, whether proper risk hedging mechanism is in place so that the

interest of the lending institution is not jeopardized.

These are some of the indicative question that must be answered in course of the

term loan appraisal. It is therefore important that the task of appraisal is divided into

distinct appraisal areas, so that the entire process is done in a structured manner. These

areas may be the following:

1. Appraisal of Managerial Competence / Human Appraisal

2. Appraisal of Technical Feasibility Aspects

3. Appraisal of Market / Demand Forecasting

4. Appraisal of Financial Feasibility Aspects

Appraisal of Managerial Competence / Human Appraisal

The most important and difficult of all the steps involved in an appraisal is

assessing the creditability of the man behind the project and judging his competence in

successfully promoting / managing the project. A credit analyst may acquire great skills

in accurately forecasting the future behaviour of a financial parameter, or may have

become well conversant with the dynamics of a particular sector of economy / sector,

which may result in an excellent appraisal of the technical, economic, financial and

commercial aspects of a credit proposal. In fact, one of the most important reasons for the

huge accumulation of NPA in the hands of the lending sector is poor human appraisal by

credit analysts.

Be that as it may, a credit analyst has to begin his appraisal drill with an appraisal

of the promoters and their managerial competency. For this purpose, the track record of

the promoters as a borrower provides an invaluable clue. The information on the track

record may be conveniently obtained if the promoter or the management group has been

availing finance from the same lending bank against other existing ventures. The desire

of the promoters to avail loan from the existing bankers may also provide a positive

signal to the credit analyst. That is, the entrepreneurs would be amenable to the financial

discipline as prescribed by the lending banker. As against this, if the promoter are new to

the bank to whom they have applied for credit facilities, the credit analyst have to look

for their credentials and the status of the existing loan accounts they are maintaining with

other banks, if any.

Reserve Bank of India maintains an updated list of suit field accounts (Rs.1 Cr. &

above) in its website www.rbi.org.in. The credit analyst may browse through this site for

a preliminary appraisal whether the promoter or any of the key personnel associated with

the project figures in this list. Similarly, RBI also circulates a list of willful defaulters of

Rs.25 lakh and above to individual banks. As a general rule, credit analysts should

consult this list before they undertake technical, economic and financial appraisals of the

proposal. Obtaining information regarding a person, promoter or a group may not be any

more viewed as cumbersome, once the Credit Information Bureau of India Ltd. (CIBIL)

commences its operations. Information on promoter groups and other relevant areas of

interest to lending banks may also be obtained from Dun & Bradstreet, who are

prominent information providers on entities / people promoting projects or in services,

especially overseas.

Appraisal of Technical Feasibility Aspects

Examination of technical feasibility aspects of a proposal is one of the most

important areas where the credit appraising officer has to satisfy himself before going

into the examination of the financial viability of the proposal. This is of the crucial

importance especially because, more often then that not, the credit appraising officer may

not have an in-depth knowledge of the technical process and the officer is conversant

with manufacturing enterprises using similar technologies. In view of this, if the project

involves use of a proven technology, the lending banker may not perhaps insist on a

detailed feasibility study done by experts in the field. But, if the technology is new or an

evolving one, a detailed report on examination of the technical feasibility aspects is

necessary. The report may be prepared by an outside agency of proven competence.

For products proposed to be manufactured using new technology developed

indigenously, the services provided by the national laboratories established by CSIR

(Council of Scientific & Industrial Research, Govt. of India) may be of immediate help.

Many of the laboratories have patented the process designs in their respective activities

and they actively associate themselves with the industrial production of these products.

Sometimes, banks get proposal to finance projects involving new technologies,

which have been tested under the laboratories only. Such proposal usually emanate from

young entrepreneurs with brilliant academic backgrounds. While commercial banks have

social obligation to finance such projects and the various schemes of the Government

also encourage such schemes, it is common experience that many times it take time to

stabilize commercially viable industrial production of such products.

The optimal size of the plant is therefore an issue for close examination in

technical appraisal of the project. The size of the plant should be examined in relation to

the optimum size warranted by technical factors, economies of scale, market potential for

the product (including foreign markets, if the product is proposed to be exported), and the

production cost factors etc. Sometimes, the Government guidelines provide the optimum

size of the plant in respect of a specified activity. For example, the present guidelines in

respect of sugar manufacturing activities lay down the minimum plant capacity of a new

sugar manufacturing plant should be 2500 TPD (tones crushed per day).

The location of the project with reference to the structural, legal and infrastructure

aspects has considerable significance in project appraisal. There are various legal

formalities that have to be completed in connection with acquisition of land, allocation of

land by industrial estates etc. The following critical factors influencing the locational

aspect of a project need scrutiny and also examination:

 Availability of raw materials and proximity of the source to the project site:

Availability of raw material in an area near to the site and whether transportation

facilities are available for carrying raw material to factory site and from factory

site to market are crucial determinants of selection of site. Availability of

motorable roads and proximity of railheads are some other important aspects to

be examined. If the product is proposed to be marketed in the country but at

distant places, the desirability and feasibility of having a railway siding in the

factory site may also be examined. As against this, if the goods are proposed to

be exported directly, distance of the nearest port from the factory site becomes

an important consideration.

 Energy Requirement: Energy requirement, type of energy sources (coal, natural

gas, electricity) and local availability of energy are some of the crucial aspects of

examination in a project appraisal. Similarly, adequate availability of water,

which may be crucially important for specific activities, should also be looked

into. The credit-appraising officer has to ensure that these propositions fit well

with the locational aspects of the project.

 Environmental Issues: The guidelines regarding environment and the recent

court judgment in this regard have emerged as very important issue in context of

project implementation. Examples of environmental issues restraining projects

or specific industries in an area include issues banning on felling of trees in the

northeastern states. In all these situations, the bank loan portfolio was felt impact

adversely. In a project appraisal, therefore, special care has to be taken in respect

of effluent disposable aspects, especially if the proposed activity is chemical in

nature. Environment related issues might also pose problems if the project uses

any kind of ore and the waste is required to be dumped. Proximity of such sites

to the residential areas is closely related with environmental issues.

 Government Incentives: Sometimes, state government provide attractive

packages and incentives to the promoters for setting up industries in specific

locations in their states with an aim to develop the state of economic activity,

especially backward areas of state. In all these cases, an examination of relevant

provision of the state laws is necessary. This is crucial in those cases where the

viability of the project depends on the incentives to a great extent.

 Manpower: Availability of proper workforce is another aspect of examination in

the context of proper selection of the location. In project where unskilled or

semi-skilled labours force is required in large numbers, mobilization of labours

may not pose a problem. However, there are instances where non-availability of

skilled labour force becomes a bottleneck in the proper functioning of the

project, even if the requirement of such skilled personnel is small.

Appraisal of Market / Demand Forecasting

The viability of a credit proposal for providing long-term finance depends on

whether the enterprise is in a position to generate adequate surplus over a period of time.

This further depends on whether the production / sales of the goods produced by the

enterprise registers the desired rate of growth, on which its profit earning capacity

depends. Validation of demand-supply gap and the estimated growth of the demand for

the product is therefore an important aspect of appraisal of term loan.

Validation of the projection / rate of growth of the demand has been a bone of

contention amongst the promoters and the lending community. If the promoters have a

long-standing relationship with the lender and has been enjoying the latter’s confidence,

there is the reasonably a good probability that the lender accepts the projected growth

rate, perhaps with minor corrections. In other words, the validation of the growth rate has

been more often a function of degree of confidence enjoyed by the promoter with the

lender. Fortunately, there has been an overall change in the scenario with the

advancement of dissemination of information in all areas. A credit-appraising officer

today may rely on a number of well researched studies published by reliable agencies

having expertise in industry studies. CRIS-INFAC is one such agency publishing its

studies both in hard and electronic form. However, these studies are available only in

respect of major activities and products e.g. steel, cement, sugar etc. These studies are

based on the trends of actual historical data available for the respective industries as well

as the domestic and international market trends in the economy.

A very important aspect of financing long term assets in the present context is the

impact of the WTO agreement on the different sector of the Indian economy, particularly

the industry, agriculture and the service sector in which most of the finances provided by

the lending institutions is concentrated.

Appraisal of the Financial Feasibility Aspects

By undertaking the technical appraisal, a credit analyst gets the fair idea whether

the project passes the test of feasibility in respect of technical, technology, economic,

market and demand-supply aspects in the long-term context. The next logical step in the

appraisal process is to examine the financial feasibility aspect of the project. Appraisal of

the financial feasibility includes identification of various elements of the project cost,

determination of the accuracy of individual cost elements, and also the suitability of the

proposed financing pattern from the point of view of the implementation of the project as

well as repayment of outside borrowings. The main element of project cost that usually

figure in a term loan proposal are the following:

1. Land and Building

2. Plant and Machinery

3. Technical know-how, engineering and consultancy fees

4. Expense on account of foreign technicians and training of Indian technician

abroad, if any

5. Miscellaneous fixed assets, which may include boilers, power distribution system,

electrical installations, furniture, fixture etc.

6. Preliminary and Pre-operative expenses

7. Provision for contingencies

8. Margin on working capital

In the above list, the major items against serial no. 1 to 7 together form the capital cost of

the project. The capital cost together with the margin component of the working capital

requirements form the total project cost. However, where an existing business enterprise

goes for diversification or modernization or simply proposes to acquire additional plants

and machineries in order to increase the capacity, the project cost may include only the

few of the above items, i.e. usually the cost of additional cost of plant and machinery and

the associated cost elements like cost of installation etc. In case the expenses in respect of

some of the above items need to be incurred in foreign exchange, e.g. against import of

machinery, expenses on account of foreign technicians etc. such part of the project cost

should be separately considered as the foreign exchange component of the project cost.

The following are the financial feasibility aspects of the individual project cost elements:

Land and Building: Examination of the legal status of the land is a very important aspect

of the financial appraisal. Legal dispute, if any, over the land on which the project is

proposed to be built, not only vitiates the prospect of a smooth implementation of the

project, but also creates hurdles against providing clear primary security to the lending

banker against the term finance provided by him. In case of leasehold land, the credit-

appraising officer must ensure a proper scrutiny of the following aspects, which are

essential in order to protect the interest of the lending banker:

 The terms of the lease deed must provide for the mortgage of the lease rights in

favour of the lender,

 The unexpired lease period should be sufficiently long so that it is valid till the

dues to the lender / mortgagee are finally settled and

 The lease deed should not contain any clause that prejudicial to the lender’s


The cost of the land include cost of registration, expenses incurred towards

leveling the land, cost of fencing the compound wall as also the cost of fabrication and

installing the gates. The validation of the building requirements and the cost of buildings

as part of the project cost require adoption of a down to earth approach by a project

appraising officer. The core buildings of the project such as factory building, warehouse

etc. directly relate to the requirements of the business activity.

Plant and Machinery: From the point view of a lending banker, plant and machinery is

perhaps the most important part of a project because they lend mostly against plant and

machinery. Validation of the requirement of a machine and the associated cost should be

done in tune with the observation made in the technical feasibility report of the project. In

the financial appraisal, machinery procured indigenously and imported from aboard

should be reported separately. In respect of imported machinery, the cost estimates

generally include CIF price, import duty (custom), clearing and loading, forwarding and

unloading charges. All these charges together make the landed cost.

In respect of machineries procured indigenously, the landed cost generally

includes the cost of machinery, transit insurance, freight, local taxes, octroi and levy etc.

besides the installation charges. Regardless of whether the machine is procured from

indigenously sources or imported from aboard, cost estimates in respect of plant and

machinery should include a provision for spares, parts, stores and essential tools

necessary for smooth running of the project.

Other Elements of Project Cost: The other elements of project cost include payment of

fees and expenses incurred on account of technical know-how, engineering and

consultancy, and also the expenses on account of foreign technicians working on the

project in India as well as on training of Indian technician aboard. A reasonable

estimation of these expenses may be had from the relative contract documents available

with the promoters of the project.

Preliminary Expenses: Preliminary expenses are those, which are incurred before the

incorporation of the company. Such expenses are broadly in nature of floatation cost.

These expenses include the following:

 Expenses incurred on drafting and printing the Memorandum and Article of

Association of the company

 Consultancy charges in respect of preparation of project reports, feasibility report,

market survey etc.

 Expenses on account of engineering services viz. design etc. relating to the project

during the initial stage, and

 Other miscellaneous expenses incurred before the incorporation of the company

including registration charges, legal fees, traveling expenses, telephone bills and

administrative expenses during the pre-incorporation stage.

Pre-operative Expenses: As against preliminary expenses, which are incurred during the

pre-incorporation days of the company, the pre-operative expenses are incurred during

the post-incorporation period but before the commencement of commercial production.

Pre-operative expenses include many items that have a direct bearing on the cost of the

fixed assets. Interest during construction period is one of the most important expenses of

this kind. The other items of pre-operative expenses include the following:

 Day to day administrative and establishment expenses, rent, rates and taxes.

 Cost on account of mortgage / charging the securities including immovable

properties in favour of lending bank.

 Other miscellaneous expenses incurred during the period viz. insurance,

stationery, traveling expenses etc.

 Trail run expenses prior to commencement of commercial production.

Pre-operative expenses impact a project in two ways first is the project cost and the

second is the yearly cost of operation. It is therefore necessary that the credit-appraising

officer make a proper estimation of pre-operative expenses as an important element of

project cost.

Provision for Contingencies: In course of implementation, the cost of a project may go up

on account of various reasons. It is therefore necessary that the estimate of a project cost

should contain a provision for escalation of cost. Some examples of situations that may

lead to an escalation in a project cost are the following:

 Cost of the main items including fixed assets may be subject to upward

fluctuation on account of increase in the basic prices, increase in various taxes

viz. custom duty, excise and sales tax etc. transportation charges etc.

 Where fixed assets or services are imported and the terms and conditions of the

contract include payment by the importer in foreign exchange over a period of

time or in deferred terms, the cost of fixed asset may fluctuate on account of

fluctuations in foreign exchange rate at the time of making payments.

 Implementation of a project may get delayed on account of technical factors, non-

obtention of key sanctions from Government departments and many other factors.

A delay in implementation automatically gets translated into escalation of project

cost. There may also occur some unforeseen expenses that were not initially

envisaged as a part of the project cost.

If the provision on account of contingency goes beyond 10-15% of such items,

there is perhaps a reason to have a re-look on the entire project cost.

Margin on Working Capital: Margin on working capital requirement is required to be

borne by the promoters. This is their stake in the process of building up current assets

required for long term operations. In view of the long-term nature of this components, the

total margin requirements against the working capital requirement (including margin

requirements on the non-fund based working capital related credit facilities i.e. BG, LC

etc.) is included in the total project cost. Lending bankers include the whole of the

working capital requirements as part of the project cost. Usually, the margin requirement

against working capital corresponding to the first full year commercial production is

considered in the total project cost.

Means of Financing: The means of financing the project cost may be one or more of the


1. Equity Capital from shareholders

2. Preference Capital from preference shareholders

3. Capital subsidy from Government

4. Debentures / bonds issued by the company – public issue / private placement

5. Public deposits

6. Unsecured loans from friends and relatives

7. Term loan

8. Lease Finance

Projections and Analysis of the Profitability Statements

A credit officer may firm up his views on the financial viability aspects of a term

loan proposal only after the projections in respect of various operating and financial

parameters are validated and the relevant indicative ratios fall within the range of

acceptability of the lending bank. The first step in making financial projections for a

project is firming up the accepted level of capacity utilization for various years, usually

covering the proposal period of repayment of the term loan. This is done in technical

appraisal stage itself. The sale value of production and main items of expenses (directly

related to production) flow from the above data on capacity utilization. The indirect

expenses viz. depreciation, interest on long term and other loans, sales administrative

expenses etc. are calculated separately. These expenses are then factored in the

profitability projections to work out the accounting profits and the profit after tax. The

yearly cash accruals are then calculated by adding back depreciation and other non-cash

expenses. The process of validation of repayment programme is undertaken at this stage.

The various financial parameters projected in the above manner are then subjected

to examination by undertaking ratio analysis. For the purpose of decision making, lending

banker rely on selected ratios irrespective of whether the credit proposal is for meeting

working capital credit requirements or for financing acquisition of capital assets by the

borrowing enterprise. The most important ratios from lending banker’s point of view are

current ratio, debt-equity ratio, gross profit, net profit and debt service coverage ratio.

Current Ratio: Current ratio is the ratio of current assets to current liabilities. A current

ratio of 1.33:1 is considered by bank as minimum acceptable level. This ratio measures

the solvency of the borrower in the short term. It indicates the backing available to

current liabilities in form of current assets. A higher current ratio indicate that there are

sufficient assets available with the organization which can be converted in form of cash,

without any reduction in value, in short span of time i.e. current assets, to pay off the

liabilities which are to be paid off in the short time i.e. current liabilities. As such, higher

the current ratio better the situation but the standard for the bank is 1.33:1 if the ratio goes

beyond this standard then there are unnecessary high investment in current assets which

is not a good sign.

Debt-Equity Ratio: Debt-equity ratio is the ratio of debt to equity. The D/E ratio is

important tool of financial analysis to appraise the financial structure of the borrower. It

has the important application from the viewpoint of the creditors, owners and the

company. The ratio reflects the relative contribution of the creditors and the owner fund

in financing. If the ratio is high the owner is putting up relatively less of their own. The

high ratio indicates the high risk to the creditors. A high ratio has a serious implication for

the company also as there is inflexibility in operations, which would lead to pressure of

creditors and interference of creditors in management. A low ratio indicates operation

flexibility, as owners fund is relatively more, but it has negative implication also that the

company’s borrowing power is underutilized.

Gross Profit Percentage: This ratio is the percentage of gross profit to sales. Gross Profit

is the result of the relationship between prices, sales volume and cost. A change in gross

margin can be brought about by the change in any of these factors. A ratio is a sign of

good management as it implies low cost of production. A relatively low gross margin is

definitely a danger signal.

Net Profit Percentage: It is percentage of net profit to net sales. This ratio indicates the

management’s ability to operate the business with sufficient success not only to recover

from revenue of the period, cost, and expenses but also to leave margin of reasonable

compensation to the owners for providing their capital at risk. A high ratio would ensure

adequate return to the owners as well as enable a firm to withstand adverse economic

conditions when selling price is declining, cost of production is rising and demand for the

product is falling.

Debt service Coverage Ratio (DSCR): This ratio is considered one of the most important

ratio by the banks or financial institution giving long term finances to the organization

and the intention behind calculating this ratio is to ascertaining the capability of the

organization to repay the dues arising as a result of long term borrowing. This ratio is

calculated as

Net Profit after taxes + Depreciation + Interest on Long Term Loans

Interest on Long Term Loans + Installments of Long Term Loans

This ratio indicates the capability of the organization to meet the obligation of

long-term borrowing the bankers will like to get this indication before the money is lent

to the organization. As such, this ratio is calculated on estimated basis is considered by

banker before granting term finance to the borrowing organization. Too low DSCR

indicates insufficient earning capacity of the organization to meet the obligation of long-

term borrowings. At the same time, if too high a DSCR is estimated during the currency

of the long term borrowings, it is quite likely that the period of term loan may be reduced

from whatever is requested by the borrowing organization.


Procedure of Term Loan Processing in Cosmos Co-operative Bank:

The procedure of loan processing in Cosmos Co-operative Bank is carried in

different steps. The bank processes the loan step by step to minimize the risk involved in

lending money. Firstly the bank collects all documents from the borrower. Collection of

various documents is usually done at branch level. All documents are collected according

to the checklist of the bank. Checklist is the list of all documents that the borrower has to

submit; until and unless all documents are submitted to the bank loan processing does not


The next step in loan processing is preparing In Principle. In Principle document

is prepared for those borrowers who are new to the bank, in the sense they have not taken

loan from the bank before or they do not have an account with the bank. In Principle

document helps to know the borrower in a better way. In Principle document contains the

details like details about the business of the borrower, requirement of loan, security

available, past experience of the promoters, financial statements of last 3 years,

comments on financials and recommendation about the loan requirement. This document

is prepared by the credit analyst it is approved by the Manager then it is pass on to the

General Manager for approval, if approved by the General Manager then it is forwarded

to Managing Director for the approval, if it is approved by the Managing Director then

the file is processed otherwise it is rejected. For the regular customer the In Principle

document is not prepared.

Then at the branch level the loan application form is filled from the borrower.

After this the file is processed. Processing of file takes place in different steps:

Step 1: Appraisal of Financial Feasibility

In financial appraisal the bank scrutinizes all financial documents like:

1. Analysis of Balance sheet and Profit and Loss account of last 3 years.

2. Projections are checked for next 5 years. The period of projection depends upon

the term of the loan.

3. Document verification is done for Memorandum of Association and Article of

Association. The object clause is checked and it is seen that project intended by

the borrower fits in the object clause or not.

4. Legal opinion is taken from the bank’s lawyer in case of the security that is

offered by the borrower to the bank. Valuation report given by the borrower is

compared by the valuation report from the bank. Insurance of the security is

checked and it is seen whether the security offered is valid or not and it is in the

bank’s favour or not.

5. Ratio analysis is done. Ratios are removed for the current financial year and for

the projections. The trend of the ratios is checked i.e. whether they are improving

or not.

6. Break-even analysis, cash flow and repayment capacity and period are checked.

Step 2: Appraisal of Managerial Competence

In managerial appraisal the promoter’s competence is checked like qualification of the

promoters, experience of the promoters, capacity of raising money, capacity to absorb

losses, professional capacity, track record, production capacity, net worth of the

promoters, etc.

Step 3: Appraisal of Technical Feasibility

In the technical appraisal the bank checks that whether the business the borrower wants

to carry is valid or not. If the project involved is too technical in nature then the service of

technician management firm is taken so that the appraisal is done in a better way and to

minimize the risk. In technical appraisal, availability of raw material, labour, energy

requirement, government policy, etc. are checked.

Step 4: Appraisal of Market / Demand

In this step whether the intended product of the borrower will have demand or not is

checked. The substitutes of the products are checked. The competitor’s analysis is done in

that particular field.

After these different appraisals the CRM (Credit Risk Rating Model) note is

prepared which contains the information of the promoters, financials, loan requirement,

security offered, recommendations, terms and conditions, etc. in short it contains the

information of all appraisals. Then this proposal is passed to the General Manager for his

approval, if approved, it is signed and future passed on to the Committee Meeting (which

consist of 5 members of Board of Directors) if it is approved there then it is passed to the

Board Meeting. If all Board of Directors and the Managing Director approve it then the

loan is sanctioned. The sanction letter is prepared with the terms and conditions (that are

to be followed by the borrower) it is then signed by Board of Directors and then sent to

the borrower for his approval if borrower approves it and follows the terms and

conditions that are prescribed in sanction letter then the loan is disbursed.


Case Study-1: ABC Medical Educational Trust

1. Name of the borrower: ABC Medical Educational Trust

2. Membership No: 40000123

3. Office Address: 12/15, Mahatma Gandhi Road, Vijayawada

4. Telephone No: 040-65432198

5. Constitution: Trust

6. Directors / Partners / Proprietor: a) Aditya Kaur

b) Yuvaraj Kaur

c) Satish Shah

7. Registration No: 222/05

8. Pan No: AAATT055E

9. Nature of Business: Educational Trust.

10. Dealing in Product: Dental College.

11. Major changes during last 12 months: No major changes during last 12 months

12. Background of the company applying for loan proposal and the reason for

applying for term loan: ABC started with ABC Sanskrit College Trust, which was

established in 1976 basically with an intention to impart / teach Vedas and Shastras to all

section of the society.

In 2002 the trust got the permission to start with the medical course BDS

(Bachelor of Dental Surgery). The college was started in the name of ABC Mahavidyala

Institute of Dental Science and Research Centre. However subsequently it has been

decided to separate the dental college activity. So for this purpose ABC Medical

Educational Trust was formed in July 2005 and was registered on 20/06/2005 under the

registration number 222/05. This trust is exclusively having activity of dental college

under ‘ABC Mahavidyala Institute of Dental Science and Research Centre’.

To start the dental college activity for the medical course BDS the ABC Medical

Educational Trust needs financial assistance from bank and therefore they have applied

for term loan to the bank.

13. Loan requirement of the company:

Sr. Type of Facility Purpose Loan Amount (Rs. in Lakhs)

No. Required Existing

1. Term Loan Starting a Dental 600.00 0.00

Total 600.00 0.00

14. Security offered by the company:

Sr. Type Description Outstanding Valuation Value

No. Balance

1. Principle College Land and 00.00 00.00 750.00

construction thereon
2. Principle Equipments 00.00 00.00 300.00
3. Collateral Residential Premises of 00.00 26/5/08 622.30

Mr. Sukhvindra Kaur

Total 00.00 1672.30

15. Appraisal of Managerial Competence / Human Appraisal:

Sr. No. Name of the Annual

Qualification and Experience
Promoters Income
1. Aditya Kaur M.B.B.S 12.01

15 years experience of running education

institute - Jay Guru Education Society.

2. Yuvaraj Kaur B.D.S 2.00

Working with his father Mr. Aditya for last

8 years
3. Satish Shah M.B.B.S 8.76

Having 15 years experience in business

The promoters of ABC Medical trust are well qualified in the medical Field itself.

The promoters are having experience in this field for more than 8 years. The promoters

have their annual income, which is fair enough.

16. Appraisal of Technical Feasibility Aspects: The land allotted for the Dental

College is 5 acres, which is more than sufficient. The location of the college is in the

municipal limits of the city. It is extremely well connected by the city bus service from

both cities Hydrabad and Vijayawada.

Campus is self-contained with massive classrooms; hostels separately for boys

and girls, reading room, conference room, sports, library, Internet facilities, cafeteria and

other amenities are also available therein. College has been approved by the Dental

Council of India and Ministry Health and Family Welfare and also affiliated to NTR

University of Health Science, Vijayawada, A.P. The intake of the college as permitted by

DCI is 100 students per year.

College has adequate number of dental chairs to meet the short term and long

term demand of the institute. The clinical facilities are decided to handle more than 150

patients per day. An ultramodern X-ray machine with dark room facility is made


The college is attached to one of the premier hospitals of state J.D.Genral

Hospital and J.D.Medical College, Vijayawada. The hospital and medical college is the

close vicinity of the institute. The Dental College is having the facilities of J.D.Genral

Hospital and Medical College for training the college students in the area of medicine,

surgery, physiology, anatomy and other allied subject.

17. Appraisal of Market / Demand Forecasting: The proponents are already

established in education institute, who are not in need of any marketing of their college.

The demand for the college is high as there is no college in the city that offers the course

of BDS. The promoters also have plans to start MD courses after 4 years for the BDS

students. They also have plans for starting allied courses related to medicine. The college

has got permission of 100 students per year from DCI. The course of BDS consist of 4

years, so four years there will be 400 students as the students will proceed from one year

to another year.

18. Project Cost Details and Means of Finance:

Project Cost Details:

Sr. No. Particulars Already Incurred To Be Incurred Total

1. Land & Building 00.00 750.00 750.00

2. Equipments 00.00 300.00 300.00

Total 00.00 1050.00 1050.00

Means of Finance:

Sr. No. Particulars Already Incurred To Be Incurred Total

1. Share Capital 00.00 450.00 450.00
2. Term Loan from Bank 00.00 600.00 600.00
Total 00.00 1050.00 1050.00

19. Details of Guarantors:

Sr. No. Member No. Name Occupation Annual Income

1. 100018 Aditya Kaur Education Institute 12.01

2. 100026 Yuvaraj Kaur Education Institute 2.00

3. 100066 Satish Shah Education Institute 8.76

Total 22.77

20. Appraisal of Financial Feasibility Aspects:

 Key financial data

2006 2007 2008 2009 2010

Actual Projectn Projectn Projectn Projectn
Gross Sales 156.15 251.67 287.86 398.20 486.90
Other Income 00.00 00.00 00.00 00.00 00.00
Gross Profit 27.52 78.83 64.68 159.97 214.90
G.P.Percentage 17.63 31.33 22.47 40.18 44.00
Net Profit 4.07 28.86 15.14 48.94 103.50
N.P.Percentage 2.61 11.47 5.26 12.30 21.20
Depreciation 24.41 44.62 35.36 28.31 22.60
Cash Accruals 28.48 73.48 50.50 77.25 126.11
Gross Block 345.40 612.06 625.53 1017.35 989.00
a) Net Block 320.99 567.45 590.14 989.04 966.33
b) Investment & Non 00.00 00.00 00.00 00.00 00.00

Current Assets
Bank Term Loan 00.00 00.00 00.00 570.93 441.11
Unsecured Loan 173.24 191.48 181.65 00.00 00.00
Other Long Term Liability 00.00 00.00 00.00 00.00 00.00
c) Total Long Term 173.24 191.48 181.65 570.93 441.11

Net Fixed Assets (a+b+c) 147.75 375.97 408.49 418.11 525.25
Raw Material 00.00 00.00 00.00 00.00 00.00
W/P & Consumables 00.00 00.00 00.00 00.00 00.00
Finished Goods 00.00 00.00 00.00 00.00 00.00
Receivables 00.00 00.00 00.00 00.00 00.00
Cash & Bank Balance 84.05 5.67 50.60 6.35 2.70
Other Current Assets 7.60 67.85 32.01 2.47 2.49

Total Current Assets 91.65 73.52 82.61 8.82 5.20

Sundry Creditors 39.04 71.43 82.56 00.00 00.00

Working Capital Finance 00.00 00.00 00.00 00.00 00.00

Other Current Liability 15.68 22.84 30.55 00.00 00.00

Total Current Liability 54.72 94.27 113.11 00.00 00.00

Net Current Assets 36.93 (20.75) (30.50) 8.82 5.22

Capital 180.60 326.32 362.84 362.84 362.84

Reserves 00.00 00.00 15.16 64.09 167.66

Profit & Loss 4.06 28.87 00.00 00.00 00.00

Net Worth 184.66 355.19 378.00 426.93 530.40

Current Ratio 1.67 0.78 0.73 00.00 00.00

Debt-Equity Ratio 0.94 0.54 0.48 1.34 0.8

 Comments on key financials

Sales / Receipts: During the year 2006-07 the college has collected tution fees of

Rs.210.20 Lakhs and during 2007-08 Rs.238.00 Lakhs. The total revenue of the college

during 2006-07 was Rs251.66 Lakhs that has risen to Rs.287.86 Lakhs in 2007-08.

The college undertakes BDS course of 4 years with permitted, 100 students per

year. Out of permitted total 400 students, during 2007-08, the college has enrolled 360

students. Fees for BDS course are Rs.99500/- per year and per student therefore total fees

for the year 2007-08 is expected to be Rs.358.20Lakhs.

During the year 2008-09 the college projected total fees collection of Rs.436.95

Lakhs from 387 students. During the year they are starting MD course and expecting 27

students. The fees expected are Rs.1.00 Lakh for BDS course and Rs.2.75 Lakhs per year

for MD course. The fee structure seems to be reasonable and it is expected to remain

same in projected years.

College expects higher enrollment of students in projected year against the

allowed admission capacity. Further the college is earning income from hostel fees and

miscellaneous fees. During 2007-08 other income stands to Rs.49.85 Lakhs and study

growth is projected in coming years.

Profitability: The College is having surplus over last three years. The college is

expecting higher surplus (excess of Income over Expenditure) in the projections period.

Projected surplus seems to be in line with gross receipts.

Current ratio: The applicant is running dental college (not business-trading /

manufacturing). The college has applied for term loan only and not for working capital

limit, hence current ratio is not applicable.

Net worth and Debt-Equity Ratio: As on 31/3/08 corpus fund of college with surplus

stand Rs.377.99 Lakhs and unsecured loan Rs.181.64 Lakhs. Debt –Equity ratio as on

31/3/08 is 0.48:1 shows satisfactory position.

Unsecured loan will be repaid out of bank term loan in 2008-09. Position of Debt-

Equity ratio is expected to remain at accepted level of 1.34:1 as on 31/3/09. In next year

on one side corpus fund will increase by retaining the surplus and on other side term

liability will get reduced due to repayment and hence debt-equity ratio will improve


Break-even and sensitivity: After availing term loan, interest will be fixed cost. In 2008-

09 the college will break even at total income Rs.294.69 Lakhs. In 2006-07 they had

income of Rs.251.67 and in 2007-08 the income was Rs.287.86 Lakhs. The break even

after availing term loan is near to the present income of the college and hence reachable.

 Details about Repayment Capacity and Moratorium period

Repayment Capacity:

Particulars 2009 2010 2011 2012 2013

Surplus (After Tax) 48.93 103.50 176.87 265.02 333.11

Interest 99.34 90.04 68.90 49.68 29.02

Total (A) 148.27 193.54 245.77 314.70 362.13

Term loan Rs.600 Lakhs. EMI 122.86 163.82 163.82 163.82 163.82

@13%p.a. Rs.13.65 Lakhs.

Repayment Obligation
Total (B) 122.86 163.82 163.82 163.82 163.82

DSCR A/B 1.20 1.18 1.50 1.90 2.20

Average DSCR: 1.60

During 2008-09 repayment is considered for 9 months. However yearly

repayment will be lower than assumed above, as total disbursement will take place in 2-3

months and actual EMI’s will be lower. This shows that the trust will be able to repay the

loan out of college income.

Moratorium period: As it is ongoing education institute no moratorium period is


21. Merits of the proposal: a) All the trustees are having sound experience in running

Education Trust.

b) The scope for educational Institute is vast in near future.

22. Demerits of proposal: a) Revenue and profitability of educational institute

depends on actual intake of students.

23. Recommendations: Considering the business of the applicant scope for the

activity, past financial and projections, it is recommended to sanction following


1. Term Loan: Rs.430Lakhs

Purpose: Building of Mahavidyala (Dental College)

Rate of Interest: 13% Margin: 40%

Period: 60 Repayment: 60 monthly Installment

Security: Land with building at Survey No-105, Gaddiannaram. A.P.

2. Term Loan: Rs.170Lakhs

Purpose: Equipments of Dental College

Rate of Interest: 13% Margin: 40%

Period: 60 Repayment: 60 monthly Installment

Security: Equipments and land with building at Survey No-105, Gaddiannaram. A.P.

24. Terms and Conditions: a) Mrs. Kaur will be taken as guarantor to the loan and all

trustees will be guarantors to the loan in the individual capacity.

b) Part of the term loan will be disbursed for repayment of unsecured loan and for

creditors of capital expenditure, after getting the list of unsecured loans and creditors

certified by C.A.

c) Remaining term loan will be disbursed by way of pay slip / D.D. as per quotations.

These quotations will be taken from the trust.

d) The trust will have to submit post-dated cheques towards repayment of the term loan.

e) Trust will have to submit documents to the satisfaction of bank that ABC Mahavidyala

Institute of Dental Science and Research Centre is being run the control of the trust and

ABC Medical Education Trust does not have any other activity and financial statements

other than that of the Mahavidyala.

Case Study-2: Hindustan Motel Pvt. Ltd.

1. Name of the borrower: Hindustan Motel Pvt. Ltd.

2. Membership No: 80055

3. Office Address: 400, A1/6, opp. to Patil Plaza, Mittra Mandal, Pune

4. Telephone No: 020-24440605

5. Constitution: Private Limited Liability Company

6. Directors / Partners / Proprietor: a) Mr. Keshav Joshi

b) Mr. Shriram Nene

7. Registration No: CIN UT 2222 PN 2001 PTC 16161

8. Pan No: AAGGG0809J

9. Nature of Business: Managing Motel

10. Dealing in Product: Managing Motel at Pune-Mumbai Highway

11. Major changes during last 12 months: There is change in activity and share

holding pattern of the company during the year.

12. Background of the company applying for loan proposal and the reason for

applying for term loan: The applicant company Hindustan Motel Pvt. Ltd. was earlier

known as M/s Pure Travel Solution Pvt. Ltd. This earlier company was providing travel

related software solutions mainly to the companies engaged in the activity of transport of

passengers and cargo. There was not much income from the said activity. M/s Pure Travel

Solution Pvt. Ltd. has decided to enter into Motel activity and therefore purchased Motel

at Pune-Mumbai Highway in name of Hindustan Motel. It also changed its name to

Hindustan Motel Pvt. Ltd. The letter from the Registrar of Companies is taken on record

approving the name, as ‘Hindustan Motel Pvt. Ltd.’ The Memorandum of Association

with necessary changes will be taken on record. The applicant company has purchased

the said property from M/s Jayashree Travel Pvt. Ltd. by raising unsecured loans. M/s

Jayashree Travel Pvt. Ltd. is the sister concern of the company, which is the holding

company of the applicant.

13. Loan requirement of the company:

Sr. No. Type of Purpose Loan Amount (Rs. in Lakhs)

Facility Required Existing

1. Term Loan Payment of the 300.00 0.00

unsecured loans

Total 300.00 0.00

14. Security offered by the company:

Sr. Type Description Outstanding Valuation Value

No. Balance
1. Principle Property at Lonavala 00.00 20/4/08 440.60

21/B, Pune –Mumbai

Highway at Lonavala.
2. Collateral Additional collateral 00.00 26/5/08 50.00

security acceptable by

Total 00.00 490.60

15. Appraisal of Managerial Competence / Human Appraisal:

Sr. Name of the Annual

Qualification and Experience
No. Promoters Income
1. Mr. Keshav Joshi Science Graduate 11.00

20 Years experience in this field.

2. Mr. Shriram Nene Graduate 2.60

Having more than 35 years experience in

this field.
3. Mrs. Priya Graduate 3.00

Keshav Joshi Having more than 15 years experience in

this field.

The promoters of Hindustan Motel Pvt. Ltd. are well qualified and experienced in

the field of traveling. M/s Jayashree Travel Pvt. Ltd. is managing Motel on Pune-Mumbai

Highway for last 4 to 5 years. The promoters have their annual income, which is fair


16. Appraisal of Technical Feasibility Aspects: The Company is engaged in the

activity of managing Motel. All the necessary infrastructure and manpower needed for

running the Motel is available. The premise of the Motel is owned by the applicant

company, which is transformed from M/s Jayashree Travel Pvt. Ltd. The total area of the

plot is 36800 sq.mts including 31232.7 sq.mts agricultural area and the remaining is non-

agricultural area. The constructed area in the Motel is 25563 sq. ft. As M/s Jayashree

Travel Pvt. Ltd. is managing Motel on Pune-Mumbai Highway for last 4 to 5 years;

therefore all necessary infrastructures is already available.

17. Appraisal of Market / Demand Forecasting: The Motel is situated on Pune-

Mumbai Highway near Lonavala, which is about 100 kilometers from Pune. The location

of the Motel is prime and over the period of time the Motel is expected to become famous

among the travellers. Number of passenger buses, private cars is taking halt for snacks

and meals at the Motel. As the sister concern company M/s Jayashree Travel Pvt. Ltd. is

also engaged in the business of transport and the activity is established, there is now no

need for special marketing. The company has applied for term loan of Rs.300.00 Lakhs

for the repayment of unsecured loans raised for the purchase of property at Lonavala. The

valuation of the property is Rs.440.60 Lakhs.

18. Project Cost Details and Means of Finance:

Project Cost Details:

Sr. No.
Sr. No. Member No.
Particulars Name
Already Incurred Occupation
To Be IncurredAnnual Income
1. Land & Building 400.00 00.00 400.00
1. 800114 Mr. Keshav Joshi Director 11.00
Total 400.00 00.00 400.00
2. 800016 Mr. Shriram Nene Director 2.60

3. 800177 Mrs. Priya K. Joshi Business 3.00

Total 16.60

Means of Finance:

Sr. No. Particulars Already Incurred To Be Incurred Total

1. Share Capital 100.00 00.00 100.00
2. Unsecured Loan 300.00 00.00 300.00
Total 400.00 00.00 400.00

19. Details of Guarantors:

20. Appraisal of Financial Feasibility Aspects:

a. Key financial data

2006 2007 2008 2009 2010

Actual Actual Tentative Projectn Projectn
Gross Sales 0.73 0.49 0.48 218.02 249.98
Other Income 00.00 00.00 00.00 00.00 00.00
Gross Profit 0.64 0.45 0.46 60.91 80.30
G.P.Percentage 87.68 91.85 95.84 27.94 32.2
Net Profit 0.03 (0.03) 0.06 0.62 13.90
N.P.Percentage 4.11 (6.12) 12.50 0.29 5.6
Depreciation 0.06 0.04 0.02 40.70 37.43
Cash Accruals 0.09 0.01 0.08 41.32 51.33
Gross Block 0.77 0.77 0.77 407.00 374.30
a) Net Block 0.01 0.05 0.03 366.30 336.87
b) Investment & Non C.A. 00.00 00.00 00.00 10.00 23.00

Bank Term Loan 00.00 00.00 00.00 293.61 272.50
Unsecured Loan 3.81 3.82 3.20 00.00 00.00
Other Long Term Liability 00.00 00.00 00.00 00.00 00.00
c) Total Long Term Liability 3.81 3.82 3.20 293.61 272.50
Net Fixed Assets (a+b+c) (3.80) (3.77) (3.17) 82.69 87.37
Raw Material 00.00 00.00 00.00 00.00 00.00
W/P & Consumables 00.00 00.00 00.00 00.00 00.00
Finished Goods 00.00 00.00 00.00 00.00 00.00
Receivables 4.55 4.13 4.13 0.04 0.05
Cash & Bank Balance 0.50 0.65 0.15 22.76 32.24
Other Current Assets 0.20 0.25 0.24 0.96 1.13

Total Current Assets 5.25 5.21 4.70 25.72 35.67

Sundry Creditors 0.22 0.16 0.14 6.79 7.51

Working Capital Finance 00.00 00.00 00.00 00.00 00.00

Other Current Liability 0.25 0.24 0.26 00.00 00.00

Total Current Liability 0.47 0.40 0.40 6.79 7.51

Net Current Assets 4.78 4.81 4.30 18.93 28.16

Capital 1.00 1.00 1.00 101.00 101.00

Reserves 0.10 0.04 0.10 0.62 14.53

Profit & Loss 0.03 (0.03) 0.07 00.00 00.00

Net Worth 1.13 1.10 1.17 101.62 115.53

Current Ratio 11.17 13.02 11.75 3.79 4.75

Debt-Equity Ratio 3.59 4.02 2.83 2.89 2.36

b. Comments on key financials

Sales / Receipts: Total receipts as per provisional financial statements as on March 2008

are Rs.0.48 Lakhs. These receipts are mainly from previous activity of providing travel

related software solutions to group companies. As per projections, the applicant company

newly started the activity of Hindustan Motel.

The previous year income that is in the year 2007-08 from said activity in the

financial statements of M/s Jayashree Travel Pvt. Ltd. was Rs.190.16 Lakhs. The

projected income in the year 2008-09 is at Rs.218.02 Lakhs with the growth of 15% p.a.

The projected growth is acceptable considering the past trend in the last 2 years.

Profitability: The projected Net Profit for the year 2008-09 is Rs.0.62 Lakhs. The Net

Profit ratio of the company as per projections for the year 2008-09 is 0.29%. In the year

2007-08 and before that said activity was included in books of M/s Jayashree Travel Pvt.

Ltd. and only revenue was shown separately with other activity. Therefore profitability of

said activity is not comparable in the previous years. However as per the information

submitted by the company regarding operative expenses for the said activity in the

financial statements of M/s Jayashree Travel Pvt. Ltd. in the previous 3 years ending on

2007-08, the operative expenses are 24% in the year 2007-08 and 14% and 16%

respectively in 2006-07 and 2005-06. The interest cost is not considered in above

calculations. The said ratio is projected at 17% in 2008-09 and increasing at 2% to 5% in

next 6 years. The projected profitability is acceptable.

Current ratio: The current ratio of the company is projected 3.79:1 in the year 2008-09.

The current liabilities include purchase of grocery for 1 month and current assets include

stock of foodgrains and vegetables for 8 days.

Net worth and Debt-Equity Ratio: The net worth of the company as on March 2009 is

projected at Rs.101.62 lakhs. The authorized and paid up capital as on March 2008 was

Rs. 1.00 Lakh. Mr. Keshav Joshi and Mrs. Priya Keshav Joshi previously held the shares

of the applicant company. In the current year M/s Jayashree Travel Pvt. Ltd purchased all

the shares of the applicant company and became 100% subsidiary of M/s Jayashree

Travel Pvt. Ltd. As the applicant company has purchased property of Hindustan Motel

from M/s Jayashree Travel Pvt. Ltd., the authorized and paid up capital is increased up to

Rs.100 Lakhs and M/s Jayashree Travel Pvt. Ltd contributes the same. The total

consideration for purchase of property is Rs.400 Lakhs and M/s Jayashree Travel Pvt.

Ltd. has contributed in from of Rs.100 Lakhs share capital and balance in form of

unsecured loans. The debt-equity ratio in March 2009 is satisfactory as 2.89:1.

Break-even and sensitivity: The BEP receipts in the year 2008-09 are at Rs.216.02 Lakhs

at 99% and cash BEP at Rs.128.70 Lakhs at 59%. While calculating above BEP employee

cost is also considered as variable along with expenses on services activity. As per the

BEP analysis submitted by the company only expenses, on expenses on service activity

are considered as variable expenses. Therefore as per company calculations PV ratio is

0.55 and BEP sales in the year 2008-09 are at Rs.216.02 Lakhs. In the subsequent years it

is gradually reduced up to 85%, 72% and 61% in next 3 years.

 Details about Repayment Capacity and Moratorium period

Repayment Capacity: The Company has applied for repayment period for 7 years and

with incremental principal amount. The company has submitted projections for next 7

years. The repayment capacity of the company is as under:

Particulars 2009 2010 2011 2012 2013 2014 2015

Net Profit 0.62 13.90 29.40 47.70 69.15 93.98 122.74
Interest 35.62 33.97 30.90 26.67 21.15 14.00 4.98
Depreciation 40.70 37.43 34.69 31.72 28.55 25.69 23.12
Total 76.94 85.30 94.99 106.09 118.85 133.67 150.84
Principal 6.39 21.11 30.06 40.39 51.64 67.47 82.94
Interest 37.10 35.38 32.18 27.78 22.03 14.59 5.18
Total 43.49 56.49 62.18 68.17 73.67 82.06 88.12
DSCR 1.77 1.51 1.53 1.56 1.61 1.63 1.71

Average DSCR: 1.62

Moratorium period: The repayment proposed is on basis of incremental repayment of

principal and interest. Instead of debiting EMI as amount due, the equated monthly

principal (annual repayment of principal /12) shall be debited is to be recovered. The

company has not applied for the moratorium period.

21. Merits of the proposal: a) All the directors of the company are having good

experience in this field.

b) The collateral security coverage is 63% in the proposal.

22. Recommendations: considering business of the applicant scope for the activity,

past financial and projections, it is recommended to sanction following limits:

1. Term Loan: Rs.300Lakhs

Purpose: Repayment of unsecured loans.

Rate of Interest: 12.50% Margin: 32%

Period: 84 months Repayment: 84 monthly Installment

Security: 21/B, property at Lonavala Pune –Mumbai Highway by way of simple

registered mortgage.

23. Terms and Conditions: a) M/s Jayashree Travel Pvt. Ltd. holding company of the

applicant will be taken as guarantor for the limit.

b) The directors shall not withdraw remuneration prior to payment of bank dues. An

undertaking to that effect will be taken on record.

c) The disbursement of loan will be made after obtaining copy of registered sale deed

between vendor and applicant company for 36799.95 sq.mts per valuation report.

d) The Memorandum of Association with change in name and object clause will be taken

on record prior to disbursement.

e) Prior to disbursement of term loan, C.A. certificate regarding unsecured loans will be

taken on record.

Case Study-3: PKK Distriparks Pvt. Ltd.

1. Name of the borrower: PKK Distriparks Pvt. Ltd.

2. Membership No: 80090

3. Office Address: 28/29, Ram chambers, 555, Mumbai-Pune Road, Kasarwadi

4. Telephone No: 2444456

5. Constitution: Private Limited Liability Company

6. Directors / Partners / Proprietor: a) Mr. Pankaj Kulkarni

b) Mr. Rahul Kulkarni

c) Mr. Rakesh Kulkarni

d) Mrs. Pushpa Kulkarni

7. Registration No: CIN U60 220 MH2006PTC161618

8. Pan No: AACCK9055K

9. Nature of Business: Custom Clearance and Warehousing

10. Dealing in Product: Inland Container Depot, at MIDC, Talegoan.

11. Major changes during last 12 months: No major changes during last 12 months

12. Background of the company applying for loan proposal and the reason for

applying for term loan: Mr. Kulkarni started the business in the year 1960. Mr. Kulkarni

and his family is in the business of manufacturing insulated copper conductors, provides

logistic solutions to the multinational companies like MICO, BOSCH, LG, etc. and also

carrying activity of trading of auto components since 1960. With this experience and after

new generation entrepreneur’s joining the business they have decided to form new

company for warehousing and logistic activity.

They have decided to develop Distriparks. This facility with custom clearance is

known as ‘Container Fright Stations’ (CFS) or also known as ‘Inland Depot Container’

(IDC). ICD will facilitate the movement of material of exports and imports business,

which takes place through international ports and airports. Imported material is moved

from ship and stored at ports till it is cleared after payment of custom duty. Likewise

material to be exported is stored at ports till shipment.

Due to the inherent structure and procedural constraints, ports and harbors cannot

accommodate increased traffic in containerized cargo so the company decided to offer

following services and has acquired the ICD license for the said activity from the

Government of India.

 Transportation of container to and from the ports or manufacturing units.

 Stuffing or Destuffing of cargo in containers and read vehicles.

 Custom clearance.

 Storage in warehousing or as full container load in container yard.

The ICD will be custom clearance point for wider hinterland and closer to

consumption and manufacturing unit away from congested ports / containers terminals /

airports at Mumbai and Jawaharlal Nehru Port. It will also provide multi modal facility to

receive / deliver EXIM cargo. Available warehousing facility will reduce level of

demurrage and pilferage compared with facilities available at port.

The company selected the site at MIDC Talegoan being near to Pune and Primpri-

Chinchwad Industrial area and well connected by road and rail to ports. Further the area

is developing as industries are coming up in Talegoan Chakan belt. All this will be

helpful for ICD activity of the company. The company will be constructing warehouse, a

container yard, office space for bank, custom office, clearing agent etc. All this area will

be bonded by wall and out the bonded area open area for parking of trucks will be made

available. For starting this project the company has approached the bank for term loan.

13. Loan requirement of the company:

Sr. No. Type of Facility Purpose Loan Amount (Rs. in Lakhs)

Required Existing
1. Term Loan Starting a Inland 2272.00 0.00

Container Depot

Total 2272.00 0.00

14. Security offered by the company:

Sr. Type Description Outstanding Valuation Value

No. Balance
1. Principle Land and Building and 00.00 00.00 2896.00

Plant and Machinery

2. Collateral Building at C7, Survey 00.00 00.00 201.56

No-471/3, Tilak Road,

Sadashiv Peth. Pune-

Total 00.00 3097.56

15. Appraisal of Managerial Competence / Human Appraisal:

Sr. No. Name of the Annual

Qualification and Experience
Promoters Income
1. Mr. Pankaj B.Com 651.34

Kulkarni Having 48 years experience. Have served

MICO, BOSCH etc. started business in

distribution, logistic, and manufacturing,

service industry.
2. Mr. Rahul MS-Manufacturing System 149.73

Kulkarni Mechanical Engineer- US

Business experience of last 5 years.

3. Mr. Rakesh M.B.A- Finance. 122.47

Kulkarni Worked in US firm and Now joint the

family business.

4. Mrs. Pushpa B.Com 422.69

Kulkarni Involved in family business.

The promoters of PKK Distriparks Pvt. Ltd. are well qualified. The promoters are

having experience in this field distribution, logistic, and manufacturing, service industry

and also provides logistic solutions to the multinational companies like MICO, BOSCH,

LG, etc. and also carrying activity of trading of auto components since 1960.

16. Appraisal of Technical Feasibility Aspects: For the appraisal of technical

feasibility the bank had appointed Union Services conducted a Techno-economic

validation report of ICD project of PKK Distriparks Pvt. Ltd. The report suggest that the

scope for the business, facility to be provided, expected cliental, available competition,

tariff, revenue generation and SWOT etc. has been studied in details by Union Services

and concluded that the project is technically feasible and financial viable.

For the project the company is acquiring three plots at MIDC area. The ICD requires

access by roads for their activity, which is already available. The project requires water,

electricity for normal use, which will be made available by MIDC.

The company is planning to use the material handling equipments to reduce the

dependence on unskilled labours. Skilled manpower for the warehousing and other

activity will be available.

17. Appraisal of Market / Demand Forecasting: As a strategy company will be

developing a market with good service compared with competitors in Pune. Presently

there are three ICD operating around Pune. But the applicant company has advantage

over other companies as the ICD is situated in such an area from where the transportation

cost is less. The company expects a good business from lots of reputed companies

surrounding the area. All this seems that the proposed activity have a good business


ICD will lead to the development of distribution parks known as Distriparks globally.

This will help the company to get good orders from the companies, as it is an industrial

area where this ICD is situated. The company is expecting a good business overall.

18. Project Cost Details and Means of Finance:

Project Cost Details:

Sr. No. Particulars Already Incurred To Be Incurred Total

1. Land & Building 00.00 1799.00 1799.00
2. Plant & Machinery 00.00 710.00 710.00
3. Electrification 00.00 67.00 67.00
4. Furniture & Fixture 00.00 92.00 92.00
5. Other Assets 00.00 228.00 228.00
6 Others 00.00 353.16 353.16
Total 00.00 3249.16 3249.16

Means of Finance:

Sr. No. Particulars Already Incurred To Be Incurred Total

1. Share Capital 00.00 1077.16 1077.16
2. Term Loan from Bank 00.00 2272.00 2272.00
Total 00.00 3249.16 3249.16

19. Details of Guarantors:

Sr. No. Member No. Name Occupation Annual Income

1. 800012 Pankaj Kulkarni Business 651.34
2. 800013 Rahul Kulkarni Business 149.73
3. 800017 Rakesh Kulkarni Business 122.47
4. 800014 Pushpa Kulkarni Business 422.69
20. Appraisal of Financial Feasibility Aspects:

a. Key financial data

2009 2010 2011 2012 2013

Projectn Projectn Projectn Projectn Projectn
Gross Sales 1009.27 3405.66 5304.66 6782.03 7924.07
Other Income 00.00 00.00 00.00 00.00 00.00
Gross Profit (136.01) 604.43 941.40 1142.04 1275.45
G.P.Percentage (13.47) 17.75 17.8 16.84 16.10
Net Profit (467.37) 228.75 569.46 789.55 949.15
N.P.Percentage (46.30) 6.72 10.74 11.65 11.98
Depreciation 235.97 40.92 188.82 169.30 152.07
Cash Accruals (231.40) 439.67 758.28 958.85 1101.22
Gross Block 2810.66 2810.66 2810.66 2810.66 2810.66
a) Net Block 2550.92 2357.20 2357.20 2033.47 1898.60
b) Investment & Non 00.00 00.00 00.00 00.00 00.00

Current Assets
Bank Term Loan 2272.49 1846.62 1846.62 977.62 543.12
Unsecured Loan 00.00 00.00 00.00 00.00 00.00
Other Long Term Liability 00.00 00.00 00.00 00.00 00.00
c) Total Long Term 2272.49 1846.62 1846.62 977.62 543.12

Net Fixed Assets (a+b+c) 378.43 510.58 510.58 1055.85 1355.48
Raw Material 00.00 00.00 00.00 00.00 00.00
W/P & Consumables 00.00 00.00 00.00 00.00 00.00
Finished Goods 00.00 00.00 00.00 00.00 00.00
Receivables 00.00 00.00 00.00 00.00 00.00
Cash & Bank Balance 66.71 183.90 183.90 1037.76 1706.55
Other Current Assets 25.00 25.00 25.00 25.00 25.00

Total Current Assets 91.71 208.90 208.90 1062.76 1731.55

Sundry Creditors 1.94 5.35 5.35 11.14 13.21

Working Capital Finance 00.00 00.00 00.00 00.00 00.00

Other Current Liability 00.00 00.00 00.00 00.00 00.00

Total Current Liability 1.94 5.35 5.35 11.14 13.21

Net Current Assets 89.77 203.55 203.55 1051.62 1718.34

Capital 1077.16 1077.16 1077.16 1077.16 1077.16

Reserves (540.18) (311.43) (311.43) 1047.51 00.00

Profit & Loss 00.00 00.00 00.00 00.00 1996.66

Net Worth 536.98 765.73 765.73 2124.67 3073.82

Current Ratio 47.27 39.05 39.05 95.40 131.08

Debt-Equity Ratio 4.64 2.59 2.59 0.46 0.18

b. Comments on key financials

Sales / Receipts: The Company is expected to earn major income / revenue from

transport charges, pallet rental income, office rental income and heavy-duty cargo income

company project revenue on account of charges for transit and interchange rate, custom

recovery charges etc.

The ICD is expected to start functioning from July 2008. Accordingly for 2008-

09, which will be the first year of their operations they have considered income for period

of ninth month. The transport charges form the major part of the income of the company.

The company also considers the storage income as one of the sources of income. Income

derived from stuffing and destuffing of containers is another source of study income.

Other income comprises of insurance, office rent, weighbridge charges, container-holding

charges etc.

Profitability: Major expenditure is on account of transport, equipment rental cost, and

manpower. As they are in service industry, apart from transport charges all other expenses

are semi-variable in nature. During first nine months of 2008-09 of business operations of

the company will result Rs.36.90 Lakhs before interest and depreciation. Company

projected book profits of Rs.467.37 Lakhs in that year and cash accruals in will be

Rs.231.40 Lakhs. The promoters will bring Rs.353.00 Lakhs for repayment of bank

interest in the form of capital in the business. From second year of operations the

company expects book profit and higher cash accruals.

Current ratio: The Company is in service industry and will not be holding stock in trades

or debtors on higher scale. The company will be satisfying its working capital

requirements out of the funds generated from business and have not applied for any

working capital limit.

Net worth and Debt-Equity Ratio: Promoters will bring Rs.724 lakhs for meeting the

project cost of Rs.28.96 crores i.e. 25% of the project cost. Further promoters are

introducing funds in the form of share capital towards interest on term loan till repayment

starts, so due to book loss net worth shows reduction, in actual terms the promoters

contribution will remain intact. Though the debt-equity ratio is 4.64:1 as on 31/3/09 it

will be 3:1 in actual terms. From 2010the company will earn profit from the activity and

net worth will improve and hence the ratio will show improvement.

Break-even and sensitivity: The Company will start operations in 2008-09; however

repayment of the term loan will start from next financial year. In the year 2009-10 the

company will break-even at 68% of its projected revenue generation.

21. Details about Repayment Capacity and Moratorium period

Repayment Capacity:

Particulars 2009 2010 2011 2012 2013

Net Profit 228.78 569.40 789.54 949.15 1221.12

Interest 210.92 188.82 169.30 152.07 119.64

Depreciation 264.77 209.46 152.98 96.49 40.01

Total 704.44 967.68 1111.82 1197.71 1380.77

Term loan Rs.2272 Lakhs. 439.79

EMI @12.5%p.a.
Interest during Moratorium 67.88 586.32 586.32 586.32 586.32

Total 507.67 586.32 586.32 586.32 586.32

DSCR 1.38 1.65 1.89 2.04 2.35

Average DSCR: 1.86

This shows that the company will be able to repay the loan out of the business

profits, as DSCR is 1.86.

Moratorium period: Company has applied for moratorium period of 12 months after the

ICD starts operations from July 2008 and hence the repayment during year 2009-10 for

nine months has been considered while ascertaining DSCR. As the project is unique in

nature requires high capital expenditure initially and business development will certainly

taken some time, demand of the company for moratorium seems to be genuine.

22. Merits of the proposal: a) The industrial area in and around Talegoan is taking

place very fast day by day which will be helpful for the company.

b) The promoters are well experienced in line of business since long.

c) The inflow of orders will be continued in future to the company.

23. Demerits of proposal: a) During the initial period of business, the company will

face losses which could be slowly reduced.

24. Recommendations: Considering business of the applicant scope for the activity,

past financial and projections, it is recommended to sanction following limits:

1. Term Loan: Rs.2272 Lakhs

Purpose: Project of Inland Container Depot

Rate of Interest: 12.5% Margin: 25%

Period: 72 months with 12 months moratorium period.

Security: ICD project land and building at A-18 and plant and machinery by way of

simple registered mortgage.

Terms and Conditions: a) Disbursement of term loan will be made directly in favor of

parties as per quotations. In respect of capital expenditure incurred by the company term

loan will be reimbursed after obtained C.A. certificate.

b) The company will have to pass Board Resolution to execute necessary security

documents in favor of the bank.

c) The company will have to provide post-dated cheques for repayment of term loan.

d) The company will have to serve monthly interest charged to the loan account during

setting up of ICD till June 2008 and during moratorium period till June 2009 separately.

Undertaking to that effect will be taken from the company.

e) The company will have to obtain necessary license and permission for the business and

it will be responsibility of the company to timely renew the same. An undertaking to that

effect will be taken from the company.

f) All directors of the company will be taken as guarantors for the loan in individual




 The bank should keep track of the industry performance in order to have smooth

functioning of appraisal of the loan proposals. The banks should take into account

various aspects like the growth of the industries in the economy, trend analysis,

inflation rate and various other factors affecting the economic growth. The banks

should periodically update these records which will in turn help in reducing the

default risk.

 The time period taken by the banks to sanction the limits should be significantly

reduced to allow the borrowers to make use of the credit when the need is most


 Tracking of the accountability of defaulters becomes difficult in case of term

loans as the processing of the loan proposal is done at various levels. In such

scenario it become difficult to place the responsibility of default loans on any

single person as the scrutiny of loan application has gone through various hands.


In today’s economy term loans form the major part of finance for carrying out a

business. The term loans are usually of high amounts and therefore the banks have to be

very cautious while sanctioning these loans. Therefore it becomes essential for the banks

to conduct thorough credit appraisal for term loan. Credit appraisal programme should

necessarily be inbuilt system of processing the loans in banks as its basic purpose is to

ensure that the borrower acquires the proposed fixed assets, puts them to use in producing

merchandise which would have a market, and generate enough cash from operations to

repay the term loan along with the interest within the stipulated term loan period.

Credit appraisal is the step which decides everything. Credit Appraisal is the process

by which a lender appraises the creditworthiness of the prospective borrower. It is a very

important step in determining the eligibility of a loan borrower for a loan. The credit

appraisal is done to ensure that the loan is given to the company, which is managerially,

technically, and financially feasible and which ensures the repayment of the interest as

well as principal amount of the term loan. Every potential borrower has to go through the

various stages of a credit appraisal process of the bank.

All banks have their own rules to decide the credit worthiness of their borrowers. In

the similar manner Cosmos Bank is very much clear about their loan processing policy

and always sticks to the producer prescribed by the top management. The bank is

successful leader in the industrial loan market. Moreover it concentrates more on the

customer satisfaction. It has a very good client list for the industrial loan. The Bank

makes use of the advanced software called as CRM, which enhance the fast processing of

the loan. The bank sees to it that the loan is given to a right person and for right use.


 Not able to see the monitoring part of the loan once it is sanctioned as monitoring

department was at the different place.

 Didn’t get the chance to see cases in different sectors like telecom, automobile,


 Did not get much time to discuss with the manager about different cases.

 Did not get the chance to directly interact with the borrowers.

 Due to time constrained did not get much exposure to end to end procedure of

term loan.


1. Books:

 D.D.Mukherji, Credit Appraisal, Risk Analysis & Decision Making, Snow

White Publication

 Khan Jain, Financial Management, Tata McGraw Hill Publication.

 Khan Jain, Management Accounting and Financial Analysis, Tata McGraw

Hill Publication.

2. Internet sites:

 <www.cosmosbank.com> assessed on 10th June 2008, 5:30 pm.

 <www.investopedia.com> assessed on 15th July 2008, 7:00 pm.


Documents to Be Submitted For Industrial Loan

Address Proof (which is applicable to be submitted):

1. Ownership / rental lease agreement of registered office address.

2. Ownership / rental lease agreement of Factory / proposed site address.

3. Ownership / rental lease agreement of Correspondence address.

4. Ownership / rental lease agreement of Residence address.

Licenses / Permissions:

1. Shop Act License.

2. S.S.I. License.

3. Factory License.

4. Pollutions control License.

5. C.S.T. / B.S.T. / V.A.T. License.

6. Excise Registration.

7. Power Connection.

8. Any Other License / permission required as per specific business like Drugs

License, Food / Health License etc.

Other facilities / infrastructure:

1. Power / Water / Transportation / Labour / Raw Material / Specific requirement of

place etc.

2. Present status / proposed requirement / availability.

Bank Accounts / Loan Facilities:

1. Existing Bankers.

2. Existing loan facilities with purpose, amount / s sanctioned and outstanding,

period, security offered, mode of security and repayment status, statement of

accounts of other bank account.

3. New loan requirements / enhancement requirements – purpose, amounts, period,

and security offered.

4. Whether moratorium period is required.

Authority of Loan Demand:

1. In case of firm / Private Ltd. / ltd. company or Government local authority etc.

Resolution / Authority letter for loan demand.

2. In case of Private Ltd. / ltd. company the resolution should contain purpose,

amount, authorised signatory for signing loan application and loan documents,

authority to put the seal with proper signatories, and security offered.

3. In case of trust resolution and permission from charity commissioner.

Sister Concern:

1. Name / address / constitution / establishment / activity / bankers / loan facilities /

last 3 years / latest audited annual reports.

Financial Statements:

1. Audited balance sheet for last 3 years with IT returns.

2. Profit and Loss Account for last 3 years.

3. Audit reports and relevant schedules.

4. Latest (tentative balance sheet and profit and loss accounts statements [closer to

date of submission] along with relevant schedules).

Project Report: (for term loan demand)

1. Promoter’s boi-data, background, experience etc.

2. Product details.

3. Competition, same product – manufacturer / market potential / market survey…

competency / technical knowledge required for the same.

4. Basis of sales assumption – orders in hand.

5. Manufacturing process.

6. Availability and requirement of infrastructure – labour / power / water / raw

material / transport etc.

7. Marketing / agencies / distributorships.

Financial Projections:

1. Total project cost in details and means of finance.

2. Five years balance sheet and profitability statements.

3. Term loan repayment schedule.

4. Break even analysis.


1. Quotations as per project report for fixed assets to be purchased. Estimates of

contractors / builders in case of loan for construction. For second hand machinery,

valuation report from panel values of the bank should be submitted.

Payment of Statutory Dues:

1. Latest Assessment orders, challans of payment / advance payment of statutory

dues like income tax, sales tax, excise, provident fund, E.S.I. dues etc.


1. Details of security offered.

2. Address of location.

Collateral Security:

1. Property as per Annexure A, vehicle’s RC / TC, insurance details of collateral

security that can be offered as additional security, Revaluation, report from banks

authority, value – date within 3 years.


1. Two personal guarantors.

2. Income proof – if salaried, latest salary certificate / attested payslip. If

businessman – latest IT returns / balance sheet and profit and loss account.

3. In case of partnership firm / Private Ltd. companies / Ltd. companies, companies,

partners / directors will also have to sign as guarantors in their personal capacity.

4. Guarantors individual investments, assets, loans etc.

5. Address proof – photocopies of PMC tax receipts / MSEB bill / telephone bill /

PAN card / passport / driving license etc.

Associated Concerns – Details:

1. Name, constitution, business activity, name of promoters / partners, credit

facilities enjoyed with us, with other banks.

Orders in Hand:

1. List of orders with stages of completions, cost incurred / to be incurred, payment

received in advance / to be received etc.

2. Details order with material / without material, sub contracting agencies involved

and bank guarantees needed etc.


1. After the security of the proposal, bank will communicate its principle approval

for the proposal. Then the borrower have to open current account with the branch,

collect loan application / nominal membership / membership forms from the

branch / pay process charges (non-refundable).

2. After the sanction of the loan, the borrower will be given the sanction letter. The

loam applicant will have to comply with the conditions as per the sanction letter,

such as execute the necessary documents of loan along with guarantors,

agreement charges, stamp duty for the agreements, legal charges, valuation

charges, registration charges etc. also the borrower will have to deposit share

money at the rate of 2.50% of the loan amount sanctioned to the extent of Rs.1.00

lakh and remaining as FDR.


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