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FLOW OF PRESENTATION
Company Profile Credit Appraisal Methods of Lending Risk Rating Of Borrower Post Sanction Follow-up Case Study Findings Suggestions Limitations Bibliography
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COMPANY PROFILE
Punjab National Bank (PNB) was set up in
1895 in Lahore - and has the distinction of being the first Indian bank to have been started solely with Indian capital.
bank with a successful track record of over 110 years. The bank has the 2nd largest branch network in India, with 4525 branches .
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appraisal means an investigation/assessment done by the bank prior before providing any loans & advances/project finance & also checks the commercial, financial & technical viability of the project proposed.
qProper
evaluation of the customer is preferred which measures the financial condition & ability to repay back the loan in future
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Age Income Number of dependents Nature of employment Continuity of employment Repayment capacity Previous loans
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OBJECTIVES
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RESEARCH METHODOLOGY
Primary sources of Information
Meetings and discussion with the Chief
Manager and the Senior Manager of both Credit and Credit Risk Management Department
bank
Research papers, power point
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Overview of Loans
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METHODS OF LENDING
Working Capital Simplified Method
Simplified method based on turnover for
assessing working capital finance up to Rs.2 crore (upto Rs. 5 crore in case of SSI units)
MPBF System
Existing MPBF system with flexible
approach shall be followed for units requiring working capital finance 7/7/12 exceeding Rs 2 crore
proper Loan Termappraisal will be made by utilizing the services of specialized / Technical officers.
period of above 5 years shall not exceed 50% of the term deposits with remaining maturity period of above 5 years after taking into account the renewal of term deposits as per the past trend.
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On Receiving Of Proposal
Financial statements, project report and other important documents are used to evaluate:
Maximum permissible bank finance (in case of WC limit) Techno Economic Feasibility Analysis of the project Various risks associated. Various approvals of issues the borrower seeks (reduction of ROI,
chargeable current assets, current liabilities (other than bank borrowings) and net working capital conformity with the guidelines issued by the Reserve Bank/HO. 7/7/12
Classification of current assets and current liabilities in Maintenance of minimum current ratio of 1.33:1 .
PARAMETERS / INPUTS Management Setup Integrity, commitment and sincerity Financial flexibility
Range of services Quality of service offered Business Evaluation Economies of operation Ambience of service outlet Effectiveness of distribution channels Quality of infrastructure available
Level of customer satisfaction Advertising / promotional strategies Brand equity Expected market growth Locational advantage Technology adopted in the process
Debt Equity Ratio Financial Evaluation Repayment Period (in yrs) Foreign exchange risk
Project complexities Project Implementation Risk Evaluation Expected cost overrun Funding risk
Models
Models Financials Business Managem Conduct and ent of A/c Industry 40% 40% 40% 40% 25% 25% 25% 20% 25% 35% 25% 20% 20% 25% 40%
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of 29 indicators Parameters grouped into 6 sections. Penalty rates (weights) in the form of numerical values have been assigned to each indicator (parameter) depending upon their degree of impact on health of an account. PMS Report
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QMS I
QUARTERLY MONITORING six weeks from close of the quarter to SYSTEM the gives information about which it relates. It
the operations of the unit and its performance for the quarter, also giving reasons for non-achievement of sales/production targets.
QMS II
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Background :
The Company is a profit making, dividend
bars and wire rods which form part of the longer segment of the steel industry.
Company also manufactures stainless steel
products having an installed capacity of 40000 TPA. completed the project for setting up a backward integration plant at Orissa.
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Purpose
Cost of Project
Total Debt
Promoters contribution
35.20 cr
45.00 cr
DER
2.66:1 cr
Repayment Period
8 years
10 years 6 months
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Security
Nature of limits Security Value of block assetsValue of block assetsExtent of first/ secondBalance/ residual value as on: 31.03.2012 excluding specificcharge holders as onof charge available to charge if any 31.03.2012 bank/ consortium
Term Loan
347.82
347.82
226.26
121.56
298. 22
199.50
98.72
Working Capital
258.22
258.22
199.50
98.72
347. 82
226.26
121. 5 6
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mix.
Stainless steel products. The future demand for stainless steel is also likely to be determined favorably from all the sectors.
Company has been able to improvise the
product mix from 10% in the year 2008-09 to 26% in the year 2010-11. Companys aim is to achieve 40-45% share of value added products in the overall product mix 7/7/12 which will help the company to maintain
Particulars
31.03.10 Audited
31.03.11 Audited
1. Total Current Assets 2. Less Current Liabilities(other than Bank borrowing and installments due within 1 year)
117.43
144.23
182.52
235.01
39.67
43.79
37.33
45.96
3. Working Capital Gap 4. Actual / Projected bank borrowings 5. Total current liabilities (2+4) 6. NWC (1-5) 7. Minimum stipulated margin 25% of current assets 8. Item 3- Item 7 9. Item 3- item 6 10. MPBF(item 8 or 9, whichever is lower)
be procuring MS/SS Scrap and other Ferro alloys on a regular basis for manufacturing of higher grades of steels and accordingly require higher LC Limits(Inland/Foreign) and requested for RS.75.00 Cr limits for the year 2012-13.
Bank guarantee
Company has informed that one or two 7/7/12
Management :
Punam Chand Rathi.
involved in running of this Company. Pradeep Rathi is Managing Director and other directors are Shri Shree Kumar Daga, Shri Prem Narayan Varshney, Shri Dwarka 7/7/12 Das Lakotia and Shri Ranjit Khattar.
Reconciliation of TNW :
2010-11
178.45 Cr
2011-12 188.85 Cr
201213(projected) 214.62 Cr
Keeping in view of the past trend of profitability of Group concerns and financial strength of the promoters of the company, the estimates/projections 2010-11 2011-12 2012-13 of TNW can be accepted.
845.3 Cr Sales
Profitability
2011-12 12.55 , 11.44 (expected) PBT 2012-13 23.73 PBT 2013-14 32.10
Current ratio
2010-11 1.37 2011-12 1.40 2012-13 1.39
the installments of TL due within one year as part of Current Liab.) was 1.22 as at 31.03.2010 and 1.24 as on 31.03.2011 and at 1.24 as at 31.03.2012 which is below the benchmark level of 1.33. Current ratio for the financial year 2012-13 & 2013-14 has 7/7/12 been estimated at 1.22:1 & 1.25:1.
the years under consideration is below the acceptable bench mark of the bank i.e. 2:1 and proves the long term solvency of the company.
Keeping in view the industry scenario and
financial strength and experience of the promoters of company into consideration estimates/ projections of Debt Equity ratio 7/7/12 of the company can be accepted.
Summary of cost of The Company has got the TEV study of the project and means of proposed expansion done by ITCOT finance and Services Limited, an Consultancy
approved agency.
The Company has estimated the total
capital expenditure for the scheme at Rs. 125.17 crore, which is proposed to be funded by way of long term loan of Rs. 93.50 crores and balance of Rs.31.67 crores by way of internal accruals/promoters contribution.
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Particulars
DSCR
2012 2013 8.36 16.07 7.87 10.79 34.73 18.42 10.79 29.21 1.19
PAT 23.32 13.27 20.58 57.17 20.05 20.58 40.63 1.41 32.57 13.39 18.01 63.97 17.80 18.01 35.81 1.79 34.70 13.50 15.35 63.56 19.90 15.35 35.25 1.80 Add Depreciation 7.03 Add Interest 10.27 A. Total accrual Cash 25.66 10.86 Interest on TL 10.27 B. Total 21.13 DSCR (A/B) Average DSCR 1.21
TL Installments
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Summary
Stand Alone Project
Debt-Equity Ratio 2.95 Company as a whole 1.02
Average DSCR
1.95
8.0
Minimum DSCR
1.10
1.95
17%
49.97
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Strengths
Strong Management team with professional
Latest technology based imported as well Location on which proposed expansion will
be implemented is in an industrial area and by the side of National Highway-24 and all types of Infrastructure facilities are available nearby.
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Weakness
Other big player in the steel industry can
finished goods.
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Opportunities
The unit is already set in 1971 and has a
strong network of dealers. The Rathi brand is an established brand for the last more than 50 years. The unit after expansion will not face any problem in marketing its products.
road projects and the emphasis of the government on irrigation and water supply projects are expected to give fillip to the construction industry. 7/7/12
Threats
Frequent fluctuation in prices of Steel which
may affect the profitability of the Projects. ramping up the Capacity of SS Products.
Big Players like SAIL and Jindals are The Fortunes of the Steel Industry are
mortality rates.
Change in the government policies related
Risk Rating
Benchmark Values Category Parameter CO Value 0 1 2 3 4 Rate
Growth Rate
16.31
<1
2.58
4.58
8.74
10.82
OPBDIT/Sales
8.23
2.6
3.88
6.4
8.17
9.05
3.07
Past Financials Short Term Borrowing/Net Absolute sales Comparison Operating Cashflow/Total Debt Net Operating CF/T Debt
14.26
28.5
23.7
14.22
10
2.
11.03
-10.84
-9.1
-5.63
1.59
5.2
-0.04
-23.5
-20.5
-14.4
-3.89
1.4
3.73
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The financial statements are prepared in accordance with Transparency in accounting generally accepted accounting principles Subjective Assessment of Financials Quality of inventory
2.00
The expected variance in the value may be less than 5% S .Debtors >6 mnths old are rs 4.41 cr which 5.22% of 7/7/12 total receivables
3.00
Reliability of Debtors
3.00
Input related risk Availability of raw material and otherIndia is endowed with large reserves of iron critical inputs ore Proximity to raw material Company is not in advantageous position due to location of plant Proposed to setup backward integration plant at Orissa
2.33 3.00
2.00
2.00 3.00
4.00
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Comments
Rate 2.5
Firm is mainly engaged in the manufacturing of MS bars and Wire rods Quality of product is reported to be better than the peers
2.00
Product quality
3.00
Marketing Distribution network Firm has800 dealer network spread over north India. Prices are at par with the peers
2.00 2 .00
Price Competitiveness
2.00
50%
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Management Evaluation
S. No. 1 Parameter Management set up Comments Listed Company managed by experienced and professional promoters and directors The management is reported to be reliable and sincere Existing Plant at Ghaziabad and Orissa are running satisfactory The account is running satisfactorily with us Management is capable of arranging funds but with a time lag Rate 3.00
Commitment and sincerity Track Record in execution of projects Track record in debt payment
2.00
3 4
2.00 2.00
2.00
1.00
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TOTAL SCORE
Factor % score obtained 53.95 54.75 Financial Evaluation Business Evaluation Management Evaluation 48.75 & Industry
25.00%
12.19
NA
0.00%
NA 52.73
Rating
BB
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DETERMINATION OF ROI
Facility Existing Proposed Derived rate Applicable Rate BR+3.5% Rate of interest CC NA BR+3.25% BR+4.50% PC
TL
NA
BR+2.25%+TP
BR+4.50+0.50
Processing Fee
Upfront Fee
Nil
Nil
Nil
NA
NA
NA
NA
NA
NA
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NA
Findings
Risk is the center most part of the analysis
grade, which represents the intensity of risk, that helps in determining the condition of the corporate applying for loan.
The whole process of credit appraisal helps
in providing a suitable measure to minimize the risk due to non repayment of loan to the bank.
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SUGGESTIONS
In the rating model there are constant
parameters with constant weightages irrespective of the company and the industry in which it operates. Weightage should be assigned to parameters according to the industry in which the company operates. calculating the worthiness of the client since the previous rating does not take into account the short term drastic changes such as price level changes etc.
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Limitations
Data availability as the data is proprietary
limited to PNB Circle Office and the loans studied were of solely of businesses established majorly in NCR
intuition and experience and since the time period was limited, hence best7/7/12 efforts were made to grasp the process as much as
Bibliography
Books
Circulars and manuals from bank. PNBOA manual for Banks and RBIs policies
on lending.
Credit appraisal, risk analysis and decision
making by DD Mukherjee.
Internet
www.pnbindia.in en.wikipedia.org
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