Jaypee Business School

A constituent of Jaypee Institute of Information Technology (Deemed University)

A-10, Sector 62, Noida (UP) India 201 307 www.jbs.ac.in

Analysis of credit appraisal

Corporate Internship Report

Internship Report submitted as a partial requirement for the award of the two year Master of Business Administration Programme MBA 2011-13

Name : Gaurav Narang

(Bank Of India,Noida)
Corporate Internship Supervisor: Mr. K.K Garg JBS-Faculty Supervisor: Dr. Jitendra Mishra

Start Date for Internship: April 20,2012 End Date for Internship: May 29,2012 Report Date: June 02,2012

Self Certificate
I hereby certify that I, Gaurav Narang, have successfully completed my internship with Bank Of India, Noida for 6 weeks (from April 20,2012 to May 29,2012).This is also to certify that this is my original work and has not been previously submitted as a part of another degree or diploma of another Business School or University. The findings and conclusions of this report are based on my personal study and experience, during the tenure of my Summer Internship.

Gaurav Narang

Signature :

Date : July 2,2012

CERTIFICATE FROM THE ORGANISATION

Acknowledgement
No task is single mans effort .Any job in this world however trivial or tough cannot be accomplished without the assistance of others. An assignment puts the knowledge and experience of an individual to litmus test. There is always a sense of gratitude that one likes to express towards the persons who helped to change an effort in a success. The opportunity to express my indebtness to people who have helped me to accomplish this task. I would like to take this opportunity to acknowledge my gratitude to various people who have helped me during successful completion of the project. Their systematic guidance has helped me to complete project in systematic and smooth manner. With profound sense of gratitude, first of alI would like to acknowledge my sincere thanks to Mr. Ramesh Chabra ( manager at Bank of India, Corporate Branch,New delhi) who helped me to get into Bank of India for the summer internship. I also want to express my gratitude towards Mr. A.S. Rawat (Chief Manager) who gave me an opportunity to work with this branch of Bank of India. The has been very supportive and kind during my internship who showed a keen interest in me and constantly appreciated my work. I deem it a proud privilege to extend my greatest sense of gratitude to my mentor at Bank of India MR. K.K Garg (senior manager,credit deptt.) and Mr. Vijay kumar (manager) and other staff of the bank for the keen interest, inspiring guidance, continuous encouragement, valuable suggestions and constructive criticism throughout the pursuance of this report. I feel highly indebted towards my faculty guide Dr. Jitendra Mishra for his constant guidance and support which helped me to make this project successful. Last but not the least, it would be unfair if I dont express my indebtness to my parents and all my friends for their active cooperation which was of great help during the course of my training project.

Table of Contents Page no.

Executive summary.............................................. 5

Introduction & Objectives................................. Companys Profile..

Ch 01.

Ch 02.

Industry analysis..

15

Ch 03.

Financial analysis...................................................

44

Ch 04.

Research project

66

Ch 05.

Conclusion & Recommendations........................... 111 Key Learnings..........................................................

114

Annexure.. 115

Refrences.. 124

Executive Summary
Banks in India underwent a drastic change in terms of its working and policies after liberalization. The field of Trade Finance and Credit Appraisal also witnessed these changes. The project will deal with the development of understanding of credit appraisal policies adopted by the bank. It will also help in improving knowledge about the credit appraisal system and to know the patterns of credit appraisal in Bank of India. This project report contains 5 chapters. The report begins with the introduction to the company ,its area of operation, its products and services, its achievements, etc. The second chapter is a detailed industry analysis of the banking industry which shows the evolution, growth and current scenario and challenges faced by the banking industry. It also covers the major players in the industry and their market shares and their performance. The third chapter covers financial analysis of Bank of India which reveals the financial performance of Bank of India during the year 2010 to 2012.The tools use for financial analysis are ratio analysis and financial analysis. It also covers the comparative financial analysis of Bank of India with Canara Bank. The fourth chapters contains the detailed study of the project. As we know that no finance can be made available without the credit appraisal of the project, thus this chapter talks about the process flow of the Advances operation. The client proposal helps us to understand the Analysis of Working Capital and Term Loans which forms the base for the advances made by the bank. The various standards and ratios used by the bank are also analysed. On the advances side, the Analysis of a proposal has been done to give a clear understanding of the procedure followed at the bank. The fifth chapter deals with conclusion and recommendations part which is very important after analysis is made. I have also try to study the existing policies with the aim at finding out how the working can be improved.

Introduction
The project undertaken is Analysis of Credit Appraisal at Bank of India. The credit appraisal process is the scientific way of giving the credit to corporate client by analysing the credit worthiness of the company through different parameters. This project will give an insight to the procedure followed at Bank of India to assess the credit worthiness of the borrower. I did my internship with Bank of India which is located in Noida Sec -9. The major reason for choosing the Banking industry was to understand the working in the banks and also to gain knowledge about banking industry and how it is helping the economy. Due to recent surge in industrialization, the Indian economy is booming. To provide more impetus to the industries, the government is encouraging their foray into various industries. In order to fund the projects, the corporate depend on the credit and trade services provided by the banks. In the changing trade scenario, India has come up as an emerging player. There are great potentials and opportunities in the trading sector on the domestic and international sector. The economic growth of any country is dependent on its Import and Export. Thus providing need based Credit is one of the most important factor helps exporter to make export orders and importers to make purchases. As finance has a risk attached, thus we need to appraise the proponent before lending any credit this process is called Credit Appraisal which checks the need of finance for the business. It involves appraisal of the background of the proponent, commercial, technical and financial appraisal. Then the Term Loan / Working Capital Assessment is done to find the limit of finance required. The project describes about the process of credit appraisal for two different industries from the information required to the processes involved. The project also details about the credit policy and the credit rating process. A practical formulation of the credit proposal has been done to provide a better understanding of the subject.

Objectives
To work with an eminent Bank and to get a taste of corporate life. To understand the working in the banks. To bridge a gap between practical life and the theory that we have learnt in our courses. To understand the business and competitive environment in which Bank of India operates. To analyze and understand the financial position of Bank of India viz-a-viz its competitors. To study the policies and procedure for the Credit Appraisal for the Trade Credit.

Chapter 1

COMPANY PROFILE

Financial Overview

Business Mix reaches 569710crores,growth of 10.62%

Type Industry Founded Headquarters Key people

Public (BSE: BOI) Financial services 07-Sep-06 Mumbai, India Alok Kumar Misra (CMD) Commercial Banking Retail Banking Private Banking Asset Management Mortgages Credit Cards 24,480.67 crore 3,84,535.47 crore 6,693.95 crore 2,677.52 crore www.bankofindia.com

Net Profit shoots up by 8% from Rs.2488.7 crores to Rs.2677.52 crores.

Operating Profit up by 24.33% (Rs. 6693.95Crore) supported by growth in net interest income as well as other income.

Products

Advances grew by 16.77% to 248833.34crores

Revenue Total assets Operating Income Net income Website

Net Interest Income rises by 6.43% to Rs. 8313.5Cr from Rs. 7810.7Cr, despite challenging conditions.

Net Interest Margin reported 4.43%

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BANK OF INDIA : COMPANY PROFILE

Bank of India (BoI) is a state-owned commercial bank with headquarters in Mumbai. Government-owned since nationalization in 1969, It is India's 4th largest PSU bank, after State Bank of India,Punjab National Bank and Bank of Baroda. Bank of India was founded on September 7, 1906 by a group of eminent businessmen from Mumbai. In July 1969 Bank of India was nationalized along with 13 other banks.

It has 4157 branches including 29 branches outside India, and about 1679 ATMs. BoI is a founder member of SWIFT (Society for Worldwide Inter Bank Financial Telecommunications), which facilitates provision of cost-effective financial processing and communication services. The Bank completed its first one hundred years of operations on 7 September 2006.

The Bank's association with the capital market goes back to 1921 when it entered into an agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is an association that has blossomed into a joint venture with BSE, called the BOI Shareholding Ltd. to extend depository services to the stock broking community.

Beginning with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid growth over the years. It has evolved into a mighty institution with a strong national presence and sizable international operations. In business volume, Bank of India occupies a premier position among the nationalized banks. Bank of India has several firsts to its credit. The Bank has been the first among the nationalised banks to establish a fully computerised branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. It pioneered the introduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio. Bank of India was the first Indian Bank to open a branch outside the country, at London, in 1946, and also the first to open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a network of 29 branches (including three representative office ) at key banking and financial centres viz. London, New York, Paris, Tokyo, Hong-Kong, and Singapore.

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HISTORY OF BANK OF INDIA

1906: BoI founded with Head Office in Bombay. 1921: BoI entered into an agreement with the Bombay Stock Exchange to manage its clearing house. 1946: BoI opened a branch in London, the first Indian bank to do so. This was also the first post-WWII overseas branch of any Indian bank. 1950: BoI opened branches in Tokyo and Osaka. 1951: BoI opened a branch in Singapore. 1953: BoI opened a branch in Kenya and another in Uganda. 1953 or 54: BoI opened a branch in Aden. 1955: BoI opened a branch in Tanganyika. 1960: BoI opened a branch in Hong Kong. 1962: BoI opened a branch in Nigeria. 1967: The Government of Tanzania nationalized BoI's operations in Tanzania and folded them into the government-owned National Commercial Bank, together with those of Bank of Baroda and several other foreign banks. 1969: The Government of India nationalized the 14 top banks, including Bank of India. In the same year, the People's Democratic Republic of Yemen nationalized BoI's branch in Aden, and the Nigerian and Ugandan governments forced BoI to incorporate its branches in those countries. 1970: National Bank of Southern Yemen incorporated BoI's branch in Yemen, together with those of all the other banks in the country; this is now National Bank of Yemen. BoI was the only Indian bank in the country. 1972: BoI sold its Uganda operation to Bank of Baroda. 1973: BoI opened a rep in Jakarta. 1974: BoI opened a branch in Paris. This was the first branch of an Indian bank in Europe. 1976: The Nigerian government acquired 60% of the shares in Bank of India (Nigeria). 1978: BoI opened a branch in New York. 1970s: BoI opened an agency in San Francisco. 1980: Bank of India (Nigeria) Ltd, changed its name to Allied Bank of Nigeria.

12

1986: BoI acquired Paravur Central Bank (Karur Central Bank or Parur Central Bank) in Kerala in a rescue. 1987: BoI took over the three UK branches of Central Bank of India (CBI). CBI had been caught up in the Sethia fraud and default and the Reserve Bank of Indiarequired it to transfer its branches. 2003: BoI opened a representative office in Shenzhen. 2005: BoI opened a representative office in Vietnam. 2006: BoI plans to upgrade the Shenzen and Vietnam representative offices to branches, and to open representative offices in Beijing, Doha, and Johannesburg. In addition, BoI plans to establish a branch in Antwerp and a subsidiary in Dar-es-Salaam, marking its return to Tanzania after 37 years. 2007: BoI acquired 76 percent of Indonesia-based PT Bank Swadesi. 2011: BoI opened a fully owened Subsidairay in Auckland, New Zealand on 6th October,2011 (Bank of India (New Zealand) Ltd.)

The Banks Mission

"To provide superior, proactive banking services to niche markets globally, while providing cost-effective, responsive services to others in our role as a development bank, and in so doing, meet the requirements of our stakeholders".

The Banks Vision

"To become the bank of choice for corporates, medium businesses and upmarket retail customers and to provide cost effective developmental banking for small business, mass market and rural markets"

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Loan Product

PRODUCT AND SERVICES Deposit Product

Investment & Insurance Mutual Funds Bonds Insurance Equity And Derivatives Star gold coin

Cash credit Overdraft Loan against Bank Deposit Loan against NSC, KVP, LIC policies etc. Agricultural Loan SSI Finance Star SSI Supreme Scheme, Priyadarshini Scheme etc. Star Home Loan Star Personal Loan Star Mortgage Loan Star IPO Star Autofin Star Education Loan Medimobile Loan Gold Loan Commercial loans
Bullion Banking Export Finance Channel Credit Discount Future Cash Flows Foreign Currency Swing limits Exporters Gold Card Dual Currency Swing Limit

Savings Bank Account BOI Savings Plus Current Deposit Account Double Benefit Deposit Fixed Deposit Quarterly Income Certificate Monthly Income Certificate Recurring Deposit Foreign Currency Deposit Scheme FCNR Deposit Floating Rate Deposit Scheme Deposit Scheme for Senior Citizens Special Deposit Product for High Value Deposit Customer

Trade Finance Bill Finance Bank Guarantee NRI Loan Cards Credit Card Debit Card -------------------------------Forex services ------------------------------- Product And Services Trade Services Forex Service Branch Locater

Online Services Star Connect Internet Banking Services BOI STAR ePay Star e-Remit Service Star Shar(e) trade e-Payment of Central Excise & Service Tax DGFT Online e Payment Online Booking of Indian Airlines & RailwaysTicket e-Payment of Direct Taxes Online Interbank Fund Transfer

Access To Bank Internet Banking Mobile Banking ATM Phone Banking Email Statements

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Chapter 2

INDUSTRY ANALYSIS

15

BANKING INDUSTRY ANALYSIS

The Banking industry comprises of segments that provide financial assistance and advisory services to its customers by means of varied functions such as commercial banking, wholesale banking, personal banking, internet banking, mobile banking, credit unions, investment banking and the like. With years, banks are also adding services to their customers. The Indian banking industry is passing through a phase of customers market. The customers have more choices in choosing their banks. A competition has been established within the banks operating in India. With stiff competition and advancement of technology, the services provided by banks have become more easy and convenient. The past days are witness to an hour wait before withdrawing cash from accounts or a cheque from north of the country being cleared in one month in the south. Banks are among the main participants of the financial system in India. Banking offers several facilities & Opportunities. This section provides comprehensive and updated information, guidance and assistance in all areas of banking in India. Bank of Hindustan, set up in 1870, was the earliest Indian Bank . Banking in India on modern lines started with the establishment of three presidency banks under Presidency Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras. The commercial banking structure in India consists of: Scheduled Commercial Banks & Unscheduled Banks. Banking Regulation Act of India, 1949 defines Banking as "accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheques, draft, order or otherwise." The arrival of foreign and private banks with their superior state-of-the-art technology-based services pushed Indian Banks also to follow suit by going in for the latest technologies so as to meet the threat of competition and retain customer base. The evolution of IT services outsourcing in the Indian banks has presently moved on to the level of Facilities Management (FM). Banks now looking at business process management (BPM) to increase returns on investment, improve customer relationship management (CRM) and employee productivity. For, these entities sustaining long-term customer relationship management (CRM) has become a challenge with almost everyone in the market with similar products. 16

Historical Background

The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

PHASE I - Early phase from 1786 to 1969 of Indian Banks PHASE II - Nationalization of Indian Banks and up to 1991 PHASE III - Indian Financial & Banking Sector Reforms after 1991.

PHASE I: The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilization was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to the traders. PHASE II: Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: 1949: Enactment of Banking Regulation Act. 1955: Nationalization of State Bank of India. 17

 1959: Nationalization of SBI subsidiaries. 1961: Insurance cover extended to deposits. 1969: Nationalization of 14 major banks. 1971: Creation of credit guarantee corporation. 1975: Creation of regional rural banks. 1980: Nationalization of seven banks with deposits over 200 crore. After the nationalization of banks, the branches of the public sector bank India raised to approximately 800% in deposits and advances took a huge jump by 11,000%.Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.

PHASE III This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalisation of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure

Banking industry is the back bone for growth of any economy. The journey of Indian Banking Industry has faced many waves of economic crisis. Recently, we have seen the economic crisis of US in 2008-09 and now the European crisis. The general scenario of the world economy is very critical. It is the banking rules and regulation framework of India which has prevented it from the world economic crisis

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STRUCTURE OF INDIAN BANKING INDUSTRY

Banking Industry in India functions under the sunshade of Reserve Bank of India - the regulatory, central bank.In India the banks are being segregated in different groups. Each group has their own benefits and limitations in operating in India. Each has their own dedicated target market. Few of them only work in rural sector while others in both rural as well as urban. Many even are only catering in cities. Some are of Indian origin and some are foreign players.

Banking System in India Reserve bank of India (Controlling Authority)

Development Financial institutions

Banks

IFCI IDBI ICICI NABARD NHB

IRBI

EXIM Bank

SIDBI

Commercial

Regional Rural

Land Development

Cooperative

Banks

Banks

Banks

Banks

Public Sector Banks

Private Sector Banks

SBI Groups

Nationalized Banks

Indian Banks

Foreign Banks

Banking Industry mainly consists of: Commercial Banks Co-operative Banks

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SCHEDULED BANKS IN INDIA

(1) Scheduled Commercial Banks Public Sector Banks Private Sector Banks Foreign Banks In India Regional Rural Banks

(26) Nationalized Bank Other Public Sector Banks (IDBI) SBI And Its Associates

(25) Old Private Banks New Private Banks

(29)

(95)

(2) Scheduled Cooperative Banks

Scheduled Urban Cooperative Banks

Scheduled State Cooperative Banks

20

Public Sector Banks

Public sector banks are those banks which are owned by the Government. The Govt. runs these Banks. In India 14 banks were nationalized in 1969 & in 1980 another 6 banks were also nationalized. Therefore in 1980 the number of nationalized bank 20. At present there are total 26 Public Sector Banks in India (As on 26-09-2009). Of these 19 are nationalised banks, 6(STATE BANK OF INDORE ALSO MERGED RECENTLY) belong to SBI & associates group and 1 bank (IDBI Bank) is classified as other public sector bank. Welfare is their primary objective.

Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs are still dominating the commercial banking system. Shares of the leading PSBs are already listed on the stock exchanges Nationalised banks Other Public SBI & its Associates Sector Banks IDBI (Industrial Development Bank Of India)Ltd. State Bank of India State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Travancore State Bank of Bikaner And Jaipur

Allahabad Bank Andhra Bank Bank Of Baroda Bank Of India Bank Of Maharastra Canara Bank Central Bank Of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank Of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank Of India United Bank Of India Vijaya Bank

(State Bank of Saurastra merged with SBI in the year 2008 and State Bank of Indore In 2010)

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Private Sector Banks

The RBI has given licenses to new private sector banks as part of the liberalisation process. These banks are owned and run by the private sector. Various banks in the country such as ICICI Bank, HDFC Bank etc. An individual has control over there banks in preparation to the share of the banks held by him. Private banking in India was practiced since the beginning of banking system in India. The first private bank in India to be set up in Private Sector Banks in India was IndusInd Bank. It is one of the fastest growing Bank Private Sector Banks in India. IDBI ranks the tenth largest development bank in the world as Private Banks in India and has promoted world class institutions in India. The first Private Bank in India to receive an in principle approval from the Reserve Bank of India was Housing Development Finance Corporation Limited, to set up a bank in the private sector banks in India as part of the RBI's liberalization of the Indian Banking Industry. It was incorporated in August 1994 as HDFC Bank Limited with registered office in Mumbai and commenced operations as Scheduled Commercial Bank in January 1995. ING Vysya, yet another Private Bank of India was incorporated in the year 1930 Private sector banks have been subdivided into following 2 categories:Old Private Sector Banks Bank of Rajasthan Ltd. Catholic Syrian Bank Ltd. City Union Bank Ltd. Dhanalakshmi Bank Ltd. Federal Bank Ltd. ING Vysya Bank Ltd. Jammu and Kashmir Bank Ltd. Karnataka Bank Ltd. Karur Vysya Bank Ltd. Lakshmi Vilas Bank Ltd. Nainital Bank Ltd. Ratnakar Bank Ltd. SBI Commercial and International Bank Ltd. South Indian Bank Ltd. Tamilnad Mercantile Bank Ltd. United Western Bank Ltd. New Private Sector Banks

Bank of Punjab Ltd. (since merged with Centurian Bank) Centurian Bank of Punjab (since merged with HDFC Bank) Development Credit Bank Ltd. HDFC Bank Ltd. ICICI Bank Ltd. IndusInd Bank Ltd. Kotak Mahindra Bank Ltd. Axis Bank (earlier UTI Bank) Yes Bank Ltd.

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Foreign Banks In India

Foreign banks have been operating in India for decades with a few of them having operations in India for over a century. The number of foreign bank branches in India has increased significantly in recent years since RBI issued a number of licenses - well beyond the commitments made to the World Trade Organisation. The presence of foreign banks in India has benefited the financial system by enhancing competition, resulting in higher efficiency. There has also been transfer of technology and specialised skills which has had some "demonstration effect" as Indian banks too have upgraded their skills, improved their scale of operations and diversified into other activities. At a time when access to foreign currency funds was a constraint for the Indian companies, the presence of foreign banks in India enabled large Indian companies to access foreign currency resources from the overseas branches of these banks. Also with the presence of foreign banks, as borrowers in the money market and their operation in the foreign exchange market has resulted in the creation and deepening of the inter-bank money market. Now, it is the challenge for the supervisors to maximize the advantages and minimize the disadvantages of the foreign banks' local presence

ABN AMRO Bank N.V. Abu Dhabi Commercial Bank Ltd American Express Bank Antwerp Diamond Bank Arab Bangladesh Bank Bank International Indonesia Bank of America Bank of Bahrain & Kuwait Bank of Ceylon Bank of Nova Scotia Bank of Tokyo Mitsubishi UFJ Barclays Bank BNP Paribas Calyon Bank ChinaTrust Commercial Bank Citibank DBS Bank Deutsche Bank

HSBC (Hongkong & Shanghai Banking Corporation) JPMorgan Chase Bank Krung Thai Bank Mashreq Bank Mizuho Corporate Bank Oman International Bank Shinhan Bank Socit Gnrale Sonali Bank Standard Chartered Bank State Bank of Mauritius

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Cooperative banks in India The Cooperative bank is an important constituent of the Indian Financial System, judging by the role assigned to co operative, the expectations the co operative is supposed to fulfil, their number, and the number of offices the cooperative bank operate. Though the co operative movement originated in the West, but the importance of such banks have assumed in India is rarely paralleled anywhere else in the world. The cooperative banks in India plays an important role even today in rural financing. The businessess of cooperative bank in the urban areas also has increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Rural banks in India Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focussed upon the agro sector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of SBI is spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North East. The total number of SBIs Regional Rural Banks in India branches is 2349 (16%). Till date in rural banking in India, there are 14,475 rural banks in the country of which 2126 (91%) are located in remote rural areas. Apart from SBI, there are other few banks which functions for the development of the rural areas in India. Few of them are as follows. Haryana State Cooperative Apex Bank Limited The Haryana State Cooperative Apex Bank Ltd. commonly called as HARCOBANK plays a vital role in rural banking in the economy of Haryana State and has been providing aids and financing farmers, rural artisans, agricultural labourers, entrepreneurs, etc. in the state and giving service to its depositors. NABARD National Bank for Agriculture and Rural Development (NABARD) is a development bank in the sector of Regional Rural Banks in India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly agriculture, small scale industries, cottage and village industries, handicrafts. It also finance rural crafts and other allied rural economic activities to promote integrated rural development. It helps in securing rural prosperity and its connected matters. 24

Sindhanur Urban Souharda Co-operative Bank Sindhanur Urban Souharda Co-operative Bank, popularly known as SUCO BANK is the first of its kind in rural banks of India. The impressive story of its inception is interesting and inspiring for all the youth of this country. United Bank of India United Bank of India (UBI) also plays an important role in regional rural banks. It has expanded its branch network in a big way to actively participate in the developmental of the rural and semi-urban areas in conformity with the objectives of nationalisation. Syndicate Bank Syndicate Bank was firmly rooted in rural India as rural banking and have a clear vision of future India by understanding the grassroot realities. Its progress has been abreast of the phase of progressive banking in India especially in rural banks.

Industry Segments

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Current trend in banking

Currently banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

Growth trends
The growth of banking in the coming years is likely to be more qualitative than quantitative, according to the report. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate The Indian banking market is growing at an astonishing rate, with assets expected to reach US$1.5 trillion by 2014. An expanding economy, middle class, and technological innovations are all contributing to this growth. The countrys middle class accounts for over 352 million people. In correlation with the growth of the economy, rising income levels, increased standard of living, and affordability of banking products are promising factors for continued expansion. The Indian banking Industry is in the middle of an IT revolution, focusing on the expansion of retail and rural banking. Players are becoming increasingly customer-centric in their approach, which has resulted in innovative methods of offering new banking products and services. Banks are now realizing the importance of being a big player and are beginning to focus their attention on mergers and acquisitions to take advantage of economies of scale and/or comply with Basel II regulation. Indian banking industry assets are expected to reach US$1.5 trillion by 2014 and are poised to receive a greater infusion of foreign capital. The banking industry should focus on having a small number of large players that can compete globally rather than having a large number of fragmented players. 26

Technology In Banking
In the six decades of independence banking has evolved in four different phases. During the fourth phase important initiatives were taken with regard to improve the banking system. The entry of foreign banks resulted in a paradigm shift in the way banking was done in India. The arrival of foreign banks and private banks with there superior state of the art technology pushed the Indian banks to adopt latest technology in market, so that they could retain there customer base. Information technology has been used under two different avenues in banking. One is communication and connectivity and other is Business process reengineering. Information technology enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and help the financial intermediaries reach geographically distant and different market. In India banks as well as other financial entities entered the world of information technology and with Indian financial network(INFINET). INFINET, a wide area satellite network (WAN) using VSAT(very small aperture technology) was jointly set up by Reserve Bank of India and Institute for Development and research for banking in1999. INFINET which was initially comprised only public sector banks was opened for participation by other categories of members. The information technology act 2000 has given legal recognition for creation, transmission, and retention of electronic data to be treated as a valid proof in the court of law The Reserve Bank of India has assigned priority to the up gradation of technology in the banks. Substantial progress has been made for developing a modern, efficient, integrated and secure payment and settlement system for the financial service sectors. Modernization of clearing and settlement system through MICR based cheque clearing, popularizing electronic clearing services (ECS) and integration of RBI-EFT scheme with funds transfer schemes of bank, introduction of centralized fund management system (CFMS) are significant milestones in this regard. The coverage of electronic clearing services has been significantly effective to encourage non paper based fund and develop a centralized facility for effective payment. The scheme for electronic fund transfer operated by the reserve bank has been augmented and now it is present in 13 cities. The centralized fund management system (CFMS) which would enable banks to obtain account wise and centre wise position of their balances has been implemented in a phased manner from November 2001.

Membership of INFINET has been opened to all the banks in addition to those in the public sector banks. At the base of all the interbank message transfers using the INFINET is the structured financial messaging system (SFMS). It would serve as a secure communication carrier with templates for intra and interbank messages in a strict message format that will 27

facilitate straight through messaging. All the interbank messages will be stored and switched to central hub at Hyderabad while the intra bank messages will stored in the bank gateway. Security standards of SFMS will match the international standards. Information technology has immense untapped potential in banking. Strengthening the information technology in banks could improve the effectiveness of asset liability of banks. Building up of a related data base would strengthen and enhance the forecasting of liquidity of banks at the branch level. This could enhance the risk management capabilities of banks.

Legal/ Regulatory Issues Related To Banking

Banks works under various legal frameworks most important of them are, the Banking regulation act 1949, Basel II norms, RBI act, Negotiable Instruments act.

Banking Regulation Act 1949

The banking regulation act was passed as banking companies act and it came into force in 16/3/49. Subsequently it was changed to Banking regulation act on 1/3/66.

BASEL II Norms
Basel II is the second of the Basel accords which are recommendation on the banking laws and regulations issued by banking committee on banking supervision. The purpose of Basel II norms is to create international standards that banking regulators can use when creating regulations about how much capital does banks needs to put aside to guard against the types of financial and operational risks banks face. Advocates of Basel II believe that such an international system can help protect the international financial system from many types of problem that arise should a bank or a series of banks collapse. In practice Basel II attempts to accomplish this by setting up rigorous risks and capital management requirement designed to ensure that the banks hold capital reserves appropriate to the risks the banks exposes itself to through its investment and lending practices. Generally speaking this rules says that the greater the risk the bank exposes itself, the greater the capital bank requires to safeguard its solvency and overall economic stability.

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Opportunities and Challenges for Players

The bar for what it means to be a successful player in the sector has been raised. Four challenges must be addressed before success can be achieved. First, the market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards, consumer finance and wealth management on the retail side, and in fee-based income and investment banking on the wholesale banking side. These require new skills in sales & marketing, credit and operations. Second, banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. This will expose the weaker banks. Third, with increased interest in India, competition from foreign banks will only intensify. Fourth, given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks.

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Competition Analysis
Market Cap.(Rs. Crores) 1,44,291.42 28,623.80 26,098.10 19,999.04 18,280.40 11,563.20 11,451.42 7,518.83 7,044.57 6,969.75 6,852.86 6,496.95 6,345.64 6,097.75 5,922.05 5,191.40 3,372.81 3,012.82 2,874.13 2,576.35 2,469.50 2,303.17 Net Interest Income Net Profit

Name SBI Bank of Baroda PNB Bank of India Canara Bank IDBI Bank Union Bank Indian Bank Oriental Bank IOB Allahabad Bank Corporation Ban Andhra Bank Syndicate Bank Central Bank UCO Bank Dena Bank Bank of Mah Vijaya Bank State B Bikaner State Bnk Tr United Bank

1,06,521.45 11,707.29 29,673.72 36,428.03 28,480.67 30,850.62 23,369.93 21,144.28 12,231.32 15,814.88 17,897.08 15,523.28 13,017.78 11,338.73 15,268.35 19,149.50 14,632.37 6,794.13 7,213.96 7,988.12 6,291.36 6,828.76 7,961.09 5,006.96 4,884.20 2,677.52 3,282.72 2,031.61 1,787.13 1,746.97 1,141.56 1,050.13 1,866.79 1,506.04 1,344.67 1,313.39 533.04 1,108.67 803.14 430.83 580.99 652.03 510.46 632.53

30

State Bnk My Punjab & Sind UTI Gold

2,244.99 1,621.89 391.38 -

5,078.44 6,474.50

369.15 451.28

The above table reveals the data for market capitalization, Net Profit, and Net Income of the PSU banks. This clearly shows that Bank of India ranks 4th among all other PSU banks in terms of profitability, market cap. and Net Interest Income.

Market share
SBI 27.00% 42.50% 3.50% 5.40% 6.00% 7.60% 8.00% Bank of Baroda PNB Bank of India Canara Bank IDBI Bank Others

The above pie chart depicts the market share for PSU banks. It clearly indicates that SBI is the leader among all the PSU banks holding 42.5% market share,while Bank of Baroda stood 2nd in number holding 8% market share. Hence from the above chart we can say that the market share of Bank of India is 6%.

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Competitive Forces Model (Porters Five Force Model)

(2) Potential
is high as development financial institutions as well as private and Foreign Banks have entered in a big way

(3) The threat of substitute

product is very high like credit unions and investment houses. There are other substitutes as well banks like mutual funds, stocks, government securities, debentures, gold, real estate etc.

Entrants

(1) Rivalry among existing firms

has increased with liberalization. New products and improved customer services is the focus.

(4) Bargaining power of buyers

is high as corporate can raise funds easily due to high Competition.

(5) Bargaining power of the supplier

is high. With the new financial instruments they are asking higher return on the investments.

32

1. Rivalry among existing firms With the process of liberalization, competition among the existing banks has increased. Each bank is coming up with new products to attract the customers and tailor made Loans are provided. The quality of services provided by banks has improved drastically.

2. Potential Entrants Previously the Development Financial Institutions mainly provided project finance and development activities. But they now entered into retail banking which has resulted into stiff competition among the exiting players. 3. Threats from Substitutes Competition from the non-banking financial sector is increasing rapidly. The threat of substitute product is very high like credit unions and in investment houses. There are other substitutes as well banks like mutual funds, stocks, government securities, debentures, gold, real estate etc.

4. Bargaining Power of Buyers Corporate can raise their funds through primary market or by issue of GDRs, FCCBs. As a result they have a higher bargaining power. Even in the case of personal finance, the buyers have a high bargaining power. This is mainly because of competition.

5. Bargaining Power of Suppliers With the advent of new financial instruments providing a higher rate of returns to the investors, the investments in deposits is not growing in a phased manner. The suppliers demand a higher return for the investments.

6. Overall Analysis The key issue is how banks can leverage their strengths to have a better future. Since the availability of funds is more and deployment of funds is less, banks should evolve new products and services to the customers. There should be a rational thinking in sanctioning Loans, which will bring down the NPAs. As there is a expected revival in the Indian economy Banks have a major role to play. Funding corporate at a low cost of capital is a special requisite. 33

Market Analysis

The Product Mix: The banks primarily deal in services and therefore, the formulation of product mix is required to be in the face of changing business environmental conditions. The changing psychology, the increasing expectations, the rising income, the changing lifestyles, the increasing domination of foreign banks and the changing needs and requirements of customers at large make it essential that they innovate their service mix and make them of world class. Against this background, we find it significant that the banking organizations minify, magnify combine and modify their service mix.

Product Portfolio: The bank professionals while formulating the product mix need to assign due weight-age to the product portfolio. By the concept product portfolio, emphasis is on including the different types of services/ schemes found at the different stages of the product life cycle. The portfolio denotes a combination or an assortment of different types of products generating more or less in proportion to their demand. The quality of product portfolio determines the magnitude of success. It is excellence of bank professionals that help them in having a sound product portfolio. We find the composition of a family sound, if members of all the age groups are given due place. Like this, the composition or blending of a service mix is considered to be sound, if well established and likely to be profitable schemes are included in the mix. The bank professionals are supposed to perform the responsibility of composing the same. An organization with a sound product portfolio gets a conducive environment and successes in increasing the sensitivity of marketing decisions. If the banks rely solely on their established services and schemes, the multidimensional problems would crop up in the long run because when the well established services/schemes would start saturating or generating losses, the commercial viability of banks would of course, be questioned. It is in this context, that we find designing of a sound product portfolio essential to an organisation. We cant deny that the product portfolio of the foreign banks is found sound since they keep their eyes moving. The innovation, diffusion, adoption and elimination processes are taken due care. The public sector commercial banks need to innovate their service and this makes a strong advocacy in favour of analyzing the product portfolio.

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The Price Mix In the formulation of product mix, the pricing decisions occupy a place of outstanding significance. The pricing decisions or the decisions related to interest and fee or commission charged by banks are found instrumental in motivating or influencing the target market. The Reserve Bank of India and the Indian Banking Association are concerned with the regulations. The rate of interest is regulated by the RBI and other charges are controlled by the Indian Banking Association. To be more specific in the Indian setting, we find this component of the marketing mix significant because the banking organizations are also supposed to sub serve the interests of weaker sections and the backward regions. The public sector commercial banks in particular are supposed to play developmental role with societal approach. It is natural that this specific role of the public sector commercial banks complicates the problem of pricing.

Promotion Mix In the formulation of marketing mix the bank professionals are also supposed to blend the promotion mix in which different components of promotion such as advertising, publicity, sales promotion, word-of-mouth promotion, personal selling and telemarketing are given due weight age. The different components of promotion help bank professionals in promotion the banking business.

The Place Mix This component of the marketing mix is related to the offering of services. The two important decision making areas are making available the promised services to the ultimate users and selecting a suitable place for bank branches. The selection of a suitable place for the establishment of a branch is significant with the viewpoint of making the place accessible and in addition, the safety and security provisions are also found important. The banking organizations are not free to open a branch since the Reserve Bank of India regulates the subject of branch expansion but so far as the management of branch is concerned, the branch managers have option to select a place which is convenient to both the parties, such as the users and the bankers. In the Indian perspective, the protection to the banks assets and safety to the users and bankers need due weight age. The vulnerable area or regions need adequate provisions to make the branch safe. The management of office is also found significant with the viewpoint of making the services attractive. The furnishing, civic amenities and parking facilities cant be overlooked. Thus, the place mix is found to be an important decision making area which requires due attention, both at macro and micro levels. 35

The People Sophisticated technologies, no doubt, inject life and strength to our efficiency but the instrumentality of sophisticated technologies start turning sour if the human resources are not managed in a right fashion. Generation of efficiency is substantially influenced by the quality of human resources.. While fixing criteria for selection, banks assign due weight age to the ethical values. The education and training facilities have been innovated. The foreign banks and the private sector commercial banks reward for efficiency and at the same time also demotivate the inefficient bankers. This helps them in improving the efficiency of even the inefficient people. The development of human resources makes the ways for the formation of human capital. Incentives, of course, inject efficiency and the organizations offering more incentives succeed in motivating the people.

36

MACRO vs MICRO ECONOMIC ANALYSIS

PROBLEMS FACED BY INDIAN ECONOMY

I. FALL IN SAVINGS RATIO The savings ratio is the % of income that is saved not spent. A fall in the savings ratio implies that consumer spending is increasing; often this is financed through increased borrowing.

Effects Of Fall In Savings Ratio

Higher Level Of Consumption

This results in increase in Aggregate Demand. The increase in AD will cause an increase in economic growth and lower unemployment. However, rising Aggregate Demand may cause inflation. Inflation will occur when growth is faster than the long run trend rate. This is now a potential problem in the India. Inflation has recently gone above 7.50%

Boom And Bus

A fall in the savings ratio is usually accompanied by a rise in confidence. It is the rise in confidence which encourages borrowing and consumers to run down savings. Therefore, there is always a danger that a falling savings ratio can be a precursor to a boom and bust situation.

Economy More Sensitive To Interest Rates

With a fall in the savings ratio interest rate changes will have a bigger effect in reducing spending. This is because levels of borrowing are higher and therefore a rise in interest rates has a significant impact on increasing interest repayments. Also, higher rates will not be increasing incomes from savings as much.

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Balance Of Payment

With higher levels of consumer spending, there will be an increase in imports. Therefore this will lead to deterioration in the current account. The current account deficit could put downward pressure on the exchange rate in the long term. However, some people argue a fall in the savings ratio is not a problem, but, it is just a reflection of strong economy and booming housing market, which increases scope for equity withdrawal.

II. INFLATION Inflation is posing a serious challenge to the economic growth of India. The WPI inflation rate flared up during the period driven by significant increase in the prices of commodities, primary articles and manufactured products, even though very small part of global crude price increase has been passed on to the Indian consumers.

III. GLOBAL RECESSION It appears that Europe, Japan and the US are entering into recession. Falling house prices, crisis in the financial system, and lower confidence could lead to a sharp downturn, with the worst still to come. Many argue that Indias growth is not so dependent on growth in the West. However, the Indian stock markets have been hit by the global crisis. Indias growing service sector and manufacturing sector would be adversely impacted by a global downturn.

IV. RISE IN CRUDE PRICES How global crude prices would behave probably has no easy answers; however we believe that the current challenging and uncertain macro-economic conditions does not lead Indian financials into a state of crisis. But continued rise in crude prices and its resultant impact on inflation, interest rates and government finances has the potential to do so. Hence, crude price remains the key risk to our positive stance on the Indian financials. In the last couple of months oil prices have surged by 45% from US$ 100 to US$ 145 (and now back to US$ 115). India currently imports 70% of its crude requirement, resulting in pressure on government coffers on back of rising crude prices.

V. DEPRECIATING INR Surge in crude prices has severely impacted current account deficit of the country. This coupled with the outflow of FII investments has resulted in INR to depreciate sharply against dollar further fueling inflation.

38

IMPACT OF ECONOMIC PROBLEMS ON INDIAN FINANCIALS

The current macro-economic conditions are expected to result in

SLOWDOWN IN CREDIT GROWTH IMPACT ON MARGINS OF BANKS PREASURE ON CREDIT QUALITY SLOWDOWN IN CREDIT GROWTH

While the rise in interest rates should lead to a moderation in demand for credit, Indian banks too are exercising caution while lending.. Risks and uncertainties in the system have increased given the higher crude and commodity prices and its inflationary impact. This would curtail consumption, which would impact economic growth adversely. Further higher rates will not only impact the profitability of Indian corporate but also impact IRRs of various proposed capex projects. This coupled with elections next year could lead to some postponement of capex plans of corporate, leading to negative impact on demand for credit. Higher rates have particularly impacted retail loan growth.

IMPACT ON MARGINS OF BANKS

During the past 18 months, CRR has increased by 400 bps to 9.0% currently and RBI has also discontinued with interest payment on CRR balances. Every 50 bps hike in CRR generally negatively impacts margins by ~5 bps. In fact in an environment, where liquidity is tight, interest rates are at elevated levels and risk premiums have increased, the banks tend to regain the pricing power. This would not only help the banks to adequately price in risks but also help protect their margins. Apart from hiking PLRs, banks are also resorting to reprising (in fact right-pricing) the loans that were sanctioned well below PLRs. Significant portion of fixed rate loans would also get re-priced over the period of 12-18 months.

39

PRESSURE ON CREDIT QUALITY

Higher lending rates are expected to impact credit quality for the banking system. The extent of the impact on credit quality would also be bank specific given the loan mix (retail vs. corporate), proportion of unsecured lending, credit profile of corporate loan book and industry wise exposure. Indian banks fundamentals are relatively resilient with better risk management systems, dramatically improved asset quality, stronger recovery mechanisms (legal provisions) and with adequate capitalization and provisioning. Even Certain sectors (like real estate, airlines industry) might feel the stress due to the changing macro environment and rise in interest rates. Many companies where crude forms a key raw material component are expected to get hit more severely. Similarly, sectors like real estate and SMEs, which are interest rate sensitive, would face higher delinquencies if interest rates strengthen further by 100-200 bps.

NECESSARY INITIATIVES TAKEN BY RBI & MINISTRY OF FINANCE TO TACKLE ECONOMIC PROBLEMS

As most of economists feel that the most horrible problem which India is facing currently is inflation which has crossed 7.50%. To come out of these problems RBI and ministry of finance and other relevant government and regulatory entities are taking various initiatives which are as follows...

RBI MONITORY POLICY

With the introduction of the Five year plans, the need for appropriate adjustment in monetary and fiscal policies to suit the pace and pattern of planned development became imperative. The monitory policy since 1952 emphasized the twin aims of the economic policy of the government: Spread up economic development in the country to raise national income and standard of living, and To control and reduce inflationary pressure in the economy.

This policy of RBI since the First plan period was termed broadly as one of controlled expansion, i.e.; a policy of adequate financing of economic growth and at the same time the time ensuring reasonable price stability. Expansion of currency and credit was essential to meet the increased demand for investment funds in an economy like India which had embarked on rapid economic development. Accordingly, RBI helped the economy to expand via expansion of money and credit and attempted to check in rise in prices by the use of selective controls. 40

OBJECTIVES OF MONITORY POLICY

Price Stability Monitory Targetting Interest Rate Policy Restructuring Of Money Market Regulation Of Foreign Exchange Market

WEAPONS OF MONITORY POLICY Central banks generally use the three quantitative measures to control the volume of credit in an economy, namely: Raising bank rates Open market operations and Variable reserve ratio

However, there are various limitations on the effective working of the quantitative measures of credit control adapted by the central banks and, to that extent, monetary measures to control inflation are weakened. In fact, in controlling inflation moderate monetary measures, by themselves, are relatively ineffective. On the other hand, drastic monetary measures are not good for the economic system because they may easily send the economy into a decline. In a developing economy there is always an increasing need for credit. Growth requires credit expansion but to check inflation, there is need to contract credit. In such a encounter, the best course is to resort to credit control, restricting the flow of credit into the unproductive, inflation-infected sectors and speculative activities, and diversifying the flow of credit towards the most desirable needs of productive and growth-inducing sector. It should be noted that the impression that the rate of spending can be controlled rigorously by the contraction of credit or money supply is wrong in the context of modern economic societies. In modern community, tangible, wealth is typically represented by claims in the form of securities, bonds, etc., or near moneys, as they are called. Such near moneys are highly liquid assets, and they are very close to being money. They increase the general liquidity of the economy. In these circumstances, it is not so simple to control the rate of spending or total outlays merely by controlling the quantity of money. Thus, there is no immediate and direct relationship between money supply and the price level, as is normally conceived by the traditional quantity theories. When there is inflation in an economy, monetary restraints can, in conjunction with other measures, play a useful role in controlling inflation.

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FISCAL POLICY

Fiscal policy is another type of budgetary policy in relation to taxation, public borrowing, and public expenditure. To curve the effects of inflation and changes in the total expenditure, fiscal measures would have to be implemented which involves an increase in taxation and decrease in government spending. During inflationary periods the government is supposed to counteract an increase in private spending. It can be cleared noted that during a period of full employment inflation, the aggregate demand in relation to the limited supply of goods and services is reduced to the extent that government expenditures are shortened. Along with public expenditure, governments must simultaneously increase taxes that would effectively reduce private expenditure, in an effect to minimise inflationary pressures. It is known that when more taxes are imposed, the size of the disposable income diminishes, also the magnitude of the inflationary gap in regards to the availability of the supply of goods and services. In some instances, tax policy has been directed towards restricting demand without restricting level of production. For example, excise duties or sales tax on various commodities may take away the buying power from the consumer goods market without discouraging the level of production. However, some economists point out that this is not a correct way of combating inflation because it may lead to a regressive status within the economy. As a result, this may lead to a further rise in prices of goods and services, and inflation can spread from one sector of the economy to another and from one type of goods and services to another. Therefore, a reduction in public expenditure, and an increase in taxes produces a cash surplus in the budget. Keynes, however, suggested a programme of compulsory savings, such as deferred pay as an anti-inflationary measure. Deferred pay indicates that the consumer defers a part of his or her wages by buying savings bonds (which, of course, is a sort of public borrowing), which are redeemable after a particular period of time, this is sometimes called forced savings. Additionally, private savings have a strong disinflationary effect on the economy and an increase in these is an important measure for controlling inflation. Government policy should therefore, include devices for increasing savings. A strong savings drive reduces the spendable income of the consumers, without any harmful effects of any kind that are associated with higher taxation. Furthermore, the effects of a large deficit budget, which is mainly responsible for inflation, can be partially offset by covering the deficit through public borrowings. It should be noted that it is only government borrowing from non-bank lenders that has a disinflationary effect. In addition, public debt may be managed in such a way that the supply of money in the country may be controlled. The government should avoid paying back any of its past loans during inflationary periods, in order to prevent an increase in the circulation of money. Anti-inflationary debt management also includes cancellation of public debt held by the central bank out of a budgetary surplus. Fiscal policy by itself may not be very effective in combating inflation; therefore a combination of fiscal and monetary tools can work together in achieving the desired outcome.

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DIRECT MEASURES

Direct controls refer to the regulatory measures undertaken to convert an open inflation into a repressed one. Such regulatory measures involve the use of direct control on prices and rationing of scarce goods. The function of price control is a fix a legal ceiling, beyond which prices of particular goods may not increase. When ceiling prices are fixed and enforced, it means prices are not allowed to rise further and so, inflation is suppressed. Under price control, producers cannot raise the price beyond a specified level, even though there may be a pressure of excessive demand forcing it up. In times of the severe scarcity of certain goods, particularly, food grains, government may have to enforce rationing, along with price control. The main function of rationing is to divert consumption from those commodities whose supply needs to be restricted for some special reasons; such as, to make the commodity more available to a larger number of households. Therefore, rationing becomes essential when necessities, such as food grains, are relatively scarce. Rationing has the effect of limiting the variety of quantity of goods available for the good cause of price stability and distributive impartiality. Another control measure that was suggested is the control of wages as it often becomes necessary in order to stop a wage-price spiral. During galloping inflation, it may be necessary to apply a wage-profit freeze. Ceilings on wages and profits keep down disposable income and, therefore the total effective demand for goods and services. On the other hand, restrictions on imports may also help to increase supplies of essential commodities and ease the inflationary pressure. However, this is possible only to a limited extent, depending upon the balance of payments situation. Similarly, exports may also be reduced in an effort to increase the availability of the domestic supply of essential commodities so that inflation is eased. In general, monetary and fiscal controls may be used to repress excess demand but direct controls can be more useful when they are applied to specific scarcity areas. As a result, antiinflationary policies should involve varied programmes and cannot exclusively depend on a particular type of measure only.

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Chapter 3

FINANCIAL ANALYSIS

44

FINANCIAL ANALYSIS
This section will show, how Bank Of India has done financially over the last three years(2010-2012). I have calculate all the financial ratios including the banking ratios also, to show how Bank Of India fair up against its competitors. To do that I have used the last three years balance sheet, profit and loss account, and cash flow statement of Bank Of India.

LIQUIDITY RATIOS
A class of financial metrics that is used to determine a company's ability to pay off its shortterms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.
1. CURRENT RATIO This ratio is a rough indication of a firm's ability to service its current obligations. Generally, the higher the current ratio, the greater the "cushion" between current obligations and your Company's ability to pay them. The composition and quality of current assets is a critical factor in the analysis of your Company's liquidity. It is calculated as Total current assets divided by total current liabilities. Current Ratio = Current Assets Current Liabilities

Current Ratio
5 4 3 2 1 0 2010 2011 2012 Current Ratio 4.32 3.83 3.49

Year

Current Assets (Rs. In crores)

Current Liabilities (Rs. In crores) 8574.63 12974.69 13243.43

Current Ratio

2010 2011 2012

37043.75 49723.21 46176.95

4.32 3.83 3.49

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Interpretation:- From the above table it can be observed that the current ratio of Bank of India stood at 4.32 ,3.83,3.49 in the year 2010,2011,2012 respectively. This shows that bank has enough current assets available to pay off its short term obligations. The current ratio has declined marginally to 3.83 in 2011 and has further declined to 3.49 in 2012 because of increase in short term investments,borrowings and other current liabilities. So it can be inferred that bank is effectively utilising the available funds.

2. LIQUID RATIO

It is also known as the Quick Ratio or "Acid Test" ratio; it is a refinement of the current ratio and is a more conservative measure of liquidity. The ratio expresses the degree to which your current Company's current liabilities are covered by the most liquid current assets. Generally, any value of less than 1 to 1 implies a "dependency" on inventory or other current assets to liquidate short-term debt. It is calculated as Cash plus trade receivables divided by total current liabilities. Liquid Ratio = Cash + Trade Receivables Total Current Liabilities

Liquid Ratio
4 R 3 a t 2 i 1 o 0 2010 3.64 2.88 2.62

Liquid Ratio

2011 Years

2012

Years

Liquid Assets (Rs. In crores)

Current Liabilities (Rs. In crores)

Liquid Ratio

2010 2011 2012

31230.13 37309.99 34711.26

8574.63 12974.69 13243.43

3.64 2.88 2.62

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Interpretation: - A quick ratio of 1:1 is considered favourable because for every rupee of current liability,there is atleast one rupee of liquid assets. A higher value of ratio is considered favourable. Here this ratio stood higher than one during the study period i.e 3.64 in 2010,2.88 in 2011 and 2.62in 2012.although the ratio shows a declining trend but it is still above the benchmark level.This shows that bank has enough liquidity to service its short term debt and is utilising its funds in a rational manner.

3. CREDIT DEPOSIT RATIO

This ratio indicates how much of the advances lent by banks is done through deposits. It is the proportion of loan-assets created by banks from the deposits received. The higher the ratio, the higher the loan-assets created from deposits. Deposits would be in the form of current and saving account as well as term deposits. The outcome of this ratio reflects the ability of the bank to make optimal use of the available resources

CREDIT DEPOSIT RATIO = Loans and advances(net of provisions) TOTAL Deposits

X 100

Credit Deposit Ratio

76.93 77 76 75 74 73 72 71 70 69 68 67

R a t i o

72.04 70.33 Credit Deposit Ratio

2010

2011 Years

2012

Year

2010 2011 2012

Loans & Advances (Net Of Provisions)(Rs. In crores) 165527 210200.7 244816.9

Total Deposits (Rs. In crores)

Credit Deposit Ratio

229761.94 298886 318216 47

72.04 70.33 76.93

Interpretation :- An ideal credit deposit ratio should range between 65- 75 %. .the above table exhibits the credit deposit ratio of the bank during 3 years. This ratio stood at 72.04% ,70.33% and 76.93% in the year 2010,2011,2012 respectively. It shows that Bank of India is performing well. It can also be observed that in the year 2012 the credit deposit ratio has slightly crossed 75%(stipulated level as per RBI guidelines).This shows that in this year bank has borrowed some fund from outside. Nevertheless, the overall credit performance of the bank is satisfactory.

PROFITABILITY RATIOS
A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

1. Operating Profit Ratio A ratio used to measure a company's pricing strategy and operating efficiency. Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. It Is Also known as "operating profit margin." Calculated as:Operating Profit Ratio = Operating Profit X 100 Net sales

Operating Profit Ratio

26.32% 26.50% 26.00% 25.50% 25.00% 24.50% 24.00% 23.50% 23.00% 22.50% 22.00% 2010

R a t i o

24.75% 23.50% Operating Profit Ratio

2011 Years

2012

48

Year

Operating Profit (Rs. In crores)

Sales (Rs. In crores) 17877.99 21751.72 28480.67

Operating Profit Ratio (in %) 26.32 24.75 23.50

2010 2011 2012

4704.78 5384.22 6693.95

Interpretation :- From the data in the above table, it can be observed that the operating profit ratio of the bank is showing a declining trend. Although the operating profits have increased but not exactly with same proportion as compared to increase in sales. This may be due to increase in the interest expenses and other operating expenses particularly the staff expenses in the year 2011 and 2012. Therefore the bank should check on unnecessary operating expenses to correct this situation and to provide a sufficient return.

2. NET PROFIT RATIO This ratio indicates the Net margin on a sale of Rs.100. It is calculated as follows: Net Profit Ratio = Net Profit X 100 Sales This ratio helps in determining the efficiency with which affairs of the business are being managed. An increase in the ratio over the previous period indicates improvement in the operational efficiency of the business. The ratio is thus on effective measure to check the profitability of business. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss.

Net Profit Ratio

14.00% 12.00% R a t i o 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2010 2011 Years 2012 Net Profit Ratio 11.44% 9.74% 9.40%

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Year

Net Profit (Rs. In crores)

Sales (Rs. In crores) 17877.99 21751.72 28480.67

Net Profit Ratio (in %) 9.74 11.44 9.40

2010 2011 2012

1741.07 2488.7 2677.52

Interpretation :- The net profit ratio of the bank stood at 9.74% & 9.40% in the year 2010 & 2012 respectively. This is due to higher provisions and interest expense in these years. But in the year 2011 the bank has performed well with net profit reaching the double digit mark at 11.44% as the bank had maintained a tighter control at interest and other indirect expenses. Although the net profit ratio shows a fluctuating trend but the overall profitability of the bank is satisfactory as per industry trend.

3. RETURN ON ASSETS

Returns on assets ratio is the net income (profits) generated by the bank on its total assets (including fixed assets). The higher the proportion of average earnings assets, the better would be the resulting returns on total assets.

Return On Assets = Operating profit(net of provisions n contingencies) Average or Total assets

Return on Assets
0.75% R 0.70% a t 0.65% i 0.60% o 0.55% 0.71% 0.70%

0.63%

Return on Assets

2010

2011 Years

2012

50

Year

Net profit (Rs. In crores) 1741.07 2488.7 2677.52

Average or Total assets (Rs. In crores) 274966.46 351172.56 384535.47

Return On Assets (in %) 0.63% 0.71% 0.70%

2010 2011 2012

Interpretation:- The Return On Assets ratio of Bank of India are 0.63%,0.71% and 0.70% in the year 2010,2011,2012 respectively. The return on assets increased in 2011 due to huge increase in total assets and net profits in this year as compared to 2012 wherein return on assets fell to 0.70% as net profit couldnt increase with the same proportion as of total assets.thus it lead to the conclusion that overall efficiency or profitability of the bank is improving.

4. INTEREST SPREAD Interest spread is the difference between the average lending rate and the average borrowing rate for a bank or other financial institution. This is very similar to interest margin. If a bank's lending was exactly equal to its borrowings (i.e. deposits plus other borrowing) the two numbers would be identical. In reality, bank also has its shareholder's funds available to lend, but at the same time its lending is constrained by reserve requirements. Changes in the spread are an indicator of profitability as the spread is where a bank makes its money Interest Spread = (Interest income Interest earning assets) - (Interest expense interest bearing liabilities

Interest spread
R a t i o 5.20% 5.00% 4.80% 4.60% 4.40% 4.20% 4.00% 5.06% 4.57%

4.43% Interest spread

2010

2011 Years

2012

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Year 2010 2011 2012

Interest spread (in %) 4.57 5.06 4.43

Interpretation :-From the figures exhibited in the above table,it can be observed that interest spread of the bank stood at 4.57% in 2010,increased to 5.06% in 2011due to greater proportionate increase in interest earned as compared to interest expended and in 2012 it fell from 5.06% to 4.43% as interest earned had not increased in the same proportion as interest expended. Thus it can be inferred that interest spread of the bank is fluctuating.

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ACTIVITY RATIOS
Activity ratios are calculated to measure the efficiency with which the resource of a firm have been employed. These ratios are also called turnover ratios because they indicate the speed with which assets are being turned over into sales 1. FIXED ASSETS TURNOVER RATIO Measure of the productivity of a firm, it indicates the amount of sales generated by each Rupee spent on fixed assets, and the amount of fixed assets required to generate a specific level of revenue. Changes in the ratio over time reflect whether or not the firm is becoming more efficient in the use of its fixed assets. Fixed assets turnover ratio = Sales Revenue Net Fixed Assets

Fixed Assets Turnover ratio

12 10.28 10 R a t i o 8 6 4 2 0 2010 2011 Years 2012 7.82 9.19

Fixed Assets Turnover ratio

Year

Sales Revenue (Rs. In crores) 17877.99 21751.72 28480.67

Net Fixed Assets (Rs. In crores) 2286.75 2365.95 2771.59

Fixed Assets Turnover Ratio 7.82 9.19 10.28

2010 2011 2012

Interpretation :- The fixed assets turnover ratio of the bank stood at 7.82 in 2010, it increased to 9.19 in 2011 and has further increased to 10.28 in 2012. Therefore it can can be inferred that fixed assets ratio of the bank is consistently increasing and It indicates that 53

during the period of study fixed assets have been effectively used in the bank without much additional investment and also the capital is not blocked in fixed assets.

2. TOTAL ASSETS TURNOVER RATIO Total assets turnover ratio = Sales Revenue Total Assets

Total Assets Turnover Ratio

8 R a t i o 7 6 5 2010 2011 2012 Years 6.5 6.19 Total Assets Turnover Ratio

7.41

Year

Sales Revenue (Rs. In crores) 17877.99 21751.72 28480.67

Total Assets (Rs. In crores)

Total Assets Turnover Ratio

2010 2011 2012

274966.46 6.50 351173 6.19 384535.5 7.41

Interpretation :- The above table exhibits Total Assets Turnover Ratio. It stood at 6.50 in 2010.In 2011 it has decreased marginally to 6.19 and after that it has increased to 7.41 in 2012. It shows a fluctuating trend. But overall efficiency of bank is satisfactory and is utilising its Total Assets effectively.

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LEVERAGE RATIO Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. A ratio used to measure a company's mix of operating costs, giving an idea of how changes in output will affect operating income.

1. DEBT- EQUITY RATIO A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while personal computer companies have a debt/equity of under 0.5.

Debt Equity Ratio =

Long Term Debt Shareholders Equity

Debt- Equity Ratio

19 18.5 18 17.5 17 16.5 16 15.5 2010 2011 16.71 Debt- Equity Ratio 17.72 18.56

2012

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Year 2010 2011 2012

Long Term Debt (Rs. In crores) 252161.84 320907.19 350330.25

Shareholders Equity (Rs. In crores) 14229.99 17290.68 20961.79

Debt Equity Ratio 17.72 18.56 16.71

Interpretation:- The ratio shows the extent to which funds have been provided by long-term creditors as compared to the funds provided by the owners. Here the Debt-Equity ratio for the above period is always high. This shows that the bank is more relying on outside funds as compared to internal sources of capital in its capital structure. From the long-term lenders point of view this ratio is not satisfactory

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CAPITAL ADEQUACY RATIO A bank's capital ratio is the ratio of qualifying capital to risk adjusted (or weighted) assets. National regulators tracks banks CAR to ensure that it can absorb reasonable amount of loss and are complying with the banking statutory capital requirements. In the simplest formulation, a bank's capital is the "cushion" for potential losses, which protect the bank's depositors or other lenders. The RBI has set the minimum capital adequacy ratio at 10%for all banks. A ratio below the minimum indicates that the bank is not adequately capitalized to expand its operations. The ratio ensures that the bank do not expand their business without having adequate capital.

Capital Adequacy Ratio = (Tier I + Tier I )Capital Risk Weighted Assets(Including Off Balance Sheet Items)

Capital Adequacy Ratio

13.20% 13.00% 12.80% 12.60% 12.40% 12.20% 12.00% 11.80% 11.60% 11.40% 12.94% Capital Adequacy Ratio

R a t i o

12.17% 11.95%

2010

2011 Years

2012

Year

Capital Adequacy Ratio 12.94 12.17 11.95

2010 2011 2012

Interpretation :- The capital adequacy ratio of Bank of India stood at 12.94%,12.17% and 11.95% in the year 2010,2011,2012 respectively.It indicates that during the study period bank has maintained a healthy capital adequacy ratio which is above 10% as prescribed by RBI (under Basel II ).

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INTEREST COVERAGE RATIO This Ratio indicates the interest paying capability of firm .The interest coverage ratio is a measure of the number of times a company could make the interest payments on its debt with its earnings before interest and taxes, also known as EBIT. The lower the interest coverage ratio, the higher the company's debt burden and the greater the possibility of bankruptcy or default Interest coverage ratio = Net profit before interest & tax Fixed interest charge

Interest Coverage Ratio

R 1.3 a t 1.2 i o 1.1 1.21 1.25 1.18 Interest Coverage Ratio 2010 2011 2012 Years

Year

Net profit before interest & tax (Rs. In crores) 14615.89 17436.41 23744.75

Fixed interest charge (Rs. In crores)

Interest coverage ratio

2010 2011 2012

12122.04 1.21 13941.03 1.25 20167.23 1.18

Interpretation :- The interest coverage ratio of Bank of India stood at 1.21,1.25,1.18 in the years 2010,2011,2012 respectively. Since this Ratio indicates the interest paying capability of firm and ideal Ratio is 1.5 times. So interest paying capacity of the bank is moderate.

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CASH FLOW ANALYSIS OF BANK OF INDIA FOR THE YEAR ENDED 2010,2011,2012
CASH FLOW STATEMENT OF BANK OF INDIA 2010 Net Profit before tax Net Cash Flow from Operating Activities Net cash flow from Investing Activities Net cash flow from Financing Activities Net Increase/decrease in Cash & Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents 2493.83 8439.81 -224.72 1253.78 9468.87 21761.3 31230.1 2011 3495.38 6133.09 -720.22 771.3 6184.17 31230.1 37414.3 2012 3577.52 -1702.55 -616.67 28.71 -2290.51 37414.3 35123.8

CASH FLOW FROM OPERATING ACTIVITIES Interpretation :- The above cash flow statement of Bank of India reveals that the net cash flow from operating activities stood at 8439.81 in the year 2010.It has declined to 6133.09 in 2011. This may be due to greater proportionate increase in advances as compared to interest earned this year. Also operating expenses were at higher side during this year. In 2012 the net cash from operating activities has further declined and has become negative. Here it may be noted that despite a great increase in interest earned, cash flow from operating activities have declined. This is due to greater increase in borrowings this year which has lead to more interest expense. Also deposits has not been increased in the same proportion as compared to advances this year.

CASH FROM INVESTING ACTIVITIES:Interpretation :- The net cash flow from investing activities has been in negative figures in all the 3 years of the study period. It stood at -224.72 in 2010,which is followed by a great decline in 2011 and has reduced to -720.22 . Although its has increased to tune of 103.55 crores in 2012 but the net cash flow from investing activities is still in negative figures and it stood at -616.67. the huge outflow of cah from investing activities in the year 2011 is due to a huge investment in subsidiaries and fixed assets.

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CASH FROM FINANCING ACTIVITIES:-

Interpretation :- The net cash flow from financing activities during the period of study has been showing a declining trend. It stood at 1253.78 crores in 2010, which has reduced to 771.3 in 2011 and in is followed by a huge decline of 742.59 in 2012 and has reduced to 28.71 crores in this year. This is due to greater dividend payments and interest payment on IPDI and subordinate bonds and upper tier II bonds during the year 2011 and 2012.

COMPARATIVE ANALYSIS OF BANK OF INDIA WITH CANARA BANK

RATIO ANALYSIS

BANK OF INDIA
RATIOS: 31.3.10 31.03.11 31.03.12 Current Ratio Liquid Ratio Credit Deposit Ratio (CDR) Operating Profit Ratio Net Profit Ratio Return On Assests Fixed Assest Turnover Ratio Total Assets Turnover Ratio Debt Equity Ratio Capital Adequacy Ratio(CAR) Interest Spread Interest Coverage ratio 4.32 3.64 72.04 6.84 23.42 0.63 7.82 6.50 17.72 12.94 4.57 1.21 3.83 2.88 70.33 1.87 15.18 0.71 9.19 6.19 18.56 12.17 5.06 1.25

CANARA BANK
RATIOS: 31.3.10 31.03.11 31.03.12 3.28 2.82 71.30 26.99 16.11 1.14 6.56 7.08 16.57 13.43 3.32 1.29 4.75 3.93 71.57 26.48 17.46 1.20 8.11 6.86 15.38 15.38 3.47 1.33 4.13 3.17 70.27 19.26 10.64 0.88 10.80 8.25 15.10 13.76 3.80 1.18

3.49 Current Ratio 2.62 Liquid Ratio 76.93 Credit Deposit Ratio (CDR) 4.70 Operating Profit Ratio 18.80 Net Profit Ratio 0.70 Return On Assests 10.28 Fixed Assest Turnover Ratio 7.41 Total Assets Turnover Ratio 16.71 Debt Equity Ratio 11.95 Capital Adequacy Ratio(CAR) 4.43 Interest Spread 1.18 Interest Coverage ratio

The above table exhibits various financial ratios of Bank of India and the ratios of Canara Bank. Below is the comparative analysis of these ratios:-

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1. CURRENT RATIO :- From the above table it can be observed that current ratio of Bank of India stood at 4.32, 3.83, 3.49 and that of Canara bank stood at 3.28, 4.75, 4.13 for the years 2010,2011,2012 respectively .Although both are having enough liquidity but going by increasing trend of current ratio for Canara bank it shows that it is not utilising its funds efficiently as compared to Bank of India.

Current Ratio
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2010 2011 2012 Bank Of India Canara bank 3.28 4.32 3.83 3.49 4.75 4.13

2. LIQUID RATIO :- The liquid ratio for both the banks shows fluctuating trend. Both have been maintaining a healthy liquid ratio but as compared to Bank of India, Canara Bank has excess short term liquidity available which may not be so good as the opportunity cost of holding excess liquidity might be more that may affect its profitability.

3. CREDIT DEPOSIT RATIO (CDR) :- The credit deposit ratio plays an important role in determining the profitability of the banks. By comparing the CDR for both the banks it can be observed that CDR of Bank of India is quite fluctuating during the study period while that of Canara bank is more or less stable. But overall the credit performance of both the banks is quite good.

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78.00%

Credit Deposit Ratio (CDR)

76.00% 74.00% 72.00% 70.00% 68.00% 66.00% 2010 2011 72.04% 71.30% 70.33% 71.57%

76.93% Bank Of India Canara bank

70.27%

2012

4. OPERATING PROFIT RATIO :- The Operating Profit Ratio of Bank Of India stood at 6.84%, 1.87%, 4.70% and that of Canara Bank stood 26.99% ,26.48%, 19.26% at for the years 2010,2011,2012 respectively.It indicates that the operational efficiency of Canara Bank is much better than that of Bank of India and it has a better control on its expenses.

5. NET PROFIT RATIO :- It can be observed from the above table that the Net profit ratio of Bank of India stood at 23.42%, 15.18%, 18.80% and that of Canara Bank stood at 16.11%,17.46,%10.64% for the years 2010,2011,2012 respectively. Although the Net Profit of Canara Bank is much higher than that of Bank of India during the period of study but the Net Profit ratio of Bank of India is much better than that of Canara Bank. This indicates that overall profitability of Bank of India is much sound than Canara Bank.

Net Profit Ratio

25.00% 23.42%

20.00% 16.11% 15.00%

17.46% 15.18%

18.80%

10.64% 10.00%

Bank Of India Canara bank

5.00%

0.00% 2010 2011 2012

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6. RETURN ON ASSETS :-The return on assets for both the banks shows fluctuating trend.It stood at 0.63%, 0.71%, 0.70% for Bank of India and 1.14%, 1.20%, 0.88% for Canara Bank for the year 2010,2011,2012 respectively. It shows that Canara Bank has a better return on investment as compared to Bank of India. 7. FIXED ASSETS TURNOVER RATIO :- The fixed Assets Turnover ratio of Bank of India stood at 7.82, 9.19, 10.28 and that of Canara Bank stood at 6.56, 8.11, 10.80. It shows similar trend for both the banks. Thus it can be inferred that both the banks are utilising its fixed asstes efficiently. 8. TOTAL ASSETS TURNOVER RATIO :- The total assets turnover ratio is also showing similar trend for both the banks. But if looking at the figures for both the banks for total assets turnover ratio during the study period it stood at 6.50, 6.19, 7.41 for Bank of India and at 7.08, 6.86, 8.25 for Canara Bank it can be inferred that Canara bank is utilising its total assets in a better way as compared to Bank of India. 9. DEBT EQUITY RATIO :- The Debt-Equity ratio of Bank of India stood at 17.72, 18.56, 16.71 and that of Canara Bank stood at 16.57, 15.38, 15.10 for the year 2010,2011,2012 respectively. Both the banks This indicates that both the banks are more relying on outside funds as compared to internal sources of capital in its capital structure have a very high debt- equity ratio. But as compared to Bank of India, Canara Bank has a lesser reliance on the debt.

10. CAPITAL ADEQUACY RATIO :- This ratio determines the capacity of a bank in terms of meeting with the liability and other risks such as credit risk, operational risk. The above table reveals that capital adequacy ratio stood at 12.94%, 12.17%, 11.95% for Bank of India and that of Canara Bank it stood at 13.43%, 15.38% ,13.76% for the year 2010,2011,2012 respectively. As this ratio measure of how much capital is used to support the banks' risk assets. The analysis reveals that both the banks have maintained a healthy ratio beyond the minimum limit of 10% prescribed by RBI (under Basel II).but it is higher for canara bank as compared to Bank of India.this indicates that Canara bank is the more efficient in terms of meeting with the liability and other risks such as credit risk, operational risk as compared to Bank of India.

Capital Adequacy Ratio (CAR)

20.00% 15.00% 10.00% 5.00% 0.00% 2010 2011 2012 Bank Of India Canara bank 12.94% 12.17% 11.95% 13.43% 15.38% 13.76%

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11. INTEREST SPREAD :- Interest spread is the difference between the average lending rate and the average borrowing rate for a bank or other financial institution. Changes in the spread are an indicator of profitability as the spread is where a bank makes its money. The interest spread of Bank of India stood at 4.57% , 5.06% ,4.43% and that of Canara Bank stood at 3.32%, 3.47%, 3.80% during the study period. Clearly it reveals that Bank of India has greater interest spread as compared to Canara bank.

Interest Spread
6.00% 5.06% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2010 2011 2012 4.57% 3.32% 3.47% 4.43% 3.80% Bank Of India Canara bank

12. INTEREST COVERAGE RATIO :- This Ratio indicates the interest paying capability of firm. The interest coverage ratio of both the banks shows similar trend. It stood at 1.21, 1.25, 1.18 for Bank of India and that of Canara Bank it stood at 1.29, 1.33 ,1.18 for the year 2010,2011,2012 respectively. Although it is slightly less than the ideal ratio of 1.5 for both the banks but on an average we can say that this ratio is satisfactory for both the banks as it is above 1.

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COMPARATIVE CASH FLOW STATEMENT ANALYSIS

CASH FLOW STATEMENT OF .
BANK OF INDIA 2010 Net Profit before tax Net Cash Flow from Operating Activities Net cash flow from Investing Activities Net cash flow from Financing Activities Net Increase/decrease in Cash & Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents 2493.83 8439.81 -224.72 1253.78 9468.87 21761.26 31230.13 2011 3495.38 2012 3577.52 CANARA BANK 2010 3821.43 4694.39 -72.21 -1628.75 2993.43 16659.78 19653.21 2011 5025.89 8527.34 -73.22 2600.78 11054.9 19653.21 30708.11 2012 4082.71 -832.22 -141.56 -1554.94 -2528.72 30708.11 28179.39

6133.09 -1702.55 -720.22 771.3 -616.67 28.71

6184.17 -2290.51 31230.1 37414.3

37414.3 35123.79

NET CASH FLOW FROM OPERATING ACTIVITIES:Interpretation :- The net cash flow from operating activities of Bank of India shows a declining trend as it stood at 8439.81crores in 2010 and has further reduced to 6133.09 crores in 2011 and reached to negative in 2012 at -1702.55crores. whereas in canara bank the net cash flow from operating activities shows as fluctuating trend as it stood at 4694.39 crores in 2010 which has increased to 8527.34crores in 2011 and then in 2012 it shows a huge fall in the cash flow and consequently has reached to negative figures at -832.22 crores .This may be due to increase in interest and operating expenses. NET CASH FLOW FROM INVESTING ACTIVITIES :Interpretation :- The Net cash flow from investing activities for both the banks during the study period has been showing a declining trend and is in negative figures. But the reduction over the years in cash flow from investing activities in Canara bank is much lower than in Bank of India. This shows that Canara bank is enjoying a better return on its investments and is investing rationally.

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NET CASH FLOW FROM FINANCING ACTIVITIES:Interpretation :- The Net cash flow from financing activities for Bank of India is showing a decreasing trend during the study period but has never turned negative. Whereas in case of Canara bank it shows a fluctuating trend. In the year 2010 it is negative and stood at -1628. 75 crores whereas it has improved to 2600.78 crores in 2011 but it has further declined to 1554.94 crores. This is due to higher dividend payment and interest payment on Tier I and Tier II bonds and there has been no inflow during this period. Therefore in can be inferred that Bank of India is doing good in financial activities as compared to Canara Bank.

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Chapter 4

RESEARCH PROJECT

67

PROJECT DETAILS
The project assigned to me at Bank Of India was Analysis Of Credit Appraisal. Credit Appraisal is the process of calculating the creditworthiness of a business or an organization before providing any Loans & advances/project finance. I was placed in credit department under senior manager Mr. K.K Garg During the first week I was assigned random tasks like updating data updation, entering dates into excel sheet regarding last review done and due date for next review working capital/cc limits,term loan and stock audit report; updating occupational codes for various customers of the bank,preparing cover letters for bank guarantee etc. I was also shown various files,documents,reports,memos,forms and applications used in the bank for various operations in different departments. The major purpose for this entire exercise was to make me familiar with the bank ,its operations,esp. in the credit deptt. and to familiarize with the banking terms and abbreviations. This was an interesting experience for me. In the second week I was given various files containing documents regarding proposals for working capital limit enhancement/review,proposals for review of term loans advanced to various customers of the bank. I went through all these files in details and cleared all my queries regarding it from my mentor. Also I went through various other reports and documents,financials that makes a part of credit appraisal process. Later, in the third week I was assigned the task of making proposals for working capital enhancement/review with existing limits for its customers on their request and for the customers whose reviews for credit facilities were pending. During my entire training period I made a total of 5 proposals and the entire exercise was a great learning experience and for which I was appreciated by the chief manager,senior manager and other staff. In the meantime I was exposed to forex deptt. wherein I use to sit with Mr. Vijay kumar (incharge of forex deptt) and observe their working. He also made me learn to work on the 68

FINACLE (ERP software used in Bank Of India). There I learnt how forex transactions are done,how the payments are made and received on behalf of customers,how the forward contracts are booked and how the inter communication between the banks of parties concerned with banks customers. For the few days I was also made to call the treasury and take the forex transaction rates except the card rates (card rates are the basic rates for forex transactions which the treasury issues daily) on the request of the customers who have to export goods or book forward contracts. In the last week I was sent to administration deptt. to learn how fresh accounts for customers are opened,what are the various documents required for that,how the cheque books ,ATM pin/password are issued. I also took various queries from the customers and successfully solved them by giving various explanations and clarifications.

Overall it was a great experience to work in a public sector bank and a good learning for me. The details of the project are as under:-

Advances (Credit Appraisal)

Credit Appraisal is the process of calculating the creditworthiness of a business or an organization. Credit Appraisal involves a wide variety of financial analysis techniques, including ratio and trend analysis as well as the creation of projections and a detailed analysis of cash flows. Credit appraisal also includes an examination of collateral and other sources of repayment as well as credit history and management ability. Before approving a commercial loan, a bank will look at all of these factors with the primary emphasis being the cash flow of the borrower. A typical measurement of repayment ability is the debt service coverage ratio. The debt service coverage ratio divides this cash flow amount by the debt service (both principal and interest payments on all loans) that will be required to be met. Another criteria involved in the process of credit appraisal is determination of credit rating which means assessing the credit worthiness of an individual, corporation, or even a country. Credit ratings are calculated from financial history and current assets and liabilities. Typically, a credit rating tells a lender or investor the probability of the subject being able to pay back a loan. A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates or the refusal of a loan by the creditor. The ratings are of two types- external ratings and internal ratings. As the name implies external ratings are given by external rating agencies like Moodys, Standards and Poors etc. Internal ratings are designed by the institution which requires it. Immaterial of the source of 69

rating whether internal or external it should be robust to be accepted as a reliable tool. For corporate borrowers, the criteria for assessing risk are well known: profitability, growth, industry outlook, competitive advantages, management and shareholders, in addition to the standard set of financial and operational performance ratios. A rating system can also serve as a tool for credit policy. For instance, some minimum rating might be required to grant a loan. It is this process which tries to evaluate the credentials and needs of the evaluator; the business opportunity is made available to the bank in the form of Client Description. Bank on submission of the Client description do a feasibility study of the project and check the viability and the needs of the Customer.

Client Description

Client Description of the Project

Proposal Creation

Proposal for the Trade Credit is created.

Operations

The Operation department takes care of the proper documents and sanctions the limit

Analysis/Review of the CMA Data

Review

The Advances thus made are done based on their requirement-

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Advances

Term Loans

Working Capital Limit

The project takes a practical approach in analyzing the procedure of the Credit Appraisal, two proposals one based on Term Loan and the other on Working Capital has been detailed to look into the intricate details of the process followed at Bank of India.

CREDIT APRAISAL PROCESS Process Flow Submission of Project Report along with the Request Letter

Carrying out due diligence If not approved if approved Preparation of proposal

Submission of Proposal to Head Office If No queries raised If queries raised

Project Rejected

Sanction of proposal on various Terms & Condition

Solve the queries

Communication of Sanction

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Acknowledgement of Sanction

Review of Sanction

Application to comply with Sanction Terms & Condition & execution of Loan Documents

Disbursement

Credit Policy at Bank of India

The bank has been working on its credit priorities which have been changed with the changing times to cope up with the changes. The credit priorities for the bank stand as: Maintenance of asset quality Maintaining growth and reasonable risk adjusted returns on credit exposures Retaining/Improving the Market share Thrust on priority sector lending

Bank is conscious of the risk-return spread, thus bank has to judiciously set priorities in terms of asset quality and return maximization. With the changing needs, Bank has kept an open policy towards unfocussed assets. Asset quality priority calls for value driven culture with conservative risk strategy, whereas market share priority calls for volume driven and aggressive credit strategy. At the present situation, bank has to have a mix of both.

The purpose for the credit needs to be ascertained, with adherence to the guidelines and directives.

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Credit Delivery The credit requirements may be dispensed in any of the following modes Sole Banking Arrangements In account, where we remain to be sole lenders, the account with ratings AAA (LC1 to LC2) and AA (LC3 to LC4). Multiple Banking In an arrangement where borrower desires to avail credit from other banks, without a formal consortium arrangement. The borrower has to furnish details from time to time. The credit from other banks should not exceed 10% of the working capital limits. Also, exposure for working capital needs should not exceed 75% of the total working capital requirements of the borrower. Consortium Lending Its a framework where banks have the freedom to frame the ground for lending. Syndication It is an arrangement between two or more lending institutions to provide a credit facility using common loan documentation.

Credit Thrust

The Bank of India has been proactively involved in lending to the priority sector to make sure it meets the target prescribed by GOI/RBI which presently are

Priority sector target of 40% of net Banks credit. Exposure to agriculture not less than 18% of net Bank credit, and direct finance to agriculture should not be less than 13.5% of net bank credit. Exposure to weaker sections not less than 10% of net bank credit. Export credit target of 12% of net Banks credit and etc.

Bank of India has well laid policies, which are reviewed periodically some of which are as follows Increasing finance for production as well as investment for agriculture finance. Priority is given to Infrastructure under priority sector financing. Focus is on Low risk short duration exposures Bank gives certain concessions to have better customer relations. Bank has made efforts to make the process faster, by encouraging issuance of Kisan Credit Cards. Bank has been experimenting with innovative/area based schemes to improve lending 73

Bank has made many tie-ups with corporate, NGOs, NBFCs in order to focus on different areas of finances.

The Changing Market Realities

Bank of India reviews the policies to be able to revise them as per the changing market scenario. With the changing times, the bank has shifted their focus on to major corporate clients with less risk. The corporate financing opens up ample opportunities in terms of financing mergers, acquisitions, IPO financing etc. The thrust also lies on the post sale finance services both for supplier and buyer. The need to have exposures of the bank linked with products such as factoring and forfeiting to ensure risk free recovery.

Bank of India does not encourage funding in areas of harmful/depleting substances. Also, the bank tries not to finance areas which are affected by government policies.

Analysis of Credit Appraisal

Credit Appraisal is the process which is required for appraisal of the proponent to assess his credit needs. The process of Credit Appraisal at Bank of India is no different. It involves appraising the background of the Management, doing a technical and financial feasibility study. Appraisal thus compromises two distinct segments Appraising the acceptability of the customer Assessment of Customer Credit needs.

Main components of Credit Appraisal

Background of the Management It involves knowing the borrower by either obtaining status reports from previous bankers or by scrutinizing the management in case of corporate. The check is made to make sure that borrower/ promoters name does not appear in the ECGC list of defaulters.

Commercial Appraisal 74

It involves detailed study about the product and its market, to understand the demand-supply situation, the competition in the segment, effect of government policies on the industry etc.

Technical Appraisal In case of project involving manufacturing or production, technical appraisal is carried out. The TEV study is not done in case of service or for industries where he good does not go through a state change. Also, there are exceptions where the TEV study is not required by the sanctioning authority. The traditional industries which are running over generations and whose viability cannot be questioned can be exempted from TEV study. But it would be required for some new venture with not much information on its know-how, its demand-supply pattern. Thus in all new and Greenfield projects TEV study is carried out, even then if the company is reputed and the Term Loan requirement is less than Rs. 20 Cr, TEV study can be waived off.

Its validity is for one year provided the scope of the project does not change.

Financial Appraisal The second segment of Credit Appraisal i.e. Assessment of Customer Credit needs, requires the financial performance of the proponents. The financial study gives us the clear idea about the ability of the proponent to absorb unanticipated financial cost. Along with the cost of the project, the financial projections are scrutinized to ascertain the financial need for the project.

The Performance Indicators are Profitability Ratios Debt-Equity Ratios Debt Service Coverage Ratio Break-Even Point Profit / Volume Ratio Pay Back Period Benefit Cost Ratio Internal Rate of Return Sensitivity Analysis

75

In case of higher limits, few other ratios are calculated Current Ratio Total outside Liabilities (TOL) / Equity Ratio EBITDA / Interest Ratio PBT / Net Sales Ratio (Inventory + Receivables) / Sales Ratio DSCR ( Debt Servicing Coverage Ratio)

In financial appraisal, the projections are scrutinized so as to have an achievable Sales, creditors, and holding level. The Ratios are properly analyzed in order to have them within limits else an explanation for the same is taken from the proponent. To make them more meaningful, the ratios are put against the industry average. The positive and the negative factors which could affect the financial need of the customer are considered.

Some important aspects to be analyzed Investment in subsidiaries should not be more than 10% of the Tangible Net Worth; else the excess amount is deducted from the Net worth for computing various ratios. Financial figures are reworked in order to avoid any misinterpretations. The position of contingent liabilities, disputed tax liabilities and their impact on the performance.

Types of facilities of Credit Delivery

Generally bank gives the following types of facilities to the customer: The types of facilities would comprise of term loans , demand loans, O/Ds, cash credit, WCDL, advances against bills, channel credit, invoice discounting/financing, discounting of future cash flows/rent receivables and lines of credit, L/Cs, guarantees , acceptance facilities ,cash management etc These credit facilities can be broadly divided into two types: Funded credit facilities Non- funded credit facilities

76

Funded credit facilities

These facilities mainly consist of: 1. Working capital ( fund based) The working capital includes the following : Cash credit hypothecation of stocks EPC-sublimit of CC Cash credit hypothecation of book debts FBP/FBD/ODF OBC FBN-DP/DA 90 days 2. Term loans Non- funded credit facilities These facilities mainly consist of Guarantee LC-inland/ foreign DP/DA 180 days

Analysis of assessment of Working Capital Limits

In Bank of India, the working capital requirement of the borrower is assessed using different methods, based on the limits.

Turnover Method Borrowers with a credit limit of less than Rs. 5 Cr, the working capital requirement is computed as 25% of the projected annual turnover, of which bank provides 4/5th (i.e. 20% of the projected annual turnover) and the remaining 1/5th is contributed by the borrower as margin. On an average the average business cycle assumed by the bank is 3 months; the bank is flexible to consider the working capital limits in case of longer business cycle.

Level of Holding / MPBF In this method of working capital assessment, bank determines the level of holding of inventories by looking into the past levels of holding for inventory and receivables. In case of 77

A rated accounts with fund-based limits exceeding Rs 5 crores, cash flow statements would be obtained and scrutinized. Cash DSCR and cash interest coverage ratios may also be worked out and commented in the proposal.

Cash Budget System The assessment of working capital requirement may be done on the basis of the projected cash budget statement (annual) comprising of the projected receipts and payments for the next 12 months on account of: Business operations, Non- business operations, Cash flow from capital accounts, Sundry items

Analysis of Credit Proposal of Working Capital and Term loan

A.
1.

BORROWER PROFILE:
Name of Account Factory Regd. Office M/S Agni Engineers Pvt Ltd. A-68, Prayag Apartment, Vasundhra Enclave, Delhi-110096 B-59, Sector-83, Phase-II, NOIDA-201306..

2. 3.

Constitution Business/Activity:

Private Limited Company Manufacturing of sheet metal & press metal tools /plastic and rubber moulding products. 36909

BSR Occupation Code: 4. Established in 1992 as firm 1996 incorporated to Private Limited Co. 6. If the account is new, name of the earlier Banker : N.A Present Proposed 7. a) Risk Rating b) Pricing Rating SBS4 SBS4 SBS4 SBS4 8. Asset Code: 11/Standard 5. Advance since: 1995

78

c) External Credit Rating 9. 10. Group Chief Executive/ Promoter Directors 11 a Consortium N.A

N.A.

N.A.

No specific Group Mr. Rajeev Tiwari, Director Ms Rupam Tiwari, Director N.A Leader/ Share Our Share N.A. Main Banker/ Share Our Share N.A. NA Other Banks/ Share Other Banks/ Share N.A.

Multiple * Banking Arrangements

No

N.A.

B. ISSUE/S FOR CONSIDERATION: 12. 13. Present Request: Review/Additional Terms 1. Working Capital on same limit 2. Term Loan on run down /outstanding level Last Sanction / Review: Zonal Manager dated 07.03.2011

C.

FACILITIES & SECURITY COVER AND MAJOR TERMS OF SANCTION: (Rs. in lakhs) Limits (with purpose) Existing Propo sed Inc.(+)/ Dec.(-) in limits Pricing* ROI/Commission Present O/s as 31.03.11 Overdues @

14.

WC-Fund Based i)CC- Stocks

100.00

100.00

--

@4% over base rate13.00% p.a. with monthly rests

19.25

Nil

79

ii)CC-B/Debts (upto 90 days) Max (i+ii) Term Loan-I Autofin Loan Term Loan-II Land & Building

50.00

50.00

--

--do--

50.00

Nil

100.00 3.22

100.00 0.95

-(-)2.27

-As per scheme

69.25 3.22

Nil Nil

134.36

107.36

(-)27

@4.50% over base rate13.50% p.a. with monthly rests --

144.09

--

Non Fund Based Total Major Terms of sanction Repayment of TLs

Nil 274.00

248.61 --

-217.86

---

a. Drawing to be allowed against paid stock only b. Drawings against book debts of 90 days only TL I (original limit Rs. 10.53 lac) repayable in 60 EMI of Rs. 23292.00 already commenced from Aug 2007.

TL II (original limit Rs. 160.00 lac ) repayable in 72 monthly installments of Rs. 2.25 lac each already commenced from March 2010.

15. Security

Particulars

Date of valuation report

Value (Rs. in crores) Value Share 74.18 133.16 14.64 221.98 Our 115.23 187.40 12.44 315.07

Principal

Hyp. Of Stocks Hyp of Book Debts Hyp of Vehicle

31.12.2010 31.12.2010 31.03.2010

80

D. COLLATERAL SECURITY (Rs in lacs) Nature of Owned by Security EQM land Company & buildings /Shed

Location

Valuation Date Value 176.87

i)B-59, Sector-83, Phase-II, NOIDA201306 ii)Plot No 96 Sector- Ecotech Extn-I Greater Noida

26-08-09

23-08-09

218.32#

Total #value is inclusive of land & building proposed

395.19 (Rs. in lacs)

16 Directors name Sh. Rajeev Tiwari

Assets 67.74

Liabilities

Net worth Basis 16.82 50.92 CBD-23 dt 12-01-11

Mrs. Rupam Tiwari Guarantors Name All the directors are guarantors in the account Total

47.07

20.29

26.78

-do-

114.81

37.11

77.70

E. CONDUCT/VALUE OF ACCOUNT : 17. a) b) Conduct of the account: Satisfactory

Cheques Returned during the year under review for financial reasons: -LC Devolved and BG-Invoked during the year under Review: - N.A

81

F.

Financial Position:

(Rs in lacs) 18. PARTICULARS Audited Estim Aud Proj Prov Estim Proj

31.03.10 31.03.11 31.03.11 31.03.12 31.03.12 31.03.13 31.03.14 1 2 3 Paid up Capital: Tangible Networth Investment in cos (Of which in group cos) Adjusted TNW Capital Employed Net Block Net sales : Domestic 17.13 255.83 0.00 17.13 287.19 0.00 19.13 382.10 0.00 19.13 420.31 0.00 19.13 420.31 0.00 19.13 471.41 0.00 19.13 530.71 0.00

4 5 6 7

0.00 255.83 369.53 434.09

0.00 287.19 437.71 399.87

0.00 382.10 503.67 506.63

0.00 420.31 573.93 457.02

0.00 420.31 573.93 457.02

0.00 471.41 598.03 486.67

0.00 530.71 630.33 476.32

655.70 6.46 47.56 7.11

900 7 85.14 35.15

910.8 4.68 76.71 25.26

1050 5.04 88.95 28.92

1050 5.04 88.95 28.92

1200 5.46 104.43 24.65

1500 5.88 118.39 25.78

11 Other Income 12 EBIDTA 13 Interest Gross 14 Profit/(Loss) 15 Taxes 16 Cash Accruals 17 Depreciation 18 Net Profit/(Loss) Net Profit/Capital 19 Employed (%) 20 Current Assets 21 Current Liabilities

40.45 9.74 30.71 10.71 20.00

49.99 6.74 43.25 11.89 31.36

51.45 12.06 39.39 13.12 26.27

60.03 11.48 48.55 10.34 38.21

60.03 11.48 48.55 10.34 38.21

79.78 18.33 61.45 10.35 51.1

92.61 12.96 69.65 10.35 59.30

5.41 284.89 379.39

7.16 269.93 235.53

4.93 330.55 308.84

6.35 359.62 218.65

6.35 359.62 218.65

8.18 419.71 285.24

9.02 510.73 333.61

82

RATIOS : 22 Current ratio 23 Debt/Equity : Term liab./ 24 Adjusted TNW TOL/ Adjusted 25 TNW Profitability%: 27 PAT/Net Sales 28 DSCR 29 Interest Coverage Inventory + Receivables/ Sales 30 (%) 5.32 .75 1.15 1.07 1.64 1.64 1.47 1.53

.44

.52

.39

.43

.43

.33

.24

1.93

1.34

1.20

.95

.95

.93

.87

3.05

3.48

2.88

3.64

3.64

4.26

3.95

Average DSCR is 1.80 2.23 2.56 2.68 2.68 3.49 3.70

.33

.27

.30

.29

.29

.29

.29

19.

Comments in brief on financial position: The financial indicators of the company have been derived on the basis of audited financial accounts for the period ended 31.03.11, Provisional for FY 11-12, estimates for the current year and projections for next years. Our comments based on the financials indicators are as under:

19.1 PAID-UP CAPITAL/TNW: Paid up capital of the company is Rs.19.13 lacs as per audited financials as on 31.03.2011.the Tangible Net Worth of the company stood at 382.10 lacs as at 31.03.2011 as per audited balance sheet in comparison to 255.83 lacs as per audited balance sheet of 31.03.2010. It is further estimated / projected to improve to Rs. 420.31 by 31.03.12 and Rs.471.41 lacs by 31.03.13. Thus the capital /TNW base / position is adequate to cover the proposed exposure as per norms. The reconciliation of the TNW of the company is as under: (Rs. In lacs) 255.83 2.00 98.00 26.27 -382.10

TNW as on beginning of the year 31.03.10 Add: Increase in capital Increase in share premium Net Profit & Surplus Less: TNW as at the end of 31.03.11 83

19.2 SALES: Sales of the company are mainly in domestic market. The company had achieved sales of Rs.655.7 lacs during the year 2009-10 the sales achieved by the company during the year 2010-11 is Rs.910.8 lacs as per audited balance sheet in comparison to Rs. 900.00 lacs as per estimated financials submitted by the company. The Company has projected the same to the level of Rs 1050 lacs by 31-03-2012 and Rs. 1200 by 2012-13.Looking to the past trend and market reputation, adequate orders in hand, we feel the estimated/projected sales turn over is would be achievable by the Company. 19.3 OTHER INCOME: The company had earned other income of Rs. 4.68 lac during the year 2010-11.other income mainly comprises of job works, sale of scraps and other Misc. receipts. 19.4 PROFITABILITY: Profitability of the company from operations was at 2.88% during 2010-11. The profitability increased to 3.64% as on 31.03.2012 (Provisional) and is comparable with other such units engaged in this line of activity. Profitability at this level is considered reasonable / good. 19.5 NET BLOCK : The net block of the company stood at Rs.506.63 as at 31.03.2011,which mainly comprises of land and building of Rs.342.55 Lac ,plant and machinery of Rs.135.77 Lac and Misc .Rs.28.31 lac 19.6 CURRENT RATIO: During the year ended 31.03.11, CR was 1.07, which is within Banks acceptable norms. It has increased to 1.64 as at 31.03.12 (provisional) due to reduced borrowing during the year. 19.7 DEBT EQUITY RATIO: The debt equity ratio of the company as on 31.03.2010 is 0.37 and the same is 0.32 as per audited balance sheet as on 31.03.2011.Branch has accepted the same.

19.8 DSCR/ISCR: In view of good profitability of the unit / cash accruals, DSCR for the existing term loan obligation has been well above the accepted level. DSCR for the year 2010-11 is 1.24. The position is considered satisfactory. The repayment of existing term loan has been in time. No difficulty is envisaged in timely servicing of term loan installment and interest in future as well. Further the present and estimated ISCR of the Company are at satisfactory level. ISCR stood at 2.56 as at 31.03.11. As per provisional financials as at 31.03.12, the same has marginally increased to 2.68 due to increase in profit during the year viz a viz last financial year and increase in interest due to additional Term loan availed/sanctioned by us during the year. Company has projected ISCR to improve to 3.49 as at 31.03.13 due to better estimated profits during the year. 19.9 CONTINGENT LIABILITIES: There are no such liabilities reported in the audited balance sheet of the company as on 31.03.11

84

19.10 AUDITORS QUALIFICATIONS if ANY: As per the Auditors report as at 31.03.11, no qualification has been observed. In view of the above the financials of the company can be considered satisfactory.

20. Inter Company Comparison N.A Name of Co. Year Sales PBT/Sales TOL/T NW CR

21. Favourable Factors (in brief): the branch has adviced as under: 1. The company has been dealing with our noida branch for 16 years.conduct of the account has been reported satisfactory. 2. There has been steady growth of business of the company in the past. 3. Companys products have wide end use applications. Market share of products is increasing year after year. Companys clients are big/reputed corporate. The improvement in the economy which has started shall add to the further growth of the company 4. Mr. Rajeev Tiwari the principal promoter director behind the acrivity of the unit has experience of over 15 years in this line of activity. His contribution has been valuable in further growth of the business. 22. Risk Factors and Mitigants: Risk factors: 1. There has been substantial fluctuation in the prices of metal and metal products in the past. This affects the turnover and profitability. 2. There is tough competition in the market. 3. Usual market risks associated with the trade. Mitigating factors: 1. By virtue of their vast experience in the line they have gained expertise to control the price fluctuation factor suitably to avoid adverse effect on the margins. 2. They have sustained the market competition over the years and have earned good reputation in the market. 3. Their dealings with the retail customers are very limited. 85

23. Borrowers Exposure: (Existing) with us Facility Amount

(Rs. in lakhs) O/S as on 31.032011 Asset Status

With Us

i) CC Stock ii) CC-Book Debts Max (i+ii)

100.00 50.00 100.00

19.25 50.00 Standard 69.25

Term Loan- I (Autofin loan) 6.50 3.81 Standard

Term Loan- II (Land & Building With Other Banks Total Nil

134.36

107.36 Standard

NA 274.00

NA NA 217.86

24. Group Exposure (including this proposal): Name of company/ firm Zone/ Branch AC/ CR F.B. N.F.B. Total/ Max.

(Rs. in lakhs) Outstanding As on 13.01.11 FB NFB Nil Out of Order, If any Nil

M/S Agrahan Ghaziaba d Engineers Noida Br Pvt Ltd

11/ AA

248.61

Nil

248.61 217.86

86

(Rs. in lakhs) Maximum exposure based on capital funds as on 04.12.2010 Borrower Group

Cap. M/S Agrahan Engineers Pvt Ltd Total

Actual 248.61 248.61

Cap.

Actual 248.61 248.61

25. Exposure to Industry (including present exposure) - Not Available (Wherever applicable) (Rs. in lakhs) a) Sectoral Cap for Industry b) c) d) e) Banks Exposure Zones Exposure NPA Bank NPA Zone : : : : : N.A. 248.61

26.Utilization of Account Utilization of : 2010-11 Amount a) Fund Based Limits i. Term Loan 0.12 1.29 0.26 -%

(Rs. in crores) 2011-12 Amount %

100.00 64.50 52.00 --

0.08 1.71 0.61 --

100.00 71.25 40.67 --

ii. Working Capital b) Non Fund Based Limits 27. Export Turnover (Rs. in lakhs)

87

28.

Earning (Rs. in lakhs) Interest Other Income Bills Purchased/ collected LCs opened Guarantees issued Any other Income Total Yield No.

2010-11 0.14 Amt. 0.02 0.17 12.06 Earnings 0.01

2011-12 (Estimates) 0.19 No. Amt. Earnings 0.01

0.02 0.22 12.29

29. Details of Float Available: Current Year Position No of A/Cs Amount

(Rs in lacs) Position during last year Average Balance Outstanding as on 31.03.11 -0.58 0.47 1.05 -0.76 0.50 1.26

Savings bank Current Deposit Term Deposit Total

-1 4 5

-0.85 0.67 1.52

30. Concessionary facilities : None

88

31. AUDIT/ INSPECTION/ MEETINGS: Last Date Stock inspection Stock audit Consortium meeting 32 a N.A. Not Applicable Remarks/observations

Any adverse comments of Statutory/ No major irregularities persisting in the account. Internal/Concurrent/RBI Auditors and Borrower's Auditors (as extracted from the Balance sheet) Closure of CPA (Authority & Date)

32 b

33.FLOW CHART Date application received at branch Date of Branch Proposal Date proposal received at Zonal Office Date clarifications received at Zonal Office Date of ZO Proposal

04.05.12 09.05.12

ASSESSMENT/JUSTIFICATION FOR PROPOSED LIMITS :

34. Project Finance/Term Loan Assessment:

The Co. was sanctioned Term Loans for land & building and the other term loan was sanctioned for purchase of delivery /transportation vehicles. The details of the same are as under :

34.1 Term Loan I (Land & Building) :

The company was sanctioned a Term Loan of Rs.160.00 lacs for Land & Building for acquiring Industrial Plot No. 96 at Ecotech, Extension I, Greater Noida and for construction of building there on .Total cost of project of land & building was Rs 218.32 lacs and the margin money Rs 58.32 lacs @ 26.75% contributed by the Co. 89

Repayment The loan is repayable in 72 monthly instalments of Rs 2.25 lacs each commencing from March 2010 . The interest is serviceable as and when applied to the account .The project has been completed and the repayment in the term loan account is as per the stipulated terms and the account is in order . The conduct of the account is satisfactory. We recommend to review the same at its drawing limit /outstanding level

34.2 Term Loan II (Autofin Loan) :

The Co. has been sanctioned a term loan of Rs 10.53 lacs for purchase of Honda Civic vehicle under the Bank`s Autofin Loan Scheme . Total cost of vehicle was Rs 12.49 lacs and the margin money of Rs 1.97 lacs @ 15.74 % contributed by the Company .

Repayment The loan is rapyable in 60 EMI of Rs . 23,291 /- from Aug 2007 . The account is regular and the conducted satisfactorily . We recommend to review the same at its drawing limit/outstanding level .

34.4

SECURITY: The said term loans are secured by way of EQM of land & building and hypothecation of vehicles under the Bank`s hypothecation clause with concerned RTOs as per the RC available with us . As discussed in the Para 19.4 profitability of the company has been accepted at the estimated level. Accordingly based on the same DSCR of the company for the entire tenure of all the term loans for the company as a whole are as under: 2010-11 2011-12 38.21 10.34 48.55 28.92 77.47 2012-13 51.10 10.35 61.45 13.37 74.82 2013-14 59.30 10.35 69.65 9.32 78.97 2014-15 48.40 10.35 58.75 5.27 64.02 2015-16 50.62 10.35 60.97 1.30 62.27

PAT Depreciation Cash profit Interest on TL Sub total

26.27 13.12 39.39 25.26 64.65

90

Interest on TL Installment of TL Sub total DSCR Average DSCR

25.26 27 52.26 1.24

28.92 27 55.92 1.38

13.37 27 40.37 1.85 1.80

9.32 27 36.32 2.17

5.27 27 32.27 1.98

1.30 27 28.30 2.20

The DSCR is satisfactory and average DSCR comes to 1.80 35. Working Capital Assessment: At present the company is enjoying Fund Based credit facilities by way of Term Loan of Rs.1,40,86,000 and WCL of Rs.1 crores from our branch . The working capital limit was assessed for the year 2010-11 based on the estimated sales turn over. Now the Co. has requested us to review the WCL based on the estimated sales turn over for the F Y 2011-12 and we have taken the estimated sales turnover of Rs. 1050 lacs for assessing the working capital requirement of the company. Based on the said level of sales ,the working capital requirement of the company as per turnover method has been assessed by the branch as under: 31.03.11 a b c d e f g Gross Turnover 25% of Gross Sales 5% of Gross Sales Actual/projected NWC b-c b-d 910.80 227.70 45.54 21.71 182.16 205.99 31.03.12 1050.00 262.50 52.50 140.97 210.00 121.53 121.53

Permissible Bank Finance (lower of e & 182.16 f) Limits Requested Limits Recommended 100 100

h i

100 100

91

(Rs. In lac) S.no. 1 2 Facility Cash Credit Hyp. of stocks Cash Credit Hyp of Book Debts Max of Stocks & Book Debts Limit 100.00 50.00 100.00 Margin 25% 40% --

36. Non Fund Based Limits Assessment: N.A

37.

CONFIRMATION:

a. b. c. d.

Compliance of last sanctioned terms Security Documents are valid/in force Proper charge on securities created in Bank's favour Exposure is within Banks prudential Norms/RBI guidelines

: : : :

Yes Yes Yes Yes No

Company/directors are not under Banks/RBI/ ECGC defaulters : e list . f. g. Any deviation from usual norms :

No NA

Whether directors are disqualified under Section 274 of : Companies Act Any arrears in payment of statutory liabilities by the Co. Whether status report/D&B report, if applicable, obtained : :

h. i. j.

No N.A N.A.

Auditors comments on Corporate Governance Practices followed : in case of Limited Companies Pending litigation against / by the company (if yes, details) :

k.

Nil

92

38.

Industry Perception: Business Scenario Perception / SWOT Analysis / Risks and Mitigation

Strengths:

1.

The Company has been in the market for over 20 years. Market share is steadily increasing. Margins are improving. The promoters are in the existing line of activity for the last over 20 years. There regular demand of the products in the market and outlook for growth in the domestic sector appears positive. The company has increased the product range which enables to sell various types of products from one place. Promoters / family members are very well known to the bank. Their dealings have been for more than 16 years. Conduct of the account has been satisfactory. The clients of the company are big corporates like Hero Motors, SAMSUNG and Moser Baer etc. The company enjoys good reputation in the market in Delhi.

2. 3.

4.

5.

6.

Weakness:

1. 2.

Government policies on metal prices, regulatory aspects may cause fluctuation in the prices and down the general sentiments in the market. Volatility in the prices may also occur due to international market position.

Opportunity:

1.

The sheet metal & moulding components have wide applications in FMCG, automobiles, electronic items, telecommunication industry and various other sectors and thus it is estimated that consumption / demand shall continue to grow. 93

Threats:

1.

Competition in the market has bearing on sales. (Industry average/benchmark (as extracted from CRIS INFAC/Capitaline wherever available) ------Not Available-----

PBT/ Net Sales

Net Sales/ Total Tangible Assets

Bank Finance/ Current Assets

Inventory + Receivables/ Net Sales

39. BRANCH RECOMMENDATIONS

Mr. Rajiv Tiwari started the business of sheet metal & moulding components on very low scale in the year 1992 in a proprietorship firm. The firm was converted to M/S Agrahan Engineers Pvt. Ltd (AEPL) in the year 1996. The unit is engaged in the manufacturing of same sheet metal & moulding products it started in 1992. It is a closely held private limited company with Ms Rupam Tiwari W/O Mr Rajiv Tiwari as another director. The Companys manufacturing activity is located in own factory building situated at B-59, Sector-83, NOIDA. The required infrastructure is available in the area . The company has grown steadily over the years. Enthused with the growth and demand of the product, the company has made the expansion by way of acquiring land & building at Greater Noida . Mr. Rajiv Tiwari, promoter /director has experience for over 20 years in the line of activity and the over all control of marketing and administration rests with him. For day to day operations, manufacturing process, administrative work, the company has employed other executives/ supervisors, trained staff and semi skilled workers. The company employs about 60 staff for its activity. Looking to the steady growth, satisfactory conduct of the account, the management of the company is considered satisfactory. The company has been banking with us since 1995. The conduct of accounts has been satisfactory. The present request of the Company is as under : Present Reference: 1) Review of term loans at its drawing limit/outstanding level. 94

2)

At present the company is enjoying working capital limit of Rs.100 lacs from our Bank as per last sanction. WC limit is proposed to be reviewed at same level of Rs.100 lacs based on the turnover method .

Financial Position: Financial position based on balance sheet as on 31.03.10, 31.03.11, estimated balance sheet as on 31.03.12 and projections for the next year has been mentioned in detail in the proposal. The sales of the company are showing increasing trend over the years. Liquidity and other ratios are at acceptable levels. Capital/TNW is adequate for the exposure norms. Profitability is at satisfactory level and is improving over the years. The parameters along with the explanations have been considered and the position is satisfactory. Security: The credit facilities are secured by hypothecation of stocks & book debts, plant & machinery, hypothecation of vehicle out of Bank finance and the same are collaterally secured by extension of EQM of existing factory land & building situated at B-59, Sector83, Noida valued at Rs.176.87 lacs as per the Bank`s appoved valuer M/S Accurate Valuer`s report dated 26-08-2009 and EQM on Industrial plot No.96 , SectorEchotech Extn-I, Greater Noida valued at Rs. 140 lacs as per the Bank`s approved valuer Mr. Gurcharan Singh `s report dated 23-08-2009 (total value inclusive of proposed building is Rs 218.32 lacs ). Guarantor(s): In addition to above ,the personal guarantee (Joint & Several guarantee) by Sh. Rajiv Tiwari & Ms. Rupam Tiwari,both the directors of the company is proposed for the existing as well as the for the additional advance . Credit Rating and Pricing: We have carried out the credit rating exercise in the account based on the audited Balance Sheet of the Company as of 31.3.2011, the account qualifies for SBS-4 rating . Accordingly we propose to charge the rate of interest applicable to MSME unit as per the present guidelines . Recovery of Applicable Charges: All applicable charges shall be recovered as per the guidelines .

95

35. Recommended for

I.

SANCTION of: Limits Existing Proposed

a)CC Hypothecation of Stocks b)CC Hypothecation of Book Debts Max. a+b

100.00 50.00 100.00

100.00 50.00 100.00

c)Term Loan-I d)Term Loan (Land & Building) Total

3.22 134.36 274.00

.95 107.36 248.61

I.

APPROVAL FOR: a) Assigning SBS-4 rating to Company and Rate of interest as per Para 35. Authority for Sanction In terms of extant guidelines under delegation of powers the proposed limits falls within the delegated authority of GM-NBG as per revised delegation of powers circulated vide HOBC No. 104/134 dated 25.01.2011. Submitted for sanction/approval, please.

36.

RECOMMENDED

(------------------) Manager

(-----------------) Chief Manager

96

Analysis of assessment of Term Loan The appraisal process of a term loan is a little different form the appraisal process of working capital. A few more factors have to be considered for the term loan appraisal in addition to the other details like borrowers profile, credit rating etc.

For providing term loan facilities, a few more factors have to be considered. They are the funded debt/equity ratio, the DSCR both for the project and the company, as a whole as also the period of repayment should be given due weight-age. Also the cash-flow statements are to be obtained and analyzed in all accounts with limits of Rs5 crores and above or wherever needed

Risks associated with the borrowal accounts like critical inputs risk, operational risk, production process risk, marketing and labour risks are to be analyzed and taken into account in the assessment.

The following things are taken into consideration while appraising the term loan

Project particulars Cost of source of finance, Amount of advance and purpose Repayment schedule Details of security/ value of security/margin: basis of valuation Comments on the project Project revenue, profitability and DSCR Marketing viability Project implementation schedule along with present status of reports Availability of refinance

Analysis of Credit Proposal of Term Loan Proposal of R&R Infra Private Limited Question Industry is Infrastructure under the heads Roads and ports

97

The company XYZ LTD. Limited has a fund based requirement of Rs. 10000 lacs. The company is under PPL (Public Private Partnership). Credit Requirement

Facility Term Loan Working Capital ( FB ) Non-Fund Based Total

Proposed 10000

10000

The Memorandum of Sanction or Memorandum of Approval starts with the Proposal Number for Reference along with date of application and date of creation for the proposal.

The Credit Proposal along with major sections from A to J, with all sections together accounting for a total of 36 customized headings which contain data depending on the credit proposal requirement for that project. Example The Term loan requirement for this project does not require Working Capital Assessment. Borrower Profile

The first section named A is Borrower Profile, which contains the basic details about the borrower i.e. Name of Account, Constitution(Private/Public), Business Activity(Example Construction of roads and highways), Business and Account establishment dates, Credit Risk Grades, Group and Directors Information, Consortium (Yes/No), Multiple Banking Arrangement (Yes/No).

The XYZ LTD. Public Limited (Unlisted) is into Construction of Roads and Highways. It was established in 2004 and has been in business with the bank since 2006. The Risk Grades assigned for Borrower Risk Grade is LC6 and for Borrower Pricing Grade is LC7. The Group for the project is a Joint venture between public and private firms. Mr. K. Singh is the Managing Director and it is a consortium lending with the market share as 9.09%.

Sharing Pattern of Term Loan

98

Name of Bank Other Banks Bank of India Total Issue for Consideration

Amount 100000 10000 110000

Percentage (%) 90.91 9.09 100

The second section named B is Issues for Consideration. It covers the Last Review, Any additional request. The XYZ LTD. Limited is submitting a new request for a fund based loan of Rs. 10000 lacs. Facilities and Security Cover

The third section named C is Facilities and Security Cover. Under facilities it covers the limits sanctioned, the pricing, the outstanding amount, and over dues if any. Also it covers the Repayment of Term Loan.

Limits Term Loan Working Capital Non-Fund Based Total

Existing ---

Proposed 10000 --

Inc/Dec ---

Pricing 9.5 % --

O/s 9094 --

Over dues ---

--

--

--

--

--

--

--

10000

(+)10000

--

9094

--

Repayment of 48 unequal quarterly installments commencing from June 2012. The door to Term Loan door period is 16.5 years. The tail period is 15.5 years. Total project period is 32 years.

Under Security Cover, the borrower is required to provide the principal and collateral security. But in cases collateral can be exempted. In principal security it usually covers the current assets of the company, whose value is ascertained and acts as a security cover against the credit provided to the borrower. In case of consortium, since there are many banks so each bank has to find out their share depending 99

upon the share of loan granted i.e. the total project cost is Rs.150000 lacs and the loan share is 9.09%. Thus the security value as per Bank of India loan share comes out to be 9.09% of Rs.150000 equal to Rs.13646 lacs. Guarantor may be required to provide security against credit, but it is again not a mandate and depends upon project.

Security Principal

Particulars

Date of Evaluation

Value(Our share) 13646

Hypothecation of Eventual assets, Escrow Account, Assignment of Rights, Assignment of Insurance, DSRA ---

Collateral Exposure

--

The fourth section named D is Exposure, which provides details about the Borrowers Exposure, Group Exposure, Industry Exposure and Conduct/Value of Account. In Borrowers Exposure, we take into account all the existing exposure of the borrower with Bank of India, with Other Banks, with FIs / LIC etc.

Facility With Bank of India With Other Banks With FIs / LIC Total TL TL TL

Amount 10000 95000 5000 110000

O/s 9094 86357 4548 99999

In Group Exposure, the group which in our case is a Joint venture between a public and private. Thus the group exposure with Bank of India needs to be calculated. Both the Borrowers Exposure and Group Exposure needs to be within the limits sanctioned as per the Credit Policy. 100

Borrower Cap 294000 Actual 10000

Group Cap 735000 Actual 170376

Industry Exposure marks the cap for that sector, the Bank and the Zone Exposure as well as NPA for that sector.

Exposure to Industry Sectoral Cap for Industry Banks Exposure Zones Exposure NPA Bank NPA Zone 506065 379966 151557 242 --

Conduct/Value of the Account is very important criteria in deciding the Rate of Interest. It takes into account the conduct, utilization of limits as well as the earnings made. Utilization Last Year Amount Term Loan Earnings Interest Other Income Total Yield % 444 0.73 444.73 9.51 912 25 937 9.76 4675 46.75 Percentage Current Year Amount 9600 96 Percentage

The Low Yield is on account of ROI being linked to the Government Securities, as it is a Public Private Partnership, so the ROI charged is low. 101

Favorable factors

The project is a joint venture between XYZ LTD. and Government of Rajasthan, with promoters having robust experience in project development and implementation. The government of Rajasthan has accorded high priority for development and up gradation of infrastructure and has thus created state road development funds to provide balance investment. Investment is expected to be recovered through the levy of toll fees.

Financial Position of XYZ Infra

The project is an effort to improve the road infrastructure. It is a joint venture of the public and private institution. Paid-up Capital

The paid up capital is constant at Rs. 5000 lacs at the end of FY 2008, and is estimated to increase to Rs. 25800 lacs by FY 2009 and to Rs. 28300 lacs by FY 2010. The company is planning to raise the amount by IPO/Private Placement for funding the project cost. The timing for IPO would depend on market conditions. Thus in case of delay in IPO/Private Placement process, the promoters will provide an undertaking for arranging the equity requirement of the capital. Net Sales

The year FY 2008 is the first year of operations. The revenues for the same will start coming from the toll collected on the completed stretches. The revenues earned for the year 20072008 was Rs. 929 lacs and were estimated to Rs. 7500 lacs for the Year 2008-2009. The sales were found to be in line to achieve the estimated sales. Other Income of Rs 114 consisted of interest on Fixed Deposits. Profits/Profitability

The company has suffered a net loss of Rs. 2781 lacs as the revenues were operational for part of the year. Also, as interest of Rs. 15 Cr has been expensed due to prior completion of the project.

102

The gaps had been met by the Financial Security Fund of the Government. The EBIDTA is expected to be Rs. 7500 lacs at the end of FY 2010.

The company as a whole would be break even and start generating profits from their second year of operations. The losses if any will be met by the FSF set up the government. Investments

The company has projected investments at Rs. 12500 lacs, as it has planned to invest in land adjacent to the toll roads. The investment in land banking would be financed with the proceeds of the IPO/Private placement.

Total Net Worth TNW at Beginning of the Year Add: Increase in paid up capital Increase in share premium Net profit for the year Decrease in intangible assets Less: Decrease in paid up capital General Reserve used for Provision Increase in Intangible Assets Dividend payment including tax Loss during the Year TNW at end of Year

29106 2781 26325

The TNW is estimated to be Rs. 52500 lacs at end of FY 2011, and to Rs. 52200 lacs at end of FY 2012.

Particulars TNW at Beginning of the Year Add: Increase in paid up capital Increase in share premium Net profit for the year Decrease in intangible assets Sub-debt from XYZ LTD. Additional funding from Public Contribution from Government State Fund

FY 2011 26325 20800 9800 2000 8500

FY 2012 52500 2500 2600

103

Less: Decrease in paid up capital General Reserve used for Provision Increase in Intangible Assets Dividend payment including tax Loss during the Year TNW at end of Year

2200 12725 52500

5400 52200

Financial Position of XYZ Infra

Audited 09

Audited 2010

Estimated 2011

Projected 2012

Paid up Capital Equity Preference Share Tangible Net Worth Investment in Cos Adjusted TNW Capital Employed Net Block Net Sales Domestic Exports Total Other Income EBITDA Interest Gross Profit Taxes Cash Accruals Depreciation Net Profit Net Profit / Capital Employed % Current Assets Current Liabilities Ratios Current Ratio Debt/Equity Term Liab. / Adjusted TNW TOL/Adjusted TNW Profitability Percentage : PAT / Net Sales 114 105 105 41 64 64 0.05 1334 2545 5000 29106 29106 48951 50161 5000 26325 26325 125623 120805 929 929 458 1585 -1127 -2 -1129 1652 -2781 12165 7348 25800 52500 -12500 45250 173500 160700 7500 7500 -100 12700 -12800 -7400 5400 -12800 200 28300 52200 -12500 44290 200000 184500 15500 15500 1000 7500 12900 -5400 -100 5400 -5500 2900

0.524165 0.68 0.77

1.655552531 3.77 4.05 2.3 2.3

2.83 2.83

104

DSCR Company as a Whole For Specific TL Interest Coverage Inventory + Recievables / Sales (%) Average DSCR 2.34 Average DSCR 2.37 0.29 0.42

Important Ratios Debt-Equity Ratio There is an increase in project cost due to increase in the price of raw material (i.e. Bitumen) from Rs 150000 lacs to Rs 161800 lacs. The increase in cost would be met by the sponsors. Thus the DER ratio comes out to be 2.12.

Interest Service Coverage Ratio The ISCR for the project is 0.29 for FY 2010 and at 0.42 for the FY 2011. The low ISCR ratio is acceptable as the company has made provision for payment of interest in the form of Financial Security Fund and also Debt Service Reserve Account (DSRA) has been factored in the project cost. With operations going to full scale, the company should improve the ISCR Ratio.

Debt Service Coverage Ratio The Average DSCR for the project is 1.67. With other projects in line, the average DSCR is expected to go above 2, which is acceptable.

Analysis of Term Loan Assessment

The project is a joint venture between the government and private institution. It is a part of the initiative taken by the Government for improving the roads and infrastructure to promote tourism. The estimated cost of the project is 150000 lacs.

Project Cost (Rs. In lacs) Equity Debt IPO Interest free Government 5000 sub-debt 24000

Sub-Debt from Banks/FIs 105

5000

Sub-Debt from XYZ LTD. Term Loans from Banks/FIs

4000 110000

The company has taken a Term loan of 110000 lacs by a consortium of 12 banks. With our share at Rs. 10000 lacs(9.09%). The project cost increased from Rs. 150000 lacs to Rs. 161800 lacs on account of increase in the raw material. The increase will be offset by the saving initiated by the company of Rs. 9900, and the remaining Rs. 11800 lacs, part of which Rs 2000 lacs will be met by the Government and remaining Rs. 9800 lacs will be met by the sub-debt from the sponsors.

As Security, the term loan has a first pari passu charge on the assets of the project. The value of security under our share is Rs. 13646 lacs. The company is also required to maintain insurance for the cost and expenses incurred for management of the risks. The price charged is 9.5%, which is then linked to the Government Securities. This pricing is sector specific and as infrastructure is priority sector for the Bank. The interest rates are kept low by linking it to the Government Securities. The project appraisal finds that the substantial stretches have been completed before time. Toll collection has commenced. The Average DSCR for the project works out to be 2.34

The company is servicing interest in spite of losses, from the Financial Security Fund made available by the government.

In the process, a complete viability study of the project as in this case the road viability is studied in terms of its connecting ends and the purpose it serves in comparison to the existing road links in terms of shorter route etc. The purpose for undertaking the project is studied indepth to calculate the amount of advance. Also the study of expenses as in this case: Civil Work Cost The civil cost with provision for contingencies and price escalation. Land Acquisition and Rehabilitation expenses Cost of acquiring the land and implementing the rehabilitation program. Preliminary and Pre-Operative Expenses The expenses incurred for project development and administrative expenses. Interest during Construction The amount is estimated and the company has to make provisions for effecting the payment before the start of operations. 106

The current status, the proposed improvements and estimated benefits of the project are studied. Traffic Assessment

In order to assess the potential of the project, a traffic assessment study is done. This helps us to understand the feasibility of the project. The traffic volume has been arrived by multiplying with the seasonal variation factor to arrive at Annual Average Daily Traffic (AADT). The growth rate is then identified based on the study done on the traffic pattern.

Project Appraisal, viability, profitability projections, DSCR

The average DSCR works out to be 2.37, with a minimum of 1.28 in the first year of operation. With the traffic study the growth potential for traffic has been identified. The project period provides a revenue tail of 17 years to mitigate any unforeseen risks. Thus the project is economically viable and technically feasible.

Sensitivity Analysis

The project is subject to toll revenue and operating cost risks thus we do a sensitivity analysis

Scenario

Senior Debt without DSRA Avg. DSCR Min. DSCR 1.28 1.19

Senior Debt with DSRA Avg. DSCR 2.37 2.22 Min. DSCR 1.58 1.48

Base Case

2.35

Base Case Traffic 2.20 Reduced by 10 % Increase in Project 2.18 cost by 10% Increase in O&M 2.33 cost by 10%

1.19

2.20

1.46

1.26

2.35

1.56

107

Security

The principal security is the charge on current assets i.e. movable, tangible, intangible assets, receivables, cash and investment. An Escrow account is maintained into which all the investment in the project, and all project revenues and proceeds are deposited. Debt Service Reserve Account

The company is also asked to maintain a DSRA from the commencement of operations to meet the debt service requirements. An amount equal to the principal and interest for one quarter is maintained. Amount in DSRA shall be utilized only in case of short fall in cash flows for meeting the debt service requirements.

Industry Perception

An efficient transportation system is a pre-requisite for sustained economic development. Transportation system includes roads, railways, waterways etc. Roads are considered the primary means of transportation in the country due to easy accessibility. On an estimate around 61% of the total freight and 86% of the total passenger traffic is carried by roads.

India has the second-largest road network in the world, aggregating 3.34 million km. In the decreasing order of the volume of traffic movement, the road network can be divided into National Highways, State Highways, Major district roads and Rural and other roads.

Roads are the preferred mode of transportation in India. Road Transport has emerged as the dominant segment in Indias transportation sector. The sector has plays a major role in the country GDP.

The State Highways are secondary system of road transportation, providing linkages to the national highways, connecting important towns, tourist centers and ports. Major district roads

108

run within the district connecting areas of production with the markets and providing interconnectivity between the rural areas and district headquarters.

The secondary system of roads carried 40% of the total road traffic, although they constitute around 18% of the total road length. They contribute significantly to the rural economy and thus to the industrial development of the country by enabling movement of raw materials and products.

Branch Recommendations

The company is an initiative of the government to improve the infrastructure with the objective of making the state a preferred destination for tourism. The company is also responsible for improvement, rehabilitation, and maintenance of the project roads and the sponsors has a proven track record in the infrastructure sector. The PDA (Partnership and Development Agreement), authorizes the company to collect the toll fees from the users of the Project Roads and transfer the project roads at the end of the Project period. Considering the viability of the project, acceptable DSCR, DSRA provision, experience and track record of the promoters and tail period of 17 years, the Term Loan limit of Rs. 10000 lacs is given to the company.

Management of the Company The Board of Directors are from the Government bodies and XYZ LTD.. This is JV 50:50 between the public and private so the management does not stand as guarantors. It is the Private body which needs to be studied i.e. XYZ LTD..

XYZ LTD. It is a premier financial institution with the objective of developing projects in the infrastructure sector. The key promoters are Central Bank of India, HDFC, and UTI. The company undertakes projects in the following broad business segment Commercialization of Infrastructure projects 109

 Financial Services ranging from project financing, investment banking etc. The company is a premier in financing Infrastructure projects and has huge exposure and experience for carrying out the implementation of the Project. Credit Review

This is a very important activity to monitor the progress of the Client project and to make sure that the funds are being used in the same area as mentioned. The default time period is half-by yearly basis. Though the proposal is reworked on yearly basis to mark the progress of the project and make changes in the limits / interest rates and other terms and conditions. Credit Rating

The bank while evaluating the credit proposal derives the credit rating which has to be over and above LC5, based on which the interest rates to be charged are decided. In special cases bank may consider projects with LC6 and LC7. The Borrower Risk Grade and Borrower Price Grade both are checked and the recommendations are made. Risk factors and Mitigation

Risk Type Time and Cost Overruns during construction

Mitigation The company has undertaken improvement works and completed substantial portion before time Adequate escalation provisions are provided.

Statutory Approvals and Clearances

The critical clearances are obligations of the Government, which has a joint venture, thus no delays Geographical location adds to the positives, as traffic has registered a growth of 61% for last five years The roads provide more efficient connectivity to National Highways

Commercial Risk

Senior and Banks/FI

Subordinated

debts

from The entire debts flow from Banks/FI will be managed by the XYZ LTD. Financial Services. In case of unavailability of IPO, the entire proceeds would be managed by the sponsors 110

Equity

Political Events

As per PDA, the government takes care of the any cost incurred due to the any political event

Credit Pricing The bank charges interest rates which are dependent on the nature of the project, the risk associated with the project etc. Thus referencing to the article attached in the appendix we can be clear on the components which account for the same. Also, in the form of Pre-payment charges and commitment charges, the bank charges for either prepayment of the interest component or either not using the loan to the limit as mentioned in the terms and conditions of the memorandum. Also, the bank charges processing fees, as mentioned in the terms and conditions of the memorandum. Last but not the least, in case of any defaults or non-fulfillment of any condition can cause for a charge in the form of liquidated damages.

Banks Policy

The Bank of India policy varies for every industry, thus for the roads and highways projects under Public Private Partnership (PPP) are as follows: Financing to road projects may be considered on the basis of a viability study, taking into account the traffic study and revenue generation capacity of the project. In sanctioning proposals, the risk assessment and mitigation should be addressed. Before any disbursement takes place, the bank makes sure that all the project agreements and contracts have been undertaken by the promoter. The following arrangements are also considered i.e. Escrow Account, Comprehensive Insurance cover, maintenance of DSRA etc after the Commencement Operation Date (COD). Since Infrastructure projects are of generally longer durations hence the credit review plays an important part to check whether the project is going as per the schedule, else remedial action needs to be initiated. The total sanctioned limit for roads and highways project is fixed at 5 % of the Gross Domestic Advances of the Bank. For any relaxation banks needs to get the approval from the Ministry of Commerce. Financial parameters to be followed: o Maximum D/E Ratio is 4:1 o Minimum Average DSCR should be 1.25 111

Chapter 5

CONCLUSION & RECCOMENDATIONS

112

Observation & Findings

As per the observations made during the study of my project I found that the bank needs to review its credit rating system and needs to be more stringent in norms. Thus bank needs to make sure that it invests in sectors which promise better growth, which can be done by a thorough study of the market forces. So banks need to maintain the opportunity risk balance, to invest in corporate with higher operational efficiency. Banks needs to focus on sectors such as Infrastructure, the bank guidelines for financing this sector should be made liberal and thus bank should try to give various concession facilities. Thus for risk rating bank takes external rating for the company carrying out the project and not for the specific project. The concession should be given in the form of relaxation in prepayment charges, maintenance of DSRA account, margins etc.

Conclusion
The association with Bank of India for project on Analysis of Credit Appraisal has been an educational experience. It has helped a lot to understand the practical aspects of Trade Finance and Credit Appraisal and how the various methods/policy that we been studying theoretically are applied in business. With the globalization process, the role of Trade Finance and Credit has undergone a sea change and it is a major profit center for better performing banks. Credit operations have become more significant and complex today than what it was few years back. The role played by the technology and the rapid changes in the financial sector cannot be ascertained. The role of information technology is pivotal particularly because unless informational expectations are clarified and met, Trade and Credit operations cannot be made efficient in operations. Credit provided by the banks is an important source of finance for the corporate. But the bank has to check the acceptability of the corporate before they can sanction the loan to it. Along

113

with this, the assessment of the credit needs of the corporate also has to be done by the bank. This entire process is called the credit appraisal process of the bank. The bank then decides whether to sanction the loan to the corporate or not. If the loan is to be sanctioned then what rate of interest is to be provided to the corporate is decided based on the risk rating of the corporate and a host of other subjective factors. This process of credit appraisal is to be carried out at the time of initial entry of a corporate to the bank as also the consequent periodic reviews or renewals to make sure that the credit is given to the business which is creditworthy and in limits as per the needs of the business. Bank of India has steadily been growing over the last many years. The financial turmoil has impacted the bank, the credit for which goes to the strict Credit Appraisal issuing procedure. This helps the bank to keep its NPA value at a minimum. The NPA of the firm has been declining over the years and this year it was just 1.47% of total advances. This is a very healthy figure and shows how effective the bank is in its credit management.

Net NPA to Advances Ratio 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2004 2005 2006 2007 2008 2009 2010 2011 2012 1.49% 0.74% 0.52% 0.44% 1.31% 0.91% 1.47% 2.77% 4.50%

To sum up, the paradigm shift in the risk exposure levels of the financial institutions, has definitely led to Credit Appraisal assuming a center stage. Undoubtedly all financial institutions need to perform Credit Appraisal. But to have a proper Credit Appraisal operation in place, requires a thorough understanding of the underlying factors. Such an understanding will enable the financial institution to identify and unbundle the risks and further aid in adopting and developing appropriate risk management models to manage risks and thereby making the process of Credit Appraisal a success. Thus we can say that the bank, given its resources, can occupy a better place in the near future, all it needs is a broader perspective and the right attitude to make maximum use of its resources.

114

Recommendations
Bank of India has been in the banking sector for years, thus the products and services offered in Trade finance and Credit Appraisal Process have developed to a great extent: it is almost flawless. But some recommendations have been provided which are as follows

Credit Appraisal

The new credit rating models that have recently come need to be developed further so as to increase their accuracy. This will help the bank immensely in the future. Usually, the review of the account for AAA, AA and A rated companies is once in a year. The review and consequently the credit appraisal of the account for the A rated companies should be done at a period less than a year, maybe once every 9 months. This is because the A rated accounts are at a relatively higher risk than the AAA or the AA rated account The manual process of Credit Appraisal should be automated to considerable effect. The Credit Appraisal process should be more organized, the repetitive process should be made to minimize and thus helping to make the process faster. Bank of India should give more concession to infrastructure sector. Especially to power, road and ports as it is need of the hour. The bank needs to work in depth market study for projects with lower credit ratings to be able to identify them as valuable customers.

Key Concerns for the Bank of India

Bank is increasing its international operations with some of its branches in high-risk countries. Any adverse event in these countries could lead to negative impact on bank's business and profitability.

115

Due to rising inflation, RBI has been following stringent credit norms leading to rise in cost of funds and slower credit growth for banks. This will put additional pressure on profitability of bank. Banks are considered to be barometer of economy and have been major beneficiary of current economic boom. Any significant downturn in economy could affect bank adversely. Bank of India needs to enhance their IT implementation in comparison with the private players.

Practical aspect of Learning from Bank of India

The experience at the Bank of India, Noida Branch in one of the largest Public Sector bank was a fulfilling one. During my time here I got to understand the intricacies involved in Corporate Banking. At Bank of India, Noida Branch I got the in depth study of the Corporate Banking operations at the bank. I had the chance to get exposure to the various trade finance products and services offered. The new trends and opportunities lying ahead for the bank were also studied. Also, I got a practical understanding of the Credit Appraisal process followed at Bank of India by analyzing the real-time proposals being worked at Bank of India. The Credit Policy helped to understand the various regulations followed at Bank of India. The Credit Rating system gives an insight to the various risk factors considered by Bank of India and also the risk management strategies followed at Bank of India. I also got an exposure to forex exchange transactions. I have learned how forward contacts are booked, how payments are received and made,how the communication is made with overseas banks. I found that summer training project provides a lot of learning opportunities. I gained a lot of knowledge about the practical aspect of fieldwork. Observing and learning how to deal with clients and how to solve their queries was an amaing experience. My exposure to the outer world through my training had given me a chance to relate my theoretical knowledge with its practical applicability. I have become more confident and I have also improved on my sense of appreciation.

In the end, the environment at the Bank was very helpful in intellectual development.

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Annexure

BALANCE SHEET OF BANK OF INDIA (As on 31st march 2010,2011,2012)

31.03.10 CAPITAL AND LIABILITIES: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities And Provisions Total Liabilities 525.91 525.91 0 0 12275.46 1428.62 14229.99 229761.94 22399.9 252161.84 8574.63 547.22 547.22 0 0 15423.99 1319.47 17290.68 298885.81 22021.38 320907.19 12974.69 574.52 574.52 0 0 19153.57 1233.7 20961.79 318216.03 32114.22 350330.25 13243.43 31.03.11 31.03.12

274966.46

351172.56

384535.47

ASSETS:

Cash And Balances With RBI Balances With Banks,Money At Call

15602.62 15627.51 117

21782.43 15527.56

14986.71 19724.55

Advances Investments Gross Block Accumulated Depreciation Net Fixed Assets Capital Work In Progress Other Assets Total Assets

168490.71 67080.18 3790.82 1504.07 2286.75 65.07 5813.62 274966.46

213096.18 85872.42 4020.14 1654.19 2365.95 114.8 12413.22 351172.56

248833.34 86753.59 4237.8 1466.21 2771.59 48.63 11465.69 384535.47

PROFIT AND LOSS A/C OF BANK OF INDIA(for the year ended 31st march 2010,2011,2012)
31.03.10 INCOME: Interest Earned Other Income Total Income EXPENDITURE: Interest Expended Operating Expenses Total Expenses Operating Profit Other Provision And Contigencies 12122 3667.81 15789.9 4704.78 2210.93 118 13941 5068.24 19009.3 5384.22 1888.84 20167.2 4940.66 25107.9 6693.95 3116.43 17878 2616.64 20494.6 21751.7 2641.77 24393.5 28480.7 3321.17 31801.8 31.03.11 31.03.12

Provision For Tax Net Profit Extraordinary Items Profit B/F

752.78 1741.07 0 0

1006.68 2488.7 0 0

900 2677.52 0 0

Total

1741.07

2488.7

2677.52

Preference Dividend Equity Dividend Corporate Dividend Tax Pershare Data Eps(Rs.) Equity Dividend(%) Book Value(Rs) Appropriations Transfer To Statutory Reserve Transfer To Other Reserve Proposed Dividend/Transfer To Govt Balance C/F To Balance Sheet

0 307.21 0

0 428.65 0

0 444.3 0

33.11 70 243.75

45.48 70 292.26

46.6 70

450 862.42 428.65 0

625 1419.4 444.3 0

669.4 1542.12 466 0

Total

1741.07

2488.7

2677.52

119

Client Application Form

Std. No. SSID -29 P.A 10,000 Forms 2- 98

BANK OF INDIA

APPLICATION FORM FOR CREDIT FACILITIES

APPLICATION FORM FOR CREDIT FACILITIES OF OVER RS. 2 CRORE

Details about the Unit and its Management

Brief Description of the Industrial Activity

Funding Activities of the Unit

Repayment Source of Funds (*) Securit y Rate Int. of per month

Present O/s (in 000s of Rs.)

Amount of Default (if any)

(*) (Indicate sources of funds with name & address, e.g., banks/ financial institutions/others (specify) 120

Arrears in Statutory Payments (if any)

Past Performance Enclose certified copies of the

(a) Memorandum and articles of Association (b) Audited Balance Sheet and Trading and Profit and Loss A/cs for the three years of the promoter company. (c) Copy of the agreement(s), if any. Entered into among the promoters.

Shareholding pattern

Employees Details

Details about associates firms

Technical feasibility (Please enclose the feasibility / project report)

Utilities (Give comments on requirement. availability/adequacy, qualitative aspects, etc.)

Details about the Effluent

Details about the quality control

121

Economic feasibility

Cost of Project (Please furnish estimates of cost of project under the following heads. Indicate the basis for arriving at the cost of project)

Means of Financing (Please furnish details of sources of finance for meeting the cost under the following heads)

Details about Promoters contribution to the project

Financial Assistance Required

Schedule of Implementation (Please indicate the progress made so far in the implementation of the project and furnish the schedule of implementation.

Future Projections (To be given for the next five years)

Government Consents Repayment Programme

Details of Securities to be offered: Primary and Secondary (Working capital and term loan securities to be indicated separately)

122

Encl: Certified Xerox Copies of

a) Audited Balance Sheets with Trading And Profit & Loss account, for the last three years.

b) Memorandum and Articles of Association, Certificate for Commencement of Business in case of limited companies

c) Income Tax, Wealth Tax Returns and assessment orders for the last three years. for the unit as well as proprietor/partners/promoters/directors.

d) Sales Tax Returns and assessment orders for the last three years.

BANK OF INDIA

Bio-data form

Details of existing fixed assets

Particulars of buildings proposed to be constructed

Particulars of machinery

Projections of performance, profitability and repayment 123

Cash flow statement

Projected balance sheet

Assessment of working capital requirements

Checklist for entrepreneurs

1.

BANK OF INDIA WELCOMES YOU TO apply for credit facilities to finance your Small Scale Unit. We consider it as YOUR RIGHT to get loans from us for your viable and creditworthy projects. Our simplified procedures will speed up the processing of your application. Whilst we recognize your right, you have a corresponding RESPONSIBILITY to earnestly Implement your project and repay our dues as per terms agreed to at the time of sanction

2.

3.

Kindly follow the instruction given below : i) Select appropriate application given bellow: Form No. SSID 26 for loans upto Rs. 5 lakhs. Form No. SSID 27 for loans upto Rs. 50 lakhs. Form No. SSID 28 for loans upto Rs. 2 crores. Form No. SSID 29 for loans above Rs. 2 crores.

ii) Please fill in all details sought in the form. If you wish to furnish any additional data /information, it may be submitted as an annexure. iii) Kindly ensure that all the documents enlisted in the application form are tendered alongwith the form. 124

Generally, following documents are required for credit limits over Rs. 5 lakhs : a) Balance sheets with Trading and Profits and Loss account, for the last three years. b) Memorandum and articles of Association, Certificate for Commencement of Business. c) Income Tax, Wealth Tax Returns and assessment orders for the last three years. d) Sales Tax Returns for the last three years. e) Copy of sale/lease deed of land and building/factory shed/gala etc. f) Copy of Government order converting the land into industrial land, if applicable. g) Copy of site plan of land and building, duly approved by local authority. h) Copy of sanction of adequate water and power connection. i) CMA data if ANNEXURE III and IV of the form not filled in. j) Quotation/catalogues/invoice in respect of each machine to be purchased. k) Assets & Liabilities Statement (CBD23) duly filled in by all partners/guaranters/ promoters directors alongwith proof of ownership of assets listed therein. l) Copy of Title deeds of Property proposed as a collateral security.

125

References
Bank of India, Branch Circulars, Ref: CBB, Sub: Credit Appraisal Bank of India, Client Proposals, Ref: CBB, Sub: Advances Operations Bank of India, Reference Manual for Corporate Banking Relationship Manager, product Guide, Version 4, Jan 2008 Bank of India, Branch Circular No. 101/84 dated 04.08.07, Sub: Exposure on Roads and Highways under Public Private Partnership. Bank of India, Credit Policy of the Bank for the Financial year 2007-2008 Mukherjee D. D., ed. 2006. Credit Appraisal, Risk Analysis and Decision Making, Mumbai-SnowWhite. Financial Accounting ,a managerial perspective by Ashok Banerjee. www.bankofindia.com www.moneycontrol.com www.rbi.org.in www.scribd.com www.slideshare.com www.sirfpaisa.com www.sulekhab2b.com

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