Business Loans

Agenda
Introduction to Facilities
Introduction to Financial Statements
Introduction to Credit Assessment
Approval Authorization
SEG Program Overview

MSME Definition
Manufacturing or
Processing

Service

Micro Enterprise

investment in plant and

machinery does not
exceed Rs. 2.5 mn

investment in plant and

machinery does not
exceed Rs. 1.0 mn

Small Enterprise

investment in plant and

machinery is more than
Rs. 2.5 mn but does not
exceed Rs. 50.0 mn

investment in plant and

machinery is more than
Rs. 1.0 mn but does not
exceed Rs. 20.0 mn

Medium Enterprise

investment in plant and

machinery is more than
Rs. 50.0 mn but does not
exceed Rs. 100.0 mn

investment in plant and

machinery is more than
Rs. 20.0 mn but does not
exceed Rs. 50.0 mn

Note : investment in plant & machinery is the original cost excluding land &
building & the items specified by the Ministry of Small Scale Industries

Agenda
Introduction to Facilities
Introduction to Financial Statements
Introduction to Credit Assessment
Approval Authorization
SEG Program Overview

Working Capital - Definition

Funds

deployed for managing business operations.

It is that part of the firms capital, which is required
Funds
It

thus

invested

in

current

assets

keep

is also called revolving or circulating capital or

Working Capital Cycle

1. Sales order is
received by an
entity

Sales
Order

Cash

2. Entity purchases
raw material, goods , Produce
incurs expenses for Goods or
Service
services, overheads.

Collect
Account
Receivable

Deliver
Goods or
service

3. Once the production cycle is

complete, finished goods/services are
delivered to the customer

5. Funds are
released for next
production cycle.

4. Goods may be sold

on cash or credit.
Credit receivables are
realized based on the
credit period offered.
There is a time lag
between sale & receipt
of funds.

Working Capital Finance

Working Capital
Sources

Owned Funds
Long Term Funds
Equity Share Capital
Reserves & Surplus

Bank Borrowings
Working Capital
Products
Cash Credit
Overdraft
Bill
discounting

Creditors
Credit period
availed from
creditors

Factors affecting working capital

Key Factors

Costs incurred on materials , wages & overheads

Length of time for which raw material remain in

stores , production cycle & sales cycle.

Average period of credit allowed to customers

Average period of credit allowed by suppliers

Amount of cash for day to day expenses , amount

required to make advance payments if any

Types of Working Capital Facilities

Working Capital

Fund Based

Cash Credit/
Overdraft/
Dropline OD/
WCDL

Bill Discounting/
Pre Shipment/ Post
Shipment
Finance/Buyers
Credit

Non Fund based

Bank Guarantee

Letter of Credit

Fund Based Facilities

10

Cash Credit

Running Account facility

Drawing power determined each month based on stock
and/or debtors statement declared by the borrower
Borrower can make payments to creditors or for expenses
Sale proceeds to be credited in this account

Overdraft

Borrower can withdraw upto sanctioned limit

It may be temporary or regular, secured or unsecured
Monthly submission of debtors/stock statement not required
for limits upto Rs. 15.0 mn

Working
Capital
Demand Loan

To be repaid on demand.
Unlike a term loan it is not payable in a fixed schedule at a
fixed time.
To meet short term working capital requirement of the
borrower.

Drop Line
Overdraft

An overdraft facility where sanction limit gets reduced over a

period of time by a fixed amount, for a fixed time period.

Fund Based Facilities

11

Bills
Discounting

Under Bill discounting , bank takes the bill drawn by borrower

on his (borrower's) customer and pay him immediately
deducting some amount as discount/commission.
The Bank then presents the Bill to the borrower's customer on
the due date of the Bill and collect the total amount.
If the bill is delayed, the borrower or his customer pays the
Bank a pre-determined interest depending upon the terms of
transaction.

Pre Shipment
Finance

To enable exporters to procure raw materials, processing,

manufacturing, packing, transportation and warehousing of
goods meant for export.
There must be an export order.

Post Shipment
Finance

Finance to enhance the exporters capability to offer credit and

gain competitive edge in global markets.
Shipping / other documents evidencing exports must be
present.

Non Fund Based : Bank Guarantee

Bank guarantee is issued by the bank, undertaking the liability of applicant. In
case of non fulfillment of the underlying conditions by the borrower, the Bank
is liable to compensate the principal
Financial Bank Guarantee

Performance Bank Guarantee

Performance Guarantee is a guarantee

Financial Guarantee is a guarantee by

Bank to discharge the financial obligation
of the applicant.
These are normally issued in lieu of

for due performance of a contract by the

applicant.
These are generally required by
contractor profiles, BG to be issued in

payment of tender deposits, earnest

favor of various Government, Semi-

money deposits, customs duty/excise

Government organizations, or

duty/income tax and guaranteeing

manufacturing entities who supply to

payment of goods purchased under

larger Corporate Houses.

credit.

Eg, BG for Advance mobilization

advance

12

Assessment of Bank Guarantee

Assessment of BG requirement

Rs. in Millions

Order to be bid for in next 12 months

Successful contract value (assuming a strike rate of X %)

EMD (A)

Period (Max 6 months)

Required @2% * (1)/2
Performance Guarantee (B)

Required @5% * (2)

Mobilization Advance (C)

Required @10% * (2)

Retention Money (D)@ 5% on the projected top line of next FY
Total Guarantee Requirement for new orders (E=A+B+C+D)

E=(A+B+C+D)

Existing Outstanding Bank Guarantees (F)

BG Expiring in next 12 months (G)

Total Guarantee Requirement (H=E+F-G)

H=(E+F-G )

Our proposed Limit

BG Limits with the existing bankers

Untied GAP

13

K=H-(I+J)

Non Fund Based : Letter of Credit

Bankers Undertaking on behalf of a constituent to pay to a third party against
compliance of stipulated conditions.
On submission of documents as per terms, the LC opening Bank is duly
bound to make the payment.
It is the responsibility of the borrower to make the payment of the LC on the
due date to the issuing bank, failing which it leads to devolvement of LC.
Letters of Credit facilitate settlement of trade payments and are used for both
local and international trade.
Inland LC

Foreign LC

Inland Letter of

Foreign Letters

Credit is issued

of Credit is

to meet out the

issued to meet

credit

out the credit

requirement for

requirement for

domestic trade.

foreign trade.

14

Sight LC

LC payable
immediately on
presentation of
requisite
documents

Usance LC

SBLC

LC payable at

Issued to serve as

determined

guarantee to

future date after

presentation of
necessary
documents

beneficiary of LC
that borrower
shall perform the
contract with
beneficiary.

Letter of Credit Assessment

Total Purchases
Purchases under LC ( X % )

15

A
B= A*X%

Period Under LC ( Y Days )

Lead Time under LC ( days ) only in case of off site

LC Requirement C= (B*(Y+Z)/365)

Working Capital Assessment Methods

Turnover Method

Working capital requirement = 25% of the projected

Turnover
Promoter Contribution (Margin) = 5% of the Turnover
Bank Finance = 20% of the Turnover
This method is usually used to assess requirement of
small trading companies.
Projected cash flows from operations to be considered
as basis of assessment.

Cash Flow Gap

Method

Bank grants facilities Upto the gap in cash flow from

business operations.
This method usually used in case of projects under
infrastructure sector, export activities , sectors where
valuation of current assets is difficult etc.

16

Credit Monitoring Arrangement (CMA)

Detailed financial assessment format used to calculate MPBF
Format divided into 6 forms
Contains particulars of existing credit facilities
Form I
from banking system

17

Form II

Operating Statement, covers trading, profits &

loss account

Form III

Analysis of balance sheet with comparison

between past, present & projections

Form IV

Detailed information on current assets &

current liabilities

Form V

MPBF calculation

Form VI

Fund flow statement

MPBF
Maximum permissible bank finance based on
recommendation of Tandon Committee
2 Methods of calculation
Finance a maximum of 75% of the working capital gap
(WCG)

Ist method

Total current assets current liabilities other than

bank borrowings
Balance shall come out of long term funds
own funds and term borrowings
Minimum 25% of total current assets to come out of long

IInd method
Maximum funding = WCG 25% of total current assets

18

MPBF Calculation - Example

Current Liabilities:
Creditors : 200
Other CL : 100
Bank borrowings : 50
Ist method

19

Current Assets:
Raw materials : 600
Receivables : 110
Other CA : 30
IInd method

Special Situations for Assessment

Cyclical
Production/Sales

Seasonal Production & Seasonal Sales.

Normal & Peak Level requirements should be assessed separately.

Phased
Expansion
Program

Expansion may be on machine-by-machine basis

Assessment be done on peak level & DP be released on built up
current assets & liabilities.

Expansion with
Enhancement in
existing limits
Major Orders

Enhancement
during the year

20

Existing Business activity may also increase & also undergo

Separate assessment for expansion & existing activities to be done.
Major sale & purchases happen in bulk Orders ( not frequent).
Basic working capital need shall prevail.
Assessment to be done on order-to order basis.
There could be rise in current year sales.
Assessment to be done on current year performance & DP to be set

Term Loans

A loanfrom a financial institution, that hasa specified repayment schedule

anda fixed/floating interest rate.

Term loans generally have maturitybetween 1and10 years.

They are extended for the purpose of acquisition of fixed assets. viz., land,
building, plant and machinery for setting up of new industrial units or
expansion/modernization of existingunits

Bank normally finances up to 75% of the value of fixed assets and the
balance amount shall be brought by the applicant as margin.

21

However depending upon the activity and quantum of advance the

bank may either increase the margin or decrease the margin.

The repayment of term loan will be fixed based on the cash generation of
the unit and gestation period.

Suitable moratorium period will be allowed for repayment of the term loan.

Project report to be examined to determine viability & feasibility of the

project.

Key Financial Parameters

22

Total Current Assets

All assets with maturity less than one year

Total Current Liabilities

Total liabilities with maturity less than one year, including installments of term
liabilities / DPGs due within one year

Net Working Capital Gap

Total Current Assets Total Current Liabilities

Current Ratio

Total Current Assets / Total Current Liabilities

Working Capital Bank

Finance

Secured and unsecured working capital availed from the Banks (include, Bills
discounted / purchased, Cash Credit / WCDL, Demand loans, Export finance
etc.)

Tangible Networth (TNW)

Paid up share Capital + Reserves - Revaluation Reserves - Intangible assets

(patents, goodwill, prelim. Expenses, bad / doubtful expenses not provided for
etc.)

Adjusted TNW (ATNW)

TNW Exposure in subsidiaries/group by way of investments / loans &

advances

Long term debt (LTD)

Debt greater than one year (term loans, debentures, preference shares, DPGs,
other term liabilities) excluding installments due within one year

Short term debt (STD)

Debt due within one year (includes demand loans, unsecured loans etc.) but
excluding Working Capital Finance.

Total Debt

Short Term Debt + Long Term Debt + Working Capital Finance

TOL/TNW

(Total Current Liabilities + Total Term liabilities +Deferred Tax Liability) /TNW

Debtors Inventory Days

(Debtors + Inventory )*No. of working days(365) / TOI

Key Financial Parameters

23

EBIDTA

Minus ( Operating Expenses excl. Interest, Depreciation , &

Amortization )

EBIDTA/TOI %

EBIDTA / TOI ( Total Operating Income )

Operating Profit

EBIDTA Interest Depreciation

Non-operating income

Income not from normal course of business net of non-operating

expenses

PBT

Operating Profit Non Operating Income

PAT

PBT - Taxes ( incl. Deferred Tax )

Debt Service Coverage Ratio

{PAT+ Deferred Tax Provision + Depreciation + amortisation +

lease rentals + long term interest}/{Lease rentals + long term
interest + long term repayments }

Net Cash Accruals

PAT + Depreciation - Dividend + Non-cash charges+ Deferred Tax

Provision

Agenda
Introduction to Facilities
Introduction to Financial Statements
Introduction to Credit Assessment
Approval Authorization
SEG Program Overview

24

Financial Statements
The

Balance Sheet-A Snapshot in time

Portrays financial position by showing what the company owns
and what it owes at the report date

The

Income Statement-Motion picture

How a company performed during the period(s) and shows
whether the operations have resulted in a profit or loss

The

Statement of Cash Flows

Report on the companys cash movement during the period(s)
separating them by operating, investing and financing activities

Notes

to Accounts
Significant accounting policies and auditors qualification to the

accounts
25

Format of Balance Sheet

Sources of funds

Share Capital
Reserves & Surplus
Loan Funds
Secured Loans
Unsecured Loans
Application of funds

Fixed Assets
Investments
Net Current Assets
(Current Assets- Current Liabilities)
Miscellaneous Expenses not written off

26

Sources of funds - How financed ?

Share Capital
Equity
Preference

Fully Convertible Debentures

Reserves & Surplus

Retained Earnings

Share Premium
Loan Funds

Secured
Term Loans, Debentures
Hire Purchase,
Working Capital
Unsecured
Fixed Deposits, Trade Deposits, Term Loans

27

Application of funds - How done?

Fixed Assets

Working
Capital

Equity, Reserves, Term

loans, HP, Lease,
Debentures

NWC, Current liabilities, Bank

finance

Assets = Liabilities + Shareholders

Funds

28

Components of Balance Sheet

SHAREHOLDERS
FUNDS + TERM
LIABILITIES

CURRENT
LIABILITIES

29

FIXED
ASSETS

CURRENT
ASSETS

Components of Balance Sheet

Assets not intended for
sale but are used for
normal working of the
company

Land & Building

Plant & Machinery
Furniture, Fixtures
Gross Block
Less: Depreciation
Net Block

FIXED
ASSETS

30

Components of Balance Sheet

Assets that will

be turned into
cash within a year
from the balance
date in normal
course of
business

CURRENT
ASSETS

31

Inventories
Sundry Debtors
Short-term loans &
Advances
Cash & Cash Equivalent
Any other item due within
one year (pre-paid expense,
advance tax etc.)

Components of Balance Sheet

This represents
total interest of
shareholders and
long term lenders
in the company

Shareholders funds
Paid up share capital
Reserves and Surplus
Long Term Liabilities
Term loans
Debentures
Public Deposits

SHAREHOLDERS
FUNDS + TERM
LIABILITIES

Other long-term debt due

after one year
Quasi Equity

32

Components of Balance Sheet

Obligation due and payable
within twelve months

Bank Borrowings for

working capital
Sundry creditors
Interest accrued but not
due
Provisions
Long-term loan
installments due within one
year
Any other item due within
one year

CURRENT
LIABILITIES

33

Just What Does The Balance Sheet Show?

Capital or funds
required for day
to day activities is
known as
Working Capital

WORKING
CAPITAL

34

CA-CL
The amount of current
assets that is left if all
current liabilities are paidoff
Excess of Long-Term
sources over the long term
uses

Level of Liquidity
Current Ratio
Care

needs to be taken to establish the

Special
CURRENT
ASSETS

CURRENT
LIABILITIES

35

Why

attention to be paid to slow moving

take a Current Ratio of 1.33 ?

This ensures a minimum margin of 25% in

financing of current assets

Leverage
Total Outside Liability

{Current +Term} Liabilities

Tangible Networth

Equity+Reserves-Intangibles

This ratio indicates the extent to which the

company has leveraged its networth

Long Term Debt

Tangible Networth

36

Indicates the amount of long term

debt funds in the company vis-vis the TNW

Format of The Income Statement

INCOME
Sales & Services
Other Income
Inc./Dec. in stock
EXPENDITURE
Material consumed
Excise Duty
Salaries & wages
Other mfg. Expenses
Adm / Selling expense
OPERATING PROFIT
Interest
Depreciation
37

PROFIT BEFORE TAX

Provision for Tax
PROFIT AFTER TAX
Proposed Dividend
RETAINED EARNINGS

Analyzing The Income Statement

PBILDT
Net Sales
PAT
Net Sales
Dividend
PAT

38

GROSS PROFIT MARGINS: Reflects the

effectiveness in production and the capacity
of the company to generate higher output
from each unit of resource used.

NET
PROFIT
MARGINS:
Establishes
efficiencies across industries after factoring in
the funding cost, depreciation and tax shelters.

Indicates the extent of augmentation of Net

Working capital. Strong profits do NOT always
flow back into the business

Format of Statement of Cash Flows

Net Income
Adjustment for non-cash charges (depreciation, provisions, misc.
expenses written off etc.)
Adjustment for working capital changes (inventories, debtors, etc.)

Cash Flow from Operating activIties

Adjustment for investment activities (fixed assets, investments,
interest etc.)

Net Cash Flow from Investing activities

Adjustment for financing activities (borrowing, share issue etc..)

Net Cash Flow from Financing activities

39

Analysing The Statement of Cash Flows

Cash Generated
from Operations
Net Cash Accruals

40

Indicates ability of the

company to generate cash
from operations vis--vis
from investments and
other financing activities.

Watch These Notes

Description

of companys policies -

Depreciation,

amortization, consolidation,
transaction in foreign currencies, investments

Inventory

valuation methods

LIFO,

FIFO, average cost, asset impairment

Change

in accounting policies
Employment & Retirement plans
ESOPs
Details

of loans & advances, investments, contractual

commitments, off balance sheet risks
Contingent Liabilities
Potential or pending claims, lawsuits, etc.
Details

of Borrowings, provisions not made (over/under

statement of profits)

41

Agenda
Introduction to Facilities
Introduction to Financial Statements
Introduction to Credit Assessment
Approval Authorization
SEG Program Overview

42

5 Cs of Credit
Character
of
Borrower

Willingness to
Pay
Borrowers Risk-

Capital

bearing

Conduct of existing facility

Repayment track of loans
Promoters background/ vintage
Dedupe checks
Capital/Investment in Business
Personal Net worth

Commitment
Business of

Condition

borrower &
Industry Trend
Ability to pay,

Capacity

Cash Flow
Adequacy
Priority of

Collateral

Charge and
Value

43

Key ratios
Business model
Products dealt with
Cash Accruals from business
Growth trend in business
Operating margins
Marketability of collateral offered
Attachment to borrower
Legal title

Types of Risk
Industry Risk
Industry
characteristics
Competition within
industry
Industry financials

Business Risk

Financial Risk

Management Risk

Market position

Accounting quality

Transaction History

Operating efficiency

Past financials
Financial flexibility
Projections

44

Promoters
Background

Industry Risk
Industry
Characteristics

Competitive forces within

industry

Importance to

Extent of competition among

Economy/ Industry

domestic players

size
Growth Outlook

Threat of imports/substitutes/
unorganized sector
Technology Risk

Cyclicality
Entry Barriers
Government Policies

Bargaining power of
Buyers/suppliers
International Competitiveness

45

Industry
Financials
Operating Margins
Return on Capital
employed
Earning Stability
Industry
Characteristics

Business Risk
Industry Characteristics

Competitive forces within industry

Product Range : Consistency in Quality

Raw Materials availability import

Support service facilities

substitution, managing price volatility

customization
Promotion advertising expenses,
promotional ventures, availability of
finance & level of integration
Place of selling as regards distribution set
up, geographical diversity, long term
contracts
Price Flexibility, brand equity and
bargaining power with suppliers &
buyers

46

Manufacturing & Selling Costs High

capacity utilization, employee, energy
selling & technology costs, other locational
advantages.
Other factors availability of utilities,
adherence to environmental regulations,
vulnerability to event risks, working capital
management.

Financial Risk
Accounting
quality

Past financials

Financial
flexibility

Projections

Accounting

Earnings/ Operating

Ability to raise

Earnings/

Policy

Income

Interest Coverage
Off Balance Sheet
Liabilities

47

capital from
market

Ability of

Operating Income

Estimated DSCR

promoter / parent
TOL/TNW

group funding

TOL/TNW

ROCE

ROCE

Current Ratio

Current Ratio

Management Risk
Transaction History

Promoters Background

Track Record

Age

Conduct of account

Experience

Financial Conservatism

Management Succession

Attitude to Risk

Credibility

Payment record to Bankers /

institutions

48

Educational Qualification &

Corporate Governance

Dedupe Checks
CIBIL
CPCS
I-Score
Defaulters/

Caution List RBI, ECGC, IBA

BIFR
Internal

NPA cases/ stressed accounts

Watch out investors
Payment defaulters
Legal authorities High Court, Supreme Court
Google search

49

Wake Up!
High cash transactions not in line with industry
Group company transfers in account
Frequent shift in bankers/ auditors
Stagnant debtors/ creditors
Huge unsecured debt outside banking system
Huge Cheque returns Inward/ Outward
Alteration in documents
Political connections
Third party collateral

50

Wake Up!

51

Any Charges levied in the account

Many loan inquiries in CIBIL
No stock seen during site visit in case of trader /
manufacturer
Non-renewal/ delayed renewal of facility by existing
Banker
Any change in structure of facility by existing Banker
Borrower accepting to any kind of terms not beneficial to
him
Current year financial position with respect to ratios
improves drastically, with no explanation to support the
same
Customer intending to start a new line of business
Diversion of funds

Enablers
Site

Visit, discussion with the customer

Dedupe checks even on key debtors/ creditors
Validation of figures with supporting documents
Validate EMI payment (Debt) through bank
statement
Validate sales figure with VAT returns
Reference checks from existing customers in same

52

Familiarize Yourself - External

Reserve Bank of India:

53

MSME
Export credit
Loans and advances
Prudential norms
ECB & alike
Priority Sector

Company Law
Accounting standards
Partnership Act
Key sections of Direct Taxes & Indirect Taxes

Familiarize Yourself - Internal

54

Credit & Recovery Policy of the Bank

Credit Approval Authorisation (CAA)
Post Sanction Approval Authorisation (PAAM)
Mortgage instruction manual DMS
Documentation manual - DMS
Process notes E-circulars
Compliance checklist - Vcomply

Account Monitoring
Scope

Purpose

Key Aspects
Covered

55

Program Cases disbursed in last 6 months should be

monitored by the Policy & Risk analyst on monthly basis
Early warning for concern cases
Identifying & plugging process lapses
Reduction of delinquency
Takeover cases - disbursement in favour of other bank
Non/Low routing of transactions through ICICI
High cheque returns
High Cash withdrawals
Sister concern transfer
Transfer entries
Penal charges
Delay in payment of interest

Agenda
Introduction to Facilities
Introduction to Financial Statements
Introduction to Credit Assessment
Approval Authorization
SEG Program Overview

56

Credit and Recovery Policy

57

Key Restrictions Lending Activity

58

Bank would not fund following activities :

Advances to silver bullion dealer for speculative purpose
Finance against security of Bank's own share
Facilities to wilful defaulters appearing in the RBI wilful
defaulter list or to the list of terrorist individual
Sanctioning advance against Fixed deposit or other term
deposit of any other bank
Finance for setting up units in industries producing /
consuming ozone depleting substance
No guarantees or other equivalent commitments for
issuance of bonds or debt instrument of any kind

Key Guidelines

59

For all proposals minimum threshold rating of BBB is

mandatory (except Agri where BB is permitted)
Any proposal with credit rating is below BBB (BB in Agri
case) shall be put upto Credit Committee for approval
The maximum spread over I-Bar should not exceed 6%
In case borrower/ directors of the company are appearing in
the defaulters list, the justification for extension of facilities
should be included in the credit proposal.

3 Methods of Assessment
Turnover Method

For working capital limits upto Rs. 50.0 million

Finance upto 20% of the projected turnover

Cash Flow Gap Method

Working capital is based on cash flow projections

Acceptable current ratio (1.2 to 1.33)
Proper end use of funds

Working Capital Gap Method

60

Based on assessment of actual working capital

requirement (MPBF)

Credit Approval Authorisation

61

Key Guidelines

62

Power exercised by lower authority can be exercised by higher authority

Any deviation from standard terms and condition should be highlighted in
the approval note and the approval should be obtained from sanctioning
authority
If no deviations are highlighted standard terms and conditions shall be
deemed to be applicable
Proposal declined/deferred by any Committee/Forum/individual shall be put
up to the same approving authority for approval
Such proposals shall not be presented to any other Committee /
forum/individual either by reducing the limits or otherwise except with
the consent of original approving authority
For all credit facilities CAL shall be accepted within maximum period of 15
days and accepted CAL should be received within 22 days from the date of
CAL and not later than 2 months from the date of approval of facilities
Where accepted CAL is not received within stipulated time approval to
be validated by the Original sanctioning authority
Documentation of sanctioned facilities to be completed within
maximum period of 45 days from the date of CAL

Key Guidelines
Determination of Approving Authority for the proposal based on
exposure level would imply overall exposure of the bank on the
particular borrower and not the exposure related to particular
product.
Each working capital facility would be put up for renewal before the
expiry of the facility. Bank may consider for obtaining express
renewal of the proposal.
Express renewal would be taken in case of non availability of
financial statement / any other details for proper review or
when the limits have expired.
Express renewal can be granted only for regular working
capital facilities and not for ad hoc, short term facilities
Express renewal would be done at the existing level or with
reduction with existing terms for maximum period of 90 days.
Detailed renewal shall be done within stipulated period of 90
days.
The individual borrower proposal within SEG program with the
payment irregularity to the bank for a period in excess of 60 days
can be approved as detailed in para 1.7

63

Asset Review
Asset review is done for financial assistance other than
working capital facilities
Asset review to be done at least once in a financial year
For exposure above Rs. 0.5 million and up to Rs. 10.0 million
account wise review to be done at least half yearly by the
AGM / DGM and annually by GM
SEG exposure up to Rs. 0.20 billion - asset review can be done
by SEG 1
SEG exposure above Rs. 0.20 billion - asset review can
be done by COE

64

Delegation 5 Go No Go Norms

65

Have a minimum credit score on the scoring model as

specified in the respective programs. For programs which
do not have a scoring criteria the detailed criteria laid out
in the approval of these programs would be followed.
In addition to the above, the borrower should be an
existing entity with atleast one year of audited financial
statements. In some cases it could happen that the
borrowing entity does not meet the above norms, but the
promoters are willing to provide recourse to another entity
in the group through a guarantee from the stronger entity.
In such cases, the guarantor should meet the norms
pertaining to one year vintage and minimum score. The
credit evaluation and scoring of the guarantor in such
cases would be done after considering the additional debt
obligation of the borrowing entity.
The proposal should be in compliance with all regulatory
guidelines and the borrowing entity should not appear in
the RBI/ECGC list of defaulters.

Delegation

The borrowing entity should not have

restructured/settlement case with ICICI Bank.

been

1.7 Any credit/investment proposal relating to a borrower, rated A

or below, which is in default in payment of either simple interest
or principal or both or has any other outstanding payment
irregularity to the Bank for a period in excess of 60 days should
be referred to CRC for approval, subject to the following
exception:
Proposals for plain renewal with irregularity

between 60 to 90 days which can otherwise be

approved by SEG delegation upto SEG 2 can be
approved by SEG 1.

66

Officials who have been specifically assigned approval powers

through a memo approved by GCRMG can only approve the
proposals.

Post Sanction Approval Authorisation

67

Key Guidelines

All appraisals / notes / memos being put up for approval of any

authorised individual official / committee / forum are to be prenumbered. The number is to be obtained from CMOG / SPRG / RRPG
All memos originated from the Business Groups should mandatorily
indicate:

68

commitment number (in case of SYMBOLS) and the

outstanding assistance as on the date of the memo
credit rating
exposure
arrears position
status of insurance
status of security creation

Any power exercisable by an authority may be exercised by any

superior authority handling the relevant portfolio.

Key Guidelines

69

In case of a conflict in any provision of the PAAM with the Credit

Approval Authorisation / Credit and Recovery Policy of the bank /
regulatory guidelines or any subsequent amendment to any of
these documents, the Credit Approval Authorisation / Credit &
Recovery Policy / regulatory guidelines would override the PAAM
There is a requirement for review of the rating for certain postapproval proposals. This shall not be applicable to proposals
where rating was not a prerequisite for approval.
For post approval proposals for SEG cases approved under a
program without a credit rating, rescoring shall be carried out
by SPRG instead of rating of GCRMG.
Post approval matters other than those listed in this manual will
be approved by one Wholetime Director after obtaining preclearance for the memo from GCRMG.
For material amendments, GCRMG may take a view to refer a
particular case to the approving forum / committee or a lower
forum / committee, if necessary.

Key Approvals
Matters

70

which can be approved by SEG 1

Change in Inspection periodicity
Change in default rate of interest for excess drawing
Waiver of default interest for delayed creation of security
Increase in cover period of receivables in case of Working
capital assistance
Relaxation of any pre disbursement /pre commitment condition
other than pricing and security (Other than specified in PAA)
Extension of time period
for creation of security and
compliance with other conditions beyond period stipulated in
the approval
Allowing more time for submission of stock statement ( For
eg : 15th of every month instead of 7th )
Conversion of rupee loans to foreign currency loans or vice
versa

Key Approvals

71

Matters which can be approved by Sanctioning Authority:

Change in the purpose of assistance
Waiver of shortfall undertaking
Modification to escrow mechanism
Release of other security including primary security,
corporate guarantee, Personal guarantee etc
Waiver of Stock / receivables statement
Change in stock audit periodicity

Agenda
Introduction to Facilities
Introduction to Financial Statements
Introduction to Credit Assessment
Approval Authorization
SEG Program Overview

72

Enterprise Credit Program

Background &
Scope

Launched in Year 2004

Targets MSMEs with strong financials
Manufacturers, Traders and Service entities covered
Working capital finance, Term loans & trade finance provided

Facility

73

Appraisal

Appraisal based on:

Scorecard
Financial assessment
Collateral

Security

Collateral security ranging from 30% to 60% with charge on

current assets
Without charge on current assets min. 130% collateral

Scorecard
Scorecard

is broadly divided so as to cover the

Financial Risk Covers financial performance &

ratios
Management Risk Covers Promoters stability
Transaction History Covers existing / past
banking performance
Business Risk Covers the business model and
products dealt with

74

Assessment

Fund based working capital lower of :

20% of projected turnover
3 times ATNW

Non fund based limits:

LC based on raw material purchases, usance
period, lead period etc.
BG based on specific requirements

75

Key Points

76

Total borrowings/debt to sales including proposed limits not

to exceed 50%
Past Credit History of existing Banker to be seen by way of
ETR/GTR parameters
Minimum 12 months credit card swipes history.
The EDC machine should be installed and a letter shall be
obtained from the customer confirming that the machine is
in working state
Entity should not be in the negative list of profiles
Confirmation to be obtained from Merchant Acquiring
Group that there are no outstanding from ME on account of
Charge back/frauds

Retail Credit Lending Program

Background &
Scope

Facility

Appraisal

Security

77

Launched in Year 2011

Working capital finance, Term loans & trade finance provided

Fund based & non fund based facilities upto Rs.100.0 mn

Appraisal is based on Financial Strength of the Borrower

Assessment as per MPBF , Turnover Method , Cash flow gap

Minimum Collateral of 5 % for borrower under

Manufacturing /Trading /Service sector along with the
charge on the current assets and Personal guarantee of the
promoters.

Target Market Norms

Manufacturer

Trader

Service

Vintage

5 yrs

5 yrs

6 yrs

Association with
large customers

NA

No. of customers
contri > 5%

TOI

Rs. 100.0 mn

Rs. 100.0 mn

Rs. 200.0 mn

EBIDTA

4.0%

NA

NA

PAT

2.0%

1.0%

1.0%

TNW

Rs. 30.0 mn

Rs. 25.0 mn

Rs. 25.0 mn

TD/TNW

ICR

Collateral

10%

15%

15%

Deviations to these norms allowed as per policy

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Key Guidelines
No

fresh exposure to exporter of cut and polished

No

standalone derivative exposure to be

Deviation
Tenor

on cut off score of 65 to be approved by

of Term loan to be maximum 5 years

Borrower with proposed exposure of more than Rs.

79

Thank You

80